NIKE INC
This Photo by Unknown Author is licensed under CC BY-NC
FINANCIAL LEVERAGE RATIOS
Debt-toassets ratio
2020
2021
2022
2.27
1.61
1.60
•
Between the last three years the company’s debt-to-assets ratio
has been going down it went from 2.27 in 2020 and then in
2022 it went down to 1.60 lowering the company debt.
* since 2018 the companies interest coverage ratio has been
high, in 2018 it was 20.12 and now in 2022 it is at 23.24,
which is a good thing for the company
Interest
converge
ratio
20.12
23.50
23.24
The company’s debt to equity also been dropping in numbers
making the company less than a risk to shareholders. In the past three
years 2018 was at 1.20 but now in 2022 is has gone down to 0.62.
Debt to
equity ratio
1.20
0.74
0.62
This Photo by Unknown Author is licensed under CC BY-SA-NC
BONDS PERFORMANCE
ISIN
US654106AJ22
Name
NIKE INC 20/27
Country
USA
Issuance
Issuer
Issuer
Industry
Market
Subsegment
Minimum investment amount
Listing unit
Issue date
Issue volume
Circulating volume
Issue currency
Portfolio currency
First trading day
Maturity
Extraordinary cancellation type
Extraordinary cancellation date
Bond 1.
NIKE Inc.
Currency bonds
Open Market
2,000
Percent
21/10/2016
1,000,000,000
1,000,000,000
USD
USD
20/10/2016
01/11/2026
Call option
Issue Volume
Currency
NIKE Inc.
1,000,000,000
Bond 2
USD
Issue Price
99.99
Issue Date
3/27/2020
Coupon
Coupon
Denomination
2.750%
1000
Quotation Type
Payment Type
regular interest
Special Coupon Type
Maturity Date
3/27/2027
Coupon Payment Date
3/27/2023
Payment Frequency
No. of Payments per Year
2.0
Coupon Start Date
9/27/2020
Final Coupon Date
3/26/2027
Floater?
No
Bond-99.86
Coupon rate- 2.375%
Current Yield- 1.15
Yield to mantuary- 3/27/2027
STOCK PERFORMANCE
NIKE
ADIDAS
2019
2020
2021
2019
2020
2021
Price/Earnings ratio
29.0
35.5
62.9
31.1
117.1
32.9
Market/Book ratio
2.86
1.6
3.56
8.0
8.9
6.3
Earnings per share
2.86
1.77
3.79
5.6
1.26
5.6
Dividends per share
.25
.28
.34
1.88
1.69
1.83
Quick Ratio
1.23
1.98
2.33
0.78
0.88
1.11
STOCK PERFORMANCES
• Nike’s stock performance has been going up and down through these past three years with Adidas
being the main competitor.
• Looking at the Market/Book ratio Adidas has been higher than the company
• in 2020 the company went up to .28 while Adidas went down a little to 1.69 not a big difference
from 2019
• For the last 3 years the company Quick ratio has had higher numbers then Adidas.
• . For 2021 the company made a jump to 2.33 and Adidas had a little jump going up to 1.11. but this
shows that for the past three years Nike has had higher numbers with the Quick ratio.
RECOMMENDATION
WORK ON THE STOCK PERFORMANCE,
FOR EXAMPLE THE DEVEINED PER SHARE
BECAUSE IT WILL KEEP THE COMPANY
PROFITABLE FOR YEARS TO COME
ANOTHER ON IS THE PRICE/EARNINGS
RATIO BECAUSE IT WILL KEEP THE SHARE
PRICES DO NOT GO UP AT A HIGH
AMOUNT.
* DO A COMPANY WIDE WORKSHOP’S
TO DEAL WITH THE COMPANY NEW
RULES AND POLICY‘S.
Week 8 Discussion
Stephanie Mull
UMGC FINC 330 7385
Financial Leverage
Financial Leverage
• Pepsico has a relatively high debt-to-equity ration where, over time, the company has
held $4-6 of debt for every dollar of equity (Pysh, n.d.).
• Pepsico is large manufacturing operation that is heavy on fixed assets, they are likely
to use debt to finance large capital projects
• Debt-to-equity ratio was steady from 2018 into 2019, then spiked in 2020, but
decrease again in 2021
• Likely that some large investments were made in 2020 in response to the volume
increases fueled by the COVID 19 pandemic
• Based on the ICR, Pepsico has plenty of profit to cover its outstanding debts
• Pepsico appears to utilize debt to finance large purchases as a choice, rather than a
need, as it appears they have plenty to cover that debt should the need arise and
would ultimately be considered a low risk investment
Bond Performance
Bond Performance
• I would most likely choose bond PEP.LB due to its higher coupon and yield rates
• Initial price is only about $350 higher but you get double the annual interest payments
• You would make the initial investment difference back in about 6 years and still have about 23 years of continued
higher payments until the bond actually matured
• These bonds are both callable but this would not affect my decision to purchase them. Callable bonds tend to have
higher interest rates so in the end, I would imagine that you would end up netting the same if you were purchasing
multiple bonds whether they be callable or not
• This would be safe bond to purchase. They have seen consistent growth year over year in overall sales and gross
income and profit margin has remained relatively steady. In addition, their A+ S&P rating supports their status
as a low-risk purchase (Pysh, n.d.).
