Last Updated: 1-15-08
Copyright 2004, 2005, 2006, 2007, 2008 by Richard Sias
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Cougfund Stock Report Grading Key
Points Possible Points
Oral Presentation 10
Investment Thesis 15
Rest of front page 5
Company Summary/Competition and Strategy 25
Fundamental Valuation 5
Relative Valuation 10
Technical Analysis 10
Earnings Analysis 5
Analyst Recommendations 5
Institutional Ownership 5
Piotroski Analysis 5
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don’t say “59% of IBM’s revenue…” say, “Fifty-nine percent of IBM’s revenue…”
II. Oral presentation –
1. Tell us how the company makes $.
2. Tell us what are the company’s competitive advantages/disadvantages? Who are the competitors and how do
3. Tell why you make the recommendation you do.
4. Do not “read” your notes.
5. Dress is business casual.
6. Make slides attractive – don’t put too many words on one slide.
7. Really FOCUS on what you think is important.
III. Investment thesis
1. OV/UV. The goal of the investment thesis is to tell us why you make the recommendation you do. Make sure
you indicate whether the item suggests the stock is overvalued (OV) or undervalued (UV).
2. IME. You need to Incorporate Market Expectations. For example, assume that GM’s settlement of a labor
dispute is good news for the company. If the market overreacted to this news, then it suggests the stock is
overvalued. If the market underreacted (i.e., fail to fully incorporate), then it suggests the stock is undervalued.
IV. Company Summary/Competition and Strategy
1. Explain how the company makes $. Why is their primary business?
2. Who are their competitors and how do they differ from their competitors? You need to make this clear.
Describing each company is an insufficient comparison.
3. Be sure that the strategies (and differences from competitors) are meaningful and not just platitudes.
4. In most cases, we don’t really care much about the company’s history, e.g., its founder’s name, where it is
incorporated. We are interested in trying to find out about what they do and what are their competitive
advantages. Think about “moats” and how those moats are changing. Seeking alpha is a good source of
investor discussions about the company.
V. Fundamental Valuation
1. Make sure you say what industry you use.
2. Use complete sentences.
VI. Relative Valuation
1. Make sure you discuss all the possible alternatives (for example, a high P/E could mean the stock is overvalued
or less risky or faster growing).
2. A negative denominator means the number is meaningless. As the denominator approaches zero, the ratio
VII. Technical Analysis
1. Use complete sentences to describe results.
2. Make sure # are reasonable. If the price is only $1 above the moving average, that is probably pretty neutral.
3. For linear regression, a price above the line is bearish (as price is forecasted to return to the trend).
VIII. Analyst Recommendations
1. Use complete sentences to describe results.
IX. Institutional Ownership
1. Have some discussion of both changes in fractional ownership (e.g., a decline of 5% of institutional shares
means that 5% of the company’s outstanding shares moved from institutional investors to individual investors)
and whether more institutions were buying or selling.
2. Use complete sentences.
X. Piotroski Analysis
Include a very short discussion of analysis.
Ford Motor Company (F) Jeff Vetter
Date: April 16th 2008 Consensus Estimate 12/07A 12/08E 12/08E
Sector: Consumer Goods EPS -0.23 -0.37 0.61
Industry: Auto Manufacturer P/E N/A N/A N/A
Current Price: $7.45 Long Term Growth Rate: 7.83%
52 Wk Price Range: $4.95-$9.70 Ratio Analysis Co. Indus. Sector SP500
Ave. Daily Vol: 15.11 Million P/E (TTM) N/A 18.61 18.06 19.13
Beta: 1.89 P/S (TTM) 0.09 0.54 1.20 2.57
Market Cap ($million): 16,390 P/B (MRQ) 2.83 3.15 3.22 3.85
Shares Out (million): 2,200 ROA (TTM) -0.88 -2.24 5.93 12.70
Inst. Hold %: 75.70 EBO Valuation $0.28
Div Yld: 0% Recommendation: BUY
Total Debt/Equity: 29.94 Stop-loss Price: $6.30
Member S&P 500? Yes Price 6-mo prob 12-mo prob
Target Price $9.10 50% 62%
Investment Thesis Summary
• With the company restructuring plan Fundamental Valuation:
almost complete, the company is Bearish- Using a discount rate of 14.06%, the
forecasted to have positive EPS numbers in EBO valuation indicates a share price of $0.28, a
2009, the first time since 2005. The decrease of 96%.
market will react in a favor of Ford as the Relative Valuation:
automotive industry has had difficulties Bullish- There were 4 of 5 categories that
posting positive EPS over the past few indicated bullish signs. When compared to its
years. competitors, Ford looks to be either overvalued
of a riskier investment choice.
