Discussion: Financial Accounting

1. Imagine investing hypothetical $10000 in a stock for example Apple. Based on the

price today you will know how many shares you can purchase. We will track your stock

and after one month determine whether you made money on your investment. I want you

to pick a stock you want to analyze. I would like you to calculate the following ratios for

your stock. The is called fundamental analysis. We want to find underpriced stocks (Price

< Intrinsic Value). The expectation is that stock price will converge to intrinsic value,

therefore if a stock is underpriced, its price in future should increase hence capital gain.

Ben Graham Screens

Calculate the following for your stock

a) if PE of the stock has to be less than the inverse of the yield on AAA Corporate

Bonds:

b) PE of the stock has to less than 40% of the average PE over the last 5 years.

c) Dividend Yield > Two-thirds of the AAA Corporate Bond Yield

d) Price < Two-thirds of Book Value

e) Price < Two-thirds of Net Current Assets

f) Debt-Equity Ratio (Book Value) has to be less than one.

g) Current Assets > Twice Current Liabilities

h) Debt < Twice Net Current Assets

i) Historical Growth in EPS (over last 10 years) > 7% No more than two years of

negative earnings over the previous ten years