The industry selected is Technology. Apple and Microsoft are the selected and publicly traded firms to be used. Please answer all the questions in the directions. See the example attached

Activity 3.5 (Due in Activity 4.5) MBAA 518 - Managerial Finance Valuation of Stock using PE ratios Note: This activity will be submitted as Activity 4.5. However, it is recommended you begin to start work on this activity in Module 3. Most of the content necessary to complete the assignment is provide in Module 3. Submission of the assignment will occur in Module 4. There is also a discussion question in activity 4.6 related to this assignment. For this activity, you will need to select a publicly traded firm and a major competitor. Firms from any industry can be used. Go to reuters.com and for the firm you have selected obtain the trailing twelve-month P/E ratio for the firm, industry, and sector. (You can use other sources if you wish) Use information about your company's earnings and industry and sector's P/E s based on the P/E ratio value your selected firm as indicated in the example. If there is no earnings estimate, or the earnings estimate is negative, use earnings for a previous year. If that's also negative, pick another company for this assignment. There is an example of a partially completed table found here. Note: the example is only complete for one of the two firms indicated. Your submission must include the data for both firms. Boeing's data is included; therefore, Boeing cannot be used by any student. Lockheed-Martin is indicated as a competitor but no information is provided. Lockheed-Martin could still be used. Once you have completed the above write a short report discussing the valuation of your selected firm and competitor. Note if the current price is very close to \"Estimated share price based on TTM P/E and Earnings past 12 months.\" This should be very close if not you have likely done something wrong. How does the valuation of your firm compare to that of the competitors based on the P/E ratio? Why might this be the case? How does you firm's current price compare to the estimated price using the industry and sector P/E's compare both for the TTM and estimated year end? Is it higher or lower? Why might that be (provide one rational reason why)? Based on simple analysis which of the two firms (your selected firm and its competitor) appears to be undervalued? Why did you draw that conclusion? What do you suspect is the reason? Your submission will only need to be a single page to page and a half formatted with singlespaced, Times New Roman, 12 point font. Include a citation for where you retrieved the data and the date retrieved. A table following the example must be included in your submission but is not considered as part of the page to page and a half write-up. Get to the point in your write-up. There is no need for extra \"baggage.\" May 2015 1 Firm Stock Symbol Current Firm P/E Share Price Ratio (TTM) Selected Firm Boeing BA 124.8 17.79 Major Competitor Lockheed-Martin Firm Stock Symbol Earnings past 12 months (TTM)* Mean Year End Earnings Estimate Selected Firm Boeing BA 7.00 8.37 Major Competitor Lockheed-Martin Firm Stock Symbol Earnings past 12 months* Mean Year End Earnings Estimate Selected Firm Boeing BA 7.00 8.37 Major Competitor Lockheed-Martin * The 4 most recent quarterly reports, earnings form each report added together. Firm P/E High Last 5 yrs. Firm P/E Low Last 5 yrs. Industry P/E Ratio (TTM) 28.93 13.76 25.9 Estimated share price based on TTM P/E and Earnings past 12 months Estimated share price based on Industry's TTM P/E and Firm's earnings TTM 124.53 181.30 Estimated share price based on TTM P/E and Earnings past 12 months 124.53 Estimated share price based Estimated share price based on on Firm's TTM P/E and Industry's TTM P/E and Mean Mean Year End Earnings Year End Earnings Estimates Estimates 148.90 216.78 Sector P/E Ratio (TTM) 31.64 Estimated share price based on Sector's TTM P/E and Firm's earnings TTM 221.48 Estimated share price based on Sector's TTM P/E and Mean Year End Earnings Estimates 264.83 Apple Inc. is a multinational technology company that designs, develops and sells consumer electronics, computer software and online services. One of its main competitors is Microsoft Corp supports a wide range of products and services predominantly related to computing. The firms compete in terms of the product and services it offers such as mobile phones, computer software and hardware components and others. A valuation analysis is important for determining the worth of the company. This valuation is essential to investors who seek to buy company's stock. There is stiff competition in the technological sector because of the dynamic environment. With time, technology is changing and firms are expected to move with this change so as to survive in the competitive environment. The financial statements are important in determining the success of a firm. Market value ratios are essential in estimating the performance of the firm in the industry. These market ratios are the earnings per share and the price/earnings ratios. With these ratios, it will be possible to evaluate the future performance and to determine whether the companies are worth investing in. Currently, the price of Apple Inc is $146.44 compared to that of Microsoft Corp which is $70.97. Apple has a PE ratio of 17.1 compared to industry PE ratio of 25.9 sector PE ratio of and 31.64. On the other hand, Microsoft's PE ratio is 17.1 whereas the industry and sector PE ratios are 49.45 and 17.26 respectively. The price earnings ratio is a measure of the share price relative to its annual net income earned by the firm per share. Generally, a higher PE ratio is an indication that the investors are expecting a higher earnings growth compared to companies with lower PE. A lower PE may be an indication that a firm is undervalued or that it is doing exceptionally well compared to its past trends. Apple can be said to be doing exceptionally well both in the industry and sector in which it operates. Microsoft on the other hand is doing exceptionally well in the industry but its performance in the sector in which it operates is the same as those of others. Apple Inc has been in the industry for longer than Microsoft Corp and this explains the reason for the lower PE ratio. Companies with higher growth prospects generally command for higher PEs since their current earnings may be very small because they spend money to grow. These companies are expected to become quite profitable in the future. Microsoft