• I would most likely avoid investing in bonds at this time and would more likely direct my investments toward
stocks
• I would be concerned about purchasing a bond now and having interest rates raised even further which could
devalue the bond I purchased when rates were lower (“Bond Valuation,” n.d.).
Stock Performance
Stock Performance
• Pepsico has had consistent growth over in all areas over the past 3 years
• Pepsico is providing more value year over year to their stockholders (“Stock Valuation, n.d.).
• Main differences when comparing Pepsico to Coca-Cola are Earnings per Share and Dividends per share. In 2021,
Pepsico only generated earnings per share of 7.23, while Coca-Cola generated 25.70
• Coca-Cola generates more net income per share (“Stock Valuation, n.d.).
• Pepsico could affect this number to increase it by either generating more net income or reducing the number of
shares (“Stock Valuation, n.d.).
• Pepsico, however, tends to pay out more in dividends to their shareholders year over year then Coca-Cola.
• Pepsico has been steadily increasing their payouts. If a shareholder was looking for dividend payouts as a primary
factor in deciding to purchase stock, Pepsico would be he better choice in this scenario (“Stock Valuation, n.d.).
• Based on the P/E ratio alone, as Pepsico and Coca-Cola have very similar values, I would say that Pepsico is priced
accordingly for the industry.
• If you were to draw a straight line through all the peaks and all the valleys, you will still see a consistent upward
trend which, coupled with financial performance, shows steady growth over time.
Recommendation
• Pepsico is in a great position financially, is highly rated as low risk, and has solid
dividend payouts to their investors
• Their stock value, EPS, and dividend payouts have increased steadily showing this to be
a safe investment
• Although debt ratios are a bit on the high side, interest coverage ratios show us that
Pepsico is able to cover their debts easily and are most likely taking on debt to cover
large capital projects to avoid an excessive outlay of cash
• Overall, this is a very safe company to invest in and would most likely see a healthy
payout if purchased stocks are held long enough to see a significant return
Conclusion
• I do not currently actively invest in the stocks or bonds other than my 401k
which is managed for me by a company
• I would like to get more involved in investing as I know it’s a great way to
build wealth
• Having this increased financial knowledge gives me more confidence as I
start an investment journey
References
“Bond Valuation.” (n.d.). Chapter 6: Bond Valuation. Finance by Boundless. Retrieved from
https://leocontent.umgc.edu/content/dam/equella-content/finc331/Chapter6BondValuation.pdf?ou=712872
Braker, Kevin, Lin, Fang, & Pursley, Jennifer. (n.d.). Chapter 2: Financial Statement Analysis.
Business Finance Essentials. Retrieved from https://leocontent.umgc.edu/content/dam/equellacontent/finc330/Financial%20Statement%20Analysis.pdf?ou=712872
Braker, Kevin, Lin, Fang, & Pursley, Jennifer. (n.d.). Chapter 4: Valuation and Bond Analysis.
Business Finance Essentials. Retrieved from
https://leocontent.umgc.edu/content/dam/equella-content/finc330/Valuation_and_Bond_Analysis.pdf?ou=712872
Maverick, J.B. (April 18, 2021). Interest Coverage Ratio (ICR): What’s Considered a Good
Number? Investopedia. https://www.investopedia.com/ask/answers/121814/what-good-interest-coverage-ratio.asp
Pysh, Preston. (n.d.). Warren Buffets 1st Rule – What is the Current Ratio and the Debt to Equity
Ratio. YouTube. https://www.youtube.com/watch?v=2ngO4jtyGlk&list=UULTdCY-fNXc1GqzIuflK-OQ
Pysh, Preston. (n.d.). What is the S&P Rating? YouTube.
“Stock Valuation.” (n.d.). Chapter 7: Stock Valuation. Finance by Boundless. Retrieved from
https://leocontent.umgc.edu/content/dam/equella-content/finc330/Chapter7StockValuation.pdf?ou=712872
www.marketwatch.com
www.morningstar.com
Bond and Stock Performance Analysis of
Apple Inc. AAPL
Victoria Pulliam
Business Administration Student, UMGC
FINC 330 7385 Business Finance (2228)
Professor Mills
November 29, 2022
Financial leverage ratios
Figure 1
Debt-to-
2018
2019
2020
2021
70.70%
73.27%
79.83%
82.03%
0.87
1.01
1.51
1.73
1.56 to 1
1.77 to 1
1.72 to 1
2.51 to 1
assets ratio
Debt-to
Equity
Ratio
Interest
Coverage
Ratio
Analysis of Financial Ratios
According to the debt-to-assets ratio, more than half of funding for capital investments is sourced from
creditors. About 80% of the assets held by Apple Inc. have been financially leveraged against creditors
for the past couple years and a couple more years prior to that it was roughly at 70% (Figure 1).
Roughly 20% of the assets are bankrolled from the shareholders’ equity. This ratio is rather high, but
the type of industry in which the business operates as must be accounted for when looking at these
numbers. Majority of this income is based off its electronic inventory sales. Therefore, it is important
to understand that a large portion of short-term debt is put to production and the development of
inventory. Once the product is sold, financial risk is minimized.
The debt-to-equity ratio ranges between 0.87-1.73 over the past 4 years (Figure 1). A 1:1 ratio would
be the most ideal and this would mean that the investors owe nothing to the creditors. However, it is
important to note that strategic investments are worth the risk for creditors to own slightly more
assets and grow the business. When it comes to Apple, the company should not increase the debt-toequity ratio any higher or creditors will own the majority of assets and shareholders will become
more hesitant to invest.
