Hello,

My chosen company isRegions Financial Corporation USA. I have to study the data for this company from 8th May to 4th August and answer the questions in the attachment.

Thank you in advance.

IBS801NXX - International Finance Project - 15% This project allows you to learn more about international investing and about firms that compete in the global arena. You will be asked to pick a common stock of a US multinational corporation (MNCs) with a stock symbol starting with the first letter of your first names and with a market capitalization of at least $10 Billion. Choose from Dow 30, or NASDAQ 100. E.g. Fred - FB (Facebook)....No duplication allowed. You will conduct research and review the performance of your company over 3 months. You will attempt to explain why the company you selected performed well or poorly relative to the overall market index. Your research and explanations should provide some insight into what is driving the valuation of that particular MNC over time. Conduct company research such as the site www.msn.com, and the company's financial reports. Provide a minimum eight page double spaced report, organized in 3 Parts titled: INTRODUCTION, ANALYSIS, and CONCLUSION: with at least 8 separate heading sections as shown below: 1. Summarize how the company's stock value changed from May 8, to August 4? Provide a Percentage increase or decrease? 2. State and discuss the company's cash-flow per share over the last 4 years. 3. Estimate, what percent of the company's revenue comes from domestic sales and what percent comes from foreign sales. 4. Discuss whether the US dollar strengthened or weakened over the last 3 months versus other major world currencies? Use graphs to illustrate. 5. With information taken from the company's financial report, discuss how the company tried to manage its exposure to exchange rate risks? Discuss all three types of exposures. 6. Try to estimate or otherwise determine the company's required rate of return \"K\" and, or its cost of Capital (WACC) 7. State the valuation formula for an MNC. Describe the three elements. 8. Using these elements conclude by discussing what caused the company's stock price to change from May 8, to August 4, 2017. Devote at least one paragraph to each of the 8 element in your report. Use informal footnotes at the bottom of each page in your report to show the reader where you obtained your information (A variety of websites). Prove a list of references at the end of the report. Report is Due August 11, 2017, at beginning of class. Late penalty is 20% per day. Make sure you provide a cover-page with your name on it. 1 International Finance Project FINANCIAL ANALYSIS: APPLE INC.STOCK PERFORMANCE Date of Submission Student Name Name of the Professor 1 INTRODUCTION This paper aims at providing financial insights into stock performance in the USA. Specifically, the paper evaluates the common stock of a US multinational corporation (MNCs) with a capitalization of at least $10 million. In this case, the paper has picked on a leading smartphone retailer, the Apple Inc. The Apple Inc. Stock is listed under the NASDAQ 100 and has exhibited varied trends which the paper will provide more light on. As aforementioned, Apple Inc. is a leading American MNC. The company success is beyond any doubt as it is one of the listed companies in the Fortune 500 in 2017. The company has been ranked at position 5 with revenue of $215 billion. The stock analysis and other financial factors will help the corporation to forecast its investments and exchange rate factors effectively, plan and cope with the future. The paper will thus provide more comprehensive insights onto the company's stock through the analysis segment below. ANALYSIS OF APPLE INC.FINANCIALS Stock Valuation of Apple Inc. The paper begins to analyze the financials through evaluating the stock value of Apple Inc. From the figures presented, the company's stock value decreased from May 8, to August 4. This represents a deviation of 2.3% in average over the given period of about 3 months. Date Apple Inc. Stock Value Date Apple Inc. Stock Value May 8 $ 153.01 June 26 $ 145.82 May 15 $ 155.70 May 22 $ 153.99 May 29 $ 153.67 June 5 $ 153.93 June 12 $ 145.42 July 3 $ 143.50 July 10 $ 145.06 July 17 $ 149.56 July 24 152.09 July 29 $ 149.50 June 19 $ 146.34 Aug 4 $ 149.50 2 Additionally, the line graph below presents the summary trend of Apple Inc. from May 8 up to August 4. The stock experienced a boom in the month of May but the stock performance declined significantly in the subsequent month of June and Early July. Reaching all time low on 3rd July, 2017 at $143.50. However, the stock has picked up and is on the recovery trend. Company Cash Flows Cash Flow statements reports on how a company has used its most liquid asset, cash and its equivalents in a given fiscal year. This analysis will evaluate the cash flow trend of Apple Inc. in a duration of four years from the financial year 2013 to 2016. Apple Inc. Cash Flow Statement For the Year 2013-2016 FY- USD millions. 2013 Net Income before Extra-Ordinaries 37.04B Depreciation, Depletion & Amortization 6.76B Depreciation and Depletion 5.8B Amortization of Intangible Assets 960M Deferred Taxes & Investment Tax Credit 1.14B Deferred Taxes 1.14B Investment Tax Credit - 2014 39.51B 7.95B 6.86B 1.08B 2.35B 2.35B - 2015 53.39B 11.26B 10.01B 1.25B 1.38B 1.38B - 2016 45.69B 10.51B 9.03B 1.47B 4.94B 4.94B 3 Other Funds Funds from Operations Extra-ordinaries Changes in Working Capital Receivables Accounts Payable Other Assets/Liabilities Net Operating Cash Flow Investing Activities Capital Expenditures Capital Expenditures (Fixed Assets) Capital Expenditures (Other Assets) Net Assets from Acquisitions Sale of Fixed Assets & Businesses Purchase/Sale of Investments Purchase of Investments Sale/Maturity of Investments Other Uses Other Sources Net Investing Cash Flow Financing Activities Cash Dividends Paid - Total Common Dividends Preferred Dividends Change in Capital Stock Repurchase of Common & Preferred Stk. Sale of Common & Preferred Stock Proceeds from Stock Options Other Proceeds from Sale of Stock Issuance/Reduction of Debt, Net Change in Current Debt Change in Long-Term Debt Issuance of Long-Term Debt Reduction in Long-Term Debt Other Funds Other Uses Other Sources Net Financing Cash Flow Net Change in Cash Free Cash Flow @Share 2.25B 47.19B 6.48B (1.95B) 2.34B 7.06B 53.67B 2.86B 52.67B 7.05B (6.45B) 5.94B 7.64B 59.71B 3.59B 69.62B 11.65B (3.12B) 5.4B 9.61B 81.27B 4.21B 65.34B 484M 1.04B 1.79B (2.57B) 65.82B 2013 (9.08B) (8.17B) (911M) (496M) (24.04B) (148.49B) 124.45B (160M) (33.77B) 2014 (9.81B) (9.57B) (242M) (3.77B) (9.02B) (217.13B) 208.11B 16M (22.58B) 2015 (11.49B) (11.25B) (241M) (343M) (44.42B) (166.4B) 121.99B (26M) (56.27B) 2016 (13.55B) (12.73B) (814M) (297M) (30.63B) (142.43B) 111.79B (1.5B) (45.98B) 2013 (10.56B) (10.56B) (22.33B) (22.86B) 530M 530M 16.9B 16.9B 16.9B (381M) (1.08B) 701M (16.38B) 3.51B 45.5B 2014 (11.13B) (11.13B) (44.27B) (45B) 730M 730M 18.27B 6.31B 11.96B 11.96B (419M) (1.16B) 739M (37.55B) (415M) 50.14B 2015 (11.56B) (11.56B) (34.71B) (35.25B) 543M 543M 29.31B 2.19B 27.11B 27.11B (750M) (1.5B) 749M (17.72B) 7.28B 70.02B 2016 (12.15B) (12.15B) (29.23B) (29.72B) 495M 495M 22.06B (397M) 22.45B 24.95B (2.5B) (1.16B) (1.57B) 407M (20.48B) (636M) 53.09B 4 From the cash flow statement, the cash flow per share of shows an increasing trend with a great deal of variation. The free cash flow increase from $45.50 billion in 2013 to $70.02 billion in 2015. However, the value slipped slightly in 2016 to a net cash flow of $53.09 billion. Apple Inc. Revenue Apple Inc. as earlier stated, has been successful in its revenue generation. The company has experienced an upward trend in its revenues in the Smartphone Market over the last few years. The company reported a total revenue of $215 billion in 2016 down from $233 billion and $182 billion in 2015 and 2014 respectively. In addition, the company's revenue