On the Market Insight home page, click on the Industry tab and select the Restaurants category. In the Compustat Reports section, click on the Constituents link to get a list of companies in this industry. Choose five of the firms listed and follow the links to get to the Financial Highlights for each firm.

a. Perform a “Valuation by Comparables” analysis by looking at the Price/Earnings, Price/Book Value, Price/Sales, and Price/Cash Flow ratios of the fi rms relative to each other and to the industry average. Which of the fi rms seem to be overvalued?

Which seem to be undervalued? Can you think of reasons for any apparent mispricings?

b. Calculate the fi rms’ dividend payout ratios (total dividends paid/net income) and their sustainable growth rates (g ⫽ b ⫻ ROE). What impact does the growth rate seem to have on fi rm value? LO.1