3,Taking Stock of Ratios

Your class has been told that each student will receive a share of stock in one of three

companies in the same industry. But theres a catch: each student must decide which of the

companies it wants to own stock in. To reach this decision, you will use ratio analysis to

compare the three companies. You will analyze each of the companies using the ratios

presented in this chapter. Then, youll compare your results, and choose a company. Here

are the details of the project:

1.

Select a group of three companies in the same industry. Here are just a few

examples:

1.Auto manufacturers

. Ford, General Motors, Toyota

2.Drug companies

. GlaxoSmithKline, Eli Lilly & Co., Bristol-Myers Squibb

3.Specialty retailers

. Bed Bath & Beyond, Pottery Barn, Pier 1 Imports

4.Computers

. Hewlett-Packard, Apple, Dell

Research a copy of each companys most recent annual report (which includes

its financial statements) from the companys website (investor section).

Calculate the following ratios for the company for the last two years: gross

profit margin, net profit margin, inventory turnover (if applicable), return on assets, current

ratio, debt-to-equity, and interest coverage.

Compare your results. Decide which company you want to own stock in.

Write a report indicating the company selected and explain your choice.

Attach the following items to your team report:

1.

A brief explanation of each ratio (how to calculate it and what it means)

2.

Detailed calculations showing how each ratio was determined

3.

A chart comparing the ratios for the three companies