• In three years, Ford has cut nearly $5 billion
in costs, thus resulting in increased margins.
This indicates that the value of the stock
Bullish- Five out of the six indicators were
bullish with only the Stochastics being neutral.
may be undervalued and should increase.
• 2007 North America sales were down from Bullish- Ford has experienced four straight
the previous year. The market may have positive earnings surprises. Compared to its
overreacted to this considering international competitor General Motors, Ford has shown
sales were up enough to offset the steady positive surprises when General Motors
difference. has only reported one positive surprise in the last
• Ford has began to concentrate on the four quarters.
production of hybrid vehicles and continues Analyst Recommendations:
to produce the best selling hybrid SUV’s. Neutral/Bullish- Ford’s rating has stayed
However, the market has already steady at 3.15 over the past two months and had
incorporated this into the current stock decreased from 3.38 one year ago. The majority
price. of analysts recommend a hold.
• Ford has also taken a strong stance on Institutional Ownership:
cleaning up their carbon footprint that is Bullish- Institutional ownership has increased
created due to the manufacturing process. 0.83% with there being 26 more buyers than
This shows a strong corporate social sellers.
responsibility, something that more people Piotroski Analysis:
are becoming aware of. This positive image Neutral- Ford has a Piotroski score of six and a
can only increase the value of a company in P/B value of 2.83 which places it in the second
consumers’ eyes. quartile indicating a value stock.
The Ford Motor Company was founded in 1903 and over the past 105 years has become one of the
most recognizable automotive makers in the world. In 2007 Ford was the third largest automaker based on
worldwide vehicle sales as well as being third in sales in the United States.1 Ford was also the overall seventh-
ranked American-based company in the 2007 Fortune 500 list, based on global revenues in 2006 of $160.1
billion. In 2007 Ford and its subsidiary, Jaguar Cars Limited, completed the sale of its interest in the high end
Aston Martin automobiles. The company is divided into two separate segments, Automotive and Financial
Services. Between these two segments, Ford currently employs over 246,000 employees throughout the
The automotive segment is responsible for the manufacturing and distribution of vehicles under
Ford, Lincoln, Mercury, Volvo, Jaguar, and Land Rover brand names. All of Ford's cars, trucks and parts are
marketed through retail dealers in North America, and through distributors and dealers outside of North
America.3 This segment is also responsible for selling cars and trucks to dealers for sale to fleet customers
such as rental companies. In addition to producing and selling cars and trucks, Ford also provides retail
customers with a variety of services and products through its dealer network, mainly in the areas of
maintenance, repair and vehicle service warranties. In 2007, Ford sold 6,553,000 vehicles worldwide.4 In
addition to North American sales, Ford has divided the company into global sectors. These include, Ford
South America, Ford Europe, and Ford Asia Pacific/Africa. Ford also currently owns 33.4% of Japanese
Band Number of Dealerships as of 12/31/2007
Land Rover 1,397
www.ford.com 10-k report
www.ford.com 10-k report
In addition to the automotive segment, Ford has created Ford Motor Credit Company. This
segment offers various automotive financing products through automotive dealers. The biggest part of the
Ford Credit business consists of helping to finance the company’s vehicles while also supporting its individual
dealers. The financial segment is divided into three categories, retail financing, wholesale financing, and other
financing.8 Retail financing involves purchasing retail installment sales contracts and retail lease contracts
from dealers, and offering financing to commercial customers, primarily vehicle leasing companies and fleet
purchasers, to purchase or lease vehicle fleets. Wholesale financing involves making loans to dealers to
finance the purchase of vehicle inventory. Finally, other financing includes making loans to dealers for
working capital, improvements to dealership facilities, and the acquisition and refinancing of dealership real
The worldwide automotive industry, Ford included, is greatly affected by general economic
conditions in which companies have very little control over. This industry consists of many different
producers with no single company dominating a single market. The Ford Motor Company continues to make
positive strides in the automotive production industry as the industry continues to experience a very
competitive pricing environment.
