Strayer FIN534 assignment 6 financial management beta stocks apple and general motors

Homework Set #3: Chapters 6, 7, & 8

Due Week 6 and worth 100 points

Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link above.

A. Using the two stocks you selected from Homework #1, identify the Beta for each stock. In your own words, what conclusion can you draw from the stocks’ current and historical beta? If the stock market went up 10% today, what would be the impact on each of your stocks?

B. Using the 2014 financial statements from your stocks above and the equations from your textbook, prepare the Historical Average and Standard Deviation for each stock.

Here is assignment 1 : A stock exchange is an organized financial market where financial instruments such as bonds; stocks, options, notes etc. are traded. The stock exchanges are usually regulated by the appropriate governing body depending on the country in which the stock exchange is located in. The primary functions of a stock exchange are it acts as an intermediary between savers and investors (function of primary markets) and also provides a platform in which investors can dispose-off their securities thus enabling them to reduce risk and at the same maintain liquidity(function of secondary markets). In the United States; there are several stock exchanges but the two main ones which are the largest according to their capitalization are New York Stock Exchange and NASDAQ.

New York Stock Exchange (NYSE)

This is an America based auction market stock exchange that is located at 11 Wall Street, New york city. The stock exchange uses floor trades to facilitate its trading process. As mentioned earlier; NYSE is not only the largest stock Exchange in the United States but also across the world. The market capitalization of the companies listed here amounted to about US\$19.3 trillion as at June last year (a third of the total exchanges in the world as at last year). Intercontinental Exchange; a company listed at the NYSE owns the stock exchange and the company was founded in the year 1792.

NASDAQ Stock Exchange

NASDAQ Stock exchange; the second largest stock in both the United States and the word was founded in the year 1971 by the National Association of securities Dealers. The companies listed in the exchange have a market capitalization of about \$4687 billion as at mid last year. It is the world’s first electronic exchange .The exchange is owned by Nordic and has managed to list over 400 companies. Among the several companies listed at the exchange is The Wendy’s Company which is into the food and beverage industry.

-Both exchanges are located in the United states

-Both exchanges deal with equity exchanges and both assist in linking suppliers of funds to those that demand it.

NYSE is a physical market place which means that the securities are traded in a physical location. However for NASDAQ, securities are traded electronically on a virtual marketplace.

-NYSE is classified as an auction market while NASDAQ io the other hand is classified as a dealer market.

-NYSE relies on a specialist for trading decisions while NASDAQ on the other hand relies on market maker.

-NYSE’s trading hours are shorter (9.30 a.m. to 4.00 pm) while NASDAQ’s is between 7.00 am to 4.00 p.m.

-NYSE is owned by Intercontinental Exchange while NASDAQ is owned by National Association of Securities Dealers

CAH FLOW ANALYSIS

Free cash flows is a measure of a company’s performance that is usually arrived at by subtracting cash expenditures from the operating cash flows.

Free cash flows can be determined using the following formula:

Free cash flows = Total cash flow from operating activities – Capital expenditures

Apple, Inc.

2013 (in millions)

Free cash flows = \$53,666 – \$8,165 = \$45,501

2014 (in millions)

Free cash flows = \$59,713 – \$9,571 = \$50,142

Apple’s free cash flows have increased significantly from 2013 to 2014.

General Motors

2013

Free cash flows = \$12,630 – \$7,565 = \$5,065

2014

Free cash flows = \$10,058 – \$7,091 = 2,967

Unlike Apple, General Motor’s free cash flows decreased significantly as a result of the decrease in its cash flows from operating activities.

 Apple General Motors LIQUIDITY RATIOS 2014 2013 2014 2013 Current ratio Current assets 68,513 73,286 83,670 81,501 Divided by: Current liabilities 63,448 43,658 65,701 62,412 Working capital 1.08 1.679 1.273 1.306 Quick ratio Cash 13,844 14,259 18,954 20,021 Add: Accounts receivable 17,460 13,102 9,078 8,535 Divided by: Current liabilities 63,448 43,658 65,701 62,412 Quick ratio 0.493 0.627 0.427 0.458 ASSET MANAGEMENT RATIOS Receivables turnover Net sales 182,795 170,910 155,929 155,427 Divided by: Accounts receivable 17,460 13,102 9,078 8,535 Receivables turnover 10.469 13.045 17.177 18.211 Days’ receivables 365 days 365 365 365 365 Divided by: Receivables turnover 10.469 13.045 17.177 18.211 Days’ receivables 34.864 27.981 21.25 20.043 PROFITABILITY RATIOS Profit ratio Net income 39,510 37,037 4,018 5,331 Divided by: Net sales 182,795 170,910 155,929 155,427 Profit ratio 21.61% 21.67% 2.58% 3.43% Gross profit ratio Gross profit 70,537 64,304 1,530 5,131 Divided by: Net sales 182,795 170,910 155,929 155,427 Gross profit ratio 38.59% 37.62% 0.98% 3.30%

Apple’s gross profit ratio is increasing though its profit ratio decreased by a small percentage. General Motors on the other hand has very disappointing profitability ratios. It looks like the automobile company is barely making money from the cars it produces.

Both companies have very good asset management ratios with their days’ receivable at below 20 days.

Finally, the liquidity ratios of the two companies are almost at par. We can then say that both companies can easily pay for their current liabilities as they become due.

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