Give this to Prince. presentyour opinion,with supporting rationale, there are 2 power points so it will be 2 questions. A reference for each question will be nice
a. about entering in a long-term investment in bonds and/or stocks of the company.
b. on the financial strategy of the company,how to best balance THE COMPANY’S financial leverage to optimize shareholder wealth going forward taking into consideration the company's current market position, credit rating,dividend policy, etc.
DO NOT REPEAT the information presented on the student’s slides. Instead, please complete your own research and present your findings about this company.
Texas Instruments, Inc. Texas Instruments, Inc. Bond and Stock Performance Financial Leverage Ratios Debt-to-Assets Ratio Debt-to-Equity Ratio YearTotal DebtTotal LiabilitiesDebt to Assets Ratio 12/31/20174,07717,6420.23 12/31/20185,06817,1370.3 12/31/20196,13518,0180.34 12/31/20207,11919,3510.37 12/31/20218,20624,6760.33 YearTotal DebtStockholder's EquityDebt/Equity Ratio 12/31/20174,07710,3770.39 12/31/20185,0688,9940.56 12/31/20196,1358,9070.69 12/31/20207,1199,1870.77 12/31/20218,20613,3330.62 Bond Performance Bond Value Bond #1 Value - $733.62 Bond #2 Value - $305.15 Annual Interest Payments Bond #1 – 29.00 Bond #2 – 41.50 Current Yield Bond #1 – 3.95% Bond #2 – 13.60% Yield to Maturity Bond #1 – 3.615 Bond #2 – 4.407 Stock Performance Texas Instruments, Inc. 201920202021 Price/Earnings Ratio23.8031.0324.19 Market/Book Ratio13.3118.1314.33 Earnings per share5.245.978.26 Dividends per share3.213.724.21 PEG Ratio2.572.682.11 Stock Performance NVIDIA 2021 Price/Earnings Ratio90.63 Market/Book Ratio30.90 Earnings per share3.85 Dividends per share0.16 PEG Ratio3.13 Stock Performance (Cont’d) Stockholders are receiving an adequate return on their investment Texas Instruments’ stock is undervalued compared to industry average P/E Ratio of 17.8 PEG Ratio of 1.91 Bond Recommendation Do not purchase bond High debt-to-equity ratio 2018 – 2021 In a hold status Risky for shareholders Optimize Shareholder Wealth Borrow money to finance purchase of assets Keep debt-to-equity ratio below 40% Financial leverage can increase return on equity PowerPoint Presentation Cisco Research Project Part 2 Cisco Intro Cisco Systems, Inc. is the world's largest hardware and software supplier within the networking solutions sector. The secure, agile networks business contains switching, routing, and wireless solutions. The hybrid work division has products for collaboration and contact center needs. The end-to-end security group has products spanning a variety of threat prevention necessities. The internet for the future division has routed optical networks, silicon, and optics. Optimized application experiences offer solutions such as full stack observability. Services are Cisco's technical support and advanced services offerings. In collaboration with Cisco's initiative on growing software and services, its revenue model is focused on increasing subscriptions and recurring sales. Financial Ratio Analysis The debt-to-assets ratio was manually calculated using information from Market Watch. Cisco has had to rely somewhat heavily on debt in order to deal with their assets. A number below 0.4 would indicate a healthy debt to asset ratio. The debt-to-equity ratio increased by 0.08 starting 2017 through 2018, and Cisco has been doing well with the decrease as it decreased up to 0.25. This indicates a good sign which will surely attract additional capital for the company. This low ratio indicates that Cisco does not need to rely on borrowing too much money. This signifies that Cisco knows how to manage their debt wisely. Interest coverage ratio (also called times interest earned) indicates a company’s ability to pay its debt using its current income. Currently a number of 2.5 and above indicates that the company is less risky. From the last five years, Cisco continues to increase this number. It has increased to a maximum of 16.29 so far. This indicates that the company is actively earning income so that it will have no problems meeting its debts. Financial leverage is the ratio in which shows the financing portion of assets in the form of debt to ultimately increase the return of shareholders. A number less than one is considered acceptable. Sadly, in 2017, this ratio is twice as high, and from thereon, it continued to soar. This indicates that Cisco has more debt than equity. 