Ford recently fell to the world’s third largest automotive manufacturer behind only General Motors
and Toyota. Recent struggles of the company can be attributed to the restructuring of the company that
slowly started in 2005. In an aggressive effort to increase their margins across the board, Ford has taken
drastic measures to cut costs over the past few years. The company is currently on track to have total cost
reductions of $5 billion by the end of 2008 compared with 2005.11 In addition to the reduction of costs, Ford
has also taken a strong stance on cleaning up their carbon footprint that is created due to the manufacturing
process. Since the year 2000, Ford has cut global energy use by 27% and water use by more than 25%.12
The recent loss of market share can be attributed to the shift in the industry away from the
traditional strengths of Ford such as traditional SUV’s and full-size pickups. In order to counteract this shift,
Ford prides itself in its dedication to innovation. In 2007, a record $7.2 billion was spent on engineering,
research and development. Examples of Ford’s innovation can be seen as there are nearly 47,000 Ford
Escape and Mercury Mariner Hybrid vehicles on the road today.
Another advantage that Ford has over their competition is their ability to set up partnerships
with companies such as Microsoft to create a product that sets their vehicles apart from the rest. This can be
seen in the new Microsoft Sync option that can be found in numerous vehicle models. In addition to their
partnerships, Ford recently completed a historic four-year labor agreement with the United Auto Workers’
Union (UAW).13 This agreement is more than double the length than any of its competitors and ensures that
they will be able to stay on tract and achieve their 2008 goals of accelerating the development of new
products as well as maximizing assembly line productivity.
Ford’s largest competitors include General Motors, Toyota Motors Corporation, Honda Motor
Company, and Daimler AG. General Motors is the world’s largest automaker and has been the global sales
leader for the past 76 years. The company operates under the brands of Buick, Cadillac, Chevrolet, GMC,
www.ford.com 10-k report
GM Daewoo, Holden, HUMMER, Opel, Pontiac, Saab, Saturn, and Vauxhall.14 Similar to Ford, General
Motors is segmented into two main divisions, automotive manufacturing and a financial service provider.
The Company's total worldwide car and truck sales totaled 9.4 million for 2007. Substantially all of its cars,
trucks and parts are marketed through retail dealers in North America, and through distributors and dealers
outside of North America, the majority of which are independently owned. In addition to the products, the
Company sells to its dealers for consumer retail sales; it also sells cars and trucks to fleet customers, including
daily rental car companies, commercial fleet customers, leasing companies and governments.15 General
Motor’s market capitalization is currently $11.39 billion with reported $181.13 billion in revenue compared to
Ford’s market capitalization of $16.44 billion and $172.46 billion in revenue.16
Another main competitor Ford faces is Toyota. In 2007, Toyota surpassed Ford as the world’s 2nd
largest automotive manufacturer continue to ride their success in the U.S. market with sales totaling 2,620,825
in 2007 that helped lead to a market capitalization of $160.95 billion.17 Like both Ford and General Motors,
Toyota is conducts the majority of their business in the automotive industry as well as financial services that
they provide for their automobiles. The key factor that has helped Toyota grasp as much of the market as
they have is their development of intelligent transportation systems for their vehicles as they are sold in over
170 countries worldwide.18
Along with General Motors and Toyota, Ford actively competes with Honda. Honda is a Japan
based automotive manufacturer that specializes in the production of both four wheel and two wheel vehicles.
Along with the manufacturing of vehicles, Honda provides financing similar to the other companies
mentioned above.19 Total sale figures for 2007 included over 3.6 million automobiles sold (1.6 million in the
United States) as well as over 10 million motorcycles were sold. The current market capitalization figure for
Honda is $55.16 billion.20
Historical Revenue and Earnings:
Historical Revenue Historical Earnings
FY 12/07 FY 12/06 FY 12/05 FY 12/07 FY 12/06 FY 12/05
1st Quarter $43,019 $40,789 $44,895 $-0.15 $-0.76 $0.48
2nd Quarter 44,242 41,878 45,166 0.40 -0.17 0.66
3rd Quarter 41,078 37,095 40,510 -0.19 -2.79 -0.31
4th Quarter 44,116 40,303 176,896 -1.32 -2.97 0.78
Total $172,455 $160,065 $307,467 $-1.36 $-6.69 $1.61
Ford has seen steady revenue growth over the past two years since posting very successful numbers
in 2005. From FYE 2006 to FYE 2007 revenue has increased by 7.7%. During the same time there was an
increase in EPS from $-6.69 to $-1.36, an increase of nearly 80%. The reason for the recent success and
turnaround of the company compared to 2006 is direct results of a major restructuring program. Historically
the second quarter has been the strongest in regards to both revenue and EPS.
