Fundamental Analysis for best Companies of New York Stock Exchanges

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Fundamental Analysis for best Companies of New York Stock Exchanges

Introduction

Financial markets facilitate the flow of fund in order to finance investments by corporations, governments, and individuals. Financial institutions are the key players in the financial markets because they serve as intermediaries that determine the flow of funds.

In the financial market different type of securities are traded like equity securities and debt securities. There are different type of financial markets those meet the individual investors preference. Such as money market are designed for short term investors to trade debt or equity as money market allows the flow of short term fund with a maturity of less than 1 year or one year . Whereas Capital market is designed for the long term, investors as this market facilitate the flow of funds with a maturity of more than one year. In the primary financial market, only new securities are traded whereas secondary market allows the trading of existing securities that helps to change the ownership of the securities.

Investors differ with respect to the risk they are willing to incur, the desired liquidity of securities and their tax status, making some securities desirable to some investors than to others. Some economic factors, company specific factors along with industry related factors are also influenced the investors taking their decisions to invest in the financial market.

In general, financial markets are regulated to ensure that the participants are treated fairly. Many regulations were enacted. in response to fraudulent practices. Stock exchanges impose stringent rules, listing requirements, and statutory requirements that are binding on all listed and trading parties.

Top Down Financial Analysis for Picking a Stock

An investor should do some analysis before they invest in a company’s stock. Before they pick a stock to invest in they need to consider some macro economic factors and to analyze some industry and company related specific information. There are some issues that investors must consider that are mentioned in below:

Macro Economic Factors:

· Interest Rate

· Inflation

· Government Budget (Deficit/Surplus)

· Tax cut

· Exchange Rate

· International Trade

· Election and policies

Industry Analysis:

· Oil & Gas

· Gold

· Banking

· Utilities

· Manufacturing

· Retail

· Technology

· Industry Risk

Company Specific Performance:

· Corporate Risk

· Cash flow Analysis

· Corporate Growth

· Dividend Record

· Management strength

Strategy for Picking Stocks (Information Input)

Information about the economy, markets and specific company and the industry where the company is belong to are very important to consider before an investor invest in that specific company. As information, significantly affect the whole market as well as the industry along with the companies operating in the respective industry.

1. Forecast Direction of Stock Market Index:

The issues that are mentioned in below are used to forecast the direction of stock market index. If the following conditions are favorable then it will have a positive impact on the market thus increase the company’s stock price. On the other hand of the information about the following issues indicate unfavorable then it may have a negative impact on the market thus decreases stock price. The factors are:

· National Politics (party in power) or Election

· World Event and International Economics

· National Economy

· Interest Rate

· Inflation

· Money Supply

· Aggregate Demand

· Budget/ Taxes

2. Bull or Bear Market:(pick stocks based on Industry Risk and Tax Consideration):

if the marker is bull that means investors are expecting that the future stock price will increase and they are willing to take risk then they can invest comparatively high volatile stock whereas if the market is bearish that means if investors don’t want to take much risk they invest in those company’s stock that are stable. The factors to determine whether the market is bull or bearish are:

· Industry Trend

· P/E ratio

· Dividend Yield

· Tax consideration

· Capital Gain

· Betas (High or Low)

3. Check with Company Specific And fundamental Information:

Some information about company indicates whether the company is performing well or not. We must analyze that information before we take investment decision in a company. The factors are:

· Growth of dividend

· Growth of EPS

· Cash Flow/ share

· Capital Structure

· Quality of CEO

· Acquisition, Restructuring, Innovation

If bull or bear market and company specific information are consistent buy and hold the stock. In contrast, bull or bear market and company specific information is not consistent investor may avoid the stock.

