Question

ii) Please provide sufficient interpretations of the ratios and explain their change (or no change) from the year before, in a 1-2 paragraphs. If there's anything unusual or notable, please explain. Please be cautious about the signs on financial statement figures, especially on the income and cash flow statement. Some companies choose to report expense items as negative numbers because they get subtracted from the revenue to obtain the net income. When calculating the ratios, use your judgement to adjust their signs appropriately.

Please provide an interpretation based of off these Texas Instrument’s Market Value Ratios in 2017-2018.

Answer 1

Looking at the above ratio, it can interpreted that company's EPS has grown substantially in the year 2018 as compared to 2017. This indicates higher profitability on the part of company. The EPS has increase by $2 which is a increase of more than 60% as compared to 2017 and hence a good sign for the company.

However, the PE ratio (calculated by dividing market price with EPS) of the company has gone down from 27 to 16 which shows that market has valued down the company and is paying less premium valuation to company as compared to 2017, this is not a good sign for company.

The price to sales ratio of the company has also seen a decline which means that company's market capitalization has became more as compared to its sales, which can be a further trigger for company's devaluation in future.

The market to book ratio depicts the premium pricing that market is paying to company's each share as compared to its value of each share as per books of the company. For example, if as per books, the company's share is $5 and market price of the company is quoting at $25, then M/B ratio comes at 5. In this case, there is not much change in the M/B ratio and it remains almost same. This shows company is paid a premium valuation and is continued in the year 2018 as well.