Monthly Archives: July, 2012

diana shipping inc dsx

Diana Shipping Inc (DSX) Financially Sound

July 27th, 2012 Posted by Company Research Report No Comment yet

Diana Shipping Inc. (DSX) is a global provider of shipping transportation services, specializing in the ownership of dry bulk vessels. Source: Diana Shipping Inc. website

Diana Balance Sheet

Liquidity

Diana Shipping Inc is financially stable, with extremely high current asset and quick asset ratio of average 671 percent and 892 percent respectively and its working capital is tremendously increasing per period.

  • Working capital was $1, 49, 265, 322 and $385. Average of $204. The company’s working capital was consistently increasing with a high gap each year. This further means that the company is indeed making progress.
  • The current ratio was 1.05, 3.45, 9.28, 10.76 and 9.02. Average of 6.71, which means the company has $1.05, 3.45, 9.28, 10.76 and $9.02 of current assets for every $1 of current liabilities.
  • Quick ratio was .95, 3.30, 9.19, 10.64, and 8.92. Average of 6.60. It tells us that, the quick assets had $0.95, 3.30, 9.19, 10.64 and 8.92 for every $1 of current liabilities.

Working Capital

Working capital showed that the yearly balance is increasing. It tells us that, the company was able to meet its current obligations such as payment of salaries to its staffs, utility bills and make loan payments. Current ratios indicate that current asset is greater than the current liabilities at the ratio of 6.71 average, while quick ratios increase from year to year at 8.92 average.

Based on the analysis and balance sheet statement, its current asset was mainly cash and cash equivalents of about 96 percent. The company is running its business hassle-free on almost purely cash basis. This is possible considering that the line of business is a shipping company.

Cash Conversion Cycle

Cash conversion cycle (CCC) is a metric used to measure the length of time the company is able to turn resources inputs into cash flows. To measure this, we use the following related ratios.

  • Inventory turnover ratio was 19, 18, 18, 16 and 13. Average of 17. The company’s inventory has an average of 17 times turn each period.
  • Inventory conversion period was 19, 20, 21, 22 and 28. Average of 22. The average days to convert its inventory to sales were 22 days.
  • Receivable turnover ratio was 95, 168,0, 0 and 43. Average of 61, which means the company’s receivable turns 61 times average.
  • Receivable conversion period was 4, 2, 0, 0, and 9. Average of 3. The company’s average days to collect its receivable are 3 days.
  • The payable turnover ratio was 47,0, 0, 0 and 37. Average of 17. The company has recorded accounts payable in 2007 and 2011 only with an average turn of 17 times.
  • Payable conversion period was 38, 0, 0, 0 and 39. Average of 15. The company’s payable is 15 days average to pay.
  • Cash conversion cycle was -15, 22, 21, 22 and -3. Average of 9. This tells us that DSX has an average of 9 days CCC.

Further interpretation of the cash conversion cycle:

Particulars 2007 2008 2009 2010 2011 Ave.
Inventory Conversion Period 19 20 21 22 28 22
Receivable Conversion Period 4 2 0 0 9 3
Payable Conversion Period 38 0 0 0 39 15
Cash Conversion Cycle -15 22 21 22 -3 9

Based on the analysis of the company’s debt obligations, Diana Shipping is less indebted, and 143 percent able of paying all its debt obligations, so it’s an ideal company to invest in. In addition, the owners of the company have the majority control on total assets with 76 percent claims.

Financial Leverage

Leverage is the relationship between debt financing and equity financing, also known as the debt-to-equity ratio. Equity is created by the personal funds of the business owner(s), and/or by the stockholders of shares in a corporation. As these funds have no claim on any of the assets of the business, the assets are available to be used as collateral for debt financing. For DSX, debt ratio, debt to equity ratio and solvency ratio from 2007 to 2011 were computed for the leverage. The results are as follows:

Facts

  • Debt ratio was .13, .25, .22, .27 and .22. Average of .22, which means that the company’s debt capital was only 22 percent of total assets.
  • And the debt to equity ratio was .16, .34, .29, .37 and .29. Average of .29. The company’s debt has an average of 29 percent against shareholders’ equity.
  • While solvency ratio was 134.19, 222.16, 121.16, 129.13 and 107.16. Average of 142.76, or 143 percent solvent. Solvency is the ability to pay all debt obligations as they became due.
  • On the other hand, current liabilities to total assets was .02, .02, .02, .02 and .03. Average of .02. The company’s current liabilities was 2 percent average to total assets, so the creditors have 2 percent claims on the total.
  • Likewise, stockholders’ equity to total assets was .85, .73, .76, .71 and .75. Average of .76. The owners’ equity was 76 percent average of total assets; therefore, the shareholders have 76 percent claims on the total assets of the company.

Explanation

The only ratio that measures the company’s effectiveness in generating sales from its investments in plant, property, and equipment is the fixed asset turnover ratio.  It is especially important for a manufacturing firm that uses a lot of plant and equipment in its operations to calculate this ratio. To get this is to divide the company’s revenue by its property, plant, and equipment. For DSX, fixed asset turnover ratio was .21, .34, .22, .23 and .23 with an average of .24. It is good enough considering the value of its investment on property, plant, and equipment.

Diana Income Statement

Profitability

This section of our report gives an overview of the company’s financial performance over a specific period. Nelly, part of Numbers team, shared the profitability ratios of DSX from 2007 – 2011. Let us take a look at the data below.

  • Net margin in percent was 70.46, 65.71, 50.76, 46.75 and 41.86. This simply is the after-tax profit a company generated for each dollar of revenue.
  • While asset turnover was 0.26, 0.34, 0.20, 0.19 and 0.16. This measures the efficiency of the company to convert its assets into revenues.
  • And the return on asset was 18.45, 22.15, 10.22, 8.86 and 6.74. This tells us how much profit the company generated for each dollar on total assets.
  • Moreover, financial leverage was 1.18, 1.36, 1.32, 1.40 and 1.33. This measures the financial structure ratio of the company base on total assets against total stockholders’ equity.
  • Likewise, return on equity was 23.09, 28.15, 13.69, 12.09 and 9.19.   This tells us how much the company could return for every dollar of equity.
  • And the return on invested capital was 19.18, 23.19, 10.57, 9.21 and 6.94. This is a financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business.

Explanation

Diana Shipping Inc.’s profitability in terms of their net profit margins has been trending down for the last five years. This means that net income and revenues were slightly playful or unstable during the previous years. Despite that, they have a higher profit margin, generated for each dollar of revenue compared to their asset turnover. As the rule, the higher the profit or the net profit margin, the lower the volume of the asset turnover. This determines the attractiveness of the business. Meaning that in terms of revenue they generate more than converting assets into revenues.

Return on Asset

The return on assets was high in 2008 of 22.15 percent as compared to 2007 of 18.45 and the latest years 2009 to 2011 which slightly decreased yearly by 10.22, 8.86 and 6.74. This means the company’s earnings from total assets declined because of the increase in total assets of 944 million dollars, 1,057, 1,320, 1,585, 1,604 from 2007 to 2011.

Financial Leverage

With regards to their financial leverage, the portion of the return on equity as the result of debt measured by the equity multiplier showed an up and downtrend for the last five years. This was in relation to total assets and total stockholders’ equity. Return on equity increased in 2008 and declined through the following years. This means the return earned a higher percentage of internally generated revenues.

Income

  • Revenue in million dollars was 190, 337, 239, 275.45 and 257.
  • Gross profit was 152, 282, 186, 210 and 257.
  • Operating income was 138, 226, 124, 134 and 111.
  • Net income was 134, 222, 121, 129 and 107

Explanation

Diana’s revenues had been remarkable for the first two years 2007 and 2008 base on their growth ratio in percent of 64.06, 77.13, -29.06, 15.09, and -6.78 from 2007 to 2011. Likewise, gross profit was the same as their revenues, but gross profit margin has been decreasing of 80.0, 83.7, 77.7, 76.4 and 74.3 from 2007 to 2011. While operating income was in an up and down trend as a result of the operating expenses incurred during the year.

Net Income

Net income, despite the decline, was good especially in 2008 when everything was financially affected by the crisis. They had the ability to achieve a solid financial and operating performance in spite of a difficult industry environment. Moreover, Diana retained long-term strategies with their quality charterers.

Expenses

Their expenses cost revenues account for 21.33 percent of revenues. Operating expenses include sales, general and administrative expense accounts for 7.2, depreciation and amortization of 17. In addition, other operating expenses of -2.  Likewise, its interest expense accounts 2 percent and other income and expense of -54.4 of revenue. So, an average of 54.9 percent was left for their net income. Base on this they have indeed a very favorable and high net profit margin.

The data stated below further explains the expenses incurred from 2007 to 2011:

Facts

  • Cost of revenue was 38, 55, 53, 65 and 66 with an average of 55.4.
  • In addition, sales were 12, 14, 17, 25 and 25 with an average of 18.6.
  • And, depreciation and amortization were 24, 43, 45, 53 and 55 with an average of 44.
  • Further, other operating expense was -22, 0, 0, -2, and -1. Average of -5.0.
  • Furthermore, interest expense was 6, 6, 3, 5 and 5 with an average of 5.
  • While other income and expense were -132, -220, -121, -129, and -106 with an average of -141.40.

Diana Cash Flow Statement

Cash Flow from Operating Activities

Cash flow is a statement wherein you can determine if the company has available funds. It also denotes the activity of cash where the company used it. Cash flow from operation of Diana Shipping Inc. using the indirect method of accounting was in slope. Which the growth represents in percentage at -43, 72, -15 and 16 results from 2007 to 2011. This was due to the net income which movement was also in sideways. Based on the total, for their five years of operation; in percentage, the net income contributes at 80, depreciation at 25. While the prepaid decrease at 1 and other working capital also decreased at 4.

Facts

  • Net income of $ million was 134, 222, 121, 128 and 107
  • While, depreciation & amortization was 24, 43, 45, 53 and 55
  • And prepaid expense was 0, -1, -14, 2 and 2
  • And also, other working capital was 0, -2, -5, -11 and -19
  • In addition, net cash provided by operating activities was 149, 261, 152, 178 and 154.
  • The total in five years was 894.

Using the direct method, the result of cash flow from operating activities in percentage was 44, -68, -8 and -21 from 2007 to 2011. Within their five years of operation only in 2008 grew by 44 percent due to the increase of cash collection by 44 percent. While in 2009 to 2011 was declining which the cash payment exceeds from their cash collection.

Explanation

Cash flow from operating activities can be computed using the direct method of accounting. From the cash collection less all the cash payments made in purchases of goods and supplies, operating expenses were incurred including the interest.

Facts

  • The cash collection was 189, 337, 239, 275 and 257
  • Cash payment for purchases was 38, 55, 53, 65 and 67
  • Payment for operating expenses was 17, 55, 48, 80 and 82
  • Cash paid for interest was 6, 0, 3, 5 and 5
  • Operating activities was 128, 227, 135, 125 and 103

Cash Flow from Investing Activities

Cash flow from investing was an activity of cash wherein the company invested. The following are results from DSX:

  • An investment in property, plant, and   equipment was -459, -110, -65, -260 and -28.
  • And property, plant, and equipment reductions in 2007 was 79 and zero from 2008 to 2011
  • Likewise, acquisitions,   net was zero from 2007 to 2010 and -50, in 2011
  • In addition, other investing activity was -29, 1, -8, 7 and -12.
  • Net cash used for investing activities was -409, -109, -73, -252 and -90.
  • The total for five years was -933.

Explanation

Cash flow from investing in DSX was in sideways in percentage was 44, 12, 8, 27 and 10 results from 2007 to 2011. It tells us that from 2007 to 2009 they minimizing their investment but in 2010 grew by 19 percent due to the additional purchase of PPE. It indicates, the total PPE in five years of operation, contributes to investing was represent to 91 percent, 5 percent from acquisitions and 4 percent from other investing activities.

Cash Flow from Financing Activities

Cash flow from financing activities was a cash activity wherein the company raised and used its funds. In Diana Shipping Inc are as follows:

  • Debt issued was 288, 237, 74, 139 and 15
  • And debt repayment was -327, -98, -30, 0 and -6
  • And also common stock issued was 433, 0, 98, 0 and 0
  • In addition, repurchases of treasury stock were zero from 2007 to 2010 and -1 in 2011
  • While cash dividends paid were -131, -247 in 2007 to 2008 and zero from 2009 to 2011
  • Likewise other financing activity was 0, 0, 0, -2 and 0.
  • On the other hand, net cash provided by (used for) financing activities was 262, -107, 142, 137 and 7

Explanation

The net change in cash has a huge result in 2009 at 99 percent from 2007 data and the cash at end of the period was very impressive grew by 96 percent from 2007 to 2011. It tells us, the management was very efficient in managing their cash flow. Net change in cash was net cash available and ready to use for the next accounting cycle. Below are the results for Diana:

  • Net change in cash was 2, 45, 220, 63 and 71
  • Further, cash at beginning of the period was 15, 17, 62, 282 and 345
  • In addition, cash at end of the period was 17, 62, 282, 345 and 417.

Free Cash Flow

The free cash flow of Diana in 2007 and 2010 was in negative which the capital expenditure had exceeded operating cash flow. In addition, free cash flow was to measures how much cash available after deducting the capital expenditure. Below are the results for Diana Shipping Inc:

  • Operating cash flow was 149, 261, 152, 178 and 154
  • While, capital expenditure was -459, -110, -65, -260 and -28
  • Likewise, free cash flow was -310, 152, 87, -81 and 126.

Explanation

Operating cash flow ratio measures the amount of cash from operation to pay its short-term obligation. In addition, the result of net cash provided by operating activities over total current liabilities was used in order to get the operating cash flow ratio.

  • Net cash provided by operating  activity was 149, 261, 152, 178 and 154
  • While, total current liabilities was 21, 20, 32, 33 and 48
  • In addition, the operating cash flow ratio in percentage was 710, 1305, 475, 539 and 321.
  • Likewise, it’s averaging 670 percent or in every $1 of short-term debt.
  • Meaning, Diana had the capacity to pay it in six times.
  • Moreover, the company had excess cash over their liabilities.

Explanation

Capital expenditure ratio measures the capital available for internal reinvestment. If the result was more than 1, it means the company funds would extend to pay its other obligation.

  • Net cash provided by operating activities was  149, 261, 152, 178 and 154
  • While, investments in property, plant, and   equipment was 380, 110, 65, 260 was 28
  • In addition, capital expenditure ratio in percentage was -39, 237, 234, -68 was 550, average in five years was 226.

The capital expenditure ratio of Diana Shipping Inc was very strong, an average of 226 percent. It tells us, the company has the capability to reinvest its cash and could be used to pay its debt which in every $1. Moreover, Diana had available funds of $2.26, the average for five years.

Debt Ratio

Total debt ratio measures the availability of cash to pay its total debt; through the result of cash from the operation over the total liabilities of the company. The total debt ratio of Diana Shipping Inc declined from 2007 to 2011. It indicates a 103 percent down to 39 percent. Moreover, it means the total liabilities were greater than the cash available from the operations which in every $1 of total debt. Diana have equivalent cash to pay at $1.03, .93, .47, .39 and .39 from 2007 to 2011, respectively.

Facts

  • Net cash provided by operating  activities was 149, 261, 152, 178 and 154
  • While total liabilities was 145, 282, 321, 454 and 396
  • Likewise total debt ratio in percentage was 103, 93, 47, 39 and 39

Written by Rio, Nelly, and Dyne
Edited by Cris

tuesday-morning-corporation-tues-2/

Tuesday Morning (TUES) Closeout Buyer and Surplus Re-seller

July 26th, 2012 Posted by Company Updates No Comment yet

Tuesday Morning Corporation (TUES) who started?

Tuesday Morning Corporation (TUES) developed its name when the business opened their doors on Tuesday morning, generally the first Tuesday of the month.

The company founder, chairman, and chief executive officer Lloyd Ross conceptualized the title. In line with this, an idea was brought up in the early 1970’s when Lloyd Ross was working in Rathcon, Inc. and noticed that manufacturers had no reliable way to dispose of their surpluses of high-end inventory. Moreover, he started in buying and selling merchandise from top-name manufacturers to department and specialty stores.  In spite of its name, the store is open throughout the week where the products are known to be first-quality, famous-maker giftware.

On our Economics class in high school we tackled Surplus and since then I have completely forgotten what it meant exactly. Surplus, as defined by our research team, is a situation in which assets exceed liabilities, income exceeds expenditures, exports exceed imports, or profits exceed losses. It is the opposite of a deficit. When a country exports more than it imports, it is said to have a trade surplus.

TUES background of the company? Its history and development?

Every single thing on this planet has its own history and background and how it developed. So for Tuesday Morning Corporation, Meriam and Janice have listed some valuable information regarding that.

TUES nature of its business?

The corporation is a closeout retailer of assorted famous maker gift that markets assorted first quality merchandise.

It buys brand name and first quality products at closeout prices and resells it at prices lower than those generally charged by department stores and catalog retailers. Also, they offer home accessories, housewares and famous-maker gifts in the United States. The stores do not sell seconds, irregulars, refurbished or factory-reject products. On March 31, 2011, the company compelled with 840 discount retail stores in the 41 states. The company relies on direct marketing which includes mail, eTreasures, e-mail list an advertisement in newspapers and television.

Brand new items that are no longer being sold for wholesale cost are considered closeouts. Thus, it may be a result of discontinuation and overstocking of the product or a sale in which all remaining stock is disposed of, usually at greatly reduced prices.

Who is running TUES and their background?

As anyone of us knows, a company would only run if there are people working on it. What’s a company called without them anyway? Janice will help ease the questioning with a thorough background description of the company along with the people running it.

Key management personnel of Tuesday Morning Corporation has been serving the company for a couple of years. Mr. Michael J. Marchetti is the interim CEO who has been part of the corporation for more than ten years. Same with the CFO Ms. Stephanie Bowman, that has been employed for almost six years.

Mr. Michael J. Marchetti serves as the president, interim chief executive officer, and chief operating officer of Tuesday Morning Corporation. He joined the company in February 2001 as senior vice president of strategic planning. For a few months, he held the following position as an acting chief financial officer, secretary, and treasurer of the company. Before climbing to his current position, he served several executive positions such chief operating officer, executive vice president and executive vice president of operations. Mr. Marchetti was previously employed as a principal by MarCon Services, Inc. He was also a former chief financial officer of CWT Specialty Stores, Inc.

Ms. Stephanie Bowman is the executive vice president, chief financial officer, secretary and treasurer of the company. She started her employment as the controller in August 2006. She was previously seated as vice president of finance before becoming the CFO. Prior joining on Tuesday Morning Corporation, she was the senior vice president of finance of Summit Global Partners. Ms. Bowman is a certified public accountant and holds a degree in BBA, Accounting from the University of Texas at Arlington.

That was a bit off on my part. Janice then made it clear to me. Interim CEO is a person appointed by a company’s board of directors to assume the role of the chief executive officer during a time of transition or as the result of the sudden departure of the company’s previous CEO. These CEOs are tagged with the “interim” tag due to the fact that they have not officially been given the title of full-time CEO. Like many industry leaders, interim CEOs are often called upon to “steady the ship” in periods of great turmoil.

Who is directing the company? How are the committees structured?

So how about their directors? It’s a good thing Janice was there to help me out. She even gave out bits of information as to how their committees were structured.

The committee is comprised solely of independent directors. The committees are the audit, compensation and nominating and corporate governance committee. Mr. Bruce Quinnell sits as the chairman of the board of the company.

Mr. Quinnell is an independent director and he has been with the company since April 2006. He is the chairperson of the audit and compensation committee. He is a former executive officer of the following companies, namely Walden Book Company, Pace Membership Warehouse and Dollar General Corporation. A member of the board of directors of Bombay, Inc, Cyber Medical Services, Zoom Systems, Inc and chairman of the board of Board of Hot Topic, Inc. Mr. Quinnell is a business consultant with extensive background in the retail industry. He provides leadership and management skills as well as financial, audit and operational expertise to the company.

Steven R. Becker, 45, is the chairperson of the nominating and corporate governance committee. He was appointed as chairman on July 1, 2012.  Mr. Becker is a co-founder and partner of Becker Drapkin Management. He was a former director of Plato Learning and current member of the board of directors of Hot Topic, Ruby Tuesday, Pixelworks. At present, he is an active member of the board of trustees of Dallas Museum of Art. He holds a B.A. degree from Middlebury College and J.D. from the University of Florida.

In non-profit organizations, just as to how Janice had described it, the board of trustees often provides means for members or associates of the organization to elect or appoint individuals that will oversee the function of the organization and ensure that the core values and purposes of the organization are reflected in the operation process. Generally, members of a board of trustees serve terms from one to three years, although various charters may allow persons to be re-elected or re-appointed upon the completion of each term.

It may be selling products or offering services; every business or company has their own means and ways so as the public could enjoy buying and purchasing their goods without further stress on their part and their wallets of course.

How do they make money?

Tuesday Morning offers the finest in closeout product, never seconds or damages. The business uses different strategy formats to be competitive and achieve its financial goal.

Revenues were realized during the transport and sales of the product to the customers. Strategies such as close monitoring and markdown controlling of inventory allow product selling at reasonable rates which contribute well to the company’s earnings. Through “event-based” selling strategy such as “grand openings” and “closeout sales,” major profit is realized. To attract customers, the company promotes major sales events and products through online, radio and television advertising and direct mailings and emails. Items purchased through online by the customers are also one of the sources of company’s income. During the month of October through December, merchandise purchases increased a wherein significant portion of the revenue and net earnings were recognized. Also, earnings of the corporation grew due to the sales per store and increase of transactions in the comparable store sales.

Comparable store sales are the amount of revenue a retail location generated in the most recent accounting period, relative to the amount of revenue it generated in a similar period in the past. Comparable store sales are most commonly used to compare the most recent year’s holiday shopping season, to last year’s, or to compare this week, month, quarter or year’s sales to last week, month, quarter or year’s sales.

How do they fit into the industry they operate in?

Tuesday Morning is a company that most of the industry is not seeing as a major player in the marketplace. So how do they manage to fit into the industry they operate in? That’s what we’re about to find out in Meriam and Janice’s research work.

The company has a significant take on their competition with the supply chain. At present, as a closeout retailer of home furnishing, the company competes against a diverse group of retailers, including department and discount stores, specialty, catalog and e-commerce retailers and mass merchants.  The store also competes in the market with big numbers of retailers who specialize in one or more types of home furnishing and housewares products that TUES sells. Due to competition in the home furnishings retail industries, the company develops a strategic initiative to equally maintain its trend. Business competitors are Bed Bath & Beyond Inc. (BBBY), J. C. Penney Company, Inc. (JCP), Target Corp. (TGT) and Industry – Discount, Variety Stores. No second-hand factory with defects, either damaged products, are sold in the stores that make Tuesday Morning Corporation stand ahead with the competitors such as Samsonite, Cuisinart, Krups, Calphalon, and others.

In the business world, like how our research team has defined it, a retailer is a person that sells goods to the consumer, as opposed to a wholesaler or supplier, who normally sell their goods to another business. The retail transaction is at the end of the supply chain. Manufacturers sell large quantities of products to retailers, and retailers sell small quantities of those products to consumers.

Who are their suppliers and customers?

Tuesday Morning has a dedicated customer base that seeks the best merchandise at outrageously cheap prices.  Wow! That’s good to hear, right? Let’s get to find out more about that; thanks for Meriam and Janice’s detailed article.

They sell various products preferably brand new and no factory defect. Products are lamps, rugs, furniture, kitchen accessories, small electronics, gourmet housewares, linens, luggage, bedroom and bathroom accessories, toys, stationery, silk plants, as well as crystal, collectibles, silver serving pieces, men, women and children’s apparel and accessories  and selected items which are offered at retail shops and website. Normally, closeout products are only available from manufacturers or vendors on a non-recurring basis. The company doesn’t offer long-term contracts with vendors for supply, pricing or access but rather individual purchase decisions, which are often in large quantities.  TUES profits rely on the price of the product they purchase from the suppliers.

Consumer also called as customers, is an individual who buys products or services for personal use and not for manufacture or resale. He/she also makes the decision whether or not to purchase an item at the store and someone who can be influenced by marketing and advertisements. Anytime someone goes to a store and purchases a toy, shirt, beverage, or anything else, they are making that decision as a consumer.

What is their workforce like?

Just like computer parts, once a certain part is missing, the whole machine itself would be useless. Without human intervention to, a computer is a dumb box. Why did I say this? That’s because as of now, we will be reading what’s the workforce like on Tuesday Morning Corporation.

The workforce of the company is a combination of the management team, personnel, and technology.

With today’s competitive market, automated technology process significantly supports the company’s business operations. TUES is believed to have the strong bond with its employees who are not associated with labor groups. It has a total of 1,900 employees on the full-time basis and approximately 7,000 on a part-time basis as of June 30, 2011. Their store management is composed of full-time and part-time employees such as the store, zone and field managers.

Store manager handles the recruitment, training, and supervision of store personnel and stores inventory. In addition, management members held periodic meetings with the regional, field, zone managers and visits selected stores during sales and non-event sales. Key employees and stable management are where the future of the company highly depends on one. Aside from the personnel, the company uses “eTreasures”®, a program that keeps the customers updated with the newest product and offerings. Some labor source to consider manufacturers and vendors wherein they produce and supply items to the stores.

Targeted emails allow information, about your opportunities, event or organization to be sent to a specified target group. It also gives you the ability to segment your email list and target your email messages to their specific audience. Sending targeted emails will minimize unsubscribes and reduce list churn.

How do they treat their employees? What are the pay and working condition like?

So we’ve basically covered from how the company emerged, its development and history. I guess it’s high time to get to know how they treat their employees and what is their pay and working conditions like.

Tuesday Morning Corporation performance is dependent on recruiting, developing, training and retaining quality sales, distribution center and other associates in large numbers, as well as, experienced buying and management personnel.

Executive Officers and Employees

Executive officers and employees follow a code of conducts which established ethical standards in the company. Training is provided to store management personnel upon hiring or during the promotion. The compensation package for the executive officers is the following: base salary, equity-based compensation, annual cash payments perquisites and other personal benefits. Annual cash payments are applicable to executive officers with a certain employment agreement. Stock-based compensation is enjoyed by directors, officers, and key employee however in 2008; it was terminated by the board of directors. For potential liabilities with workers, the company provides a mix of insurance and self-insurance plans. Full-time and eligible employees avail the 401(k) profit sharing plan wherein the certain percentage is deducted from their salary. The company also offers death benefit plan to full-time employees and executive officers.

Death benefit or “survivor benefit” is the amount of a life insurance policy or pension that is payable to the beneficiary when the annuitant passes away. Also, it may be a percentage of the annuitant’s pension. Alternatively, the benefit may be a large lump-sum payment from a life insurance policy. The size and structure of the payment are determined by the type of policy the annuitant held at the time of death.

Summary Compensation Table

The table presents the compensation of executive officers and directors for fiscal years 2009, 2010 and 2011.

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Gossips

Now that we’ve pretty much covered every aspect of the company, let’s get it on with the summary that’s been laid for us by our research team.

According to Reuters news in January 2012 at 08:00 am, Tuesday Morning Corp. revised its guidance for fiscal 2012 and expects net sales to be in the range of $815-$820 million.

Another news from Yahoo finance dated Tuesday, July 10, 2012, there was an increase of 0.8 percent. Comparable store sales for the quarter ended on June 30, 2012, with an increased rate of 0.2 percent. For the fiscal year ended June 30, 2012, and net sales were $812.8 million compared to $821.1 million for fiscal 2011.

On Wednesday, June 6, 2012, Reuters announced Management Changes and Director Resignation of Tuesday Morning Corp. This relieved Kathleen Mason of her duties as President and CEO and commenced a search for a new chief executive.

June 7, 2012, Dallas Business Journal has written, Kathleen Mason Firing surprise. She said,   “The Company has been profitable for 12 consecutive years,”. “We have grown to 850 stores with 10,000 employees and 11 million loyal customers.”

Revision of guidance of Tuesday Morning Corporation increased Net sales this 2012; CEO Michael Marchetti had positive views to achieve an increase in total sales for the quarter. Management changes made Kathleen Mason relieved from her duties, which came as a surprise to her and felt disappointed.

CITATIONS

Who started the company and why?

http://en.wikipedia.org/wiki/Tuesday_Morning

/http://www.fundinguniverse.com/company-histories/tuesday-morning-corporation-history/

http://www.fundinguniverse.com/company-histories/tuesday-morning-corporation-history/

What is the background of the company? its History and development?

http://www.fundinguniverse.com/company-histories/tuesday-morning-corporation-history/

http://en.wikipedia.org/wiki/Tuesday_Morning

http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=TUES.O

http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm

What is the nature of the business?

http://www.fundinguniverse.com/company-histories/tuesday-morning-corporation-history/ http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm

http://en.wikipedia.org/wiki/Tuesday_Morning

http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=TUES.O

Who is running the company and their Background?

http://insiders.morningstar.com/trading/executive-profile.action?t=TUES&PersonId=PS000015PH&flag=Executive&insider=Michael_Marchetti&region=USA&culture=en-us&ProductCode=com

http://investing.businessweek.com/research/stocks/people/person.asp?personId=752929&ticker=TUES:US

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm p19

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm p1

http://www.reuters.com/finance/stocks/officerProfile?symbol=TUES.O&officerId=1147173

http://www.linkedin.com/pub/stephanie-bowman/13/604/806

http://www.macroaxis.com/invest/manager/TUES–Stephanie_Bowman.

Who is directing the company  How are the committees structured? 

http://ir.tuesdaymorning.com/committees.cfm

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm p6

http://ir.tuesdaymorning.com/committees.cfm

http://insiders.morningstar.com/trading/executive-profile.action?t=TUES&PersonId=PS00001IV7&flag=Director&insider=Steven_Becker&region=USA&culture=en-us&ProductCode=com

How do they make money?

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1104659-12-30571 p11

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p4

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p11

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p10

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p24

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p30

How do they fit into the industry they operate in?

http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm p11

http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm

http://finance.yahoo.com/q/co?s=TUES+Competitors

http://www.wikinvest.com/stock/Tuesday_Morning_(TUES)

Who are their suppliers and customers?

http://www.google.com/finance?q=NASDAQ:TUES

http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm

http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=TUES.O

http://www.wikinvest.com/stock/Tuesday_Morning_(TUES)

What is their workforce like?

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p11

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p6

How do they treat their employees; what is the pay and working condition like?

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p39

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p6

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm P22

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1104659-12-30571

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm pF-8

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm pF-20

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm P25

Gossips

http://www.reuters.com/finance/stocks/TUES.OQ/key-developments/article/2461788

http://finance.yahoo.com/news/tuesday-morning-corporation-announces-fourth-120000047.html   

http://www.reuters.com/finance/stocks/TUES.OQ/key-developments/article/2461788

http://www.bizjournals.com/dallas/news/2012/06/07/firing-surprised-tuesday-mornings.html?ana=yfcpc

Researched and Written by Meriam and Janice
Edited by Cris

tuesday-morning-corporation-tues-2/

Tuesday Morning Corporation (TUES) Guide To Value Investing

July 26th, 2012 Posted by Company Research Report No Comment yet

TUES Balance Sheet

Liquidity

Liquidity refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset. Assets that can be easily turned into the liquid are current assets which include inventory and receivables. To know Tuesday Morning Corporation financial status, we calculate current assets using ratios such as current ratio, quick ratio and working capital from 2007 to 2011 in this value investing guide. Below are the results:

Particulars

2007

2008

2009

2010

2011

Average

Current Ratio

2.2

2.8

3.1

2.8

2.7

2.7

Quick Ratio

.12

.22

.22

.34

.31

.24

Working Capital

165

168

164

174

188

172

Explanation:

  • Current ratio average was 2.72; meaning that current asset is greater than current liabilities. For every $2.72 of the current asset is to $1 of current liabilities.
  • Quick ratio average was .24, which means that minus the inventory, the company’s monetary asset was only 24 percent of its current liabilities.
  • The average working capital was $172, which shows that the company was able to meet its current obligations. As per above table, it shows a positive amount for 5 years in operation. However, noted are 2 percent increase in 2008 then went down in 2009 by 2 percent but recovered and increased by 6 percent and 8 percent respectively in 2010 to 2011.

Working Capital

Working capital was calculated to know whether the company was able to meet its current obligations, pay bills, meet payroll and make loan payments. A positive working capital measures the strength of the firm. It is what you have left over after the company pays its short-term debt obligations. The company’s current ratio shows that its current asset was greater than current debt by an average of 272 percent, however, if inventory is deducted its average quick ratio was only .24.  Inventory is an important current resource for the company. If not be sold immediately, it will become obsolete and funds are tied up in inventory.

Efficiency Ratios

Efficiency ratios are used to measure the quality of the company’s receivables and how efficiently it uses its other assets. Inventory turnover ratio signifies the number of times inventory is sold and restocked each year. If the number is high, you may be in danger of stock outs. If it is low, watch out for obsolete inventory.

Accounts payable to sales ratio measures how the company pays its suppliers in relation to the sales volume being transacted. A low percentage would indicate a healthy ratio with all bills be paid in a timely manner. The fixed asset turnover ratio looks at how efficiently the company uses its fixed assets, like plant and equipment, to generate sales.

TUES efficiency ratios from 2007 to 2011:

Particulars

2007

2008

2009

2010

2011

Average

Inventory Turnover Ratio

1

2

2

2

2

2

Receivable Turnover Ratio

0

0

0

0

0

0

Payable Turnover Ratio

5

14

17

13

10

12

Fixed Asset Turnover Ratio

5

11

11

11

11

10

  • Inventory turnover ratio has an average of 2 times turn each period which means that its inventory is not sellable.
  • The receivable turnover ratio was 0 or zero since the company has no accounts receivable.
  • The payable Turnover ratio was 12 times average per year.
  • Fixed asset turnover ratio was 10 times average each period.

Asset management ratio or efficiency ratio of TUES was not healthy since it has a low inventory turnover of 2 times only which might result in obsolete stocks. Its payable turnover ratio was also high at 12 times average per period, with the low turnover on inventory; sales also become slow which may result in irregular payment of its obligations.

Cash Conversion Cycle

It is vital that the business owner calculate the cash conversion cycle. It tells the owner the number of days that cash or capital stays tied up in the business processes of the firm. The cash conversion cycle is a measure of working capital efficiency.

The cash conversion cycle calculation has three parts: inventory, receivables, and payables. In order to calculate the cash conversion cycle, you first have to calculate the conversion period for inventory and receivables and the deferral period for payables.

CCC from 2007 to 2011:

Particulars

2007

2008

2009

2010

2011

Average

Inventory Conversion Period

409

156

162

170

190

217

Receivable Conversion Period

0

0

0

0

0

0

Payable Conversion Period

116

41

34

45

58

59

Cash Conversion Cycle

293

115

128

125

131

158

    Explanation:
  • Inventory conversion period was 217 days average. With its low inventory turnover, its conversion period was not good at 217 days.
  • Days’ receivable was 0.  The company was giving big discounts, so the stocks were sold in cash basis.
  • Days’ payable has an average of 59 days. It will take 59 days or 2 months for the company to pay its suppliers.
  • Cash conversion cycle has an average of 158 days, which means that it takes 158 days to convert into cash its inventory.

Considering the company’s asset management or efficiency ratio results, the company’s finances is not healthy since the inventory is quite high at an average of 91 percent of total assets. This is the factor of very slow in cash conversion cycle.