Some Specific Reasons for Buying and Selling Stock

Reasons for Buying Stock:

· Undervalued stock relative to peer valuation

· Great rate of revenue

· Beats earnings whisper during Quarterly report

· Good CEO conference call after Quarterly earnings

· New product Development and sale

· M&A target

Reasons for Selling Stock:

· Major Shareholder or institution selling at a target price

· Analyst may recommend a sell based on negative research report

· Not meeting Earning Whisper (Extra expectation)

· Negative CEO conference call after Quarterly earnings

· Poor Number( eg, falling EPS or profit margin)

So far, we mentioned some important factors that we must analyze before we invest in a company’s stock. Now we divide those factors in quantitative and qualitative measures to analyze a company’s stock to invest in.

Factors an Investor Should Consider Before Investing in a Stock

Investors must consider some important factors before investing in a stock. Knowing the market value of the stock is necessary. Investors buy and hold stocks with positive earnings surprises; high growth rate of stock prices, accelerating sales and stimulus for sustains future growth. In order to avoid risk of making loss, investors have to analyze the stock before they invest whether the stock has a future possibility of performing poor or not. Therefore, before an investor invests into any stocks must understand the following terms and be able to evaluate stocks by using these basic methods used to analyze stocks.

Qualitative Factors

· Economic consideration:

Interest Rate, Inflation, Money Supply, Aggregate Demand, Budget/ Taxes influence the whole economy. Thus, influence the industry and companies operating under that industry. Some factors may have positive affects others may have negative influence on company’s stock. So we should analyze whether the current economic condition is favorable or unfavorable impact on company’s stock before we take decision regarding investing in that company.

· Political consideration:

The political situations of the company also affect the company’s stock price. If the country’s political situation is stable then the economic condition is also favorable to invest. If the political situation is not stable then the economic condition is also not suitable to invest. As it may put some adverse impact on industry thus stock price, investor should wait to invest until the economic condition get stable.

· Stock price movement:

An investor must observe the price movements to evaluate a stock. S/he must monitor the fluctuations in price. It is important that the price movements are steady. If the stock price fluctuates more rapidly, then investor should avoid those stocks. Investor should invest in more stable stocks.

· Company’s History:

It is essential for an investor to look at companies’ history as well as future plan before buying a stock. It is important to know how the company has been performing and do they have plans for future to expand or not. If their earlier performance is good that also indicates their future performance. If the company has a good perception in the market then investor may buy those stocks as it indicates that people are ready to pay high price for this company’s stock that result in high stock price. On the other if people have a bad impression of the company then investor should not invest on that company’s stock because their market position is not good to invest.

· Management of the Company:

Management is the most important aspect for investing in a company as a company relies upon management to steer it towards financial success It makes sense – even the best business model is doomed if the leaders of the company fail to properly execute the plan. It the coordination among management is not so good then company’s performance can be unfavorable for the investors. So investor should invest on those company’s stocks whose management is efficient.

· Corporate Governance:

Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors and stakeholders. These policies are defined and determined in the company charter and its bylaws, along with corporate laws and regulations. The purpose of corporate governance policies is to ensure that proper checks and balances are in place, making it more difficult for anyone to conduct unethical and illegal activities.

Good corporate governance is a situation in which a company complies with all of its governance policies and applicable government regulations in order to look out for the interests of the company’s investors and other stakeholders. Corporate governance policies typically cover a few general areas: structure of the board of directors, stakeholder rights and financial and information transparency.

· Past Performance of the Company:

Another good way to get a feel for management capability is to check and see how executives have done at other companies in the past. As past performance of a company affect company’s stock price also. If the past performance of a company is good then there has also a good possibility that that company will perform better in future.

· Financial and Information Transparency:

Sufficient transparency implies that a company’s financial releases are written in a manner that stakeholders can follow what management is doing and therefore have a clear understanding of the company’s current financial situation. Moreover if company properly discloses their financial information and that information are available then investors can easily evaluate that information and make their investment decisions.

· Stakeholder Rights:

Some company gives shareholder some rights whether some companies do not give so much power in shareholders hand. In some companies all decision is in management hand, shareholder rarely can exercise their ownership rights, and they rarely can take decisions. Most of the time management takes decisions that is in favor of the management people rather shareholders. Thus, management is more reluctant in working to increase the stock price. If the company gives some relevant necessary decision, making rights to shareholders then the shareholder will take decisions that are favorable to increase the share price. Therefore, companies that give shareholder to make decision investor should invest in that company’s stock.