The debt-to-equity ratio reveals how vulnerable a company is by indicating how much capital
funding is sourced from creditors. It is important to keep in mind that if the ratio ranges above 1 and
below 2, then risk is sustainable. The last section of Figure 1 is the interest coverage ratio, and this
indicates a company’s ability to earn revenue and repay debt and interest incurred.
Reliable cash inflows provide a source for debt allocation, yet a
lack of earnings will increase the risk associated with
bankruptcy. The financial structure of a business is therefore
negatively impacted if debts cannot be repaid. Looking at
Figure 1 for year 2021, AAPL proved that an increase of sales
can minimize risk; resulting in a 2.51 interest coverage ratio,
indicating that debt can be repaid.
Bond Ratio Analysis
1.
Assume par value of the bond is $1,000. Investor will pay for bond
purchased at the Price listed in the Last Sale column.
Bond Performance
Figure 2
Bond AAPL5455692
Note. From Finra. (2022, November 29). Bond detail. FINRA. https://finramarkets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C1046616
Par Value =$1,000
Price per each $100 par value
Selling Price =$93.34
Issuer Name
Symbol
Callabl
Sub-
e
Product
Coupon
Maturity
Ratings-
Ratings-
Last
Last
Moody’s
S&P
Sale-
Sale-
Price
Yield
Type
Apple, Inc
AAPL5455692
Yes
Corporat
3.250
e Bond
Apple, inc FINL
SVCS CORP
POWERNOTES BO
AAPL5455693
Yes
Corporat
e Bond
08/08/202
Aaa
A
93.34
4.410%
Aaa
n/a
91.48
4.441%
1,000/100=10
10*93.34=933.4
$933.40=Total amount investor will pay for the bond purchased
9
3.350
08/08/203
2
Bond AAPL5455693
Par Value =$1,000
Price per each $100 par value
Selling Price =$91.48
1,000/100=10
10*91.48 =914.8
$914.80=Total amount investor will pay for the bond purchased
Assume par value of the bond is $1,000. Calculate the annual coupon interest payments.
Assume par value of the bond is $1,000. Calculate the
Bond AAPL5455692
current yield of the bonds.
1000*0.03250=$32.50 annual coupon interest payments
Bond AAPL5455692
Selling price=$93.34
Bond AAPL5455693
1000*0.0335=$33.50 annual coupon interest payments
1000*0.03250=$32.50 annual coupon interest
payments
32.50/93.34=0.3482
34.82%= Current Yield of bond
Bond AAPL5455693
How much is the YTM listed in quotations of the bonds (in the Last Sale column – Yield)
Selling Price=$91.48
1000*0.0335=$33.50 annual coupon interest
Bond AAPL5455692
YTM listed4.410
Bond AAPL5455693
YTM listed 4.441
payments
33.50/91.48=0.3662
36.62%= Current Yield of bond
Bond Analysis
Although both bonds are similar, based on the data bond AAPL5455692is the best option for investors with minimal risk and high reward. Usually if the bond being noncallable it would be the primary factor of consideration. However, with both bonds being callable one will notice that there is a slight elevation of potential reward,
but there is an increased risk of financial loss if the bond is called early by the company. Originally, the data (figure 2) suggests that the callable bond would have an
additional 4.410% yield to maturity. When it comes to the decision for most investors it would be to safeguard their capital and seek only bonds in which are noncallable bonds.
Apple, Inc look as though it is a reliable company, and can repay debt and earning revenue. Currently, the investment grade is of high-quality bonds representing a
Moody’s rating of aaa (Figure 2). Strong financial liquidity is supported by the 2021 current ratio of 1.46 (Morningstar, 2022). The current ratio signifies that the company
is managed efficiently, maintains cash value, and the assets outweigh liabilities. Financial health is crucial for investment, and the 2021 debt-to-equity ratio presents an
ideal 1.73 statistic (Figure 1). AAPL is able to hold enough debt to creditors in order to grow the business without over leveraging the company which then maintains
solvency. In order to keep a competitive advantage within the chosen market industry, a fair valuation of price-to-earnings ratio is required In order to prove steady
growth and improvement. In 2021, top competitor Samsung Electronics produced a P/E of 11.90 while Apple Inc. P/E ratio was 31.65 (Figure 3 & 4). This data proves
that Apple Inc. is overvalued in the market and is consistently reinvesting in order to produce the growth it is sustaining. Finally, the biggest enticement for investment
results from a 147.44 ROE ratio in 2021(Morningstar, 2022). Profitability and the return on investments are proof that strategic business skills are being utilized in order to
pursue smart goals: strategic, measureable, achievable, relevant, and time bound.
Stock Performance
Figure 3
Samsung Electronics Co. Ltd
2021
Price/Earnings Ratio
11.90
Market/Book Ratio
1.58
Earnings per share
11.30
Dividends per share
1444.00
Return on Equity
13.92
Figure 4
AAPL – Apple Inc.
