Question

Stocks

Instructions

Answer the following questions in a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link.

This course requires the use of Strayer Writing Standards. For assistance and information, please refer to the Strayer Writing Standards link in the left-hand menu of your course. Check with your professor for any additional instructions.

Please respond to the following:

1. In your own words, identify two different stock exchanges in the United States. Describe the similarities and differences between the two stock exchanges. Identify one stock from each of the two stock exchanges.
2. Using the two stocks you identified, determine the free cash flow from 2015 and 2016. What inference can you draw from the companies’ free cash flow?
3. Using the 2017 and 2018 financial statements for both stocks, prepare two financial ratios for each of the following categories: liquidity ratios, asset management ratios, and profitability ratios. You should have a total of six ratios for each stock, per year. What challenges, strengths, or weaknesses do you see?

Answer 1

Answer1.

The iNew iYork iStock iExchange i(NYSE) iis ia istock iexchange ilocated iin iNew iYork iCity ithat iis ithe ilargest iequities-based iexchange iin ithe iworld, ibased ion ithe itotal imarket icapitalization iof iits ilisted isecurities. iFormerly irun ias ia iprivate iorganization, ithe iNYSE ibecame ia ipublic ientity iin i2005 ifollowing ithe iacquisition iof ielectronic itrading iexchange iArchipelago. iIn i2007 ia imerger iwith iEuronext, ithe ilargest istock iexchange iin iEurope, iled ito ithe icreation iof iNYSE iEuronext, iwhich iwas ilater iacquired iby iIntercontinental iExchange, ithe icurrent iparent iof ithe iNew iYork iStock iExchange.

Located ion iWall iStreet iin iNew iYork iCity, ithe iNYSE—also iknown ias ithe i"Big iBoard"—is imade iup iof i21 irooms ithat iare iused ito ifacilitate itrading. iThe imain ibuilding, ilocated iat i18 iBroad iStreet, iand ithe ione iat i11 iWall iStreet, iwere iboth idesignated ihistorical ilandmarks iin i1978. iThe iNYSE iis ithe iworld’s ilargest istock iexchange iby imarket icap, iestimated ito ibe i$28.5 itrillion ias iof iJune i30, i2018. i

The iNYSE irelied ifor imany iyears ion ifloor itrading ionly, iusing ithe iopen ioutcry isystem. iMany iNYSE itrades ihave itransitioned ito ielectronic isystems, ibut ifloor itraders iare istill iused ito iset ipricing iand ideal iin ihigh-volume iinstitutional itrading.

Nasdaq iis ia iglobal ielectronic imarketplace ifor ibuying iand iselling isecurities. iNasdaq iwas icreated iby ithe iNational iAssociation iof iSecurities iDealers i(NASD) ito ienable iinvestors ito itrade isecurities ion ia icomputerized, ispeedy iand itransparent isystem, iand icommenced ioperations ion iFebruary i8, i1971.

Nasdaq iofficially iseparated ifrom ithe iNASD iand ibegan ito ioperate ias ia inational isecurities iexchange iin i2006. iIn i2007, iit icombined iwith ithe iScandinavian iexchange igroup iOMX ito ibecome ithe iNasdaq iOMX igroup, iwhich iis ithe ilargest iexchange icompany iglobally, ipowering i1 iin i10 iof ithe iworld’s isecurities itransactions.

Headquartered iin iNew iYork, iNasdaq iOMX ioperates i25 imarkets i– iprimarily iequities, iand ialso iincluding ioptions, ifixed iincome, iderivatives iand icommodities i– ias iwell ias ione iclearinghouse iand ifive icentral isecurities idepositories iin ithe iU.S. iand iEurope. iIts icutting-edge itrading itechnology iis iused iby i70 iexchanges iin i50 icountries. iIt iis ilisted ion ithe iNasdaq iunder ithe isymbol iNDAQ iand ihas ibeen ipart iof ithe iS&P i500 isince i2008.

The iNasdaq icomputerized itrading isystem iwas iinitially idevised ias ian ialternative ito ithe iinefficient i“specialist” isystem, iwhich ihad ibeen ithe iprevalent imodel ifor ialmost ia icentury. iThe irapid ievolution iof itechnology ihas imade ithe iNasdaq’s ielectronic itrading imodel ithe istandard ifor imarkets iworldwide.

