Capital asset pricing model (CAPM) indicates what should be the expected or required rate of return on risky assets like McKesson Corp. common stock.
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McKesson Corp. pages available for free this week:
- Common-Size Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Common Stock Valuation Ratios
- Enterprise Value to EBITDA (EV/EBITDA)
- Present Value of Free Cash Flow to Equity (FCFE)
- Operating Profit Margin since 2005
- Return on Assets (ROA) since 2005
- Debt to Equity since 2005
- Price to Earnings (P/E) since 2005
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Rates of Return
McKesson Corp. (MCK) | Standard & Poor’s 500 (S&P 500) | |||||
---|---|---|---|---|---|---|
t | Date | PriceMCK,t1 | DividendMCK,t1 | RMCK,t2 | PriceS&P 500,t | RS&P 500,t3 |
Apr 30, 2010 | ||||||
1. | May 31, 2010 | |||||
2. | Jun 30, 2010 | |||||
3. | Jul 31, 2010 | |||||
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
70. | Feb 29, 2016 | |||||
71. | Mar 31, 2016 | |||||
Average (R): | ||||||
Standard deviation: |
McKesson Corp. (MCK) | Standard & Poor’s 500 (S&P 500) | |||||
---|---|---|---|---|---|---|
t | Date | PriceMCK,t1 | DividendMCK,t1 | RMCK,t2 | PriceS&P 500,t | RS&P 500,t3 |
