The next step for Dr. Washington is to help him compare stocks and make good investment decisions. With that in mind, you want to compare Industrial Company #1 with its top rival Industrial Company #2 and explain to Dr. Washington which one would make a better investment.
In preparation for sharing your thoughts with Dr. Washington, Calculate each of the following for each respective company:
Operating income margin
Net income margin
Current ratio
Earnings per share
Price-to-earnings (P/E) ratio.
Industrial Company #1
(in millions)
2008 2009 2010
Sales $4,250 $4,500 $4,750
Operating Income
$400 $445 $480
Net Income $200 $225 $250
Current Assets
$2,500 $2,750 $2,850
Current Liabilities
$2,300 $2,450 $2,500
Shares Outstanding
100 100 100
Average Stock Price
$32 $39 $50
Industrial Company #2
(in millions)
2008 2009 2010
Sales $3,350 $3,750 $4,250
Operating Income
$335 $395 $470
Net Income $168 $198 $240
Current Assets
$1,750 $1,900 $2,100
Current Liabilities
$1,350 $1,400 $1,500
Shares Outstanding
80 80 80
Av Stock Price
$38 $46 $62
2010 Industry Avg.
Operating Margin 10.50%
Net Margin 5.50%
Current Ratio 1.25
Earnings/Share $2.75
PE Ratio 20.0
Perform the calculations of the following values for both Industrial Company #1 and Industrial Company #2 using the information from the data tables located above.
Operating income margin
Net income margin
Current ratio
Earnings per share
Price-to-earnings (P/E) ratio.
Calculations should be organized in an Excel spreadsheet
Compare the calculations for both Industrial Company #1 and Industrial Company #2.
Compare the company calculation values to the industry averages.
In your own words, explain the significance of each calculation.
Then write a 1-page explanation,as to which company is a better investment.