2017 2018 2019 2020 2021 Source Financial Leverage 1.96 2.52 2.91 2.50 2.36 Morningstar Debt-to-assets ratio 0.49 0.60 0.66 0.60 0.58 Calculated* Debt to equity ratio 0.39 0.47 0.43 0.31 0.22 Morningstar Interest coverage ratio 15.27 14.83 17.96 24.88 31.56 Morningstar Bond Performance Callable Coupon Maturity Ratings (Moody) Ratings (S&P) Last Sale Price Last Sale Yield CSCO.GG Yes 5.50 01/15/2040 A1 AA- 108.332 4.792 CSCO.GD Yes 5.90 02/15/2039 A1 AA- 112.742 4.780 CSCO.GG CSCO.GD Price Investor will pay if purchased using last price $1083.32 $1127.42 Annual Coupon Payments $55 $59 Current Yield 5.08% 5.23% YTM 4.79% 4.78% Given that yield to maturity for CSCO.GD is higher than the other, I would have to choose the CSCO.GD bond. This also has a shorter time to mature which would indicate that I will receive the par value of the bond sooner. The bonds are callable, and it will not change my decision to purchase them simply because there is no callable date announced. To support my decision in buying this bond, I'm going to look at the current ratio, quick ratio, debt to equity, sales or revenue, COGS (including the Depreciation and Amortization expenses), total assets, total liabilities and total shareholder's equity. Bond Analysis An acceptable current ratio is between 1.5-2 (Bracker et al., Chapter 2: Financial Statement Analysis, n.d.). Cisco is barely making it into 1.5, as 2020 was their highest current ratio yet which is 1.72. Because of this, CISCO seems to be suffering from meeting their current liabilities. An acceptable quick ratio is between 1-2 (Bracker et al., Chapter 2: Financial Statement Analysis, n.d.). Cisco seems to be in the clear for this one for the last 3 years. The debt-to-equity ratio measures how much a company is using its debt to finance their assets (Bracker et al., Chapter 2: Financial Statement Analysis, n.d.). This should be a number less than one. Unfortunately, during the last 3 years, their debt-to-equity ratio has been decreasing and decreasing, meaning the less risky it is. The sales and revenue decreased from 2019 to 2020, and it rose slightly in 2021. This can be an indication that CISCO has been selling more of their products. Although, their COGS also reveal the same behavior. COGS decreased approximately one billion from 2019 to 2020, and it slightly increased in 2021. A lower COGS indicates a lower expense for inventory. After careful consideration, I would consider purchasing CISCO bonds as the only data that is concerning is the current ratio. Bonds are a form of debt (Bracker et al., Chapter 1: Introduction to Financial Management), which indicates that they are paid first, and stockholders are paid later, if there is any cash left. I took the liberty of looking at Juniper's financials and I must say that Cisco's financials looked a lot more stable. 2019 2020 2021 Source Current Ratio 1.51 1.72 1.49 Morning Star Quick Ratio 1.39 1.58 1.32 Morning Star Debt to equity 0.43 0.31 0.22 Morning Star Income Statement Sales/Revenue 51.9B 49.3B 49.82B Market Watch COGS 18.73B 17.76B 18.14B Market Watch Balance Sheet Total Assets 97.7B 94.85B 97.5B Market Watch Total Liabilities 64.22B 56.93B 56.22B Market Watch Total Shareholder's equity 97.79B 94.85B 97.75B Market Watch Stock Performance P/E ratio stands for price to earnings ratio, which is essentially how much it costs to fund the company per dollar earnings. An acceptable number is between 20-25, and through the last few years, Cisco has continued to be in the affordable range. The market/book ratio indicates how much stock is being sold in the market compared to the value in the books. Earnings per share are the company’s profits divided by its