Financial leverage ratios give us the idea of the company’s debt capital. TUES leverage ratios of the company from 2007 to 2011:

Particulars

2007

2008

2009

2010

2011

Average

Debt Ratio

.45

.32

.26

.29

.31

.33

Debt to Equity Ratio

.83

.47

.36

.42

.46

.51

Solvency Ratio

.07

.29

.20

.26

.22

.21

Current Liabilities to Total Assets

.36

.27

.24

.28

.29

.29

Stockholders’ Equity to Total Assets

.55

.68

.74

.71

.69

.67

Explanation

Debt ratio, which is dividing total assets by total liabilities, has an average of .33 meaning that 33 percent of the total assets were loaned. The ratio of its total debt against total equity was .51 also means that 51 percent of the total equity was loaned. So, solvency ratio is quite good at .21.  Likewise, the creditors or its suppliers have 29 percent in control of the total assets, while the owners have 67 percent claims. Therefore, they are the majority in control of the company as a whole.

Plant, Property & Equipment

PPE? Ever heard of that acronym?  That is Property, Plant, and Equipment. For this company, how was PPE went on? Let’s take a look at the table below.

Particulars

2007

2008

2009

2010

2011

Average

Property, Plant & Equipment, Gross

186

196

206

190

210

198

Accumulated Depreciation

102

118

134

117

133

121

Property, Plant & Equipment, Net

84

78

72

73

77

77

TUES has recorded yearly investment of fixed assets in five years. Its investment in PPE as shown in the above table was $198 average. After deducting its accumulated depreciation of $121 or 61 percent, the net book value was $77 which is equivalent to 39 percent of the original cost.

Using the percentage method of depreciation, the company’s plant, property & equipment has a remaining life of 1.9 years or less than 2 years of service until it is fully depreciated. Therefore,   TUES could still utilize its fixed assets in less than two years period before the management will acquire new units.

TUES Income Statement

The income statement shows the results of operations of a company for a period of time. This is a measure of the economic performance of the company by identifying specific revenue and expense items telling us what had happened during the accounting period.

Profitability

The company’s net margin tends to be inversely related to the asset turnover; this means that they have the lower net profit margin and higher volume of asset turnover. Their return on assets tells us their effectiveness in utilizing assets in their operations which were good in 2008 and 2010. In 2009 due to a decrease in total assets of the company and net loss resulted to -0.01. But in 2011 it recovered with an increase in total assets and net income gained from its operations resulted in 2.63 percent return.

Moreover,

Looking into their return on equity using the DuPont method wherein the formula is net profit margin multiply with asset turnover multiply with equity multiplier. The equity multiplier is the measure of financial leverage allowing the investors to see what portion of the return on equity is the result of debt. In the case of this company, their financial leverage has been decreasing with minimal increases in 2010 and 2011. It shows a result of 1.83 percent, 1.47, 1.36, 1.41, and 1.46 from 2007 to 2011. And this was the return earned on the debt at work in their operations. Return on equity due to profit margins and sales resulted in 0.65 percent, 2.52, 0, 1.24 and 1.14 from 2007 to 2011.

Conclusion:

Therefore, comparing the two results they earned more on debt at work during the four years except in 2008 wherein ROE was impressive a higher percentage arose from internally generated sales.

The efficiency of the results of operations as a gauge of their profitability ratios was computed as follows:

Particulars

2007

2008

2009

2010

2011

Net Margin

0.75

1.64

-0.01

1.30

1.17

Asset turnover

1.04

2.41

2.43

2.47

2.25

Return on assets

0.78

3.94

-0.01

3.21

2.63

Financial leverage

1.83

1.47

1.36

1.41

1.46

Return on equity

1.43

6.47

-0.02

4.45

3.77

Return on investment capital

1.13

5.96

-0.02

4.45

3.77

Explanations

  • Starting with their net profit margins; which was the after-tax profit a company generated for each dollar of revenue; they depicted an up and down trend for five years of operations… a net loss in 2009 then recovered slightly in 2010 with a bit decrease in 2011.
  • Their assets turnover, a measure of how effectively a company converts its assets into revenue, showed a good volume of earnings from assets. From 2008 to 2010, earnings had an average of 2.44 times with a slight decline in 2011.
  • Return on assets measures the company’s general earning power. TUES, in 2007, showed a low return while 2008 and 2010 abruptly increase to 3.94 and 3.21 but -0.01 in 2009 due to a net loss.
  • With regards to their financial leverage, this allows the investors to see what portion of the return on equity is the result of debt. Wherein it depicts that in 2007 as the highest 1.83, decreasing slightly in 2008 to 2009 but increase to 1.41 and 1.46 in 2010 and 2011.
  • Their return on equity using the DuPont method depicted a high in 2008; in 2009 it decreased low due to net loss, but good enough the company was able to recover in 2010 and 2011.
  • And their return on invested capital was almost the same with return on equity except for the year 2007 and 2008.

Income

Reviewing their revenues, it shows a growth ratio of -80.16 percent, 116.70, -9.44, 3.31 and -0.86 from 2007 to 2011. Their operating income has a growth ratio of -99.08 percent, 335.45, -90.20, 727.31 and -10.43. And net income growth ratio of -99.31, 370.56, 0, 0 and -10.88. The increases in 2008 and 2010 growth ratios means the company acquired additional long-term debt of 9 million in 2008 to be used in operations thus, an increase was due to internally generated sales and debt at work, therefore, an increase in their income as shown in their total cash and total current assets in 2010.But in 2011 there was a slight decrease due to the purchases of plant, property, and equipment.

The income from 2007 to 2011:

Particulars

2007

2008

2009

2010

2011

Revenues 409 885 802 828 821
Gross profit 151 323 296 314 313
Operating income 6 25 2 20 18
Income before taxes 5 22 0 17 16
Net income 3 14 0 11 10
  • Overall income showed an abrupt increase from 2007 to 2008, decrease in 2009 and 2011 with an increase in 2008 and 2010.
  • Revenues in million dollars had a yearly average of 749.  This was the company’s yearly total earnings. Its first-quarter revenue of 173 represents 23 percent of average revenue.
  • Gross profit had an average of 279.4; this was company’s income after deducting its cost of revenue. Its first-quarter gross profit of 66 represents 23.6 percent of average gross profit.
  • Operating income had an average of 14.2; this was company’s income after deducting all operations expenses. Its first-quarter operating income of -6 represents -42.3 of average operating income.
  • Income before taxes had an average of 12; this was the income after interest and other income and expenses. The first quarter income before taxes of -7 represents -58.3 of average income before taxes.
  • Net income had an average of 7.6; this was the company’s income after deducting income taxes. Its 1st quarter net income of -4 represents -52.6 of average net income.

Expenses

TUES expenses especially their cost of revenue accounts for an average of 62.7 percent of their revenues leaving an average gross profit margin of 37.3. Operating expense accounts 35.4 percent, therefore operating margin had an average of 1.82 only. So, after deducting interest expenses of 0.37, other income and expenses of 0.05 and provisions for income taxes of 0.59 of revenues, leftover or its net income represented 0.85 percent of average revenue. This showed a very low percentage of revenues. It meant a high cost of revenue and operating expenses to a total of 98 percent leaving only a small margin of 2 percent which was not favorable.

Expenses and margins from 2007 to 2011 as follows:

2007

2008

2009

2010

2011

Cost of revenue

258

563

506

514

508

Operating expenses

145

298

294

294

295

Interest expense

1

4

3

3

3

Other income (expense)

1

1

0

-1

1

Provision for income tax

2

8

0

6

6

Gross margin

36.9

36.5

36.9

37.9

38.2

Operating margin

1.4

2.8

0.3

2.4

2.2

EBT margin

1.24

2.50

-0.01

2.01

1.89

Net margin

0.75

1.64

-0.01

1.30

1.17

  • Cost of revenue yearly average is 469.8.  This accounts 62.7 percent of revenues.
  • The operating expense yearly average is 265.2.  This accounts 35.4 of revenues.
  • The interest expenses yearly average is 2.8 and this accounts 0.37 of revenues.
  • Other income and expenses yearly average is 0.4.  This accounts 0.05 of revenues.
  • Provisions for income taxes yearly average is 4.4. This accounts 0.59 of revenues.
  • Computing yearly averages of the following:
  • Gross margin averages 37.3 percent; operating margin 1.82; EBT margin 1.24 and net margin of 0.97.

TUES Cash Flow Statement

Cash flow statement is very important for every decision making. It will lead and guide every manager, decision maker, credit analyst and also to its investor, whether to keep their funds for the future or re-invest it.

Cash Flow from Operating Activities

Cash flow from operating activities is cash net available from the operation which can be determined using the indirect method of accounting. Results for TUES are as follows:

  • Net income is an income left after the company pays all the total expenses including the income tax.
  • Depreciation was a cost allocation of the asset. Amortization was the paying off of debt in regular installments over a period of time.
  • Inventory was an item or product carried by the company which ready and available for sale.
  • Other working capital like changes in market share, sales revenues and operating metrics.

The net cash flow from operating activities of Tuesday Morning Corporation was negative in 2007 due to net income was only 7 percent over their revenue. In 2008, it recovered at 194 percent but in 2009 decreased by 46 percent and maintained in 2010. In 2011, indicated zero due to the inventory was equal to the net income and depreciation. It will be expected to have a possible increase in 2012 based on the Q1 result of 2012 compared in 2011, was increased to 122 percent.

Table 1

Particulars

2007

2008

2009

2010

2011

2012Q1

Net income

3

14

0

11

10

Depreciation & amortization

9

18

17

16

16

Inventory

-46

48

17

-16

-26

Other working capital

-24

-21

2

-1

0

Net cash provided by operating activities

-56

59

32

32

0

122% from 2011Q1

In the direct method, cash flow from operating activities are:

Table 2

Particulars 2007 2008 2009 2010 2011
Cash collection 409 885 802 828 821
Cash payments for purchases 212 611 516 510 485
Cash payments for operating expenses 145 293 295 288 293
Cash paid for income taxes 0 6 3
Cash paid for interest 2 2 2
Cash flow from operating activities 52 -19 -11 22 38

Cash flow from operating activities will be determined also through using the direct method of accounting. It will be calculated from the cash collection less all the cash payments made from purchases, operating expenses, income taxes also interest. To entail each particular above;

Explanations:

  • A collection was a result of the total revenue per year and by adding the decrease / less the increase of accounts receivable of the company.
  • Cash payments for purchases was a total cash paid for all purchased made by the company. Through from the cost of goods sold and by adding the increase / less the decrease in inventory and add all the decrease/ less the increase in accounts payable.
  • Cash payments for operating expenses were total cash paid by the company for operational used like rent, telephone bills, and office supplies. From the total operating expenses and add all the increase / less the decrease in prepaid expenses and by adding the decrease / less any increase in accrued liabilities.
  • The cash paid for income taxes was cash paid by the company for the income tax of the period.
  • The cash paid for interest was cash payment made for the interest.

Cash flow from operating activities using the direct method in accounting indicates in 2008 and 2009 was in negative. It tells us that cash payments made was exceeded from their cash collection; was also signifies company’s inefficiency.

Cash flow from investing activities was an activity of cash wherein the company used their cash. In TUES, we can see in table 2, they only used for the PPE. Property, plant, and equipment was for long-lived physical assets used in the normal conduct of business and not intended for resale. This can include land, physical structures, machinery, vehicles, furniture, computer equipment, construction in progress, and similar items.

Table 3

Particulars

2007

2008

2009

2010

2011

Investments in property, plant, and equipment

-7

-12

-12

-17

-21

Other investing charges

0

0

0

0

0

Net cash used for investing activities

-7

-12

-12

-17

-20

The cash flow from investing activities in percentage from 2008 to 2011 grew from 42, 0, 29 and 15. It tells us that the company was spending more for the PPE. I noticed in 2009, the investment is not moving probably due to the net income was also zero. It means the management was very conservative in decision making based on the bottom line result.

Cash Flow from Financing Activities

Net cash from financing activities was in sideways. In their five years of operation, it shows in 2008 and 2009 the company had a negative result. It means, the company outflow exceeds from their cash inflow.

Cash flow from financing activities is an activity of cash where the company used and raised funds. The sources would come from the following:

  • Short-term borrowing was a current portion of long-term debt or usually, a debt not exceeds in one year.
  • Long-term debt issued was normally the company issued bonds or a debt obligation lasting over one year.
  • Long-term debt repayment was an act of paying back money previously borrowed.
  • Common stock was a stock that normally issued by a common stockholder of the company.
  • Cash dividends paid was a dividend paid or issued by the company.
  • Other financing activities like sale of treasury stocks.

Table 4

Particulars

2007

2008

2009

2010

2011

Short-term borrowing

-10

3

15

Long-term debt issued

233

62

152

Long-term debt repayment

-241

-62

-152

Common stock

0

0

0

0

0

Cash dividends paid

-33

Other financing activities

56

-49

-4

0

1

Net cash provided by (used for) financing activities

23

-49

-23

3

16

Free Cash Flow

The free cash flow result of Tuesday Morning Corporation in their five years of operation was disturbing, instead, it was corrected in 2008 at 229 percent increase but from 2009 to 2011 was consistently went down by 140, 33 and 172 percent, respectively. The good thing will be expected to recover by 153 percent based on the 2012Q1 result.

Free cash flow measures company’s sustainability after paying all the expenses and capital maintenance of its business. It can be used for expansion, dividends and reducing debt. Using the result from net operating cash flow less the capital expenditure we can determine the FCF. It matters since free cash flow result has a direct impact on the worth of a company which some investors often hunt for companies who have a high and improving free cash flow.

Table 5

Particulars

2007

2008

2009

2010

2011

2012Q1

Net operating cash flow

-56

59

32

32

0

50

Capital expenditure

-7

-12

-12

-17

-21

-10

Free cash flow

-62

48

20

15

-21

40

Total debt ratio measures a company’s efficiency in paying their total obligation. Through using the result of net operating cash flow over the total liabilities per year (see table 6 below), we can determine how much cash percentage available to pay its total debt. To recall; total liabilities was a total obligation of the company, this is an account wherein all the unpaid debt classified.

Table 6

Particulars

2007

2008

2009

2010

2011

Net cash provided by operating  activities

-56

59

32

32

0

Total liabilities

179

109

84

103

119

Total debt ratio in percentage

-31

54

38

31

0

The total debt ratio result of TUES was recovering by 158 percent in 2008 but also turn down consistently by 42, 23 and 0 percent from 2009 to 2011, respectively. It was affected by the movement result of cash from operating which it had increased at 194 percent in 2008, then started to decrease by 84 percent in 2009 and steady result in 2010. The total liabilities were in sideways, decreased by 113 percent from 2007 to 2009 while an increase of 29 percent in 2011. It tells us that even the company’s liabilities in first three years was declining, they are only able to pay its debt at $.20 for every $1; it indicates insufficiency of cash.

Written by Rio, Nelly and Dyne
Edited by Cris

tuesday-morning-corporation-tues-2/

Tuesday Morning Corporation (TUES) the Closeout Buyer and Surplus Reseller

July 26th, 2012 Posted by Company Research Report No Comment yet

Who started Tuesday Morning Corporation and why?

Tuesday Morning Corporation (TUES) developed its name when the business opened their doors on Tuesday morning, generally the first Tuesday of the month.

The company founder, chairman, and chief executive officer Lloyd Ross conceptualized the title. In line with this, an idea was brought up in the early 1970’s when Lloyd Ross was working in Rathcon, Inc. and noticed that manufacturers had no reliable way to dispose of their surpluses of high-end inventory. Moreover, he started in buying and selling merchandise from top-name manufacturers to department and specialty stores.  In spite of its name, the store is open throughout the week where the products are known to be first-quality, famous-maker giftware.

On our Economics class in high school we tackled Surplus and since then I have completely forgotten what it meant exactly. Surplus, as defined by our research team, is a situation in which assets exceed liabilities, income exceeds expenditures, exports exceed imports, or profits exceed losses. It is the opposite of a deficit. When a country exports more than it imports, it is said to have a trade surplus.

What is the background of the company? Its history and development?

Every single thing on this planet has its own history and background and how it developed. So for Tuesday Morning Corporation, Meriam and Janice have listed some valuable information regarding that.

What is the nature of its business?

The corporation is a closeout retailer of assorted famous maker gift that markets assorted first quality merchandise.

It buys brand name and first quality products at closeout prices and resells it at prices lower than those generally charged by department stores and catalog retailers. Also, they offer home accessories, housewares and famous-maker gifts in the United States. The stores do not sell seconds, irregulars, refurbished or factory-reject products. On March 31, 2011, the company compelled with 840 discount retail stores in the 41 states. The company relies on direct marketing which includes mail, eTreasures, e-mail list an advertisement in newspapers and television.

Brand new items that are no longer being sold for wholesale cost are considered closeouts. Thus, it may be a result of discontinuation and overstocking of the product or a sale in which all remaining stock is disposed of, usually at greatly reduced prices.

Who is running Tuesday Morning Corporation and their background?

As anyone of us knows, a company would only run if there are people working on it. What’s a company called without them anyway? Janice will help ease the questioning with a thorough background description of the company along with the people running it.

Key management personnel of Tuesday Morning Corporation has been serving the company for a couple of years. Mr. Michael J. Marchetti is the interim CEO who has been part of the corporation for more than ten years. Same with the CFO Ms. Stephanie Bowman, that has been employed for almost six years.

Mr. Michael J. Marchetti serves as the president, interim chief executive officer, and chief operating officer of Tuesday Morning Corporation. He joined the company in February 2001 as senior vice president of strategic planning. For a few months, he held the following position as an acting chief financial officer, secretary, and treasurer of the company. Before climbing to his current position, he served several executive positions such chief operating officer, executive vice president and executive vice president of operations. Mr. Marchetti was previously employed as a principal by MarCon Services, Inc. He was also a former chief financial officer of CWT Specialty Stores, Inc.

Ms. Stephanie Bowman is the executive vice president, chief financial officer, secretary and treasurer of the company. She started her employment as the controller in August 2006. She was previously seated as vice president of finance before becoming the CFO. Prior joining on Tuesday Morning Corporation, she was the senior vice president of finance of Summit Global Partners. Ms. Bowman is a certified public accountant and holds a degree in BBA, Accounting from the University of Texas at Arlington.

That was a bit off on my part. Janice then made it clear to me. Interim CEO is a person appointed by a company’s board of directors to assume the role of the chief executive officer during a time of transition or as the result of the sudden departure of the company’s previous CEO. These CEOs are tagged with the “interim” tag due to the fact that they have not officially been given the title of full-time CEO. Like many industry leaders, interim CEOs are often called upon to “steady the ship” in periods of great turmoil.

Who is directing the company? How are the committees structured?

So how about their directors? It’s a good thing Janice was there to help me out. She even gave out bits of information as to how their committees were structured.

The committee is comprised solely of independent directors. The committees are the audit, compensation and nominating and corporate governance committee. Mr. Bruce Quinnell sits as the chairman of the board of the company.

Mr. Quinnell is an independent director and he has been with the company since April 2006. He is the chairperson of the audit and compensation committee. He is a former executive officer of the following companies, namely Walden Book Company, Pace Membership Warehouse and Dollar General Corporation. A member of the board of directors of Bombay, Inc, Cyber Medical Services, Zoom Systems, Inc and chairman of the board of Board of Hot Topic, Inc. Mr. Quinnell is a business consultant with extensive background in the retail industry. He provides leadership and management skills as well as financial, audit and operational expertise to the company.

Steven R. Becker, 45, is the chairperson of the nominating and corporate governance committee. He was appointed as chairman on July 1, 2012.  Mr. Becker is a co-founder and partner of Becker Drapkin Management. He was a former director of Plato Learning and current member of the board of directors of Hot Topic, Ruby Tuesday, Pixelworks. At present, he is an active member of the board of trustees of Dallas Museum of Art. He holds a B.A. degree from Middlebury College and J.D. from the University of Florida.

In non-profit organizations, just as to how Janice had described it, the board of trustees often provides means for members or associates of the organization to elect or appoint individuals that will oversee the function of the organization and ensure that the core values and purposes of the organization are reflected in the operation process. Generally, members of a board of trustees serve terms from one to three years, although various charters may allow persons to be re-elected or re-appointed upon the completion of each term.

It may be selling products or offering services; every business or company has their own means and ways so as the public could enjoy buying and purchasing their goods without further stress on their part and their wallets of course.

How do they make money?

Tuesday Morning offers the finest in closeout product, never seconds or damages. The business uses different strategy formats to be competitive and achieve its financial goal.

Revenues were realized during the transport and sales of the product to the customers. Strategies such as close monitoring and markdown controlling of inventory allow product selling at reasonable rates which contribute well to the company’s earnings. Through “event-based” selling strategy such as “grand openings” and “closeout sales,” major profit is realized. To attract customers, the company promotes major sales events and products through online, radio and television advertising and direct mailings and emails. Items purchased through online by the customers are also one of the sources of company’s income. During the month of October through December, merchandise purchases increased a wherein significant portion of the revenue and net earnings were recognized. Also, earnings of the corporation grew due to the sales per store and increase of transactions in the comparable store sales.

Comparable store sales are the amount of revenue a retail location generated in the most recent accounting period, relative to the amount of revenue it generated in a similar period in the past. Comparable store sales are most commonly used to compare the most recent year’s holiday shopping season, to last year’s, or to compare this week, month, quarter or year’s sales to last week, month, quarter or year’s sales.

How do they fit into the industry they operate in?

Tuesday Morning is a company that most of the industry is not seeing as a major player in the marketplace. So how do they manage to fit into the industry they operate in? That’s what we’re about to find out in Meriam and Janice’s research work.

The company has a significant take on their competition with the supply chain. At present, as a closeout retailer of home furnishing, the company competes against a diverse group of retailers, including department and discount stores, specialty, catalog and e-commerce retailers and mass merchants.  The store also competes in the market with big numbers of retailers who specialize in one or more types of home furnishing and housewares products that TUES sells. Due to competition in the home furnishings retail industries, the company develops a strategic initiative to equally maintain its trend. Business competitors are Bed Bath & Beyond Inc. (BBBY), J. C. Penney Company, Inc. (JCP), Target Corp. (TGT) and Industry – Discount, Variety Stores. No second-hand factory with defects, either damaged products, are sold in the stores that make Tuesday Morning Corporation stand ahead with the competitors such as Samsonite, Cuisinart, Krups, Calphalon, and others.

In the business world, like how our research team has defined it, a retailer is a person that sells goods to the consumer, as opposed to a wholesaler or supplier, who normally sell their goods to another business. The retail transaction is at the end of the supply chain. Manufacturers sell large quantities of products to retailers, and retailers sell small quantities of those products to consumers.

Who are their suppliers and customers?

Tuesday Morning has a dedicated customer base that seeks the best merchandise at outrageously cheap prices.  Wow! That’s good to hear, right? Let’s get to find out more about that; thanks for Meriam and Janice’s detailed article.

They sell various products preferably brand new and no factory defect. Products are lamps, rugs, furniture, kitchen accessories, small electronics, gourmet housewares, linens, luggage, bedroom and bathroom accessories, toys, stationery, silk plants, as well as crystal, collectibles, silver serving pieces, men, women and children’s apparel and accessories  and selected items which are offered at retail shops and website. Normally, closeout products are only available from manufacturers or vendors on a non-recurring basis. The company doesn’t offer long-term contracts with vendors for supply, pricing or access but rather individual purchase decisions, which are often in large quantities.  TUES profits rely on the price of the product they purchase from the suppliers.

Consumer also called as customers, is an individual who buys products or services for personal use and not for manufacture or resale. He/she also makes the decision whether or not to purchase an item at the store and someone who can be influenced by marketing and advertisements. Anytime someone goes to a store and purchases a toy, shirt, beverage, or anything else, they are making that decision as a consumer.

What is their workforce like?

Just like computer parts, once a certain part is missing, the whole machine itself would be useless. Without human intervention to, a computer is a dumb box. Why did I say this? That’s because as of now, we will be reading what’s the workforce like on Tuesday Morning Corporation.

The workforce of the company is a combination of the management team, personnel, and technology.

With today’s competitive market, automated technology process significantly supports the company’s business operations. TUES is believed to have the strong bond with its employees who are not associated with labor groups. It has a total of 1,900 employees on the full-time basis and approximately 7,000 on a part-time basis as of June 30, 2011. Their store management is composed of full-time and part-time employees such as the store, zone and field managers.

Store manager handles the recruitment, training, and supervision of store personnel and stores inventory. In addition, management members held periodic meetings with the regional, field, zone managers and visits selected stores during sales and non-event sales. Key employees and stable management are where the future of the company highly depends on one. Aside from the personnel, the company uses “eTreasures”®, a program that keeps the customers updated with the newest product and offerings. Some labor source to consider manufacturers and vendors wherein they produce and supply items to the stores.

Targeted emails allow information, about your opportunities, event or organization to be sent to a specified target group. It also gives you the ability to segment your email list and target your email messages to their specific audience. Sending targeted emails will minimize unsubscribes and reduce list churn.

How do they treat their employees? What are the pay and working condition like?

So we’ve basically covered from how the company emerged, its development and history. I guess it’s high time to get to know how they treat their employees and what is their pay and working conditions like.

Tuesday Morning Corporation performance is dependent on recruiting, developing, training and retaining quality sales, distribution center and other associates in large numbers, as well as, experienced buying and management personnel.

Executive Officers and Employees

Executive officers and employees follow a code of conducts which established ethical standards in the company. Training is provided to store management personnel upon hiring or during the promotion. The compensation package for the executive officers is the following: base salary, equity-based compensation, annual cash payments perquisites and other personal benefits. Annual cash payments are applicable to executive officers with a certain employment agreement. Stock-based compensation is enjoyed by directors, officers, and key employee however in 2008; it was terminated by the board of directors. For potential liabilities with workers, the company provides a mix of insurance and self-insurance plans. Full-time and eligible employees avail the 401(k) profit sharing plan wherein the certain percentage is deducted from their salary. The company also offers death benefit plan to full-time employees and executive officers.

Death benefit or “survivor benefit” is the amount of a life insurance policy or pension that is payable to the beneficiary when the annuitant passes away. Also, it may be a percentage of the annuitant’s pension. Alternatively, the benefit may be a large lump-sum payment from a life insurance policy. The size and structure of the payment are determined by the type of policy the annuitant held at the time of death.

Summary Compensation Table

The table presents the compensation of executive officers and directors for fiscal years 2009, 2010 and 2011.

tues 1

tues 2

Gossips

Now that we’ve pretty much covered every aspect of the company, let’s get it on with the summary that’s been laid for us by our research team.

According to Reuters news in January 2012 at 08:00 am, Tuesday Morning Corp. revised its guidance for fiscal 2012 and expects net sales to be in the range of $815-$820 million.

Another news from Yahoo finance dated Tuesday, July 10, 2012, there was an increase of 0.8 percent. Comparable store sales for the quarter ended on June 30, 2012, with an increased rate of 0.2 percent. For the fiscal year ended June 30, 2012, and net sales were $812.8 million compared to $821.1 million for fiscal 2011.

On Wednesday, June 6, 2012, Reuters announced Management Changes and Director Resignation of Tuesday Morning Corp. This relieved Kathleen Mason of her duties as President and CEO and commenced a search for a new chief executive.

June 7, 2012, Dallas Business Journal has written, Kathleen Mason Firing surprise. She said,   “The Company has been profitable for 12 consecutive years,”. “We have grown to 850 stores with 10,000 employees and 11 million loyal customers.”

Revision of guidance of Tuesday Morning Corporation increased Net sales this 2012; CEO Michael Marchetti had positive views to achieve an increase in total sales for the quarter. Management changes made Kathleen Mason relieved from her duties, which came as a surprise to her and felt disappointed.

CITATIONS

Who started the company and why?

http://en.wikipedia.org/wiki/Tuesday_Morning

/http://www.fundinguniverse.com/company-histories/tuesday-morning-corporation-history/

http://www.fundinguniverse.com/company-histories/tuesday-morning-corporation-history/

What is the background of the company? its History and development?

http://www.fundinguniverse.com/company-histories/tuesday-morning-corporation-history/

http://en.wikipedia.org/wiki/Tuesday_Morning

http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=TUES.O

http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm

What is the nature of the business?

http://www.fundinguniverse.com/company-histories/tuesday-morning-corporation-history/ http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm

http://en.wikipedia.org/wiki/Tuesday_Morning

http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=TUES.O

Who is running the company and their Background?

http://insiders.morningstar.com/trading/executive-profile.action?t=TUES&PersonId=PS000015PH&flag=Executive&insider=Michael_Marchetti&region=USA&culture=en-us&ProductCode=com

http://investing.businessweek.com/research/stocks/people/person.asp?personId=752929&ticker=TUES:US

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm p19

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm p1

http://www.reuters.com/finance/stocks/officerProfile?symbol=TUES.O&officerId=1147173

http://www.linkedin.com/pub/stephanie-bowman/13/604/806

http://www.macroaxis.com/invest/manager/TUES–Stephanie_Bowman.

Who is directing the company  How are the committees structured? 

http://ir.tuesdaymorning.com/committees.cfm

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm p6

http://ir.tuesdaymorning.com/committees.cfm

http://insiders.morningstar.com/trading/executive-profile.action?t=TUES&PersonId=PS00001IV7&flag=Director&insider=Steven_Becker&region=USA&culture=en-us&ProductCode=com

How do they make money?

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1104659-12-30571 p11

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p4

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p11

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p10

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p24

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1047469-11-7754 p30

How do they fit into the industry they operate in?

http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm p11

http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm

http://finance.yahoo.com/q/co?s=TUES+Competitors

http://www.wikinvest.com/stock/Tuesday_Morning_(TUES)

Who are their suppliers and customers?

http://www.google.com/finance?q=NASDAQ:TUES

http://www.sec.gov/Archives/edgar/data/878726/000110465911024289/a11-9588_110q.htm

http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=TUES.O

http://www.wikinvest.com/stock/Tuesday_Morning_(TUES)

What is their workforce like?

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p11

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p6

How do they treat their employees; what are the pay and working condition like?

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p39

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm p6

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm P22

http://ir.tuesdaymorning.com/secfiling.cfm?filingID=1104659-12-30571

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm pF-8

http://www.sec.gov/Archives/edgar/data/878726/000104746911007754/a2205433z10-k.htm pF-20

http://www.sec.gov/Archives/edgar/data/878726/000104746911008263/a2205707zdef14a.htm P25

Gossips

http://www.reuters.com/finance/stocks/TUES.OQ/key-developments/article/2461788

http://finance.yahoo.com/news/tuesday-morning-corporation-announces-fourth-120000047.html   

http://www.reuters.com/finance/stocks/TUES.OQ/key-developments/article/2461788

http://www.bizjournals.com/dallas/news/2012/06/07/firing-surprised-tuesday-mornings.html?ana=yfcpc

Researched and Written by Meriam and Janice
Grammar checked by Cris

systemax-inc-syx

Systemax Inc (SYX) to Treat with Extra Careful?

July 23rd, 2012 Posted by Company Research Report No Comment yet

Systemax Balance Sheet

Financial Liquidity

In planning for an investment to a certain company, the number one factor to consider is the financial liquidity of the company you want to invest in.  To obtain them, we need to use related ratios such as current ratio, quick ratio and working capital.  For Systemax Inc., the results are as follows:

  • Current ratio was 1.83, 1.69, 1.56, 1.65 and 1.86. Average of 1.72. The company’s average current ratio for the past five years in operation was 172 percent. This means that its current assets are 72 percent greater to its currents liabilities.
  • Quick ratio in was 1.07, .91, .74, .85 and .96. Average of .91 or 91 percent. It was computed as current asset minus inventory divided by current liabilities; to focus on the monetary asset of the company.
  • Working capital in dollars was 274, 250, 250, 301 and 354. Average of 286 per period. It showed positive results throughout its five years in operation illustrating a healthy management of the firm’s current resources.

Efficiency

Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery.

  • This cycle is extremely important for retailers and similar businesses. This measure illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company’s bottom line.  Below is the CCC of Systemax Inc. from 2007 to 2011: Inventory turnover ratio was 9.42, 9.11, 7.39, 8.36 and 8.47. Average of 8.55. The company has an average turnover ratio of 9 times each period.
  • Inventory conversion period was 39, 40, 49, 44 and 43. Average of 43. The average days of inventory to be out for delivery are 43 days.
  • Accounts receivable turnover ratio was 14.11, 15.88, 13.08, 13.01 and 13.69. Average of 13.95. The company receivable turns 14 times average per period.
  • Average collection period was 26, 23, 28, 28 and 27. Average of 26 days or about one month the company can collect its receivables. Most companies extend credit terms to its valued customers from 15 days, 30 days and 45 days.
  • The payable turnover ratio was 11.35, 10.68, 9.15, 9.52 and 10.93. Average of 10.33. Systemax Inc. payable turnover ratio is 10 times each period.
  • Payable conversion period was 38, 40, 47, 44 and 39. Average of 42, which tells us that the company’s accounts payable, is almost 1 1/2 months average to pay. It is an advantage to the company since the money they have collected can be utilized in short term investment to earn a profit.
  • Cash conversion cycle was 27, 23, 31, 27 and 31. Average of 28. CCC from company’s inventory to receivables and settlement of its obligations take an average of 28 days.

Further interpretation of cash conversion cycle:

Particulars

2007

2008

2009

2010

2011

Average

Inventory Conversion Period 39 40 49 44 43 43
Average Collection Period 26 23 28 28 27 26
Payable Conversion Period 38 40 47 44 39 42
Cash Conversion Cycle 27 23 31 27 31 28

The company’s resources are well managed and handled since it shows that its CCC for the past five years in operation is within one month period only, therefore, funds are not tied up in the business process.

Leverage

Financial leverage is the degree to which an investor or business utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be unable to find new lenders in the future. Financial leverage is not always bad, however; it can increase the shareholders’ return on investment and often there are tax advantages associated with borrowing. In value investing for Systemax Inc., debt ratio, debt to equity ratio and solvency ratio from 2007 to 2011 are shown below:.

  • Debt ratio was .50, .52, .55, .54 and .49. Average of .52, which means that the company’s total debt is 52 percent of its total assets.
  • Debt to equity was 1.01, 1.10, 1.24, 1.19 and .96. Average of 1.10. Total obligation is 110 percent against its owners’ equity.
  • Solvency ratio was .23, .17, .13, .12 and .16. Average of .16, which tells us that the company is 16 percent average solvent.  Solvent means able to pay all debt obligations as they become due.
  • Current liabilities to total assets was .49, .51, .54, .52 and .46. Average of .51. The company’s current debt is 51 percent average of its total assets. This also means that creditors have 51 percent in control of the total assets of Systemax Inc.
  • Stockholders’ equity to total assets was .50, .48, .45, .46 and .51. Average of .48. The owners’ equity is 48 percent average of the company’s total assets. This means that owners have 48 percent claim of its total assets.

Based on the analysis of the company’s total obligations, it shows that its ability to pay all debt obligations when they become due is only 16 percent. Extra care should be observed in the final decision to invest in this company. Please take note further, that total debt obligations are more than 50 percent of its total assets.

Fixed asset turnover ratio measures the company’s effectiveness in generating sales from its investments in plant, property, and equipment. It is especially important for a manufacturing firm that uses a lot of plant and equipment in its operations to calculate this ratio. The contribution of the company’s fixed asset in generating sales is still effective and efficient at an average ratio of 54 percent.

Systemax Income Statement

Systemax Inc gets its income from sales of desktops computers, notebook computers, computer related products and industrial products in North America and Europe to individuals and businesses through catalogs and internet websites. Their income statement is one of the financial statements they used to provide information in the context of its income and expenses of the company and its profitability.