· Structure of the Board of Directors:

The board of directors is composed of representatives from the company and representatives from outside of the company. The combination of inside and outside directors’ attempts to provide an independent assessment of management’s performance; make sure that the interests of shareholders are represented.

The board of directors is responsible for protecting shareholder interests and ensuring that the upper management of the company is doing the same. The board possesses the right to hire and fire members of the board on behalf of the shareholders. A board filled with insiders will often not serve as objective critics of management and will defend their actions as good and beneficial, regardless of the circumstances.

Quantitative Factors

· Financial Statement Analysis:

The evaluation of a company’s financial statements (such as the balance sheet, profit and loss statement, cash flow statement) help to gain an understanding of the financial health of the company and enabling more effective decision making. Whether the company is financially strong or weak can be known by evaluating a company’s financial statement. Financial statements record financial data; however, this information must be evaluated through financial statement analysis that can be used by investors, shareholders, managers and other interested parties.

By Financial statement analysis, we can determine the past, current and projected performance of a company. Several techniques are commonly used as part of financial statement analysis including:

· Horizontal analysis, which compares two or more years of financial data in both dollar and percentage form;

· Vertical analysis, where each category of accounts on the balance sheet is shown as a percentage of the total account; and atio analysis, which calculates statistical relationships between data.

P/E ratio is a valuation ratio where a company’s current share price is compared to its per-share earnings. Calculated as:

· Value investing – Buying low P/E stocks with the expectation that P/E will increase in future. Low P/E ratio also implies low P/B ratio. These are undervalued stocks. They may do better in future.

· Growth investing – Buying high P/E stocks with the expectation that future earning will continue to drive up stock prices. High P/E ratio also implies high P/B ratio. There might be persistent of growth so buy and hold these stocks.

· When P/E of cyclical stocks – Drop to single digit, it is time to sell because earning might have peaked.

If the P/E ratio is very high then we can say that recent buyers of the stock are expecting that profits sometime in the future will be high thereby they want to pay a high price per share for that stock. The ratio is important for stockholders because it indicates to them what each share has earned relative to its cost. High P/E ratios usually suggest that the stock may be overpriced. In general, a high P/E suggests that investors are willing to pay a higher price for a company that has not reached its earning potential.

· EPS (Earnings per Share)

The portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company’s profitability. Calculated as:

It is more accurate to use a weighted average number of shares outstanding, because the number of shares outstanding can change over time. However, using the number of shares outstanding at the end of the period simplify the calculation process.

.

Earnings per share are generally considered the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio. Diluted EPS should be also considered when taking decision regarding investment because diluted EPS is the actual EPS that the shareholder get.

There are some limitations of EPS like-

· Two companies could generate the same EPS number, but one could do so with less equity (investment) – that company would be more efficient at using its capital to generate income and, all other things being equal would be a “better” company.

· Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number.

Therefore, it is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures.

· Return on Equity – ROE

ROE is the measure of the amount of net income returned as a percentage of shareholders equity. Return on equity indicates how much profit a company generates with the money shareholders have invested.

ROE is expressed as a percentage and calculated as:

Return on Equity = Net Income/Shareholder’s Equity

The ROE is used to compare the profitability of one company with others in the same industry. If the ROE is higher, it indicates the better position of the company. Therefore, investors should consider those company’s stock, whose ROE is higher. In addition, avoid company’s stock to invest with lower ROE. As ROE is the indication, how much net income the shareholders get by investing in the company’s stock.

· Return on Assets – ROA

ROA indicates how efficiently company is using its assets to generate earnings. Calculated by dividing a company’s annual earnings by its total assets, ROA is displayed as a percentage. Sometimes this is referred to as “return on investment”.

The formula for return on assets is:

The ROA gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better the position of the company because the company is earning more money on less investment. Company with the lower ROA is not performing well so investor must avoid those companies’s stock.

