Posts in Company Research Report

The Female Health Company (VERU) Ran by Women for Women

August 11th, 2014 Posted by Company Research Report No Comment yet

The Female Health Company (VERU) company research.

Female Health CompanyFemale Health Company VERU

About Female Health Company (VERU)

The Female Health Company owns rights to the FC2 Female Condom. FC2 is a revolutionary, female-initiated option offering women dual protection against sexually transmitted infections (S.T.I.’s), including HIV/AIDS, and unintended pregnancy. Further, FHCO currently has the only female condom (FC2) which is both approved by FDA and cleared for purchase by WHO. Furthermore, more than 50% of adult HIV/AIDS cases are female, 80% of which are contracted via heterosexual sex. HIV/AIDS is the number one cause of death globally for women 15-44 years old.

Another is, Female Health Company’s main market is currently the public health sector, which distributes FC2 to more than 143 countries worldwide for use in prevention and family planning programs. Likewise, the company’s customer base consists primarily of a small number of customers who purchase large quantities. Due to the receipt and timing of large orders, the Company experiences some quarter to quarter fluctuation in unit sales.

How does the Female Health Company make money?

Female Health Company manufactures markets and sells the FC2 female condom. Its product provides dual protection against unintended pregnancy and sexually transmitted infections, including HIV/AIDS.

Who is running the business and what is their background?

fhco karen

Karen L. King

Ms. Karen L. King serves as President, Chief Executive Officer of the Company, effective January 20, 2014.

Previously, Ms. King served as President of the Biologics and Bio-Solutions businesses of Royal DSM, a global provider of biopharmaceutical manufacturing technology and services, from September 2006 to September 2013.

Ms. King served as Executive Vice President of the Company from May 2006 to September 2006 and as Vice President, Global Development from August 2004 to May 2006, where she was responsible for sales, marketing, and business development.

Prior to August 2004, Ms. King worked at Baxter International since 1981, most recently serving as President of Pulse Nutrition Solutions, Inc., a subsidiary of Baxter that developed a line of nutritional products for consumer use.

 

m greco fhco

Michele Greco
Ms. Michele Greco serves as Chief Financial Officer, Vice President of The Female Health Company. Ms. Greco is a CPA with nearly 30 years of experience in public accounting with Ernst & Young LLP.

From January 2011 to February 2012, Ms. Greco provided consulting services to Systems Research Incorporated as a recruiter of finance professionals.

From March 2009 to January 2011, Ms. Greco was involved in a series of personal business ventures.

From 1994 to March 2009, Ms. Greco served as an audit partner with Ernst & Young LLP. Ms. Greco joined Ernst & Young LLP in 1981.

 

Financial Liquidity

FHC liq
A current asset is 4 times bigger than its current liabilities while quick ratio 2.8.  FHCO has no short-term and long-term debt.

fhccf

Female Health Company Cash Flow From Operating Activities

Operating cash flow of FHCO shows positive results in the past five years from 2009 to 2013 with an average of 7. The company has funds available to retire additional debts and invest new line of business. FHCO’s cash outflow from investing was bigger than cash inflow or they are using the capital to invest in the company. Financing cash flow 2009 to 2013 was also negative; their company is repaying its debts.

Female Health Company Free Cash Flow

fhcfcf

Free cash flow balances were all positive which means that the company is still capable of possible expansion thru investing to other companies. 

The Female Health Company Valuation

In our valuation of equity, we adopt the investment styles which we think applicable to the company. One valuation style is that seeks out undervalued companies whose stock prices are temporarily down, but whose fundamentals are sound in the long run. The philosophy was to buy stocks when prices fall and to sell when the price rises a great deal.

fhcsgr

Using the formula “Sustainable growth rate=ROE x (1- dividend payout ratio)”, it shows that the average SGR of FHCO was 20.71 percent. This is the measure of how fast a company can grow.

FHCO MS

Going forward, the margin of safety shows that the margin of safety was averaging 73 percent. Using a margin of safety, one should buy a stock when it is worth more than its market price. Further, the margin of safety protects the investor from both poor decisions and downturns in the market. The Margin of Safety requires knowing when the buying price is low in absolute terms, rather than merely relative to the market as a whole. This formula is used to identify the difference between company value and price, in other words, it is the difference between the real value of the stock and the market price. The result shows that it passed the 40 percent requirement and therefore, it is a good candidate for a Buy.