Comparison iof i iNASDAQ iand iNYSE

i	NASDAQ	NYSE
Acronym ifor	National iAssociation iof iSecurities iDealers iAutomated iQuotations	New iYork iStock iExchange
Year ilaunched	1971	1817
Location	Trading iis ielectronic. iOffices iin ia ifloor iof ithe iMarketSite itower iin iNew iYork iCity's iTimes iSquare.	New iYork iStock iExchange ibuilding ion iWall iStreet iin iNew iYork iCity
Market itype	Dealer’s imarket	Auction imarket
Process iof iTrade iExecution	Broker icontacts imarket imaker ior iuses ionline iform	Broker icontacts ispecialist ifloor itrader ior ienters iit iinto iUniversal iTrading iPlatform i(UTP)
Number iof icompanies ilisted	Around i2,900	Around i1,860
Total imarket icap iof icompanies ilisted	$8.5 itrillion i(2014)	$16.6 itrillion i(2014)
Annual ifee ifor ilisted icompanies	Around i$27,500	Based ion ithe inumber iof ishares ilisted; icapped iat i$500,000.
Listing ifee	$50,000 ito i$75,000	up ito i$250,000
Trading ischedule	Weekdays i9:30am ito i4:00pm iET; ia ipre-market isession i7:00am ito i9:30am iand ipost-market isession ifrom i4:00pm ito i8:00pm	Weekdays i9:30am ito i4:00pm iET
Perception	Exchange ifor ihigh-tech istocks ithat iare imore igrowth ioriented iand ipotentially imore ivolatile.	Exchange ifor iwell-established icompanies, imore istable istocks.
Public ior iprivate	Public	Held iby ipublicly ilisted iInterContinental iExchange i(ICE), iwhich ialso iowns iEuronext.
Stock iTicker	NDAQ	ICE

NASDAQ ivs. iNYSE

1. Location

While iboth ithe iNASDAQ iand iNYSE iare ilocated iin iNew iYork iCity, ithe iNYSE's ilocation ion iWall iStreet iis igenerally iconsidered imore iiconic, iperhaps idue ito ithe iexchange's ihuman ielement. iThough itrading ion ithe iNASDAQ iis ifully iautomated, ithe iNASDAQ istill ihas ia iphysical ipresence iin iNew iYork iCity, iowning ia ifloor iin ithe iMarket iSite itower ithat iis iat ithe icenter iof iTimes iSquare.

2. Dealer iVs. iAuction iMarket

The ifundamental idifference ibetween ithe iNYSE iand iNASDAQ iis iin ithe iway isecurities ion ithe iexchanges iare itransacted ibetween ibuyers iand isellers. iThe iNASDAQ iis ia idealer's imarket, iwherein imarket iparticipants iare inot ibuying ifrom iand iselling ito ione ianother idirectly ibut ithrough ia idealer, iwho, iin ithe icase iof ithe iNASDAQ, iis ia imarket imaker. iThe iNYSE idiffers iin ithat, iat imarket iopen iand iclose, iit ifunctions ias ian iauction imarket, iwherein iindividuals iare itypically ibuying iand iselling ibetween ione ianother, iand ithere iis ian iauction ioccurring iwhere ithe ihighest ibidding iprice iwill ibe imatched iwith ithe ilowest iasking iprice.

3. Perceptions

The iNASDAQ iis iperceived ias ia ihigh-tech iexchange iand iincludes imany ifirms ithat ideal iwith ithe iInternet ior ielectronics. iIts istocks iare iconsidered imore ivolatile iand igrowth ioriented. iMeanwhile, ithe iNYSE iis iconsidered ito ibe ithe iexchange ifor iwell-established icompanies ithat ihave istable iand iestablished istocks.

4. Indices

NASDAQ iindices iinclude ithe iNASDAQ iComposite, iNASDAQ-100, iand iNASDAQ iBiotechnology.

Indices ion ithe iNYSE iinclude ithe iDow iJones iIndustrial iAverage iand iNYSE iComposite.

Other iindices, ilike ithe iS&P i500 iand iRussell i1000, iinclude istocks ilisted ion iboth iexchanges.

Answer2.

