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Rock Street, San Francisco

Growth in net earnings of 10%. Both this numbers indicate significant growth in the past 10 years. This strong numbers, but expect them to slow down to

3-4% (growth of the economy) in the long term. This company is still enjoying a significant growth stage and has not fully matured.

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DuPont Analysis

The profit margins that CAE has achieved in the last 5 years have been relatively stable, with an average margin of 8.95%. In 2013 however, the profit margin dipped to 6.77%, which was indicative of their acquisition of Oxford Aviation Academy, in which they had had a goodwill expense of 142.4 million (one time event, misrepresenting ratio). Asset turnover for CAE is low,
with an average of.55. Understandably, however, due to the nature of their
product in which it takes longer to complete each contract since each simulator
must comply with the customers standards.

Market Valuation The TTM average P/E ratio for CAE was 26.4. this is
compared to an industry average P/E of 22.81. This indicates that the market is
willing to pay more to have a claim on future earnings of CAE that that of the
industry average. This ratio indicates that the market values Shares in CAE
relatively high. Comparing the P/E ratio to the past 10 years’ worth of data,
we can see a positive trend (ignoring the likely inflated value in 2007 before
the collapse the current TTM price to book is 3.064 compared to the industry average of 5.378. From these figure’s it is clear that a share of CAE sells for less than industry averages when using comparable financial data. It is possible that this lower P/B ratio indicates that the company is currently undervalued, but an important idea to keep in mind is that if other investors do not come to the same conclusion (that the company is undervalued) than any capital gains from a price “correction” will go unrealized.

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