Ratio | Formula | Amaon 2013 | eBay 2013 | Debt Ratio | TL/TA | | | In leverage ratio, I choose debt ratio, eBay is 24.6% while Amazon is 54.8%. In this ratio, eBay is lower than Amazon which means eBay has less debt should to pay than Amazon. EBay’s assets are financed more through equity than debt compare to Amazon, illustrated that eBay has a lower risk in operation. In addition, eBay may have more borrowing capacity and financial flexible to enlarge its business than Amazon. Let’s see some profitability ratio to have some in-depth discussion.
The average performance of DFA large company value fund has very small difference with crsp cap decile #1. It is a little lower than S&P 500. It means the portfolio is diversified to eliminate unsystematic risk, but tracking error is also exist.The reason of the tiny difference may be timing or security selection. the tiny difference may be timing or security selection. What conclusions can you draw from all this?
One strategic initiative presently contemplated is to reduce company costs by consolidating financial advisors in 5-10 person offices in large metro areas. While this strategy offers some benefits, we believe the opportunity costs outweigh the cost savings. On the other hand…..”thesis……did we decide to consolidate just a few offices or leave all of them the same and focus on expansion?” Compared to other financial investment firms, Edward Jones is relatively small with limited resources and limited access to cash (Exhibit 5). Since its foundation it has remained a limited partnership. While remaining private has yielded benefits, it also limits its access to cash- not sure if I should just erase this.
1.How well is Jones Electrical Distribution performing? From coverage ratio analysis we can see Jones electrical distribution’s business is stable business as a retailer. Sales increase 18% and 17% in 2006 and 2007 respectively, with estimation in 2007 will be 20.4%. Shareholder’s equity is around 30%. Jones sustainable growth rate: g*=RT*ROA, so compare with actual sales growth, we can make the conclusion Jones well managed its growth through year of 2004 to 2007.
* Risk premium: using the geometric mean from 1926 to 1999 might be problematic, since the risk premium of recent decades is obviously lower than earlier (stated in the lecture). So we think a range of 3% to 5% is more reasonable. * Cost of Debt: Joanna’s calculation is based on the items on the income statement. However, when calculating cost of debt, we should consider the opportunity cost rather than the accounting cost. We should perceive the opportunity cost as the return investors will expect to earn somewhere else when accepting similar risk.
* WACC is the weighted average cost of capital. WACC will tell investors and lenders what the opportunity cost of investing is. Most people who calculate WACC will not get the same WACC because people interpret financials difference and look at the valuation differently. Even though it is calculated differently it is important that investors know what WACC means when they see it in an analysis so they know it is the opportunity cost. WACC is the minimum return required by the investors * As I said in the last bullet there are many different to interpret the numbers in WACC and the way Cohen did it is one way but there is different ways to interpret the data given.
The investment is 13%, most of this is in non-residential investment. This consists of business equipment, such as software, business equipment, and manufacturing. Import and export have opposite effects on GDP. Exports add, while imports subtract, from GDP. Imports are greater than exports, and so the net effect of trade is a deficit and its net export it –3% The government spending is 19% because state and local governments can't spend more during a recession.
This meant that the risk was issued at investment grade but now was not backed by valuable assets of the companies which were to be spun off to MI which was to be backed by equity. The value of the bonds would decline substantially and the bond holders would loose a lot of their investment. c) Management(The Mariott brothers) The management gains from the spin off since it is able to split its distressed assets from the profit driving assets and there was a new company which was not under distress thus helping them retain their management positions and start from scratch. They can concentrate on core businesses thus improving efficiency and value. d) The value of the
We miss essential information like the interest rate and maturity of the debt to calculate the market value of debt. From the book value of debt and the interest expenses over 2007 we estimate the cost of debt: 2,26/43,08 = 5,25 %. This is 0.7% more than the risk free rate. This seems reasonable when considering the low leverage ratio of the firm and high cash reserves of the firm, on the other side the interest coverage ratio of Tottenham of 1,24 is pretty low. We assume that the amount of debt has been constant over 2007.
The second strategy was a relative value trade; convergence was expected but not guaranteed except perhaps over a very long horizon. LTCM sold options with a long maturity that corresponded to a strong volatility (20%), while dynamically hedging the position; LTCM would have no exposure to the corresponding equity index. In fact, the S&P 500 has had a much lower volatility in the past (13%) and was expected to come back to historical volatility, which would reduce the relative value of the options sold in the beginning, therefore LTCM would be able to make a profit. b. Explain the circumstances of the LTCM’s collapse, and why the strategies presented in part a) failed.