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Make recommendations: on the following two companies:
Pep Boys
O'Reilly Automotive Inc
From an investor's perspective of whether one should buy/sell/remain neutral on both stocks.
From a lender's perspective of whether or not a short-term and/or long-term loan should be made to either company.
From a manager's perspective of what is right and/or wrong with both companies and specific suggestions for improvement.
Frame your argument in terms of efficiency, cash flow, profitability and the managerial effectiveness.
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Solution Summary
Make recommendations: on the following two companies:
Pep Boys
O'Reilly Automotive Inc
From an investor's perspective of whether one should buy/sell/remain neutral on both stocks.
From a lender's perspective of whether or not a short-term and/or long-term loan should be made to either company.
From a manager's perspective of what is right and/or wrong with both companies and specific suggestions for improvement.
Frame your argument in terms of efficiency, cash flow, profitability and the managerial effectiveness.
Solution Preview
Let's take a look at O'Reilly Autos first, for your discussion.
Their stock is trading high, which is promising for investors. Investors want to see stocks trading high because part of the stock price indicates current demand for the stock and company profitability. O'Reilly stock (ORLY) is trading at $84.95 per share, and their previous close was at $84.62 per share. They're at $4.33 earnings per share. When doing a brief balance sheet analysis, the first area that is apparent is that from 2010 to 2011, their cash increased substantially. They went from 29,721 (all numbers in thousands) to 361,552. Other current assets also increased, which is a positive indicator. On the liabilities side, A/P increased, which is likely attributed to an increase in sales and the need for a higher quantity of materials. We see a substantial increase in long-term debt, which could be a concern to creditors looking to extend additiona/ credit to the company.
The company's sales have increased continually over the last three year period, which is also attributing to their high stock price. We see a coordinating increase in net income. From their financing activities, we see that there was a change of 795,963 received from the issuance of long-term debt, which accounts for a portion of their high cash balance. The cash account increased higher than sales, which shows they're receiving cash from elsewhere, which we can now attribute to long-term debt, as per their balance sheet liabilities and financing activities from the statement of cash flows. This has created a net increase in cash from 2,786 in 2010 to 331,831 in 2011.
Let's look at Pep Boys. ...
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