Chapter 13: Problems 4

Chapter 13: Problems 4
4.

Evaluate y our industry in terms of the five factors that determine an industrys intensity
of competition. Based on this analysis, what are your expectations about the industrys
profitability in the short run (1 or 2 years) and the long run (5 to 10 years)?

Chapter 13: Problem 5
5.

Using Standard and Poors Analysts Handbook or another source, plot the latest 10-year
history of the operating profit margin for the S&P Industrials Index or another aggregate
market series versus an industry of your choice. Is there a positive, negative, or zero
correlation?

Chapter 13: Problem 7(a-c)
7.

Prepare a table listing the variables that influence the earnings multiplier for your chosen
industry and the market index series for the most recent 10 years.
a.

Do the average dividend-payout ratios for your industry and the market index
differ? How should the dividend payout influence the difference between the
multipliers?

b.

Based on the fundamental factors, would you expect the risk for this industry to
differ from that for the market? In what direction and why? Calculate the
industry beta using monthly data for five years. Based on the fundamental factors
and the computed systematic risk, how does this industrys risk compare to the
market? What effect will this difference in risk have on the industry multiplier
relative to the market multiplier?

c.

Analyze and discuss the different components of growth (retention rate, total asset
turnover, total assets/equity, and profit margin) for your chosen industry and a
market index during the most recent 10 years. Based on this analysis, how would
you expect the growth rate for your industry to compare with the growth rate for
the market index? How would this difference in expected growth affect the
multiplier?