FIN501 Strategic Corporate Finance

Trident University Student Name: Module 2 – SLP Stock and Bond Valuation FIN501 Strategic Corporate Finance Instructor: Date: What is the P/E ratio of this company? How does the P/E ratio compare to other companies in this industry? Based on the P/E ratio, do you think the company is overvalued or undervalued? The price/earnings (P/E) ratio is the market price divided by the earnings-per-share. According to Yahoo Finance (2019) the latest P/E Ratio (TTM) for Microsoft is 27.23, while for Oracle Corporation the P/ E is 18.02 compared to 19.16 for Apple and 24.96 for Alphabet Inc. (GOOG). In 2019, Google's parent company, Alphabet together with Apple and Amazon are the most valuable companies in the world. The P/E is one of the most widely used methods to measure the relative valuation of shares Comparing the current P/E ratio with the historical P/E ratio and the P/E ratios for other firms and the industry provides insights on whether the stock is undervalued or overvalued. When comparing the four companies, Microsoft has the highest P/ E ratio and this indicates that the company’s stock is high relative to the earnings and likely overvalued. Microsoft reached the $1 trillion market capitalization in 2019 based on better than expected financial results and there has been increased demand for the company’s stock, which has pushed the stock price even higher. Find the company’s balance sheet. Calculate the book value of each share. This can be done by taking the total assets and subtracting total liabilities. Then divide the number you get by the total number of outstanding shares. Is the number you get higher or lower than the current price of the share? Based on what you’ve found, would you say the stock is overvalued or undervalued? In the year ended 30th June 2019, the total assets was $286,556,000, 000 and the total liabilities were $184,226,000,000 and the net assets being the difference between the two is $ 102,330,000,000 while the outstanding shares was $7,662,818,000. Dividing the net assets and the outstanding shares is 13.35 and this is lower than the current share price of the company’s stock (Yahoo Finance, 2019). On the Sep 11,...