Profitability

The profitability ratios of Systemax Inc. from 2007-2011 as shown in data below:

  • Net margin in percent was 2.50, 1.74, 1.46, 1.19, and 1.48. This simply is the after tax profit a company generated for each dollar of revenue.
  • Asset turnover was 4.42, 4.40, 4.17, 4.20, and 4.13. This measures the efficiency of the company to convert its assets into revenues.
  • Return on assets was 11.05, 7.67, 6.08, 4.97, and 6.10. This tells us how much profit the company generated for each dollar on total assets.
  • Financial leverage was 3.01, 2.11, 2.24, 2.18, and 1.96. This measures the financial structure ratio of the company base on total assets against total stockholders’ equity.
  • Return on equity was 22.22. 15.78, 13.22, 11.00, and 12.60. This tells us how much the company could return for every dollar of equity.
  • Return on invested capital was 21.61, 15.62, 12.88, 10.63, and 12.32. This is a financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business.

In terms of profitability, Systemax net margin was at its highest in 2007 by 2.5 percent from the past ten years of operations. It decreased in the following years showing a declining net income. Furthermore, the company had lower net profit margin with a higher volume of asset per asset turnover. Return on assets tells us that the company really utilized their assets to generate profit.

With regards to financial leverage; measured by equity multiplier; showed that portion of equity was in a downward trend as a result of debt. This means that debt declined in relation to total assets and total stockholders’ equity. Their return on equity depicted a declining trend from 2008 to 2010 and increase by 12.6 in 2011 but still, the company managed to earn from the money invested by their stockholders. The Same trend goes for the return on invested capital that went down from 2008 to 2010 but marks a potential increase of 12.32 in 2011. 

Income

Let us have a look now with the money they earned. Below is the income of Systemax Inc. from 2007 – 2011:

  • Revenue in million dollars was 2,780, 3,033, 3,166, 3,590, and 3,682. Its 1st quarter of 2012 revenue was 914. This was company’s total earnings.
  • Gross profit was 426, 464, 460, 496, and 531. This was the earnings after deducting the cost of revenues.
  • Operating income was 96, 83, 73, 69, and 81. This was the company’s income after deducting all operating expenses.
  • Income before income tax 100, 84, 73, 69, and 81. This was the income after interest and other income and expenses.
  • Net income was 69, 53, 46, 43, and 54. This was the company’s income after deducting income taxes.

Systemax Inc.‘s revenue gradually increases every year with a growth ratio of 18.54 percent, 9.10, 4.39, 13.39 and 2.56 from 2007 to 2011 respectively. This means that revenue was at its highest in year 2007 and 2010. Then growth in 2011 was only 2.56 percent and latest quarter of 2012 depicts only a -1.75. “This is not a good sign, they need to add more marketable sites to improve thus increase their sales favorably,” Nelly said.

Gross profit increased from 2007 to 2008 by 426 million dollars to 464 with a slight drop of 460 in 2009, then increases for the last two years of 496 and 531 respectively. This showed that cost of revenue was also increasing yearly.

Their operating income from 2007 of 96 million dollars it starts to decrease down to 83, 73, and 69 in 2008 to 2010, then in 2011 it increases to 81, as shown in its growth ratio of 54.28, -12.71, -11.68, -6.63 and 17.14. This means operating expenses were increasing, too. Their income before income tax was almost the same with operating income for interest and other income and expenses have minimal amounts which had increase 2007 and 2008 only. Net income growth ratio was 53.90 percent, -23.95, -12.6, -7.87 and 27.87. This means that net earnings was favorable in 2007 and 2011, for in 2008 to 2010 it depicts a decreasing trend. But at least in 2011 it had gain back almost one half of the earnings in 2007. 

Expenses

Of course, when you have revenue, expenses cannot be out of the blue. For Systemax Inc, the following are the expenses from 2007 – 2011:

  • Cost of revenue in million dollars was 2,354, 2,569, 2,706, 3,094, and 3,151 with average of 2,774.80.
  • Sales, general and administrative expense was 331, 381, 387, 423, and 456 with average of 395.60.
  • Other operating expense was 0, 0, 0,  4 , and -6  with average of -0.40.
  • Interest expense was 1, 0, 1, 2, and 2 with average of 1.20.
  • Other income and expense was 6, 1, 1, -1, and 0 with average of 1.40.
  • Provision for income tax was 31, 31, 27, 23, and 24 with average of 27.20.

Their expenses, especially cost of revenue, accounts for an average of 85 percent of revenue. This means that around 15 percent only was left for their operating expenses, interest and other income and expense, provision for income taxes as well as their net income. And cost of revenue is trending upwards every year. Their sales, general and administrative expenses accounts for 12 percent of revenue and also in an increasing trend. Other operating expenses accounts for -0.01 percent, interest expense for 0.03 while other income and expense for 0.04 of revenue. Their provision for income tax accounts for 0.83 percent. Thus, net income accounts an average 2.11 percent of revenue.

All in all, Systemax Inc. is very conservative in choosing only markets that deals in catalogs and internet websites. In order to improve their revenue they need to expand their wings in selling openly for a wider market. And they also need to clean up their cost of revenue which is very high, so limiting it down would increase their earnings. They have an impressive returns but unlike in 2007 wherein they gained the highest. In 2011 it starts to move up again and if this goes on, so as management to create a new market they can regain to attain an increasing trend.

Systemax Cash Flow Statement

The net cash flow from the operation in 2007 to 2009 declined by seventeen times lowered from 2007; but affected by the inventory, it increased to 81 percent. It was recovered in 2010 by 92 percent due also for the decrease in inventory, ten times lowered from 2009 data. It was down again in 2011 by 261 percent and expected for a possible increase in 2012 based on net cash flow result for the Q1.

Cash Flow from Operating Activities

Cash flow from operating activities was net cash provided or used from the operations. It can be computed using the indirect method which all non-cash items will be added and also accounts affect the working capital. The starting line was the net income as our basis. For Systemax, data below are as follows:

  • Net income $million was 69, 53, 46, 43 and 54.In 2012Q1 was 7 compared in 2011Q1 was 14.
  • Depreciation and amortization was 9, 10, 12, 14 and 17.
  • Inventory was -13, -41, -70, -6 and -4.
  • Other working capital was 17, 49, 29, 43 and -47.
  • Net cash provided by operating activities was 93, 82, 5, 65 and 18. In 2012Q1 was 15 compared in 2011Q1 was 10.

The cash flow from operating will be presented using the direct method which the basis will be the cash collection and deduct all the cash payments made for one accounting cycle. Below are the results for Systemax Inc:

  • Cash  collection was 2,780, 3,033, 3,145, 3,545 and 3,682
  • Cash payments for   purchases  was 2,341, 2,528, 2,636, 3,088 and 3,147
  • Cash payments for operating  expenses  was 340, 381, 382, 433 and 445
  • Cash interest was 1, 0, 1, 2 and 2
  • Cash payment for income taxes was 31, 31, 27, 23 and 28
  • Cash flow from operating activities was 67, 93, 99, -1 and 60

Based on the cash collection, in 2007 to 2011; the movement continued to go upward. But the result of net cash from operating increased only from 2007 to 2009.In 2010, it was lowered by 10 times from 2009, due to the cash payments made that were more than compared to their collection.

Cash Flow from Investing Activities

The cash flow from investing of Systemax Inc increased from 2007 to 2008; they had increased by 53 percent in PPE and a total of acquisition represents 65 percent over the net cash of investing. Period from 2009 to 2011 was down, since their investment in PPE was in sideways.

Cash flow from investing are the activities of cash where the company put their funds which came from either cash generated from the operations or cash raised through by financing. The following are the results of investing activities:

  • Investment in property, plant, and equipment was -8, -17, -19, -25 and -12.
  • Property, plant, and equipment reduction for five years was zero.
  • Acquisition, net was 0, -31, -14, 0, 0, 0.
  • Net cash used for investing activities was -8, -48, -32, -25, -12. Total for five years was -125.

Cash Flow from Financing Activities

Cash from financing is an activity where the company raised a fund which they will use. In value investing for Systemax Inc., the results are the following:

  • Short-term borrowing was 0, 0, 0,-13 and 0.
  • Long-term debt issued was 0, 0, 0, 8 and 2.
  • Long-term debt repayment was 0, 0, -4, -2 and -3.
  • Common stock issued was 1, 1, 1, 1 and 0.
  • Cash dividends paid was -37, -37, -28, 0 and 0. Total for five years was -102
  • Net cash provided by (used for) financing activities was -42, -43, -31, -5 and -1. Total for five years was -122.

Their cash flow from financing for five years had a total of 122. It indicates that 2007 and 2008 had more outflow compared against 2009 to 2011. In percent it was represented at 34, 35, 25, 4 and 1, respectively. This was used for cash dividend paid which is equal to 84 percent.

The net change in cash was the remaining cash from the operation less the cash used from investing and cash from financing. For this company, below are the results:

  • Net change in cash was 41, -12, -58, 34 and 5.
  • Cash at beginning of period was 87, 128, 116, 58 and 92.
  • Cash at end of period was 128, 116, 58, 92 and 97. Total for five years was 491.

If observed with the data above, the net change in cash from 2007 to 2011 was in sideways. It had a negative cash change in 2008 and 2009 which the cash from investing and the financing was over than the cash from operations.

To measure the financial performance of the company we need to compute the free cash flow. It represents the cash, which a company is able to generate after laying out the money required to maintain or expand its asset base. Like in Systemax Inc., it shows the following:

  • Operating cash flow was 93, 82, 5, 65 and 18.
  • Capital expenditure was -8, -17, -19, -25 and -12.
  • Free cash flow was 85, 65, -14, 40 and 6.

Data above shows that free cash flow of Systemax Inc. was in sideways which both affected by the movement of the result in operating and capital expenditure that was also in sideways. It indicated also that 2009 was in negative which the capital expenditure was higher than the operating cash flow by 74 percent.

Cash Flow Ratios

Operating cash flow/sales ratio can be used to help us determine the company’s ability to turn sales into cash. For Systemax Inc., it shows the following:

  • Operating cash flow was 93, 82, 5, 65 and 18.
  • Revenue was 2780, 3033, 3166, 3590 and 3682
  • Operating cash flow/Sales ratio in percent was 3, 3, 0, 2 and 0

The operating cash flow/sales ratio result was not impressive for the fact, that in every $1 of sales, the indicative amount was equivalent only at .03, .03, 0, .02 and 0 from 2007 to 2011, respectively. It tells us, that their five years of operation had too much spending of their cash; even their revenue was keep on moving upward; the company’s ability to turn into cash was up to 3 percent. It would be worrisome to see that the growth of revenue is not parallel in the operating cash flow result. Operating cash flow ratio of Systemax Inc, expressed for every $1 of debt, had only an average of $.14 cents available. It means, the cash from operation is not enough to pay its current obligations.

Through the operating cash flow ratio we can conclude the company’s ability to generate resources to meet current liabilities which can be computed using the result of operating cash flow over total current liabilities. Below are the results of SYX:

  • Operating cash flow was 93, 82, 5, 65 and 18.
  • A total current liability was 332, 362, 443, 464 and 412.
  • Operating cash flow ratio in percentage was 28, 23, 1, 14 and 4.  Average of 14.

Free cash flow/operating cash flow ratio measures the relationship between free cash flow and operating cash flow. The higher the percentage of free cash flow embedded in a company’s operating cash flow, the greater the financial strength of the company. Free cash flow/operating cash flow ratio of Systemax had only a lesser result in 2009 by -280 percent from 2008 which both affected from the result of the free cash flow and cash from the operations was also down. Below are the results for to further elaborate:

  • Free cash flow was 85, 65, -14, 40 and 6.
  • Net cash provided by operating activities was 93, 82, 5, 65 and 18.
  • Free cash flow/operating cash flow ratio in percent was 91, 79, -280, 62 and 33.

Capital expenditure ratio measures the capital available for internal reinvestment and for payments on existing debt. When the capital expenditure ratio exceeds 1.0, the company has enough funds available to meet its capital investment, with some to spare to meet debt requirements. The higher the value, the more spare cash the company has to service and repay debt. Like the results of Systemax Inc  in the data below:

  • Net cash provided by operating activities was 93, 82, 5, 65 and 18.
  • An investment in property, plant, and equipment was 8, 17, 19, 25 and 12.
  • Capital expenditure ratio in percentage was 1163, 482, 26, 260 and 150. Average of for five years was 416.

In average of their five years of operations, the capital expenditure ratio result was impressive. It represents at 416 percent, exceeds to their capital investment commitment. It means, they have still cash to pay its debt.

Total debt ratio measures cash availability from the operation which to cover the total obligation of the company. The higher the percentage the less problem arises in the future. It means the company has a lot of cash from the operation to pay its debts. In Systemax Inc., below are the results:

  • Net cash provided by operating activities was 93, 82, 5, 65 and 18.
  • A total liability was 338, 369, 452, 485 and 435.
  • Total debt ratio in percentage was 28, 22, 1, 13 and 4. Average for five years was 14.

The total debt ratio average of their five years of operation was 14 percent. It means the cash from operation is not sufficient to pay its total debt.

Written by Rio, Nelly and Dyne
Edited by Cris

systemax-inc-syx

Systemax Inc (SYS) to Treat with Extra Careful

July 23rd, 2012 Posted by Company Research Report No Comment yet

Balance Sheet

Financial Liquidity

In planning for an investment to a certain company, the number one factor to consider is the financial liquidity of the company you want to invest in.  To obtain them, we need to use related ratios such as current ratio, quick ratio and working capital.  For Systemax Inc., the results are as follows:

  • Current ratio was 1.83, 1.69, 1.56, 1.65 and 1.86. Average of 1.72. The company’s average current ratio for the past five years in operation was 172 percent. This means that its current assets are 72 percent greater to its currents liabilities.
  • Quick ratio in was 1.07, .91, .74, .85 and .96. Average of .91 or 91 percent. It was computed as current asset minus inventory divided by current liabilities; to focus on the monetary asset of the company.
  • Working capital in dollars was 274, 250, 250, 301 and 354. Average of 286 per period. It showed positive results throughout its five years in operation illustrating a healthy management of the firm’s current resources.

Efficiency

Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery.

  • This cycle is extremely important for retailers and similar businesses. This measure illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company’s bottom line.  Below is the CCC of Systemax Inc. from 2007 to 2011: Inventory turnover ratio was 9.42, 9.11, 7.39, 8.36 and 8.47. Average of 8.55. The company has an average turnover ratio of 9 times each period.
  • Inventory conversion period was 39, 40, 49, 44 and 43. Average of 43. The average days of inventory to be out for delivery are 43 days.
  • Accounts receivable turnover ratio was 14.11, 15.88, 13.08, 13.01 and 13.69. Average of 13.95. The company receivable turns 14 times average per period.
  • Average collection period was 26, 23, 28, 28 and 27. Average of 26 days or about one month the company can collect its receivables. Most companies extend credit terms to its valued customers from 15 days, 30 days and 45 days.
  • The payable turnover ratio was 11.35, 10.68, 9.15, 9.52 and 10.93. Average of 10.33. Systemax Inc. payable turnover ratio is 10 times each period.
  • Payable conversion period was 38, 40, 47, 44 and 39. Average of 42, which tells us that the company’s accounts payable, is almost 1 1/2 months average to pay. It is an advantage to the company since the money they have collected can be utilized in short term investment to earn a profit.
  • Cash conversion cycle was 27, 23, 31, 27 and 31. Average of 28. CCC from company’s inventory to receivables and settlement of its obligations take an average of 28 days.

Further interpretation of cash conversion cycle:

Particulars

2007

2008

2009

2010

2011

Average

Inventory Conversion Period 39 40 49 44 43 43
Average Collection Period 26 23 28 28 27 26
Payable Conversion Period 38 40 47 44 39 42
Cash Conversion Cycle 27 23 31 27 31 28

The company’s resources are well managed and handled since it shows that its CCC for the past five years in operation is within one month period only, therefore, funds are not tied up in the business process.

Leverage

Financial leverage is the degree to which an investor or business utilizing borrowed money. Companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt; they may also be unable to find new lenders in the future. Financial leverage is not always bad, however; it can increase the shareholders’ return on investment and often there are tax advantages associated with borrowing. In value investing for Systemax Inc., debt ratio, debt to equity ratio and solvency ratio from 2007 to 2011 are shown below:.

  • Debt ratio was .50, .52, .55, .54 and .49. Average of .52, which means that the company’s total debt is 52 percent of its total assets.
  • Debt to equity was 1.01, 1.10, 1.24, 1.19 and .96. Average of 1.10. Total obligation is 110 percent against its owners’ equity.
  • Solvency ratio was .23, .17, .13, .12 and .16. Average of .16, which tells us that the company is 16 percent average solvent.  Solvent means able to pay all debt obligations as they become due.
  • Current liabilities to total assets was .49, .51, .54, .52 and .46. Average of .51. The company’s current debt is 51 percent average of its total assets. This also means that creditors have 51 percent in control of the total assets of Systemax Inc.
  • Stockholders’ equity to total assets was .50, .48, .45, .46 and .51. Average of .48. The owners’ equity is 48 percent average of the company’s total assets. This means that owners have 48 percent claim of its total assets.

Based on the analysis of the company’s total obligations, it shows that its ability to pay all debt obligations when they become due is only 16 percent. Extra care should be observed in the final decision to invest in this company. Please take note further, that total debt obligations are more than 50 percent of its total assets.

Fixed asset turnover ratio measures the company’s effectiveness in generating sales from its investments in plant, property, and equipment. It is especially important for a manufacturing firm that uses a lot of plant and equipment in its operations to calculate this ratio. The contribution of the company’s fixed asset in generating sales is still effective and efficient at an average ratio of 54 percent.

Income Statement

Systemax Inc gets its income from sales of desktops computers, notebook computers, computer related products and industrial products in North America and Europe to individuals and businesses through catalogs and internet websites. Their income statement is one of the financial statements they used to provide information in the context of its income and expenses of the company and its profitability.

Profitability

The profitability ratios of Systemax Inc. from 2007-2011 as shown in data below:

  • Net margin in percent was 2.50, 1.74, 1.46, 1.19, and 1.48. This simply is the after tax profit a company generated for each dollar of revenue.
  • Asset turnover was 4.42, 4.40, 4.17, 4.20, and 4.13. This measures the efficiency of the company to convert its assets into revenues.
  • Return on assets was 11.05, 7.67, 6.08, 4.97, and 6.10. This tells us how much profit the company generated for each dollar on total assets.
  • Financial leverage was 3.01, 2.11, 2.24, 2.18, and 1.96. This measures the financial structure ratio of the company base on total assets against total stockholders’ equity.
  • Return on equity was 22.22. 15.78, 13.22, 11.00, and 12.60. This tells us how much the company could return for every dollar of equity.
  • Return on invested capital was 21.61, 15.62, 12.88, 10.63, and 12.32. This is a financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business.

In terms of profitability, Systemax net margin was at its highest in 2007 by 2.5 percent from the past ten years of operations. It decreased in the following years showing a declining net income. Furthermore, the company had lower net profit margin with a higher volume of asset per asset turnover. Return on assets tells us that the company really utilized their assets to generate profit.

With regards to financial leverage; measured by equity multiplier; showed that portion of equity was in a downward trend as a result of debt. This means that debt declined in relation to total assets and total stockholders’ equity. Their return on equity depicted a declining trend from 2008 to 2010 and increase by 12.6 in 2011 but still, the company managed to earn from the money invested by their stockholders. The Same trend goes for the return on invested capital that went down from 2008 to 2010 but marks a potential increase of 12.32 in 2011. 

Income

Let us have a look now with the money they earned. Below is the income of Systemax Inc. from 2007 – 2011:

  • Revenue in million dollars was 2,780, 3,033, 3,166, 3,590, and 3,682. Its 1st quarter of 2012 revenue was 914. This was company’s total earnings.
  • Gross profit was 426, 464, 460, 496, and 531. This was the earnings after deducting the cost of revenues.
  • Operating income was 96, 83, 73, 69, and 81. This was the company’s income after deducting all operating expenses.
  • Income before income tax 100, 84, 73, 69, and 81. This was the income after interest and other income and expenses.
  • Net income was 69, 53, 46, 43, and 54. This was the company’s income after deducting income taxes.

Systemax Inc.‘s revenue gradually increases every year with a growth ratio of 18.54 percent, 9.10, 4.39, 13.39 and 2.56 from 2007 to 2011 respectively. This means that revenue was at its highest in year 2007 and 2010. Then growth in 2011 was only 2.56 percent and latest quarter of 2012 depicts only a -1.75. “This is not a good sign, they need to add more marketable sites to improve thus increase their sales favorably,” Nelly said.

Gross profit increased from 2007 to 2008 by 426 million dollars to 464 with a slight drop of 460 in 2009, then increases for the last two years of 496 and 531 respectively. This showed that cost of revenue was also increasing yearly.

Their operating income from 2007 of 96 million dollars it starts to decrease down to 83, 73, and 69 in 2008 to 2010, then in 2011 it increases to 81, as shown in its growth ratio of 54.28, -12.71, -11.68, -6.63 and 17.14. This means operating expenses were increasing, too. Their income before income tax was almost the same with operating income for interest and other income and expenses have minimal amounts which had increase 2007 and 2008 only. Net income growth ratio was 53.90 percent, -23.95, -12.6, -7.87 and 27.87. This means that net earnings was favorable in 2007 and 2011, for in 2008 to 2010 it depicts a decreasing trend. But at least in 2011 it had gain back almost one half of the earnings in 2007. 

Expenses

Of course, when you have revenue, expenses cannot be out of the blue. For Systemax Inc, the following are the expenses from 2007 – 2011:

  • Cost of revenue in million dollars was 2,354, 2,569, 2,706, 3,094, and 3,151 with average of 2,774.80.
  • Sales, general and administrative expense was 331, 381, 387, 423, and 456 with average of 395.60.
  • Other operating expense was 0, 0, 0,  4 , and -6  with average of -0.40.
  • Interest expense was 1, 0, 1, 2, and 2 with average of 1.20.
  • Other income and expense was 6, 1, 1, -1, and 0 with average of 1.40.
  • Provision for income tax was 31, 31, 27, 23, and 24 with average of 27.20.

Their expenses, especially cost of revenue, accounts for an average of 85 percent of revenue. This means that around 15 percent only was left for their operating expenses, interest and other income and expense, provision for income taxes as well as their net income. And cost of revenue is trending upwards every year. Their sales, general and administrative expenses accounts for 12 percent of revenue and also in an increasing trend. Other operating expenses accounts for -0.01 percent, interest expense for 0.03 while other income and expense for 0.04 of revenue. Their provision for income tax accounts for 0.83 percent. Thus, net income accounts an average 2.11 percent of revenue.

All in all, Systemax Inc. is very conservative in choosing only markets that deals in catalogs and internet websites. In order to improve their revenue they need to expand their wings in selling openly for a wider market. And they also need to clean up their cost of revenue which is very high, so limiting it down would increase their earnings. They have an impressive returns but unlike in 2007 wherein they gained the highest. In 2011 it starts to move up again and if this goes on, so as management to create a new market they can regain to attain an increasing trend.

Cash Flow Statement

The net cash flow from the operation in 2007 to 2009 declined by seventeen times lowered from 2007; but affected by the inventory, it increased to 81 percent. It was recovered in 2010 by 92 percent due also for the decrease in inventory, ten times lowered from 2009 data. It was down again in 2011 by 261 percent and expected for a possible increase in 2012 based on net cash flow result for the Q1.

Cash Flow from Operating Activities

Cash flow from operating activities was net cash provided or used from the operations. It can be computed using the indirect method which all non-cash items will be added and also accounts affect the working capital. The starting line was the net income as our basis. For Systemax, data below are as follows:

  • Net income $million was 69, 53, 46, 43 and 54.In 2012Q1 was 7 compared in 2011Q1 was 14.
  • Depreciation and amortization was 9, 10, 12, 14 and 17.
  • Inventory was -13, -41, -70, -6 and -4.
  • Other working capital was 17, 49, 29, 43 and -47.
  • Net cash provided by operating activities was 93, 82, 5, 65 and 18. In 2012Q1 was 15 compared in 2011Q1 was 10.

The cash flow from operating will be presented using the direct method which the basis will be the cash collection and deduct all the cash payments made for one accounting cycle. Below are the results for Systemax Inc:

  • Cash  collection was 2,780, 3,033, 3,145, 3,545 and 3,682
  • Cash payments for   purchases  was 2,341, 2,528, 2,636, 3,088 and 3,147
  • Cash payments for operating  expenses  was 340, 381, 382, 433 and 445
  • Cash interest was 1, 0, 1, 2 and 2
  • Cash payment for income taxes was 31, 31, 27, 23 and 28
  • Cash flow from operating activities was 67, 93, 99, -1 and 60

Based on the cash collection, in 2007 to 2011; the movement continued to go upward. But the result of net cash from operating increased only from 2007 to 2009.In 2010, it was lowered by 10 times from 2009, due to the cash payments made that were more than compared to their collection.

Cash Flow from Investing Activities

The cash flow from investing of Systemax Inc increased from 2007 to 2008; they had increased by 53 percent in PPE and a total of acquisition represents 65 percent over the net cash of investing. Period from 2009 to 2011 was down, since their investment in PPE was in sideways.

Cash flow from investing are the activities of cash where the company put their funds which came from either cash generated from the operations or cash raised through by financing. The following are the results of investing activities:

  • Investment in property, plant, and equipment was -8, -17, -19, -25 and -12.
  • Property, plant, and equipment reduction for five years was zero.
  • Acquisition, net was 0, -31, -14, 0, 0, 0.
  • Net cash used for investing activities was -8, -48, -32, -25, -12. Total for five years was -125.

Cash Flow from Financing Activities

Cash from financing is an activity where the company raised a fund which they will use. In value investing for Systemax Inc., the results are the following:

  • Short-term borrowing was 0, 0, 0,-13 and 0.
  • Long-term debt issued was 0, 0, 0, 8 and 2.
  • Long-term debt repayment was 0, 0, -4, -2 and -3.
  • Common stock issued was 1, 1, 1, 1 and 0.
  • Cash dividends paid was -37, -37, -28, 0 and 0. Total for five years was -102
  • Net cash provided by (used for) financing activities was -42, -43, -31, -5 and -1. Total for five years was -122.

Their cash flow from financing for five years had a total of 122. It indicates that 2007 and 2008 had more outflow compared against 2009 to 2011. In percent it was represented at 34, 35, 25, 4 and 1, respectively. This was used for cash dividend paid which is equal to 84 percent.

The net change in cash was the remaining cash from the operation less the cash used from investing and cash from financing. For this company, below are the results:

  • Net change in cash was 41, -12, -58, 34 and 5.
  • Cash at beginning of period was 87, 128, 116, 58 and 92.
  • Cash at end of period was 128, 116, 58, 92 and 97. Total for five years was 491.

If observed with the data above, the net change in cash from 2007 to 2011 was in sideways. It had a negative cash change in 2008 and 2009 which the cash from investing and the financing was over than the cash from operations.

To measure the financial performance of the company we need to compute the free cash flow. It represents the cash, which a company is able to generate after laying out the money required to maintain or expand its asset base. Like in Systemax Inc., it shows the following:

  • Operating cash flow was 93, 82, 5, 65 and 18.
  • Capital expenditure was -8, -17, -19, -25 and -12.
  • Free cash flow was 85, 65, -14, 40 and 6.

Data above shows that free cash flow of Systemax Inc. was in sideways which both affected by the movement of the result in operating and capital expenditure that was also in sideways. It indicated also that 2009 was in negative which the capital expenditure was higher than the operating cash flow by 74 percent.

Cash Flow Ratios

Operating cash flow/sales ratio can be used to help us determine the company’s ability to turn sales into cash. For Systemax Inc., it shows the following:

  • Operating cash flow was 93, 82, 5, 65 and 18.
  • Revenue was 2780, 3033, 3166, 3590 and 3682
  • Operating cash flow/Sales ratio in percent was 3, 3, 0, 2 and 0

The operating cash flow/sales ratio result was not impressive for the fact, that in every $1 of sales, the indicative amount was equivalent only at .03, .03, 0, .02 and 0 from 2007 to 2011, respectively. It tells us, that their five years of operation had too much spending of their cash; even their revenue was keep on moving upward; the company’s ability to turn into cash was up to 3 percent. It would be worrisome to see that the growth of revenue is not parallel in the operating cash flow result. Operating cash flow ratio of Systemax Inc, expressed for every $1 of debt, had only an average of $.14 cents available. It means, the cash from operation is not enough to pay its current obligations.

Through the operating cash flow ratio we can conclude the company’s ability to generate resources to meet current liabilities which can be computed using the result of operating cash flow over total current liabilities. Below are the results of SYX:

  • Operating cash flow was 93, 82, 5, 65 and 18.
  • A total current liability was 332, 362, 443, 464 and 412.
  • Operating cash flow ratio in percentage was 28, 23, 1, 14 and 4.  Average of 14.

Free cash flow/operating cash flow ratio measures the relationship between free cash flow and operating cash flow. The higher the percentage of free cash flow embedded in a company’s operating cash flow, the greater the financial strength of the company. Free cash flow/operating cash flow ratio of Systemax had only a lesser result in 2009 by -280 percent from 2008 which both affected from the result of the free cash flow and cash from the operations was also down. Below are the results for to further elaborate:

  • Free cash flow was 85, 65, -14, 40 and 6.
  • Net cash provided by operating activities was 93, 82, 5, 65 and 18.
  • Free cash flow/operating cash flow ratio in percent was 91, 79, -280, 62 and 33.

Capital expenditure ratio measures the capital available for internal reinvestment and for payments on existing debt. When the capital expenditure ratio exceeds 1.0, the company has enough funds available to meet its capital investment, with some to spare to meet debt requirements. The higher the value, the more spare cash the company has to service and repay debt. Like the results of Systemax Inc  in the data below:

  • Net cash provided by operating activities was 93, 82, 5, 65 and 18.
  • An investment in property, plant, and equipment was 8, 17, 19, 25 and 12.
  • Capital expenditure ratio in percentage was 1163, 482, 26, 260 and 150. Average of for five years was 416.

In average of their five years of operations, the capital expenditure ratio result was impressive. It represents at 416 percent, exceeds to their capital investment commitment. It means, they have still cash to pay its debt.

Total debt ratio measures cash availability from the operation which to cover the total obligation of the company. The higher the percentage the less problem arises in the future. It means the company has a lot of cash from the operation to pay its debts. In Systemax Inc., below are the results:

  • Net cash provided by operating activities was 93, 82, 5, 65 and 18.
  • A total liability was 338, 369, 452, 485 and 435.
  • Total debt ratio in percentage was 28, 22, 1, 13 and 4. Average for five years was 14.

The total debt ratio average of their five years of operation was 14 percent. It means the cash from operation is not sufficient to pay its total debt.

Written by Rio, Nelly and Dyne
Edited by Cris

stamps.com-inc-stmp

Stamps.com (STMP) Revenue Increase Due To Capitalized Total Assets

July 20th, 2012 Posted by Company Research Report No Comment yet

STMP Balance Sheet

In value investing, Stamps.com Inc has sufficient resources to continuously run its business has proven to its liquidity related ratios.

Liquidity

Financial liquidity of the company plays a vital role in value investing. It is used to determine how capable the company of continuously running its business smoothly. It can be measured by the related ratios on current assets such as current ratio, quick ratio, and working capital. For Stamps.com Inc, below is the data from 2007 to 2011:

Facts

  • The current ratio was 5.62, 5.2, 3.93, 2.23 and 5.07. Average of 4.41. STMP has an average current ratio for its five years in the operation of 4.41, which means that its current assets are 441 percent compared to its current liabilities.
  • Quick ratio was 5.62, 5.2, 3.93, 2.23 and 5.07. Average of 4.41. The company has no recorded inventory, so its quick ratio has an average of 4.41, which tells us that its monetary assets were 441 percent against its current liabilities.
  • Working capital was $60, 63, 41, 16 and 57. Average of $47. Working capital of the company shows a positive balance. However, its trend increased in 2008 by 5 percent but dropped by 35 percent and 61 percent in 2009 to 2010 respectively and recovered again with an increase of 256 percent in 2011. In spite of this trend, the company is capable to pay off its current obligations.

Leverage

Leverage is a business term that refers to borrowing. If a business is “leveraged,” it means that the business has borrowed money to finance the purchase of assets. The other way to purchase assets is through use of own funds or equity. One way to determine leverage is to calculate the debt-to-equity ratio, showing how much of the assets of the business were financed by debt and how much by equity (ownership). Below is the financial leverage ratio of Stamps from 2007 to 2011:

Facts

  • Debt ratio in percent was .12, .16, .16, .23 and .13. Average of .16, which tells us that 16 percent of the company’s assets were loaned.
  • Debt to equity in percent was .14, .19, .18, .30 and .15. Average of .19. It also tells us that the company’s equity is 19 percent of its total assets.
  • Solvency ratio was 1.08, .80, .50, .54 and 1.93. Average of .97, which means that Stamps is 97 percent solvent. It is computed by dividing its net income by tax plus depreciation by its total liabilities.
  • Current liabilities to total assets was .12, .16, .16, .23 and .13. Average of .16.  The company’s current liabilities, when compared to its total assets, were 16 percent average, which means that the creditors have only 16 percent claims on Stamps total assets.
  • Stockholders’ equity to total assets was .55, .84, .85, .77 and .87. Average of .84. Tells us that the owners have 84 percent claims on the company’s total assets.

Based on the results of the leverage ratio analysis, the firm did not borrow big amount of money from outside creditors. Instead, they did utilize more on the owners’ funds as shown that 84 percent of its total assets were owners’ equity.

Plant, Property & Equipment

This category consists of assets that are tangible and relatively long-lived. The firm has acquired these assets in order to use them to produce goods and services that will generate future cash inflows. These were recorded at cost upon acquisition of these assets.

The fixed asset turnover ratio measures the company’s effectiveness in generating sales from its investments in plant, property, and equipment. In Stamps, the ratio has an average of 37 meaning the company’s fixed asset has 37 times average turn per period.

Income Statement

Earnings quality is an important aspect of evaluating an entity’s financial health, yet investors, creditors, and other financial statement users often overlook it. Earnings quality refers to the ability of reported earnings to reflect the company’s true earnings, as well as the usefulness of reported earnings to predict future earnings. The evaluation of earnings is often difficult because companies highlight a variety of earnings figures which are the revenues, operating earnings, net income, and pro forma earnings. In addition, companies often calculate these figures differently. The income statement alone is not useful in predicting future earnings.

Profitability

The company’s net profit margin showed a decrease of 11.97 percent, 7.52 and 6.47 in 2008 to 2010 compared to 2007. But it leaped high in 2011 to 25.86 percent, a 4 times fold compared to 2010. This means that Stamps increased their revenue in 2011 to 102 million dollars and earned a net income of around 26 million dollars compared to 2010 which is 6 million dollars only. Asset turnover is gradually increasing every year, therefore this depicts that they were efficient in converting their assets into revenues.

Return on Assets

Stamps return on assets showed an up and downtrend for the last four years but in 2011 it reached a height of 31.76 percent. This means that they had increased their earnings for every dollar of total assets as compared to previous years. For their financial leverage measured by equity multiplier, showing the portion of the return on equity that was the result of debt, wherein it was trending upward with a slight decrease in 2009. Then increased in 2010 by 1.30 percent but decreased again in 2011 to 1.15. This means that they can control their total liabilities within their current operations. In fact, it went to 22.99 million dollars in 2010 but managed to decrease it the following year to 12.94.