Apr 30, 2010 | ||||||
1. | May 31, 2010 | |||||
2. | Jun 30, 2010 | |||||
3. | Jul 31, 2010 | |||||
4. | Aug 31, 2010 | |||||
5. | Sep 30, 2010 | |||||
6. | Oct 31, 2010 | |||||
7. | Nov 30, 2010 | |||||
8. | Dec 31, 2010 | |||||
9. | Jan 31, 2011 | |||||
10. | Feb 28, 2011 | |||||
11. | Mar 31, 2011 | |||||
12. | Apr 30, 2011 | |||||
13. | May 31, 2011 | |||||
14. | Jun 30, 2011 | |||||
15. | Jul 31, 2011 | |||||
16. | Aug 31, 2011 | |||||
17. | Sep 30, 2011 | |||||
18. | Oct 31, 2011 | |||||
19. | Nov 30, 2011 | |||||
20. | Dec 31, 2011 | |||||
21. | Jan 31, 2012 | |||||
22. | Feb 29, 2012 | |||||
23. | Mar 31, 2012 | |||||
24. | Apr 30, 2012 | |||||
25. | May 31, 2012 | |||||
26. | Jun 30, 2012 | |||||
27. | Jul 31, 2012 | |||||
28. | Aug 31, 2012 | |||||
29. | Sep 30, 2012 | |||||
30. | Oct 31, 2012 | |||||
31. | Nov 30, 2012 | |||||
32. | Dec 31, 2012 | |||||
33. | Jan 31, 2013 | |||||
34. | Feb 28, 2013 | |||||
35. | Mar 31, 2013 | |||||
36. | Apr 30, 2013 | |||||
37. | May 31, 2013 | |||||
38. | Jun 30, 2013 | |||||
39. | Jul 31, 2013 | |||||
40. | Aug 31, 2013 | |||||
41. | Sep 30, 2013 | |||||
42. | Oct 31, 2013 | |||||
43. | Nov 30, 2013 | |||||
44. | Dec 31, 2013 | |||||
45. | Jan 31, 2014 | |||||
46. | Feb 28, 2014 | |||||
47. | Mar 31, 2014 | |||||
48. | Apr 30, 2014 | |||||
49. | May 31, 2014 | |||||
50. | Jun 30, 2014 | |||||
51. | Jul 31, 2014 | |||||
52. | Aug 31, 2014 | |||||
53. | Sep 30, 2014 | |||||
54. | Oct 31, 2014 | |||||
55. | Nov 30, 2014 | |||||
56. | Dec 31, 2014 | |||||
57. | Jan 31, 2015 | |||||
58. | Feb 28, 2015 | |||||
59. | Mar 31, 2015 | |||||
60. | Apr 30, 2015 | |||||
61. | May 31, 2015 | |||||
62. | Jun 30, 2015 | |||||
63. | Jul 31, 2015 | |||||
64. | Aug 31, 2015 | |||||
65. | Sep 30, 2015 | |||||
66. | Oct 31, 2015 | |||||
67. | Nov 30, 2015 | |||||
68. | Dec 31, 2015 | |||||
69. | Jan 31, 2016 | |||||
70. | Feb 29, 2016 | |||||
71. | Mar 31, 2016 | |||||
Average (R): | ||||||
Standard deviation: |
Show all
1 Data in US$ per share of common stock, adjusted for splits and stock dividends.
2 Rate of return on common stock of MCK during period t
3 Rate of return on S&P 500 (the market portfolio proxy) during period t
Variance and Covariance
t | Date | RMCK,t | RS&P 500,t | (RMCK,t–RMCK)2 | (RS&P 500,t–RS&P 500)2 | (RMCK,t–RMCK)×(RS&P 500,t–RS&P 500) |
---|---|---|---|---|---|---|
1. | May 31, 2010 | |||||
2. | Jun 30, 2010 | |||||
3. | Jul 31, 2010 | |||||
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
. | . | . | . | . | . | . |
70. | Feb 29, 2016 | |||||
71. | Mar 31, 2016 | |||||
Total (Σ): |
t | Date | RMCK,t | RS&P 500,t | (RMCK,t–RMCK)2 | (RS&P 500,t–RS&P 500)2 | (RMCK,t–RMCK)×(RS&P 500,t–RS&P 500) |
---|---|---|---|---|---|---|
1. | May 31, 2010 | |||||
2. | Jun 30, 2010 | |||||
3. | Jul 31, 2010 | |||||
4. | Aug 31, 2010 | |||||
5. | Sep 30, 2010 | |||||
6. | Oct 31, 2010 | |||||
7. | Nov 30, 2010 | |||||
8. | Dec 31, 2010 | |||||
9. | Jan 31, 2011 | |||||
10. | Feb 28, 2011 | |||||
11. | Mar 31, 2011 | |||||
12. | Apr 30, 2011 | |||||
13. | May 31, 2011 | |||||
14. | Jun 30, 2011 | |||||
15. | Jul 31, 2011 | |||||
16. | Aug 31, 2011 | |||||
17. | Sep 30, 2011 | |||||
18. | Oct 31, 2011 | |||||
19. | Nov 30, 2011 | |||||
20. | Dec 31, 2011 | |||||
21. | Jan 31, 2012 | |||||
22. | Feb 29, 2012 | |||||
23. | Mar 31, 2012 | |||||
24. | Apr 30, 2012 | |||||
25. | May 31, 2012 | |||||
26. | Jun 30, 2012 | |||||
27. | Jul 31, 2012 | |||||
28. | Aug 31, 2012 | |||||
29. | Sep 30, 2012 | |||||
30. | Oct 31, 2012 | |||||
31. | Nov 30, 2012 | |||||
32. | Dec 31, 2012 | |||||
33. | Jan 31, 2013 | |||||
34. | Feb 28, 2013 | |||||
35. | Mar 31, 2013 | |||||
36. | Apr 30, 2013 | |||||
37. | May 31, 2013 | |||||
38. | Jun 30, 2013 | |||||
39. | Jul 31, 2013 | |||||
40. | Aug 31, 2013 | |||||
41. | Sep 30, 2013 | |||||
42. | Oct 31, 2013 | |||||
43. | Nov 30, 2013 | |||||
44. | Dec 31, 2013 | |||||
45. | Jan 31, 2014 | |||||
46. | Feb 28, 2014 | |||||
47. | Mar 31, 2014 | |||||
48. | Apr 30, 2014 | |||||
49. | May 31, 2014 | |||||
50. | Jun 30, 2014 | |||||
51. | Jul 31, 2014 | |||||
52. | Aug 31, 2014 | |||||
53. | Sep 30, 2014 | |||||
54. | Oct 31, 2014 | |||||
55. | Nov 30, 2014 | |||||
56. | Dec 31, 2014 | |||||
57. | Jan 31, 2015 | |||||
58. | Feb 28, 2015 | |||||
59. | Mar 31, 2015 | |||||
60. | Apr 30, 2015 | |||||
61. | May 31, 2015 | |||||
62. | Jun 30, 2015 | |||||
63. | Jul 31, 2015 | |||||
64. | Aug 31, 2015 | |||||
65. | Sep 30, 2015 | |||||
66. | Oct 31, 2015 | |||||
67. | Nov 30, 2015 | |||||
68. | Dec 31, 2015 | |||||
69. | Jan 31, 2016 | |||||
70. | Feb 29, 2016 | |||||
71. | Mar 31, 2016 | |||||
Total (Σ): |
Show all
VarianceMCK = Σ(RMCK,t–RMCK)2 ÷ (71 – 1)
= ÷ (71 – 1)
=
VarianceS&P 500 = Σ(RS&P 500,t–RS&P 500)2 ÷ (71 – 1)
= ÷ (71 – 1)
=
CovarianceMCK, S&P 500 = Σ(RMCK,t–RMCK)×(RS&P 500,t–RS&P 500) ÷ (71 – 1)
= ÷ (71 – 1)
=
Systematic Risk (β) Estimation
VarianceMCK | |
VarianceS&P 500 | |
CovarianceMCK, S&P 500 | |
Correlation coefficientMCK, S&P 5001 | |
βMCK2 | |
αMCK3 |
Calculations
1 Correlation coefficientMCK, S&P 500
= CovarianceMCK, S&P 500 ÷ (Standard deviationMCK × Standard deviationS&P 500)
= ÷ ( × )
=
2 βMCK
= CovarianceMCK, S&P 500 ÷ VarianceS&P 500
= ÷
=
3 αMCK
= AverageMCK – βMCK × AverageS&P 500
= – ×
=
Expected Rate of Return
Assumptions | ||
Rate of return on LT Treasury Composite1 | RF | |
Expected rate of return on market portfolio2 | E(RM) | |
Systematic risk (β) of McKesson Corp. common stock | βMCK | |
Expected rate of return on McKesson Corp. common stock3 | E(RMCK) |
1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).
3 E(RMCK) = RF + βMCK [E(RM) – RF]
= + [ – ]
=