Choose 10 firms that interest you and download their financial statements from any of these websites: finance.yahoo.com, finance.google.com, or money.msn.com. For each firm, find the return on equity (ROE), the number of shares outstanding, the dividends per share, and the net income. Record them in a spreadsheet. Calculate the total amount of dividends paid (dividends per share 3 number of shares outstanding), the dividend payout ratio (total dividends paid/net income), and the plowback ratio (1 2 dividend payout ratio). Compute the sustainable growth rate, g 5 b 3 ROE, where b equals the plowback ratio. Compare the growth rates ( g ) with the P/E ratios of the firms by plotting the P/Es against the growth rates in a scatter diagram. Is there a relationship between the two? Find the price-to-book, price-to-sales, and price-to-cash-flow ratios for your sample of firms. Use a line chart to plot these three ratios on the same set of axes. What relation- ships do you see among the three series? For each firm, compare the three-year growth rate of earnings per share with the growth rate you calculated above. Is the actual rate of earnings growth correlated with the sustainable growth rate you calculated?
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