2019
2020
2021
Price/Earnings Ratio
24.70
40.45
31.65
Market/Book Ratio
19.67
28.83
28.78
Earnings per share
2.99
3.31
5.67
Dividends per share
0.76
0.81
0.87
Return on Equity
55.92
73.69
147.44
Analysis of Market Ratios
For the analysis of the Market Rations a person can note that the, per earnings represents the value of a stock in the marketplace. The purpose is that the investors aim to find companies that are fairly valued with growth
potential. The Low P/E ratios typically create worry in the shareholders’ mind where a lack of earnings corresponds to a lack of growth. AAPL P/E and SSNLF are higher than the market expectations in 2021 with ratios
close to 30 (Figure 3&4). Therefore, a conclusion can be drawn that both companies are overvalued. This midline number is not the most ideal because it indicates that the companies are growing, but possibly too fast. These
extreme growth rates can scare off possible future investors due to it having high risk and high debt. When an investor goes into review and analyze the market/book value, the return on equity ratio should also be
acknowledged upon its review. ROE tells the people the amount of future growth and this also reflects in the market value of a company. However, the book value can be different because it will at times retrace historical
records in order to predict fluctuations. Knowing this information, the market/book ratio proved to be stable and productive for AAPL over the past 3 years. Numbers ranging from 19.67 in 2019 and then a steady ration of 28
for the next couple years post covid can help provide the investor encouragement that the company remains rather steady in its growth cycle. One of the top competitors, SSNLF is a tricky one for investors or people
researching its stocks as it is a foreign.
However, upon research SSNLF also maintains a ratio, but much smaller and is that of 1.58 in the year 2021 which for this stock is considered productive and innovative (Figure 3&4). Productivity is essential to provide the
business earnings which are eventually distributed to the shareholders of the company. The common stock shareholders are able to benefit from the earnings per share ratio. The revenue earned through business operations is
calculated against the total number of shares outstanding. The EPS for SSNLF displays a significant 6.37 lead over AAPL in 2021 which can be attributed to higher profits and an increase in earnings for investors (Figure
3&4). Determining if the common stockholders earned adequate return on their investment in AAPL would have to involve two approaches. First, growth over time would indicate for positive future earnings. In comparison
to 2020, the common stockholders did receive a significant increase. However, if the earnings per share are compared to SSNLF, then one may say there was an inadequate return on investment. In reference to the dividends
per share ratio, preferred stock owners also benefited from dividends earned per share at SSNLF. than AAPL in 2021. The stockholders of AAPL earned a ratio of 0.87 versus the SSNLF ratio of 1444.00 (Figure 3&4). All of
the stockholders are earning capital from SSNLF revenue; therefore, the investors are going to buy that stock if so desired
.
Historical Stock Price Data
AAPL Stock Price Trends (2021)
SSNLF Stock Price Trends Comparison 2021
Figure 5
Figure 6
Analysis of Historical Stock Prices
After reviewing the stock price data from December 2020 to 2021, Apple Co. maintains a higher stock price over Samsung Electronics Co Ltd. However, it is important to keep in mind that SSNLF do stocks differently as it is
based in Korea. According to the graph at the beginning of the year, it’s important to note that businesses were in the process of trying to recover and come back from the COVID 19 pandemic. Because of the recovering stages
of these businesses, it resulted in low stock prices. AAPL’s lowest point was in February at a price of 120.99 (Figure 5), but the market began to increase in the following months. As the year progressed, AAPL was able to
double their price by mid-July. Based on the graph itself AAPL stayed above SSNLF the whole year. Due to Samsung’s stocks being Korean based it results in a 0.00% graph stock price trend. Although SSNLF is typically a
high competitor with AAPL when it comes to having price trend comparisons. Whenever the growth becomes accelerated in comparison to the normal capital structure, then the market will typically respond with an increase of
stock price. This value is usually based upon how fast the company is growing as well as the expected earnings. However, it is important to note that the stock price does not reveal how much the business is financially leveraged
with liabilities and the ratio of debt from creditors. SSNLF could maintain a higher stock price than 0.00%, but due to the company being a foreign stock based in South Korea the Morning Star data will not show the stock price
trend setting as it does not relate to Americas stock exchange. With this in mind, a large investment could entice shareholders to buy additional stock and reap the rewards of additional dividends earned. As an investor, AAPL
seems to be the most logical investment for minimized risk and financial health instead of SSNLF. Having to understand the South Koreans Stock exchange can come with unbeknownst risks to investors, meaning AAPL will
remain a top competitor in the market, as SSNLF will have to be further researched by other investors, so it remains reasonable to suggest buying more AAPL stocks at a lower price than SSNLF.
Recommendation
To improve shareholder wealth, an increase of revenue will have to be required.
Achieving additional net profit margin after operational expenses are deducted is no
small task. Therefore, AAPL should sell any of its additional bonds in order to
accumulate capital for a capital project in electronics. If AAPL is able to obtain a
competitive advantage within the market and grow the company, then the stock price
can see an increase and thus resulting in shareholders earning higher dividends. For
help funding this new project, older assets of inventory must be sold. Once the
technologically advanced product is available, then that is when the older version will
cease production and start to become obsolete. The enhanced electronics will then
take priority for its immediate production and its capital funding. Taking advantage of
short-term bond sales to fund this project would allow the liabilities to be paid off
within a reasonable time period. In addition, the bonds callable would mean that the
business can end the contract early and thus saving the company some money if
profits yield enough cash inflow. When it comes to the cash inflow the new product
must generate enough profit in order to lower the debt-to-equity ratio. The company
must remain financially stable, or the D/E ratio will increase, and this will mean that
the financial structure will begin to suffer.
