Stock Investor Pro Questions

a. Use the Custom Field Editor in Stock Investor to define the following ratios referred to in Chapter 8.

(1) After-tax profit margin.
(2) Return on assets.
(3) Return on equity.
(4) Inventory turnover.
(5) Total asset turnover.
(6) Current ratio.
(7) Quick ratio.
(8) Net working capital to total assets.
(9) Total debt to total assets.
(10) Price to earnings.
(11) Price to book.
(12) Dividends to price.
(13) Dividend payout.

b. Use the ratios created in part a to analyze Pepsico and Coca-Cola.

The Du Pont system of analysis expresses (a) return on assets (net income/ total assets) as the product of the profit margin (net income/sales) and total asset turnover (sales/total assets) and (b) return on equity (net income/ common equity) as the product of return on assets (net income/total assets) and the equity multiplier (total assets/common equity). Analyze the values of these five variables for a portion of the Heavy Capital Goods industry (SIC 351x and 352x) versus the Food Stores industry (SIC 54xx). Use the data from the last fiscal year—Net Income Y1, Total Assets Y1, Sales Y1, Equity (common) Y1. Consider only those firms that have a positive value for return on assets and return on equity and further limit your analysis to the largest (market capitalization) firms.

a. Select the companies that have a return on equity (ROE) of at least 20 percent. How many are there?
b. From those companies identified in part a, select those companies that have a dividend yield of at least 5 percent. How many companies remain?
c. From the analysis of parts a and b, what conclusions could you draw?
d. Suggest some reasons to explain your conclusions.