Click on the Market Insight Company tab, then the Population tab, and scroll through the list to fi nd 10 fi rms that interest you. Click on a fi rm’s name and its symbol will automatically be entered. Click on Go, then on the Financial Highlights link in the Compu stat Reports section.
a. For each fi rm, fi nd the return on equity (ROE), the number of shares outstanding, the dividends per share, and the net income. Record them in a spreadsheet.
b. Calculate the total amount of dividends paid (dividends per share × number of shares outstanding), the dividend payout ratio (total dividends paid/net income), and the plowback ratio (1 – dividend payout ratio).
c. Compute the sustainable growth rate, g = b × ROE, where b equals the plowback ratio.
d. Compare the growth rates (g) with the P/E ratios of the fi rms by plotting the P/Es against the growth rates in a scatter diagram. Is there a relationship between the two?
e. Find the price-to-book, price-to-sales, and price-to-cash-fl ow ratios for your sample of fi rms. Use a line chart to plot these three ratios on the same set of axes. What relationships do you see among the three series?
f. For each fi rm, compare the fi ve-year growth rate of earnings per share with the growth rate you calculated above. Is the actual rate of earnings growth correlated with the sustainable growth rate you calculated?