Purchase answer to see full
attachment
This Photo by Unknown Author is licensed under CC BY-NC
FINANCIAL LEVERAGE RATIOS
Debt-toassets ratio
2020
2021
2022
2.27
1.61
1.60
•
Between the last three years the company’s debt-to-assets ratio
has been going down it went from 2.27 in 2020 and then in
2022 it went down to 1.60 lowering the company debt.
* since 2018 the companies interest coverage ratio has been
high, in 2018 it was 20.12 and now in 2022 it is at 23.24,
which is a good thing for the company
Interest
converge
ratio
20.12
23.50
23.24
The company’s debt to equity also been dropping in numbers
making the company less than a risk to shareholders. In the past three
years 2018 was at 1.20 but now in 2022 is has gone down to 0.62.
Debt to
equity ratio
1.20
0.74
0.62
This Photo by Unknown Author is licensed under CC BY-SA-NC
BONDS PERFORMANCE
ISIN
US654106AJ22
Name
NIKE INC 20/27
Country
USA
Issuance
Issuer
Issuer
Industry
Market
Subsegment
Minimum investment amount
Listing unit
Issue date
Issue volume
Circulating volume
Issue currency
Portfolio currency
First trading day
Maturity
Extraordinary cancellation type
Extraordinary cancellation date
Bond 1.
NIKE Inc.
Currency bonds
Open Market
2,000
Percent
21/10/2016
1,000,000,000
1,000,000,000
USD
USD
20/10/2016
01/11/2026
Call option
Issue Volume
Currency
NIKE Inc.
1,000,000,000
Bond 2
USD
Issue Price
99.99
Issue Date
3/27/2020
Coupon
Coupon
Denomination
2.750%
1000
Quotation Type
Payment Type
regular interest
Special Coupon Type
Maturity Date
3/27/2027
Coupon Payment Date
3/27/2023
Payment Frequency
No. of Payments per Year
2.0
Coupon Start Date
9/27/2020
Final Coupon Date
3/26/2027
Floater?
No
Bond-99.86
Coupon rate- 2.375%
Current Yield- 1.15
Yield to mantuary- 3/27/2027
STOCK PERFORMANCE
NIKE
ADIDAS
2019
2020
2021
2019
2020
2021
Price/Earnings ratio
29.0
35.5
62.9
31.1
117.1
32.9
Market/Book ratio
2.86
1.6
3.56
8.0
8.9
6.3
Earnings per share
2.86
1.77
3.79
5.6
1.26
5.6
Dividends per share
.25
.28
.34
1.88
1.69
1.83
Quick Ratio
1.23
1.98
2.33
0.78
0.88
1.11
STOCK PERFORMANCES
• Nike’s stock performance has been going up and down through these past three years with Adidas
being the main competitor.
• Looking at the Market/Book ratio Adidas has been higher than the company
• in 2020 the company went up to .28 while Adidas went down a little to 1.69 not a big difference
from 2019
• For the last 3 years the company Quick ratio has had higher numbers then Adidas.
• . For 2021 the company made a jump to 2.33 and Adidas had a little jump going up to 1.11. but this
shows that for the past three years Nike has had higher numbers with the Quick ratio.
RECOMMENDATION
WORK ON THE STOCK PERFORMANCE,
FOR EXAMPLE THE DEVEINED PER SHARE
BECAUSE IT WILL KEEP THE COMPANY
PROFITABLE FOR YEARS TO COME
ANOTHER ON IS THE PRICE/EARNINGS
RATIO BECAUSE IT WILL KEEP THE SHARE
PRICES DO NOT GO UP AT A HIGH
AMOUNT.
* DO A COMPANY WIDE WORKSHOP’S
TO DEAL WITH THE COMPANY NEW
RULES AND POLICY‘S.
Week 8 Discussion
Stephanie Mull
UMGC FINC 330 7385
Financial Leverage
Financial Leverage
• Pepsico has a relatively high debt-to-equity ration where, over time, the company has
held $4-6 of debt for every dollar of equity (Pysh, n.d.).
• Pepsico is large manufacturing operation that is heavy on fixed assets, they are likely
to use debt to finance large capital projects
• Debt-to-equity ratio was steady from 2018 into 2019, then spiked in 2020, but
decrease again in 2021
• Likely that some large investments were made in 2020 in response to the volume
increases fueled by the COVID 19 pandemic
• Based on the ICR, Pepsico has plenty of profit to cover its outstanding debts
• Pepsico appears to utilize debt to finance large purchases as a choice, rather than a
need, as it appears they have plenty to cover that debt should the need arise and
would ultimately be considered a low risk investment
Bond Performance
Bond Performance
• I would most likely choose bond PEP.LB due to its higher coupon and yield rates
• Initial price is only about $350 higher but you get double the annual interest payments
• You would make the initial investment difference back in about 6 years and still have about 23 years of continued
higher payments until the bond actually matured
• These bonds are both callable but this would not affect my decision to purchase them. Callable bonds tend to have
higher interest rates so in the end, I would imagine that you would end up netting the same if you were purchasing
multiple bonds whether they be callable or not
• This would be safe bond to purchase. They have seen consistent growth year over year in overall sales and gross
income and profit margin has remained relatively steady. In addition, their A+ S&P rating supports their status
as a low-risk purchase (Pysh, n.d.).