In icorporate ifinance, ifree icash iflow i(FCF) ior ifree icash iflow ito ithe ifirm i(FCFF) iis ia iway iof ilooking iat ia ibusiness's icash iflow ito isee iwhat iis iavailable ifor idistribution iamong iall ithe isecurities iholders iof ia icorporate ientity. iThis imay ibe iuseful ito iparties isuch ias iequity iholders, idebt iholders, ipreferred istockholders, iand iconvertible isecurity iholders iwhen ithey iwant ito isee ihow imuch icash ican ibe iextracted ifrom ia icompany iwithout icausing iissues ito iits ioperations.

Free icash iflow ican ibe icalculated iin ivarious iways, idepending ion ithe iaudience iand iavailable idata. iA icommon imeasure iis ito itake ithe iearnings ibefore iinterest iand itaxes imultiplied iby i(1 i− itax irate), iadd idepreciation iand iamortization, iand ithen isubtract ichanges iin iworking icapital iand icapital iexpenditure. iDepending ion ithe iaudience, ia inumber iof irefinements iand iadjustments imay ialso ibe imade ito itry ito ieliminate idistortions.

Answer3.

Financial iratios iexpress irelationships ibetween ifinancial istatement iitems. iAlthough ithey iprovide ihistorical idata, imanagement ican iuse iratios ito iidentify iinternal istrengths iand iweaknesses, iand iestimate ifuture ifinancial iperformance. iInvestors ican iuse iratios ito icompare icompanies iin ithe isame iindustry. iRatios iare inot igenerally imeaningful ias istandalone inumbers, ibut ithey iare imeaningful iwhen icompared ito ihistorical idata iand iindustry iaverages.

Liquidity iand ithe iCurrent iRatio

The imost icommon iliquidity iratio iis ithe icurrent iratio, iwhich iis ithe iratio iof icurrent iassets ito icurrent iliabilities. iThis iratio iindicates ia icompany's iability ito ipay iits ishort-term ibills. iA iratio iof igreater ithan ione iis iusually ia iminimum ibecause ianything iless ithan ione imeans ithe icompany ihas imore iliabilities ithan iassets. iA ihigh iratio iindicates imore iof ia isafety icushion, iwhich iincreases iflexibility ibecause isome iof ithe iinventory iitems iand ireceivable ibalances imay inot ibe ieasily iconvertible ito icash.

Companies ican iimprove ithe icurrent iratio iby ipaying idown idebt, iconverting ishort-term idebt iinto ilong-term idebt, icollecting iits ireceivables ifaster iand ibuying iinventory ionly iwhen inecessary.

Solvency iRatios iand iFinancial iStability

Solvency iratios iindicate ifinancial istability ibecause ithey imeasure ia icompany's idebt irelative ito iits iassets iand iequity. iA icompany iwith itoo imuch idebt imay inot ihave ithe iflexibility ito imanage iits icash iflow iif iinterest irates irise ior iif ibusiness iconditions ideteriorate.

The icommon isolvency iratios iare idebt-to-asset iand idebt-to-equity. iThe idebt-to-asset iratio iis ithe iratio iof itotal idebt ito itotal iassets. iThe idebt-to-equity iratio iis ithe iratio iof itotal idebt ito ishareholders' iequity, iwhich iis ithe idifference ibetween itotal iassets iand itotal iliabilities.

Profitability iRatios iand iMargins

Profitability iratios iindicate imanagement's iability ito iconvert isales idollars iinto iprofits iand icash iflow. iThe icommon iratios iare igross imargin, ioperating imargin iand inet iincome imargin. iThe igross imargin iis ithe iratio iof igross iprofits ito isales. iThe igross iprofit iis iequal ito isales iminus icost iof igoods isold.

The ioperating imargin iis ithe iratio iof ioperating iprofits ito isales iand inet iincome imargin iis ithe iratio iof inet iincome ito isales. iThe ioperating iprofit iis iequal ito ithe igross iprofit iminus ioperating iexpenses, iwhile ithe inet iincome iis iequal ito ithe ioperating iprofit iminus iinterest iand itaxes. iThe ireturn-on-asset iratio, iwhich iis ithe iratio iof inet iincome ito itotal iassets, imeasures ia icompany's ieffectiveness iin ideploying iits iassets