Assignment: Market Value (Pepsi Co)
Section 1
1. Use Reuters.com to find the following for your firm and its industry:
(** Reuters.com is free to subscribe, you just have to sign up ***)
a. Under Revenues and Earnings per Share, take note of the recent trend in EPS. Is it generally increasing, decreasing or going up and down? Does the most recent EPS seem particularly high or low compared to the past or fairly typical? You will use this information to answer Question 3.
b. Under Consensus Estimates Analysis, the LT Growth Rate (%) Mean - this the average of analysts' growth rate estimates for your firm for the next 5 years. Under Growth Rates, the EPS -5 year Growth Rate for your firm and industry - this is the average rate at which Earnings per Share has grown over the past five years. Also under Growth Rates, the EPS (TTM) vs 1 year ago (TTM) - this is the difference between the current EPS and last year's.
c. Under Valuation ratios, your firm's and the industry's P/E ratio (TTM), Beta, and Price to Book (MRQ).
d. From Reuters or your previous posts, your firm's and industry's Total Debt to Equity, Interest Coverage, Net Profit Margin, Total Asset Turnover, Return on Assets and Return on Equity. Please note that Reuters displays all of these rates and ratios as whole numbers, but most should be followed by a % sign. For example, if ROA (TTM) is shown as 16.17, it should be read as 16.17%. Beta, PE, Price to Book, Interest Coverage and Asset Turnover are shown as they should be read, so turnover of .59 indicates that the firm's assets turn over less than once per year while interest coverage of 23 indicates its operating income is 23 times larger than its interest expense, and a PE ratio of 14.48 indicates that its price per share is 14.48 times higher than its earnings per share.
Section 2
1. Summarize the strengths and weaknesses of your firm that you identified in previous posts. (please view PDF attachments to answer this question)
2. How does your firm's PE ratio and Price to Book ratio compare to those of firms in its industry?
3. Sometimes a firm's PE will be relatively high while its Price to Book is relatively low or vice-versa. If your firm's market value ratios disagree in this fashion, the cause is likely to be mathematical:
a. Firms that have very high or very low debt will tend have abnormally low or high (respectively) book values of equity because Assets = Liabilities + Equity. Since book value of equity is the denominator of the Price to Book ratio, a low book value from high debt will make the Price to Book look higher than it would be otherwise and vice versa.
b. Firms that experience an unusually high or low earnings year may have abnormally low or high (respectively) PE ratios. If the market does not believe that this year's earnings will be repeated, the stock price is unlikely to change much, so a bad earnings year can cause PE ratio to skyrocket, while a good earnings year may cause PE to fall - ironically - because earnings is in the denominator. Did the EPS results shown on Reuters suggest that the current EPS is unusually high or low?
Do your firm's market value ratios agree or disagree? If they disagree, which of the two reasons listed above do you think is the most likely reason? Explain. For the remainder of the post, focus on the ratio that seems to better reflect the value of your firm.
4. Market value ratios have stock price as the numerator and use some accounting measure to control for the effect of size, and we often read them as what the market is willing to pay for $1 of earnings (PE ratio), book value of equity (MB), sales (price to sales), or cash flow. The stock price should be the present value of the firm's cash flows as summarized by the dividend growth model. This suggests that three factors determine a given firm's stock price: 1) current cash flows, 2) the expected growth rate, and 3) the firm's risk and therefore its investors' required return. The profitability ratios give us an indication of the strength of current cash flows from investments. The growth rates indicate past and expected future growth. The firm's beta and its leverage and coverage ratios indicate how risky the firm is. If your firm's market value ratios are relatively high, it is likely that your firm has relatively high profitability and expected growth with relatively low risk. If your market value ratios are relatively low, one or more of those three factors is probably a weakness for your firm. Complete or reword the following sentence, filling in the blanks: (PEPSI) has a relatively market value. The factors that best explain its relative valuation are. To improve its market value the firm should focus on improving.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.
Attachment:- Investment-Report.rar