outstanding shares. Dividends per share is the amount of dividends distributed to the investors. Naturally, the higher this number, the better it is for investors. PEG ratio also allows investors to calculate if the stock price is undervalued or overvalued. A ratio below 1.0 is indicative of a stock that is undervalued, while a ratio above 1.0 may suggest that the stock is overvalued. Since the PEG ratio for the last 3 years is 2.72, 2.96, and 3.37 respectively, it is seen that the stock is overvalued. On the other hand, EV/EBIT ratio indicates if a stock’s price is too high or too low compared to similar stocks in the market. This is a ratio used to compare companies with one another. Since this is an earnings yield, the higher the number, the better it is for the company and its investors. Between 2019-2020 Cisco was stagnant with only a decrease of 0.01 and shot up by 3.91 points. 2019 2020 2021 Source P/E ratio 19.0 18.1 23.6 Morningstar Market/Book ratio 5.91 4.96 6.26 Morningstar EPS 2.63 2.65 2.51 MarketWatch Dividends/share 1.38 1.43 1.47 Morningstar PEG ratio 2.72 2.96 3.37 Morningstar EV/EBIT ratio 11.37 11.36 15.27 Morningstar Recommendation Investors are risk averse, meaning that if an investment is risky, they expect a greater return. With a stable company like Cisco, management should continue to remain competitive in the technology landscape. According to Finbox (2022), Cisco’s financial leverage ratio is 1.03, only 0.03 above the acceptable value. This is expected since it is a company in the technology industry, where assets are expensive since they are well known to be pioneers. If Cisco wants to decrease this, Cisco should look for a way to increase its assets in order to increase the ultimate return of the shareholders. While I would recommend ceasing dividends in order to fund the developing technology, Cisco should rethink this strategy and instead look for ways to acquire high-value assets. There is no belief that Cisco will be bankrupt soon, although it should continue to provide high-quality products in order to keep sales high. Comparison of Cisco numbers to S&P 500 alone would indicate it risky, which is understandable since it is a company leveraging in innovative goods. It would be better to compare their financials to other companies in the same industry. Whenever this is done, Cisco’s numbers seem reasonable, especially since it distributes dividends and its products are always seen in a typical office. If Cisco continues to dominate in the networking, IT, and cyber security sector, investors will find funding the company attractive. References Bracker, K., Lin, F., & Pursley, J. (n.d.). Chapter 1: Introduction to Financial Management. UMGC. Retrieved May 22, 2022, from https://leocontent.umgc.edu/content/dam/equella-content/finc330/Introduction%20to%20Financial%20Management.pdf?ou=682970 Bracker, K., Lin, F., & Pursley, J. (n.d.). Chapter 2: Financial Statement Analysis. UMGC. Retrieved May 22, 2022, from https://leocontent.umgc.edu/content/dam/equella-content/finc330/Financial%20Statement%20Analysis.pdf?ou=682970 Bracker, K., Lin, F., & Pursley, J. (n.d.). Chapter 4: Valuation and Bond Analysis. UMGC. Retrieved June 9, 2022, from https://leocontent.umgc.edu/content/dam/equella-content/finc330/Valuation_and_Bond_Analysis.pdf?ou=682970 Bureau of Economic Analysis. (2022, February 24). Gross Domestic Product, Fourth Quarter and Year 2021 (Second Estimate). Gross Domestic Product, Fourth Quarter and Year 2021 (Second Estimate) | U.S. Bureau of Economic Analysis (BEA). Retrieved July 4, 2022, from https://www.bea.gov/news/2022/gross-domestic-product-fourth-quarter-and-year-2021-second-estimate#:~:text=BEA%2022%2D05-,Gross%20Domestic%20Product%2C%20Fourth%20Quarter%20and%20Year%202021%20(Second%20Estimate,the%20Bureau%20of%20Economic%20Analysis. Finance by Boundless. (n.d.). Chapter 6: Bond Valuation. Boundless. Retrieved June 11, 2022, from https://leocontent.umgc.edu/content/dam/equella-content/finc331/Chapter6BondValuation.pdf?ou=682970 Finbox. (2022, July 1). DFL of Cisco. The Complete