Agriculture machinery investment prospects

Background: Price to book ("P/B") is one method of evaluating the price of a stock or a group of stocks. Theory connects P/B to return on equity ("ROE"). If a firm earns a higher ROE investors may be willing to pay more for each dollar of equity capital the firm uses. P/B is also used to assess the future growth prospects of a firm. If a firm has strong growth prospects, its P/B is likely to be higher, all else equal.

Data sources: At either company websites or the SEC's edgar service, obtain publicly filed documents containing the 2016, 2017, 2018, 2019 and 2020 financial statements for Deere and Company, AGCO Corporation and Caterpillar Inc. Obtain stock price information from finance.yahoo.com or google.

Requirement 1: Prepare a spreadsheet that shows the calculations for each companys 2016, 2017, 2018, 2019 and 2020: a) Return on Equity (net income/shareholder's equity), b) Price to ending Book Value (stock price/(shareholder's equity/shares outstanding).

Requirement 2: Evaluate each company's Price to Book value multiple at the end of 2020 in the context of its own multiple over the past five years. Comment on why the Price to Book may be higher or lower than it has been in the past.

Requirement 3: Evaluate the Price to Book Value multiples of each company at the end of 2020 relative to the other two ag machinery firms.

Requirement 4: Create an x versus y scatter plot of Price to Book Value versus ROE. There should be 15 x-y data points on your graph. Based on your calculations for 2016, 2017, 2018, 2019 and 2020, and the x-y scatter plot, which of the three stocks looks most attractive to you as a potential future investment right now, why? (Note: Be sure to select one of the three stocks to invest in and defend the selection.)