· Dividend per share – DPS

Dividend per share (DPS) is the total dividends paid out over an entire year (including interim dividends but not including special dividends) divided by the number of outstanding ordinary shares issued. DPS can be calculated by using the following formula:

Where,

D – Sum of dividends over a period (usually 1 year)

SD – Special, one-time dividends

S – Shares outstanding for the period

Dividend is a good indicator whether investor should invest in that particular company or not. If investors want to invest for short term, they can buy stocks of a high dividend paying company. Because they want immediate gain as a form of dividend, rather defer the earning for future period as a form capital gain (retention a portion of net income to reinvest in potential projects to get earnings in the future period).

Others Quantitative Measures:

· Profit Margin:

Profit margin is also a good indicator for the investor whether they should invest in a company or not. It is a measure of the company’s profitability. Profit margin is calculated as:

Profit Margin: Net income Available to common shareholders/ Revenue

If the company’s profit margin is high they may give more dividend to the shareholders or they may retain it to reinvest thus capital gain can be obtained by shareholders. So company with high profit margin should be considered as a suitable company to invest.

· M/B Ratio (Market/ Book Ratio):

The ratio of a stock market price to its book value gives another indication of how investors regard the company. Companies with relatively high rates of return on equity generally sell at higher multiples of book value than those with low. The ratio is calculated as:

Market/Book ratio: Market price per share/book value per share

Where,

Book value per share: Common Equity/ Share outstanding

If a company earns a low rate of return on its assets then its M/B ratio will be relatively low whereas company that earns high rate of return on their assets causes their market values to be well in excess of their book values. So invest in those companies with high M/B ratio.

· Price/ Cash flow Ratios:

Stock price is tied more closely to cash flow rather than net income. Consequently, investors look at the price/ cash flow ratio. The ratio o price per share divided by cash flow per share shows the amount investors will pay for $1 of cash flow. The ratio is measured by:

Price/ cash flow: Price per share/ cash flow per share

Where, Cash flow per share is calculated as net income plus depreciation and amortization divided by common share outstanding.

Company with high Price/ cash flow ratio is suitable to invest as higher the ratio the better the company position thus higher the stock price.

There are also some quantitative measures along with some ratios and other measure that should we look to before we invest in those company. However, above mentioned ratios and measures are must done before we make investment decisions.

The GAP Inc (GPS)

The Gap, Inc. is a global specialty retailer offering apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, banana republic, Piper lime, and Athlete brands. Most of the products sold under its brand names are designed by the Company and manufactured by independent sources. The Company also sells products that are designed and manufactured by branded third parties. The Company operates in two segments: Stores, which includes the results of the retail stores for Gap, Old Navy, and banana republic, and Direct, which includes the results for its online brands, both domestic and international. It has Company-operated stores in the United States, Canada, the United Kingdom, France, Ireland, Japan, China and Italy. The Company also has franchise agreements with unaffiliated franchisees to operate Gap and banana republic stores in many other countries worldwide. In November 2011, the Company announced the launch of its store in Hong Kong.

3 years AGR® Score

AGR Score: Average

Overview

The Gap Inc. is currently rated as having Average Accounting & Governance Risk (AGR). This places them in the 55th percentile among all companies, indicating higher Accounting & Governance Risk (AGR) than 45% of companies.

The forensic risk summary table below highlights materials risks, if any, and lists the most critical business issue for each risk. AGR Impact shows the deductions from a perfect 100 AGR score due to flagged matrices’.

RISK	AGR® IMPACT	TOP ISSUE
Corporate Governance Events	24.8	Officer: Chairman is also CEO
High Risk Events	48.8	Share Repurchases
Revenue Recognition	26.4	Operating Revenue/Operating Expense
Expense Recognition	0.0	N/A
Asset-Liability Valuation	0.0	N/A

AGR scores are based on statistical analysis of accounting and governance risk factors. Lower scores indicate heightened corporate integrity risk, indicating an increased likelihood of future class action litigation, material financial restatements or impaired equity performance.

