Investment in Company Shares

Introduction
Investment in company shares necessitates significant analysis and examination of different financial aspects to ascertain its prospective growth or deterioration in the financial market. Financial performance is key in determining the share price and value. Financial performance is delineated as a measure of a firm’s revenues, returns, in addition to increases in value as demonstrated by the increase in the firm’s share price. It is a particular measure of how well an organization can employ and utilize assets from its key means of business and generate revenues. In addition, it is employed as an overall measure of an organization’s general financial health over a certain period of time and can be used to compare comparable organizations across the similar industry or to compare industries or sectors in aggression (Weygandt et al., 2015). It is imperative to note that shares can lead to significant capital losses. This is largely for the reason that company shares are short-term investments and are susceptible to upward and downward trends. The purpose of this paper is to analyze three companies to determine the most prospective financial investment. The three companies taken into consideration include Sony Corporation, Campbell Soup Co., and CF Industries Holdings, Inc. The analysis will include assessing the financial ratios and performances of the company and thereafter providing investors with a recommendation.
Share Price Analysis
The share prices of the companies are as follows:
Company
Share Price
CF Industries Holdings, Inc.
$35.78
Campbell Soup Co.
$49.93
Sony Corporation
$46.97
On the basis of the recent movements of each of the companies’ stocks, the best investment for stock investors is Sony Corporation. This is largely for the reason that the company’s share has been experiencing a progressively upward trend and it is expected to continue doing so. The stock has the potential of generating returns for the investor.
Financial Ratio Analysis
Financial Ratio
Sony Corporation
Campbell Soup, Co.
CF Industries Holdings, Inc.
Debt Ratio
41.28
216.29
90.5
Profit Margin
1.69%
11.24%
-9.98%
Return on Assets
1.86%
13.53%
0.50%
Return on Equity
5.87%
55.82%
-4.03%
Beta
1.93
-0.02
1.16
Current Ratio
0.84
0.79
1.86
Quick Ratio
0.71
0.42
1.51
Book value per Share
18.95
5.44
14.02
The debt ratio is a financial metric that is employ to measure the financial leverage of a company. Basically, it is employed to show the comparative proportion of the level of debt and shareholders’ equity to fund the assets of a company. As a result, the financial ratio shows how much debt an organization is utilizing to finance its assets in relation to the amount of value that is signified in the stakeholders’ equity. In this case, the debt ratios of Sony Corporation, Campbell Soup Co., and CF Industries Holdings, Inc. are 41.28, 216.29, and 90.5. It is apparent that the debt ratio of Campbell Soup is enormously high standing at 216.29. This implies that the stock has a significantly higher level of risk in investing on it. Sony Corporation has the lowest level of debt ratio and therefore implies that has a lesser risk in its investment.
Profitability of a firm is another significant indicator for investing in a firm. It is imperative to note that investing in a company is making losses is bound to be a poor investment decision. One of the profitability financial ratios is the profit margin. In delineation, profit margin is the metric that indicates how much earnings are generated for every dollar of sales for a firm. Basically, this is the percentage of revenue that remains subsequent to the payment of all expenses by a firm. The profit margins of Sony Corporation, Campbell Soup Co., and CF Industries Holdings, Inc. are 1.69 percent, 11.24 percent, and -9.98 percent respectively. Notably, it can be perceived that CF Industries Holdings is presently generating losses and is therefore not profitable. The poor financial performance can be perceived in the sense that for every dollar of sales, the company makes a loss of 9.98 cents. Sony Corporation and Campbell Soup appear to be the profitable firms in the portfolio. Sony generates a return of 1.69 cents for every dollar of sales generated. However, the latter is the most profitable company with earnings of 11.24 cents for every dollar of sales generated.
