Question

5. Key performance measures Aa Aa Measuring Stock Performa nce An informed and prudent investor uses a variety of measures such as financial rations, book value, eamings per share, return on equity etc. to evaluate the worthiness and prospects of stocks he/she would invest in. It is important for you as an investor to understand how these values are calculated and what do they mean. Based on the information shown in the following table, answer the following questions to assess the worthiness of Verticon stock as an investment. Verticon Stock Data (Current and Historical) 12/2008 1:18PM EDT Aug 16, 2011 (Millions of Dollars) 12/2010 12/2009 Price 18.85 USD Total Assets 195,014 195,949 111,148 +0.64 (+3.51%) 53,592 Change Total Liabilities 107,201 122,935 Mkt cap Preferred Shareholder's Equity 147.1B 52 61 73 Div/yield Common Shareholder's Equity 0.20/4.24 87,761 72,953 57,483 Shares Outstanding (Millions) Shares 8,012 8,012 8,070 6746 Beta 0.70 Book/Share 9.040 8.521 Book/share 11.335 P/E ratio Q1 (Mar 11) 2010 17 Net profit margin 15.24% 12.24% Return on equity 11.60% 9.30% One of the most important features of a stock is its book value. The book value per share of Verticon's stock for the year 2010 was equal to Looking at the whole you can see that this stock is relatively volatile than the market as a since 2010. You can You can see from the net profit margin that Verticon's control over its costs has tell based on the ROE that from the equity-holder's perspective, the overall profitability of the fim has since 2010

Answer 1

Book value per share of Verticon's stock for 2010 = (87,761 / 8,012) = 10.95

Note: Book Value is computed by dividing common shareholders equity to Total no of shares outstanding

Looking at the Beta , you can see that stock is relatively less volatile than market as a whole

Since beta = 0.7 <1, stock will be less volatile than market as a whole

Verticon's control over its costs has increased since 2010.

Note: Increase in Net Profit Margin from 12.24% in 2010 to 15.24% in Q1' Mar 11 indicates that company's control over its cost has increased since 2010  

Overall profitability of the firm has increased since 2010, as reflected by increase in ROE