Financial Analysis

· Key Ratios 2012;

Income Statement – 2012(in Millions)

Year	Sales	EBIT	Depreciation	Total Net Income	EPS	Tax Rate (%)
2012	14,197.0	1,816.0	655.0	1,102.0	1.58	39.32

Balance Sheet – 2012(in Millions)

Year	Current Assets	Current Liabilities	Long Term Debt	Shares Outstanding
2012	7,985.0	3,094.0	0.0	676.0 Mil

Ratio Analysis

Year	Avg P/E	Price/ Sales	Price/ Book	Net Profit Margin (%)
2012	11.30	0.94	2.64	7.8

Year	Book Value/ Share	Debt/ Equity	Return on Equity (%)	Return on Assets (%)	Interest Coverage
2012	$7.24	0.00	22.5	13.8	302.5

Cash Flow Ratios	2012
Operating Cash Flow Growth % YOY	36.54
Free Cash Flow Growth % YOY	62.49
Cap Ex as a % of Sales	2.35
Free Cash Flow/Sales %	11.23
Free Cash Flow/Net Income	1.45

Liquidity Ratios	2012
Current Ratio	2.19
Quick Ratio	1.21
Financial Leverage	1.63
Debt/Equity	0.01

Efficiency Ratios	2012
Days Sales Outstanding	—
Days Inventory	64.25
Payables Period	43.12
Cash Conversion Cycle	—
Receivables Turnover	—
Inventory Turnover	5.68
Fixed Assets Turnover	5.11
Asset Turnover	1.83

Financial data in U.S. Dollars

Values in Millions (Except for per share items)

Summary of the Findings

Despite a growing tax rate over the three years the Earnings before Interest and Tax (EBIT) has been growing which was reflected upon there Earnings per share (EPS).

The price-earnings (P-E) have been decreasing over the three years considered. A lower PE means that the same share of a company’s profits will cost a prospective shareholder less. There are usually reasons for a lower PE. It may reflect slower expected earnings growth, or higher risk earnings.

Moreover, their Net Profit Margin has been increasing significantly during these three years, which has created a positive effect on their ROE and ROA.

Due to the recession in 2011, there has been a drop in the free cash Flow / Sales and Free cash Flow / Net Income, but both of these have shown significant growth in the following year. Based upon this we can state that there has been an improvement in the flow of free cash flow in the economy and it can be expected to rise hereon.

Wal-Mart Stores Inc. (WMT)

Company Description

Wal-Mart Stores, Inc. (Wal-Mart) operates retail stores. The Company operates in three business segments: Wal-Mart U.S., Wal-Mart International and Sam’s Club. During the fiscal year ended January 31, 2012 (fiscal 2012), the Wal-Mart U.S. segment accounted for 62.1% of its net sales, and operated retail stores in different formats in the United States and Puerto Rico, as well as Wal-Mart’s online retail operations, walmart.com. The International segment consists of retail operations in 14 countries. During fiscal 2011, the segment generated 26.1% of the Company’s net sales. The International segment includes different formats of retail stores and restaurants, including discount stores, supercenters and Sam’s Clubs that operate outside the United States. The Sam’s Club segment consists of membership warehouse clubs in the United States and Puerto Rico, and the segment’s online retail operations, samsclub.com. During fiscal 2012, Sam’s Club accounted for 11.8% of its net sales.

3 years AGR® Score

AGR Score: Aggressive

Overview

Wal-Mart Stores, Inc. is currently rated as having Aggressive Accounting & Governance Risk (AGR). This places them in the 15th percentile among all companies, indicating higher Accounting & Governance Risk (AGR) than 85% of companies.

The forensic risk summary table below highlights materials risks, if any, and lists the most critical business issue for each risk. AGR Impact shows the deductions from a perfect 100 AGR score due to flagged matrices’.