• I would most likely avoid investing in bonds at this time and would more likely direct my investments toward
stocks
• I would be concerned about purchasing a bond now and having interest rates raised even further which could
devalue the bond I purchased when rates were lower (“Bond Valuation,” n.d.).
Stock Performance
Stock Performance
• Pepsico has had consistent growth over in all areas over the past 3 years
• Pepsico is providing more value year over year to their stockholders (“Stock Valuation, n.d.).
• Main differences when comparing Pepsico to Coca-Cola are Earnings per Share and Dividends per share. In 2021,
Pepsico only generated earnings per share of 7.23, while Coca-Cola generated 25.70
• Coca-Cola generates more net income per share (“Stock Valuation, n.d.).
• Pepsico could affect this number to increase it by either generating more net income or reducing the number of
shares (“Stock Valuation, n.d.).
• Pepsico, however, tends to pay out more in dividends to their shareholders year over year then Coca-Cola.
• Pepsico has been steadily increasing their payouts. If a shareholder was looking for dividend payouts as a primary
factor in deciding to purchase stock, Pepsico would be he better choice in this scenario (“Stock Valuation, n.d.).
• Based on the P/E ratio alone, as Pepsico and Coca-Cola have very similar values, I would say that Pepsico is priced
accordingly for the industry.
• If you were to draw a straight line through all the peaks and all the valleys, you will still see a consistent upward
trend which, coupled with financial performance, shows steady growth over time.
Recommendation
• Pepsico is in a great position financially, is highly rated as low risk, and has solid
dividend payouts to their investors
• Their stock value, EPS, and dividend payouts have increased steadily showing this to be
a safe investment
• Although debt ratios are a bit on the high side, interest coverage ratios show us that
Pepsico is able to cover their debts easily and are most likely taking on debt to cover
large capital projects to avoid an excessive outlay of cash
• Overall, this is a very safe company to invest in and would most likely see a healthy
payout if purchased stocks are held long enough to see a significant return
Conclusion
• I do not currently actively invest in the stocks or bonds other than my 401k
which is managed for me by a company
• I would like to get more involved in investing as I know it’s a great way to
build wealth
• Having this increased financial knowledge gives me more confidence as I
start an investment journey
References
“Bond Valuation.” (n.d.). Chapter 6: Bond Valuation. Finance by Boundless. Retrieved from
https://leocontent.umgc.edu/content/dam/equella-content/finc331/Chapter6BondValuation.pdf?ou=712872
Braker, Kevin, Lin, Fang, & Pursley, Jennifer. (n.d.). Chapter 2: Financial Statement Analysis.
Business Finance Essentials. Retrieved from https://leocontent.umgc.edu/content/dam/equellacontent/finc330/Financial%20Statement%20Analysis.pdf?ou=712872
Braker, Kevin, Lin, Fang, & Pursley, Jennifer. (n.d.). Chapter 4: Valuation and Bond Analysis.
Business Finance Essentials. Retrieved from
https://leocontent.umgc.edu/content/dam/equella-content/finc330/Valuation_and_Bond_Analysis.pdf?ou=712872
Maverick, J.B. (April 18, 2021). Interest Coverage Ratio (ICR): What’s Considered a Good
Number? Investopedia. https://www.investopedia.com/ask/answers/121814/what-good-interest-coverage-ratio.asp
Pysh, Preston. (n.d.). Warren Buffets 1st Rule – What is the Current Ratio and the Debt to Equity
Ratio. YouTube. https://www.youtube.com/watch?v=2ngO4jtyGlk&list=UULTdCY-fNXc1GqzIuflK-OQ
Pysh, Preston. (n.d.). What is the S&P Rating? YouTube.
“Stock Valuation.” (n.d.). Chapter 7: Stock Valuation. Finance by Boundless. Retrieved from
https://leocontent.umgc.edu/content/dam/equella-content/finc330/Chapter7StockValuation.pdf?ou=712872
www.marketwatch.com
www.morningstar.com
Bond and Stock Performance Analysis of
Apple Inc. AAPL
Victoria Pulliam
Business Administration Student, UMGC
FINC 330 7385 Business Finance (2228)
Professor Mills
November 29, 2022
Financial leverage ratios
Figure 1
Debt-to-
2018
2019
2020
2021
70.70%
73.27%
79.83%
82.03%
0.87
1.01
1.51
1.73
1.56 to 1
1.77 to 1
1.72 to 1
2.51 to 1
assets ratio
Debt-to
Equity
Ratio
Interest
Coverage
Ratio
Analysis of Financial Ratios
According to the debt-to-assets ratio, more than half of funding for capital investments is sourced from
creditors. About 80% of the assets held by Apple Inc. have been financially leveraged against creditors
for the past couple years and a couple more years prior to that it was roughly at 70% (Figure 1).
Roughly 20% of the assets are bankrolled from the shareholders’ equity. This ratio is rather high, but
the type of industry in which the business operates as must be accounted for when looking at these
numbers. Majority of this income is based off its electronic inventory sales. Therefore, it is important
to understand that a large portion of short-term debt is put to production and the development of
inventory. Once the product is sold, financial risk is minimized.
The debt-to-equity ratio ranges between 0.87-1.73 over the past 4 years (Figure 1). A 1:1 ratio would
be the most ideal and this would mean that the investors owe nothing to the creditors. However, it is
important to note that strategic investments are worth the risk for creditors to own slightly more
assets and grow the business. When it comes to Apple, the company should not increase the debt-toequity ratio any higher or creditors will own the majority of assets and shareholders will become
more hesitant to invest.
