Finance Team Presentation Guidelines: Business Case 1
Finance Team Presentation Guidelines: Business Case 1 (PowerPoint Presentation required to be delivered by each team)
Choose two publicly traded firms that issue dividends, both in the same industry, and perform the following evaluation: The companies selected are HP and Dell. Identify the financial ratios for each firm using the ratios in Table 3.8, Chapter 3 of the textbook, categorizing the ratios as liquidity, long-term solvency, asset management, profitability, and market value. Create an Excel model to calculate these ratios. Then, compare the performance of the firms based on these ratios and provide a commentary on which firm performs best in each of the five categories.
Develop an Excel model, an executive summary, and a PowerPoint presentation. Using the dividend growth model and the compound average growth of the dividend over the past 5 years (if available), determine the calculated stock price of each firm and compare it to the current stock price using an Excel model. Additionally, explain why the actual stock price may be higher or lower than the calculated value, referencing current information about the firms, market conditions, and the economy. This explanation should be included in the executive summary and the PowerPoint presentation.
You may utilize Yahoo Finance or a similar site to gather necessary data. Prepare for an 8-10 minute presentation followed by 2-3 minutes for questions. Refer to the syllabus for additional details regarding the presentation requirements.
Paper For Above instruction
The objective of this analysis is to compare two leading firms within the technology industry—HP and Dell—by evaluating their financial health through key financial ratios, dividend growth models, and contextual market considerations. This comprehensive assessment involves quantitative analysis using financial data, qualitative insights on market conditions, and strategic considerations impacting stock valuation.
Financial Ratio Analysis:
The first step involves calculating key financial ratios for HP and Dell, categorized into liquidity, long-term solvency, asset management, profitability, and market value. For liquidity, ratios such as the current ratio and quick ratio gauge the firms’ ability to meet short-term liabilities, which is crucial in maintaining operational stability. Long-term solvency ratios like debt-to-equity and interest coverage ratio assess how well each firm manages leverage and debt obligations. Asset management ratios, including inventory turnover and receivables turnover, reflect operational efficiency in managing assets. Profitability ratios, such as return on assets (ROA) and return on equity (ROE), evaluate how effectively the firms generate earnings from their assets and shareholders’ equity. Market value ratios, including earnings per share (EPS) and price-to-earnings (P/E) ratio, provide insights into investor valuation and market perceptions of the firms’ growth prospects (Brigham & Ehrhardt, 2016).
Performance Comparison:
By analyzing these ratios, we can compare the financial health and operational efficiency of HP and Dell. For example, a higher current ratio indicates better liquidity, while a higher ROE suggests more effective utilization of equity capital. The analysis aims to identify which firm demonstrates superior performance in each category. An overall evaluation may reveal strengths in operational efficiency, balance sheet stability, or market valuation, offering a nuanced understanding of their competitive positioning within the industry.
Dividend Growth and Stock Valuation:
Using data from Yahoo Finance, the dividend payments over the past five years are examined to calculate the compound annual growth rate (CAGR). This rate, combined with the latest dividend figure, feeds into the dividend growth model (Gordon Growth Model) to estimate the intrinsic stock value for each company. This valuation is then compared to current market prices to identify potential overvaluation or undervaluation (Damodaran, 2012). The formula applied is:
\[
P = \frac{D_1}{r - g}
\]
where \(D_1\) is the expected dividend next year, \(r\) is the required rate of return, and \(g\) is the dividend growth rate.
Market Price versus Intrinsic Value:
Differences between the calculated intrinsic value and current stock prices are analyzed in the context of market conditions and the economic environment. Factors such as macroeconomic trends, industry outlook, company-specific news, and broader market sentiment influence stock prices. For instance, positive earnings surprises, technological innovations, or macroeconomic expansions can drive prices above intrinsic value, while economic downturns or company-specific challenges may depress prices below.
Conclusion:
This multi-faceted evaluation enables a thorough understanding of HP and Dell’s financial health and market valuation. The combination of ratio analysis, dividend growth modeling, and contextual analysis helps investors and stakeholders assess the financial stability, growth potential, and market perceptions of these firms within the technology sector. Strategic insights gained from this analysis can inform investment decisions and corporate strategic planning.
References:
Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice (15th ed.). Cengage Learning.
Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset. John Wiley & Sons.
Yahoo Finance. (n.d.). HP Inc. stock data. Retrieved from https://finance.yahoo.com/quote/HPQ/
Yahoo Finance. (n.d.). Dell Technologies stock data. Retrieved from https://finance.yahoo.com/quote/DELL/
Ross, S. A., Westerfield, R., & Jaffe, J. (2016). Corporate Finance (11th ed.). McGraw-Hill Education.
Higgins, R. C. (2012). Analysis for Financial Management (10th ed.). McGraw-Hill Education.
Koller, T., Goedhart, M., & Wessels, D. (2010). Valuation: Measuring and managing the value of companies. Wiley.
Penman, S. H. (2012). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements. Wiley.
Weston, J. F., & Brigham, E. F. (1975). Managerial Finance. Hinsdale, IL: Dryden Press.