comes from both domestic sales in America as well as the percentage that comes from foreign sales. Foreign Sales accounts for 60% of the total sales as the rest comes from USA. Fiscal Year Total Revenue 2014 $ 182 B 2015 233 B 2016 215 B Currency Exchange and Dollar Risk Currency exchange is a key determinant of the performance at Apple Inc. This is due to its MNC nature as it operates in various parts of the world. The Company thus translates its assets and liabilities as well as revenue from the non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates. They are thus victims of the exchange rate risk effect and are thus keen on the behavior of dollar over a given period of time. To have a clear insight into the exchange rate risk, the paper evaluates the trend of dollar from the last three months. This will help us know if the company has been at the foreign exchange risk and if it affected it earnings. The paper will use the Euro and Yen as the currency 5 to check on the exchange rate due to heavy presence of Apple in the two regions. Generally, the Dollar value has declined both against Euro and Yen in the last 3 months. This is as highlighted by the table below. Month JPY/USD Euro/USD April 109.675 0.944 May June 114.324 109.739 0.915 0.893 July 111.074 0.856 Managing Exposure to Exchange Rate Risk MNCs such as Apple Inc. are always faced with the foreign exchange risk. This is due to the nature of their operations that is present in all parts of the globe. The main challenge they face is thus not how to avoid but how to manage the cost emanating from the frequent fluctuations in the currency. Apple Inc. employs franchise and risk management to deal with currency volatility (economic exposure), transaction exposure as well as translation exposure. The transaction exposure results from large export sales whereas translation exposure emanates from currency 6 fluctuations. Franchise implies that the subsidiary is independent in the region it operates and thus the forex risk is reduced. Cost of Capital (WACC) and Required Rate of Return Cost of Capital reflects the cost of investments than the company pursues as it tries to raise funds. A company always raises capital through Equity (E), Debt (D) or sometimes through the preferred stock, P. Apple Inc. only uses debt and equity. Cost of capital is always computed using the below formula; WACC =E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate) Weights The market value of equity (E) (market cap) for Apple today stands at $779469.080 Million. To arrive at the market value of debt we use the book value of debt (D) to do the computation. This is done by computing the sum of latest 2-year average of both long and short term debt. As at March 2017, Apple Inc.'s short term debt was $11302 Million and 2-year long term debt stood $64378 Million. The total value of Debt (D) is thus $75680 Million. weight of equity = E / (E + D) = 779469.080 / (779469.080 + 75680) = 0.9115 or 91.15% weight of debt = D / (E + D) = 75680 / (779469.080 + 75680) = 0.0885 or 8.85% Cost of Equity This is accomplished through the CAPM formula. That is Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market Risk-Free Rate of Return) 7 KE =Rf+(Rm-Rf) The current Rf as per Guru Focus is 2.32%, Apple Inc. beta, is 1.43 whereas the market premium (Rm-Rf) is 6%. The cost of capital will be; KE =Rf+(Rm-Rf) =2.32%+1.43(6%) =10.9% Cost of Debt Cost of debt is evaluated using the interest expense. The apple interest expense (absolute value) is $1456 Million. Remember the previous Book Value of Debt (D) is $75,680 Million. Cost of debt is thus; Cost of Debt = 1456 / 75680 = 1.9%. The average 2-year tax rate is 25.965%. Apple Inc'.s (WACC) is thus; WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) =0.9115 *10.9% +0.0885 *1.9% *(1 - 25.965%) =10.06% Valuation Formula and the elements. The valuation of a company's cost of capital, as aforementioned is done through the WACC formula. In a typical company, the elements of cost of capital is basically the cost of equity, cost of debt and cost of preferred stock. But this was a special case since Apple Inc. uses debt and equity in its capitalization. This is expressed as: WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) 8 To interpret the results of Apple Inc., the paper can say that the Apple Inc.'s WACC is 10.06%. From the income statement data, the return on invested capital for Apple Inc.'s was 28.34%. The company therefore generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A company that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. Stock and WACC Trend To sum up the analysis, we evaluate the general trend of the cost of capital and stock at Apple Inc. In the monthly data, the WACC trend to depict the trend of stock performance in the stock market. The below tables summarizes all the data. Apple Inc. Annual Data WACC Sep07 Sep08 Sep09 Sep10 17.83 21.36 12.23 10.85 Sep11 7.09 Sep12 6.82 Sep13 6.08 Sep14 8.54 Sep15 8.20 Sep16 9.99 Apple Inc. Quarterly Data WACC Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Mar17 9.80 7.38 8.94 8.20 8.17 9.74 9.23 9.99 10.13 10.1 Stock Value Date Apple Inc. Stock Value Date Apple Inc. Stock Value May 8 $ 153.01 June 26 $ 145.82 May 15 $ 155.70 May 22 $ 153.99 May 29 $ 153.67 June 5 $ 153.93 June 12 $ 145.42 July 3 $ 143.50 July 10 $ 145.06 July 17 $ 149.56 July 24 152.09 July 29 $ 149.50 June 19 $ 146.34 Aug 4 $ 149.50 9 CONCLUSION The financials of Apple Inc. have showed the great deal of attention the company gives to its stock and cost of capital. The performance attached to the cost of capital and how the stock of a particular company performs is thus also subject to exchange rate risk. However, at the end we see that the company borrows at 10.06% and its return on capital 28.06%. The positive returns are therefore a reflection of the company's future success. References Ximnez, J., Luis J.,& Sanz, L., (2014). Financial decision-making in a high-growth company: the case of Apple incorporated. Management Decision, 52(9),1591-1610. www.msn.com https://www.sec.gov/edgar/searchedgar/companysearch.html 10 International Finance Project FINANCIAL ANALYSIS: REGIONS FINANCIAL CORPORATION STOCK PERFORMANCE Date of Submission Student Name Name of the Professor Regions Financial Corporation (NYSE:RF), with $125 billion in assets, is a member of the S&P 500 Index and is one of the nation's largest full-service providers of consumer and commercial banking, wealth management, mortgage, and insurance products and services. Regions serves customers across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates approximately 1,500 banking offices and 1,900 ATMs. Additional information about Regions and its full line of products and services can be found at www.regions.com. History Regions Financial Corporation was formed in 1971 as First Alabama Bancshares Inc., Alabama's first multibank holding company. With the combination of three well-respected banks, the holding company began operations with a total of $543 million in assets and 40 banking locations in Birmingham, Huntsville and Montgomery. The company was renamed Regions Financial Corp. in 1994 to better reflect its growing presence throughout the South. Its merger with Memphis, Tenn.