Return on Equity

Their return on equity depicted an increase in 2008 from 10.51 percent to 11.90, and then up and down in 2009 to 2010 of 8.02 to 9.23 but 2011 showed an increase of 38.0. This means that Stamps.com Incorporation was earning revenues from money invested by their stockholders, as depicted by the increase in their revenues of 18.75 percent in 2011. To further understand the thought, below is the detailed summary of the profitability ratio from 2007-2011

  • Net margin in percent was 12.43, 11.97, 7.52, 6.47, and 25.86. This simply is the after-tax profit a company generated for each dollar of revenue.
  • Asset turnover was 0.76, 0.86, 0.90, 1.17, and 1.23.  This measures the effectiveness of a company to convert its assets into sales.
  • Return on assets was 9.42, 10.26, 6.77, 7.54, and 31.76. This tells us how much profit the company generated for each dollar on total assets.
  • Financial leverage was 1.14, 1.19, 1.18, 1.30, and 1.15.  This measures the financial structure ratio of the company base on total assets against total stockholders’ equity.
  • Return on equity was 10.51, 11.90, 8.02, 9.23, and 38.00.  The company could return such percent for every dollar of equity.

Income

Revenues from 2007 to 1st quarter of 2012 are as follows:

  • Revenue in million dollars was 86, 85, 82, 86, 102, and 28. This was the company’s total earnings.
  • Gross profit was 61, 62, 59, 62, 75, and 26.  These were the earnings after deducting the cost of revenues.
  • Operating income was 7, 4, 6, 1, 17, and 26.  This was the company’s income after deducting all operating expenses.
  • Income before income tax is 11, 7, 7, 2, 18, and 5.  This was the income after interest and other income (expenses).
  • Net income was 11, 10, 6, 6, 26, and 16.  This was the company’s income after deducting income taxes.

Explanation

Stamps.com Inc revenues were constant for the last four years with a growth ratio of 1.45 percent, -1.05, -3.28 and 4.16, and then abruptly increase by 18.75 percent in 2011.  Average revenue for five years of 88.2 compared to 28 million dollars in the first quarter of 2012; means that their revenues are definitely increasing. Both gross profits and operating income were on an increasing and decreasing trend for the last four years and then increased again in 2011. Their operating income showed a growth ratio of -42.83, -32.34, 30.38, -74.81 and 1075.97. The income before income tax differed because of the other income and expenses. Net income showed a decrease in 2008 to 2010 of 10 million dollars, 6, and 6, then an increase to 26 and 16 for the 1st quarter of 2012 along with its growth ratio of -35.21, -4.71, -39.23, -10.44 and 374.78.

What causes the increase in revenue? As you can see the company increased their total assets from 57 million dollars in 2010 to 108 in 2011, so as to their stockholders’ equity from 44 million dollars in 2010 to 94 in 2011. This means they capitalize on total assets to augment their revenues.

Expenses

Expenses from 2007 to 1st quarter of 2012 are as follows:

  • Cost of revenue in million dollars was 25, 23, 23, 24, 26, and 3 for the 1st quarter 2012.
  • Operating expense was 54, 58, 53, 60, and 58.
  • Other income (expense) was 4, 3, 1, 0, 1, and (21) for the 1st quarter of 2012.
  • Provision for income tax was 0, (3), 1, (4), (8) and (12) for the 1st quarter of 2012

Explanation

The company’s cost of revenue was 29.49 percent, 26.98, 27.9, 27.69 and 25.80 of revenue with an average of 24.2 which meaning, that first quarter 2012 of 3 is lesser than one-fourth of average, so the cost of revenue is decreasing. While operating expense was 62.83 percent, 67.77, 65.02, 70.6, and 54.24 of revenue with an average of 63.69. And other income and expense were 5.20, 3.44, 1.12, 0.14 and 0.55 of revenue with the average of 2.09. Thus, net income was 12.88, 8.69, 8.20, 1.86, and 17.51 of revenue or an average of 9.83.

The company’s cash flow from 2007 up until 2011 will be discussed to us by one of our Numbers team member, Dyne.

Cash Flow Statement

Cash flow would simply mean the cash in and out of the business. It was classified into three segments– the operating, investing and financing.  In operating, it was cash provided or used for the operations which are basically from the revenue. In both investing and financing, it was cash provided and used for investment and financing.

Cash Flow from Operating Activities

The results of the net cash provided by operating activities can be used to reinvest in the business, repay debt and pay dividends. In Stamps, from 2007 to 2010 it declined. Based on their total of five years of operation, 2007 represents 28 percent then went down to 8 percent in 2010. This was due to the fact that the net income was also declining. It was corrected in 2011. It grew by 17 percent with the increase also of net income by 44 percent. Probably in 2012, it will go up based on the net cash provided by operating activities in Q1 increased by 27 percent from 2011Q1 data.

The net cash provided by operating activities means a net of cash generated from operations. It can be computed using the net income and added back the non-cash items related.

Explanation:

  • Net income in million was $11, 10, 6, 6 and 26. Total for five years was 59. In 2012Q1 was 16 compared in 2011Q1 was 3.
  • Depreciation and amortization were 3, 2, 1, 1 and 1.Total for five years were 8.
  • Another non-cash item was 3, 3, 0, -3, and -8. Total for five years was -5.
  • Net cash provided by operating activities was 17, 12, 10, 5and 15. Total for five years was 59. In 2012Q1 was 11 compared in 2011Q1 was 3.

The basis for computing the cash flow from operating using the direct method of accounting is taking all the cash collection then deduct all the cash payments made by the company.

Facts:

  • Cash collection was 86, 85, 82, 85 and 96. Total for five years was 434.
  • The payment for purchases was 25, 23, 21, 23 and 26
  • Payment for operating   expenses was 54, 58, 53, 60 and 58
  • Cash payment for income taxes was 0, -3, 1, -4 and -8
  • Total cash flow from operating  activities was 7, 7, 7, 6 and 20

With this, cash collection is the main core. If the cash collection was short over the cash payments made, the cash flow would be in negative. In Stamps, the cash collection from 2007 to 2010 there was no big movement except in 2011. It increased to 2 percent. The same thing in total cash flow from operating, no movement except in 2011 which increased to 30 percent, due to the decrease of operating expenses and the provision of income tax.

Cash Flow from Investing Activities

The net cash from investing activities for five years resulted in a total of 76. It tells us, the company has more cash provided than cash used. It indicated that only in 2009 and 2010 that they had negative cash, due to the purchase of an investment that was over than the cash from sales/maturities of investment.

After we know the result of cash from operating, it can be used as our basis if the company can utilize the cash either to invest, to purchase additional capital expenditure, purchase of an investment or acquire a business.

Investing activities are:

  • Investments in property, plant, and equipment were -1, -1, 0, -2 and -1. Total for five years was -5.
  • Purchases of investments were -44, -33, -25, -25 and -2. Total for five years was -129.
  • Sales /maturities of investments were 91, 58, 21, 24 and 14. Total for five years was 208.
  • Net cash used for investing activities was 47, 23, -4, -1 and 11. Total for five years was 76.

Cash Flow from Financing Activities

STMP net cash from financing from 2007 to 2010 were used to repurchases of treasury stock, though it was declining. The total was represented by 102 percent over the total net cash from financing for five years. In 2012, it has cash provided by 22 percent which was from other financing activities. The cash from financing activities is where we can see how the company raised cash. It shows the following:

  • Common stock issued and 1, 1, 0 and 0. Total for five years was 3.
  • Repurchases of treasury stock was -33, -27, -14, -14 and -5. Total for five years was -93.
  • Other financing activities was 0, 0, 0,-25 and 25.
  • Net cash provided by (used for) financing activities was -32, -26, -13, -40 and 20. Total for five years was -91.

Net Change in Cash

The net change in cash was cash available after paying all their expenses and obligation. It showed how much cash was made for a particular year. Below are the results:

  • Net change in cash was 32, 9, -8, -37 and 46
  • Cash at beginning of period was 12, 44, 53, 45 and 8
  • Cash at end of period was 44, 53, 45, 8 and 54

The cash at the end of the period was in sideways. It resulted with all in positive, though the net change in cash in 2009 and 2010 was in negative since the cash at beginning of period was positive, still, it resulted in positive.

Free Cash Flow

Free cash flow can be determined using the operating cash flow result in less the capital expenditure and dividend paid. The following were the results:

  • Operating cash flow was 17, 12, 10, 5 and 15
  • Capital expenditure was -1, -1, 0, -2 and -1
  • Free cash flow was 16, 11, 10, 3 and 14

The free cash flow from 2007 to 2010 went down successively and jumped to 79 percent in 2011, due to the operating cash flow that was also declining and the capital expenditure in total represented at 8 percent over the total operating cash flow.

Written by Rio, Nelly and Dyne
Edited by Cris

stamps.com-inc-stmp

Stamps.com (STMP) for Stamps Company Research

July 20th, 2012 Posted by Company Research Report No Comment yet

Stamps.com picture: This is a card my wife wrote to my nephew a few years back. Got stamps? (Peter)

Postage stamps are by far one of the things that make any letter or mail sent more valuable. Ever wondered what’s it like without Stamps? It’s like your postages are incomplete without them. They are essential when sending mail or else people wouldn’t receive it. Of course, in these times, where everything is going online and digital, stamps are also going along with it. This explains the birth of Stamps.com

Who started Stamps.com Inc. company and why?

Stamps.com (STMP) is the brainchild of three UCLA MBA graduates – Jim McDermott, Jeff Green and Ari Engelberg with the help of Mohan Ananda. It was founded in 1996 and was launched in 1998. The company has a partnership with America Online, IBM, Microsoft, office depot, Quicken.com, and 3M.

Story behind

The story goes one night when Jim McDermott, during his job search between his first and second year of business school, ran out of stamps. Then he asked why doesn’t he just buy stamps online? So he introduced the idea to his co-founders Ari and Jeff then wrote the business plan for UCLA competition.

Jim McDermott is a student of UCLA or also known as the University of California, Los Angeles.  It is a public research university in Westwood, a neighborhood of Los Angeles, California, USA. The university is organized into five undergraduate colleges, seven professional schools, and five professional Health Science schools.

What is the background of the company? Its history and development?

The company’s background and how they developed from their humble beginnings.

  • STMP was incorporated in January 1998 as Stampmaster Inc.
  • It changed its name to Stamps.com in December 1998
  • In 1998, integrated with Microsoft Word
  • In 1998, USPS Approved Beta for Internet Postage
  • STMP was the first ever USPS-licensed vendor to offer PC Postage® in a software-only business model in 1999
  • In 1999, Stamps.com included its public offering for 5 million shares – NASDAQ Symbol STMP
  • During 1999, the company announced a marketing alliance with IBM
  • The same year, launched nationwide with over 100,000 pre-registered customers
  • Also, Stamps.com passed the 10,000 customer mark
  • Acquired iShip.com in 1999
  • In 1999,Stamps.com announced a Partnership with 3M
  • In 1999, USPS announced approval for Internet-based postage
  • Stamps.com received investment funding from Intel Corporation in 1999
  • Stamps.com announced marketing alliance with Avery Dennison in 1999

 More on Company events

  • Competes with E-Stamp Exits Internet Postage Business in 2000
  • Stamps.com tested PC postage program with Dutch Postal Service in 2000
  • Stamps.com & Intuit Partner, Internet Postage Integrated in New Quicken 2001 Products
  • In 2000, the firm was added to the Russell 3000 and Russell 2000 Indices
  • Forbes.com Selected Stamps.com as “Most Promising” in Best of the Web Guide in 2000
  • Stamps.com announced Alliance with Hewlett–Packard in 2000
  • Introduced My Internet Postage to office supply retail stores in 2000
  • Stamps.com had 87,360 licensed customers after 10 weeks in 2000
  • Partnered with Peachtree Accounting Software in 2001
  • Stamps.com named Ken McBride as president and CEO in 2001
  • UPS acquired iShip Assets from Stamps.com in 2001
  • Acquired E–Stamp Name, Patents in 2001

The launching of PC Postage Software

  • Stamps.com launched Version 3.0 of PC Postage Software in 2002
  • Sold over 330,000 NetStamps Label Sheets in first 6 Weeks in 2002
  • USPS approved Use of Stamps.com’s NetStamps in 2002
  • Stamps.com launched Version 2.4 of PC Postage Software in 2002
  • In 2002, Stamps.com printed 100,000,000 Internet Postage Stamp
  • Microsoft released a beta version of its office productivity suite of programs, which included an electronic postage capacity through Stamps.com in the fall of 2003

So what exactly is the nature of their business? The company’s name is self–explanatory but I guess there are things that we might not know about them yet.

What is the nature of Stamps.com Inc. business?

Stamps.com is a company that provides Internet-based mailing, postage solution and shipping services in Los Angeles, California. It renders multiple PC Postage plans with a variety of features and capabilities. Its software utilizes e-commerce platforms to automate order by processing, managing, and shipping orders from any e-commerce source through a single interface without manual data entry.

PC postage service is associated with address verification technology verifying each destination for mail sent. PC postage business refers to Stamps’ PC Postage Service, Mailing & Shipping Supplies Store and Branded Insurance offering.

Formerly known as Stampsmaster Inc., the company has a system that let users download free windows software services that acknowledge you to print official US Postal service postage directly from your PC and printer were no special hardware is needed. The Print stamps, print shipping labels, print directly on envelopes and postage that you print will automatically deduct from your stamps.com account.

The United States Postal Service or USPS, also known as the Post Office and U.S. Mail is an independent agency which is responsible for providing postal service in the United States.

Who is running Stamps.com Inc. company and their background?

Mr. Kenneth McBride is the president and CEO of Stamps.com. As the president and CEO, he is responsible for the overall management and operations of the company. Previously, he served as the CFO and senior director of finance. He was a research analyst at Salomon Smith Barney and has experience working in the semiconductor industry as an engineer and manager. McBride graduated with a BS degree and holds MBA in electrical engineer from Stanford University. At the age of 44, he is the current chairman of the board of STMP.

Mr. Kyle Huebner is the CFO and co-president of Stamps. He held several positions in the company before climbing to his current status.  Previously, he worked with Baine & Company as a management consultant. He was a research analyst at J.P Morgan for 3 years and holds a B.A. Mathematics degree from Dartmouth College and MBA from Harvard University.

Research Analyst is a person who prepares investigative reports on equity securities. The research conducted by the research analyst is in an effort to inquire, examine, find or revise facts, principles, and theories. The report that this analyst prepares could include an analysis of equity securities of companies or industries.

A director is one responsible for the success of the business and thus it requires hard work from the people behind it.

Who is directing the company? How are the committees structured?

Stamps.com consists of three committees namely: audit, compensation, and nominating committee. All the members of the committee are independent directors except for the chairman, of the board in the person of Mr. Kenneth McBride.

Mr. G. Bradford Jones is a non-executive director and chairman of audit committee since 1998. He serves directorial positions in several privately held companies. He holds a B.A. Chemistry degree, M.A. Physics from Harvard University and J.D/MBA from Stanford University. Mr. Jones shares insights into the company with regards to business strategy, accounting, technology, and financial issues and share repurchase strategies.

Mr. Lloyd Miller is a non-executive director and chairman of the compensation committee since 1992. He served as the corporate board of director in a number of public traded companies. He holds a B.A. degree from Brown University. Mr. Miller is an investor with extensive experience and knowledge in business management, investment management, accounting, finance, and capital markets.

The management

Just a little background information for you guys. The Nominating Committee is responsible for the following: include (i) screening and recommending to our Board qualified candidates for election or appointment to our Board; (ii) recommending the number of members that shall serve on our Board; (iii) evaluating and reviewing the independence of existing and prospective directors; and (iv) reviewing and reporting on additional corporate governance matters as directed by our Board. The committee manages the process for evaluating current Board members at the time they are considered for re-nomination. After considering the appropriate skills and characteristics required by the Board; the current makeup, the results of the evaluations, and the wishes of the Board members to be re-nominated; the Nominating Committee recommends to the Board whether the individuals should be re-nominated.

Every employee has their own means of making money. My mom earns her salary through a very exhausting day at work. As for Stamps, how exactly do they make money?

How do they make money?

Stamps.com success and profit growth indicated the stability and competitiveness of the company in the market.

Revenue generates from the following sources: service and transaction fees, product revenue, insurance, photo stamps, and advertising revenue. The company receives service revenue based on monthly convenience fees. With Amazon.com as their business partner, sales are recognized from the customer’s payment for postages through the market’s payment accounts. Profit of the company also comes from the licensing or use of software and intellectual property, the commission in advertising and sale of products from customers and third-party vendors. Other incomes were also derived from branded insurances charged to customer’s mails or packages.

Amazon.com, Inc. is an American multinational electronic commerce company with headquarters in Seattle and Washington, United States. It is the world’s largest online retailer. The company also produces consumer electronics – notably the Amazon Kindle e-book reader- and is a major provider of cloud computing services.

How do they fit into the industry they operate in?

Existing direct competitors of Stamps.com are Endicia.com or Dymo and Pitney Bowes Inc. The company also competes with the traditional method of accessing US postage like postage stamps, USPS retail and online services, Click N-Chip and those on eBay/Paypal. They also compete with the alternative to the US postal services such as FedEx and UPS. Stamps believe numbers of businesses patronize them which represent 1.5 million separate locations as well as approximately 24 million non-income generating home offices.

For a lighter note, eBay Inc. is an American multinational internet consumer-to-consumer corporation that manages eBay.com. It is an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide.

Online job

Well, the online job is getting way with each and everyone’s knowledge nowadays. And of course, when we speak of the job; let say it is the bread; butter is always next. And that is the payment. So for additional information, there is this called PayPal. What is it? PayPal is a global e-commerce business that allows payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as checks and money orders. PayPal is a subsidiary of eBay Inc.

Who are their suppliers and customers?

The company customers are individuals, small businesses, home offices, medium-size businesses and enterprises. The company supplies PC Postage, mailing and shipping, branded insurance, and photo stamps. Due to limited basis, they admit third parties to render products and promotions to their customer base. Stamps provide USPS special services such as delivery confirmation TM, signature confirmation TM, registered mail, certified mail, insured mail, return receipt, collect on delivery and restricted delivery to their mail pieces.

Online PC Postage

By the way, online PC Postage methods rely upon application software on the customer’s computer contacting a postal security device at the office of the postal service. Postage can now be printed in the form of an electronic stamp or e-stamp from a personal computer using a system called Information Based Indicia.

A company that treats their employees well is served well. At least that’s what I know. Now that we’ve covered pretty much what lies behind Stamps, I guess it’s high time that we tackle how they treat their employees and what are their pay and working conditions like.

How do they treat their employees? What are the pay and working condition like?

Stamps compensation was designed to attract and retain executives and employees who have the skills and experience necessary to achieve corporate goals.

Non-executive member of the board receives an annual retainer’s fee and an additional fee on other services rendered. A new member of the board has an option to purchase shares of common stock which happens upon their initial election or appointment. Currently, executive receives the following compensations: base salary, incentive pay, and equity participation. The company provides post-termination compensation arrangements to some executive members upon termination without cause or a change in control.

Employees benefits

Employees of STMP enjoy the following benefits: medical and dental insurance, 401(k), life insurance, charitable gift matching, and employee stock purchase plan.  Employee Stock Purchase Plan (ESPP) is awarded to eligible employees wherein they are allowed to purchase shares of common stock at semi-annual intervals which are deducted in their accumulated payroll.

About retainers fee

As far as our dear researchers, Janice and Karla know, a retainer fee is a fixed amount of money that a client agrees to pay, in advance, to secure the services of a consultant or freelancer. The fee is typically not associated with the success of a project or based on achieving particular results. A retainer is often paid in a single, lump sum or an ongoing basis (typically monthly or quarterly).

Summary Compensation Table

The following table summarizes all compensation paid to our Executive Officers and Directors in each of the three most recently completed fiscal years: 2009, 2010 and 2011.

Gossips

On May 6, 2004, Stamps.com, the company believed that it was approximately 12 percent below the 50 percent level that triggered impairment of its NOL asset.

According to investor.stamps.com on June 6, 2012, Stamps.com’s customer service team named finalist in2012 American Business award. “We’re very much honored to be a 2012 ABA Customer Service Team of the Year Finalist,” said Chairman and CEO Ken McBride. “The Stamps.com High Volume Shipping Customer Service Team is the result of a company-wide commitment to investing in customer support to ensure superior service. Agents are expertly trained to understand and resolve all shipping issues so that we fulfill our commitment.”

Further,

On May 23, 2012, Stamps.com co-president and chief financial officer Kyle Huebner named TechAmerica’s overall financial star of the year. “Kyle has been a key part of the management team and overall company effort that drove our revenue and profitability to record levels in 2011,” said Stamps.com Chairman and Chief Executive Officer Ken McBride. “He’s a dedicated professional who has made countless lasting contributions to our success and we congratulate him on receiving this significant honor from TechAmerica.”

According to news.investors.com on June 1, 2012, Stocks Open Sharply Lower After Weak Jobs Report. Stamps.com (STMP) posted a 5 percent loss, diving to retest its March lows.

Furthermore,

Stamps.com have proven the good quality of their customer team services after being named a finalist in the “Customer Service Team of the Year” category in the 2012 American Business Awards, a well-known award-giving body. Due to this, the reputation and image of the company will be strengthened. Another plus factor for STMP is the recent involvement of their co-president and CFO Kyle Huebner as TechAmerica’s Overall Financial Star of the Year. It is evident that their CFO has been effective in doing his role and that the award is in line with his field. He is qualified and well suited for the position. However, a recent 5 percent lost with regards to their stocks could greatly affect their operations.

Researched and Written by Karla, Meriam, Janice, Florence

Edited by Cris

stamps.com-inc-stmp

Stamps.com (STMP) Capitalized Total Assets

July 20th, 2012 Posted by Company Updates No Comment yet

Stamps Balance Sheet

Stamps.com Inc (STMP) value investing has sufficient resources to continuously run its business has proven to its liquidity related ratios.

Liquidity

Financial liquidity of the company plays a vital role in value investing. It is used to determine how capable the company of continuously running its business smoothly. It can be measured by the related ratios on current assets such as current ratio, quick ratio, and working capital. For Stamps.com Inc, below is the data from 2007 to 2011:

Facts

  • The current ratio was 5.62, 5.2, 3.93, 2.23 and 5.07. Average of 4.41. STMP has an average current ratio for its five years in the operation of 4.41, which means that its current assets are 441 percent compared to its current liabilities.
  • Quick ratio was 5.62, 5.2, 3.93, 2.23 and 5.07. Average of 4.41. The company has no recorded inventory, so its quick ratio has an average of 4.41, which tells us that its monetary assets were 441 percent against its current liabilities.
  • Working capital was $60, 63, 41, 16 and 57. Average of $47. Working capital of the company shows a positive balance. However, its trend increased in 2008 by 5 percent but dropped by 35 percent and 61 percent in 2009 to 2010 respectively and recovered again with an increase of 256 percent in 2011. In spite of this trend, the company is capable to pay off its current obligations.

Leverage

Leverage is a business term that refers to borrowing. If a business is “leveraged,” it means that the business has borrowed money to finance the purchase of assets. The other way to purchase assets is through use of own funds or equity. One way to determine leverage is to calculate the debt-to-equity ratio, showing how much of the assets of the business were financed by debt and how much by equity (ownership). Below is the financial leverage ratio of Stamps from 2007 to 2011:

Facts

  • Debt ratio in percent was .12, .16, .16, .23 and .13. Average of .16, which tells us that 16 percent of the company’s assets were loaned.
  • Debt to equity in percent was .14, .19, .18, .30 and .15. Average of .19. It also tells us that the company’s equity is 19 percent of its total assets.
  • Solvency ratio was 1.08, .80, .50, .54 and 1.93. Average of .97, which means that Stamps is 97 percent solvent. It is computed by dividing its net income by tax plus depreciation by its total liabilities.
  • Current liabilities to total assets was .12, .16, .16, .23 and .13. Average of .16.  The company’s current liabilities, when compared to its total assets, were 16 percent average, which means that the creditors have only 16 percent claims on Stamps total assets.
  • Stockholders’ equity to total assets was .55, .84, .85, .77 and .87. Average of .84. Tells us that the owners have 84 percent claims on the company’s total assets.

Based on the results of the leverage ratio analysis, the firm did not borrow the big amount of money from outside creditors. Instead, they did utilize more on the owners’ funds as shown that 84 percent of its total assets were owners’ equity.

Plant, Property & Equipment

This category consists of assets that are tangible and relatively long-lived. The firm has acquired these assets in order to use them to produce goods and services that will generate future cash inflows. These were recorded at cost upon acquisition of these assets.

The fixed asset turnover ratio measures the company’s effectiveness in generating sales from its investments in plant, property, and equipment. In Stamps, the ratio has an average of 37 meaning the company’s fixed asset has 37 times average turn per period.

Stamps Income Statement

Earnings quality is an important aspect of evaluating an entity’s financial health, yet investors, creditors, and other financial statement users often overlook it. Earnings quality refers to the ability of reported earnings to reflect the company’s true earnings, as well as the usefulness of reported earnings to predict future earnings. The evaluation of earnings is often difficult because companies highlight a variety of earnings figures which are the revenues, operating earnings, net income, and pro forma earnings. In addition, companies often calculate these figures differently. The income statement alone is not useful in predicting future earnings.

Profitability

The company’s net profit margin showed a decrease of 11.97 percent, 7.52 and 6.47 in 2008 to 2010 compared to 2007. But it leaped high in 2011 to 25.86 percent, a 4 times fold compared to 2010. This means that Stamps increased their revenue in 2011 to 102 million dollars and earned a net income of around 26 million dollars compared to 2010 which is 6 million dollars only. Asset turnover is gradually increasing every year, therefore this depicts that they were efficient in converting their assets into revenues.

Return on Assets

Stamps return on assets showed an up and downtrend for the last four years but in 2011 it reached a height of 31.76 percent. This means that they had increased their earnings for every dollar of total assets as compared to previous years. For their financial leverage measured by equity multiplier, showing the portion of the return on equity that was the result of debt, wherein it was trending upward with a slight decrease in 2009. Then increased in 2010 by 1.30 percent but decreased again in 2011 to 1.15. This means that they can control their total liabilities within their current operations. In fact, it went to 22.99 million dollars in 2010 but managed to decrease it the following year to 12.94.

Return on Equity

Their return on equity depicted an increase in 2008 from 10.51 percent to 11.90, and then up and down in 2009 to 2010 of 8.02 to 9.23 but 2011 showed an increase of 38.0. This means that Stamps.com Incorporation was earning revenues from money invested by their stockholders, as depicted by the increase in their revenues of 18.75 percent in 2011. To further understand the thought, below is the detailed summary of the profitability ratio from 2007-2011

  • Net margin in percent was 12.43, 11.97, 7.52, 6.47, and 25.86. This simply is the after-tax profit a company generated for each dollar of revenue.
  • Asset turnover was 0.76, 0.86, 0.90, 1.17, and 1.23.  This measures the effectiveness of a company to convert its assets into sales.
  • Return on assets was 9.42, 10.26, 6.77, 7.54, and 31.76. This tells us how much profit the company generated for each dollar on total assets.
  • Financial leverage was 1.14, 1.19, 1.18, 1.30, and 1.15.  This measures the financial structure ratio of the company base on total assets against total stockholders’ equity.
  • Return on equity was 10.51, 11.90, 8.02, 9.23, and 38.00.  The company could return such percent for every dollar of equity.

Income

Revenues from 2007 to the 1st quarter of 2012 are as follows:

  • Revenue in million dollars was 86, 85, 82, 86, 102, and 28. This was the company’s total earnings.
  • Gross profit was 61, 62, 59, 62, 75, and 26.  These were the earnings after deducting the cost of revenues.
  • Operating income was 7, 4, 6, 1, 17, and 26.  This was the company’s income after deducting all operating expenses.
  • Income before income tax is 11, 7, 7, 2, 18, and 5.  This was the income after interest and other income (expenses).
  • Net income was 11, 10, 6, 6, 26, and 16.  This was the company’s income after deducting income taxes.

Explanation

Stamps.com Inc revenues were constant for the last four years with a growth ratio of 1.45 percent, -1.05, -3.28 and 4.16, and then abruptly increase by 18.75 percent in 2011.  Average revenue for five years of 88.2 compared to 28 million dollars in the first quarter of 2012; means that their revenues are definitely increasing. Both gross profits and operating income were on an increasing and decreasing trend for the last four years and then increased again in 2011. Their operating income showed a growth ratio of -42.83, -32.34, 30.38, -74.81 and 1075.97. The income before income tax differed because of the other income and expenses. Net income showed a decrease in 2008 to 2010 of 10 million dollars, 6, and 6, then an increase to 26 and 16 for the 1st quarter of 2012 along with its growth ratio of -35.21, -4.71, -39.23, -10.44 and 374.78.

What causes the increase in revenue? As you can see the company increased their total assets from 57 million dollars in 2010 to 108 in 2011, so as to their stockholders’ equity from 44 million dollars in 2010 to 94 in 2011. This means they capitalize on total assets to augment their revenues.

Expenses

Expenses from 2007 to the 1st quarter of 2012 are as follows:

  • Cost of revenue in million dollars was 25, 23, 23, 24, 26, and 3 for the 1st quarter of 2012.
  • Operating expense was 54, 58, 53, 60, and 58.
  • Other income (expense) was 4, 3, 1, 0, 1, and (21) for the 1st quarter of 2012.
  • Provision for income tax was 0, (3), 1, (4), (8) and (12) for the 1st quarter of 2012

Explanation

The company’s cost of revenue was 29.49 percent, 26.98, 27.9, 27.69 and 25.80 of revenue with an average of 24.2 which meaning, that first quarter 2012 of 3 is lesser than one-fourth of average, so the cost of revenue is decreasing. While operating expense was 62.83 percent, 67.77, 65.02, 70.6, and 54.24 of revenue with an average of 63.69. And other income and expense were 5.20, 3.44, 1.12, 0.14 and 0.55 of revenue with an average of 2.09. Thus, net income was 12.88, 8.69, 8.20, 1.86, and 17.51 of revenue or an average of 9.83.

The company’s cash flow from 2007 up until 2011 will be discussed to us by one of our Numbers team member, Dyne.

Stamps Cash Flow Statement

Cash flow would simply mean the cash in and out of the business. It was classified into three segments– the operating, investing and financing.  In operating, it was cash provided or used for the operations which are basically from the revenue. In both investing and financing, it was cash provided and used for investment and financing.

Cash Flow from Operating Activities

The results of the net cash provided by operating activities can be used to reinvest in the business, repay debt and pay dividends. In Stamps, from 2007 to 2010 it declined. Based on their total of five years of operation, 2007 represents 28 percent then went down to 8 percent in 2010. This was due to the fact that the net income was also declining. It was corrected in 2011. It grew by 17 percent with the increase also of net income by 44 percent. Probably in 2012, it will go up based on the net cash provided by operating activities in Q1 increased by 27 percent from 2011Q1 data.

The net cash provided by operating activities means a net of cash generated from operations. It can be computed using the net income and added back the non-cash items related.

Explanation:

  • Net income in million was $11, 10, 6, 6 and 26. Total for five years was 59. In 2012Q1 was 16 compared in 2011Q1 was 3.
  • Depreciation and amortization were 3, 2, 1, 1 and 1.Total for five years were 8.
  • Another non-cash item was 3, 3, 0, -3, and -8. Total for five years was -5.
  • Net cash provided by operating activities was 17, 12, 10, 5and 15. Total for five years was 59. In 2012Q1 was 11 compared in 2011Q1 was 3.

The basis for computing the cash flow from operating using the direct method of accounting is taking all the cash collection then deduct all the cash payments made by the company.

Facts:

  • Cash collection was 86, 85, 82, 85 and 96. Total for five years was 434.
  • The payment for purchases was 25, 23, 21, 23 and 26
  • Payment for operating   expenses was 54, 58, 53, 60 and 58
  • Cash payment for income taxes was 0, -3, 1, -4 and -8
  • Total cash flow from operating  activities was 7, 7, 7, 6 and 20

With this, cash collection is the main core. If the cash collection was short over the cash payments made, the cash flow would be in negative. In Stamps, the cash collection from 2007 to 2010 there was no big movement except in 2011. It increased to 2 percent. The same thing in total cash flow from operating, no movement except in 2011 which increased to 30 percent, due to the decrease in operating expenses and the provision of income tax.

Stamps Cash Flow from Investing Activities

The net cash from investing activities for five years resulted in a total of 76. It tells us, the company has more cash provided than cash used. It indicated that only in 2009 and 2010 that they had negative cash, due to the purchase of an investment that was over than the cash from sales/maturities of investment.

After we know the result of cash from operating, it can be used as our basis if the company can utilize the cash either to invest, to purchase additional capital expenditure, purchase of an investment or acquire a business.

Investing activities are:

  • Investments in property, plant, and equipment were -1, -1, 0, -2 and -1. Total for five years was -5.
  • Purchases of investments were -44, -33, -25, -25 and -2. Total for five years was -129.
  • Sales /maturities of investments were 91, 58, 21, 24 and 14. Total for five years was 208.
  • Net cash used for investing activities was 47, 23, -4, -1 and 11. Total for five years was 76.

Stamps Cash Flow from Financing Activities

STMP net cash from financing from 2007 to 2010 were used to repurchases of treasury stock, though it was declining. The total was represented by 102 percent over the total net cash from financing for five years. In 2012, it has cash provided by 22 percent which was from other financing activities. The cash from financing activities is where we can see how the company raised cash. It shows the following:

  • Common stock issued and 1, 1, 0 and 0. Total for five years was 3.
  • Repurchases of treasury stock was -33, -27, -14, -14 and -5. Total for five years was -93.
  • Other financing activities was 0, 0, 0,-25 and 25.
  • Net cash provided by (used for) financing activities was -32, -26, -13, -40 and 20. Total for five years was -91.

Stamps Net Change in Cash

The net change in cash was cash available after paying all their expenses and obligation. It showed how much cash was made for a particular year. Below are the results:

  • Net change in cash was 32, 9, -8, -37 and 46
  • Cash at beginning of the period was 12, 44, 53, 45 and 8
  • Cash at end of the period was 44, 53, 45, 8 and 54

The cash at the end of the period was in sideways. It resulted with all in positive, though the net change in cash in 2009 and 2010 was in negative since the cash at beginning of the period was positive, still, it resulted in positive.

Stamps Free Cash Flow

Free cash flow can be determined using the operating cash flow result in less the capital expenditure and dividend paid. The following were the results:

  • Operating cash flow was 17, 12, 10, 5 and 15
  • Capital expenditure was -1, -1, 0, -2 and -1
  • Free cash flow was 16, 11, 10, 3 and 14

The free cash flow from 2007 to 2010 went down successively and jumped to 79 percent in 2011, due to the operating cash flow that was also declining and the capital expenditure in total represented at 8 percent over the total operating cash flow.

Written by Rio, Nelly and Dyne
Edited by Cris

stamps.com-inc-stmp

Stamps.com for Stamps Guide for Company Research

July 20th, 2012 Posted by Company Research Report No Comment yet

Picture: This is a card my wife wrote to my nephew a few years back. Got stamps? (Peter)

Postage stamps are by far one of the things that make any letter or mail sent more valuable. Ever wondered what’s it like without Stamps? It’s like your postages are incomplete without them. They are essential when sending mail or else people wouldn’t receive it. Of course, in these times, where everything is going online and digital, stamps are also going along with it. This explains the birth of Stamps.com

Who started Stamps.com Inc. company and why?

Stamps.com (STMP) is the brainchild of three UCLA MBA graduates – Jim McDermott, Jeff Green and Ari Engelberg with the help of Mohan Ananda. It was founded in 1996 and was launched in 1998. The company has a partnership with America Online, IBM, Microsoft, office depot, Quicken.com, and 3M.

The story goes one night when Jim McDermott, during his job search between his first and second year of business school, ran out of stamps. Then he asked why doesn’t he just buy stamps online? So he introduced the idea to his co-founders Ari and Jeff then wrote the business plan for UCLA competition.

Jim McDermott is a student of UCLA or also known as the University of California, Los Angeles.  It is a public research university in Westwood, a neighborhood of Los Angeles, California, USA. The university is organized into five undergraduate colleges, seven professional schools, and five professional Health Science schools.