RISK	AGR® IMPACT	TOP ISSUE
Corporate Governance Events	31.4	Consecutive quarters of EPS Growth
High Risk Events	37.3	Share Repurchases
Revenue Recognition	0.0	N/A
Expense Recognition	10.0	Selling G&A Expenses/Operating Expense
Asset-Liability Valuation	21.3	Goodwill/Total Assets

AGR scores are based on statistical analysis of accounting and governance risk factors. Lower scores indicate heightened corporate integrity risk, indicating an increased likelihood of future class action litigation, material financial restatements or impaired equity performance.

Financial Analysis

· Key Ratios 2012

Income Statement – 2012(in Millions)

Year	Sales	EBIT	Depreciation	Total Net Income	EPS	Tax Rate (%)
2012	408,085.0	22,118.0	7,157.0	14,449.0	3.73	32.35

Balance Sheet – 2012(in Millions)

Year	Current Assets	Current Liabilities	Long Term Debt	Shares Outstanding
2012	170,407.0	99,939.0	36,401.0	3.8 Bill

Ratio Analysis:

Year	Avg P/E	Price/ Sales	Price/ Book	Net Profit Margin (%)
2012	13.60	0.51	2.87	3.5

Year	Book Value/ Share	Debt/ Equity	Return on Equity (%)	Return on Assets (%)	Interest Coverage
2012	$18.61	0.59	20.5	8.5	11.6

Cash Flow Ratios	2012
Operating Cash Flow Growth % YOY	13.40
Free Cash Flow Growth % YOY	20.75
Cap Ex as a % of Sales	2.98
Free Cash Flow/Sales %	3.45
Free Cash Flow/Net Income	0.98

Liquidity Ratios	2012
Current Ratio	0.87
Quick Ratio	0.22
Financial Leverage	2.41
Debt/Equity	0.51

Efficiency	2012
Days Sales Outstanding	3.60
Days Inventory	40.54
Payables Period	35.52
Cash Conversion Cycle	8.61
Receivables Turnover	101.43
Inventory Turnover	9.00
Fixed Assets Turnover	4.12
Asset Turnover	2.44

Financial data in U.S. Dollars

Values in Millions (Except for per share items)

Summary of the Findings

Over the three years between the year 2008-2010, Earnings before Interest and Tax (EBIT) has been growing this was reflected upon there Earnings per share (EPS).

The price-earnings (P E) had increased in year 2009 but then again decreased in 2010. A lower PE means that the same share of a company’s profits will cost a prospective shareholder less. There are usually reasons for a lower PE. It may reflect slower expected earnings growth, or higher risk earnings.

Moreover, their Net Profit Margin has been increasing significantly during these three years, which has created a positive effect on their ROE and ROA.

Due to the recession in 2009, there has been a drop in the Free cash Flow / Sales and Free cash Flow / Net Income, but both of these has shown significant growth in the following year. Based upon this we can state that there has been an improvement in the flow of free cash flow in the economy and it can be expected to rise hereon.

American Eagle Outfitters, Inc. (AEO)

Company Description

American Eagle Outfitters, Inc. is an apparel and accessories retailer that operates more than 1,000 retail stores in the United States and Canada, and online at ae.com. Through its family of brands, American Eagle Outfitters, Inc. offers clothing, accessories and personal care products. Its online business, AEO Direct, ships to 76 countries worldwide. The Company operates under the American Eagle, aerie by American Eagle, and 77kids by American Eagle brands. As of January 29, 2012, the Company operated 929 American Eagle Outfitters stores, 148 aerie stand-alone stores and 9 77kids stores. As of January 29, 2012, it operated 1,086 stores in the United States and Canada under the American Eagle Outfitters, aerie and 77kids brands. During the fiscal year ended January 29, 2012 (fiscal 2012), it opened 34 new stores, consisting of 14 AE stores, 11 aerie stores and nine 77kids stores. On July 31, 2011, it completed the closure of MARTIN+OSA brand stores and its e-commerce operation.

3 years AGR® Score

AGR Score: Average

Overview

American Eagle Outfitters is currently rated as having Average Accounting & Governance Risk (AGR). This places them in the 77th percentile among all companies, indicating higher Accounting & Governance Risk (AGR) than 23% of companies.

