S&P 500 Stock Beta Analysis

Assess how the type of market structure impacts your chosen company’s financial performance as measured by performance variables over the past three years. Support your response with data and graphs illustrating two performance variables of your choosing (e.g., sales, net income, stock price) over time.

Marriott Corporation as a firm has a beta of 0.572, the result of diversifying industry risk ratings between the lodging business of 0.4212, the restaurant businesses of 0.9396 and a contract services division of 0.7373. The

From this information we knew that we were looking for a company that has a small beta looking for something below 0.3. Through our research we were able to find that American Water Works has had a share price performance of only 1.65% over the last twelve months. In our early research we found on Folio Investmenting that the utilities sector has the lowest beta compared to the other eight man industries. From this information we decided to focus on utility companies with small betas and then we can

1. Since we do not have the beta for Ameritrade, we need to find comparable firms for which we could compute the betas. There are several candidates in the case. Discuss which firms are most appropriate.

The beta coefficient is based purely on historical data which tells us how a stock

Since the company is newly listed in stock market, no sufficient historical data for the calculation of beta, so we selected the comparable companies Charles Schwab Corp (Discount Brokerage), Quick & Reilly Group (Discount Brokerage) and Waterhouse Investor Srvcs (Discount Brokerage). Because the operating business scope and the brokerage revenue percentage to total revenue for these companies are similar to the Ameritrade, we just use these companies’ historical data for the calculation of Ameritrade’s beta. *Note: Although E*Trade (Discount Brokerage) has the similar business scope with the Ameritrade, we excluded this company since the company strategy is not to be a discount brokerage.

Having the unlevered betas for Marriott and all of its competitors is however not enough, as we need to estimate the relevant beta for each of the three divisions and Marriott as a whole. This is to be done by utilizing the unlevered betas just found.

2. Question: Explain the rationale behind using beta as a measure of risk. Compute the company’s beta based on the divisional betas and compare it with that provided by Value Line and Merrill Lynch. Explain some of the inconsistencies that can be found in reported betas. Do historical betas provide good measures of the future riskiness of firms (or divisions)?

So instead, we will look at comparable firms. Firms in the same industry pursuing the same types of projects will have the same sorts of risks, thus their asset betas will be approximately the same. The returns we calculate for these firms, based on stock price movement, dividends, and stock splits, are their equity betas.

Approximately 83% of the company’s Discount Stores and Supercenters’ purchases were shipped from its 51 distribution centers and rests of them are shipped directly from suppliers to its stores. Each distribution center serves the distribution needs of approximately 80-100 stores, depending on the size of the center. The size of these distribution centers varies from 600,000 – 1,700,000 square feet. 3. The Financial Facts and Figures: (Amounts in millions except per share data) fiscal 1998 1997 1996 a) Net Sales $ 119,299 $ 106,178 $ 94,773 b) Net Income (NPAT) $ 3,526 $ 3,056 $ 2,740 c) Net income per share – Basic & Dilutive $1.56 $ 1.33 $ 1.19 According to [4], the revenue in 1998 was 139.6 billion up 17% from $119.3 billion. Net income $4.43 billion or $1.98 a diluted share, an increase of 26% from previous year, or $1.56 in fiscal 1998. I) Profitability Ratio i) Return on total assets = NPAT*100/Total Assets 8.5% ii) Return on Shareholders fund = NPAT * 100/ Shareholder’s Equity 19.06%

[What statistical research have you completed to help you analyse your market? Did you use a survey/questionnaire?]

The Beta number indicates the volatility of a company in comparison to the market, betas greater than 1 a generally more volatile and betas of less than 1 are generally less volatile and carry less risk for investors. The beta of PepsiCo and its biggest competitor

Beta of 1.4 is a combine of 93% investment in stock C and 7% investment in T-bill.

For this purpose we will compare the company by means of quantitative data with their competitors and provide suggestions to modify the company’s situation.

This yields a daily return of 0.05% and an annualized return for the NASDAQ of 18.09%. After this has been carried out, the daily and annualized standard deviations are also found for both MSFT and NASDAQ. The daily standard deviation for the same period is considered which comes to around 2.74% and then this amount is annualized to yield an annualized standard deviation of 52.29%. The same process gives a daily standard deviation of NASDAQ as 1.43% and annualized standard deviation is 27.35% (Figure 1). In order to find the beta associated with the company, the same amounts are used and the covariance of MSFT and NASDAQ re divided by the variance of the market which is NASDAQ. This leads to a beta of 0.969 for the stock