The debt-to-equity ratio reveals how vulnerable a company is by indicating how much capital
funding is sourced from creditors. It is important to keep in mind that if the ratio ranges above 1 and
below 2, then risk is sustainable. The last section of Figure 1 is the interest coverage ratio, and this
indicates a company’s ability to earn revenue and repay debt and interest incurred.
Reliable cash inflows provide a source for debt allocation, yet a
lack of earnings will increase the risk associated with
bankruptcy. The financial structure of a business is therefore
negatively impacted if debts cannot be repaid. Looking at
Figure 1 for year 2021, AAPL proved that an increase of sales
can minimize risk; resulting in a 2.51 interest coverage ratio,
indicating that debt can be repaid.
Bond Ratio Analysis
1.
Assume par value of the bond is $1,000. Investor will pay for bond
purchased at the Price listed in the Last Sale column.
Bond Performance
Figure 2
Bond AAPL5455692
Note. From Finra. (2022, November 29). Bond detail. FINRA. https://finramarkets.morningstar.com/BondCenter/BondDetail.jsp?ticker=C1046616
Par Value =$1,000
Price per each $100 par value
Selling Price =$93.34
Issuer Name
Symbol
Callabl
Sub-
e
Product
Coupon
Maturity
Ratings-
Ratings-
Last
Last
Moody’s
S&P
Sale-
Sale-
Price
Yield
Type
Apple, Inc
AAPL5455692
Yes
Corporat
3.250
e Bond
Apple, inc FINL
SVCS CORP
POWERNOTES BO
AAPL5455693
Yes
Corporat
e Bond
08/08/202
Aaa
A
93.34
4.410%
Aaa
n/a
91.48
4.441%
1,000/100=10
10*93.34=933.4
$933.40=Total amount investor will pay for the bond purchased
9
3.350
08/08/203
2
Bond AAPL5455693
Par Value =$1,000
Price per each $100 par value
Selling Price =$91.48
1,000/100=10
10*91.48 =914.8
$914.80=Total amount investor will pay for the bond purchased
Assume par value of the bond is $1,000. Calculate the annual coupon interest payments.
Assume par value of the bond is $1,000. Calculate the
Bond AAPL5455692
current yield of the bonds.
1000*0.03250=$32.50 annual coupon interest payments
Bond AAPL5455692
Selling price=$93.34
Bond AAPL5455693
1000*0.0335=$33.50 annual coupon interest payments
1000*0.03250=$32.50 annual coupon interest
payments
32.50/93.34=0.3482
34.82%= Current Yield of bond
Bond AAPL5455693
How much is the YTM listed in quotations of the bonds (in the Last Sale column – Yield)
Selling Price=$91.48
1000*0.0335=$33.50 annual coupon interest
Bond AAPL5455692
YTM listed4.410
Bond AAPL5455693
YTM listed 4.441
payments
33.50/91.48=0.3662
36.62%= Current Yield of bond
Bond Analysis
Although both bonds are similar, based on the data bond AAPL5455692is the best option for investors with minimal risk and high reward. Usually if the bond being noncallable it would be the primary factor of consideration. However, with both bonds being callable one will notice that there is a slight elevation of potential reward,
but there is an increased risk of financial loss if the bond is called early by the company. Originally, the data (figure 2) suggests that the callable bond would have an
additional 4.410% yield to maturity. When it comes to the decision for most investors it would be to safeguard their capital and seek only bonds in which are noncallable bonds.
Apple, Inc look as though it is a reliable company, and can repay debt and earning revenue. Currently, the investment grade is of high-quality bonds representing a
Moody’s rating of aaa (Figure 2). Strong financial liquidity is supported by the 2021 current ratio of 1.46 (Morningstar, 2022). The current ratio signifies that the company
is managed efficiently, maintains cash value, and the assets outweigh liabilities. Financial health is crucial for investment, and the 2021 debt-to-equity ratio presents an
ideal 1.73 statistic (Figure 1). AAPL is able to hold enough debt to creditors in order to grow the business without over leveraging the company which then maintains
solvency. In order to keep a competitive advantage within the chosen market industry, a fair valuation of price-to-earnings ratio is required In order to prove steady
growth and improvement. In 2021, top competitor Samsung Electronics produced a P/E of 11.90 while Apple Inc. P/E ratio was 31.65 (Figure 3 & 4). This data proves
that Apple Inc. is overvalued in the market and is consistently reinvesting in order to produce the growth it is sustaining. Finally, the biggest enticement for investment
results from a 147.44 ROE ratio in 2021(Morningstar, 2022). Profitability and the return on investments are proof that strategic business skills are being utilized in order to
pursue smart goals: strategic, measureable, achievable, relevant, and time bound.
Stock Performance
Figure 3
Samsung Electronics Co. Ltd
2021
Price/Earnings Ratio
11.90
Market/Book Ratio
1.58
Earnings per share
11.30
Dividends per share
1444.00
Return on Equity
13.92
Figure 4
AAPL – Apple Inc.
