Stocks As an Investment Option

Stocks As an Investment Option

Explain the differences in stock trading between two different stock exchanges.

1. Identify two different stock exchanges in the United

• New York Stock Exchange (NYSE)
• Nasdaq (National Association of Securities Dealers Automated Quotation)

Describe the similarities and differences between the two stock exchanges.

 NYSE and Nasdaq are the two largest stock exchanges in the United States. They have some similarities but also some significant differences.

Similarities:

 Both stock exchanges operate similarly, allowing investors to buy and sell stocks electronically. They also provide access to equities from multinational corporations. In addition, both stock exchanges permit “margin” or “leverage” trading, enabling investors to take out loans from the stock exchange to buy additional shares (Cox, 1).

Differences:

 The NYSE is the older of the two exchanges and is considered more traditional and conservative than the Nasdaq. Companies must fulfill various requirements to list on the NYSE, including having a minimum number of shareholders and a particular market value. Since Nasdaq does not have these conditions, it is considered looser (Cox, 2019). Additionally, only stocks are traded on the NYSE instead of futures, options, and other securities on the Nasdaq. Lastly, the Nasdaq uses more sophisticated and automated technology than the NYSE. As a result, trading on the Nasdaq is quicker than on the NYSE (Cox, 1).

Explain how a company’s free cash flow impacts its growth potential. Cite the free cash flow of example companies.

1. Identify one company on each of the two stock exchanges you researched in

• Nasdaq: Amazon
• NYSE: Walmart

Determine the free cash flow from 2019 and 2020 for each company.

• Amazon: (Oubari et al., n.d. 3)
• 2019 Free Cash Flow: $25.825 billion
• 2020 Free Cash Flow: $31.02 billion
• Walmart: (Oubari et al., n.d.)
• 2019 Free Cash Flow: $17.928 billion
• 2020 Free Cash Flow: $14.871 billion

What inferences can you draw from the companies’ free cash flow?

 The company’s free cash flow indicates that Amazon had a much more significant increase in free cash flow between 2019 and 2020 than Walmart. This could show Amazon’s more robust performance compared to Walmart in the past year due to the influence of the pandemic on online markets. In addition, it suggests that Amazon is in a stronger financial position than Walmart (Oubari et al., n.d. 3).

Apply financial ratios to evaluate the strengths and weaknesses of stocks as investments. Using the 2019 and 2020 financial statements for both stocks, prepare two financial ratios for each of the following categories: liquidity ratios, asset management ratios, and profitability ratios. You should have a total of six ratios for each stock per year.

What challenges, strengths, or weaknesses do you see when you examine these ratios?

When you analyze Nasdaq’s ratios, the liquidity ratios indicate that Nasdaq has adequate short-term liquidity and can meet its obligations. The asset management ratios indicate that Nasdaq is efficiently running its operations with a slight decrease from the previous year. The profitability ratios show that Nasdaq has improved its profits from its assets and equity, but the increase is marginal (Venugopal et al., 4).

When you analyze NYSE ratios, the liquidity ratios indicate that the NYSE has adequate short-term liquidity and can meet its obligations. The asset management ratios suggest that the NYSE efficiently runs its operations with a slight decrease from the previous year. The profitability ratios show that the NYSE can generate more profits from its assets and equity than Nasdaq (Musa et al., 2).

References

Cox, J. (2019). NASDAQ and the NYSE: A trade reporting facility comparison. Available at SSRN 3369025.

Musa, H., Rech, , Chen, Y., & Musova, Z. (2022). The deterioration of financial ratios during the Covid-19 pandemic: Does corporate governance matter? Folia Oeconomica Stetinensia, 22(1), 219-242.

Oubari, A., Badawi, S., Kittaneh, N., & Nobanee, H. (n.d.). Financial analysis: A comparison study between Amazon and https://www.researchgate.net/profile/Haitham- Nobanee/publication/358021906_Financial_Analysis_A_Comparison_Study_between_A mazon_and_Walmart/links/61ebd4ecc5e3103375b253cb/Financial-Analysis-A- Comparison-Study-between-Amazon-and-Walmart.pdf

Venugopal, , Veeramani, C., & Edalatpanah, S. A. (2022). Analysis of fuzzy DEMATEL approach for financial ratio performance evaluation of NASDAQ exchange. In Proceedings of International Conference on Data Science and Applications (pp. 637- 648). Springer, Singapore.

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Overview

Investing in stocks is an option when planning retirement or other financial management decisions. In this activity, you will research how to evaluate stocks as an investment option.

Stocks As an Investment Option

Instructions

In a 1-2-page paper, please respond to the following:

1. Explain the differences in stock trading between two different stock exchanges.
   1. Identify two different stock exchanges in the United States.
   2. Describe the similarities and differences between the two stock exchanges.
2. Explain how a company’s free cash flow impacts its growth potential. Cite the free cash flow of example companies.
   1. Identify one company on the two stock exchanges you researched in 1.
   2. Determine the free cash flow from 2019 and 2020 for each company.
   3. What inferences can you draw from the companies’ free cash flow?
3. Apply financial ratios to evaluate the strengths and weaknesses of stocks as investments.
   1. Using the 2019 and 2020 financial statements for both stocks, prepare two financial ratios for each of the following categories: liquidity ratios, asset management ratios, and profitability ratios. You should have a total of six ratios for each stock per year.
   2. What challenges, strengths, or weaknesses do you see when you examine these ratios?