Return on Assets (ROA) ratio is basically a ratio that that measures that extent to which a company converts its total assets into profit. It is a very key profitability ratio since it depicts the capacity of a company to generate profits before leverage. As such, it shows the efficiency with which a company utilizes its assets in the generation of profits. It gives an idea as to how efficiently management use company assets to generate profit (Brigham and Houston, 2012). The ROA ratios for Sony Corporation, Campbell Soup Co., and CF Industries Holdings, Inc. are 1.86, 13.53, and 0.50 respectively. The inference of this is that Campbell Soup is the most efficient company. This is for the reason that for every single dollar invested on assets, the companies generated returns of 1.86 cents, 13.53 cents, and 0.50 cents. On the other hand, Return on Equity (ROE) ratio is a financial metric that quantifies the capability of a company to generate returns from all its equity. This ratio depicts a company’s profitability and efficiency as far as its stakeholders’ equity are concerned (Moles et al., 2011). The ROA ratios for Sony Corporation, Campbell Soup Co., and CF Industries Holdings, Inc. are 5.87, 55.82, and -4.83 respectively. In this regard, it is apparent that Campbell Soup Co. is the most attractive share for investors as it implies that for every dollar invested by shareholders, the company generates a return on 55.82 cents whereas Sonly Corporation gives a return of 5.87 cents. On the other hand, CF Industries Holdings, Inc. appears to be inefficacious in the management of its equity as it generates a loss of 4.83 cents for every dollar.
Investment in a company’s stock also necessitates risk assessment. Beta is one of the prevalent indicators of risk for a stock. This metric is indicative of the volatility of a stock with regard to the market. In simple terms, the market is usually given a beta of 1.0 and therefore stock are ranked on the basis of their deviation from the market. In the case of these three companies, Sony Corporation, Campbell Soup Co., and CF Industries Holdings, Inc. had betas of 1.93. -0.02, and 1.16 respectively. Campbell Soup has significantly deviated from the market in a negative manner, which implies that it poses less risk but at the same time is bound to provide lower returns. On the other hand, Sony Corporation has a high beta, which implies that the company’s stock is substantially risker but has the potential of generating higher returns (McClure, 2017).
The current ratio is a liquidity ratio that measures the capability of the firm to fulfill its short term financial obligations. It basically compares a company’s current assets to its current liabilities. The ideal current ratio is 2:1, which indicates the capability of the firm to cater to its short-term obligations. The current ratios of Sony Corporation, Campbell Soup Co., and CF Industries Holdings, Inc. are 0.84, 0.79, and 1.86 respectively. Quick ratio also referred to as the acid-test ratio, is a financial metric that quantifies the capability of a firm fulfill its short term financial obligations using its liquid assets. Liquid assets are those current assets that can easily be converted into cash and they usually include cash, cash equivalents, marketable securities and accounts receivable. This is usually the current assets exclusive of the inventories. The quick ratios of Sony Corporation, Campbell Soup Co., and CF Industries Holdings, Inc. are 0.71, 0.42, and 1.51 respectively.
Book value per share is one of the approaches in making comparison for the valuation of a corporation. In particular, the book value per share is employed to compute the per share value of a corporation on the basis of its equity that is accessible to common stockholders. Book value encompasses the assets of a company less its liabilities. The book value per share of Sony Corporation, Campbell Soup, Co., and CF Industries Holdings, Inc. are 18.95, 5.44, and 14.02 respectively. The low book value per share of Campbell Soup is indicative of the chance that the stock is undervalued. However, taking into consideration that the company has a significantly high debt ratio, it could be indicative of underlying problems within the corporation.
Conclusion
In conclusion, the analysis for prospective investment took into consideration three companies including Sony Corporation, Campbell Soup, Co., and CF Industries Holdings, Inc. The recommendation given to stock investors is to invest their funds on Sony Corporation as it appears to be the most promising stock. Despite the fact that it poses great risk, the stock has the potential of generating greater returns. CF Industries has been having a poor financial performance as it has been generating losses and also has a substantially high debt ratio. Despite the fact that Campbell Soup is profitable, the company’s recent financial performance has been wanting and though it poses low risk in investment, it is bound to generate very low returns.
References
Brigham, E. F., Houston, J. F. (2012). Fundamentals of financial management. New York: Cengage Learning.
McClure, B. (2017). Beta: Know the Risk. Investopedia.
Moles, P., Parrino, R. and Kidwell, D. S (2011). Corporate finance. Hoboken: John Wiley & Sons.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & Managerial Accounting. Hoboken: John Wiley & Sons.