-based Union Planters Corp. took place in July 2004, creating a Top 15 U.S. bank. Its merger with AmSouth Bancorporation on November 4, 2006, created a Southeast-based financial powerhouse ranking as one of the top 10 banks in the nation. Serving some 4 million households throughout the South, Midwest and Texas, Regions is a full-service provider of retail and commercial banking, wealth management, mortgage and insurance products and services 1 INTRODUCTION This paper aims at providing financial insights into stock performance in the USA. Specifically, the paper evaluates the common stock of a US multinational corporation (MNCs) with a capitalization of at least $10 million. In this case, the paper has picked on a leading banking institution, Regions Financial Corporation. Regions Financial Corporation (RFC), Stock is listed under the NYSE:RF and has exhibited varied trends which the paper will provide more light on. As aforementioned, Regions Financial Corporation, USA is a leading American MNC. The company success is beyond any doubt and it recorded with revenue of $215 billion. The stock analysis and other financial factors will help the corporation to forecast its investments and exchange rate factors effectively, plan and cope with the future. The paper will thus provide more comprehensive insights onto the company's stock through the analysis segment below. ANALYSIS OF REGIONS FINANCIAL CORPORATION FINANCIALS Stock Valuation of Regions Financial Corporation USA The paper begins to analyze the financials through evaluating the stock value of Regions Financial Corporation USA From the figures presented, the company's stock value decreased 2 from May 8, to August 4. This represents a deviation of 13% in average over the given period of about 3 months. Date RFC,USA Stock Value May 8 $ 14.35 May 15 $ 14.34 May 22 $ 14.07 May 30 $ 13.97 Date RFC,USA Stock Value June 26 $ 13.75 July 3 $ 14.88 July 10 $ 14.75 July 17 $ 14.70 June 5 $ 13.53 July 24 14.40 June 12 $ 14.36 June 19 $ 14.50 July 29 $ 14.50 Aug 4 $ 14.50 Additionally, the line graph below presents the summary trend of Regions Financial Corporation USA, from May 8 up to August 4. The stock experienced a boom in the month of May but the stock performance declined significantly in the subsequent month of June and Early July. Reaching all time low on 5 June, 2017 at $13.50. However, the stock has picked up and is on the recovery trend. Company Cash Flows 3 Cash Flow statements reports on how a company has used its most liquid asset, cash and its equivalents in a given fiscal year. This analysis will evaluate the cash flow trend of Regions Financial Corporation USA, in a duration of four years from the financial year 2013 to 2016. Regions Financial Corporation USA Cash Flow Statement For the Year 2013-2016 FY January-December. USD millions. Operating Activities Funds from Operations Extra-Ordinaries Changes in Working Capital Net Operating Cash Flow 2.21B 611M 2.82B 1.76B 250M 2.01B 1.95B (540M) 1.41B 1.95B 41M 1.99B Investing Activities Capital Expenditures Capital Expenditures (Fixed Assets) Capital Expenditures (Other Assets) Net Assets from Acquisitions Sale of Fixed Assets & Businesses Purchase/Sale of Investments Purchase of Investments Sale/Maturity of Investments Increase in Loans Decrease in Loans Other Uses Other Sources Net Investing Cash Flow 2013 (214M) (186M) (28M) 2.27B (7.05B) 9.32B (6.44B) 5.24B 856M 2014 (263M) (242M) (21M) (834M) (5.97B) 5.13B (5.87B) 3.29B (3.68B) 2015 (373M) (373M) (599M) (7.86B) 7.26B (7.83B) 2.83B (5.97B) 2016 (269M) (269M) (879M) (7.87B) 7B (4.74B) 5.22B (668M) 2015 (368M) (304M) (64M) 4.23B (623M) (623M) 2.61B 2016 (381M) (317M) (64M) 605M (839M) (839M) (569M) Financing Activities Cash Dividends Paid - Total Common Dividends Preferred Dividends Decrease in Deposits Increase in Deposits Change in Capital Stock Repurchase of Common & Preferred Stk. Sale of Common & Preferred Stock Proceeds from Stock Options Issuance/Reduction of Debt, Net 2013 2013 (170M) (138M) (32M) 3.02B (340M) (340M) (359M) 2014 2014 (299M) (247M) (52M) 1.75B 230M (256M) 486M 486M (1.28B) 2015 2016 4 Change in Current Debt Change in Long-Term Debt Issuance of Long-Term Debt Reduction in Long-Term Debt Other Funds Other Uses Other Sources Net Financing Cash Flow Exchange Rate Effect Miscellaneous Funds Net Change in Cash Free Cash Flow 608M (967M) 750M (1.72B) (3.89B) (216M) 2.63B 71M (1.35B) (1.35B) 6M 6M 405M (1.27B) 1.77B (2.24B) 4.85B 6B (1.14B) 12M 12M 5.86B 1.31B 1.41B (10M) (559M) 3.36B (3.92B) (2M) (2M) (1.19B) 137M 1.99B From the cash flow statement, the cash flow per share of shows an increasing trend with a great deal of variation. The free cash flow decreased from $2.63 billion in 2013 to $1.41 billion in 2015. However, the value rose significantly in 2016 to a net cash flow of $1.99 billion. Regions Financial Corporation Revenue Regions Financial Corporation as earlier stated, has been successful in its revenue generation. The company has experienced an upward trend in its revenues in the Smartphone Market over the last few years. The company reported a total net of income of $1.16 billion in 2016 up from $1.08 billion and $1.14 billion in 2015 and 2014 respectively. In addition, the company's revenue comes from both domestic sales in America as well as the percentage that comes from foreign sales. Foreign Sales accounts for 30% of the total sales as the rest comes from USA. Fiscal Year Net Income 2014 $ 1.14 B 2015 $1.08 B 2016 $1.16 B 5 Currency Exchange and Dollar Risk Currency exchange is a key determinant of the performance at Regions Financial Corporation USA. This is due to its MNC nature as it operates in various parts of the world. The Company thus translates its assets and liabilities as well as revenue from the non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates. They are thus victims of the exchange rate risk effect and are thus keen on the behavior of dollar over a given period of time. To have a clear insight into the exchange rate risk, the paper evaluates the trend of dollar from the last three months. This will help us know if the company has been at the foreign exchange risk and if it affected it earnings. The paper will use the Euro and Yen as the currency to check on the exchange rate due to heavy presence of Regions Financial Corporation USA in the two regions. Generally, the Dollar value has declined both against Euro and Yen in the last 3 months. This is as highlighted by the table below. Month JPY/USD Euro/USD April 109.675 0.944 May June 114.324 109.739 0.915 0.893 July 111.074 0.856 6 Managing Exposure to Exchange Rate Risk MNCs such as Regions Financial Corporation USA are always faced with the foreign exchange risk. This is due to the nature of their operations that is present in all parts of the globe. The main challenge they face is thus not how to avoid but how to manage the cost emanating from the frequent fluctuations in the currency. Regions Financial Corporation USA employs franchise and risk management to deal with currency volatility (economic exposure), transaction exposure as well as translation exposure. The transaction exposure results from large export sales whereas translation exposure emanates from currency fluctuations. Franchise implies that the subsidiary is independent in the region it operates and thus the forex risk is reduced. Cost of Capital (WACC) and Required Rate of Return Cost of Capital reflects the cost of investments than the company pursues as it tries to raise funds. A company always raises capital through Equity (E), Debt (D) or sometimes through 7 the preferred stock, P. Regions Financial Corporation USA only uses debt and equity. Cost of capital is always computed using the below formula; WACC =E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate) Weights The market value of equity (E) (market cap) for Regions Financial Corporation USA today stands at $7469.50 Million. To arrive at the market value of debt we use the book value of debt (D) to do the computation. This is done by computing the sum of latest 2-year average of both long and short term debt. As at March 2017, Regions Financial Corporation USA short term debt was $102 Million and 2-year long term debt stood $678 Million. The total value of Debt (D) is thus $780 Million. weight of equity = E / (E + D) = 7469.50 / (7469.50 + 780) = 0.905 or 90.5% weight of debt = D / (E + D) = 780 / (7469.50 + 780) = 0.095 or 9.5% Cost of Equity This is accomplished through the CAPM formula. That is Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market Risk-Free Rate of Return) KE =Rf+(Rm-Rf) The current Rf as per Guru Focus is 2.32%, Regions Financial Corporation USA beta, is 1.27 whereas the