In your own words, please 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.
The National Association of Securities Dealer Automated Quotation (NASDAQ) and the New York Stock Exchange (NYSE) are the two main stock exchanges in the US. The two public stock exchanges are located in the city of New York, although their mode of operations differs slightly. The NASDAQ is mainly a high-tech market which trades in stocks for companies with interests in the internet and electronics while the NYSE mainly deals with industrial and blue-chip firms whose stocks are considered more stable. The NYSE has a direct form of operations where individuals buy and sell from one another mainly through auctions while the NASDAQ is a dealer market where buyers and sellers do not engage directly ( (Desjardins, 2017). The two make up a significant percentage of the world market for equities, amounting to $32 trillion (Desjardins, 2017). This valuation makes the NASDAQ and the NYSE the two single largest stock exchanges in the world.
Delegate your assignment to our experts and they will do the rest.
When put into perspective, a total of over 4700 companies are listed in the two stock exchanges. Comparatively, the listing fee is way higher for the NYSE that it is for the NASDAQ. Annual listing fees for the NYSE can reach up to $500,000 depending on the number of traded shares while that for the NASDAQ is around $27,500 (Desjardins, 2017). The market capitalization for the NYSE is around $21.3 trillion while that for the NASDAQ is about $11 trillion.
Using the two stocks you identified, determine the free cash flow from 2013 & 2014. What inference can you draw from the companies’ free cash flow.
Free Cash Flow is calculated by the formulae:
Free Cash Flow= Cash Flow from Operations - Capital Expenditures
The 2013 and 2014 Free cash flow for Ford Motor Company will be as follows:
2013 in Millions
10,444 – 6,597 = 3,847
2014 in Millions
14,507 – 7,463 = 7,044
An analysis of the cash flows for the two years reveals an increase in the money that Ford received from operations. Such an increase permits Ford to input more money in its capital expenditures. These including offices, buildings, machinery improvement, land, patents among others. This increased capital expenditure will be possible at the same time as the business expands its operations. Such endeavors are only worthwhile if the business is able to maintain its operations. Increased cash flows for the company is a pointer to the positive financial performance for Ford. Although the Free cash flows do not entirely indicate the entire financial performance of the company, it gives an indication of the performance of other areas. Hence, Ford has the freedom to increase its capital expenditures without affecting the normal operations.
Bank of America
Free Cash Flows for 2013 and 2014 from the WSJ (2018)
Free Cash Flow= Cash Flow from Operations - Capital Expenditures
2013 in Millions
$92,817
2014 in Millions
$30,795
The FCF for The Bank of America significantly reduced when the two years are compared. The precipitating factor for such a reduction is increased expenditure on infrastructure that will enhance the operations for the company. While a positive increase in the FCF for Bank of America would create a strong balance sheet, a decrease in FCF is not necessarily harmful. Such a reduction would have been caused by an increase in capital expenditure which increases shareholder value. These investments create shareholder value and increase the company’s market position. Investments in new technologies, payment of debts and dividends, an increase in company operations could have caused the reduction. Such investments are likely to bring in more returns hence the value of the company will increase in the long term.
Using the 2016 & 2017 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? Please be articulate.
Liquidity Ratios
The following is the balance sheet for Ramakrishnan Inc. All the values shown are in millions of dollars for the two years that the ratios will be calculated.
Current assets: 2016 2017 Current liabilities: 2016 2017
Cash and marketable 15 20 Accrued wages 18 19 securities and taxes
Accounts Receivable 75 84 Accounts payable 45 51
Inventory 110 121 Notes payable 40 45
Total 200 225 Total 103 115
Current ratio, Quick ratio, and Cash 2016
Current ratio = Current assets ÷ Current liabilities 200 ÷103= 1.9417 2017
225 ÷ 115 = 1.9565
Quick Ratio =Quick Assets ÷ Current Liabilities 2016
(200-110) ÷103 = 0. 8738
2017
(225-121) ÷ 115= 0.9043
Cash Ratio = (Cash +Marketable Securities) ÷ Current Liabilities 2016
15 ÷ 103 =0.1456
2017
20 ÷ 115 = 0.1739
The listed ratios mainly deal with inventories which are the short term assets and liabilities for the company. The current ratio shows that the company is in a strong position to pay its debts. A cash ratio of 0.1739 implies that the company will not be able to pay its short term liabilities using its cash and marketable securities. However, it still retains a good position to pay these debts using the current assets.
Asset Management Ratios
Days’ sales in inventories = (Current inventory x365) ÷ Annual sales
= (5.6 x 365) ÷ 23
=88.87 days
Inventory turnover ratio = Annual sales ÷ Current inventory
= 23 ÷ 5.6
= 4. 11 days
The days’ sales inventory for the company is well suited for the business operations. However, improvement in the number of days will increase sales. The turnover ratio implies that the stock has to be turned over quickly to fulfill customer needs.
Profitability Ratios
Gross Profit Rate = Gross Profit ÷ Net Sales
=6 ÷ 23
=0.26
Return on Sales = Net Income ÷ Net Sales
=5.5 ÷ 23
=0.24
The profitability ratios for the company indicate a good performance on its investment. By reducing the costs, the company will increase its profitability as indicated by the ratios.
References
Desjardins, J. (2017). Here's the difference between the NASDAQ and NYSE . businessinsider.com . Retrieved October 9, 2018, from https://www.businessinsider.com/heres-the-difference-between-the-nasdaq-and-nyse-2017-7?IR=T
WSJ. (2018). Bank of America Corp . wsj.com . Retrieved from https://quotes.wsj.com/BAC/financials/annual/cash-flo
