Finance
Seethe following example review the document.
1. Choose two (2) publicly
–
traded companies.
Nike and Adidas
2. Also, you cannot choose Apple or Amazon since I’ve used it in my example.
3. Obtain their year-end earnings per share (EPS) for the past two years ending December 31, 2019.
4. Obtain their year-end balance sheet and income statement for the past two years.
5. Calculate their cash flow from assets per share for the past two years.
6. Obtain their year-end price per share for the past two years.
7. Which company performed better in terms of price appreciation? The company with higher earnings per share, or cash flow from assets per share?
Pro Forma vs. GAAP Assignment (EXAMPLE)
All data obtained from
https://finance.yahoo.com/
1. Choose two (2) publicly-traded companies you are thinking of investing that have at least three or four years of available past financial statements.
· Amazon
· Apple
2. Obtain their year-end (or beginning of year) earnings per share (EPS) for the past two years ending December 31, 2019.
· Amazon EPS December 2019
=
$23.01; December 2018
=
$20.14
· Apple EPS December 2019 = $12.66; EPS December 2018 = $11.91
3. Obtain their year-end balance sheet and income statement for the past two years.
· Obtained from Yahoo!Finance Financials
4. Calculate their cash flow from assets per share for the past two years.
|
Apple |
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Cash Flow from Assets (free cash flow) = Operating Cash Flow – Net Capital Spending – Net Working Capital |
September 30, 2019 * Apple reports end of fiscal year on September 30th of each year. The company uses the term “Operating Income/ Loss” instead of EBIT. They are equivalent. |
September 30, 2018 |
|
|
Operating Cash Flow = Operating Income/Loss + Depreciation – Taxes [Operating cash flow is the cash flow from Apple’s production] |
Look for Apple’s income statement. Obtain the number for “Operating Income or Loss September 30,2019. Depreciation is found under balance sheet. Depreciation = Accumulated Depreciation of 2019 – 2018 $63,930,000,000 + ($58,579,000,000 – $49,099,000,000) – $10,481,000,000 = $111,978,901,000 |
Depreciation = Accumulated Depreciation of 2018 – 2017 $70,898,000,000 + ($49,099,000,000 – $41,293,000,000) – $13,372,000,000 = $65,332,000,000 |
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|
Net Capital Spending = Ending net fixed assets ̶ Beginning net fixed assets + Depreciation Net fixed assets = net property, plant, and equipment on the balance sheet. Net fixed assets are what Apple’s spending on fixed assets for the year. |
Numbers are all obtained from the balance sheet. Ending net property plant equipment = September 30, 2019 Beginning net property plant equipment = September 30, 2018 Depreciation = Accumulated Depreciation of 2019 – 2018 Net Capital Spending 2019 = ($37,378,000,000 – $41,304,000,000) + = $5,554,000,000 |
Ending net property plant equipment = September 30, 2018 Beginning net property plant equipment = September 30, 2017 Net Capital Spending 2018 = ($41,304,000,000 – $33,783,000,000) + = $15,327,000,000 |
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|
Net Working Capital = (2019 Current Assets – Current Liabilities) – (2018 Current Assets – Current Liabilities) Net working capital is Apple’s spending on current assets for the year, such as inventory. |
Net working capital = (2019 Current Assets – Current Liabilities) – (2018 Current Assets – Current Liabilities) = (162,819,000,000-105,718,000,000) – (131,339,000,000-116,866,000,000) = $42,628,000,000 |
Net working capital = (2018 Current Assets – Current Liabilities) – (2017 Current Assets – Current Liabilities) = (131,339,000,000-116,866,000,000) – (128,645,000,000-100,814,000,000) = $27,831,000,000 |
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Cash Flow from Assets (free cash flow) =
Operating Cash Flow – Net Capital Spending – Net Working Capital Cash flow from assets (or sometimes called “free cash flow” is the actual cash inflow or outflow from the business. |
$111,978,901,000 – $5,554,000,000 – $42,628,000,000 = $63,796,901,000 |
$65,332,000,000 – $15,327,000,000 – $27,831,000,000 = $22,174,000,000 |
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|
Shares Outstanding (obtained by Google search) |
4,649,000,000 |
5,000,000,000 |
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Cash flow from assets per share = |
|
Amazon |
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December 31, 2019 The company uses the term “Operating Income/ Loss” instead of EBIT. They are equivalent. |
December 31, 2018 |
|
|
Operating Cash Flow = Operating Income/Loss + Depreciation – Taxes [Operating cash flow is the cash flow from Amazon’s production] |
Look for Amazon’s income statement. Obtain the number for “Operating Income or Loss December 31, 2019. Depreciation is found under balance sheet. $14,541,000,000 + ($46,975,000,000 – $33,973,000,000) – $2,374,000,000 = $25,169,000,000 |
Depreciation = Accumulated Depreciation of 2018 – 2017
$12,421,000,000 + ($33,973,000,000 – $19,707,000,000) – $1,197,000,000 = $25,490,000,000 |
|
Net Capital Spending = Ending net fixed assets ̶ Beginning net fixed assets + Depreciation Net fixed assets = net property, plant, and equipment on the balance sheet. Net fixed assets are what Amazon’s spending on fixed assets for the year. |
Numbers are all obtained from the balance sheet.
Ending net property plant equipment = December 31, 2019 Beginning net property plant equipment = December 31, 2018 Depreciation = Accumulated Depreciation of 2019 – 2018 (97,846,000,000 –61,797,000,000) + (46,975,000,000 – 33,973,000,000) = $49,051,000,000 |
Ending net property plant equipment = December 31, 2018 Beginning net property plant equipment = December 31, 2017 Net Capital Spending 2018 = (61,797,000,000-48,866,000,000) + $27,197,000,000 |
|
Net Working Capital = (2019 Current Assets – Current Liabilities) – (2018 Current Assets – Current Liabilities)
Net working capital is Amazon’s spending on current assets for the year, such as inventory. |
Net working capital = (2019 Current Assets – Current Liabilities) – (2018 Current Assets – Current Liabilities) = (96,334,000,000-87,812,000,000) – (75,101,000,000-68,391,000,000) = $1,812,000,000 |
Net working capital = (2018 Current Assets – Current Liabilities) – (2017 Current Assets – Current Liabilities) = (75,101,000,000-68,391,000,000) – (60,197,000,000-57,883,000,000) = $4,396,000,000 |
|
$25,169,000,000 – $49,051,000,000– $1,812,000,000 = -25,694,000,000 |
$25,490,000,000 – $27,197,000,000–$4,396,000,000 = -6,103,000,000 |
|
|
504,000,000 |
500,000,000 |
5. Obtain their year-end price per share for the past two years.
· Apple price January 1, 2020 = $296.24
· Apple price January 1, 2019 = $170.16
· Percentage change in price from January 2019 to January 2020 =
· Amazon price January 1, 2020 = $1,875.00
· Amazon price January 1, 2019 = $1,465.20
· Percentage change in price from January 2019 to January 2020 =
6. Which company performed better in terms of price appreciation? The company with higher earnings per share, or cash flow from assets per share?
· As we can see from our calculations, Apple enjoyed higher price appreciation for the past year although its earnings per share is lower than Amazon’s.
· Its free cash flow per share is actually higher than Amazon’s according to the above calculations. In fact, Amazon’s free cash flows are negative for the two years calculate.
· Therefore, when we are choosing which stocks to invest, first we select a few companies we are interested in, and then perform the above calculation to see which company has higher free cash flow per share.
· Again, this project using psychology, companies try to get investors to focus on numbers that look better than they actually are. In behavior finance, this method is called “framing.”