The forensic risk summary table below highlights materials risks, if any, and lists the most critical business issue for each risk. AGR Impact shows the deductions from a perfect 100 AGR score due to flagged matrices’.

RISK	AGR® IMPACT	TOP ISSUE
Corporate Governance Events	23.0	Comp: CEO /CFO Total Comp
High Risk Events	41.8	Share Repurchases
Revenue Recognition	0.0	N/A
Expense Recognition	35.1	Prepaid Expenses/Operating Expense
Asset-Liability Valuation	0.0	N/A

AGR scores are based on statistical analysis of accounting and governance risk factors. Lower scores indicate heightened corporate integrity risk, indicating an increased likelihood of future class action litigation, material financial restatements or impaired equity performance.

Financial Analysis

· Key Ratios 2012

Income Statement – 2012(in Millions)

Year	Sales	EBIT	Depreciation	Total Net Income	EPS	Tax Rate (%)
2012	2,940.27	304.38	137.76	213.4	1.02	29.89

Balance Sheet – 2012(in Millions)

Year	Current Assets	Current Liabilities	Long Term Debt	Shares Outstanding
2012	2,138.15	559.63	0.0	206.8 Mil

· Ratio Analysis:

Year	Avg. P/E	Price/ Sales	Price/ Book	Net Profit Margin (%)
2012	14.40	1.13	2.08	7.2

Year	Book Value/ Share	Debt/ Equity	Return on Equity (%)	Return on Assets (%)	Interest Coverage
2012	$7.63	0.02	13.5	10.0	NA

Cash Flow Ratios	2012
Operating Cash Flow Growth % YOY	27.89
Free Cash Flow Growth % YOY	602.81
Cap Ex as a % of Sales	4.26
Free Cash Flow/Sales %	8.66
Free Cash Flow/Net Income	1.53

Liquidity Ratios	2012
Current Ratio	2.85
Quick Ratio	1.79
Financial Leverage	1.35
Debt/Equity	—

Efficiency Ratios	2012
Days Sales Outstanding	4.65
Days Inventory	61.88
Payables Period	30.93
Cash Conversion Cycle	35.60
Receivables Turnover	78.47
Inventory Turnover	5.90
Fixed Assets Turnover	4.12
Asset Turnover	1.46

Financial data in U.S. Dollars

Values in Millions (Except for per share items)

Summary of the Findings

Over the three years between the years 20010-2012, Earnings before Interest and Tax (EBIT) has been, decreasing this was reflected upon there Earnings per share (EPS).

The price-earnings (P E) have been stabled throughout these three years between 2010-2012. A lower PE means that the same share of a company’s profits will cost a prospective shareholder less. There are usually reasons for a lower PE. It may reflect slower expected earnings growth, or higher risk earnings.

Moreover, their Net Profit Margin has been decreasing significantly during these three years which has created a negative impact on their ROE and ROA.

Due to the recession in 2011 there has been a drastic drop in the free cash Flow / Sales and Free cash Flow / Net Income, but both of these has shown significant growth in the following year. Based upon this we can state that there has been an improvement in the flow of free cash flow in the economy and it can be expected to rise hereon.

DELL Inc.

(NASDAQ: DELL)

Company Overview

Dell Inc. (Dell) designs, develops, manufactures, markets, and supports information technology systems. The company’s product portfolio includes laptops, desktops, workstations, storage devices and printers. Dell also provides a range of consulting services to enhance the energy efficiency of data centers such as capacity planning, data center optimization assessments, virtualization and energy efficiency research for maximizing the value. Dell markets its products and services across the world through a wide network of sales representatives, indirect sales channels, telephone-based sales and online sales. Moreover, it retails its merchandise directly to customers through telephone orders and website. The company caters to healthcare, education, large corporate, government, individual consumers and small businesses. The company has advanced manufacturing facilities across the world, which provides assembly, software installation, functional testing and quality control operations. The company serves its products to customers across 195 countries. Dell is headquartered at Round Rock in Texas, the US.