What is the background of the company? Its history and development?

The company’s background and how they developed from their humble beginnings.

  • STMP was incorporated in January 1998 as Stampmaster Inc.
  • It changed its name to Stamps.com in December 1998
  • In 1998, integrated with Microsoft Word
  • In 1998, USPS Approved Beta for Internet Postage
  • STMP was the first ever USPS-licensed vendor to offer PC Postage® in a software-only business model in 1999
  • In 1999, Stamps.com included its public offering for 5 million shares – NASDAQ Symbol STMP
  • In 1999, the company announced marketing alliance with IBM
  • In 1999, launched nationwide with over 100,000 pre-registered customers
  • In 1999, Stamps.com passed the 10,000 customer mark
  • Acquired iShip.com in 1999
  • In 1999,Stamps.com announced a Partnership with 3M
  • In 1999, USPS announced approval for Internet-based postage
  • Stamps.com received investment funding from Intel Corporation in 1999
  • Stamps.com announced marketing alliance with Avery Dennison in 1999
  • Competes with E-Stamp Exits Internet Postage Business in 2000
  • Stamps.com tested PC postage program with Dutch Postal Service in 2000
  • Stamps.com & Intuit Partner, Internet Postage Integrated in New Quicken 2001 Products
  • In 2000, the firm was added to the Russell 3000 and Russell 2000 Indices
  • Forbes.com Selected Stamps.com as “Most Promising” in Best of the Web Guide in 2000
  • Stamps.com announced Alliance with Hewlett–Packard in 2000
  • Introduced My Internet Postage to office supply retail stores in 2000
  • Stamps.com had 87,360 licensed customers after 10 weeks in 2000
  • Partnered with Peachtree Accounting Software in 2001
  • Stamps.com named Ken McBride as president and CEO in 2001
  • UPS acquired iShip Assets from Stamps.com in 2001
  • Acquired E–Stamp Name, Patents in 2001
  • Stamps.com launched Version 3.0 of PC Postage Software in 2002
  • Sold over 330,000 NetStamps Label Sheets in first 6 Weeks in 2002
  • USPS approved Use of Stamps.com’s NetStamps in 2002
  • Stamps.com launched Version 2.4 of PC Postage Software in 2002
  • In 2002, Stamps.com printed 100,000,000 Internet Postage Stamp
  • Microsoft released a beta version of its office productivity suite of programs, which included an electronic postage capacity through Stamps.com in the fall of 2003

So what exactly is the nature of their business? The company’s name is self–explanatory but I guess there are things that we might not know about them yet.

What is the nature of Stamps.com Inc. business?

Stamps.com is a company that provides Internet-based mailing, postage solution and shipping services in Los Angeles, California. It renders multiple PC Postage plans with a variety of features and capabilities. It’s software utilizes e-commerce platforms to automate order by processing, managing, and shipping orders from any e-commerce source through a single interface without manual data entry.

PC postage service is associated with address verification technology verifying each destination for mail sent. PC postage business refers to Stamps’ PC Postage Service, Mailing & Shipping Supplies Store and Branded Insurance offering.

Formerly known as Stampsmaster Inc., the company has a system that let users download free windows software services that acknowledge you to print official US Postal service postage directly from your PC and printer were no special hardware is needed. The Print stamps, print shipping labels, print directly on envelopes and postage that you print will automatically deduct from your stamps.com account.

The United States Postal Service or USPS, also known as the Post Office and U.S. Mail is an independent agency which is responsible for providing postal service in the United States.

Who is running Stamps.com Inc. company and their background?

Mr. Kenneth McBride is the president and CEO of Stamps.com. As the president and CEO, he is responsible for the overall management and operations of the company. Previously, he served as the CFO and senior director of finance. He was a research analyst at Salomon Smith Barney. He experienced working in the semiconductor industry as engineer and manager. He graduated with a BS degree and holds MBA in electrical engineer from Stanford University. At the age of 44, he is the current chairman of the board of STMP.

Mr. Kyle Huebner is the CFO and co-president of Stamps. He held several positions in the company before climbing to his current status.  Previously, he worked with Baine & Company as a management consultant. He was a research analyst at J.P Morgan for 3 years and holds a B.A. Mathematics degree from Dartmouth College and MBA from Harvard University.

Research Analyst is a person who prepares investigative reports on equity securities. The research conducted by the research analyst is in an effort to inquire, examine, find or revise facts, principles, and theories. The report that this analyst prepares could include an analysis of equity securities of companies or industries.

A director is one responsible for the success of the business and thus it requires hard work from the people behind it.

Who is directing the company? How are the committees structured?

Stamps.com consists of three committees namely: audit, compensation, and nominating committee. All the members of the committee are independent directors except for the chairman, of the board in the person of Mr. Kenneth McBride.

Mr. G. Bradford Jones is a non-executive director and chairman of audit committee since 1998. He serves directorial positions in several privately held companies. He holds a B.A. Chemistry degree, M.A. Physics from Harvard University and J.D/MBA from Stanford University. Mr. Jones share insights to the company with regards to business strategy, accounting, technology and financial issues and share repurchase strategies.

Mr. Lloyd Miller is a non-executive director and chairman of compensation committee since 1992. He served as the corporate board of director in a number of public traded companies. He holds a B.A. degree from Brown University. Mr. Miller is an investor with extensive experience and knowledge in business management, investment management, accounting, finance, and capital markets.

Just a little background information for you guys. The Nominating Committee is responsible for the following: include (i) screening and recommending to our Board qualified candidates for election or appointment to our Board; (ii) recommending the number of members that shall serve on our Board; (iii) evaluating and reviewing the independence of existing and prospective directors; and (iv) reviewing and reporting on additional corporate governance matters as directed by our Board. The committee manages the process for evaluating current Board members at the time they are considered for re-nomination. After considering the appropriate skills and characteristics required by the Board; the current makeup, the results of the evaluations, and the wishes of the Board members to be re-nominated; the Nominating Committee recommends to the Board whether the individuals should be re-nominated.

Every employee has their own means of making money. My mom earns her salary through a very exhausting day at work. As for Stamps, how exactly do they make money?

How do they make money?

Stamps.com success and profit growth indicated the stability and competitiveness of the company in the market.

Revenue generates from the following sources: service and transaction fees, product revenue, insurance, photo stamps and advertising revenue. The company receives service revenue based on monthly convenience fees. With Amazon.com as their business partner, sales are recognize from the customer’s payment for postages through the market’s payment accounts. Profit of the company also comes from the licensing or use of software and intellectual property, commission in advertising and sale of products from customers and third party vendors. Other incomes were also derived from branded insurances charged to customer’s mails or packages.

Amazon.com, Inc. is an American multinational electronic commerce company with headquarters in Seattle and Washington, United States. It is the world’s largest online retailer. The company also produces consumer electronics – notably the Amazon Kindle e-book reader- and is a major provider of cloud computing services.

How do they fit into the industry they operate in?

Existing direct competitors of Stamps.com are Endicia.com or Dymo and Pitney Bowes Inc. The company also competes with the traditional method of accessing US postage like postage stamps, USPS retail and online services, Click N-Chip and those on eBay/Paypal. They also compete with the alternative to the US postal services such as FedEx and UPS. Stamps believe numbers of businesses patronize them which represent 1.5 million separate locations as well as approximately 24 million non-income generating home offices.

For a lighter note, eBay Inc. is an American multinational internet consumer-to-consumer corporation that manages eBay.com. It is an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide.

Well, online job is getting way with each and everyone’s knowledge nowadays. And of course, when we speak of job; let say it is the bread; butter is always next. And that is the payment. So for additional information, there is this called PayPal. What is it? PayPal is a global e-commerce business that allows payments and money transfers to be made through the Internet. Online money transfers serve as electronic alternatives to paying with traditional paper methods, such as checks and money orders. PayPal is a subsidiary of eBay Inc.

Who are their suppliers and customers?

The company customers are individuals, small businesses, home offices, medium- size businesses and enterprises. The company supplies PC Postage, mailing and shipping, branded insurance, and photo stamps. Due to limited basis, they admit third parties to render products and promotions to their customer base. Stamps provides USPS special services such as delivery confirmation TM, signature confirmation TM, registered mail, certified mail, insured mail, return receipt, collect on delivery and restricted delivery to their mail pieces.

By the way, online PC Postage methods rely upon application software on the customer’s computer contacting a postal security device at the office of the postal service. Postage can now be printed in the form of an electronic stamp or e-stamp from a personal computer using a system called Information Based Indicia.

A company that treats their employees well is served well. At least that’s what I know. Now that we’ve covered pretty much what lies behind Stamps, I guess it’s high time that we tackle how they treat their employees and what are their pay and working conditions like.

How do they treat their employees? What is the pay and working condition like?

Stamps compensation was designed to attract and retain executives and employees who have the skills and experience necessary to achieve the corporate goals.

Non-executive member of the board receives an annual retainer’s fee and an additional fee on other services rendered. A new member of the board has an option to purchase shares of common stock which happens upon their initial election or appointment. Currently, the executive receives the following compensations: base salary, incentive pay, and equity participation. The company provides post-termination compensation arrangements to some executive members upon termination without cause or a change in control. Employees of STMP enjoy the following benefits: medical and dental insurance, 401(k), life insurance, charitable gift matching, and employee stock purchase plan.  Employee Stock Purchase Plan (ESPP) is awarded to eligible employees wherein they are allowed to purchase shares of common stock at semi-annual intervals which are deducted in their accumulated payroll.

As far as our dear researchers, Janice and Karla know, a retainer fee is a fixed amount of money that a client agrees to pay, in advance, to secure the services of a consultant or freelancer. The fee is typically not associated with the success of a project or based on achieving particular results. A retainer is often paid in a single, lump sum or an ongoing basis (typically monthly or quarterly).

Summary Compensation Table

The following table summarizes all compensation paid to our Executive Officers and Directors in each of the three most recently completed fiscal years: 2009, 2010 and 2011.

Gossips

On May 6, 2004, Stamps.com, the company believed that it was approximately 12 percent below the 50 percent level that triggered impairment of its NOL asset.

According to investor.stamps.com on June 6, 2012, Stamps.com’s customer service team named finalist in2012 American Business award. “We’re very much honored to be a 2012 ABA Customer Service Team of the Year Finalist,” said Chairman and CEO Ken McBride. “The Stamps.com High Volume Shipping Customer Service Team is the result of a company-wide commitment to investing in customer support to ensure superior service. Agents are expertly trained to understand and resolve all shipping issues so that we fulfill our commitment.”

On May 23, 2012, Stamps.com co-president and chief financial officer Kyle Huebner named TechAmerica’s overall financial star of the year. “Kyle has been a key part of the management team and overall company effort that drove our revenue and profitability to record levels in 2011,” said Stamps.com Chairman and Chief Executive Officer Ken McBride. “He’s a dedicated professional who has made countless lasting contributions to our success and we congratulate him on receiving this significant honor from TechAmerica.”

However from news.investors.com on June 1, 2012, Stocks Open Sharply Lower After Weak Jobs Report. Stamps.com (STMP) posted a 5 percent loss, diving to retest its March lows.

Stamps.com have proven the good quality of their customer team services after being named finalist in the “Customer Service Team of the Year” category in the 2012 American Business Awards, which is a well-known award giving body. With this, the reputation and image of the company will be strengthened. Another plus factor for STMP is the recent involvement of their co-president and CFO Kyle Huebner as TechAmerica’s Overall Financial Star of the Year. It is evident that their CFO has been effective in doing his role and that the award is in line with his field. That means he is qualified and well suited for the position. However, a recent 5 percent lost with regards to their stocks could greatly affect their operations.

Researched and Written by Karla, Meriam, Janice, Florence

Edited by Cris

pont blank soulution inc

SS Body Armor (PBSOQ) Cash Flow is Shaking

July 19th, 2012 Posted by Company Research Report No Comment yet

Balance Sheet

SS Body Armor I Inc is financially good as far as its current ratio is concerned, however, if inventory is excluded, some of its obligations will not be settled since the funds are not sufficient to pay all current obligations. Because of this, the company must have to sell more of its inventory so that the business will continue its operation.

Financial Liquidity

Financial liquidity of the company is important. Investors are attracted to firms with stable financial. For SS Armor I Inc, the results of its financial liquidity from 2005 to 2008 are as shown below:

Particulars 2005 2006 2007 2008 Ave.
Current Ratio 1.01 1.15 1.31 1.24 1.18
Quick Ratio .79 .90 .92 .78 .85
Working Capital 2 19 35 20 19
  • The current ratio averaged 1.18 as shown in the above table, this means the current asset exceeded current liability by 18 percent.
  • Quick ratio or monetary assets were .85 average against the current liabilities of the company, this means that if inventory is excluded the current asset was 15 percent lesser than its current liabilities.
  • The average working capital was $19, with positive results over the past 4 years. The trend is going up from 2005 to 2007 but down in 2008 by 42 percent.

The company’s working capital showed a high increase in 2006 and 2007 by 85 percent and 84 percent respectively, but, went down by 42 percent in 2008. However, records in 2009 showed that its average in three-quarters was $10.5 or it continues to go downtrend.

Looking back at the company’s line of business, the above trend in the generation of cash is normal since its products are not necessarily in nature, provided,  that there is a continuous flow of transactions in the business, meaning there is in and out the transaction on its products each period up to the present. If none, then the business is in critical condition.

Cash Conversion Cycle (CCC)

Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery.

CCC is important for retailers and similar businesses. This illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company’s bottom line. For SS Body Armor I Inc, results are:

  • The inventory conversion period was 68 days or more than 2 months. This is the average days to convert its inventory to sales.
  • Receivable conversion period was 66. The company’s average days to collect its receivable was 66 days or more than 2 months.
  • Payable conversion period was 34. The company’s payable was 34-day average to pay. Usually, this is the company’s credit term given by its supplier.
  • Cash conversion cycle was an average of 100 days or more than 3 months.
Particulars 2005 2006 2007 2008 Ave
Inventory Conversion Period 34 60 62 115 68
Receivable Conversion Period 57 55 52 101 66
Payable Conversion Period 13 33 22 69 34
Cash Conversion Cycle 79 82 92 146 100

Leverage

As to the claimant of the company’s assets in case of bankruptcy, it is also important to know who is in control of the company; creditors, banks or the shareholders? For SS Body Armor I Inc, the creditors have 80 percent claims on the total assets of the company while the owners or shareholders have only 15 percent claims.   To further understand, below is the financial leverage ratios of the company:

  • The debt ratio was an average of .85, which means that the company’s debt capital was 85 percent of total assets.
  • Debt to equity ratio was 15.3 averages.  The company was highly indebted, with 1530 percent against equity.
  • Solvency ratio was -.06, which means that the company is insolvent.  It could hardly pay all debt obligations as they became due.
  • Current liabilities to total assets was .80 which shows the company’s current liabilities was an 80 percent average of total assets, so the creditors have 80 percent claims on the total assets.
  • Stockholders’ equity to total assets was .15.  The owners’ equity was only 15 percent average of total assets, therefore, the shareholders have 15 percent claims on the total assets of the company.
Particulars 2005 2006 2007 2008 Ave
Debt Ratio .98 .86 .81 .76 .85
Debt to Equity 47.66 6.29 4.18 3.19 15.3
Solvency Ratio -.22 -.04 .06 -.05 -.06
Current Liabilities to Total Assets .97 .86 .73 .67 .80
Stockholder’s Equity to Total Assets .02 .14 .19 .24 .15

SS Body Armor I Inc is highly leveraged and there’s a rare chance that all its obligations will be settled as to the company’s total resources is concerned. The company’s debt obligation has been just 15 percent behind, nearly equal its total assets, and 1530 percent against owners’ equity and its ability to pay all debts was uncertain, so the company was insolvent.

Property, Plant & Equipment (PPE)

Property, plant, and equipment is still efficient for the next three years since its net book value was equivalent to 60 percent of the original cost, after deducting accumulated depreciation of 40 percent.

Therefore, the company could still continue to run its business without investing additional fixed assets and to wait until these are fully depreciated.  Rio, part of Numbers team, provided the detail data below followed by the interpretation.

Particulars

2005

2006

2007

2008

Ave

Property, Plant & Equipment, Gross 5.9 4.4 9.2 15.4 6.98
Accumulated Depreciation 3.4 2.6 3.2 4.6 2.76
Property, Plant & Equipment, Net 2.5 1.8 6 10.8 4.21

The original cost of the company’s investment in PPE which was capitalized was $6.98 average, deducted by its accumulated depreciation of $2.76 resulted to net book value of $4.21. If the estimated life of the fixed asset is 5 years, then the remaining life would then be 3 years only considering that the accumulated depreciation was 40 percent of the original cost and the net book value was 60 percent (remaining cost of PPE before it is fully depreciated).

Efficiency

Inventory turnover ratio measures how well the company can manage to sell its inventory, or how well the company converts inventory into sales? If a company sells its inventory very well the turnover will be low. When we speak of receivable turnover ratio, it is the firm’s effectiveness in extending credit as well as collecting debts while accounts payable turnover ratio measures the number of times a company pays its suppliers during a specific period. And, asset turnover ratio measures the efficiency with which a company’s assets generate sales.   For SS Body Armor I Inc, results are as follows:

Particulars

2005

2006

2007

2008

Ave

Inventory Turnover Ratio 11 6 6 3 6
Receivable Turnover Ratio 6 7 7 4 6
Payable Turnover Ratio 35 14 21 7 19
Fixed Asset Turnover Ratio 138 139 54 15 52
  • The average inventory turnover ratio was 6, which means that the inventory turns 6 times each period.
  • The receivable turnover ratio was 6, which means the company’s receivable turns 6 times average each period.
  • The payable turnover ratio was 19 times turn per year in five years.
  • The fixed asset turnover ratio was 52 times average each period.  This is the average turnover per period in five years.

Income Statement

Profitability

The company’s profitability starting with their net margins was not looking good for the past years. It was only in 2007 wherein operations did well and got a 1.9 percent. Their asset turnover tends to be inversely related to the net profit margin resulting to higher volume but low profit. The return on asset was not favorable due to the net losses incurred.

Financial leverage depicts a high portion of the return on equity which is the result of debt. Therefore, return on equity shows unfavorable returns which resulted in bankruptcy as reported by DJ Dow Jones, “PBSI has debuted a chapter 11 plan. But what the creditors and equity holders did instead, they secured a $25 million replacement bankruptcy financing package for Point Blank.” To know, how they end up with this statement, let us give a look at the profitability ratios from 2005 – 2008 as shown in the table below:

Particulars

2005 2006 2007 2008
Net margin  in percent -8.2 -2.1 1.9 -3.3
Asset turnover 2.9 1.86 2.11 1.17
Return on asset  in percent -24.0 -3.88 4.08 -3.83
Financial leverage in percent 1010 7659 2573 1316
Return on equity  in percent -242 -298 104.8 -50.5
  • Net margin or simply is the after tax profit a company generated for each dollar of sales. This tells us that net sales went down in 2005, 2006 and 2008; only in 2007 sales went up. Meaning net margins for the past years were not really doing well.
  • Asset turnover measures the efficiency of the company to convert its assets into revenues. This tells us that they were earning from their assets, meaning in 2005 sales from asset turn the highest with 2.9 times compared to 2006 and 2008 but in 2007 it slightly recovered to 2.1.
  • Return on assets tells us how much profit the company generated for each dollar of total assets.  With SS Body Armor I Inc, it earned -24.0, -3.88, 4.08, and -3.83 from their total assets from 2005 to 2008.

Income

Income from sales to the U.S. Military comprises the largest portion of their business, followed by sales to federal, state and local law enforcement agencies, including correctional facilities plus their sports and health products. Their ability to increase their sales is highly dependent on the demand for their products. Nelly, of our Numbers team, laid the income of the company from 2005 to three-quarters of 2009 as shown below:

Particulars

2005

2006

2007

2008

2009 (3Q)

Net sales in thousands

343,561

254,105

320,796

164,922

129,480

Gross profit

58,550

56,980

63,540

41,830

6,750

Operating income (loss)

-25,919

-2,881

11,676

-7,705

-15,530

Income (loss) before income tax

-28,268

-4,954

10,995

-8,549

-13,940

Net income (loss)

-28,140

-5,322

6,206

-5,402

-8,070

  • Net sales in thousands of dollars tell us that their yearly earnings growth ratio of -26, 26.2, and -48.5 has recovered in 2007and declined in 2008. Even their three-quarters total of 2009 amounted only 48 percent of the yearly average of 270,846 thousand dollars. This means the company was in a difficult period in maintaining their sales.
  • Gross profit was the result after deducting the cost of sales, manufacturing and warehouse expenses; tells us that their yearly growth ratio of -2.7, 12, and-34, same as net sales increase in 2007 and decreased in 2008. Three-quarters of 2009 amounted only 12 percent of the yearly average of 55,225 thousand dollars. This means gross profit is slipping down wherein it has been affected by variations of product mix, price changes in response to competitive factors and fluctuations in raw material costs and vendor programs in addition to inventory adjustments caused by excess and obsolete inventory.
  • Operating income (loss) was the result after deducting the following 1.) selling and marketing expenses, including commissions and marketing programs; 2.) general and administrative expenses, including administrative salaries, professional fees, and other office expenses; 3.) research and development expenses; and 4.) other expenses associated with our operations. This tells us that their yearly growth ratio of -88, 305, and -34, operating income has unpredictably increased in 2007 due to fluctuating orders from the US military and other government agencies plus market costs.
  • Income (loss) before income tax was the income generated after deducting interest income and expenses, net of non-operating cost. Still showing a growth only in 2007 against the previous and 2008 and three-quarters of 2009.
  • Therefore their net income (loss), showed that the company’s net earnings were not gainfully profitable only in 2007 when they tighten up on their revenues and cost with strict strategic planning and management but still it declines down in 2008 and 2009.

Net sales showed an increase in 2007 because of the increase in sales by the U.S. Military and domestic market then declined in 2008. This was primarily due to delays in military and contract awards. Therefore, we can say that delays affected net sales and results of operation significantly. And operations were greatly affected by competitive factors of price changes, raw material costs, and inventory. Thus, net income resulted in a deficit despite their implementation of their strategic plans and reshaping their focus to increase their market share and sales.

Expenses

Moving forward to the expenses; the table below will show where areas their allotted money when it comes to their expenses from 2005 to 2008 and three-quarters of 2009.

Particulars

2005

2006

2007

2008

2009 (3Q)

Cost of goods sold in a thousand 285,011 197,125 257,256 123,092 122,740
Selling, general administrative  expense 57,223 42,539 40,921 32,359 19,050
Unusual expense (income) 27,246 17,322 10,950 17,170 1,740
Interest income (expense) -551 -127 110 -411 220
Income tax -250 286 4,636 -2,393 -6,670
Minority interest expense 122 82 153 -754 -590
  • Cost of goods sold in the thousands has an average of 215,621. This tells us that growth decreased by -30.8 percent in 2006 then increased in 2007 to 30.5 due to increase also in sales but decrease down to 52 percent in 2008 and 2009 three quarter accounts 57 percent of average.  This means the cost has been fluctuating depending on the period of the sale of the products.
  • While their selling, general and administrative expense has an average of 43,260.50.  This shows a decreasing trend of -25.6, -3.8, and -21, meaning they were tightening up their expenses.
  • Their unusual expense (income), an average of 18,172, represented the cost of investigations and litigations the company has been facing with their US military and government contracts. And this shows a high cost and burden to the company for the last four years.
  • Interest income (expense), net non-operating has an average of -244.75.  This shows the interest on their obligations with financing institutions.
  • Their income tax had an average of 569.75. This represents the taxes incurred in their income generated.
  • And minority interest expense had an average of -99.25. This was interesting in their minority and non-controlling subsidiaries which declined down in 2008 and 2009.

In their expenses, the yearly average of cost of goods sold accounts 79.6 percent of average net sales, while their selling, general and administrative expenses account 16 percent, unusual expense (income) accounts 6.7, interest income (expense) accounts -0.09, income tax accounts 0.21 and minority interest expense -0.036. Therefore the remaining -3 percent represents their average net loss.

Cash Flow

Many investors or some analyst was first evaluating the cash flow than the result of the income statement and the balance sheet. Sometimes in one company, it resulted they have a lot of margins but no cash coming in, probably the company allowed on credit but it was not effective in handling their collection. Also from the viewpoint of cash flow, you can determine what kind of the company it does. Could they have enough funds for the operation itself; to sustain their future growth or they need to refinance.

Now, the question is do the SS Body Armor I Inc would be one of the best company to invest in? Is PBSOQ belongs to what grade if you rated into as A, B or C?

Based on their cash flow, SS Body Armor I Inc was graded C and was not a good company to invest in; just to emphasize, their free cash flow results from 2006 to 2008, indicates a financial distress in the future. Data below detailed the outcome of the cash flow from operating activities up to the total debt ratio in percentage.

Cash Flow from Operating

Table 1

Particulars

2005

2006

2007

2008

   2009(Q1-Q3)
Net Income -28.14 -5.32 6.21 -5.4 -13.39
Depreciation/depletion 0.62 0.64 0.64 1.48 3.36
Deferred taxes -20.26 1.06 26.64 -2.95 -17.68
Non-cash Items 21.07 1.64 3.89 5.03 1.12
Changes in working capital 60.25 -19.64 -37.36 -16.9 105.45
Cash from operating activities 33.53 -21.62 0.01 -18.74 78.85

The ideal result of cash flow from operating activities must be positive; it should exceed net income. As we can see in table 1, the net income was negative except in 2007; with positive result of 186 percent. In 2009, based on the total of the three-quarters there was a net loss of 60 percent. Depreciation in 2008 and 2009 stood up by 57 and 56 percent, respectively. Deferred taxes and non-cash items were in sideways. The changes in working capital were surprisingly happening in 2009, by 116 percent compared from the last three years falls in negative results. The changes in 2009 had a great impact on the cash from operating, reached at 124 percent. It signified the company’s operational inefficiency.

Cash from operating activities was an act of the cash where the company can determine how much cash they can utilize from its operation. The starting line will be the net income earned by adding back all the non-cash items, depreciation and the changes in working capital.

To dig it further; net income was an income left after the company paid its direct cost, operating expenses, and taxes or in totality, it was called “the bottom line result” in business. Depreciation/ depletion was an allocation of the cost of the asset, it will be added back since we are computing the cash flow and depreciation does not involve cash.

Deferred tax is also known as future income tax.  Non-cash items include amortization, unrealized gains or losses from investments, allowances for doubtful accounts or returns and write-downs of inventory. With changes in working capital, it was a change coming from the current assets (like cash, accounts receivable and inventory) also from current liabilities (like accounts payable or current portion of the debt which payable in 12 months not exceeds in one year).

Cash from Investing Activities

Cash from investing activities denotes companies’ interest which they might also interested in. SS Body Armor I Inc invested in capital expenditures and other investments. A capital expenditure is an outlay of cash to acquire or upgrade a business asset. Common examples include the property plant and equipment or the cost of significant upgrades to an existing facility.

The cash flow from investing activities of SS Body Armor I Inc was contributed by the capital expenditures (please refer table 2 below), which the trend from 2005 to 2007 increased by 85 percent and in 2008 decreased by 28 percent. It had an inflow from other investing cash flow items, represented at 7 percent for a total of five years.

Table 2

Particulars

2005

2006

2007

2008

Capital expenditures

-0.73

-0.46

-4.82

-3.76

Other investing cash flow items, total

0

.57

.04

0

Cash from investing activities

-0.73

0.11

-4.78

-3.75

Cash Flow from Financing Activities

Cash flow from financing activities was a cash flow that a company acquires from a financing round instead of from operations. That is, cash flow from financing activities is the net amount that a company receives from issuing stock, bonds, and net after paying dividends. Dyne defined each term to help us understand the data:

Financing cash flow items include financing costs incurred like the cost to acquire debt. Also, when employees of a company exercise their stock options, the company can claim a tax benefit.  Total cash dividends paid, if the company pays dividends, that cash outflow is recorded here.

Issuance (Retirement) of stock, net;  if the company issues new stock or if the company buys back (retiree) its shares while issuance (retirement) of debt, net; if the company issues new bonds or if the company buys back (retiree) bonds or enters into a long-term debt.

The cash from financing activities of SS Body Armor I Inc results (see table 3 below) in 2005, -257 percent, meaning the company enters in a long term debt but in 2006 to 2008 it was in both positive, an average of 55 percent; it means the company issues new stock. But in 2009 the company resulted to negative in Q3, compared to 78 percent increase from the Q1. It tells us that the company had again a long term debt from Q1 to Q3 and the trend is continuing.

Table 3

Particulars

2005

2006

2007

2008

2009 ( Q1-Q3)

Financing cash flow items 0.58
Total cash dividends paid -0.34
Issuance (retirement) of stock, net -10.53 21.44 0 .09
Issuance (retirement) of debt, net -21.14 -1.04 4.8 23.32
Cash from financing activities -32.02 20.4 4.8 23.99 -71.77

Cash Flow Efficiency

The free cash flow of SS Body Armor I Inc showed in table 4, only in 2005, the company had sufficient of funds while from 2006 to 2008 they were insufficient, total in three years at 166 percent. It means the company would run into debt or will issue an additional stock to support the capital expenditures maintenance.

Free cash flow measures the company’s capability to cover capital expenditures maintenance and determine if the company has still funds for future expansion. Through the results from operating activities less the capital expenditures, we can determine the free cash flow available.

Table 4

Particulars 2005 2006 2007 2008
Cash from operating activities 33.53 -21.62 0.01 -18.74
Capital expenditures -0.73 -0.46 -4.82 -3.76
Free cash flow 32.8 -22.08 -4.81 -22.5

The total debt ratio measures a company’s ability to pay its debt or company’s total obligation. Using the result from the operating activities over the total liabilities per year, we can determine how much available cash would the company able to pay. The total debt ratio of SS Body Armor I Inc, shown in table 5, indicated insufficiency of funds based on the total result in five years; represents at -9 percent or in every $1 of debt they would only able to pay at -.009. It tells us the results would lead to bankruptcy. No money lenders would lend you money if one company does not even maintain to pay its operating maintenance.

Table 5

Particulars 2005 2006 2007 2008
Cash from operating activities 33.53 -21.62 0.01 -18.74
Total liabilities 122.95 127.88 126.19 95.48
Total debt ratio in percentage 27 -17 0 -20

Written by Rio, Nelly, and Dyne

Edited by Cris

pont blank soulution inc

SS Body Armor Inc Cash Flow is Shaking Might Fall Into Bankruptcy.

July 19th, 2012 Posted by Company Updates No Comment yet

SS Body Armor Inc Balance Sheet

SS Body Armor Inc Financial Liquidity

SS Body Armor Inc financial liquidity of the company is important. Investors are attracted to firms with stable financial. For SS Armor I Inc, the results of its financial liquidity from 2005 to 2008 are as shown below:

Particulars 2005 2006 2007 2008 Ave.
Current Ratio 1.01 1.15 1.31 1.24 1.18
Quick Ratio .79 .90 .92 .78 .85
Working Capital 2 19 35 20 19
  • The current ratio averaged 1.18 as shown in the above table, this means the current asset exceeded current liability by 18 percent.
  • Quick ratio or monetary assets were .85 average against the current liabilities of the company, this means that if inventory is excluded the current asset was 15 percent lesser than its current liabilities.
  • The average working capital was $19, with positive results over the past 4 years. The trend is going up from 2005 to 2007 but down in 2008 by 42 percent.

SS Body Armor’s working capital showed a high increase in 2006 and 2007 by 85 percent and 84 percent respectively, but, went down by 42 percent in 2008. However, records in 2009 showed that its average in three-quarters was $10.5 or it continues to go downtrend.

Looking back at the company’s line of business, the above trend in the generation of cash is normal since its products are not necessarily in nature, provided,  that there is a continuous flow of transactions in the business, meaning there is in and out the transaction on its products each period up to the present. If none, then the business is in critical condition.

Cash Conversion Cycle (CCC)

Usually, a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery.

CCC is important for retailers and similar businesses. This illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company’s bottom line. For SS Body Armor I Inc, results are:

  • The inventory conversion period was 68 days or more than 2 months. This is the average days to convert its inventory to sales.
  • Receivable conversion period was 66. The company’s average days to collect its receivable was 66 days or more than 2 months.
  • Payable conversion period was 34. The company’s payable was 34-day average to pay. Usually, this is the company’s credit term given by its supplier.
  • Cash conversion cycle was an average of 100 days or more than 3 months.
Particulars 2005 2006 2007 2008 Ave
Inventory Conversion Period 34 60 62 115 68
Receivable Conversion Period 57 55 52 101 66
Payable Conversion Period 13 33 22 69 34
Cash Conversion Cycle 79 82 92 146 100

Leverage

As to the claimant of the company’s assets in case of bankruptcy, it is also important to know who is in control of the company; creditors, banks or the shareholders? For SS Body Armor I Inc, the creditors have 80 percent claims on the total assets of the company while the owners or shareholders have only 15 percent claims.   To further understand, below is the financial leverage ratios of the company:

  • The debt ratio was an average of .85, which means that the company’s debt capital was 85 percent of total assets.
  • Debt to equity ratio was 15.3 averages.  The company was highly indebted, with 1530 percent against equity.
  • Solvency ratio was -.06, which means that the company is insolvent.  It could hardly pay all debt obligations as they became due.
  • Current liabilities to total assets was .80 which shows the company’s current liabilities was an 80 percent average of total assets, so the creditors have 80 percent claims on the total assets.
  • Stockholders’ equity to total assets was .15.  The owners’ equity was only 15 percent average of total assets, therefore, the shareholders have 15 percent claims on the total assets of the company.
Particulars 2005 2006 2007 2008 Ave
Debt Ratio .98 .86 .81 .76 .85
Debt to Equity 47.66 6.29 4.18 3.19 15.3
Solvency Ratio -.22 -.04 .06 -.05 -.06
Current Liabilities to Total Assets .97 .86 .73 .67 .80
Stockholder’s Equity to Total Assets .02 .14 .19 .24 .15

SS Body Armor Inc is highly leveraged and there’s a rare chance that all its obligations will be settled as to the company’s total resources is concerned. The company’s debt obligation has been just 15 percent behind, nearly equal its total assets, and 1530 percent against owners’ equity and its ability to pay all debts was uncertain, so the company was insolvent.

Property, Plant & Equipment (PPE)

Property, plant, and equipment is still efficient for the next three years since its net book value was equivalent to 60 percent of the original cost, after deducting accumulated depreciation of 40 percent.

Therefore, the company could still continue to run its business without investing additional fixed assets and to wait until these are fully depreciated.  Rio, part of Numbers team, provided the detail data below followed by the interpretation.

Particulars

2005

2006

2007

2008

Ave

Property, Plant & Equipment, Gross 5.9 4.4 9.2 15.4 6.98
Accumulated Depreciation 3.4 2.6 3.2 4.6 2.76
Property, Plant & Equipment, Net 2.5 1.8 6 10.8 4.21

The original cost of the company’s investment in PPE which was capitalized was $6.98 average, deducted by its accumulated depreciation of $2.76 resulted to net book value of $4.21. If the estimated life of the fixed asset is 5 years, then the remaining life would then be 3 years only considering that the accumulated depreciation was 40 percent of the original cost and the net book value was 60 percent (remaining cost of PPE before it is fully depreciated).

