RSM330 Assignment 2
RSM330 Assignment 2 – Group Work
Due: March 20, 2015 in class & online
Question 1: Fundamental Analysis (Total 20 Marks)
(a)
i. These two companies are both in the Auto Parts and Equipment industry. ii. The auto industry sells discretionary goods, which consumers can afford to purchase more of in a booming economy. Therefore these companies stocks are cyclical since their price can be affected by ups and downs in the economy.
(b)
Magma
2012
2013
2014
Net Profit Margin
4.6%
4.5%
5.1%
Asset Turnover
1.9x
2.0x
2.0x
Leverage
1.81
1.86
2.09
ROE
(4.6%)(1.9x)(1.81)
= 15.8%
(4.5%)(2.0x)(1.86) = 16.74%
(5.1%)(2.0x)(2.09)
= 21.3%
Linamar
2012
2013
2014
Net Profit Margin
4.5%
6.4%
7.7%
Asset Turnover
1.4x
1.4x
1.5x
Leverage
2.3
1.94
1.76
ROE
(4.5%)(1.4x)(2.3)
= 14.5%
(6.4%)(1.4x)(1.94)
= 17.4%
(7.7%)(1.5x)(1.76)
= 20.3%
As you can see the ROE for Linamar has constantly increased at roughly 3% each year while it jumped roughly 4.5% for Magma between from 2013 to 2104. This means Linamar has consistently increased the net income returned as a percentage of shareholders equity, which attracts investors. Furthermore has consistently had a higher asset turnover than Linamar means they are generating greater revenues per dollar of assets.
(c)
Magma
2012
2013
2014
EPS Growth
45.0%
11.0%
28.6%
Linamar
2012
2013
2014
EPS Growth
44.2%
56.4%
39.2%
Magma Trailing P/E ratio: 13.10
Linamar Trailing P/E ratio: 15.66
If we were to look at individual ratios both companies outperform each other in specific areas. For example Linamar has a greater net profit margin, while Magma maintains a higher asset turnover. Although in order to determine which stock to purchases it is necessary to make a decisions based on all the information provided. Therefore I would chose to invest in Linamar due to their higher EPS growth, which shows they have greater profitability per unit of equity. Also Linamar has had consistent growth in their net profit margin and ROE, which means
Due: March 20, 2015 in class & online
Question 1: Fundamental Analysis (Total 20 Marks)
(a)
i. These two companies are both in the Auto Parts and Equipment industry. ii. The auto industry sells discretionary goods, which consumers can afford to purchase more of in a booming economy. Therefore these companies stocks are cyclical since their price can be affected by ups and downs in the economy.
(b)
Magma
2012
2013
2014
Net Profit Margin
4.6%
4.5%
5.1%
Asset Turnover
1.9x
2.0x
2.0x
Leverage
1.81
1.86
2.09
ROE
(4.6%)(1.9x)(1.81)
= 15.8%
(4.5%)(2.0x)(1.86) = 16.74%
(5.1%)(2.0x)(2.09)
= 21.3%
Linamar
2012
2013
2014
Net Profit Margin
4.5%
6.4%
7.7%
Asset Turnover
1.4x
1.4x
1.5x
Leverage
2.3
1.94
1.76
ROE
(4.5%)(1.4x)(2.3)
= 14.5%
(6.4%)(1.4x)(1.94)
= 17.4%
(7.7%)(1.5x)(1.76)
= 20.3%
As you can see the ROE for Linamar has constantly increased at roughly 3% each year while it jumped roughly 4.5% for Magma between from 2013 to 2104. This means Linamar has consistently increased the net income returned as a percentage of shareholders equity, which attracts investors. Furthermore has consistently had a higher asset turnover than Linamar means they are generating greater revenues per dollar of assets.
(c)
Magma
2012
2013
2014
EPS Growth
45.0%
11.0%
28.6%
Linamar
2012
2013
2014
EPS Growth
44.2%
56.4%
39.2%
Magma Trailing P/E ratio: 13.10
Linamar Trailing P/E ratio: 15.66
If we were to look at individual ratios both companies outperform each other in specific areas. For example Linamar has a greater net profit margin, while Magma maintains a higher asset turnover. Although in order to determine which stock to purchases it is necessary to make a decisions based on all the information provided. Therefore I would chose to invest in Linamar due to their higher EPS growth, which shows they have greater profitability per unit of equity. Also Linamar has had consistent growth in their net profit margin and ROE, which means