Annual Report: Company Analysis
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1. Choose a company that is listed on the TSX - link to the site - http://www.tmx.com/. The company that you choose should be paying dividends (You will need the dividend information to calculate the stock value with the Dividend Growth Model).
2.Download the Annual Report and calculate the following financial ratios:
- Share Ratios: Earnings per share, P/E ratio, Dividend Yield.
- Profitability Ratios: Gross Profit Margin, Return on Assets, Return on Equity.
- Asset Utilization Ratios: Receivable Turnover, Average Collection Period, Inventory Turnover.
- Liquidity Ratios: Net Working Capital.
- Debt Utilization Ratios: Debt to Equity.
3. Using the historical data on dividends paid, calculate the share value using the Dividend Growth model. Does your answer correspond to the actual market price of the share? Why or why not?
4. Research the Beta value and using the CAPM (Capital Asset Pricing Model) calculate the value of a share. Does this value correspond to the market price? Why or Why not?
5. Which of the two methods is a more accurate estimation of the share value? Explain.
6. Using the cost of equity and the cost of debt, calculate the "Weighted Average Cost of Capital" (WACC). You will also have to decide on what to use as the risk free rate. Explain the steps you took and the numbers you used to calculate this value.
7. How does the WACC impact investment choices for your company?
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The solution provides an annual report with a company analysis.
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1. Choose a company that is listed on the TSX - link to the site - http://www.tmx.com/. The company that you choose should be paying dividends (You will need dividend information to calculate the stock value with the Dividend Growth Model).
- The selected company is the Canadian Tire Corporation.
2. View attachment.
3. According to MSN, Canadian Tire;s growth rate is 11.26 (The information was obtained at http://ca.moneycentral.msn.com/investor/invsub/results/compare.asp?Symbol=CA%3Actc.a).
Current Dividend = 1.125
Growth Dividend Rate = 11.26
Required Rate of Return = 13%
(current dividend x (1 + dividend growth)) / (required return - dividend growth) = (1.125 x (1 + 0.1126))/(0.13 - 0.1126) = 1.13766/0.0174 = $65.38
The current stock price is $75.50.
No, the answer doesn't correspond to the current stock ...
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