2019
2020
2021
Price/Earnings Ratio
24.70
40.45
31.65
Market/Book Ratio
19.67
28.83
28.78
Earnings per share
2.99
3.31
5.67
Dividends per share
0.76
0.81
0.87
Return on Equity
55.92
73.69
147.44
Analysis of Market Ratios
For the analysis of the Market Rations a person can note that the, per earnings represents the value of a stock in the marketplace. The purpose is that the investors aim to find companies that are fairly valued with growth
potential. The Low P/E ratios typically create worry in the shareholders’ mind where a lack of earnings corresponds to a lack of growth. AAPL P/E and SSNLF are higher than the market expectations in 2021 with ratios
close to 30 (Figure 3&4). Therefore, a conclusion can be drawn that both companies are overvalued. This midline number is not the most ideal because it indicates that the companies are growing, but possibly too fast. These
extreme growth rates can scare off possible future investors due to it having high risk and high debt. When an investor goes into review and analyze the market/book value, the return on equity ratio should also be
acknowledged upon its review. ROE tells the people the amount of future growth and this also reflects in the market value of a company. However, the book value can be different because it will at times retrace historical
records in order to predict fluctuations. Knowing this information, the market/book ratio proved to be stable and productive for AAPL over the past 3 years. Numbers ranging from 19.67 in 2019 and then a steady ration of 28
for the next couple years post covid can help provide the investor encouragement that the company remains rather steady in its growth cycle. One of the top competitors, SSNLF is a tricky one for investors or people
researching its stocks as it is a foreign.
However, upon research SSNLF also maintains a ratio, but much smaller and is that of 1.58 in the year 2021 which for this stock is considered productive and innovative (Figure 3&4). Productivity is essential to provide the
business earnings which are eventually distributed to the shareholders of the company. The common stock shareholders are able to benefit from the earnings per share ratio. The revenue earned through business operations is
calculated against the total number of shares outstanding. The EPS for SSNLF displays a significant 6.37 lead over AAPL in 2021 which can be attributed to higher profits and an increase in earnings for investors (Figure
3&4). Determining if the common stockholders earned adequate return on their investment in AAPL would have to involve two approaches. First, growth over time would indicate for positive future earnings. In comparison
to 2020, the common stockholders did receive a significant increase. However, if the earnings per share are compared to SSNLF, then one may say there was an inadequate return on investment. In reference to the dividends
per share ratio, preferred stock owners also benefited from dividends earned per share at SSNLF. than AAPL in 2021. The stockholders of AAPL earned a ratio of 0.87 versus the SSNLF ratio of 1444.00 (Figure 3&4). All of
the stockholders are earning capital from SSNLF revenue; therefore, the investors are going to buy that stock if so desired
.
Historical Stock Price Data
AAPL Stock Price Trends (2021)
SSNLF Stock Price Trends Comparison 2021
Figure 5
Figure 6
Analysis of Historical Stock Prices
After reviewing the stock price data from December 2020 to 2021, Apple Co. maintains a higher stock price over Samsung Electronics Co Ltd. However, it is important to keep in mind that SSNLF do stocks differently as it is
based in Korea. According to the graph at the beginning of the year, it’s important to note that businesses were in the process of trying to recover and come back from the COVID 19 pandemic. Because of the recovering stages
of these businesses, it resulted in low stock prices. AAPL’s lowest point was in February at a price of 120.99 (Figure 5), but the market began to increase in the following months. As the year progressed, AAPL was able to
double their price by mid-July. Based on the graph itself AAPL stayed above SSNLF the whole year. Due to Samsung’s stocks being Korean based it results in a 0.00% graph stock price trend. Although SSNLF is typically a
high competitor with AAPL when it comes to having price trend comparisons. Whenever the growth becomes accelerated in comparison to the normal capital structure, then the market will typically respond with an increase of
stock price. This value is usually based upon how fast the company is growing as well as the expected earnings. However, it is important to note that the stock price does not reveal how much the business is financially leveraged
with liabilities and the ratio of debt from creditors. SSNLF could maintain a higher stock price than 0.00%, but due to the company being a foreign stock based in South Korea the Morning Star data will not show the stock price
trend setting as it does not relate to Americas stock exchange. With this in mind, a large investment could entice shareholders to buy additional stock and reap the rewards of additional dividends earned. As an investor, AAPL
seems to be the most logical investment for minimized risk and financial health instead of SSNLF. Having to understand the South Koreans Stock exchange can come with unbeknownst risks to investors, meaning AAPL will
remain a top competitor in the market, as SSNLF will have to be further researched by other investors, so it remains reasonable to suggest buying more AAPL stocks at a lower price than SSNLF.
Recommendation
To improve shareholder wealth, an increase of revenue will have to be required.
Achieving additional net profit margin after operational expenses are deducted is no
small task. Therefore, AAPL should sell any of its additional bonds in order to
accumulate capital for a capital project in electronics. If AAPL is able to obtain a
competitive advantage within the market and grow the company, then the stock price
can see an increase and thus resulting in shareholders earning higher dividends. For
help funding this new project, older assets of inventory must be sold. Once the
technologically advanced product is available, then that is when the older version will
cease production and start to become obsolete. The enhanced electronics will then
take priority for its immediate production and its capital funding. Taking advantage of
short-term bond sales to fund this project would allow the liabilities to be paid off
within a reasonable time period. In addition, the bonds callable would mean that the
business can end the contract early and thus saving the company some money if
profits yield enough cash inflow. When it comes to the cash inflow the new product
must generate enough profit in order to lower the debt-to-equity ratio. The company
must remain financially stable, or the D/E ratio will increase, and this will mean that
the financial structure will begin to suffer.
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