market premium (Rm-Rf) is 6%. The cost of capital will be; KE =Rf+(Rm-Rf) =2.32%+1.27(6%) =9.94% 8 Cost of Debt Cost of debt is evaluated using the interest expense. The Regions Financial Corporation interest expense (absolute value) is $56 Million. Remember the previous Book Value of Debt (D) is $780 Million. Cost of debt is thus; Cost of Debt = 56 / 780 = 7.2%. The average 2-year tax rate is 30.45%. Regions Financial Corporation's (WACC) is thus; WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) =0.905 *9.94% +0.095 *7.2% *(1 - 30.45%) =9.92% Valuation Formula and the elements. The valuation of a company's cost of capital, as aforementioned is done through the WACC formula. In a typical company, the elements of cost of capital is basically the cost of equity, cost of debt and cost of preferred stock. But this was a special case since Regions Financial Corporation USA uses debt and equity in its capitalization. This is expressed as: WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) To interpret the results of Regions Financial Corporation USA, the paper can say that the company's WACC is 9.92%. From the income statement data, the return on invested capital for Regions Financial Corporation's was 25.74%. The company therefore generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A company that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. 9 Regions Financial Corporation Stock Trend To sum up the analysis, we evaluate the general trend of the cost of capital and stock at Regions Financial Corporation USA. In the monthly data, the WACC trend to depict the trend of stock performance in the stock market. The below tables summarizes all the data. Stock Value Date RFC,USA Stock Value May 8 $ 14.35 May 15 $ 14.34 May 22 $ 14.07 May 30 $ 13.97 Date RFC,USA Stock Value June 26 $ 13.75 July 3 $ 14.88 July 10 $ 14.75 July 17 $ 14.70 June 5 $ 13.53 July 24 14.40 June 12 $ 14.36 June 19 $ 14.50 July 29 $ 14.50 Aug 4 $ 14.50 CONCLUSION The financials of Regions Financial Corporation USA have showed the great deal of attention the company gives to its stock and cost of capital. The performance attached to the cost of capital and how the stock of a particular company performs is thus also subject to exchange rate risk. However, at the end we see that the company borrows at 9.92% and its return on capital 25.74%. The positive returns are therefore a reflection of the company's future success. 10 International Finance Project FINANCIAL ANALYSIS: REGIONS FINANCIAL CORPORATION STOCK PERFORMANCE Date of Submission Student Name Name of the Professor 1 INTRODUCTION This paper aims at providing financial insights into stock performance in the USA. Specifically, the paper evaluates the common stock of a US multinational corporation (MNCs) with a capitalization of at least $10 million. In this case, the paper has picked on a leading banking institution, Regions Financial Corporation. Regions Financial Corporation (RFC), Stock is listed under the NYSE:RF and has exhibited varied trends which the paper will provide more light on. As aforementioned, Regions Financial Corporation, USA is a leading American MNC. The company success is beyond any doubt and it recorded with net income of $1.16 billion. The stock analysis and other financial factors will help the corporation to forecast its investments and exchange rate factors effectively, plan and cope with the future. The paper will thus provide more comprehensive insights onto the company's stock through the analysis segment below. ANALYSIS OF REGIONS FINANCIAL CORPORATION FINANCIALS Stock Valuation of Regions Financial Corporation USA The paper begins to analyze the financials through evaluating the stock value of Regions Financial Corporation USA From the figures presented, the company's stock value decreased from May 8, to August 4. This represents a deviation of 13% in average over the given period of about 3 months. Date RFC,USA Stock Value May 8 $ 14.35 May 15 $ 14.34 May 22 $ 14.07 May 30 $ 13.97 Date RFC,USA Stock Value June 26 $ 13.75 July 3 $ 14.88 July 10 $ 14.75 July 17 $ 14.70 June 5 $ 13.53 July 24 14.40 June 12 $ 14.36 June 19 $ 14.50 July 29 $ 14.50 Aug 4 $ 14.50 2 Additionally, the line graph below presents the summary trend of Regions Financial Corporation USA, from May 8 up to August 4. The stock experienced a boom in the month of May but the stock performance declined significantly in the subsequent month of June and Early July. Reaching all time low on 5 June, 2017 at $13.50. However, the stock has picked up and is on the recovery trend. Company Cash Flows Cash Flow statements reports on how a company has used its most liquid asset, cash and its equivalents in a given fiscal year. This analysis will evaluate the cash flow trend of Regions Financial Corporation USA, in a duration of four years from the financial year 2013 to 2016. Regions Financial Corporation USA Cash Flow Statement For the Year 2013-2016 FY January-December. USD millions. Operating Activities Funds from Operations 2013 2.21B 2014 1.76B 2015 1.95B 2016 1.95B 3 Extra-Ordinaries Changes in Working Capital Net Operating Cash Flow 611M 2.82B 250M 2.01B (540M) 1.41B 41M 1.99B Investing Activities Capital Expenditures Capital Expenditures (Fixed Assets) Capital Expenditures (Other Assets) Net Assets from Acquisitions Sale of Fixed Assets & Businesses Purchase/Sale of Investments Purchase of Investments Sale/Maturity of Investments Increase in Loans Decrease in Loans Other Uses Other Sources Net Investing Cash Flow 2013 (214M) (186M) (28M) 2.27B (7.05B) 9.32B (6.44B) 5.24B 856M 2014 (263M) (242M) (21M) (834M) (5.97B) 5.13B (5.87B) 3.29B (3.68B) 2015 (373M) (373M) (599M) (7.86B) 7.26B (7.83B) 2.83B (5.97B) 2016 (269M) (269M) (879M) (7.87B) 7B (4.74B) 5.22B (668M) 2015 (368M) (304M) (64M) 4.23B (623M) (623M) 2.61B (2.24B) 4.85B 6B (1.14B) 12M 12M 5.86B 1.31B 1.41B 2016 (381M) (317M) (64M) 605M (839M) (839M) (569M) (10M) (559M) 3.36B (3.92B) (2M) (2M) (1.19B) 137M 1.99B Financing Activities Cash Dividends Paid - Total Common Dividends Preferred Dividends Decrease in Deposits Increase in Deposits Change in Capital Stock Repurchase of Common & Preferred Stk. Sale of Common & Preferred Stock Proceeds from Stock Options Issuance/Reduction of Debt, Net Change in Current Debt Change in Long-Term Debt Issuance of Long-Term Debt Reduction in Long-Term Debt Other Funds Other Uses Other Sources Net Financing Cash Flow Exchange Rate Effect Miscellaneous Funds Net Change in Cash Free Cash Flow 2013 (170M) (138M) (32M) 3.02B (340M) (340M) (359M) 608M (967M) 750M (1.72B) (3.89B) (216M) 2.63B 2014 (299M) (247M) (52M) 1.75B 230M (256M) 486M 486M (1.28B) 71M (1.35B) (1.35B) 6M 6M 405M (1.27B) 1.77B 4 From the cash flow statement, the cash flow per share of shows an increasing trend with a great deal of variation. The free cash flow decreased from $2.63 billion in 2013 to $1.41 billion in 2015. However, the value rose significantly in 2016 to a net cash flow of $1.99 billion. Regions Financial Corporation Revenue Regions Financial Corporation as earlier stated, has been successful in its revenue generation. The company has experienced an upward trend in its revenues in the Smartphone Market over the last few years. The company reported a total net of income of $1.16 billion in 2016 up from $1.08 billion and $1.14 billion in 2015 and 2014 respectively. In addition, the company's revenue comes from both domestic sales in America as well as the percentage that comes from foreign sales. Foreign Sales accounts for 30% of the total sales as the rest comes from USA. Fiscal Year Net Income 2014 $ 1.14 B 2015 $1.08 B 2016 $1.16 B Currency Exchange and Dollar Risk Currency exchange is a key determinant of the performance at Regions Financial Corporation USA. This is due to its MNC nature as it operates in various parts of the world. The Company thus translates its assets and liabilities as well as revenue from the non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates. They are thus victims of the exchange rate risk effect and are thus keen on the behavior of dollar over a given period of time. 5 To have a clear insight into the exchange rate risk, the paper evaluates the trend of dollar from the last three months. This will help us know if the company has been at the foreign exchange risk and if it affected it earnings. The paper will use the Euro and Yen as the currency to check on the exchange rate due to heavy presence of Regions Financial Corporation USA in the two regions. Generally, the Dollar value has declined both against Euro and Yen in the last 3 months. This is as highlighted by the table below. Month JPY/USD Euro/USD April 109.675 0.944 May June 114.324 109.739 0.915 0.893 July 111.074 0.856 Managing Exposure to Exchange Rate Risk MNCs such as Regions Financial Corporation USA are always faced with the foreign exchange risk. This is due to the nature of their operations that is present in all parts of the globe. The main challenge they face is thus not how to avoid but how to manage the cost emanating from the frequent fluctuations in the currency. 