Efficiency

Inventory turnover ratio measures how well the company can manage to sell its inventory, or how well the company converts inventory into sales? If a company sells its inventory very well the turnover will be low. When we speak of receivable turnover ratio, it is the firm’s effectiveness in extending credit as well as collecting debts while accounts payable turnover ratio measures the number of times a company pays its suppliers during a specific period. And, asset turnover ratio measures the efficiency with which a company’s assets generate sales.   For SS Body Armor I Inc, results are as follows:

Particulars

2005

2006

2007

2008

Ave

Inventory Turnover Ratio 11 6 6 3 6
Receivable Turnover Ratio 6 7 7 4 6
Payable Turnover Ratio 35 14 21 7 19
Fixed Asset Turnover Ratio 138 139 54 15 52
  • The average inventory turnover ratio was 6, which means that the inventory turns 6 times each period.
  • The receivable turnover ratio was 6, which means the company’s receivable turns 6 times average each period.
  • The payable turnover ratio was 19 times turn per year in five years.
  • The fixed asset turnover ratio was 52 times average each period.  This is the average turnover per period in five years.

SS Body Armor Inc Income Statement

Profitability

The company’s profitability starting with their net margins was not looking good for the past years. It was only in 2007 wherein operations did well and got a 1.9 percent. Their asset turnover tends to be inversely related to the net profit margin resulting to higher volume but low profit. The return on asset was not favorable due to the net losses incurred.

Financial leverage depicts a high portion of the return on equity which is the result of debt. Therefore, return on equity shows unfavorable returns which resulted in bankruptcy as reported by DJ Dow Jones, “PBSI has debuted a chapter 11 plan. But what the creditors and equity holders did instead, they secured a $25 million replacement bankruptcy financing package for Point Blank.” To know, how they end up with this statement, let us give a look at the profitability ratios from 2005 – 2008 as shown in the table below:

Particulars

2005 2006 2007 2008
Net margin  in percent -8.2 -2.1 1.9 -3.3
Asset turnover 2.9 1.86 2.11 1.17
Return on the asset  in percent -24.0 -3.88 4.08 -3.83
Financial leverage in percent 1010 7659 2573 1316
Return on equity  in percent -242 -298 104.8 -50.5
  • Net margin or simply is the after-tax profit a company generated for each dollar of sales. This tells us that net sales went down in 2005, 2006 and 2008; only in 2007 sales went up. Meaning net margins for the past years were not really doing well.
  • Asset turnover measures the efficiency of the company to convert its assets into revenues. This tells us that they were earning from their assets, meaning in 2005 sales from asset turn the highest with 2.9 times compared to 2006 and 2008 but in 2007 it slightly recovered to 2.1.
  • Return on assets tells us how much profit the company generated for each dollar of total assets.  With SS Body Armor I Inc, it earned -24.0, -3.88, 4.08, and -3.83 from their total assets from 2005 to 2008.

Income

Income from sales to the U.S. Military comprises the largest portion of their business, followed by sales to federal, state and local law enforcement agencies, including correctional facilities plus their sports and health products. Their ability to increase their sales is highly dependent on the demand for their products. Nelly, of our Numbers team, laid the income of the company from 2005 to three-quarters of 2009 as shown below:

Particulars

2005

2006

2007

2008

2009 (3Q)

Net sales in thousands

343,561

254,105

320,796

164,922

129,480

Gross profit

58,550

56,980

63,540

41,830

6,750

Operating income (loss)

-25,919

-2,881

11,676

-7,705

-15,530

Income (loss) before income tax

-28,268

-4,954

10,995

-8,549

-13,940

Net income (loss)

-28,140

-5,322

6,206

-5,402

-8,070

  • Net sales in thousands of dollars tell us that their yearly earnings growth ratio of -26, 26.2, and -48.5 has recovered in 2007and declined in 2008. Even their three-quarters total of 2009 amounted only 48 percent of the yearly average of 270,846 thousand dollars. This means the company was in a difficult period in maintaining their sales.
  • Gross profit was the result after deducting the cost of sales, manufacturing and warehouse expenses; tells us that their yearly growth ratio of -2.7, 12, and-34, same as net sales increase in 2007 and decreased in 2008. Three-quarters of 2009 amounted only 12 percent of the yearly average of 55,225 thousand dollars. This means gross profit is slipping down wherein it has been affected by variations of product mix, price changes in response to competitive factors and fluctuations in raw material costs and vendor programs in addition to inventory adjustments caused by excess and obsolete inventory.
  • Operating income (loss) was the result after deducting the following 1.) selling and marketing expenses, including commissions and marketing programs; 2.) general and administrative expenses, including administrative salaries, professional fees, and other office expenses; 3.) research and development expenses; and 4.) other expenses associated with our operations. This tells us that their yearly growth ratio of -88, 305, and -34, operating income has unpredictably increased in 2007 due to fluctuating orders from the US military and other government agencies plus market costs.
  • Income (loss) before income tax was the income generated after deducting interest income and expenses, net of non-operating cost. Still showing a growth only in 2007 against the previous and 2008 and three-quarters of 2009.
  • Therefore their net income (loss), showed that the company’s net earnings were not gainfully profitable only in 2007 when they tighten up on their revenues and cost with strict strategic planning and management but still it declines down in 2008 and 2009.

Net sales showed an increase in 2007 because of the increase in sales by the U.S. Military and domestic market then declined in 2008. This was primarily due to delays in military and contract awards. Therefore, we can say that delays affected net sales and results of operation significantly. And operations were greatly affected by competitive factors of price changes, raw material costs, and inventory. Thus, net income resulted in a deficit despite the implementation of their strategic plans and reshaping their focus to increase their market share and sales.

Expenses

Moving forward to the expenses; the table below will show where areas their allotted money when it comes to their expenses from 2005 to 2008 and three-quarters of 2009.

Particulars

2005

2006

2007

2008

2009 (3Q)

Cost of goods sold in a thousand 285,011 197,125 257,256 123,092 122,740
Selling, general administrative  expense 57,223 42,539 40,921 32,359 19,050
Unusual expense (income) 27,246 17,322 10,950 17,170 1,740
Interest income (expense) -551 -127 110 -411 220
Income tax -250 286 4,636 -2,393 -6,670
Minority interest expense 122 82 153 -754 -590
  • Cost of goods sold in the thousands has an average of 215,621. This tells us that growth decreased by -30.8 percent in 2006 then increased in 2007 to 30.5 due to increase also in sales but decrease down to 52 percent in 2008 and 2009 three quarter accounts 57 percent of average.  This means the cost has been fluctuating depending on the period of the sale of the products.
  • While their selling, general and administrative expense has an average of 43,260.50.  This shows a decreasing trend of -25.6, -3.8, and -21, meaning they were tightening up their expenses.
  • Their unusual expense (income), an average of 18,172, represented the cost of investigations and litigations the company has been facing with their US military and government contracts. And this shows a high cost and burden to the company for the last four years.
  • Interest income (expense), net non-operating has an average of -244.75.  This shows the interest on their obligations with financing institutions.
  • Their income tax had an average of 569.75. This represents the taxes incurred in their income generated.
  • And minority interest expense had an average of -99.25. This was interesting in their minority and non-controlling subsidiaries which declined down in 2008 and 2009.

In their expenses, the yearly average of cost of goods sold accounts 79.6 percent of average net sales, while their selling, general and administrative expenses account 16 percent, unusual expense (income) accounts 6.7, interest income (expense) accounts -0.09, income tax accounts 0.21 and minority interest expense -0.036. Therefore the remaining -3 percent represents their average net loss.

SS Body Armor Inc Cash Flow

Many investors or some analyst was first evaluating the cash flow than the result of the income statement and the balance sheet. Sometimes in one company, it resulted they have a lot of margins but no cash coming in, probably the company allowed on credit but it was not effective in handling their collection. Also from the viewpoint of cash flow, you can determine what kind of the company it does. Could they have enough funds for the operation itself; to sustain their future growth or they need to refinance.

Now, the question is do the SS Body Armor I Inc would be one of the best company to invest in? Is PBSOQ belongs to what grade if you rated into as A, B or C?

Based on their cash flow, SS Body Armor I Inc was graded C and was not a good company to invest in; just to emphasize, their free cash flow results from 2006 to 2008, indicates a financial distress in the future. Data below detailed the outcome of the cash flow from operating activities up to the total debt ratio in percentage.

Cash Flow from Operating

Table 1

Particulars

2005

2006

2007

2008

   2009(Q1-Q3)
Net Income -28.14 -5.32 6.21 -5.4 -13.39
Depreciation/depletion 0.62 0.64 0.64 1.48 3.36
Deferred taxes -20.26 1.06 26.64 -2.95 -17.68
Non-cash Items 21.07 1.64 3.89 5.03 1.12
Changes in working capital 60.25 -19.64 -37.36 -16.9 105.45
Cash from operating activities 33.53 -21.62 0.01 -18.74 78.85

The ideal result of cash flow from operating activities must be positive; it should exceed net income. As we can see in table 1, the net income was negative except in 2007; with positive result of 186 percent. In 2009, based on the total of the three-quarters there was a net loss of 60 percent. Depreciation in 2008 and 2009 stood up by 57 and 56 percent, respectively. Deferred taxes and non-cash items were in sideways. The changes in working capital were surprisingly happening in 2009, by 116 percent compared from the last three years falls in negative results. The changes in 2009 had a great impact on the cash from operating, reached at 124 percent. It signified the company’s operational inefficiency.

Cash from operating activities was an act of where the company can determine how much cash they can utilize from its operation. The starting line will be the net income earned by adding back all the non-cash items, depreciation and the changes in working capital.

To dig it further; net income was an income left after the company paid its direct cost, operating expenses, and taxes or in totality, it was called “the bottom line result” in business. Depreciation/ depletion was an allocation of the cost of the asset, it will be added back since we are computing the cash flow and depreciation does not involve cash.

Deferred tax is also known as future income tax.  Non-cash items include amortization, unrealized gains or losses from investments, allowances for doubtful accounts or returns and write-downs of inventory. With changes in working capital, it was a change coming from the current assets (like cash, accounts receivable and inventory) also from current liabilities (like accounts payable or current portion of the debt which payable in 12 months not exceeds in one year).

Cash from Investing Activities

Cash from investing activities denotes companies’ interest which they might also interested in. SS Body Armor I Inc invested in capital expenditures and other investments. A capital expenditure is an outlay of cash to acquire or upgrade a business asset. Common examples include the property plant and equipment or the cost of significant upgrades to an existing facility.

The cash flow from investing activities of SS Body Armor I Inc was contributed by the capital expenditures (please refer table 2 below), which the trend from 2005 to 2007 increased by 85 percent and in 2008 decreased by 28 percent. It had an inflow from other investing cash flow items, represented at 7 percent for a total of five years.

Table 2

Particulars

2005

2006

2007

2008

Capital expenditures

-0.73

-0.46

-4.82

-3.76

Other investing cash flow items, total

0

.57

.04

0

Cash from investing activities

-0.73

0.11

-4.78

-3.75

Cash Flow from Financing Activities

Cash flow from financing activities was a cash flow that a company acquires from a financing round instead of from operations. That is, cash flow from financing activities is the net amount that a company receives from issuing stock, bonds, and net after paying dividends. Dyne defined each term to help us understand the data:

Financing cash flow items include financing costs incurred like the cost to acquire debt. Also, when employees of a company exercise their stock options, the company can claim a tax benefit.  Total cash dividends paid, if the company pays dividends, that cash outflow is recorded here.

Issuance (Retirement) of stock, net;  if the company issues new stock or if the company buys back (retiree) its shares while issuance (retirement) of debt, net; if the company issues new bonds or if the company buys back (retiree) bonds or enters into a long-term debt.

The cash from financing activities of SS Body Armor I Inc results (see table 3 below) in 2005, -257 percent, meaning the company enters in a long-term debt but in 2006 to 2008 it was in both positive, an average of 55 percent; it means the company issues new stock. But in 2009 the company resulted to negative in Q3, compared to a 78 percent increase from the Q1. It tells us that the company had again a long-term debt from Q1 to Q3 and the trend is continuing.

Table 3

Particulars

2005

2006

2007

2008

2009 ( Q1-Q3)

Financing cash flow items 0.58
Total cash dividends paid -0.34
Issuance (retirement) of stock, net -10.53 21.44 0 .09
Issuance (retirement) of debt, net -21.14 -1.04 4.8 23.32
Cash from financing activities -32.02 20.4 4.8 23.99 -71.77

Cash Flow Efficiency

The free cash flow of SS Body Armor I Inc showed in table 4, only in 2005, the company had sufficient of funds while from 2006 to 2008 they were insufficient, total in three years at 166 percent. It means the company would run into debt or will issue an additional stock to support the capital expenditures maintenance.

Free cash flow measures the company’s capability to cover capital expenditures maintenance and determine if the company has still funds for future expansion. Through the results from operating activities less the capital expenditures, we can determine the free cash flow available.

Table 4

Particulars 2005 2006 2007 2008
Cash from operating activities 33.53 -21.62 0.01 -18.74
Capital expenditures -0.73 -0.46 -4.82 -3.76
Free cash flow 32.8 -22.08 -4.81 -22.5

The total debt ratio measures a company’s ability to pay its debt or company’s total obligation. Using the result from the operating activities over the total liabilities per year, we can determine how much available cash would the company able to pay. The total debt ratio of SS Body Armor I Inc, shown in table 5, indicated insufficiency of funds based on the total result in five years; represents at -9 percent or in every $1 of debt they would only able to pay at -.009. It tells us the results would lead to bankruptcy. No money lenders would lend you money if one company does not even maintain to pay its operating maintenance.

Table 5

Particulars 2005 2006 2007 2008
Cash from operating activities 33.53 -21.62 0.01 -18.74
Total liabilities 122.95 127.88 126.19 95.48
Total debt ratio in percentage 27 -17 0 -20

Written by Rio, Nelly, and Dyne

Edited by Cris

first-marblehead-corporation-fmd

First Marblehead Corporation (FMD) A Second Thought

July 18th, 2012 Posted by Company Research Report No Comment yet

FMD Balance Sheet

FMD current financial standing of the company as shown in the year 2011 performance showed its recovery from 2010 result, the company is capable to finance its current obligations, yet, extra care is a must by taking into consideration its other resources if it could sustain to continue its business operation.

Liquidity

Liquidity ratio measures the company’s ability to pay off its total liabilities. To run the company’s operation smoothly, it should be financially stable.  To know the financial liquidity of The First Marblehead Corporation, we compute its current ratio, quick ratio and working capital from 2007 to 2011:

  • Current ratio (current assets over current liabilities) was 1.86, 1.08, 1.67, .94 and 1.10. Average of 1.33. This shows that the company’s average current ratio was 1.33 to 1. This sounds good, indicating that current asset is more than its current liabilities.
  • Quick ratio (current assets less inventories over current liabilities) was 1.53, .16, .81, .94 and 1.10. Average of .91. The quick ratio reduces the current ratio by the inventory value since inventory is not all that liquid.  This measures the company’s immediate solvency. For FMD, the quick ratio was high in 2007 but very low in 2008, then slowly recovered until 2011.
  • Working capital (current assets less current liabilities) in dollars was 96.68, 44.15, 273.60, -22.38, and 25.58. Average of 83.53. The company’s working capital shows a positive balance except in 2010 where the balance is -$22.38, but it recovered in 2011 by having a positive amount of $25.58.

Leverage

The company incurred a long-term debt of $8273.14 in 2011 which is 108 percent of its total assets. This was due to its long-term investment of $ 7012.74 of the same year. Financial leverage of the company can be measured by its debts or obligations which were directly utilized to continue running its business operation. In order to have knowledge on this, related ratios are used.

Facts

  • Debt ratio was .31, .47, .51, .63 and 1.11. Average of .60. Total liabilities compared to total assets of FMD showed that total liabilities represent 60 percent of its total assets.
  • Debt to equity ratio was .44, .88, 1.03, 1.68 and -9.70. Average of -1.13.
  • Solvency ratio was 1.0, -.38, -.90, -.43 and -.03. Average of -.15, meaning the company is not solvent. Acceptable solvency ratios will vary from industry to industry, but as a general rule, a solvency ratio of greater than 20 percent is considered financially healthy. Generally speaking, the lower the company’s solvency ratio, the greater the probability that the company will default on its debt obligations.
  • Current liabilities to total assets had an average of .60, which means that FMD’s creditors have 60 percent claims on the total asset of the company. The company has a long-term loan in 2011 which was 108 percent of total asset. This should be closely monitored. While the stockholders or owners of the company have 40 percent average claim of the total asset.

Explanations

Based on its past performance which resulted in a negative average balance, one should conclude that the company is not doing well on their investments.

Return on assets (ROA) is a useful measure if one wants to evaluate how well an enterprise has used its funds. High ROA ratio implies a well-managed asset while return on owners’ equity (ROE) reflects how much the firm has earned on the funds invested by the shareholders, either directly or through retained earnings. For FMD, below are the results:

  • Return on asset  was 30.6, -19.6, -47.5, -29.4 and -2.9. Average of -13.76.
  • Return on equity was 44.1, -36.9, -96.2, 78.7 and 25.2. Average of -28.5.

FMD Income Statement

Profitability

Return on equity is one of the most important indicators of a firm’s profitability and potential growth. FMD’s ROE from 2008 to 2010 depicted a declining trend compared to 2007 returns of 44.1 percent. This was mainly due to the decrease in net profit and total stockholder’s equity.  Also in 2012 three quarters total had a decreasing return of -224 percent because stockholders’ equity decreased also in the first quarter of 2012. This means that operations and asset management was inefficient to garner a profitable rate of return for the last four years aside from the financial crisis that happened in the US.

DuPont Model

Using the DuPont Model in the computation of the return on equity, there are three components as follows:

  • The net profit margin of a percent was 42.2, 827.5, 134.3, -1058.2, and -151.5. This simply was the after-tax profit a company generated for each dollar of revenue.
  • Capital turnover (sales/assets) was 72.5, -2.4, -28.7, 2.3, and -3.4. This measured the effectiveness of a company to convert its assets into sales.
  • Financial structure ratio (assets/shareholder’s equity) was 144.1, 163.2, 193.9, 225.3, and -1242.4. This measured the financial leverage of the company.

Multiply every three components you will get:

  • Return on equity was 44.1, -32.4, -74.7, -54.8, and 63.9. The company could return such percent for every dollar of equity.

Computation of the return on assets:

  • Operating margin (EBIT/sales) was 71.3, -1362.1, -189.6, -1336.5 and -157.2. This measured the operations efficiency of the company.
  • Asset turnover ratio was 72.5, -2.4, -28.7, 2.3, and -3.4. Measured the total utilization efficiency of assets.

Multiply the two components, the result was:

  • Return on asset was 51.7, -32.7, -54.4, -30.7 and -5.34. This tells us how much profit the company generated for each dollar on total assets.

Explanation

Therefore, if we were to leave out the equity multiplier to see how much FMD would earn, you will see that the ROE dropped to 31 percent, -19.8, -38.5, -24.3, and -5.15. In other words, the return on equity was due to profit margins and sales while 13.1 percent, -12.6, -36.2, -24.3 and 58.75 was due to returns earned on the debt at work in the business or the portion of the return on equity as the result of long-term debt. As you can see in 2011 return on equity, 58.75 percent was the result of the long-term debt they invest in long-term investment amounting 7, 012.74 million dollars.

FMD depicted a declining ROA from 2007. The company is not profitable in using total assets to generate revenue. This means the company needs to increase operational efficiency as well as increase assets utilization.

Expenses

Expenses from 2007 to 2012 three quarters total as follows:

  • No cost of revenue for this is a financial business that deals with credit services.
  • Selling, general, administrative expenses, the total was 252.96, 328.34, 104.38, 87.68, 122.27 and 282.42.
  • Depreciation and amortization were 0, 19.63, 17.8, 13.36, 8.25 and 1.26.
  • Unusual expense (income) was 3.2 in 2008.
  • Income tax, total was 256.43, -151.88, -160.63, -44.94, 2.11 and 10.89.

By looking at the expenses above (which represents the 204 percent of total revenue), FMD had a huge operating expense which was more than its average revenue earned. Its depreciation and amortization expense accounts for 13 percent; income tax, 22; unusual expense, 0.70; and another net, 12 of average total revenue.

Income

Let’s move on FMD’s income from 2007 to 2011 including 2012 three quarters total. The following are the results:

  • Total revenue in million dollars was 880.7, -28.41, -290.5, 16.15, -139.63 and 140.37 – the company’s total earnings.
  • Gross profit was 871.33, -54.03, -315.6, 6.28, -404.67 and 116.84. This was after deducting the gross revenue from the cost of revenue.
  • Operating income was 627.75, -386.96, -550.84, -215.84, -270.15 and -164.16. Company’s income after deducting all operations expenses.
  • Income before tax was 627.77, -389.96, -550.84, -215.84, -219.45 and 1,105.27. This was the company’s income before deducting income taxes.
  • Net income was 371.33, -235.08, -390.21, -170.90, -221.56 and 1,116.17.  This was the company’s income after deducting income taxes.

Explanation

  • Total revenue growth ratio declined in 2008 and 2009 by -103.2 percent and -132.9. It then recovered a bit in 2010 of 1.83 but decrease again in 2011 of -115.85 and a hopeful increase in revenue as of three quarters total in 2012 of 15.9 against 2007. This illustrates the company’s revenue was inefficient in its marketing of credit services and let revenue to go this down.
  • Gross profit was -106.2 percent, -136.2, 0.72, -146.44, 13.4 against 2007 while operating income and income before tax with -161.6 percent, -187.74, and 134.38 from 2008 to 2010. In 2011 and 2012 operating income amounts -270.15 and -164.16 or -143 percent and -126, and income before taxes of -219.45 and 1, 105.27 or -134.9 percent and 176 respectively. This differences the accounts for the non-operating income and gains on the sale of assets.
  • Therefore, net income or net loss showed a growth of -163.3, -205, -146, -159.6, and 300.5 indicating that 2012 net income was quite impressive after four years of net loss in operations.

Margin

  • Gross profit margin (GMP) is often used as a measurement of company’s efficiency but it cannot gauge the profitability. FMD, the gross profit margin was only good in 2007 and 2010 compared to the rest of the years. They did not earn impressive revenues that could pay for their huge operating expenses as depicted in their EBIT and pretax margin.
  • Net margin after deducting its declining tax rate showed a losing end for straight four years. In 2012 three quarters total, even if their operations were down, it looks prospective with net income because of the gain from the sale of assets in its second quarter.

To further understand, refer to details below:

Facts

  • Gross margin in percent was 98.9, 190.2, 108.6, 38.9, and 289.8.
  • EBIT margin was 71.3, 1362.1, 189.6, -1336.5, and 193.5.
  • Pretax margin was 71.3, 1362.1, 189.6, -1336.5 and 157.2.
  • Net margin was 42.2, 827.5, 134.3, -1058.2, and 158.7.
  • Tax rate was 40.8, 39.2, 29.2, 20.8 and -1.0.

FMD Cash Flow Statement

Cash Flow from Operating Activities

The cash from operating activities showed sideways; it had a negative cash flow in percentage which represented at 143 and 717 for 2008 and 2009. This was due to the net loss incurred from 2008 to 2011. The good thing is, it had a positive cash flow in the percentage of 121 and 19, for 2010 and 2011, respectively.

To find out, if there are still funds for the operation, we can get through by taking the net income and adding all the non-cash items. Below are the results:

Facts

  • Net income/starting line in $ million was 371.33, -235.08, -390.21, -170.9 and -221.56
  • Non-cash items was -13.33, 19.62, 181.36, 266.43 and 499.89
  • Another noncash item was -13.44, 14.39, 181.36, 266.43 and 516.66
  • Other assets was -259.41, -77.1, 329, 5.41 and -105.87
  • Cash from operating activities was 195.52, -456.08, -55.83, 268.61 and 226.52

Explanation

The total cash collection was in erratic movement; it had a positive collection in 2007 but in 2008 to 2009 was negative and recovered in 2010 with also a positive collection but in 2011 was in negative. This was affected by the total revenue which was negative in 2008 to 2009 as well as in 2011.

Historical Cash-in

To know the total collection per each year; we can get the revenue and add any decrease in receivable or deduct any increase of receivable. Below was the result:

  • Total revenue was 880.7, -28.41, -290.5, 16.15 and -139.63
  • Receivables, net was 0, 0, -166.41, 156.29 and -55.98
  • Cash collection was  880.7, -28.41, -456.91, 172.44 and -195.61

Historical Cash out

To determine how much cash the company paid for their purchases, we get the total cost of revenue and add the increase or deduct the decrease of inventory then add the decrease or deduct the increase of accounts payable. Below are the details of purchases:

  • Cost of revenue, the total for five years was zero.
  • Total inventory for five years was zero.
  • Accounts payable for five years was zero.
  • Thus, total cash payment for purchases for five years was zero.

Explanation

Since the company had no prepaid and added expense, the operating expense was represented as the total cash payments for operating expenses. Wherein, in 2008 it increased to 27 percent while in 2011 it decreased to 65 percent. By adding the total operating expense per year and add the increase or deduct the decrease of prepaid expense and add the decrease or deduct the increase of accrued expense we can determine how much the cash payments for operating expenses. Below are the results:

  • Total operating expense was 243.58, 332.93, 235.24, 222.12 and 134.52
  • The prepaid expense was zero for five years.
  • The accrued expense was zero for five years.
  • Cash payment for operating expenses was 243.58, 332.93, 235.24, 222.12 and 134.52.

Explanation

It indicates the cash payments for income tax was decreasing. It means the net income of the company that was taxable was also decreasing.

To determine, how much cash payments for income taxes; we need to add the income tax total and add the decrease or deduct the increase in income tax payable. Below are the results:

Computation

  • Income tax – total was 256.43, -151.88, -160.63, -44.94 and 2.11
  • Deferred income tax increase or decrease was -0.05, 0.24, -0.27 and 0.24 for 2008 to 2011
  • Cash payment for income taxes was 256.43, -151.93, -160.39, -45.21 and 2.35

Then how much cash from operating activities was available? Using the direct method of accounting we need to get the total cash collection less the cash payments for purchases, operating expenses and income taxes. Results are as follows:

Facts

  • The total cash collection was  880.7, -28.41, -456.91, 172.44 and -195.61
  • Total cash payment for purchases for five years was zero.
  • The cash payment for operating expenses was 243.58, 332.93, 235.24, 222.12 and 134.52.
  • Cash payment for income taxes was 256.43, -151.93, -160.39, -45.21 and 2.35.
  • Cash from operating activities was 380.69, -209.41, -531.76, -4.47 and -332.48.

The cash from operating activities shows only in 2007 had positive cash available and in 2008 to 2011 was in opposite results. This explains that the company was more on cash outflow than inflow…not enough cash collection against their expenses.

Cash Flow from Investing Activities

The cash from investing activities was in sideways; in 2008 and 2011 had a cash inflow of 396 and 863 percent, respectively, due to the company had a sale of maturity investments and other investing cash flow.

In order to know how much cash the company invested in capital expenditures and other investing items, we need to get the total capital expenditures, which is the composition of purchase of fixed assets and purchase of intangibles. The other investing cash flow items were in the composition of acquisition of a business, the sale of business, sale or maturity of investments, purchase of investments and other investing cash flow. The following are the results:

Facts

  • Capital expenditure was -20.49, -9.12, -2.14, -0.9 and -3.43, total for five years -36.
  • Other investing cash flow item was -55.98, -11.47, 63.1, -43.59 and 342.69.
  • Cash from investing activity was -76.46, -20.58, 60.96, -44.49 and 339.27.

Cash Flow from Financing Activities

How much total cash the company raised through additional funds? This can be seen in financing activities which compose of financing cash flow items, cash dividend paid, issuance (retirement) of debt and issuance (retirement) of stocks. Below are the results that give an impact on the financing activities:

Facts

  • Financing cash flow items was 23.7, 190.97, -91.83, -46.9 and -48.24
  • Total cash dividends paid was -58.47, -36.94, 0, 0 and  0
  • Issuance   (retirement) of stock, net was -59.27, 59.57, 125.61, -1.97 and -0.33
  • Issuance   (retirement) of debt, net was -4.78, 237.41, -16.34, -15.46 and -630.89
  • Cash from financing activities  was -98.83, 451.01, 17.44, -64.32 and -679.47

Explanations

The above data indicate the cash from financing activities of FMD was still in unpredictable. In 2008 and 2009, it had a cash inflow due to stocks sold but the good thing in 2010 and 2011 they raised funds through the issuance of debt.

FMD in 2008 and 2009 shows a negative cash flow because of the negative result of cash operating. But the good thing is that it recovered in 2010 by 120 percent.

Free Cash Flow

To determine if the company has a free cash flow, we need to take the cash from operating activities and deduct the capital expenditure also the dividend. Below are the results:

  • Cash from operating activities was 195.52, -456.08, -55.83, 268.61 and 226.52
  • Capital expenditures was -20.49, -9.12-2.14, -0.9 and -3.43
  • Total cash dividends paid was -58.47, -36.94, 0, 0 and 0
  • Free cash flow was 274.48, -410.02, -53.69, 269.51 and 229.95

Facts

To know if the company has plenty of cash to pay its obligation, we need to use the cash from operating activities over total liabilities; below are the results:

  • Cash from operating activities was 195.52, -456.08, -55.83, 268.61 and 226.52
  • Total liabilities was 371.84, 563.29, 415.87,364.31 and 8,531.86
  • Cash flow solvency was 0.53,-0.81, -0.13, 0.74 and 0.03

Explanations

The cash flow for solvency indicates that for five years of operation FMD had no cash available during 2008 and 2009 and recovered in 2010. It was still not sufficient that in every $1 of debt, they can only pay their obligation at .7 and .03, respectively.

Written by: Rio, Nelly, and Dyne

Edited by Cris

first-marblehead-corporation-fmd

First Marblehead Corporation (FMD) A Second Thought

July 18th, 2012 Posted by Company Updates No Comment yet

First Marblehead Corporation (FMD) current financial standing of the company as shown in the year 2011 performance showed its recovery from 2010 result, the company is capable to finance its current obligations, yet, extra care is a must by taking into consideration its other resources if it could sustain to continue its business operation.

Liquidity

Liquidity ratio measures the company’s ability to pay off its total liabilities. To run the company’s operation smoothly, it should be financially stable.  To know the financial liquidity of The First Marblehead Corporation, we compute its current ratio, quick ratio and working capital from 2007 to 2011:

  • Current ratio (current assets over current liabilities) was 1.86, 1.08, 1.67, .94 and 1.10. Average of 1.33. This shows that the company’s average current ratio was 1.33 to 1. This sounds good, indicating that current asset is more than its current liabilities.
  • Quick ratio (current assets less inventories over current liabilities) was 1.53, .16, .81, .94 and 1.10. Average of .91. The quick ratio reduces the current ratio by the inventory value since inventory is not all that liquid.  This measures the company’s immediate solvency. For FMD, the quick ratio was high in 2007 but very low in 2008, then slowly recovered until 2011.
  • Working capital (current assets less current liabilities) in dollars was 96.68, 44.15, 273.60, -22.38, and 25.58. Average of 83.53. The company’s working capital shows a positive balance except in 2010 where the balance is -$22.38, but it recovered in 2011 by having a positive amount of $25.58.

Leverage

The company incurred a long-term debt of $8273.14 in 2011 which is 108 percent of its total assets. This was due to its long-term investment of $ 7012.74 of the same year. Financial leverage of the company can be measured by its debts or obligations which were directly utilized to continue running its business operation. In order to have knowledge of this, related ratios are used.

Facts

  • Debt ratio was .31, .47, .51, .63 and 1.11. Average of .60. Total liabilities compared to total assets of FMD showed that total liabilities represent 60 percent of its total assets.
  • Debt to equity ratio was .44, .88, 1.03, 1.68 and -9.70. Average of -1.13.
  • Solvency ratio was 1.0, -.38, -.90, -.43 and -.03. Average of -.15, meaning the company is not solvent. Acceptable solvency ratios will vary from industry to industry, but as a general rule, a solvency ratio of greater than 20 percent is considered financially healthy. Generally speaking, the lower the company’s solvency ratio, the greater the probability that the company will default on its debt obligations.
  • Current liabilities to total assets had an average of .60, which means that FMD’s creditors have 60 percent claims on the total asset of the company. The company has a long-term loan in 2011 which was 108 percent of total asset. This should be closely monitored. While the stockholders or owners of the company have 40 percent average claim of the total asset.

Explanations

Based on its past performance which resulted in a negative average balance, one should conclude that the company is not doing well on their investments.

Return on assets (ROA) is a useful measure if one wants to evaluate how well an enterprise has used its funds. High ROA ratio implies a well-managed asset while return on owners’ equity (ROE) reflects how much the firm has earned on the funds invested by the shareholders, either directly or through retained earnings. For FMD, below are the results:

  • Return on asset  was 30.6, -19.6, -47.5, -29.4 and -2.9. Average of -13.76.
  • Return on equity was 44.1, -36.9, -96.2, 78.7 and 25.2. Average of -28.5.

FMD Income Statement

Profitability

Return on equity is one of the most important indicators of a firm’s profitability and potential growth. FMD’s ROE from 2008 to 2010 depicted a declining trend compared to 2007 returns of 44.1 percent. This was mainly due to the decrease in net profit and total stockholder’s equity.  Also in 2012 three quarters total had a decreasing return of -224 percent because stockholders’ equity decreased also in the first quarter of 2012. This means that operations and asset management was inefficient to garner a profitable rate of return for the last four years aside from the financial crisis that happened in the US.

DuPont Model

Using the DuPont Model in the computation of the return on equity, there are three components as follows:

  • The net profit margin of a percent was 42.2, 827.5, 134.3, -1058.2, and -151.5. This simply was the after-tax profit a company generated for each dollar of revenue.
  • Capital turnover (sales/assets) was 72.5, -2.4, -28.7, 2.3, and -3.4. This measured the effectiveness of a company to convert its assets into sales.
  • Financial structure ratio (assets/shareholder’s equity) was 144.1, 163.2, 193.9, 225.3, and -1242.4. This measured the financial leverage of the company.

Multiply every three components you will get:

  • Return on equity was 44.1, -32.4, -74.7, -54.8, and 63.9. The company could return such percent for every dollar of equity.

Computation of the return on assets:

  • Operating margin (EBIT/sales) was 71.3, -1362.1, -189.6, -1336.5 and -157.2. This measured the operations efficiency of the company.
  • Asset turnover ratio was 72.5, -2.4, -28.7, 2.3, and -3.4. Measured the total utilization efficiency of assets.

Multiply the two components, the result was:

  • Return on asset was 51.7, -32.7, -54.4, -30.7 and -5.34. This tells us how much profit the company generated for each dollar on total assets.

Explanation

Therefore, if we were to leave out the equity multiplier to see how much FMD would earn, you will see that the ROE dropped to 31 percent, -19.8, -38.5, -24.3, and -5.15. In other words, the return on equity was due to profit margins and sales while 13.1 percent, -12.6, -36.2, -24.3 and 58.75 was due to returns earned on the debt at work in the business or the portion of the return on equity as the result of long-term debt. As you can see in 2011 return on equity, 58.75 percent was the result of the long-term debt they invest in long-term investment amounting 7, 012.74 million dollars.

FMD depicted a declining ROA from 2007. The company is not profitable in using total assets to generate revenue. This means the company needs to increase operational efficiency as well as increase assets utilization.

Expenses

Expenses from 2007 to 2012 three quarters total as follows:

  • No cost of revenue for this is a financial business that deals with credit services.
  • Selling, general, administrative expenses, the total was 252.96, 328.34, 104.38, 87.68, 122.27 and 282.42.
  • Depreciation and amortization were 0, 19.63, 17.8, 13.36, 8.25 and 1.26.
  • Unusual expense (income) was 3.2 in 2008.
  • Income tax, total was 256.43, -151.88, -160.63, -44.94, 2.11 and 10.89.

By looking at the expenses above (which represents the 204 percent of total revenue), FMD had a huge operating expense which was more than its average revenue earned. Its depreciation and amortization expense accounts for 13 percent; income tax, 22; unusual expense, 0.70; and another net, 12 of average total revenue.

