Choose 10 firms that interest you and download their financial statements from any of these Web sites:

Question:

Choose 10 firms that interest you and download their financial statements from any of these Web sites: finance.yahoo.com, finance.google.com, or money.msn.com.

a. For each firm, find the return on equity (ROE), the number of shares outstanding, the dividends per share, and the net income. Record them in a spreadsheet.

b. Calculate the total amount of dividends paid (Dividends per share × Number of shares outstanding), the dividend payout ratio (Total dividends paid/Net income), and the plowback ratio (1 − Dividend payout ratio).

c. Compute the sustainable growth rate, g = b × ROE, where b equals the plowback ratio.

d. Plot the P/E ratios of the firms against the growth rates in a scatter diagram. Is there a relationship between the two?

e. Plot the price-to-book ratios against the price-earnings ratio for your sample of firms. Are the two variables correlated? What about price-to-sales versus price-earnings?

f. For each firm, compare the 3-year growth rate of earnings per share with the growth rate you calculated above. Is the actual rate of earnings growth correlated with the sustainable growth rate you calculated?

Step by Step Answer:

Related Book For  book-img-for-question

ISE Investments

ISBN: 9781260571158

12th International Edition

Authors: Zvi Bodie, Alex Kane, Alan Marcus

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