Female Health Company Relative Valuation Method

With this valuation method, is to compare the market values of the stock with the fundamentals (earnings, book value, growth multiples, cash, flow, and the metrics) of the stock.

fhcrel

FHCO’s current book value per share was $1.09, with an average of $.77 per share, on the other hand, the price to earnings ratio in the trailing twelve months (ttm) was 11.9% per share and 19.02% average per share. Moreover, the earnings per share at ttm was $.33 and averaging $.34 while the return on equity at ttm was $34.43 and has an average of $ 49.47 per share.

The table below shows the summary of calculations of FHCO

fhco yield
The growth was 24 percent, while the dividend yield was 7.41 percent. Likewise, the calculated value of appreciation is $1.22 which is the required 40 percent. Further, the computed value dividend was .28 and the computed total value was $ 3.70. The price that the investor is willing to pay was $3.70. Furthermore, the market price of FHCO to date was $ 3.95 per share. Overall, if we compare this to the total value of $ 3.70 per share, it indicates that the stock is trading at undervalued prices.

Conclusion

Overall, it shows that FHCO is financially healthy based on its current resources. Further, the company has sufficient cash flow used for operating activities and high free cash flow. Furthermore, the margin of safety of 73 percent has passed the 40 percent requirement.

CITATION:

http://www.reuters.com/finance/stocks/companyOfficers?symbol=FHCO.O&WTmodLOC=C4-Officers-5
www.google.com/finance?q=NASDAQ%3AFHCO&ei=bC7oU4jWGseskgXM1YDQBA
http://femalehealth.investorroom.com/index.php?s=117

Researched and Written by Rio

Edited by Cris

ITT Educational Services Inc (ESI) Involves in Higher Education Program

August 7th, 2014 Posted by Company Research Report No Comment yet

ITT Educational Services Inc (ITT) Company Research

ITT Educational Services Inc

ITT Educational Services Inc is a provider of post-secondary degree programs in the United States.  Offered master, bachelor and associate degree programs to approximately 73,000 students, which has144 locations (including 141 campuses and three learning sites) in 39 states.

The company offered one or more of its online programs to students who were located in 48 states, helping them to prepare for careers in various fields involving their areas of study.

 

How does ITT Educational Services make money?

ITT Educational Services Corporation, Incorporated is one of the largest for-profit education companies and offers primarily 2-year and some 4-year degrees in a number of subjects. Their revenue is generated from the number of enrolling as they experienced significant growth in students. Part of company’s income derives from Federal financial aid programs.

Who is running the business and what is their background?

Kevin Modany

Kevin Modany

 

Mr. Kevin M. Modany is Chairman of the Board, Chief Executive Officer of ITT Educational Services Inc. He has served as Chairman since February 2008 and as Chief Executive Officer since April 2007. He also served as President from April 2005 to March 2009. From April 2005 through March 2007 he also served as Chief Operating Officer.

Mr. Modany has been a Director of ours since July 2006. Mr. Modany had previous experience in advising other companies on financial and operational matters, and he had involvement in the financial and operational aspects of the company before becoming Chief Executive Officer.

 

Daniel Fitzpatrick

Daniel Fitzpatrick

Mr. Daniel M. Fitzpatrick is Chief Financial Officer, Executive Vice President of ITT Educational Services Inc. He served as Senior Vice President, Chief Financial Officer from June 2005 through March 2009.

ITT Financial Liquidity

esi liq

The average current ratio was 1.35 which means that its current asset was higher by 35% compared to its current liability while quick ratio was also 1.22 averaged.

Debt to equity ratio was averaging  0.98 which means that ESI has minimal leverage.

And solvency ratio was 1.96 averaged in 5 years period which shows that the company was capable of paying its total obligations.

The liquidity of ESI lies in the normal level. The company’s current resources were just sufficient to continue its operation with excess funds for unexpected opportunities.