Income

Let’s move on FMD’s income from 2007 to 2011 including 2012 three quarters total. The following are the results:

  • Total revenue in million dollars was 880.7, -28.41, -290.5, 16.15, -139.63 and 140.37 – the company’s total earnings.
  • Gross profit was 871.33, -54.03, -315.6, 6.28, -404.67 and 116.84. This was after deducting the gross revenue from the cost of revenue.
  • Operating income was 627.75, -386.96, -550.84, -215.84, -270.15 and -164.16. Company’s income after deducting all operations expenses.
  • Income before tax was 627.77, -389.96, -550.84, -215.84, -219.45 and 1,105.27. This was the company’s income before deducting income taxes.
  • Net income was 371.33, -235.08, -390.21, -170.90, -221.56 and 1,116.17.  This was the company’s income after deducting income taxes.

Explanation

  • Total revenue growth ratio declined in 2008 and 2009 by -103.2 percent and -132.9. It then recovered a bit in 2010 of 1.83 but decrease again in 2011 of -115.85 and a hopeful increase in revenue as of three quarters total in 2012 of 15.9 against 2007. This illustrates the company’s revenue was inefficient in its marketing of credit services and let revenue to go this down.
  • Gross profit was -106.2 percent, -136.2, 0.72, -146.44, 13.4 against 2007 while operating income and income before tax with -161.6 percent, -187.74, and 134.38 from 2008 to 2010. In 2011 and 2012 operating income amounts -270.15 and -164.16 or -143 percent and -126, and income before taxes of -219.45 and 1, 105.27 or -134.9 percent and 176 respectively. This differences the accounts for the non-operating income and gains on the sale of assets.
  • Therefore, net income or net loss showed growth of -163.3, -205, -146, -159.6, and 300.5 indicating that 2012 net income was quite impressive after four years of net loss in operations.

Margin

  • Gross profit margin (GMP) is often used as a measurement of a company’s efficiency but it cannot gauge the profitability. FMD, the gross profit margin was only good in 2007 and 2010 compared to the rest of the years. They did not earn impressive revenues that could pay for their huge operating expenses as depicted in their EBIT and pretax margin.
  • Net margin after deducting its declining tax rate showed a losing end for straight four years. In 2012 three quarters total, even if their operations were down, it looks prospective with net income because of the gain from the sale of assets in its second quarter.

To further understand, refer to details below:

Facts

  • Gross margin in percent was 98.9, 190.2, 108.6, 38.9, and 289.8.
  • EBIT margin was 71.3, 1362.1, 189.6, -1336.5, and 193.5.
  • Pretax margin was 71.3, 1362.1, 189.6, -1336.5 and 157.2.
  • Net margin was 42.2, 827.5, 134.3, -1058.2, and 158.7.
  • Tax rate was 40.8, 39.2, 29.2, 20.8 and -1.0.

FMD Cash Flow Statement

Cash Flow from Operating Activities

The cash from operating activities showed sideways; it had a negative cash flow in percentage which represented at 143 and 717 for 2008 and 2009. This was due to the net loss incurred from 2008 to 2011. The good thing is, it had a positive cash flow in the percentage of 121 and 19, for 2010 and 2011, respectively.

To find out, if there are still funds for the operation, we can get through by taking the net income and adding all the non-cash items. Below are the results:

Facts

  • Net income/starting line in $ million was 371.33, -235.08, -390.21, -170.9 and -221.56
  • Non-cash items was -13.33, 19.62, 181.36, 266.43 and 499.89
  • Another noncash item was -13.44, 14.39, 181.36, 266.43 and 516.66
  • Other assets was -259.41, -77.1, 329, 5.41 and -105.87
  • Cash from operating activities was 195.52, -456.08, -55.83, 268.61 and 226.52

Explanation

The total cash collection was in erratic movement; it had a positive collection in 2007 but in 2008 to 2009 was negative and recovered in 2010 with also a positive collection but in 2011 was in negative. This was affected by the total revenue which was negative in 2008 to 2009 as well as in 2011.

Historical Cash-in

To know the total collection per each year; we can get the revenue and add any decrease in receivable or deduct any increase of receivable. Below was the result:

  • Total revenue was 880.7, -28.41, -290.5, 16.15 and -139.63
  • Receivables, net was 0, 0, -166.41, 156.29 and -55.98
  • Cash collection was  880.7, -28.41, -456.91, 172.44 and -195.61

Historical Cash out

To determine how much cash the company paid for their purchases, we get the total cost of revenue and add the increase or deduct the decrease of inventory then add the decrease or deduct the increase of accounts payable. Below are the details of purchases:

  • Cost of revenue, the total for five years was zero.
  • Total inventory for five years was zero.
  • Accounts payable for five years was zero.
  • Thus, total cash payment for purchases for five years was zero.

Explanation

Since the company had no prepaid and added expense, the operating expense was represented as the total cash payments for operating expenses. Wherein, in 2008 it increased to 27 percent while in 2011 it decreased to 65 percent. By adding the total operating expense per year and add the increase or deduct the decrease of prepaid expense and add the decrease or deduct the increase of accrued expense we can determine how much the cash payments for operating expenses. Below are the results:

  • Total operating expense was 243.58, 332.93, 235.24, 222.12 and 134.52
  • The prepaid expense was zero for five years.
  • The accrued expense was zero for five years.
  • Cash payment for operating expenses was 243.58, 332.93, 235.24, 222.12 and 134.52.

Explanation

It indicates the cash payments for income tax was decreasing. It means the net income of the company that was taxable was also decreasing.

To determine, how much cash payments for income taxes; we need to add the income tax total and add the decrease or deduct the increase in income tax payable. Below are the results:

Computation

  • Income tax – total was 256.43, -151.88, -160.63, -44.94 and 2.11
  • Deferred income tax increase or decrease was -0.05, 0.24, -0.27 and 0.24 for 2008 to 2011
  • Cash payment for income taxes was 256.43, -151.93, -160.39, -45.21 and 2.35

Then how much cash from operating activities was available? Using the direct method of accounting we need to get the total cash collection less the cash payments for purchases, operating expenses and income taxes. Results are as follows:

Facts

  • The total cash collection was  880.7, -28.41, -456.91, 172.44 and -195.61
  • Total cash payment for purchases for five years was zero.
  • The cash payment for operating expenses was 243.58, 332.93, 235.24, 222.12 and 134.52.
  • Cash payment for income taxes was 256.43, -151.93, -160.39, -45.21 and 2.35.
  • Cash from operating activities was 380.69, -209.41, -531.76, -4.47 and -332.48.

The cash from operating activities shows only in 2007 had positive cash available and in 2008 to 2011 was in opposite results. This explains that the company was more on cash outflow than inflow…not enough cash collection against their expenses.

Cash Flow from Investing Activities

The cash from investing activities was in sideways; in 2008 and 2011 had a cash inflow of 396 and 863 percent, respectively, due to the company had a sale of maturity investments and other investing cash flow.

In order to know how much cash the company invested in capital expenditures and other investing items, we need to get the total capital expenditures, which is the composition of purchase of fixed assets and purchase of intangibles. The other investing cash flow items were in the composition of acquisition of a business, the sale of business, sale or maturity of investments, purchase of investments and other investing cash flow. The following are the results:

Facts

  • Capital expenditure was -20.49, -9.12, -2.14, -0.9 and -3.43, total for five years -36.
  • Other investing cash flow item was -55.98, -11.47, 63.1, -43.59 and 342.69.
  • Cash from investing activity was -76.46, -20.58, 60.96, -44.49 and 339.27.

Cash Flow from Financing Activities

How much total cash the company raised through additional funds? This can be seen in financing activities which compose of financing cash flow items, cash dividend paid, issuance (retirement) of debt and issuance (retirement) of stocks. Below are the results that give an impact on the financing activities:

Facts

  • Financing cash flow items were 23.7, 190.97, -91.83, -46.9 and -48.24
  • Total cash dividends paid was -58.47, -36.94, 0, 0 and  0
  • Issuance   (retirement) of stock, net was -59.27, 59.57, 125.61, -1.97 and -0.33
  • Issuance   (retirement) of debt, net was -4.78, 237.41, -16.34, -15.46 and -630.89
  • Cash from financing activities  was -98.83, 451.01, 17.44, -64.32 and -679.47

Explanations

The above data indicate the cash from financing activities of FMD was still in unpredictable. In 2008 and 2009, it had a cash inflow due to stocks sold but the good thing in 2010 and 2011 they raised funds through the issuance of debt.

FMD in 2008 and 2009 shows a negative cash flow because of the negative result of cash operating. But the good thing is that it recovered in 2010 by 120 percent.

Free Cash Flow

To determine if the company has a free cash flow, we need to take the cash from operating activities and deduct the capital expenditure also the dividend. Below are the results:

  • Cash from operating activities was 195.52, -456.08, -55.83, 268.61 and 226.52
  • Capital expenditures was -20.49, -9.12-2.14, -0.9 and -3.43
  • Total cash dividends paid was -58.47, -36.94, 0, 0 and 0
  • Free cash flow was 274.48, -410.02, -53.69, 269.51 and 229.95

Facts

To know if the company has plenty of cash to pay its obligation, we need to use the cash from operating activities over total liabilities; below are the results:

  • Cash from operating activities was 195.52, -456.08, -55.83, 268.61 and 226.52
  • Total liabilities was 371.84, 563.29, 415.87,364.31 and 8,531.86
  • Cash flow solvency was 0.53,-0.81, -0.13, 0.74 and 0.03

Explanations

The cash flow for solvency indicates that for five years of operation FMD had no cash available during 2008 and 2009 and recovered in 2010. It was still not sufficient that in every $1 of debt, they can only pay their obligation at .7 and .03, respectively.

Written by: Rio, Nelly, and Dyne

Edited by Cris

Baidu.com

Baidu.com (BIDU) Has Increasing Net Margins

July 12th, 2012 Posted by Company Research Report No Comment yet

Baidu Balance Sheet

Liquidity

In value investing, we consider the past performance of Baidu.com Inc relative to its liquidity. When we say liquidity in a business, an account that will come out in our minds is the cash on hand or cash in banks. Inventory and receivables fall under current assets, which are easily convertible to cash within a short period of time. To determine how liquid the company is, we have to calculate ratios on the current resources of the company.

Current ratio, quick ratio and working capital of BIDU from 2007 to 2011:

  • Current ratio in percent was 2.73, 3.36, 3.46, 3.44 and 3.60. Average of 3.32. Baidu.com Inc has an average current ratio of 3.32 which means that current assets are 332 percent greater than current liabilities.
  • The quick ratio in percent was 2.73, 3.36, 3.46, 3.44 and 3.60. Average of 3.32. This ratio focus on the monetary assets of the company, the ratio is also 3.32.
  • Working capital in the dollar was 1094.29, 2003.15, 3443.15, 6230.6 and 11441.61. Average of 4842.56. It shows a consistently positive result per period for five years and still increasing yearly with a very high balance in 2011 (twice the numbers of 2010 balance).
  • Therefore the company was able to meet its current obligations.

Cash Conversion Cycle

One of the objectives of a business is its consistency in maintaining a sound financial position. To determine it, is to consider its resources which contribute much in generating cash for operating its business.  The said resources are inventory and receivables. Baidu.com Inc has no inventory account and its payable was in 2010 only. The receivable turnover ratio has an average of 26 times turn per period in five years and 15 days to collect.  Its cash conversion cycle has an average of 12 days. To calculate CCC is to add the inventory conversion period and receivables conversion period minus payable conversion period.

Asset management ratios from 2007 to 2011 of BIDU:

  • The receivable Turnover ratio in percent was 27.14, 34.47, 27.52, 20.01 and 19.34. Average of 25.70.
  • Receivable Conversion Period in days was 13, 11, 13, 18 and 19. Average of 15.
  • Cash conversion cycle in days was 13, 11, 13, 2 and 19. Average of 12.

How efficient is the company’s overall process of converting product or services into cash? For the past five years in operation, the cash conversion cycle of Baidu.com Inc has an average of 12 days. Generally speaking, the faster the conversion, the less money is tied up in inventory but it depends upon the nature of the business. Baidu has no inventory and payables balance, but purely receivables aside from cash account.

Further interpretation of cash conversion cycle:

Particulars 2007 2008 2009 2010 2011 Ave.
Inventory Conversion Period 0 0 0 0 0 0
Days’ Receivable 13 11 13 18 19 15
Days’ Payable 0 0 0 16 0 2
Cash Conversion Cycle 13 11 13 2 19 12

Leverage

What kind of leverage does the company used in the course of normal business? Baidu used its working capital and current assets, particularly short-term investments to continuously run its normal business operation.

A company with a high proportion of long-term debt is said to be highly leveraged. From the company’s standpoint, the greater the proportion of its invested capital (long-term liabilities and owner’s equity) that is obtained from its shareholders, the fewer worries the company has in meeting its fixed obligations.  In the case of BIDU, its debt ratio has an average of 25, which means, its total liabilities is 25 percent of its total assets and 35 percent of its total equity. Likewise, the solvency ratio has an average of 1.09, which indicates that BIDU is 109 percent solvent. Solvency ratio is derived by dividing net income plus depreciation divided by its total liabilities. Detailed data below:

Financial leverage ratio of BIDU from 2007 to 2011:

  • Debt ratio in percent was .24, .22, .23, .24 and .34. Average of .25 which means that the company’s total debt was 25 percent of its total assets.
  • Debt to Equity ratio in percent was .31, .27, .30, .31 and .53. Average of .35 which indicates that BIDU’s obligations represent 35 percent of its equity.
  • Solvency ratio in percent was .99, 1.23, 1.06, 1.33 and .82. Average of 1.09. The company is 109 percent solvent.

It is important to know who is in control of the business, is it the creditors, banks or the owners? For the company, the creditors have 22 percent claims on the company’s total assets, while the stockholders have 75 percent claims. However, in 2011 the banks or bondholders have 10 percent claims.

Related ratios follow:

  • Current liabilities to total assets in percent was .24, .22, .23, .23 and .19. Average of .22.
  • Long-term liabilities to total assets in percent was 10 percent in 2011 only.
  • Stockholders’ equity to total assets in percent was .76, .78, .77, .76 and .66. Average of .75.

The creditors’ claims on the total assets of the company are calculated by dividing the company’s current liabilities by its total assets while the owners’ or stockholders’ claims is the quotient of stockholders’ equity over total assets.

Baidu Income Statement

Baidu.com Inc’s income statement is one of their financial statements used to provide information on the revenues and expenses of the company; and ultimately the income and the profitability of its operations.

Income

Total revenue means total earnings or sales operation. Business like internet information providers in the 21st century boomed. Thus, Baidu’s total revenue had a high increase of 9 and 11 times in 2010 and 2011 respectively against 2007. Likewise, gross profit, operating profit, and net profit increased from 10 to 20 times compared to 2007 amounts.

Data below detailed the income from 2007 to 2011.

  • Total revenue was 1,744.43, 3,198.25, 4,447.78, 7,915.07 and 14,500.79.
  • Gross profit was 1,095.62, 2,039.00, 2,829.07, 5,763.58 and 10,592.88.
  • Operating profit was 547.15, 1096.74, 1,604.94, 3,958.77 and 7,576.66.
  • Net profit was 628.97, 1,048.11, 1,485.10, 3,525.17 and 6,638.64.

The above amounts tell us that Baidu.com Inc’s income trend was yearly increasing thus the company’s operation and management is doing good to boost yearly increase in their income.  This shows a sound and profitable company in terms of their income generating properties.

Margins

Looking into the company’s various margins (gross, operating, pretax and net) computations against sales showed that:

  • Gross profit margin was 62.9, 63.8, 63.6, 72.8 and 73.0.  Gross profit margin was total revenue less cost of revenue, depicts that almost two-thirds or three-fourths of total revenue. And it went down in 2008 to 2009 but increase in 2010 and 2011.
  • Operating profit (OP) margin was 35.4, 36.4, 37.9, 51.3 and 52.2.  It shows a dip in 2007 but gradually recover in 2008 and 2009 but leap high in 2010 and 2011.
  • While net profit margin was 36.1, 32.8, 33.4, 44.5 and 45.8.  This depicts an opposite to OP wherein margin in 2007 increased then it dipped down in 2008; gradual increased in 2009 and leaped high in 2010 and 2011.

Explanation

Both gross profit and operating profit margins decreased in 2007 mainly due to worldwide economic crises and increased cost of revenue and operating expenses. In 2008 to 2009 it gradually recovered, thus 2010 and 2011 rose to higher margin meaning sales or revenue almost double every year.  Net profit margin increased in 2007 due to the growth of 108 percent in total revenue but dipped down in 2008 and 2009 to 32.8 and 33.4 percent. And the company had recovered that in 2010 and 2011, it grew to 44.5 and 45.8 percent. This means that the company has increasing favorable net margins.

Expenses

Expenses from 2007 to 2011are as follows:

  • Cost of revenue was 645.41, 1,155.46, 1,616.24, 2,149.29 and 3,896.88.
  • Selling, general, administrative expense was 411.16, 659.8, 803.99, 1,088.98 and 1,692.81.
  • Research and development were 140.7, 286.26, 422.62, 718.04 and 1,334.43.
  • Income tax, total was -12.75, 116.07, 198.02, 536 and 1,188.86.
  • Tax rate in percent was -2.1, 10, 11.8, 13.2 and 15.2.

Explanation

  • Cost of revenue; selling, general and administrative expenses; and research and development illustrated a yearly increasing trend. Income tax decreased in 2007 but gradually increased from 2008 to 2009 and then increased again by 44 to 64 percent in 2010 and 2011. Reviewing the expenses of the company, their cost of revenue had an average of 32 percent from the total revenue.
  • Selling, general and administrative expense; gradually increasing; showed an average of 17.7 percent against total revenue.
  • Research and development accounted for 9 percent while income tax expense represented an average of 4.7 percent of total revenue.
  • The company managed their expenses well because they still have 36.6 percent of their average total revenue. This means operations earned an average net profit after all expenses and taxes.

Profitability

To check their general earning power of the company we computed the following:

  • Return on asset was 23.7, 26.6, 24.1, 31.9, and 28.4. This tells us how much profit the company generated for each dollar on total assets.
  • Return on equity was 31.1, 33.9, 31.2, 41.9, and 43.4.  This tells us how much was earn by the stockholders on the money invested intine company.

Looking into their return on asset and equity, the company’s trend increased for the first two years but dipped down 2009 due to the worldwide economic crisis but leaped high in 2010. Return on the asset in 2011 decreased meaning management operating performance decreased by 28.4 percent in utilizing their total assets. Returned on equity earned a high rate of 41.9 and 34.4 percent in 2010 and 2011 showing more than the average of 36.3 percent yearly.

Operating Profit

Their operating profit margin showed the return on sales which dipped down in 2007 to 35.3 percent which means an increase of direct cost of revenue and operating expenses. The company recovered gradually that it reaches a high of 51.3 and 53.9 percent in 2010 to 2011 respectively;  more than the average of 50.4percent yearly. This means they earned good that they use this to their advantage by using the profit back in their business operations as shown in the data below:

  • Operating profit margin was 35.3, 36.4, 37.8, 51.3 and 53.9. This tells us the return on sales or operating profit per dollar of sales.

Using the expanded DuPont method computations as follows:

  • Net profit margin was 36.1, 32.8, 33.4, 44.5, and 45.8. This tells us how much income left against revenue.
  • Capital turnover was 65.7, 97.0, 88.1, 92.0, and 84.3. This tells us the rate of return on common equity or how well the company uses its stockholders’ equity to generate revenue.
  • Financial cost ratio was 100 percent from 2007 to 2011.  This tells us that the company’s interest burden (pretax profit divided by EBIT) showed 1.00 meaning they have no debt or financial leverage.
  • The financial structure ratio was 131.4, 129, 128.7, 130.8, and 145.1.  This measure the financial leverage of the company and use as equity multiplier which is equal to the company’s debt to equity ratio.
  • Return on equity wherein the formula is net profit margin times asset turnover times equity multiplier was 56, 53.6, 37.9, 41, and 31.1.

To get the return on equity using the DuPont method; The net profit margin was the percentage of net income against revenue multiply by asset turnover or capital turnover multiply by equity multiplier or financial structure ratio.

Net Profit

  • Net profit margin showed a decrease in 2008 which account for the increase in cost and expenses but tends to increase abruptly in the following years’ cause by higher revenues.
  • Their capital turnover, the company’s annual sales divided by its average stockholder’s equity, showed a down and uptrend. This means that in 2008 and 2010 the company uses its capital or equity more efficiently in converting assets to revenues. But no dividends were paid.
  • The equity multiplier or financial structure ratio expressed that average total assets were more than average total stockholders’ equity.
  • These three multiplied gets us to return on equity of 56, 53.6, 37.9, 41, and 31.1, which depicts a high ratio in 2007 of 56 to lower ratio in 2011 of 31.1. This means a good return on equity in any industry.
  • If computed without the equity multiplier, ratios will lower down to 38.6, 40.9, 29.4, 31.8 and 23.7 for this is due to profit margins and sales while 17.4, 12.7, 8.5, 9.2, and 7.4 was due to returns earned on the debt at work in the business.  Comparing the two, return on equity from internally-generated sales has a higher percentage.

Is there anything that might be a concern in terms of generating an income in the future? Baidu needs to be competitive in order to maintain and increase revenue in the future.

Baidu Cash Flow Statement

Why are we analyzing the cash flow? It is very important because from here we can determine if the company have available funds for the operation; also we can know, where the cash invested or reinvested and if the company had raised additional funds. There are three activities; which are the operating, investing & financing activities.

Cash Flow from Operating Activities

The cash from operating activities was very impressive, it had continuously increased by 86, 30, 108 and 74 percent from 2008 to 2011, respectively. It indicated that the management was efficient in handling their funds.

To determine the cash from operating activities, we can come up by taking the net income and by adding all the non-cash items like depreciation and any positive changes in working capital.

Below are the results:

  •  Net income or starting line was 628.97, 1,048.11, 1,485.10, 3,525.17 and 6,620.32
  •  Depreciation or depletion was 170.73, 268.59, 306.28, 431.1 and 819.24
  •  Non-cash item was 36.17, 94.04, 81.47, 62.25 and 145.83
  • Another non-cash item was 35.54, 90.11, 86.81, 86.8 and 118.72
  • Changes in working capital were 99.85, 332.59, 391.74, 746.09 and 592.46
  • Total cash from operating activities was 935.15,1, 741.64, 2,264.48, 4,700.48 and 8,178.82

By using the direct method of accounting, the following are the results:

The total revenue had successively gone upward; in 2007, an increase to 108 percent, 83 percent increase in 2008, a 39 percent increase in 2009, 78 in 2010 and 83 percent in 2011. The accounts receivable represented only to 6 percent of the revenue. Then, the cash received from the customer in percentage over their revenue for each year was 95, 100, 98, 97 and 96 results from 2007 to 2011, respectively. It tells that management was effective in handling their collections.

By getting the total revenue and adding the decrease of receivable or subtracting the increase of receivable for the year; we can determine how much the cash collection for each year. Below are the results:

Facts

  • Total sales in $ million was 1,744.43, 3,198.25, 4,447.78, 7,915.07 and 14,500.79.
  • Accounts receivable increase was 84.83, 11.54, 107.62, 211.38 and 562.43.
  • Cash collection was 1,659.60, 3,186.71, 4,340.16, 7,703.69 and 13,938.36.

Explanation

Data above indicate the cash payment for purchases was consistently increasing. It results in the total cash payments over its total revenue for five years, represents 30 percent meaning, the company had much more cash remaining to cover their general expenses.

To know how much cash dispersed to their supplier we take all the cost of revenue, adding the increase or deducting the decrease in inventory and by adding the decrease or subtracting the increase in accounts payable of the company.

Facts

  • Total cost of revenue was 645.41, 1,155.46, 1,616.24, 2,149.29 and 3,896.88.
  • Total inventory was zero for five years.
  • Accounts payable from 2007 to 2011 was zero except in 2010 at 95.7.
  • Total cash payments for purchases was 645.41, 1,155.46, 1,616.24, 2,053.59 and 3,896.88

Explanation

The total operating expense highly moved upward, giving a bulk increase in 2008 and 2011 by 42 and 67 percent, respectively. The prepaid expense had only decrease in 2009 but the accrued had an increasing result for five years. Then, the total cash payments for operating expense was increasing except in 2009, it had a decrease by 17 percent due to the prepaid which also decreased by 204 percent.

In order to get the total cash payments for operating expenses, we need to take all the total operating expenses, add the increase or deduct the decrease in prepaid expenses and add the decrease or deduct the increase in accrued expenses. Below is the summary:

Facts

  • Total operating expense was 548.47, 942.26, 1224.13, 1804.81 and 3,016.22
  • Prepaid expense was 2.74, 43.28, -41.48, 25.25 and -1.44
  • Accrued expense was -50.59, -62.36, -393.2 , -371.64 and -491.65
  • Cash payment for operating expenses was 500.62, 923.18, 789.45, 1,458.42 and 2,523.13

Even the total cash paid for the income tax went up, still, the management was efficient, this only represented 6 percent of the total revenue for five years. The total cash paid for the income tax was -12.75, 116.07, 198.02, 536 and 1,188.86 from 2007 to 2011, respectively. It shows, the movement also went up continuously.

Cash Flow from Investing Activities

The cash from investing is where we can see how much the company invested or reinvested and where they invest? BIDU was an internet provider, the composition of their capital expenditures was the purchase of the fixed asset, a little from intangibles and from software development; the other investing cash flow items were net from purchase/sale of investment and a little from the acquisition of a business. Below are the results:

Facts

  • Capital expenditure was  -577.13, -476.81, -450.07, -976.12 and -2,342.46.
  • Other investing cash flow item total was -136.08, -184.29, -86, -241.4 and -11,908.07.
  • Cash from investing activities was -713.22, -661.1, -536.07, -1,217.52 and -14,250.53.

The capital expenditure in 2008 & 2009 was decreasing and went upward in 2010 and 2011 by 117 and 140 percent, respectively. The other investing cash flow items continuously went upward except for 2009 it was down to 53 percent and in 2011, it was jumped to 48 times higher from 2010. It means the bulk of investment of the company was last year represents by 4833 percent increase. It tells us, the management was also vigilant in terms of investment, as we look back, 2009 was the year, the world most in crisis.

Interpretation

It results, the company was financially healthy only in 2008 had a cash outflow amounting to $ -35.64, the rest of the year it had a cash inflow result. It tells us, the company was very efficient.

Cash Flow from Financing Activities

Through the cash from financing activities, we can determine if the company had raised additional funds; is it through by financing or from their stockholders? Below are the results:

  • Financing cash flow items were zero from 2007 to 2010 only in 2011 at 43.97.
  • Issuance   (retirement) of stock, net was 40.7, -35.64, 95.09, 38.75 and 23.18.
  • Issuance (retirement) of debt, net was zero from 2007 to 2009, 86 and 2,358.66 for 2010 and 2011, respectively.
  • Cash from financing activities was 40.7, -35.64, 95.09, 124.75 and 2,425.81.

Written by  Rio, Nelly, and Dyne
Edited by Cris

Interested to learn more about the company? Here’s company research to know more about its background and history and investment valuation for the pricing.

Baidu.com

Baidu Inc (BIDU) Has Increasing Net Margins

July 12th, 2012 Posted by Company Updates No Comment yet

BAIDU Balance Sheet

Liquidity

In value investing, we consider the past performance of Baidu.com Inc relative to its liquidity. When we say liquidity in a business, an account that will come out in our minds is the cash on hand or cash in banks. Inventory and receivables fall under current assets, which are easily convertible to cash within a short period of time. To determine how liquid the company is, we have to calculate ratios on current resources of the company.

Current ratio, quick ratio and working capital of BAIDU from 2007 to 2011:

  • Current ratio in percent was 2.73, 3.36, 3.46, 3.44 and 3.60. Average of 3.32. Baidu.com Inc has an average current ratio of 3.32 which means that current assets are 332 percent greater than current liabilities.
  • The quick ratio in percent was 2.73, 3.36, 3.46, 3.44 and 3.60. Average of 3.32. This ratio focus on the monetary assets of the company, the ratio is also 3.32.
  • Working capital in the dollar was 1094.29, 2003.15, 3443.15, 6230.6 and 11441.61. Average of 4842.56. It shows a consistently positive result per period for five years and still increasing yearly with a very high balance in 2011 (twice the numbers of 2010 balance).
  • Therefore Baidu was able to meet its current obligations.

Cash Conversion Cycle

One of the objectives of a business is its consistency in maintaining a sound financial position. To determine it is to consider its resources which contribute much to generating cash for operating its business.  The said resources are inventory and receivables. Baidu.com Inc has no inventory account and its payable was in 2010 only. The receivable turnover ratio has an average of 26 times turn per period in five years and 15 days to collect.  Its cash conversion cycle has an average of 12 days. To calculate CCC is to add inventory conversion period and receivables conversion period minus payable conversion period.

Asset management ratios from 2007 to 2011 of BAIDU:

  • The receivable Turnover ratio in percent was 27.14, 34.47, 27.52, 20.01 and 19.34. Average of 25.70.
  • Receivable Conversion Period in days was 13, 11, 13, 18 and 19. Average of 15.
  • Cash conversion cycle in days was 13, 11, 13, 2 and 19. Average of 12.

How efficient is Baidu’s overall process of converting product or services into cash? For the past five years in operation, the cash conversion cycle of Baidu.com Inc has an average of 12 days. Generally speaking, the faster the conversion, the less money is tied up in inventory but it depends upon the nature of the business. Baidu has no inventory and payables balance, but purely receivables aside from cash account.

Further interpretation of the cash conversion cycle:

Particulars 2007 2008 2009 2010 2011 Ave.
Inventory Conversion Period 0 0 0 0 0 0
Days’ Receivable 13 11 13 18 19 15
Days’ Payable 0 0 0 16 0 2
Cash Conversion Cycle 13 11 13 2 19 12

Leverage

What kind of leverage does the company used in the course of normal business? Baidu used its working capital and current assets, particularly short-term investments to continuously run its normal business operation.

A company with a high proportion of long-term debt is said to be highly leveraged. From the company’s standpoint, the greater the proportion of its invested capital (long-term liabilities and owner’s equity) that is obtained from its shareholders, the fewer worries the company has in meeting its fixed obligations.  In the case of BIDU, its debt ratio has an average of 25, which means, its total liabilities is 25 percent of its total assets and 35 percent of its total equity. Likewise, the solvency ratio has an average of 1.09, which indicates that BAIDU is 109 percent solvent. Solvency ratio is derived by dividing net income plus depreciation divided by its total liabilities. Detailed data below:

Financial leverage ratio of BAIDU from 2007 to 2011:

  • Debt ratio in percent was .24, .22, .23, .24 and .34. Average of .25 which means that the company’s total debt was 25 percent of its total assets.
  • Debt to Equity ratio in percent was .31, .27, .30, .31 and .53. Average of .35 which indicates that BAIDU’s obligations represent 35 percent of its equity.
  • Solvency ratio in percent was .99, 1.23, 1.06, 1.33 and .82. Average of 1.09. The company is 109 percent solvent.

It is important to know who is in control of the business, is it the creditors, banks or the owners? For the company, the creditors have 22 percent claims on the company’s total assets, while the stockholders have 75 percent claims. However, in 2011 the banks or bondholders have 10 percent claims.

Related ratios follow:

  • Current liabilities to total assets in percent was .24, .22, .23, .23 and .19. Average of .22.
  • Long-term liabilities to total assets in percent was 10 percent in 2011 only.
  • Stockholders’ equity to total assets in percent was .76, .78, .77, .76 and .66. Average of .75.

The creditors’ claims on the total assets of the company are calculated by dividing the company’s current liabilities by its total assets while the owners’ or stockholders’ claims is the quotient of stockholders’ equity over total assets.

BAIDU Income Statement

Baidu.com Inc’s income statement is one of their financial statements used to provide information on the revenues and expenses of the company; and ultimately the income and the profitability of its operations.

Income

Total revenue means the total earnings or sales operation. Business like internet information providers in the 21st century boomed. Thus, Baidu’s total revenue had a high increase of 9 and 11 times in 2010 and 2011 respectively against 2007. Likewise, gross profit, operating profit, and net profit increased from 10 to 20 times compared to 2007 amounts.

Data below detailed the income from 2007 to 2011.

  • Total revenue was 1,744.43, 3,198.25, 4,447.78, 7,915.07 and 14,500.79.
  • Gross profit was 1,095.62, 2,039.00, 2,829.07, 5,763.58 and 10,592.88.
  • Operating profit was 547.15, 1096.74, 1,604.94, 3,958.77 and 7,576.66.
  • Net profit was 628.97, 1,048.11, 1,485.10, 3,525.17 and 6,638.64.

The above amounts tell us that Baidu.com Inc’s income trend was yearly increasing thus the company’s operation and management is doing good to boost yearly increase in their income.  This shows a sound and profitable company in terms of their income generating properties.

Margins

Looking into the company’s various margins (gross, operating, pretax and net) computations against sales showed that:

  • Gross profit margin was 62.9, 63.8, 63.6, 72.8 and 73.0.  Gross profit margin was total revenue less cost of revenue, depicts that almost two-thirds or three-fourths of total revenue. And it went down from 2008 to 2009 but increase in 2010 and 2011.
  • Operating profit (OP) margin was 35.4, 36.4, 37.9, 51.3 and 52.2.  It shows a dip in 2007 but gradually recover in 2008 and 2009 but leap high in 2010 and 2011.
  • While net profit margin was 36.1, 32.8, 33.4, 44.5 and 45.8.  This depicts an opposite to OP wherein margin in 2007 increased then it dipped down in 2008; gradual increased in 2009 and leaped high in 2010 and 2011.

Explanation

Both gross profit and operating profit margins decreased in 2007 mainly due to worldwide economic crises and increased cost of revenue and operating expenses. In 2008 to 2009 it gradually recovered, thus 2010 and 2011 rose to higher margin meaning sales or revenue almost double every year.  Net profit margin increased in 2007 due to the growth of 108 percent in total revenue but dipped down in 2008 and 2009 to 32.8 and 33.4 percent. And the company had recovered that in 2010 and 2011, it grew to 44.5 and 45.8 percent. This means that the company has increasing favorable net margins.

Expenses

Expenses from 2007 to 2011are as follows:

  • Cost of revenue was 645.41, 1,155.46, 1,616.24, 2,149.29 and 3,896.88.
  • Selling, general, administrative expense was 411.16, 659.8, 803.99, 1,088.98 and 1,692.81.
  • Research and development were 140.7, 286.26, 422.62, 718.04 and 1,334.43.
  • Income tax, total was -12.75, 116.07, 198.02, 536 and 1,188.86.
  • Tax rate in percent was -2.1, 10, 11.8, 13.2 and 15.2.

Explanation

  • Cost of revenue; selling, general and administrative expenses; and research and development illustrated a yearly increasing trend. Income tax decreased in 2007 but gradually increased from 2008 to 2009 and then increased again by 44 to 64 percent in 2010 and 2011. Reviewing the expenses of the company, their cost of revenue had an average of 32 percent of the total revenue.
  • Selling, general and administrative expense; gradually increasing; showed an average of 17.7 percent against total revenue.
  • Research and development accounted for 9 percent while income tax expense represented an average of 4.7 percent of total revenue.
  • The company managed their expenses well because they still have 36.6 percent of their average total revenue. This means operations earned an average net profit after all expenses and taxes.

Profitability

To check their general earning power of the company we computed the following:

  • Return on asset was 23.7, 26.6, 24.1, 31.9, and 28.4. This tells us how much profit the company generated for each dollar on total assets.
  • Return on equity was 31.1, 33.9, 31.2, 41.9, and 43.4.  This tells us how much was earn by the stockholders on the money invested intine company.

