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Analysis of Financial Ratios and Share Prices

Discuss about the Episode Mining and Genetic Algorithm.

PepsiCo, Inc, Netflix, Inc, and Tesla Motors Inc is mainly identified as the overall stocks, which will be evaluated to identify its financial viability and detect investment scope. In addition, the adequate financial ratios are calculated to identify current position of the company and the risk involved in Investments.

The companies selected from the portfolio are PepsiCo, Inc, Netflix, Inc, and Tesla Motors Inc, which would be further research to identify the investment scope in the company.  the selected stocks are relevantly diversified, as the industry of chosen companies ranges from entertainment, beverages and automobile. The diversification is relatively high, as the companies does not fall under the same industry, which helps in spreading the risk from investment. The further research on the company would eventually help in identifying its current position and future scope, which is essential for continuing investing in the selected stocks (Lan, Lin and Lin 2015).

Financial ratios are evaluated as follows for the selected companies.

PepsiCo, Inc:

PepsiCo, Inc

2015

2016

2017

Operating Margin

13.25%

15.58%

16.54%

Debt/Equity

2.46

2.67

3.06

Quick Ratio

1.05

1.08

1.29

Gross Margin

54.44%

55.08%

54`69%

The overall financial ratios of PepsiCo mainly depict the Company's financial strength which has improved over the fiscal years. the increment in operating margin and gross margin mainly state the financial capability of the organization to generate higher returns from its operations. Moreover, the quick ratio of the company has improved radically from 1.05 to 1.29.  However, the depth to equity ratio has a relatively increased in three fiscal years, which increases the concern regarding insolvency (Reuters.com 2018).

Netflix, Inc:

Netflix, Inc

2015

2016

2017

Operating Margin

4.51%

4.30%

7.17%

Debt/Equity

1.07

1.26

1.81

Gross Margin

32.27%

31.72%

34.49%

Quick Ratio

0.65

0.38

0.52

The financial ratios of Netflix indicate the increasing stability of the organization in achieving higher returns from investment. However, the quick ratio has declined, while the debt to equity ratio has increased, which indicate the deteriorating financial position of the organization in the three fiscal years (Reuters.com 2018).

Tesla Motors Inc:

Tesla Motors Inc

2015

2016

2017

Quick Ratio

0.48

0.67

0.51

Operating Margin

-17.71%

-9.53%

-13.88%

Debt/Equity

1.91

1.26

2.22

Gross Margin

22.82%

22.85%

18.90%

The financial position of Tesla Motors has a relatively indicated the deteriorating condition of the company over the period of three fiscal years. The financial ratios such as operating margin, gross margin and quick ratio as a relatively deteriorated over the period of the analysis, which indicates the rising problems of the organization. The rising debt to equity ratio also adds on to the deterioration in financial position of the company (Reuters.com 2018).

The selection of stocks is relatively based on Instinct, as companies that are chosen for investment is the market leader of their segment. The emotional level is relatively used for selecting the stocks such as Tesla Motors for investment, who is incurring losses in their operations. Due to the emotional decision the overall investment risk in the portfolio is relatively increased, as Tesla motor Inc’s financial position has relatively deteriorated over the period. Investment was conducted on the basis of instinct rather than logical conditioning, where the aim was to maximize returns from companies that are market leader in their sector. Some of the researchers mentioned that maximum of the investors relies on trend to identify investment opportunity, which is mainly seen by companies that have adequate market cap in the capital market (Gottschlich and Hinz 2014).

The evaluation of competitor’s position against the company is conducted as follows.

Investment Opportunities in PepsiCo, Inc, Netflix, Inc, and Tesla Motors Inc

PepsiCo, Inc:

CompanyName 

Market Cap

Close price

P/E-Ratio

Pepsico, Inc.

155,139,148

 $                        109.26

32.42

National Beverage Corp.

4,113,244

 $                          88.25

28.93

The competitive condition of PepsiCo can be identified from the above table, which depicts the overall rising competitive edge of the Company against its peers. the market cap, close price, and P/E ratio of the company is relatively higher than its competitor, which depicts the demand among potential investors (Reuters.com 2018).

Netflix, Inc:

CompanyName 

Market Cap

Close price

P/E-Ratio

Netflix, Inc.

127,428,830

 $                        293.65

234.92

Best Buy Co., Inc.

20,084,003

 $                          71.04

21.66

From the evaluation Netflix is detected to have the highest competitive edge against peers, as the close price, market cap, and P/E ratio of the organization is relatively higher than its competitors. This rising competitive edge is making Netflix the market leader in the entertainment sector of US (Reuters.com 2018).

