Comparative Industry Analysis By: Russell Pellichino Class: FIN 653 D r . J o h n C r e s s o n Summer 14 Executive Summary Gaming Industry Liquidity Pinnacle is the most liquid company based on current ratios, they have come out ahead in each of the past five years. One concern is their, relatively high, current ratio can mean that they may not be using their money in the most efficient or effective way possible. MGM also has a relatively high current ratio; its not to high and consistently stays near one. Based on quick and cash ratio’s, we see that MGM is most liquid, they came out ahead three of the last five years in both categories. Leverage All firms seem to be taking on debt in recent years, but PENN and MGM stand out. Looking at financial leverage we see that they are not highly leveraged by either debt or equity. This is complimented by their consistently high cash coverage ratio’s, over the past five years. This means that they are generating high het incomes, and can easily afford this debt. Asset Management All 5 companies have either been consistent or increasing in asset turnover for recent years. PENN is consistently performing at high levels of asset efficiency. MGM has been the lowest in all five years, but I like their steady upward movement. Although increases have been small, they are consistently improving which is a good sign for the future. Profitability All firms seem to have pretty inconsistent profit margins, but ROE and ROA bring fourth key trends. The ROE of all firms, other than MGM, have been steadily decreasing. MGM showed a decrease of ROE and ROA in 2011, but they have improved since. If their gains continue at the current pace they will be on track to bring in positive ROE, unlike competitors. Driving MGM’s ROE is their increased profit margin, and increasing operating margin. Market Value/EVA PENN, Isle, and Pinnacle have consistently increased P/E, showing that investors foresee potential growth opportunities. All firms but PENN have shown consistent increases in market-­‐to-­‐book, meaning they have generated more money with shareholders. MGM shows the highest ROIC and EVA. All research considered I like what MGM is doing most, in their industry. They have showed consistent progress in terms of asset efficiency and profitability. Also, they seem to have the most balanced combination of debt and equity. Ultimately, MGM is making more with less risk. They are increasing returns and maximizing shareholder wealth. Merchants Liquidity Based on current ratios, all firms are very liquid, but Fred’s stands out. They lead this category for the past five years. Looking at the quick and cash ratio’s, DLTR is most liquid, but FDO has been consistently increasing. Leverage All five companies have a balanced combination of debt and equity. FDO has been the most highly leveraged by both debt and equity over the past 3 years, but looking at their cash coverage ratio we see that they have no problem affording that debt. All five firms have maintained, relatively, high and consistent cash coverage. Asset Management In terms of efficiency, all firms are performing at high level, but Big Lots has the highest asset turnover. I like DG and DLTR’s consistent increases in asset turnover. This is a good sign for the shareholders and potential investors. Profitability Both DG and DLTR put up high profit margin numbers. DLTR is most profitable in terms of ROE and ROA. This shows their high level of asset efficiency relative to their high returns for shareholders. Both DGO and DLTR high returns are likely driven by high operating margin. Market Value/EVA All five firms have high P/E ratios; this shows that investors foresee future growth potential. Although all firms have experienced increases in market-­‐to-­‐book, DG, Fred’s, and DLTR have seen the most consistent increases over the length of five years. DG and DLTR have the highest EVA, but DLTR has generated the highest ROIC by more than double that of DG. I like DLTR, not only because they are generating the highest returns, but also because they seem to be making the largest effort to increase efficiency and generate long-­‐term profitability. Also, looking back at leverage ratios, we see that they also have a low and balanced ratio of debt and equity. This means they taking less risk, and earning larger returns. Motors Liquidity Looking at current, quick, and cash ratio’s, it is evident that Chevron is the most liquid. They were the industry leader in all three categories for the majority of the past five years. I also like BP because of their consistently increasing levels of liquidity, especially considering the recent oil spill. Leverage BP is most highly leveraged by both debt and equity. This is probably due to their oil spill incident. Their consistent reduction of both debt and equity is a good sign for the future. Not to mention, their high cash coverage ratio shows that they can easily afford this debt. Chevron is in a very competitive position they are least leveraged and have high levels of cash coverage. Asset Management BP is showing their high levels of asset efficiency, leading the industry over the past three years. Exxon also shows much promise in this category, following close behind BP. Conoco has also seen consistent increases, while Chevron and Total have been decreasing. Profitability Conoco leads in profit margin while Chevron and Exxon follow close behind. Exxon has led the industry in both ROA and ROE for the majority of the past five years. Although Exxon is the leader, Conoco, Chevron, and Total have shown impressive returns. Market Value/EVA In terms of P/E AND Market-­‐to-­‐Book, all 5 firms have seen increases. This shows that they are all in high regard with shareholders. Similarly, while Exxon leads market to book for five consecutive years, all five companies have put up high numbers in this category as well. This shows that they are all making high returns off of investor’s money. Exxon leads in ROIC and EVA, by a significant margin. All research considered I like Exxon because they are adding significant value to their company and keeping shareholders at the forefront of their decision-­‐making. They have little leverage, and they are consistently showing high levels of asset efficiency. They are generating high returns both for the company and its shareholders.