Looking into their return on asset and equity, the company’s trend increased for the first two years but dipped down in 2009 due to the worldwide economic crisis but leaped high in 2010. Return on the asset in 2011 decreased meaning management operating performance decreased by 28.4 percent in utilizing their total assets. Returned on equity earned a high rate of 41.9 and 34.4 percent in 2010 and 2011 showing more than the average of 36.3 percent yearly.

Operating Profit

Their operating profit margin showed the return on sales which dipped down in 2007 to 35.3 percent which means an increase of direct cost of revenue and operating expenses. The company recovered gradually that it reaches a high of 51.3 and 53.9 percent in 2010 to 2011 respectively;  more than the average of 50.4percent yearly. This means they earned good that they use this to their advantage by using the profit back in their business operations as shown in the data below:

  • Operating profit margin was 35.3, 36.4, 37.8, 51.3 and 53.9. This tells us the return on sales or operating profit per dollar of sales.

Using the expanded DuPont method computations as follows:

  • Net profit margin was 36.1, 32.8, 33.4, 44.5, and 45.8. This tells us how much income left against revenue.
  • Capital turnover was 65.7, 97.0, 88.1, 92.0, and 84.3. This tells us the rate of return on common equity or how well the company uses its stockholders’ equity to generate revenue.
  • Financial cost ratio was 100 percent from 2007 to 2011.  This tells us that the company’s interest burden (pretax profit divided by EBIT) showed 1.00 meaning they have no debt or financial leverage.
  • The financial structure ratio was 131.4, 129, 128.7, 130.8, and 145.1.  This measure the financial leverage of the company and use as equity multiplier which is equal to the company’s debt to equity ratio.
  • Return on equity wherein the formula is net profit margin times asset turnover times equity multiplier was 56, 53.6, 37.9, 41, and 31.1.

To get the return on equity using the DuPont method; The net profit margin was the percentage of net income against revenue multiply by asset turnover or capital turnover multiply by equity multiplier or financial structure ratio.

Net Profit

  • Net profit margin showed a decrease in 2008 which account for the increase in cost and expenses but tends to increase abruptly in the following years’ cause by higher revenues.
  • Their capital turnover, the company’s annual sales divided by its average stockholder’s equity, showed a down and uptrend. This means that in 2008 and 2010 the company uses its capital or equity more efficiently in converting assets to revenues. But no dividends were paid.
  • The equity multiplier or financial structure ratio expressed that average total assets were more than average total stockholders’ equity.
  • These three multiplied gets us to return on equity of 56, 53.6, 37.9, 41, and 31.1, which depicts a high ratio in 2007 of 56 to lower ratio in 2011 of 31.1. This means a good return on equity in any industry.
  • If computed without the equity multiplier, ratios will lower down to 38.6, 40.9, 29.4, 31.8 and 23.7 for this is due to profit margins and sales while 17.4, 12.7, 8.5, 9.2, and 7.4 was due to returns earned on the debt at work in the business.  Comparing the two, return on equity from internally-generated sales has a higher percentage.

Is there anything that might be a concern in terms of generating an income in the future? Baidu needs to be competitive in order to maintain and increase revenue in the future.

BAIDU Cash Flow Statement

Why are we analyzing the cash flow? It is very important because from here we can determine if the company have available funds for the operation; also we can know, where the cash invested or reinvested and if the company had raised additional funds. There are three activities; which are the operating, investing & financing activities.

Cash Flow from Operating Activities

The cash from operating activities was very impressive, it had continuously increased by 86, 30, 108 and 74 percent from 2008 to 2011, respectively. It indicated that the management was efficient in handling their funds.

To determine the cash from operating activities, we can come up by taking the net income and by adding all the non-cash items like depreciation and any positive changes in working capital.

Below are the results:

  •  Net income or starting line was 628.97, 1,048.11, 1,485.10, 3,525.17 and 6,620.32
  •  Depreciation or depletion was 170.73, 268.59, 306.28, 431.1 and 819.24
  •  Non-cash item was 36.17, 94.04, 81.47, 62.25 and 145.83
  • Another non-cash item was 35.54, 90.11, 86.81, 86.8 and 118.72
  • Changes in working capital were 99.85, 332.59, 391.74, 746.09 and 592.46
  • Total cash from operating activities was 935.15,1, 741.64, 2,264.48, 4,700.48 and 8,178.82

By using the direct method of accounting, the following are the results:

The total revenue had successively gone upward; in 2007, increase to 108 percent, 83 percent increase in 2008, 39 percent increase in 2009, 78 in 2010 and 83 percent in 2011. The accounts receivable represented only to 6 percent of the revenue. Then, the cash received from the customer in percentage over their revenue for each year was 95, 100, 98, 97 and 96 results from 2007 to 2011, respectively. It tells that management was effective in handling their collections.

By getting the total revenue and adding a decrease of receivable or subtracting the increase of receivable for the year; we can determine how much the cash collection for each year. Below are the results:

Facts

  • Total sales in $ million was 1,744.43, 3,198.25, 4,447.78, 7,915.07 and 14,500.79.
  • Accounts receivable increase was 84.83, 11.54, 107.62, 211.38 and 562.43.
  • Cash collection was 1,659.60, 3,186.71, 4,340.16, 7,703.69 and 13,938.36.

Explanation

Data above indicate the cash payment for purchases was consistently increasing. It results in the total cash payments over its total revenue for five years, represents 30 percent meaning, the company had much more cash remaining to cover their general expenses.

To know how much cash dispersed to their supplier we take all the cost of revenue, adding the increase or deducting the decrease in inventory and by adding the decrease or subtracting the increase in accounts payable of the company.

Facts

  • Total cost of revenue was 645.41, 1,155.46, 1,616.24, 2,149.29 and 3,896.88.
  • Total inventory was zero for five years.
  • Accounts payable from 2007 to 2011 was zero except in 2010 at 95.7.
  • Total cash payments for purchases was 645.41, 1,155.46, 1,616.24, 2,053.59 and 3,896.88

Explanation

The total operating expense highly moved upward, giving a bulk increase in 2008 and 2011 by 42 and 67 percent, respectively. The prepaid expense had only decrease in 2009 but the accrued had an increasing result for five years. Then, the total cash payments for operating expense was increasing except in 2009, it had a decrease of 17 percent due to the prepaid which also decreased by 204 percent.

In order to get the total cash payments for operating expenses, we need to take all the total operating expenses, add the increase or deduct the decrease in prepaid expenses and add the decrease or deduct the increase in accrued expenses. Below is the summary:

Facts

  • Total operating expense was 548.47, 942.26, 1224.13, 1804.81 and 3,016.22
  • Prepaid expense was 2.74, 43.28, -41.48, 25.25 and -1.44
  • Accrued expense was -50.59, -62.36, -393.2 , -371.64 and -491.65
  • Cash payment for operating expenses was 500.62, 923.18, 789.45, 1,458.42 and 2,523.13

Even the total cash paid for the income tax went up, still, the management was efficient, this only represented 6 percent of the total revenue for five years. The total cash paid for the income tax was -12.75, 116.07, 198.02, 536 and 1,188.86 from 2007 to 2011, respectively. It shows, the movement also went up continuously.

Cash Flow from Investing Activities

The cash from investing is where we can see how much the company invested or reinvested and where they invest? BIDU was an internet provider, the composition of their capital expenditures was the purchase of the fixed asset, a little from intangibles and from software development; the other investing cash flow items were net from purchase/sale of investment and a little from the acquisition of a business. Below are the results:

Facts

  • Capital expenditure was  -577.13, -476.81, -450.07, -976.12 and -2,342.46.
  • Other investing cash flow item total was -136.08, -184.29, -86, -241.4 and -11,908.07.
  • Cash from investing activities was -713.22, -661.1, -536.07, -1,217.52 and -14,250.53.

The capital expenditure in 2008 & 2009 was decreasing and went upward in 2010 and 2011 by 117 and 140 percent, respectively. The other investing cash flow items continuously went upward except in 2009 it was down to 53 percent and in 2011, it was jumped to 48 times higher from 2010. It means the bulk of investment of the company was last year represents by 4833 percent increase. It tells us, the management was also vigilant in terms of investment, as we look back, 2009 was the year, the world most in crisis.

Interpretation

It results, the company was financially healthy only in 2008 had a cash outflow amounting to $ -35.64, the rest of the year it had a cash inflow result. It tells us, the company was very efficient.

Cash Flow from Financing Activities

Through the cash from financing activities, we can determine if the company had raised additional funds; is it through by financing or from their stockholders? Below are the results:

  • Financing cash flow items were zero from 2007 to 2010 only in 2011 at 43.97.
  • Issuance   (retirement) of stock, net was 40.7, -35.64, 95.09, 38.75 and 23.18.
  • Issuance (retirement) of debt, net was zero from 2007 to 2009, 86 and 2,358.66 for 2010 and 2011, respectively.
  • Cash from financing activities was 40.7, -35.64, 95.09, 124.75 and 2,425.81.

Written by  Rio, Nelly, and Dyne
Edited by Cris

Interested to learn more about the company? Here’s company research to know more about its background and history and investment valuation for the pricing.

cherokee-inc-chke

Cherokee Inc (CHKE) Shows Sustainable Net Margin

July 6th, 2012 Posted by Company Research Report No Comment yet

Cherokee Inc Balance Sheet

Cherokee Financial Liquidity and Leverage

Cherokee Inc. cash position starts with higher working capital and current ratio for the first four years (2007-2011). The company has greater ability to pay its short-term debts or obligations using short-term cash. It was decreasing yearly and this big leap in 2011 leaves the company with no sufficient cash to pay current obligations wherein it shows -$6.56.

Working capital (current assets less current liabilities); the current ratio (current assets over current liabilities); and quick ratio(total asset divided by total liabilities) computations were used to check the company’s ability to meet current obligations to pay bills, meet payroll and make loan payments.

  • The working capital of in dollars was 27.66, 18.21, 12.61, 10.36, and 2.79 respectively with an average of 14.33. This tells us that their working capital was declining and serves as the basis of their operating cycle.
  • Their current ratio was 2.06:1, 2.37:1, 2.40:1, 2.28:1 and 1.17:1 respectively. Average of 2.06:1.
    It means the company has $2.06, 2.37, 2.40, 2.28 and 1.17 of current assets for every $1 of current liabilities.
  • Their cash & cash equivalent minus current liabilities in dollars was 18.40, 8.70, 4.65, 1.31 and -6.56 respectively. Shows that it was decreasing to the point in 2011 cash; a negative amount was not sufficient to pay for their current obligations.

Cherokee’s working capital against total assets and total revenue was also declining. The year 2011 marked the effect in their declining operations, thus, management was inefficient in handling their cash and other resources. In checking the composition of the company’s working capital against the total asset and total revenue from 2007 to 2011, computation as well as computed working capital per share was stated below:

  • The networking capital ratio was 0.44, 0.43, 0.40, 0.38, and 0.10. This shows the decreasing trend in the working capital against total assets.
  • Working capital per dollar revenue was 0.36, 0.44, 0.35, 0.32 and 0.09. This shows a decreasing trend in the working capital against total revenue.
  • While their working capital per share in dollars was 3.13, 2.04, 1.43, 1.18 and 0.33 respectively. Average of $1.62. This represents that 2007 and 2008 were good, and 2009 to 2011 was below the yearly average of $1.62 per share.

Cherokee Cash Efficiency

Cherokee Inc’s accounts receivable turnover, it began with 10.57 times in 2007, a good start with only 34.52 days. But with the following years, it falls to only 4.64 times thus increasing the number of days receivable. If terms are net 30 days net, receivable balance equals to more than 40 days sale would indicate slow collections. For the longer accounts carried, the smaller will be the percentage return realized on invested capital. Hence, their days payable started also with 4.4 days in 2007 ends up 22.2 days in 2011. This means it takes longer to pay their payables to their debtors. Their cash conversion cycle takes longer too, from one month to almost two months, as well as their accounts receivables to be converted to cash to pay accounts payable.

  • This will provide a rough scale on how well receivables was turning into cash, so, accounts receivable turnover was 10.57, 5.65, 6.61, 4.69 and 4.64 from 2007 to 2011 respectively. Average of 6.43 times. And the average collection period was 34.52, 64.5, 55.2,77.8, and 78.7 days. Average of 62.14 days. This measure the movement of accounts receivables or the average time it takes to collect an account and depends on the credit terms the company is offering to its customers.
  • Days payable was 4.4, 7.2, 9.6, 10.9, and 22.2. Average of 10.86 days. This tells us that the company takes 4.4, 7.2, 9.6, 10.9 and 22.2 with an average of 10.86 days to pay its debtors.
  • Cash conversion cycle was 30.1, 57.4, 45.7, 66.9, and 56.6 days respectively. Average of 51.34 days. This was computed as days receivable fewer days payable and this means the length of time for cash to complete the operating cycle.

Total utilization of asset tells us that asset turnover was 1.23, 0.97 times, 1.14 times, 1.20 times and 1.13 times a year. Furthermore, the up and down trend means the company was not generating a favorable revenue against the utilization of total assets.

Debt ratio shows how the company was levered. In 2009, it fell down to 28 percent, then increased by 59 percent in 2011 with the average of 38 percent of the total assets being supplied by creditors or short-term liabilities; and that they were not relying on external sources for financing their assets. Debt to worth ratio is used in determining the debt ceiling but vary from company to company and industry to industry. Only in 2011 and 2007, they showed a higher ratio that is more than the yearly average of 69 percent because it fell down in 2008-2009.

Data below show the more detailed values:

  • Debt ratio was 0.42, 0.31, 0.28, 0.30 and 0.59 from 2007 to 2011 respectively with an average of 0.38 or 38 percent.
  • Debt to worth ratio was 0.72, 0.45, 0.40, 0.43, and 1.46 from 2007 to 2011 respectively. Average of 69 percent.

To check the ability of the company in paying short-term liabilities, solvency ratio was 1.37, 1.34, 1.75, 1.73 and 0.57 from 2007 to 2011 respectively with an average of 135.2 percent. In the first four years, the company illustrates that they were solvent but in 2011 it declined rapidly to 57 percent which was very low. If Cherokee’s operation will not increase, revenues, as well as its net income for the coming year, will be in trouble financially because they will not be capable of meeting its obligation in the long run.

This show that management operating performance in 2007 return was 56 percent in utilizing their total assets, in 2008 due to economic crises returns decrease to 38%, in 2009 and 2010 it increased to 45 percent and 46 percent respectively. But in 2011 it decreases down to 28% for net income is only $7.72 from $12.57 in 2010. It is mainly due to decrease revenues. To verify their general earning power, their return of assets in percentage was 56, 38, 45, 46 and 28 from 2007 to 2011 respectively. This shows the rate of return on their total assets, that for every $1 of money invested in capital they generate in dollars 0.56, 0.38, 0.45, 0.46, and 0.28 of revenue from 2007 to 2011 respectively.

In totality, the relationship of ownership of the company’s total assets was 38 percent claimed by creditors and 62 percent claimed by shareholders. The company did not have long-term liabilities or debts; they are financed with current capital. The data below further interpret this:

  • Total liabilities to total assets in percentage was 42, 31, 28, 30 and 59 claims to their total assets. Average of 38 percent.
  • Stockholders’ equity to total assets in percentage was 58, 69, 72, 70 and 41 claim to their total assets. Average of 62 percent.

Return on equity indicates the profitability of the company to their stockholders. The return was up and down trend in 2007 and 2008 but it went up in 2009, 2010 and 2011. Thus, ending a return of 70 percent is not bad for their stockholders. This show the rate of return of their stockholder’s equity; that for every $1 of money invested, they generate 0.964, 0.556, 0.631, 0.659 and 0.70 of revenue in dollars from 2007 to 2011 respectively.

Trend ratio is used to study the movement of selected items in the balance sheet in yearly horizontal growth or decrease using the earlier year. Below is the summary of data using 2007 as the base year.

  • Cash & cash equivalent in percentage was 100, 49, 30.6, 21 and 21.5. This shows a declining trend from 2007 to 2010, except in 2011 it increased 0.5 percent compared to 2010.
  • Their current assets movement in percentage was 100, 58, 40, 34 and 35.
  • Total assets in percentage were 100, 68.7, 51, 43.61 and 43.62.
  • Current liabilities or total liabilities in percentage was 100, 50.6, 34, 31, and 61.7. This illustrates that the company does not have any long-term debts; only current liabilities; which tells us that it is also decreasing yearly until 2010. In the following year, the amount was doubled.
  • Stockholders’ equity in percentage was 100, 81.8, 62.9, 52.7 and 30.5. This shows that the capital is decreasing yearly.

Looking at the above analysis, it tells us that all their accounts go down yearly with a minimal increase in 2011. Management is not doing their part in the company’s operation. For the past years, they did not rely on getting long-term liabilities to increase operating cash flow as well as to increase revenue and net profits.

Cherokee Inc Income Statement

Cherokee Revenue

The revenue of the company had an average of 43.56 for five years, thus, the trend was alarming because it is continuously decreased by 15, 11 and 6 percent. Gross profit was 100 percent huge of revenue and the company has no direct cost. Below was the result:

  • Revenue in billion dollars was 76.63, 41.62, 36.22, 32.57 and 30.78, an average of 43.56
  • Gross profit in percentage was 100 straight for five years.

The operating income and income before tax had an average difference of 46 percent, meaning there was no unusual expense acquired in five years. The income after tax was decreasing but in 2008 and 2009 was maintained by 40 percent. The net margin was also decreasing the same results of income after tax; it means there is no extraordinary item. The details are:

  • Gross profit in percentage was 100 straight for five years.
  • Operating income in percentage was 74, 63, 63, 63 and 42, an average of 27.88 percent.
  • Income before tax in percentage was 76, 66, 64, 63 and 42, an average of 28. 34 percent.
  • Income after tax in percentage was 45, 40, 40, 39 and 25
  • Net margin in percentage was 45, 40, 40, 39 and 25, an average of 38 percent.

After deducting all the expenses, the income of the company was profitable with an average of 38 percent for five years but was not progressive. The movement was downward because the revenue also went down for five years.

Cherokee Profitability

To determine the net margin, we consider the cost and expenses. Does the company manage its cost efficiently? How much the total expense incurred for the year? Then, was the company profitable? Below are the results:

  • No direct cost of revenue.
  • The selling & general administrative expense in percentage was 24, 34, 33, 33 and 53.
  • Depreciation in percentage was 1, 3, 4, 4 and 5.
  • The income tax in percentage was 30, 26, 24, 24 and 17.
  • Total expense incurred in percentage was 56, 63, 61, 61 and 75.
  • The net margin in percentage was 45, 40, 40, 39 and 25.

Based on the above data, the expenses were managed efficiently; there was no direct cost of revenue. The selling and general expense had an increased margin of 10 percent in 2008 and down to 1 percent in 2009 and 2010. It jumped by 20 percent in 2011. Thus, the net margin from 2007 to 2011 was profitable but due to the increase in expenses in 2011 it was affected, resulting in 25 percent net. Overall the net margin was still sustainable.

  • In analyzing, the return on asset, equity and investment were used to measure management effectiveness. The results are:
  • Return on the asset in percentage was 56, 38, 45, 46 and 28, an average of 43.
  • Return on equity in percentage was 96, 56, 63, 66 and 70, an average of 70.
  • Return on investment in percentage was -161, -3937, 176, 147 and 70.

The management was effective in handling their resources, in terms of their asset and equity; for their five years of operation, the return for every $1, it had .43 and .70 dollars, respectively. The return on investment was not quite good and they still need to work it on. For the last two years (2007 to 2008) it had a negative return, though in 2009 it recovered to 176 percent it went down from 2010 to 2011.

Cherokee Cash Flow

Cherokee Cash Flow From Operating Activities

Cash from operating activities is the cash available for the operation. By using this, we can determine if the company had enough funds for the operation and know what are the key accounts affected, how much are the changes in working capital. Below were the results for the company:

  • Net income/starting line was 34.79, 16.44, 14.35, 12.57 and 7.72
  • Changes in working capital were 17.86, -14.19, -0.57, -0.98 and 2.63
  • Cash from operating activities was 53.96, 4.9, 15.96, 13.74 and 12.51

The cash from operating activities had a positive result but the movement was decreasing. It had a bulk decrease in 2008 by 91 percent and in 2009 slightly recovered by 69 percent; it had decreased again in 14 and 8 percent in 2010 and 2011, respectively. This was due to the net income going down continuously.

Cherokee Cash Flow from Investing

  • Purchase of fixed assets was $-0.03, -0.04, -0.08, -0.05 and -0.06
  • Purchase/acquisition of intangibles was $-0.26, -1.39, -0.34, -0.29 and -0.32
  • Cash from investing activities was $-0.29, -1.43, -0.42,-0.35 and -0.38

Data show they had invested more in the acquisition of intangibles; the total average for five years is -2.6; compared to a fixed asset with a total average of –.26. This means that total cash from investing in 2008 had increased by 1.14 and from 2009 to 2010, decreased by 1.01 and .7 respectively.

Cherokee Cash Flow from Financing

We can determine if the company had raised additional funds through cash from financing. What was unique about this company is that they issue stocks of cash dividends. Below are the results:

  • Financing cash flow items was 0.21, 0.19, 0.15, 0 and 0.
  • Total cash dividends paid was -22.43, -26.69, -22.24, -17.63 and -13.46, average for five years -20.49.
  • Cash from financing activities was -20.99, -26.08, -23.84, -17.63 and -11.96.
  • The Free cash flow was 76.68, 33.02, 38.62, 31.72 and 26.35
  • Free cash flow per share was 8.71, 3.71, 4.39, 3.60 and 3.10

After deducting the capital expenditure and dividend, the results had a positive free cash flow. It was in a sideways movement that in 2008, it decreased by 57 percent and 2009 increased by 5.6 percent.

Cherokee Cash Flow Efficiency

  • Cash flow from sales to sales ratio 54.79, 5.94, 16.88, 14.42 and 13.01.
  • Cash flow solvency 6.65, 0.72, 2.62, 1.91 and 0.77
  • Cash flow margin 0.70, 0.12, 0.44, 0.42 and 0.41

It indicates that in 2007 it has a greater amount of cash generated from sales in every $1; it had 5.48 compared in 2008 wherein it only had .06. The cash flow solvency was also in sideways as well as the cash flow margin.

Written by Nelly, Rio, and Dyne
Edited by Cris

Interested in learning more about the company? Here’s company research to know more about its background and history; and investment valuation for the pricing.

cherokee-inc-chke

Cherokee Inc (CHKE) Shows Sustainable Net Margin

July 6th, 2012 Posted by Company Research Report No Comment yet

Cherokee Inc Balance Sheet

Financial Liquidity and Leverage

Cherokee Inc. cash position starts with higher working capital and current ratio for the first four years (2007-2011). The company has a greater ability to pay its short-term debts or obligations using short-term cash. It was decreasing yearly and this big leap in 2011 leaves the company with no sufficient cash to pay current obligations wherein it shows -$6.56.

Working capital (current assets less current liabilities); the current ratio (current assets over current liabilities); and quick ratio(total asset divided by total liabilities) computations were used to check the company’s ability to meet current obligations to pay bills, meet payroll and make loan payments.

  • The working capital of in dollars was 27.66, 18.21, 12.61, 10.36, and 2.79 respectively with an average of 14.33. This tells us that their working capital was declining and serves as the basis of their operating cycle.
  • Their current ratio was 2.06:1, 2.37:1, 2.40:1, 2.28:1 and 1.17:1 respectively. Average of 2.06:1.
    It means the company has $2.06, 2.37, 2.40, 2.28 and 1.17 of current assets for every $1 of current liabilities.
  • Their cash & cash equivalent minus current liabilities in dollars was 18.40, 8.70, 4.65, 1.31 and -6.56 respectively. Shows that it was decreasing to the point in 2011 cash; a negative amount was not sufficient to pay for their current obligations.

The company’s working capital against total assets and total revenue was also declining. The year 2011 marked the effect in their declining operations, thus, management was inefficient in handling their cash and other resources. In checking the composition of the company’s working capital against the total asset and total revenue from 2007 to 2011, computation as well as computed working capital per share was stated below:

  • The networking capital ratio was 0.44, 0.43, 0.40, 0.38, and 0.10. This shows the decreasing trend in the working capital against total assets.
  • Working capital per dollar revenue was 0.36, 0.44, 0.35, 0.32 and 0.09. This shows a decreasing trend in the working capital against total revenue.
  • While their working capital per share in dollars was 3.13, 2.04, 1.43, 1.18 and 0.33 respectively. Average of $1.62. This represents that 2007 and 2008 were good, and 2009 to 2011 was below the yearly average of $1.62 per share.

Cash Efficiency

Cherokee Inc’s accounts receivable turnover, it began with 10.57 times in 2007, a good start with only 34.52 days. But with the following years, it falls to only 4.64 times thus increasing the number of days receivable. If terms are net 30 days net, receivable balance equals to more than 40 days sale would indicate slow collections. For the longer accounts carried, the smaller will be the percentage return realized on invested capital. Hence, their days payable started also with 4.4 days in 2007 ends up 22.2 days in 2011. This means it takes longer to pay their payables to their debtors. Their cash conversion cycle takes longer too, from one month to almost two months, as well as their accounts receivables to be converted to cash to pay accounts payable.

  • This will provide a rough scale on how well receivables was turning into cash, so, accounts receivable turnover was 10.57, 5.65, 6.61, 4.69 and 4.64 from 2007 to 2011 respectively. Average of 6.43 times. And average collection period was 34.52, 64.5, 55.2,77.8, and 78.7 days. Average of 62.14 days. This measure the movement of accounts receivables or the average time it takes to collect an account and depends on the credit terms the company is offering to its customers.
  • Days payable was 4.4, 7.2, 9.6, 10.9, and 22.2. Average of 10.86 days. This tells us that the company takes 4.4, 7.2, 9.6, 10.9 and 22.2 with an average of 10.86 days to pay its debtors.
  • Cash conversion cycle was 30.1, 57.4, 45.7, 66.9, and 56.6 days respectively. Average of 51.34 days. This was computed as days receivable fewer days payable and this means the length of time for cash to complete the operating cycle.

Total utilization of asset tells us that asset turnover was 1.23, 0.97 times, 1.14 times, 1.20 times and 1.13 times a year. Furthermore, the up and down trend means the company was not generating a favorable revenue against the utilization of total assets.

Debt ratio shows how the company was levered. In 2009, it fell down to 28 percent, then increased by 59 percent in 2011 with the average of 38 percent of the total assets being supplied by creditors or short-term liabilities; and that they were not relying on external sources for financing their assets. Debt to worth ratio is used in determining the debt ceiling but vary from company to company and industry to industry. Only in 2011 and 2007, they showed a higher ratio that is more than the yearly average of 69 percent because it fell down in 2008-2009.

Data below show more detailed values:

  • Debt ratio was 0.42, 0.31, 0.28, 0.30 and 0.59 from 2007 to 2011 respectively with an average of 0.38 or 38 percent.
  • Debt to worth ratio was 0.72, 0.45, 0.40, 0.43, and 1.46 from 2007 to 2011 respectively. Average of 69 percent.

To check the ability of the company in paying short term liabilities, solvency ratio was 1.37, 1.34, 1.75, 1.73 and 0.57 from 2007 to 2011 respectively with an average of 135.2 percent. In the first four years, the company illustrates that they were solvent but in 2011 it declined rapidly to 57 percent which was very low. If company’s operation will not increase, revenues, as well as its net income for the coming year, will be in trouble financially because they will not be capable of meeting its obligation in the long run.

This show that management operating performance in 2007 return was 56 percent in utilizing their total assets, in 2008 due to economic crises returns decrease to 38%, in 2009 and 2010 it increased to 45 percent and 46 percent respectively. But in 2011 it decreases down to 28% for net income is only $7.72 from $12.57 in 2010. It is mainly due to decrease in revenues. To verify their general earning power, their return of assets in percentage was 56, 38, 45, 46 and 28 from 2007 to 2011 respectively. This shows the rate of return on their total assets, that for every $1 of money invested in capital they generate in dollars 0.56, 0.38, 0.45, 0.46, and 0.28 of revenue from 2007 to 2011 respectively.

In totality, the relationship of ownership of the company’s total assets was 38 percent claimed by creditors and 62 percent claimed by shareholders. The company did not have long-term liabilities or debts; they are financed with current capital. The data below further interpret this:

  • Total liabilities to total assets in percentage was 42, 31, 28, 30 and 59 claims to their total assets. Average of 38 percent.
  • Stockholders’ equity to total assets in percentage was 58, 69, 72, 70 and 41 claim to their total assets. Average of 62 percent.

Return on equity indicates the profitability of the company to their stockholders. The return was up and down trend in 2007 and 2008 but it went up in 2009, 2010 and 2011. Thus, ending a return of 70 percent is not bad for their stockholders. This show the rate of return of their stockholder’s equity; that for every $1 of money invested, they generate 0.964, 0.556, 0.631, 0.659 and 0.70 of revenue in dollars from 2007 to 2011 respectively.

Trend ratio is used to study the movement of selected items in the balance sheet in yearly horizontal growth or decrease using the earlier year. Below is the summary of data using 2007 as the base year.

  • Cash & cash equivalent in percentage was 100, 49, 30.6, 21 and 21.5. This shows a declining trend from 2007 to 2010, except in 2011 it increased by 0.5 percent compared to 2010.
  • Their current assets movement in percentage was 100, 58, 40, 34 and 35.
  • Total assets in percentage were 100, 68.7, 51, 43.61 and 43.62.
  • Current liabilities or total liabilities in percentage was 100, 50.6, 34, 31, and 61.7. This illustrates that the company does not have any long-term debts; only current liabilities; which tells us that it is also decreasing yearly until 2010. In the following year, the amount was doubled.
  • Stockholders’ equity in percentage was 100, 81.8, 62.9, 52.7 and 30.5. This shows that the capital is decreasing yearly.

Looking in the above analysis, it tells us that all their accounts go down yearly with minimal increase in 2011. Management is not doing their part in the company’s operation. For the past years, they did not rely on getting long-term liabilities to increase operating cash flow as well as to increase revenue and net profits.

Income Statement

Revenue

The revenue of the company had an average of 43.56 for five years, thus, the trend was alarming because it is continuously decreased by 15, 11 and 6 percent. Gross profit was 100 percent huge of revenue and the company has no direct cost. Below was the result:

  • Revenue in billion dollars was 76.63, 41.62, 36.22, 32.57 and 30.78, an average of 43.56
  • Gross profit in percentage was 100 straight for five years.

The operating income and income before tax had an average difference of 46 percent, meaning there was no unusual expense acquired in five years. The income after tax was decreasing but in 2008 and 2009 was maintained by 40 percent. The net margin was also decreasing the same results of income after tax; it means there is no extraordinary item. The details are:

  • Gross profit in percentage was 100 straight for five years.
  • Operating income in percentage was 74, 63, 63, 63 and 42, an average of 27.88 percent.
  • Income before tax in percentage was 76, 66, 64, 63 and 42, an average of 28. 34 percent.
  • Income after tax in percentage was 45, 40, 40, 39 and 25
  • Net margin in percentage was 45, 40, 40, 39 and 25, an average of 38 percent.

After deducting all the expenses, the income of the company was profitable with an average of 38 percent for five years but was not progressive. The movement was downward because the revenue also went down for five years.

Profitability

To determine the net margin, we consider the cost and expenses. Does the company manage its cost efficiently? How much the total expense incurred for the year? Then, was the company profitable? Below are the results:

  • No direct cost of revenue.
  • The selling & general administrative expense in percentage was 24, 34, 33, 33 and 53.
  • Depreciation in percentage was 1, 3, 4, 4 and 5.
  • The income tax in percentage was 30, 26, 24, 24 and 17.
  • Total expense incurred in percentage was 56, 63, 61, 61 and 75.
  • The net margin in percentage was 45, 40, 40, 39 and 25.

Based on the above data, the expenses were managed efficiently; there was no direct cost of revenue. The selling and general expense had an increased margin of 10 percent in 2008 and down to 1 percent in 2009 and 2010. It jumped by 20 percent in 2011. Thus, the net margin from 2007 to 2011 was profitable but due to the increase in expenses in 2011 it was affected, resulting in a 25 percent net. Overall the net margin was still sustainable.

  • In analyzing, the return on asset, equity and investment were used to measure the management effectiveness. The results are:
  • Return on the asset in percentage was 56, 38, 45, 46 and 28, an average of 43.
  • Return on equity in percentage was 96, 56, 63, 66 and 70, an average of 70.
  • Return on investment in percentage was -161, -3937, 176, 147 and 70.

The management was effective in handling their resources, in terms of their asset and equity; for their five years of operation, the return for every $1, it had .43 and .70 dollars, respectively. The return on investment was not quite good and they still need to work it on. For the last two years (2007 to 2008) it had a negative return, though in 2009 it recovered to 176 percent but it went down from 2010 to 2011.

Cash Flow

Cash Flow From Operating Activities

Cash from operating activities is the cash available for the operation. By using this, we can determine if the company had enough funds for the operation and know what are the key accounts affected, how much are the changes in working capital. Below were the results for the company:

  • Net income/starting line was 34.79, 16.44, 14.35, 12.57 and 7.72
  • Changes in working capital were 17.86, -14.19, -0.57, -0.98 and 2.63
  • Cash from operating activities was 53.96, 4.9, 15.96, 13.74 and 12.51

Based on the above data, the cash from operating activities had a positive result but the movement was decreasing. It had a bulk decrease in 2008 by 91 percent and in 2009 slightly recovered by 69 percent; it had decreased again in 14 and 8 percent in 2010 and 2011, respectively. This was due to the net income going down continuously.

Cash Flow from Investing

  • Purchase of fixed assets was $-0.03, -0.04, -0.08, -0.05 and -0.06
  • Purchase/acquisition of intangibles was $-0.26, -1.39, -0.34, -0.29 and -0.32
  • Cash from investing activities was $-0.29, -1.43, -0.42,-0.35 and -0.38

Data show they had invested more in the acquisition of intangibles; the total average for five years is -2.6; compared to fixed asset with a total average of –.26. This means that total cash from investing in 2008 had increased by 1.14 and in 2009 to 2010, decreased by 1.01 and .7 respectively.

Cash Flow from Financing

We can determine if the company had raised additional funds through cash from financing. What was unique about this company is that they issue stocks of cash dividends. Below are the results:

  • Financing cash flow items was 0.21, 0.19, 0.15, 0 and 0.
  • Total cash dividends paid was -22.43, -26.69, -22.24, -17.63 and -13.46, average for five years -20.49.
  • Cash from financing activities was -20.99, -26.08, -23.84, -17.63 and -11.96.
  • The Free cash flow was 76.68, 33.02, 38.62, 31.72 and 26.35
  • Free cash flow per share was 8.71, 3.71, 4.39, 3.60 and 3.10

After deducting the capital expenditure and dividend, the results had a positive free cash flow. It was in a sideways movement that in 2008, it decreased by 57 percent and 2009 increased by 5.6 percent.

Cash Flow Efficiency

  • Cash flow from sales to sales ratio 54.79, 5.94, 16.88, 14.42 and 13.01.
  • Cash flow solvency 6.65, 0.72, 2.62, 1.91 and 0.77
  • Cash flow margin 0.70, 0.12, 0.44, 0.42 and 0.41

It indicates that in 2007 it has a greater amount of cash generated from sales in every $1; it had 5.48 compared in 2008 wherein it only had .06. The cash flow solvency was also in sideways as well as the cash flow margin.

Written by Nelly, Rio, and Dyne
Edited by Cris

Interested in learning more about the company? Here’s company research to know more about its background and history; and investment valuation for the pricing.

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