Introduction
Generally, it is important to evaluate an investment for profitability and risk in order to effectively measure how the given investment is appropriate for a portfolio. As such, a company’s investment strategies should be based on its goals, risk appetite, as well as its future needs for capital. Normally, investments strategies focus on either capital appreciation or wealth protection. Various factors inform investment decisions. The first important factor that is evaluated in investment analysis is risk. For instance, if the risk of the investment is too high, then the loss is quite likely. The second factor that is important in investment analysis is cash flows. The third important factor in investment analysis is resale value. The higher the resale value of a given asset the more lucrative it is. The assets of Apple, Caterpillar, Consolidated Edison, Macy’s and Northern Trust have been identified for investment by XYZ Company. Therefore, the assets of the identified companies will be analyzed for profitability.
Apple
Apple has registered improvements in terms of financial performance for the last decade. For instance, Apple announced its highest annual revenue of 233.72 billion US dollars generated in revenue (Yahoo Finance, 2017). Apple has significantly increased sales of the Ipad, whose shipments have reached more than 13 million units in the first quarter of 2017. The performance of the company is promising and investing in its stocks could prove profitable.
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Apple could benefit from the robust global demand for smartphones. This is expected to increase at a CAGR of 3.3 percent over the next five years. Additionally, President Trump’s tax plan could help Apple to bring back up to $216 billion in cash that is currently held overseas. It is also important to realize that Wall Street is bullish and expects up to 14 % upside potential. Apple stock has actually surged, gaining 35 percent thus far. Therefore, the assets of the company could prove profitable for XYZ Company.
| Fiscal Years | Total Net Sales in billion US dollars |
| 2013 | 170.9 |
| 2014 | 182.8 |
| 2015 | 233.72 |
| 2016 | 215.64 |
| 2017 | 229.23 |
Caterpillar
Caterpillar’s growth has been driven by the robust demand for its construction equipment in North America and China. The company smashed Wall Street’s profit and sales estimates. As a result, its shares rose up by 6 percent. It is important to realize that the company’s sales surged across its key businesses in the third quarter of 2017. This was partly due to investment by mining customers. Additionally, profit attributable to common stockholders went up to $1.06 billion from $283 million (Nasdaq, 2017). This means that the company earned $1.95 per share. It is important to realize that Caterpillar’s financial performance has not been constant. Therefore, investing in its assets could be risky for XYZ Company.
| Fiscal Year | Revenue in US dollars millions |
| 2015 | 47,011 |
| 2016 | 38,537 |
| 2017 | 44,000 |
Consolidated Edison
Consolidated Edison along with its subsidies provide regulated electric, gas, as well as steam utility service in and around the New York area. The company has become one of America’s largest investor owned utility companies. The company has approximately $12 billion in annual revenues and $40 billion in assets (Cons Ed, 2017). It is important to note that Consolidate Edison has increased its dividend for each of the past 44 years. Apart from selling power, the company has also focused on offering its consumers with green alternatives that can help them save money. This indicates that the company’s business model is a sustainable one. Since 1999, Consolidated Edison’s business has constantly grew at a rate of about 1.4 percent per year while the stock price appreciated by nearly 0.8 percent per year. This translates to an annualized total return of about 4.1 percent (Nasdaq, 2017). The company’s revenue from sales has been consistent from 2013 onwards. However, the gross profit of the company has shown slight improvements from 2013 onwards. This indicates that the firm is performing well and its stocks have a great potential in terms of profitability.
| Fiscal Year | Revenue in millions | Gross Profit in millions |
| 2013 | 12, 354 | 5,163 |
| 2014 | 12,919 | 5,112 |
| 2015 | 12,554 | 5,494 |
| 2016 | 12,075 | 5,718 |
Between 2014 and 2016, the company’s operating margin indicated significant improvement. The average earning per share of the company’s stock for 2017 was $3.31 on average. Therefore, the stocks are profitable.
Macy’s
Macy’s is a premier Omni channel retailer dealing in iconic brands that serve customers through great stores. However, the company’s growth has been scuttled by poor sales. This has resulted in the company registering low revenues for the last few years. The company’s gross margin has also been declining since 2011. This indicates that the firm doing poorly in the market compared to competition.
| Fiscal Year | Revenue in Millions | Gross Margin | Book Value Per Share |
| 2015 | $28,105 | 40.00 | $15.71 |
| 2016 | $27,079 | 39.40 | $12.80 |
| 2017 | $25,778 | 39.05 | $12.46 |
The book value per share has been on the decline since 2015. This is a clear indication that investing in the stocks of Macy’s is too risky. Therefore, the stocks should be avoided.
Northern Trust
The Northern Trust has been performing well over the past years despite stiff competition in the industry. Some of the major competitors include Atlantic Capital, Arrow Financial, AmeriServ Financial among many others. The annual revenues of the firm have been on the rise for the past three years. This indicates that the company’s growth prospects are very promising.
| Fiscal Year | Revenue in millions |
| 2014 | 4,512 |
| 2015 | 4,856 |
| 2016 | 5,143 |
The average stock price for the company’s shares is $106. The share price has been stable for most part of the year with slight periodical surges. This indicates that there is likelihood of profitability in investing in the shares. Therefore, the company’s shares are worth considering for investment.
Conclusion
In conclusion, Apple, Consolidated Edison and Northern Trust Shares are worth investing in. this is because the values of the assets are stable and profitable. The prospects for growth for such companies are high because their revenues have been on the rise over the years. Additionally, the companies are profitable in their respective industries. On the other hand, Caterpillar and Macy’s stocks are relatively risky and may not bring return on invested capital.
References
Caterpillar Inc. 2017. The Wall Street Journal www.quotes.wsj.com/CAT/financials/annual/income-statement
Macy’s Inc. 2017. Morningstar www.performance.morningstar.com/stock/performance/return.action?p=price_history_page&t=M
Nasdaq 2017 – Consolidated Edison www.nadaq.com/symbol/ed/financials?query=ratios
Nasdaq 2017- NTRS Company Financials www.nasdaq/symbol/ntrs/fiancials?query=income-statement
Yahoo Finance - Apple Inc. https://finance.yahoo.com/quote/AAPL/
Yahoo Finance 2017- Northern Trust Corporation Financials https://finance.yahoo.com/quote/ntrs/history/