ITT Asset Management/Efficiency

esi eff

Inventory turnover ratio was 0. as this industry has no record of inventory. Receivable turnover ratio average was 26.99 times per period. This is equivalent to 15 days for its receivable to turn into cash. For some companies, this is the credit term given to their respective customers. The payable turnover ratio has an average of 20.60 times for the company to pay its obligations or 47 days for its suppliers to pay.

Looking at the above data, the company’s current resources, as well as its total asset, is efficient enough in generating sales.

ESI is not highly indebted as calculated in the debt ratio. However, if compared to the owners’ equity it reflected an average of .98, this is because the company has not many capital investments.

ITT Property, Plant & Equipment

esi ppe

Gross investment in PPE average in five years was 340.20. It showed that the company was yearly expanding thru investment in fixed assets. Accumulated depreciation average was 150. It is a cumulative cost allocated to a tangible asset over its useful life. So, the net value of the PPE after deducting its accumulated depreciation was 190.20.

To calculate it using an estimated life of 5 years, the average used life of the said fixed asset was 2.2 years already. And it was still a remaining 2.8 years to use before it is fully depreciated.

ITT Income

esi rev

Revenue was 1015, 1319, 1597, 1500 and 1287 with trailing twelve months of 1108. Shown here, the gross revenue was yearly increasing from 2008 to 2010 but pulled down from 2011 to 2012. Its yearly growth rate was 30, 21,-.06 and -.14 percent.

Its operating income was 328, 489, 614, 507 and 233 with ttm of 104. This is the amount after deducting the operating expenses.

Income before and after tax have the same trend, continuously increasing until 2010 but dropped a little in 2011 while 50 percent in 2012. Its yearly growth rate was .48, .25, -.18 and -.55 percent respectively.

The net income was consistent going up in 2008 to 2010 but showed a slight decrease in 2011 and dropped by more than 50 percent in 2012. The company needs to be closely monitored.

ITT Expense

esi exp

The cost of revenue was 384, 450, 538, 553 and 539 with ttm of 500 which is equivalent to 37 percent average of gross revenue. It has the same trend with revenue.

Operating expense was 304, 381, 445, 440 and 515, with of ttm of 503, which is equivalent to 31, 30, 29, 28 and 29 percent respectively of revenue. While another expense the trailing twelve months was 43 or 4 percent of revenue. And total expense was  436, 573, 687, 642 and 609, with trailing twelve months of 546. This represents 49 percent of gross revenue.

Total expenses of the company are quite high especially in the year 2012 which unmatched its revenue. So, the company needs to control its expenses.

ITT Margin

esi marg

Gross margin was .62, .66, .66, .63 and 58, trailing twelve months was .55, this is the percentage result of gross profit over revenue.
Operating margin was 32.3, 37.1, 38.4, 33.8 and 18.1 percent, trailing twelve months was 9.4 which shows a continuous increase from 2008 to 2010 but slightly dropped by 5 percent in 2011 and 17 percent in 2012.

Net profit margin was 20, 23, 23, 21 and 11 percent, with ttm of 17. This is the bottom line of ESI’s business transactions expressed in percentage.

ITT CASH FLOW

esi cf

Operating cash flow from 2008 to 2012 was 173, 301, 559, 388 and 105 ttm was 115. It shows positive results throughout the five years period, although up and downtrend.

Net cash used in investing activities from 2008 to 2012 was 129, -64, -99, -46 and 123. Its trailing twelve months was 133. It shows negative results except in 2008 and 2012 because cash inflows were greater than cash outflows which are mostly investments.

Cash Flow from Financing Activities

Financing cash flows refer to cash received from the issue of debt and equity or paid out as dividends, share repurchases or debt repayments.

Net cash used for financing activities of ESI from 2008 to 2012 was -83, -334, -424, -277 and -211, with trailing twelve months of -245. Its cash inflows include common stock issued, the excess tax benefit from stock and other financing activities while cash outflows include repurchased of common stocks.

Financing cash flow showed a negative balance since its cash outflow transaction was more than its cash received.

Free Cash Flow

esi fcf

Free cash flow from 2008 to 2012 was 137, 273, 526, 357 and 87 which show positive balance throughout the five years period. It indicates that the company has enough funds to continue its operation and expansion.

