You are provided with quarterly financial for Target corporation (Target Corp Data, for
HW3.xlsx). Answer the following questions:
1) What is Target’s P/E in Q4 of 2014? (Note: epsf12 is the EPS of the previous 12 months
relative to the fiscal quarter end. We refer to it as a trailing twelve months (TTM) EPS.)
2) Compute P/E for each quarter. In which quarter Target had the lowest P/E ratio?
3) Take the quarter in which Target had the lowest P/E.
a. What is the 1-year forward return for this quarter?
b. What is the 2-year forward return for this quarter?
4) For each quarter in the dataset, compute 1-year forward return. Compute correlation between
P/E and the 1-year forward return.
5) For each quarter in the dataset, compute 2-year forward return. Compute correlation between
P/E and the 2-year forward return.
6) Comment on the correlations computed in 5) and 6). What important lesson these correlations
demonstrate?
For this question use Lecture 3.xlsx file. Perform the following calculations and answer the
questions:
1) For each firm in year 2019 compute the growth rate in sales between 2019 & 2020. What is
the average and median sales growth rate? Compare this with the growth rates we computed
in class (between 2020 & 2021). In which year revenue grew faster?
2) In year 2019, group all stocks into quintiles based on the P/E ratio. For each quintile,
compute:
a. Median growth rate in revenue between 2019 & 2020,
b. Mean growth rate in revenue between 2019 & 2020,
c. Standard deviation of revenue growth rates between 2019 & 2020.
Winsorize revenue at the 5% and 95% percentiles. Compare your results with what we
computed in class. Do you see the same pattern?
3) Compute the correlation between raw (unwinsorized) revenue growth and P/E rank. Next,
compute the same correlation between:
a. Revenue growth rate winsorized at 1% and 99% percentiles and P/E rank,
b. Revenue growth rate winsorized at 5% and 95% percentiles and P/E rank.
Comment on the results.
4) In year 2019, group all stocks into quintiles based on the P/E ratio. For each quintile,
compute:
a. The total number of firms,
b. The number of firms that grew EBITDA between 2019 & 2020,
c. Fraction of firms that grew EBITDA between 2019 & 2020. (Compute fraction as the
number of firms in (b) divided by the number of firms in (a)).
Comment in the results.
5) In year 2019, group all stocks into quintiles based on the P/E ratio. For each quintile,
compute:
a. The total number of firms,
b. The number of firms that grew EPS between 2019 & 2020,
c. Fraction of firms that grew EPS between 2019 & 2020. (Compute fraction as the
number of firms in (b) divided by the number of firms in (a))
