I select REA Group LTD as my growth stock and Boral LTD as a mature firm with substantial tangible assets.
1. The reasons why I determine REA Group LTD as a growth stock in based on three aspects.
First is about cash flow growth. The EBITs for REA from 2011 to 2015 are 103.2m, 126m, 163.7m, 225.1m, 285.8m, respectively. From 2014 to 2015, the EBIT has a growth of 27 percent. The revenue in 2014 is 437.5 million, and it became 522.9 million in 2015, with a 20 percent growth.
Second is about operation ability. Average monthly visits to its website reaestate.com.au has grown by 26 percent in 2015, in another word, it is a growth of 24.3 million visits every month. Furthermore, consumers always spend more time on REA’s website, which is six…show more content… From the data above, the tangible asset accounts for 51.29 percent of the total asset. On the other hand, Boral’s total asset is 5587 million in 2006, only a 5 percent growth in the past decade. As a consequence, Boral is a firm with substantial tangible asset.
2. The leverage ratio calculation
The formula to calculate leverage ratio is shown below:
For REA, from the annul report, we can find that total asset equals to 652,447,000, total liabilities equals to 91,120,000. Total equity equals to 561,357,000. Using the formula above, we can get debt ratio equals to 13.97 percent. This is the debt ratio for REA in book value aspect.
The number of shares for REA is 131,714,699. And the price of the stock at 30 June 2015 is 38.79. So the market value of equity is 5,109,213,174. The total liabilities are assumed same as it in book value aspect. So the debt ratio is 1.75 percent.
For Boral LTD, under the book value condition, the total asset is 5865.4 million. The liabilities are 2341.3 million. The total equity is 3524.1 million. Using the formula above, the D/E ratio equals to 39.91 percent.
The number of shares for Boral is 768,163,400. The price is 5.85 on 30 June 2015. So the market value of equity is 4,493,755,890. The liabilities are assumed the same as in book value aspect. The debt ratio equals to 34.25 percent.
The difference between book value and