Based on the overall performance of ESI, the company was able to meet its financial and operational commitments.

Relative Valuation Method for ITT

esi reval

The current book value per share was $5.44, with an average of $5.62 per share, while the price to earnings ratio in the trailing twelve months (ttm) was 5.5% per share and 8.28% average per share. Moreover, the earning per share at ttm was $2.61 and averaging $7.31 while the return on equity at ttm was $36.94 and has an average of $155.6 per share.

Overview, it indicates that ESI has a good measure of profitability it also shows that the company was able to generate a favorable and stable return on the invested capital.

The table below shows the summary of calculations of ESI using this method.

The growth was 5 percent while the dividend yield was 0. The calculated value of appreciation is $15.64. Further, the computed value dividend was 0 and the computed total value was $ 23.46. The price that the investor is willing to pay was $23.46. Furthermore, the market price of ITT/ESI to date was $ 7.82 per share. If we compare this to the total value of $ 23.46 per share, it indicates that the stock is trading at undervalued prices, therefore, it is a “Buy”.

Conclusion:

To sum it all, the results show that ITT/ESI is financially healthy as far as its current resources are concerned in spite of the fact that the stock price is unstable due to issues like low net income and weak cash flow.

Income wise, though it is decreasing lately, the company is still continuously generating income, with fairly controlled expenses which resulted in a fair profit margin. When it comes to generating cash flow, the company has sufficient cash flow used for operating activities and moderate free cash flow.

Furthermore, our investment valuation method shows that ESI is still undervalued.

CITATION:

http://www.ittesi.com/index.php?s=45 
http://www.reuters.com/finance/stocks/officerProfile?symbol=ESI&officerId=618323

Researched and Written by Rio

Edited by Cris

SolarWinds Inc

Does SolarWinds Inc (SWI) Merits a Buy?

March 12th, 2014 Posted by Company Research Report No Comment yet

SolarWinds, Inc. (SWI) designs, develops, markets sells and supports enterprise information technology (IT), infrastructure management software to IT professionals in organizations of all sizes. The Company’s product offerings range from individual software tools to more comprehensive software products that solve problems encountered by IT professionals. Further, its products are designed to help the management of their infrastructure, including networks, applications, storage, and physical and virtual servers, as well as products for log and event management. Furthermore, it offers a portfolio of products for IT infrastructure management.

Forbes named SolarWinds the “Best Small Company in America,” citing high-functioning products for low costs and impressive company growth.

Who runs SolarWinds and are they competent?

Mr. Kevin B. Thompson, President, Chief Executive Officer, Director of SolarWinds Inc

SWI CEO

Mr. Kevin B. Thompson is President, Chief Executive Officer, Director of SolarWinds Inc. He has served as the President since January 2009 and the Chief Executive Officer since March 2010. He previously served as the Chief Financial Officer and Treasurer from July 2006 to March 2010 and the Chief Operating Officer from July 2007 to March 2010. Prior to joining the Company, Mr. Thompson was Chief Financial Officer of Surgient, Inc, a software company, from November 2005 until March 2006 and was Senior Vice President and Chief Financial Officer at SAS Institute, a privately-held business intelligence software company, from August 2004 until November 2005. From October 2000 until August 2004.

More experience,

Mr. Thompson served as Executive Vice President and Chief Financial Officer of Red Hat, Inc, a publicly-traded enterprise software company. Mr. Thompson holds a B.B.A. from the University of Oklahoma. He also serves on the board of directors of NetSuite, Inc. (NYSE: N).

Mr. Jason Ream, Chief Financial Officer, Executive Vice President – Finance of SolarWinds Inc

SWI CFO

Mr. Jason Ream has been appointed as Chief Financial Officer, Executive Vice President – Finance of SolarWinds Inc, effective October 1, 2013. Mr. Ream joined the Company in April 2009 as Vice President, Business Development, and Investor Relations, and has been instrumental in expanding the Company’s market opportunities by guiding the Company’s Merger and Acquisition activity. Later, he was promoted to Vice President of Growth Strategy in 2012. Prior to joining the Company, Mr. Ream worked for J.P. Morgan as an Executive Director in investment banking from July 2006 to January 2009. From July 1999 to July 2006, he held various roles in investment banking at UBS, Piper Jaffray, and Credit Suisse First Boston. Mr. Ream holds an A.B. in Mathematics from Amherst College.

