Finance–Free Cash Flow/Ratios

A.Using the two stocks you identified(American Eagle Outfitters, Inc and Apple Inc.) determine the free cash flow from 2013 & 2014. What inference can you draw from the companies’ free cash flow?

B. Using the 2016 & 2017 financial statements for both stocks, prepare two financial ratios for each of the following categories: liquidity ratios, asset management ratios, and profitability ratios. You should have a total of six ratios for each stock, per year. What challenges, strengths, or weaknesses do you see? Please be articulate.

Homework hints:

calculate FCF  years 2013 and 2014.   So go to the website of each company and get the annual reports of year 2014. (part A)  and year 2017 (Part B)

FCF =  NOPAT – additional investment in operational capital

NOPAT  = EBIT (1-Tax rate)          use 2014 data.

Additional operational capital =   AAA  —-   BBB

AAA  =  [ (cash+inventory+Account Rec)  — (Accounts payable + Accruals) ]   +  Net Fixed assets                             all    from 2014 data

BBB  =   [ (cash+inventory+Account Rec)  — (Accounts payable + Accruals) ]   +  Net Fixed assets                             all    from 2013 data

B)   get the annual reports of 2018.     you have the financial statement of 2017  and 2018.

Calculate two ratios of each category (3 categories) for each company for each year.

Go to the income statement.

go down to see the following:

EBIT                       Earnings before INTEREST and TAXES

–                             –

I                              Interest

——————————————————

EBT                        Earnings before taxes

–                             –

T                            Taxes

——————————————————

NI                            Net income

——————————————————-

to get the Tax rate   =   Taxes/Earnings before taxes       =   T/EBT