6 Regions Financial Corporation USA employs franchise and risk management to deal with currency volatility (economic exposure), transaction exposure as well as translation exposure. The transaction exposure results from large export sales whereas translation exposure emanates from currency fluctuations. Franchise implies that the subsidiary is independent in the region it operates and thus the forex risk is reduced. Cost of Capital (WACC) and Required Rate of Return Cost of Capital reflects the cost of investments than the company pursues as it tries to raise funds. A company always raises capital through Equity (E), Debt (D) or sometimes through the preferred stock, P. Regions Financial Corporation USA only uses debt and equity. Cost of capital is always computed using the below formula; WACC =E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate) Weights The market value of equity (E) (market cap) for Regions Financial Corporation USA today stands at $7469.50 Million. To arrive at the market value of debt we use the book value of debt (D) to do the computation. This is done by computing the sum of latest 2-year average of both long and short term debt. As at March 2017, Regions Financial Corporation USA short term debt was $102 Million and 2-year long term debt stood $678 Million. The total value of Debt (D) is thus $780 Million. weight of equity = E / (E + D) = 7469.50 / (7469.50 + 780) = 0.905 or 90.5% weight of debt = D / (E + D) = 780 / (7469.50 + 780) = 0.095 or 9.5% Cost of Equity This is accomplished through the CAPM formula. That is 7 Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market Risk-Free Rate of Return) KE =Rf+(Rm-Rf) The current Rf as per Guru Focus is 2.32%, Regions Financial Corporation USA beta, is 1.27 whereas the market premium (Rm-Rf) is 6%. The cost of capital will be; KE =Rf+(Rm-Rf) =2.32%+1.27(6%) =9.94% Cost of Debt Cost of debt is evaluated using the interest expense. The Regions Financial Corporation interest expense (absolute value) is $56 Million. Remember the previous Book Value of Debt (D) is $780 Million. Cost of debt is thus; Cost of Debt = 56 / 780 = 7.2%. The average 2-year tax rate is 30.45%. Regions Financial Corporation's (WACC) is thus; WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) =0.905 *9.94% +0.095 *7.2% *(1 - 30.45%) =9.92% Valuation Formula and the elements. The valuation of a company's cost of capital, as aforementioned is done through the WACC formula. In a typical company, the elements of cost of capital is basically the cost of equity, cost of debt and cost of preferred stock. But this was a special case since Regions Financial Corporation USA uses debt and equity in its capitalization. This is expressed as: WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) 8 To interpret the results of Regions Financial Corporation USA, the paper can say that the company's WACC is 9.92%. From the income statement data, the return on invested capital for Regions Financial Corporation's was 25.74%. The company therefore generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A company that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. Regions Financial Corporation Stock Trend To sum up the analysis, we evaluate the general trend of the cost of capital and stock at Regions Financial Corporation USA. In the monthly data, the WACC trend to depict the trend of stock performance in the stock market. The below tables summarizes all the data. Stock Value Date RFC,USA Stock Value May 8 $ 14.35 May 15 $ 14.34 May 22 $ 14.07 May 30 $ 13.97 Date RFC,USA Stock Value June 26 $ 13.75 July 3 $ 14.88 July 10 $ 14.75 July 17 $ 14.70 June 5 $ 13.53 July 24 14.40 June 12 $ 14.36 June 19 $ 14.50 July 29 $ 14.50 Aug 4 $ 14.50 CONCLUSION 9 The financials of Regions Financial Corporation USA have showed the great deal of attention the company gives to its stock and cost of capital. The performance attached to the cost of capital and how the stock of a particular company performs is thus also subject to exchange rate risk. However, at the end we see that the company borrows at 9.92% and its return on capital 25.74%. The positive returns are therefore a reflection of the company's future success. 10 International Finance Project FINANCIAL ANALYSIS: APPLE INC.STOCK PERFORMANCE Date of Submission Student Name Name of the Professor 1 INTRODUCTION This paper aims at providing financial insights into stock performance in the USA. Specifically, the paper evaluates the common stock of a US multinational corporation (MNCs) with a capitalization of at least $10 million. In this case, the paper has picked on a leading smartphone retailer, the Apple Inc. The Apple Inc. Stock is listed under the NASDAQ 100 and has exhibited varied trends which the paper will provide more light on. As aforementioned, Apple Inc. is a leading American MNC. The company success is beyond any doubt as it is one of the listed companies in the Fortune 500 in 2017. The company has been ranked at position 5 with revenue of $215 billion. The stock analysis and other financial factors will help the corporation to forecast its investments and exchange rate factors effectively, plan and cope with the future. The paper will thus provide more comprehensive insights onto the company's stock through the analysis segment below. ANALYSIS OF APPLE INC.FINANCIALS Stock Valuation of Apple Inc. The paper begins to analyze the financials through evaluating the stock value of Apple Inc. From the figures presented, the company's stock value decreased from May 8, to August 4. This represents a deviation of 2.3% in average over the given period of about 3 months. Date Apple Inc. Stock Value Date Apple Inc. Stock Value May 8 $ 153.01 June 26 $ 145.82 May 15 $ 155.70 May 22 $ 153.99 May 29 $ 153.67 June 5 $ 153.93 June 12 $ 145.42 July 3 $ 143.50 July 10 $ 145.06 July 17 $ 149.56 July 24 152.09 July 29 $ 149.50 June 19 $ 146.34 Aug 4 $ 149.50 2 Additionally, the line graph below presents the summary trend of Apple Inc. from May 8 up to August 4. The stock experienced a boom in the month of May but the stock performance declined significantly in the subsequent month of June and Early July. Reaching all time low on 3rd July, 2017 at $143.50. However, the stock has picked up and is on the recovery trend. Company Cash Flows Cash Flow statements reports on how a company has used its most liquid asset, cash and its equivalents in a given fiscal year. This analysis will evaluate the cash flow trend of Apple Inc. in a duration of four years from the financial year 2013 to 2016. Apple Inc. Cash Flow Statement For the Year 2013-2016 FY- USD millions. 