I. Fundamental Valuation
1. EPS Forecasts and long-term growth rate were gathered at www.reuters.com.
2. Book value per share derived from balance sheet at www.reuters.com.
3. Discount rate: The current risk free rate is 4.37% which is the current 20-year Treasury Bond. Ford
has a current beta of 1.89, and the expected return on the market is assumed at 9.5%. Using the
CAPM formula (r=rf+β(E(rm)-rf)), [14.06=0.0437+1.89(0.095-0.0437)] a discount rate of 14.06% is
4. Dividend payout ratio is 0% according to www.reuters.com.
5. Next fiscal year-end is December 31, 2008.
6. Current fiscal month is 4.
7. Target ROE= is 1.71 which is the five year industry average for the Auto Manufacturing industry
according to www.reuters.com.
Output and Sensitivity Analysis:
1. Based on these parameters, a 12 year forecasting horizon and a 7 year growth period, the EBO
valuation is $0.28.
2. Changing the discount rate to 1.76% yields an EBO valuation .of $7.45 which is the current price.
This new discount rate was derived through the CAPM equation. The suggested historical rate for
the EBO valuation was between 9-10% however, to get the EB) valuation to the current price, a
historical rate of 2.98% is needed.
3. Changing the growth rate to 15% would result in an EBO valuation of $0.34, a 25% increase. If the
growth rate is changed to 3% the results would be an EBO valuation of $0.24, a decrease of 14.3%.
Changing the growth rate results in moderate sensitivity (about 3.5% for every one point (13.4%)
adjusted to the growth rate).
4. Changing the industry ROE to 5% from 1.71% (192% increase) would result in an EBO value of
$0.86 (a 207% increase). By decreasing the ROE to 0.71% (59% decrease) would result in an EBO
value of $0.11 (a 60.7% decrease). It is fair to say that Ford’s EBO valuation had very little sensitivity
to changes in the ROE.
II. Relative Valuation
P/E Bearish- Ford has the highest P/E ratio of all its competitors. This may indicate that
the company is overvalued and less risky than its competitors.
PEG (P/E/G) Neutral/Bullish- With a PEG ratio of 156, Ford had the 2nd lowest PEG ratio of its
competitors, this suggests that Whirlpool is undervalued compared to its counterparts.
This also suggests the low P/E ratio is not driven by lower growth
P/B Bullish- Compared to its competitors Ford has the highest Price/Book ratio. A high
P/B ratio implies a stock may be overvalued, less risky, or provide a higher ROE than
Value (P/B/ROE) Neutral/Bullish - Ford has a negative value ratio that is lower than all four of the
competitors. A lower value ratio implies that the stock may be undervalued or higher
risk. The value ratio is determined using ROE, and is negative due to the negative
P/S Bullish -The P/S ratio is lower than three of the competitors. The low P/S ratio is an
indication that the stock may be undervalued. A low P/S ratio may also be an
indication that the stock has a low profit margin or higher risk.
Summary The overall indication from the relative valuation was bullish. When compared to its
competitors, Ford looks to be either overvalued or a riskier investment choice. I
believe the stock is fairly similar to its competitors in regards to this evaluation. I also
believe that this evaluation of the stock is not all that accurate of an assessment as this
stock does not seem to be overvalued or a riskier investment choice.
Chart 3: Linear Regression
Briefly discuss each indicator in the following table.
Bollinger Bands Bullish- The current price is above the 50-day moving average, and at the upper limit.
The bands have been widening due to recent price volatility. The price at the upper
band indicating that it is poised to move in the near future, because other technical
indicators are generally bullish, this is a bullish signal.
Stochastics Neutral-%K is great than the %D while the gap is maintaining a steady distance, a
bullish sign. However, %K is greater than 80% which could mean that Ford is
overbought/overvalued, a bullish sign.
Moving Averages Bullish- The current price is trading well above both the short and long-term moving
averages indicating a bullish stock. The 25-day and 50-day moving averages both show
upward momentum, which is a bullish indicator.
MACD Bullish- The MACD line is above zero which is a bullish indicator. As well, the MACD
line is slightly above the signal line, another bullish indicator.
Regression Bearish- the downward sloping regression line is a bearish signal. Another bearish sign
is the current price being above the regression line as the current price will tend to fall
back down to the trend line.
