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Evaluating Companies for Prospects

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This is the 3rd part of post # 264114, and again the Company is TD Capital Trust

1. Find another company in the same industry as your chosen company. This company does not have to be trading on the Canadian Venture Exchange, but it should be a Canadian company that is listed. For the two companies, compare the following:
1. cash flow from operations (where and what do they get their asset cash flows from)
2. return on equity
3. debt to equity ratio
4. price to earnings ratio

Based on this information, which company's stock would you recommend for purchase, assuming a potential investor has come to you for advice? Why? If you recommend neither, be sure to back up this recommendation as well.

Be certain that you have evaluated the companies and their prospects in light of current economic conditions. Provide the name of this new company together with the Web site address (if useful).

This portion of your assignment should not exceed two pages—double-spaced, 1-inch margins, font no smaller than 12 pt. List your sources of information on a separate page.

2. The distant relative who provided your initial investment money has been reviewing you progress, and has decided to provide you with an additional $50,000. Three years from now, they want to receive the full $150,000 back; you can keep all the profits. If there are losses, they have said you can "work off the losses" by volunteering at the nearby community food bank and senior citizen help line.

a) Briefly outline your investment objectives for the additional money, as well as any changes you would recommend for the funds already invested. Again, provide justification for any purchases you will be making in order to expand and refine the portfolio.

b) Based on your economic analysis and projections you have made, estimate what the income will be from your portfolio over the next three years. Estimate as well the worth of the portfolio at that time. Provide justification for your estimates.

c) Review the financial plan you made in Assignment #1( back in post 264114, second question) and, based on what you anticipate will happen in the next three years, prepare an updated plan. Include estimated net worth and annual income statements, an analysis of life cycle, and a new or updated statement of short- and long-term goals. Do not forget that three years from now, your distant relative will also be giving you the income and capital gain from this portfolio.

This portion of the assignment should not exceed five pages—double-spaced, 1-inch margins, and font no smaller than 12 pt. List your sources of information on a separate page.

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The expert examines evaluating companies for prospects.

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Industry: Financial
Company 1: TD Capital (TSXP: TDD.M)
Company 2: Bank Mutual Corporation (NASDAQGS: BKMU)

The following table compares several key financial figures and ratios for TD Capital, a financial institution publicly traded in the Canadian Stock Exchange and Bank Mutual Corporation, another financial institution, but traded in the United States' NASDAQ.

2008 2007
Cash flow from operations 19,982 5,552 4,073 25,501
Cash flow from financing 51,398 -12,226 9,735 14,895
Cash flow from investing -70,913 80,618 -13,866 -46,907
Return on equity 12.10% 4.10% 18.58% 3.57%
Debt to equity ratio 16.78 7.70 18.72 7.13
Price to earnings ratio 9.00 32.97 12.14 34.10

Note: TD Capital's cash flow figures are in millions of Canadian dollars while that of Bank Mutual Corporation are in thousands of US dollars.

Based on the table above, specifically the cash flow figures for both companies for 2007 and 2008, TD Capital generated sufficient cash from its operating activities given that the cash flow from operations for 2007 and 2008 are both positives showing that the bank's operations are net provider of cash. This is also true for Bank Mutual Corporation - the only difference is that the level of cash flows provided by BKMU's operations is relatively low compared to the cash flows from other activities such as the bank's investing activities which provided about US $80 million compared to US $5.6 million provided by operations in 2008.

Moreover, BKMU's price to earnings, though ...

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