Part A
2 DuPont analyses
A. Retrieve the annual income statement and balance sheet for Eli Lilly and Co (LLY:NYQ) and Vertex Pharmaceuticals (VRTX:NSQ) for the past five years, ending in the year 2023, from FT.com. Present this raw data in four tables as an appendix at the end of your report. (2 marks)
B. Conduct a five-component DuPont analysis on the companies’ profitability and present the results in a table with clear row and column headings in the main text of your answer. (4 marks)
C. Analyze the results of the DuPont analyses to identify the key drivers and trends of profitability (ROE) for each company (maximum 240 words). (6 marks)
D. Calculate the sustainable growth rate of these two companies using the median statistics from the last five years (e.g., using the median of ROE, not the ROE for each year). Only one sustainable growth rate for each company is calculated. Go to the Profile tab on FT.com, and under the Peer Analysis section, select Growth Rates from the drop-down on the right.
a. Compare the sustainable growth rate you calculated with the focal company’s (i.e.,
the same company’s) revenue, net income, capital expenditure, and dividend’s 5-year growth rates. Discuss the potential causes and implications of any differences (maximum 240 words). (6 marks)
b. Compare and discuss these two companies’ growth rates with their peers. Highlight
any potential strengths and weaknesses (maximum 240 words). (6 marks)
E. Based on your analysis, critically evaluate the relative strength of the financial statements of these two companies. Determine which company has a superior financial performance track record that is likely to be sustained in the future. Reference to external sources of information is encouraged, but only if they are relevant to understanding the ratio analysis (maximum 240 words). (6 marks)
3 Multistage growth model
A. Calculate the cost of equity of the two companies, using the following information:
a. Estimate the beta by downloading One-year daily close-price data in the year 2023
for the companies and the corresponding market index: S&P 500 INDEX(NX:IOM )
from FT.com. Report the estimation results (please include at least the estimated
coefficients and their standard error; no need to include this raw data in your answer or appendix). Please note that the downloaded data from FT.com is in descending order. Make sure the order by date is in ascending order before calculating returns for your regression. (2 marks)
