THE STOCK MARKET PART II (case) Essay Example | Topics and Well Written Essays - 500 words

THE STOCK MARKET PART II (case) - Essay Example 85). Based on the three companies’ financial statements and historical data, the best company to invest in is Oracle. Oracle is the highest in terms of revenue growth, net income growth, net profit margin, growth rate and dividend growth (see figure 1). Compared to Darden and Sony, Oracle’s performance is more impressive, thus making it the best candidate that would be able to generate more income in the future. Based on stock price forecast for the next 12 months, Oracle will have a high estimate of $42.00 or +32.8% while its median price forecast will be $38.00 or +21.9%; however, the investment would be risky considering that the lowest forecast is $26.00 or a decreased of -17.8% (Oracle Corp., n.d.). Furthermore, it is expected that from 2008 to 2012, the annual growth of earnings per share will be 30.73% and the annual growth of sales will be 32.16%. On the other hand, Oracle’s financial ratios are above average for its industry such as the industry median for price/sales ratio (3.81), price/earnings ratio (14.25), and price/cash flow ratio (11.01) (see figure 2). Also, the current ratio and quick ratio of Oracle is high and this is a good sign that the company has the ability to meet and alleviate its short term obligations when they are due, thus the company is in good financial health. It also shows that Oracle is safe from liquidity problems and its position is much better compared to Darden and Sony. In addition, the stock P/E ratio of Oracle is traded at higher rate than the other two companies because its forecasted earnings growth is also high, making the investment more risky. However, â€Å"rational investors generally require riskier investments to offer higher returns than less risky investments† (Easterling, 2006, p. 82). The high net profit margin of the company implied that the business is doing well and that they have the capacity to control their expenses or liabilities in the company. Investing in Oracle