Stock Performance and Equity Investments Stock Performance and Equity Investments Name: Rodney Wheeler Institution: Rasmussen College Date: 09/05/15 Stock Performance and Equity Investments There are number of factors which can be used to explain as well as predict the performance of the company. E.g. Balance sheet, income statement, financial ratio’s etc. So for an investor these factors are of great importance because they use these factors to decide whether they should invest in a company’s stock or not. Here in this assignment I have evaluated performance of two stocks i.e. L’Oréal SA and Avon, on the basis their financial ratios. (De Long, Shleifer, Summers 1987) By looking at results of current ratio it seems that Avon have done better in this regard. Avon’s current ratio is 1.448 which means that it can meet its short term liabilities with its current assets and in case of L’Oréal current ratio is less than 1 which means that it cannot meet its short term liabilities with its current assets. So in short for Avon in short run there are less chances to become bankrupt as compared to that of L’Oréal. So this can affect the stock price of both the companies. Investor would have more trust in Avon than L’Oréal. So keeping other things constant just because of this ratio in future Avon’s stock price may rise and L’Oréal stock price may fall. Total asset turnover ratio which shows the efficiency of the company in utilizing its assets shows that Avon is using its assets better than L’Oréal. That is the proof that L’Oréal performance is not up to the mark as they are unable to utilize their assets properly. And it can hinder their image in the market. L’Oréal’s net profit is 21% of their net sales, and Avon’s net profit is 4.5% of their net sales which shows that L’Oréal management is more efficient than Avon’s management because L’Oréal have controlled their cost and the result is high percentage of net profit. That could be the reason of L’Oréal’s good stock performance. Further time interest ratio shows that L’Oréal can meet its interest obligation 123 times from its earnings before interest and tax and in the case of Avon its only 2.47. Which again shows that Avon have very low income left to meet its interest obligation. Which again depicts their poor performance which could also have impact on their stock price because such a low time interest ratio shows that company is not doing well and it is on the verge of making loss, and all of this will result in lack of interest by investors and ends up with loosing stock value. In case of L’Oréal investors will have more confidence in its shares because L’Oréal’s case there are more chances of getting some return as compared to that of Avon. Another reason is also that Avon is heavily depending on credit financing and for that reason it have to pay huge amount of interest and on the other hand L’Oréal in mainly depending on equity financing and have very low percentage of cr.

1. Stock Performance and Equity Investments
Stock Performance and Equity Investments
Name: Rodney Wheeler
Institution: Rasmussen College
Date: 09/05/15
Stock Performance and Equity Investments
There are number of factors which can be used to explain as
well as predict the performance of the company. E.g. Balance
sheet, income statement, financial ratio’s etc. So for an investor
these factors are of great importance because they use these
factors to decide whether they should invest in a company’s
stock or not. Here in this assignment I have evaluated
performance of two stocks i.e. L’Oréal SA and Avon, on the
basis their financial ratios. (De Long, Shleifer, Summers 1987)

2. By looking at results of current ratio it seems that Avon have
done better in this regard. Avon’s current ratio is 1.448 which
means that it can meet its short term liabilities with its current
assets and in case of L’Oréal current ratio is less than 1 which
means that it cannot meet its short term liabilities with its
current assets. So in short for Avon in short run there are less
chances to become bankrupt as compared to that of L’Oréal. So
this can affect the stock price of both the companies. Investor
would have more trust in Avon than L’Oréal. So keeping other
things constant just because of this ratio in future Avon’s stock
price may rise and L’Oréal stock price may fall. Total asset
turnover ratio which shows the efficiency of the company in
utilizing its assets shows that Avon is using its assets better
than L’Oréal. That is the proof that L’Oréal performance is not
up to the mark as they are unable to utilize their assets properly.
And it can hinder their image in the market. L’Oréal’s net profit
is 21% of their net sales, and Avon’s net profit is 4.5% of their
net sales which shows that L’Oréal management is more
efficient than Avon’s management because L’Oréal have
controlled their cost and the result is high percentage of net
profit. That could be the reason of L’Oréal’s good stock
performance. Further time interest ratio shows that L’Oréal can
meet its interest obligation 123 times from its earnings before
interest and tax and in the case of Avon its only 2.47. Which
again shows that Avon have very low income left to meet its
interest obligation. Which again depicts their poor performance
which could also have impact on their stock price because such
a low time interest ratio shows that company is not doing well
and it is on the verge of making loss, and all of this will result
in lack of interest by investors and ends up with loosing stock
value. In case of L’Oréal investors will have more confidence in
its shares because L’Oréal’s case there are more chances of
getting some return as compared to that of Avon. Another
reason is also that Avon is heavily depending on credit
financing and for that reason it have to pay huge amount of
interest and on the other hand L’Oréal in mainly depending on

3. equity financing and have very low percentage of credit
financing so that’s why it have very low amount of tax to pay.
One thing that is clear from above mention ratios is the
difference in approach of both companies. L’Oréal is heavily
relying on equity financing and the reason for this may it thinks
that debt financing is a bit risky. Company has to pay interest
charges even if it doesn’t earn any profit. on the other hand
Avon is heavily relying on debt financing and the reason is they
may think that interest rates are low and debt financing is better
because you are getting finance at low rates and also you can
get rid of that creditors once you pay them their amount but in
case of equity financing you have to pay dividend to them for
unlimited period of time until unless you purchase back those
shares. (L'ORÉAL 2012)
Further Avon has no convertible stock or preferred stock even it
have very low level of common stocks because Avon is heavily
depending on credit financing rather equity financing. On the
other hand L’Oréal does possess preferred stocks and the
difference between preferred stocks and common stock is that at
the time of dividend distribution preferred stock holders have
priority over ordinary shareholders.

4. References
De Long, J.-B., Shleifer, A., summers, L. H. and Waldman, R.
J., (1987) “Noise Trader Risk in Financial Markets”, National
Bureau of Economic Research Working Paper, No. 2385.
L'ORÉAL COMPANY PROFILE – SWOT ANALYSIS (2012)
Retrieved on September 4, 2015 from
http://www.euromonitor.com/medialibrary/PDF/LOreal-
Company-Profile-SWOT-Analysis.pdf
Criteria
Points
Discusses the price performance of each stock
20
Speculates on the reasons for each stock's performance and
justifies with research
50
Identifies if any of the firms offer preferred stock or convertible
investments and compares these types of investments with the
firms' common stock
20
Grammar, APA, organization and minimum page requirement
10
Total
Hi Rodney,
Great job on your assignment! You will receive 100 points for
the Course Project-Stock Performance. You provided all of the
required information for this assignment. Hope you continue to
keep track of your stock list after the course ends Let me know
if you have any questions.
Latricia
100