Moreover,

For the financial aspects of the company, these are uncovered in the company’s financial statements. Shown here are the data from 2009 to 2013:

SolarWinds Financial Liquidity

swi liq

The average current ratio of SolarWinds, Inc was 2.1 which shows that its current asset was 210 percent over its current liabilities. Likewise, the quick ratio average was 2 which means that the monetary asset of the company was 200 percent when compared current liabilities. While, debt to equity ratio was only 0.06 and solvency ratio was 73 percent.

Income

Income or revenue is the amount of money that is brought into a company by its business activities.

swi inc

The company’s revenue from 2009 to 2013 was going up year over year with a growth rate of 31, 30, 36, 25 and 30 respectively. On the other hand, operating income was also increasing every year by 41, 35, 36, 7 and 30 percent. Further, net income, it is also increasing yearly by 50, 38, 31, 11 and 32 percent.

Margin

The margin is a percentage result of revenue after taking the corresponding expenses. We applied the gross margin, operating margin, and net margin. The gross margin was the result of gross profit over revenue and the operating margin was the result of operating income over the revenue of the period, on the other hand, the net margin was the result of net income over revenue of the period.

From 2009 to 2013, gross margin, operating margin and net margin of SWI are:

swi marg

SWI’s gross margin yearly was quite high at 97, 95, 94, 93 and 92 with an average of 94 percent which is very impressive. While the operating margin was 39 percent average, also high enough and the net margin was 26, 30, 31, 30 and 27 percent. Its average is 28 percent.

Overall results showed that SWI is financially stable and more progressive.

SolarWinds CASH FLOW

Cash Flow from Investing Activities

Investing transactions generate cash outflows, such as capital expenditures for property, plant and equipment, business acquisitions and the purchase of investment securities. Likewise, inflows come from the sale of assets, businesses and investment securities. As a result of the companies investing cash flow from 2009 to 2013 were negative which means the company’s expansion was more on capital expenditures.

Cash Flow from Financing Activities

Debt and equity transactions dominate this category. Companies continuously borrow and repay debt, issuance of stock and payment of cash dividends. Moreover, the financing cash flow of SWI was positive except in 2009 which has a negative result of -21. It shows that the company repaid debts and repurchase stock during this particular period.

Free Cash Flow

Free cash flow is the result after deducting capital expenditure from operating cash flow. SWI’s free cash flow shows positive results from 2009 to 2013 with an average of $109M. It indicates funds available to retire additional debts, increase dividends or invest new lines of business. However, if negative, it indicates the financing is needed to support current operations and programs.

In addition, the cash flow margin of the company was 49 percent average while free cash flow ratio was 95 percent.

Cash Flow Ratios

Others view cash flow ratios are more reliable indicators of liquidity than balance sheet or income statement ratios such as the quick ratio or the current ratio. Lenders, rating agencies, and wall street analysts have long used cash flow ratios to evaluate risk. Other cash flow ratios measure a company’s ability to meet ongoing financial and operational commitments.

Cash Flow

swi fcf

With the result of the formula “Sustainable growth rate=ROE x (1- dividend payout ratio)”, it shows that the average SGR of SWI from 2009 to 2013 is 45.73 percent. This indicates how fast a company can grow.

swi sgr

Explanation

It protects the investor from both poor decisions and downturns in the market. The Margin of Safety requires knowing when the buying price is low in absolute terms, rather than merely relative to the market as a whole. This formula is used to identify the difference between company value and price, in short, it is the difference between the real value of the stock and the market price.

