Below is information on two companies you are thinking of investing in: Slow Growth Average Growth Fast Growth Likelihood of Goodman Ltd. Nacho Ltd. occurring stock returns stock returns 15% -20% - 10% 65% 7% 8% 20% 120 169 Correlation between the two companies 0.15 Goodman Ltd. Nacho Ltd a. You would like to create a portfolio of the above two stocks. How much will you invest in each (as proportion of your portfolio) if your goal is an expected return of 5% per year on the average on the portfolio? (4 Marks) What would be the average annual rate of return and standard deviation for a portfolio made up of 30% Goodman stock and 70% weights of Nacho stock? (6 Marks) 2014 Income Statement, Millions of USD Goodman Ltd. Wexler Ltd. Nacho Ltd. 2016 2019 For the Period Ending 2,079 3,376 5,389 Revenue 1,138 1,958 3,203 Cost Of Goods Sold 1,418 941 2,185 Gross Profit 382 531 Selling General & Admin Exp. 227 Depreciation & Amort. 258 464 744 1 (4) Other Expense/Income) 481 Total Other Operating Expense 847 1,271 460 Operating Incomo 571 914 Net Interest Expense 6594 138 Other Unusual Items 10 117 71 Earnings before Tax 385 706 Income Tax Expense 152 139 Net Income MAMLA 233 234 567 Per Share Items EPS $1.253 $1.07 $2.15 Dividends per Share $0.32 $0.41 $0.67 Payout Ratio % 25.3% 37.5% 30.9% Goodman Ltd. Wexler Ltd. 2014 2016 Nacho Lta. 2019 14 155 260 485 4296 330 663 138 743 366 3.927 1.333 2,594 2,204 Balance Sheet, Millions of USD Balance Sheet as of: ASSETS Cash & Equivalents Accounts Receivable Prepaid Exp Other Current Assets Total Current Assets Gross Property. Plant & Equipment Less Accumulated Depreciation Net Property, Plant & Equipment Goodwill & Intangibles Other Long-Term Assets Total Assets LIABILITIES Accounts Payable Accrued Exp. Short-term Debt Current Portion of LT Debt Other Current Liabilities Total Current Liabilities Long-Term Debt Other Non-Current Liabilities Total Liabilities Total Equity Total Liabilities And Equity 6,634 1.896 4,738 5,457 165 11,104 1,131 9,170 3,471 5,700 6,674 234 13.738 81 5,245 121 251 259 109 437 266 16 12 166 692 3,619 111 360 1,974 677 3,012 2.234 284 1,007 4,393 1.399 6,799 1,138 5,449 5,655 11.104 6,938 13.738 5.245 Ratios For the Period Ending Goodman Ltd. 2014 Wexler Ltd. 2016 Nacho Ltd. 2019 Profitability Return on Assets % Return on Equity % 5,6% 10.9% 4.4% 6.5% 4.3% 8.5% 0. 4x 0 .4x Asset Turnover Total Asset Turnover Accounts Receivable Turnover Inventory Turnover 8.4x Short Term Liquidity Current Ratio Quick Ratio 1.1x 0.9x 0.8x Debt Management Total Debt Equity Total Debt/Capital LT Debt Equity EBIT / Interest Exp. 89.3% 47.2% 88.4% 7.1x 64.3% 39.1% 64.0% 6.1 66.3% 39.9% 65.6% 6.2x Other Company Information Beta Common Shares Outstanding (Millions) Stock Price Long-run growth rate of business 1.50 186 $5.10 5.0% 1.0 230 $8.53 4.0% 0.95 264 $11.15 3.0% Market Information Expected Return on the Market Government of Canada 10-Year Bond Yield One Year Inflation Rate 9.0% 3.0% 1.5 %