2013 Net Income before Extra-Ordinaries 37.04B Depreciation, Depletion & Amortization 6.76B Depreciation and Depletion 5.8B Amortization of Intangible Assets 960M Deferred Taxes & Investment Tax Credit 1.14B Deferred Taxes 1.14B Investment Tax Credit - 2014 39.51B 7.95B 6.86B 1.08B 2.35B 2.35B - 2015 53.39B 11.26B 10.01B 1.25B 1.38B 1.38B - 2016 45.69B 10.51B 9.03B 1.47B 4.94B 4.94B 3 Other Funds Funds from Operations Extra-ordinaries Changes in Working Capital Receivables Accounts Payable Other Assets/Liabilities Net Operating Cash Flow Investing Activities Capital Expenditures Capital Expenditures (Fixed Assets) Capital Expenditures (Other Assets) Net Assets from Acquisitions Sale of Fixed Assets & Businesses Purchase/Sale of Investments Purchase of Investments Sale/Maturity of Investments Other Uses Other Sources Net Investing Cash Flow Financing Activities Cash Dividends Paid - Total Common Dividends Preferred Dividends Change in Capital Stock Repurchase of Common & Preferred Stk. Sale of Common & Preferred Stock Proceeds from Stock Options Other Proceeds from Sale of Stock Issuance/Reduction of Debt, Net Change in Current Debt Change in Long-Term Debt Issuance of Long-Term Debt Reduction in Long-Term Debt Other Funds Other Uses Other Sources Net Financing Cash Flow Net Change in Cash Free Cash Flow @Share 2.25B 47.19B 6.48B (1.95B) 2.34B 7.06B 53.67B 2.86B 52.67B 7.05B (6.45B) 5.94B 7.64B 59.71B 3.59B 69.62B 11.65B (3.12B) 5.4B 9.61B 81.27B 4.21B 65.34B 484M 1.04B 1.79B (2.57B) 65.82B 2013 (9.08B) (8.17B) (911M) (496M) (24.04B) (148.49B) 124.45B (160M) (33.77B) 2014 (9.81B) (9.57B) (242M) (3.77B) (9.02B) (217.13B) 208.11B 16M (22.58B) 2015 (11.49B) (11.25B) (241M) (343M) (44.42B) (166.4B) 121.99B (26M) (56.27B) 2016 (13.55B) (12.73B) (814M) (297M) (30.63B) (142.43B) 111.79B (1.5B) (45.98B) 2013 (10.56B) (10.56B) (22.33B) (22.86B) 530M 530M 16.9B 16.9B 16.9B (381M) (1.08B) 701M (16.38B) 3.51B 45.5B 2014 (11.13B) (11.13B) (44.27B) (45B) 730M 730M 18.27B 6.31B 11.96B 11.96B (419M) (1.16B) 739M (37.55B) (415M) 50.14B 2015 (11.56B) (11.56B) (34.71B) (35.25B) 543M 543M 29.31B 2.19B 27.11B 27.11B (750M) (1.5B) 749M (17.72B) 7.28B 70.02B 2016 (12.15B) (12.15B) (29.23B) (29.72B) 495M 495M 22.06B (397M) 22.45B 24.95B (2.5B) (1.16B) (1.57B) 407M (20.48B) (636M) 53.09B 4 From the cash flow statement, the cash flow per share of shows an increasing trend with a great deal of variation. The free cash flow increase from $45.50 billion in 2013 to $70.02 billion in 2015. However, the value slipped slightly in 2016 to a net cash flow of $53.09 billion. Apple Inc. Revenue Apple Inc. as earlier stated, has been successful in its revenue generation. The company has experienced an upward trend in its revenues in the Smartphone Market over the last few years. The company reported a total revenue of $215 billion in 2016 down from $233 billion and $182 billion in 2015 and 2014 respectively. In addition, the company's revenue comes from both domestic sales in America as well as the percentage that comes from foreign sales. Foreign Sales accounts for 60% of the total sales as the rest comes from USA. Fiscal Year Total Revenue 2014 $ 182 B 2015 233 B 2016 215 B Currency Exchange and Dollar Risk Currency exchange is a key determinant of the performance at Apple Inc. This is due to its MNC nature as it operates in various parts of the world. The Company thus translates its assets and liabilities as well as revenue from the non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates. They are thus victims of the exchange rate risk effect and are thus keen on the behavior of dollar over a given period of time. To have a clear insight into the exchange rate risk, the paper evaluates the trend of dollar from the last three months. This will help us know if the company has been at the foreign exchange risk and if it affected it earnings. The paper will use the Euro and Yen as the currency 5 to check on the exchange rate due to heavy presence of Apple in the two regions. Generally, the Dollar value has declined both against Euro and Yen in the last 3 months. This is as highlighted by the table below. Month JPY/USD Euro/USD April 109.675 0.944 May June 114.324 109.739 0.915 0.893 July 111.074 0.856 Managing Exposure to Exchange Rate Risk MNCs such as Apple Inc. are always faced with the foreign exchange risk. This is due to the nature of their operations that is present in all parts of the globe. The main challenge they face is thus not how to avoid but how to manage the cost emanating from the frequent fluctuations in the currency. Apple Inc. employs franchise and risk management to deal with currency volatility (economic exposure), transaction exposure as well as translation exposure. The transaction exposure results from large export sales whereas translation exposure emanates from currency 6 fluctuations. Franchise implies that the subsidiary is independent in the region it operates and thus the forex risk is reduced. Cost of Capital (WACC) and Required Rate of Return Cost of Capital reflects the cost of investments than the company pursues as it tries to raise funds. A company always raises capital through Equity (E), Debt (D) or sometimes through the preferred stock, P. Apple Inc. only uses debt and equity. Cost of capital is always computed using the below formula; WACC =E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate) Weights The market value of equity (E) (market cap) for Apple today stands at $779469.080 Million. To arrive at the market value of debt we use the book value of debt (D) to do the computation. This is done by computing the sum of latest 2-year average of both long and short term debt. As at March 2017, Apple Inc.'s short term debt was $11302 Million and 2-year long term debt stood $64378 Million. The total value of Debt (D) is thus $75680 Million. weight of equity = E / (E + D) = 779469.080 / (779469.080 + 75680) = 0.9115 or 91.15% weight of debt = D / (E + D) = 75680 / (779469.080 + 75680) = 0.0885 or 8.85% Cost of Equity This is accomplished through the CAPM formula. That is Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market Risk-Free Rate of Return) 7 KE =Rf+(Rm-Rf) The current Rf as per Guru Focus is 2.32%, Apple Inc. beta, is 1.43 whereas the market premium (Rm-Rf) is 6%. The cost of capital will be; KE =Rf+(Rm-Rf) =2.32%+1.43(6%) =10.9% Cost of Debt Cost of debt is evaluated using the interest expense. The apple interest expense (absolute value) is $1456 Million. Remember the previous Book Value of Debt (D) is $75,680 Million. Cost of debt is thus; Cost of Debt = 1456 / 75680 = 1.9%. The average 2-year tax rate is 25.965%. Apple Inc'.s (WACC) is thus; WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) =0.9115 *10.9% +0.0885 *1.9% *(1 - 25.965%) =10.06% Valuation Formula and the elements. The valuation of a company's cost of capital, as aforementioned is done through the WACC formula. In a typical company, the elements of cost of capital is basically the cost of equity, cost of debt and cost of preferred stock. But this was a special case since Apple Inc. uses debt and equity in its capitalization. This is expressed as: WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) 8 To interpret the results of Apple Inc., the paper can say that the Apple Inc.'s WACC is 10.06%. From the income statement data, the return on invested capital for Apple Inc.'s was 28.34%. The company therefore generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A company that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. Stock and WACC Trend To sum up the analysis, we evaluate the general trend of the cost of capital and stock at Apple Inc. In the monthly data, the WACC trend to depict the trend of stock performance in the stock market. The below tables summarizes all the data. Apple Inc. Annual Data WACC Sep07 Sep08 Sep09 Sep10 17.83 21.36 12.23 10.85 Sep11 7.09 Sep12 6.82 Sep13 6.08 Sep14 8.54 Sep15 8.20 Sep16 9.99 Apple Inc. Quarterly Data WACC Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Mar17 9.80 7.38 8.94 8.20 8.17 9.74 9.23 9.99 10.13 10.1 Stock Value Date Apple Inc. Stock Value Date Apple Inc. Stock Value May 8 $ 153.01 June 26 $ 145.82 May 15 $ 155.70 May 22 $ 153.99 May 29 $ 153.67 June 5 $ 153.93 June 12 $ 145.42 July 3 $ 143.50 July 10 $ 145.06 July 17 $ 149.56 July 24 152.09 July 29 $ 149.50 June 19 $ 146.34 Aug 4 $ 149.50 9 CONCLUSION The financials of Apple Inc. have showed the great deal of attention the company gives to its stock and cost of capital. The performance attached to the cost of capital and how the stock of a particular company performs is thus also subject to exchange rate risk. However, at the end we see that the company borrows at 10.06% and its return on capital 28.06%. The positive returns are therefore a reflection of the company's future success. References Ximnez, J., Luis J.,& Sanz, L., (2014). Financial decision-making in a high-growth company: the case of Apple incorporated. Management Decision, 52(9),1591-1610. www.msn.com https://www.sec.gov/edgar/searchedgar/companysearch.html 10 International Finance Project FINANCIAL ANALYSIS: REGIONS FINANCIAL CORPORATION STOCK PERFORMANCE Date of Submission Student Name Name of the Professor Regions Financial Corporation (NYSE:RF), with $125 billion in assets, is a member of the S&P 500 Index and is one of the nation's largest full-service providers of consumer and commercial banking, wealth management, mortgage, and insurance products and services. Regions serves customers across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates approximately 1,500 banking offices and 1,900 ATMs. Additional information about Regions and its full line of products and services can be found at www.regions.com. History Regions Financial Corporation was formed in 1971 as First Alabama Bancshares Inc., Alabama's first multibank holding company. With the combination of three well-respected banks, the holding company began operations with a total of $543 million in assets and 40 banking locations in Birmingham, Huntsville and Montgomery. The company was renamed Regions Financial Corp. in 1994 to better reflect its growing presence throughout the South. Its merger with Memphis, Tenn.-based Union Planters Corp. took place in July 2004, creating a Top 15 U.S. bank. Its merger with AmSouth Bancorporation on November 4, 2006, created a Southeast-based financial powerhouse ranking as one of the top 10 banks in the nation. Serving some 4 million households throughout the South, Midwest and Texas, Regions is a full-service provider of retail and commercial banking, wealth management, mortgage and insurance products and services 1 INTRODUCTION This paper aims at providing financial insights into stock performance in the USA. Specifically, the paper evaluates the common stock of a US multinational corporation (MNCs) with a capitalization of at least $10 million. In this case, the paper has picked on a leading banking institution, Regions Financial Corporation. Regions Financial Corporation (RFC), Stock is listed under the NYSE:RF and has exhibited varied trends which the paper will provide more light on. As aforementioned, Regions Financial Corporation, USA is a leading American MNC. The company success is beyond any doubt and it recorded with revenue of $215 billion. The stock analysis and other financial factors will help the corporation to forecast its investments and exchange rate factors effectively, plan and cope with the future. The paper will thus provide more comprehensive insights onto the company's stock through the analysis segment below. ANALYSIS OF REGIONS FINANCIAL CORPORATION FINANCIALS Stock Valuation of Regions Financial Corporation USA The paper begins to analyze the financials through evaluating the stock value of Regions Financial Corporation USA From the figures presented, the company's stock value decreased 2 from May 8, to August 4. This represents a deviation of 13% in average over the given period of about 3 months. Date RFC,USA Stock Value May 8 $ 14.35 May 15 $ 14.34 May 22 $ 14.07 May 30 $ 13.97 Date RFC,USA Stock Value June 26 $ 13.75 July 3 $ 14.88 July 10 $ 14.75 July 17 $ 14.70 June 5 $ 13.53 July 24 14.40 June 12 $ 14.36 June 19 $ 14.50 July 29 $ 14.50 Aug 4 $ 14.50 Additionally, the line graph below presents the summary trend of Regions Financial Corporation USA, from May 8 up to August 4. The stock experienced a boom in the month of May but the stock performance declined significantly in the subsequent month of June and Early July. Reaching all time low on 5 June, 2017 at $13.50. However, the stock has picked up and is on the recovery trend. Company Cash Flows 3 Cash Flow statements reports on how a company has used its most liquid asset, cash and its equivalents in a given fiscal year. This analysis will evaluate the cash flow trend of Regions Financial Corporation USA, in a duration of four years from the financial year 2013 to 2016. Regions Financial Corporation USA Cash Flow Statement For the Year 2013-2016 FY January-December. USD millions. Operating Activities Funds from Operations Extra-Ordinaries Changes in Working Capital Net Operating Cash Flow 2.21B 611M 2.82B 1.76B 250M 2.01B 1.95B (540M) 1.41B 1.95B 41M 1.99B Investing Activities Capital Expenditures Capital Expenditures (Fixed Assets) Capital Expenditures (Other Assets) Net Assets from Acquisitions Sale of Fixed Assets & Businesses Purchase/Sale of Investments Purchase of Investments Sale/Maturity of Investments Increase in Loans Decrease in Loans Other Uses Other Sources Net Investing Cash Flow 2013 (214M) (186M) (28M) 2.27B (7.05B) 9.32B (6.44B) 5.24B 856M 2014 (263M) (242M) (21M) (834M) (5.97B) 5.13B (5.87B) 3.29B (3.68B) 2015 (373M) (373M) (599M) (7.86B) 7.26B (7.83B) 2.83B (5.97B) 2016 (269M) (269M) (879M) (7.87B) 7B (4.74B) 5.22B (668M) 2015 (368M) (304M) (64M) 4.23B (623M) (623M) 2.61B 2016 (381M) (317M) (64M) 605M (839M) (839M) (569M) Financing Activities Cash Dividends Paid - Total Common Dividends Preferred Dividends Decrease in Deposits Increase in Deposits Change in Capital Stock Repurchase of Common & Preferred Stk. Sale of Common & Preferred Stock Proceeds from Stock Options Issuance/Reduction of Debt, Net 2013 2013 (170M) (138M) (32M) 3.02B (340M) (340M) (359M) 2014 2014 (299M) (247M) (52M) 1.75B 230M (256M) 486M 486M (1.28B) 2015 2016 4 Change in Current Debt Change in Long-Term Debt Issuance of Long-Term Debt Reduction in Long-Term Debt Other Funds Other Uses Other Sources Net Financing Cash Flow Exchange Rate Effect Miscellaneous Funds Net Change in Cash Free Cash Flow 608M (967M) 750M (1.72B) (3.89B) (216M) 2.63B 71M (1.35B) (1.35B) 6M 6M 405M (1.27B) 1.77B (2.24B) 4.85B 6B (1.14B) 12M 12M 5.86B 1.31B 1.41B (10M) (559M) 3.36B (3.92B) (2M) (2M) (1.19B) 137M 1.99B From the cash flow statement, the cash flow per share of shows an increasing trend with a great deal of variation. The free cash flow decreased from $2.63 billion in 2013 to $1.41 billion in 2015. However, the value rose significantly in 2016 to a net cash flow of $1.99 billion. Regions Financial Corporation Revenue Regions Financial Corporation as earlier stated, has been successful in its revenue generation. The company has experienced an upward trend in its revenues in the Smartphone Market over the last few years. The company reported a total net of income of $1.16 billion in 2016 up from $1.08 billion and $1.14 billion in 2015 and 2014 respectively. In addition, the company's revenue comes from both domestic sales in America as well as the percentage that comes from foreign sales. Foreign Sales accounts for 30% of the total sales as the rest comes from USA. Fiscal Year Net Income 2014 $ 1.14 B 2015 $1.08 B 2016 $1.16 B 5 Currency Exchange and Dollar Risk Currency exchange is a key determinant of the performance at Regions Financial Corporation USA. This is due to its MNC nature as it operates in various parts of the world. The Company thus translates its assets and liabilities as well as revenue from the non-U.S. dollar functional currency subsidiaries into U.S. dollars using exchange rates. They are thus victims of the exchange rate risk effect and are thus keen on the behavior of dollar over a given period of time. To have a clear insight into the