 

Relative Valuation Methods

This valuation method compares the market values of the stock with the fundamentals (earnings, book value, growth multiples, cash, flow, and the metrics) of the stock.

swi relative

For SolarWinds Inc, the current book value per share was $6.45, with an average of $4.24. Its price to earnings ratio in the trailing twelve months (ttm) was 39.4% and 38.25% average per share. Moreover, the earning per share at ttm was $1.17 and $0.90 average while the return on equity (ttm) was $20.72 an average of $45.73 per share due to high ROE in 2009 at $145.68 per share.

swi growth

The growth rate 30 percent, with 0 dividend yield. The value of appreciation or MOS was $71.60, the required 40 percent. In addition, the computed value dividend was $0 because of 0 yields which resulted in the total value was $107.40. The price that the investor is willing to pay in 5 years was $414.05. Likewise, the market price of SWI to date was $46.49 per share. If we compare this to the total value of $107.40 per share, it indicates that the stock is trading at an undervalued price.

Conclusion

To sum it all, the results show that SolarWinds, Inc (SWI) was financially healthy as far as its current resources are concerned.

Moreover, income-wise, the company is continuously generating income and growing year over year. On the other hand, expenses were properly controlled which resulted in a commendable profit margin. On the other hand, when it comes to generating cash flow, the company has sufficient cash flow used for operating activities and high free cash flow.

CITATION:

https://www.google.com/finance?q=NYSE%3ASWI&ei=7oMeU8jJM86kkgXLRQ

Written by Rio

Re-edited by Cris

Ensco PLC Class A Continues to Grow

November 28th, 2013 Posted by Company Research Report No Comment yet

Ensco PLC Class A (ESV) Company Research.

Ensco PLC Class A

About Ensco

Ensco PLC Class A (ESV) is the leader in customer satisfaction and the second largest offshore drilling company. The company started trading as Energy Services Company, Inc. (formerly Blocker Energy Corporation) and the company’s growth increased through the acquisition of Penrod Drilling (1993) and Dual Drilling (1996). The company raised capital through public offerings to purchase and refurbish equipment. The company expanded from the contract drilling business into various associated businesses including a tool and supply company, engineering services and the marine transportation business. Ensco focuses solely on offshore drilling with a premium fleet, they divested marine vessels, platform rigs and the majority of barge rigs. Through new construction and acquisitions, the company grew their jack-up rig fleet and entered the developing ultra-deepwater market.

Ensco Company History

The Gulf of Mexico.2009Ensco’s deepwater strategy became a reality with the first two ENSCO 8500 Series® ultra-deepwater rigs successfully commencing operations in the U.S.

Ensco high graded its fleet by acquiring ENSCO 109, a Mod V Super B high-spec jack-up built in 2008 and divesting four backups.2010Two more ENSCO 8500 Series® rigs were delivered.

1995 The company changed their name to ENSCO International Incorporated and listed their shares on the New York Stock Exchange under symbol ESV.
2000 The ENSCO 7500 was the company’s first ultra-deepwater semisubmersible was delivered and was followed by a multi-billion dollar capital commitment to eventually construct seven ENSCO 8500 Series® ultra-deepwater rigs.
Late 2009 The company redomiciled to the United Kingdom and opened a new global headquarters in London in early 2010.
May 2011 Ensco acquired Pride International to create the second largest offshore driller in the world with operations spanning six continents.

How does Ensco Plc make money? 

Ensco plc (NYSE: ESV) is a global provider of offshore drilling services to the petroleum industry. ESV is operating the world’s newest ultra-deepwater fleet and largest fleet of active premium jack-ups.

ESV pics

The company is operating on six continents, their high-quality fleet includes:
  • 10 drillships,
  • 13 dynamically-positioned semisubmersibles,
  • 6 moored semisubmersibles and
  • 46 premium jack-ups.

ESV provide drilling management for three customer-owned deepwater rigs. Their rigs have drilled some of the most complex wells in virtually every major offshore basin around the globe. Ensco’s customers are multinational integrated energy companies, national oil companies, and independent operators.

Who is Running the Business? 

Daniel W. Rabun Chairman, President, and Chief Executive Officer   

ESV CEO Daniel Rabun

Daniel W. Rabun joined Ensco in March 2006 as President and as a member of the Board of Directors. Mr. Rabun was appointed to serve as our Chief Executive Officer effective January 1, 2007, and elected Chairman of the Board of Directors in May 2007. Prior to joining Ensco, Mr. Rabun was a partner at the international law firm of Baker & McKenzie LLP where he had practiced law since 1986, except for one year when he served as Vice President, General Counsel and Secretary of a company in Dallas, Texas.