3 years AGR® Score

AGR Score: Aggressive

Overview

Dell Inc. is currently rated as having Aggressive Accounting & Governance Risk (AGR). This places them in the 11st percentile among all companies, indicating higher Accounting & Governance Risk (AGR) than 89% of companies.

The forensic risk summary table below highlights materials risks, if any, and lists the most critical business issue for each risk. AGR Impact shows the deductions from a perfect 100 AGR score due to flagged matrices’.

RISK	AGR® IMPACT	TOP ISSUE
Corporate Governance Events	24.5	Consecutive quarters of EPS Growth
High Risk Events	28.3	Share Repurchases
Revenue Recognition	7.7	Inventory/Cost of Goods Sold
Expense Recognition	15.8	R&D Expense/Operating Expense
Asset-Liability Valuation	23.6	Long-Term Investments/Assets

AGR scores are based on statistical analysis of accounting and governance risk factors. Lower scores indicate heightened corporate integrity risk, indicating an increased likelihood of future class action litigation, material financial restatements or impaired equity performance.

Financial Analysis

· Key Ratios 2012

Income Statement -2012 (in Millions)

Year	Sales	EBIT	Depreciation	Total Net Income	EPS	Tax Rate (%)
2012	52,902.0	2,024.0	852.0	1,433.0	0.73	29.2

Balance Sheet – 2012(in Millions)

Year	Current Assets	Current Liabilities	Long Term Debt	Shares Outstanding
2012	33,652.0	28,011.0	3,417.0	2.0 Bil

· Ratio Analysis:

Year	Avg. P/E	Price/ Sales	Price/ Book	Net Profit Margin (%)
2012	17.60	0.48	4.48	2.7

Year	Book Value/ Share	Debt/ Equity	Return on Equity (%)	Return on Assets (%)	Interest Coverage
2012	$2.88	0.72	25.4	4.3	13.6

Cash Flow Ratios	2012
Operating Cash Flow Growth % YOY	106.23
Free Cash Flow Growth % YOY	143.40
Cap Ex as a % of Sales	0.69
Free Cash Flow/Sales %	6.69
Free Cash Flow/Net Income	2.47

Liquidity Ratios	2012
Current Ratio	1.28
Quick Ratio	1.03
Financial Leverage	5.97
Debt/Equity	0.61

Efficiency	2012
Days Sales Outstanding	36.46
Days Inventory	8.02
Payables Period	82.31
Cash Conversion Cycle	-37.83
Receivables Turnover	10.01
Inventory Turnover	45.51
Fixed Assets Turnover	23.73
Asset Turnover	1.76

Financial data in U.S. Dollars

Values in Millions (Except for per share items)

Summary of the Findings

The trend of growing tax rate over the three years have affected the Earnings before Interest and Tax (EBIT) which had been following a negative trend that was reflected upon there Earnings per share (EPS).

The price-earnings (P-E) have decreased rustically in the year 20010 but increased a little in 2011. A lower PE means that the same share of a company’s profits will cost a prospective shareholder less. There are usually reasons for a lower PE. It may reflect slower expected earnings growth, or higher risk earnings.

Moreover, their Net Profit Margin has been decreasing significantly during these three years, which has created a negative effect on their ROE and ROA.

Due to the recession in 2010, there has been a drop in the free cash Flow / Sales and Free cash Flow / Net Income, but both of these have shown significant growth in the following year. Based upon this we can state that there has been an improvement in the flow of free cash flow in the economy and it can be expected to rise hereon.

APPLE INC

(NASDAQ: AAPL)

Company Overview

Apple Inc. (NASDAQ: AAPL) formerly Apple Computer, Inc. is an American multinational corporation that designs and markets consumer electronics, computer software, and personal computers. The company’s best-known hardware products include the Macintosh line of computers, the iPod, the iPhone and the iPad. The iTunes Store provides music, audio books, iPod games, music videos, episodes of television programs, and movies that can be downloaded using iTunes on Mac or Windows, and on the iPod touch and the iPhone. The company’s best-known hardware products include the Macintosh