exchange rate risk, the paper evaluates the trend of dollar from the last three months. This will help us know if the company has been at the foreign exchange risk and if it affected it earnings. The paper will use the Euro and Yen as the currency to check on the exchange rate due to heavy presence of Regions Financial Corporation USA in the two regions. Generally, the Dollar value has declined both against Euro and Yen in the last 3 months. This is as highlighted by the table below. Month JPY/USD Euro/USD April 109.675 0.944 May June 114.324 109.739 0.915 0.893 July 111.074 0.856 6 Managing Exposure to Exchange Rate Risk MNCs such as Regions Financial Corporation USA are always faced with the foreign exchange risk. This is due to the nature of their operations that is present in all parts of the globe. The main challenge they face is thus not how to avoid but how to manage the cost emanating from the frequent fluctuations in the currency. Regions Financial Corporation USA employs franchise and risk management to deal with currency volatility (economic exposure), transaction exposure as well as translation exposure. The transaction exposure results from large export sales whereas translation exposure emanates from currency fluctuations. Franchise implies that the subsidiary is independent in the region it operates and thus the forex risk is reduced. Cost of Capital (WACC) and Required Rate of Return Cost of Capital reflects the cost of investments than the company pursues as it tries to raise funds. A company always raises capital through Equity (E), Debt (D) or sometimes through 7 the preferred stock, P. Regions Financial Corporation USA only uses debt and equity. Cost of capital is always computed using the below formula; WACC =E/(E + D)*Cost of Equity+D/(E + D)*Cost of Debt*(1 - Tax Rate) Weights The market value of equity (E) (market cap) for Regions Financial Corporation USA today stands at $7469.50 Million. To arrive at the market value of debt we use the book value of debt (D) to do the computation. This is done by computing the sum of latest 2-year average of both long and short term debt. As at March 2017, Regions Financial Corporation USA short term debt was $102 Million and 2-year long term debt stood $678 Million. The total value of Debt (D) is thus $780 Million. weight of equity = E / (E + D) = 7469.50 / (7469.50 + 780) = 0.905 or 90.5% weight of debt = D / (E + D) = 780 / (7469.50 + 780) = 0.095 or 9.5% Cost of Equity This is accomplished through the CAPM formula. That is Cost of Equity = Risk-Free Rate of Return + Beta of Asset * (Expected Return of the Market Risk-Free Rate of Return) KE =Rf+(Rm-Rf) The current Rf as per Guru Focus is 2.32%, Regions Financial Corporation USA beta, is 1.27 whereas the market premium (Rm-Rf) is 6%. The cost of capital will be; KE =Rf+(Rm-Rf) =2.32%+1.27(6%) =9.94% 8 Cost of Debt Cost of debt is evaluated using the interest expense. The Regions Financial Corporation interest expense (absolute value) is $56 Million. Remember the previous Book Value of Debt (D) is $780 Million. Cost of debt is thus; Cost of Debt = 56 / 780 = 7.2%. The average 2-year tax rate is 30.45%. Regions Financial Corporation's (WACC) is thus; WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) =0.905 *9.94% +0.095 *7.2% *(1 - 30.45%) =9.92% Valuation Formula and the elements. The valuation of a company's cost of capital, as aforementioned is done through the WACC formula. In a typical company, the elements of cost of capital is basically the cost of equity, cost of debt and cost of preferred stock. But this was a special case since Regions Financial Corporation USA uses debt and equity in its capitalization. This is expressed as: WACC =E / (E + D)*Cost of Equity+D / (E + D)*Cost of Debt*(1 - Tax Rate) To interpret the results of Regions Financial Corporation USA, the paper can say that the company's WACC is 9.92%. From the income statement data, the return on invested capital for Regions Financial Corporation's was 25.74%. The company therefore generates higher returns on investment than it costs the company to raise the capital needed for that investment. It is earning excess returns. A company that expects to continue generating positive excess returns on new investments in the future will see its value increase as growth increases. 9 Regions Financial Corporation Stock Trend To sum up the analysis, we evaluate the general trend of the cost of capital and stock at Regions Financial Corporation USA. In the monthly data, the WACC trend to depict the trend of stock performance in the stock market. The below tables summarizes all the data. Stock Value Date RFC,USA Stock Value May 8 $ 14.35 May 15 $ 14.34 May 22 $ 14.07 May 30 $ 13.97 Date RFC,USA Stock Value June 26 $ 13.75 July 3 $ 14.88 July 10 $ 14.75 July 17 $ 14.70 June 5 $ 13.53 July 24 14.40 June 12 $ 14.36 June 19 $ 14.50 July 29 $ 14.50 Aug 4 $ 14.50 CONCLUSION The financials of Regions Financial Corporation USA have showed the great deal of attention the company gives to its stock and cost of capital. The performance attached to the cost of capital and how the stock of a particular company performs is thus also subject to exchange rate risk. However, at the end we see that the company borrows at 9.92% and its return on capital 25.74%. The positive returns are therefore a reflection of the company's future success. 10 International Finance Project FINANCIAL ANALYSIS: REGIONS FINANCIAL CORPORATION STOCK PERFORMANCE Date of Submission Student Name Name of the Professor 1 INTRODUCTION This paper aims at providing financial insights into stock performance in the USA. Specifically, the paper evaluates the common stock of a US multinational corporation (MNCs) with a capitalization of at least $10 million. In this case, the paper has picked on a leading banking institution, Regions Financial Corporation. Regions Financial Corporation (RFC), Stock is listed under the NYSE:RF and has exhibited varied trends which the paper will provide more light on. As aforementioned, Regions Financial Corporation, USA is a leading American MNC. The company success is beyond any doubt and it recorded with net income of $1.16 billion. The stock analysis and other financial factors will help the corporation to forecast its investments and exchange rate factors effectively, plan and cope with the future. The paper will thus provide more comprehensive insights onto the company's stock through the analysis segment below. ANALYSIS OF REGIONS FINANCIAL CORPORATION FINANCIALS Stock Valuation of Regions Financial Corporation USA The paper begins to analyze the financials through evaluating the stock value of Regions Financial Corporation USA From the figures presented, the company's stock value decreased from May 8, to August 4. This represents a deviation of 13% in average over the given period of about 3 months. Date RFC,USA Stock Value May 8 $ 14.35 May 15 $ 14.34 May 22 $ 14.07 May 30 $ 13.97 Date RFC,USA Stock Value June 26 $ 13.75 July 3 $ 14.88 July 10 $ 14.75 July 17 $ 14.70 June 5 $ 13.53 July 24 14.40 June 12 $ 14.36 June 19 $ 14.50 July 29 $ 14.50 Aug 4 $ 14.50 2 Additionally, the line graph below presents the summary trend of Regions Financial Corporation USA, from May 8 up to August 4. The stock experienced a boom in the month of May but the stock performance declined significantly in the subsequent month of June and Early July. Reaching all time low on 5 June, 2017 at $13.50. However, the stock has picked up and is on the recovery trend. Company Cash Flows Cash Flow statements reports on how a company has used its most liquid asset, cash and its equivalents in a given fiscal year. This analysis will evaluate the cash flow trend of Regions Financial Corporation USA, in a duration of four years from the financial year 2013 to 2016. Regions Financial Corporation USA Cash Flow Statement For the Year 2013-2016 FY January-December. USD millions. Operating Activities Funds from Operations 2013 2.21B 2014 1.76B 2015 1.95B 201