Corp is an example of a growing firm. The estimated share price based on industry's TTM P/E and mean yearend earnings estimates of both firms are higher than the share price. This could be attributed to the fact that the PE ratios of the firms are lower than that of the industry. on the other hand, the estimated share price based on sector's TTM P/E and mean yearend earnings estimates of Apple is higher than the share price whereas that of Microsoft is lower than the current share price of the company. The reason for the share price of Microsoft being lower can be because the firm has a higher PE ratio compared to the sector ratio. This means that the investors expect a higher growth of the firm. This indicates that most of the earnings are retained by the firm to aid in expansion projects instead of getting paid to the investors. Based on my analysis, the firm that appears to be undervalued is Apple Inc. this is because the firm has a lower PE ratio than both the industry and sector ratios. I suspect that the reason could be that the firm has higher earnings on its stocks. Over the past years, the PE ratio of Microsoft Corp was high and this means that the investors valued the firm more. The reason for the high PE ratio was attributed to the fact that the firm was growing rapidly and expanding into new markets. Currently, the firm is one of the largest companies in the world and is no longer considered as a growth company. The firm's revenues and earnings capacity cannot maintain the same growth like before and that the expectations have been moderated. References Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons. Reuters. (2017). ${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com. [online] Available at: http://www.reuters.com/finance/stocks/overview?symbol=AAPL.OQ [Accessed 14 Jun. 2017]. Reuters. (2017). ${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com. [online] Available at: http://www.reuters.com/finance/stocks/overview?symbol=MSFT.OQ [Accessed 14 Jun. 2017]. Apple Inc. is a multinational technology company that designs, develops and sells consumer electronics, computer software and online services. One of its main competitors is Microsoft Corp supports a wide range of products and services predominantly related to computing. The firms compete in terms of the product and services it offers such as mobile phones, computer software and hardware components and others. A valuation analysis is important for determining the worth of the company. This valuation is essential to investors who seek to buy company's stock. There is stiff competition in the technological sector because of the dynamic environment. With time, technology is changing and firms are expected to move with this change so as to survive in the competitive environment. The financial statements are important in determining the success of a firm. Market value ratios are essential in estimating the performance of the firm in the industry. These market ratios are the earnings per share and the price/earnings ratios. With these ratios, it will be possible to evaluate the future performance and to determine whether the companies are worth investing in. Currently, the price of Apple Inc is $146.44 compared to that of Microsoft Corp which is $70.97. Apple has a PE ratio of 17.1 compared to industry PE ratio of 25.9 sector PE ratio of and 31.64. On the other hand, Microsoft's PE ratio is 17.1 whereas the industry and sector PE ratios are 49.45 and 17.26 respectively. The price earnings ratio is a measure of the share price relative to its annual net income earned by the firm per share. Generally, a higher PE ratio is an indication that the investors are expecting a higher earnings growth compared to companies with lower PE. A lower PE may be an indication that a firm is undervalued or that it is doing exceptionally well compared to its past trends. Apple can be said to be doing exceptionally well both in the industry and sector in which it operates. Microsoft on the other hand is doing exceptionally well in the industry but its performance in the sector in which it operates is the same as those of others. Apple Inc has been in the industry for longer than Microsoft Corp and this explains the reason for the lower PE ratio. Companies with higher growth prospects generally command for higher PEs since their current earnings may be very small because they spend money to grow. These companies are expected to become quite profitable in the future. Microsoft Corp is an example of a growing firm. The estimated share price based on industry's TTM P/E and mean yearend earnings estimates of both firms are higher than the share price. This could be attributed to the fact that the PE ratios of the firms are lower than that of the industry. on the other hand, the estimated share price based on sector's TTM P/E and mean yearend earnings estimates of Apple is higher than the share price whereas that of Microsoft is lower than the current share price of the company. The reason for the share price of Microsoft being lower can be because the firm has a higher PE ratio compared to the sector ratio. This means that the investors expect a higher growth of the firm. This indicates that most of the earnings are retained by the firm to aid in expansion projects instead of getting paid to the investors. Based on my analysis, the firm that appears to be undervalued is Apple Inc. this is because the firm has a lower PE ratio than both the industry and sector ratios. I suspect that the reason could be that the firm has higher earnings on its stocks. Over the past years, the PE ratio of Microsoft Corp was high and this means that the investors valued the firm more. The reason for the high PE ratio was attributed to the fact that the firm was growing rapidly and expanding into new markets. Currently, the firm is one of the largest companies in the world and is no longer considered as a growth company. The firm's revenues and earnings capacity cannot maintain the same growth like before and that the expectations have been moderated. References Damodaran, A., 2016. Damodaran on valuation: security analysis for investment and corporate finance (Vol. 324). John Wiley & Sons. Reuters. (2017). ${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com. [online] Available at: http://www.reuters.com/finance/stocks/overview?symbol=AAPL.OQ [Accessed 14 Jun. 2017]. Reuters. (2017). ${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com. [online] Available at: http://www.reuters.com/finance/stocks/overview?symbol=MSFT.OQ [Accessed 14 Jun. 2017]