PriceROC Bullish- The momentum chart shows the stock to be slightly above 100, a bullish
indicator. The stock also appears to be experiencing an increase in momentum, another
IV. Earnings Analysis
12/2007 09/2007 06/2007 03/2007 12/2006
(Last qtr) (2 qtrs prior) (3 qtrs prior) (4 qtrs prior) (5 qtrs prior)
Estimate -0.23 -0.46 -0.35 -0.58 -0.93
Actual -0.20 -0.01 0.13 -0.09 -1.10
Difference 0.03 0.45 0.48 0.49 -0.17
Mean Earnings Estimates
03/2008 06/2008 12/2008 12/2009 LT Growth
Earnings -0.15 -0.09 -0.37 0.61 7.83%
# Estimates 12 11 11 10 3
Earnings Per Share Estimates Revisions Summary
Last Week Last 4 Weeks
Revised Up Revised Down Revised Up Revised Down
Quarter ending 03/2008 0 2 2 3
Quarter ending 06/2008 0 3 0 3
Year ending 12/2008 0 3 1 5
Year ending 12/2009 1 2 1 4
Ford has experienced four positive earnings surprises in the past four quarters. In the latest quarter
(historically the worst), Ford only announced an earnings surprise of $0.03. However, the stock is currently
following a positive trend and is predicted to report positive earnings by 2009. Ford is due to release their
earnings for the first quarter in 2008, which will most likely follow the current trend and be a positive
earnings surprise. While there has been some negativity on behalf of the earnings revisions within the last
week, there has been numerous positive revenue revisions.30
Compared to its closest competitor General Motors, Ford has posted much better earnings during
this difficult time as oil reaches new highs on a daily basis. General Motors has only posted one positive
earnings surprise in the past five quarters. During the last two quarters General Motors has posted -2.75 and
-2.88 EPS numbers when the estimates were -0.56 and -0.49 respectively.31
V. Analysts’ Recommendations
Current 1 Month Ago 2 Months Ago 1 Year Ago
Buy 1 1 1 1
Outperform 2 2 2 1
Hold 7 7 7 8
Underperform 0 0 1 3
Sell 3 3 3 3
No Opinion 2 2 2 0
Mean Rating 3.15 3.15 3.21 3.38
There have been no changes to analysts’ recommendations over the past month. There has been a
positive trend in the mean rating of the stock as it has decreased from 3.21 two months ago and 3.38 from
one year ago. Analysts seem to be varied in their opinions on the future of the stock. There are currently
more positive recommendations than negative ones. Ford’s mean rating is slightly larger than its main
competitor, General Motors. The current mean rating is at 2.53 which is down from a 3.31 during the same
time one year ago.33
VI. Institutional Ownership
# of Holders % Beg. Holders Shares % Shares
Shares Outstanding 2,130,000,000 100.00%
Total Positions 489 105.62% 1,610,958,336 75.67%
New Positions 64 13.82% 102,823,440 4.83%
Soldout Positions 71 15.33% -63,588,344 -2.99%
Buyers 252 54.43% 221,945,680 10.42%
Sellers 226 48.81% -204,200,656 -9.59%
Beg. Total Inst. Positions 463 100.00% 1,593,213,312 74.80%
#Buyers - #Sellers 26 52.72% 17,745,024 0.83%
Ford’s institutional ownership increased 0.83% as 17,745,024 shares moved from individual investors
to institutional investors. There was a net increase of 26 institutional owners (252 buyers vs. 226 sellers).
These two signs are bullish indicators. Every aspect of the chart above indicates a positive trend on
institutional investment/ownership. Recent big purchases of shares have been made my Capital Research
Global Investors, 44,016,000 shares totaling $296,227,680 as well as the Capital World Investors group with a
total purchase of 23,138,418 shares worth $155,721,552.35
VII. Piotroski Analysis
A. P/B ratio and quintile (1=growth, high P/B; 5=value, low P/B): _P/B Ratio = 2.83, 2nd Quintile__
B. Piotroski Score: ___6___
Piotroski Item Variable needed to compute Value Points
1. Positive net income TTM net income $-2,723,000,000 0
2. Positive cash flow TTM cash flow $17,074,000,000 1
3. Earnings Quality +19,797,000,000 1
4. Decreasing Debt Debt/assets most recent ann figure 0.60
Debt/assets previous ann figure 0.61 1
5. Increasing working capital Current ratio most recent ann figure 1.12
Current ratio previous ann figure 0.94 1
6. Improving Productivity Asset turnover most recent ann figure 0.62
Asset turnover previous ann figure 0.57 1
7. Growing Profitability ROA most recent ann figure 8.54%
ROA previous ann figure 2.82% 1
8. Issuing Stock Shares outstanding most recent ann 2,195,000,000
Shares outstanding previous ann 1,885,000,000 0
9. Competitive Position Gross margin most recent ann N/A
Gross margin previous ann N/A N/A
Note* Data for table 8 was gathered from three different websites due to a lack of sufficient sources. The
total Piotroski score may not be 100% accurate due to the problem stated and insufficient data.