Tesla Motors Inc:

CompanyName 

Market Cap

Close price

P/E-Ratio

Tesla, Inc.

51,311,139

 $                        303.76

N/E

Toyota Motor Corp Ltd Ord

2,993,076

 $                        127.80

8.94

From the overall evaluation the P ratio of Tesla Inc is relatively not present in the current data of Nasdaq, which is due to the losses incurred by the organization. However, the competitiveness of the company has not deteriorated against its competitors, as the market cap and close price of Tesla Inc is relatively higher than Toyota Motor Corp. This relatively indicates that the competitiveness of Tesla is a relatively high, as they have the maximum share value in comparison to its competitors (Reuters.com 2018).


CompanyName 

Close price

52 Weeks High-Low

Pepsico, Inc.

 $   109.260

$ 122.51/$ 105.938

Netflix, Inc.

 $   293.650

$ 333.98/$ 138.66

Tesla, Inc.

 $   303.76

$ 389.61/$ 244.5901

From the evaluation of above table relevant future prices of the organizations can be identified, as maximum of the stocks are not close to the 52 weeks high. This relatively indicates the possibility of rising prices, which could increase over the period of investment. Companies such as PepsiCo, Inc, Netflix, Inc, and Tesla Motors Inc are mainly evaluated from the above table, whose share prices relatively low. The detection of 52 weeks high and 52 weeks low mainly allows investors to understand the trend of a particular stock, which would eventually help in making adequate investment decisions (Lin, Huang and Tseng 2017). Therefore, from the evaluation of above table it could be identified that there is adequate scope Investments in PepsiCo, Inc, Netflix, Inc, and Tesla Motors Inc.

Conclusion:

The assessment mainly analyses the share price movement of PepsiCo, Inc, Netflix, Inc, and Tesla Motors Inc. which could eventually help in identifying the investment scope in these stocks. The ratio evaluation directly helps in detecting the investment scope of the selected company, which could eventually help in generating higher returns from investment.

Reference and Bibliography:

Chau, M., 2016. Method that forms investment strategy to invest and withdraw a company's stock or fund. U.S. Patent Application 14/804,359.

Chui, A.C. and Titman, S., 2017. Investor Composition and Stock Return Patterns: A Study of Momentum in the Chinese A-and B-Shares Markets.

Eng, W.K., Shukor, N.E.S.A., Ismail, N.R. and Halim, S.A., 2017. Golden cross as Buying Indicator for Stock Investment in Bursa Malaysia. Terengganu International Finance and Economics Journal (TIFEJ), 2(2), pp.94-102.

Gottschlich, J. and Hinz, O., 2014. A decision support system for stock investment recommendations using collective wisdom. Decision support systems, 59, pp.52-62.

He, L.M., Chen, S.D., Zhang, Z., Hu, Y. and Jiang, H.Y., 2016. A Decision Tree Model for Meta-Investment Strategy of Stock Based on Sector Rotating. In FSDM (pp. 194-207).

Lan, Y.W., Lin, D. and Lin, L., 2015. Cointegration analysis of tourism demand by Mainland China in Taiwan and stock investment strategy. Journal of Economic & Financial Studies, 3(05), pp.01-09.

Lin, Y.F., Huang, C.F. and Tseng, V.S., 2017. A novel methodology for stock investment using high utility episode mining and genetic algorithm. Applied Soft Computing, 59, pp.303-315.

Reuters.com. (2018). ${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com. [online] U.S. Available at: https://www.reuters.com/finance/stocks/overview/NFLX.OQ [Accessed 10 Apr. 2018].

Reuters.com. (2018). ${Instrument_CompanyName} ${Instrument_Ric} Company Profile | Reuters.com. [online] U.S. Available at: https://www.reuters.com/finance/stocks/companyProfile/PEP.O [Accessed 10 Apr. 2018].

Reuters.com. (2018). ${Instrument_CompanyName} ${Instrument_Ric} Quote| Reuters.com. [online] U.S. Available at: https://www.reuters.com/finance/stocks/overview/TSLA.OQ [Accessed 10 Apr. 2018].

Sun, S.L., 2016. A Decision Tree Model for Meta-Investment Strategy of Stock Based on Sector Rotating. Fuzzy Systems and Data MiningII: Proceedings of FSDM 2016, 293, p.194.

Vasconcellos, L.L.M., Wlademir, P., Vinícius, A.D.L.M. and João, L.R., 2015. Analysis of the implementation of a stock investment strategy based on a decision aid tool. Contaduría y Administración, 60(1), pp.113-144.

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