Further, Mr. Rabun provided legal advice and counsel to us for over fifteen years before joining Ensco and served as one of our directors during 2001. He has been a Certified Public Accountant since 1976 and a member of the Texas Bar since 1983. Furthermore, Mr. Rabun holds a Bachelor of Business Administration Degree in Accounting from the University of Houston and a Juris Doctorate Degree from Southern Methodist University. He served as Chairman of the International Association of Drilling Contractors in 2012.

Jay W. Swent Executive Vice President and Chief Financial Officer   

   ESV CFO Jay W. Swent

James W. Swent III joined Ensco in July 2003 and was elected Executive Vice President and Chief Financial Officer in July 2012. Prior to his current position, Mr. Swent served as Senior Vice President—Chief Financial Officer. Prior to joining Ensco, Mr. Swent served as Co-Founder and Managing Director of Amrita Holdings, LLC since 2001. Mr. Swent previously held various financial executive positions in the information technology, telecommunications, and manufacturing industries, including positions with Memorex Corporation and Nortel Networks.

Further,

Mr. Swent served as Chief Financial Officer and Chief Executive Officer of Cyrix Corporation from 1996 to 1997 and Chief Financial Officer and Chief Executive Officer of American Pad and Paper Company from 1998 to 2000. Mr. Swent holds a Bachelor of Science Degree in Finance and a Master Degree in Business Administration from the University of California at Berkeley.

Ensco Liquidity and Solvency 

ESV liquidity

The table above shows the liquidity ratios which is the current ratio and the quick ratio is averaging 2.57 and 2.25, respectively. The rule of thumb is 2.0 and 1.0 for current and quick ratio, respectively. The results of the ratio mean, that Ensco PLC Class A has the ability to pay its short-term debt using its current assets. .On the other hand, the solvency ratio was averaging 2.05 or 205 percent. Solvency ratio is calculated on total net income plus depreciation over total debt (short term and long term debt).

Explanation

It indicates that the company has 205 percent net revenue against its total debt. The ratio was decreasing from 2008 to 2011 because the company experiences a  145 percent drop in its net revenue. However, managed an increase in the succeeding years at a rate of 44 and 8 percent, respectively. Moreover, the leverage ratio was averaging 0.18 or 18 percent, this is the percent of the total debt against the total shareholders’ equity. In 2011, the ratio increased by 86 percent but nevertheless, the ratio is only a quarter of the shareholders’ equity. To sum all the results of the company’s solvency, it indicates that Ensco PLC Class A is capable of paying its long-term financial debt and it tells us that the company is financially healthy.

Ensco Profitability 

ESV Profitability

The gross margin ratio was averaging 56.18 percent while the net margins were averaging 32.85 percent. It indicates that Ensco PLC Class A was efficient in generating revenue for its business operations. The company is profitable and financially healthy.

Ensco Cash Flow Statement 

ESV CF

Ensco PLC Class A has an average 0.46 or 46 percent cash flow margins.  Cash flow margins are cash from operating activities as a percent of gross revenue. It indicates that the company has sound cash that was left for future investments and for paying dividends. The company has also a free cash flow of $267.33 million cash for this purpose.

The Relative Valuation Method 

ESV Relative

Going forward, the book value per share was averaging $44.21. If you will notice the book value was increasing yearly from 2008 to trailing twelve months at an average 10.4 percent and this is a good sign of the company’s profitability.  On the other hand, the price to earnings and the earnings per share was averaging $10.35 and $5.22, respectively. Moreover, the Price to earnings is the price that the investors are willing to pay for the company’s earnings while the EPS represents the company’s net earnings allocated to each share of common stock. Another, the return on equity was averaging 13.52 percent, it represents the percentage of profit that the company generates for the investment that the investors have put into the company.

The Discounted Cash Flow Method 

ESV DCF

By using the discounted cash flow spreadsheet based on the 5 years financial data, the get the present value of $88.26 per share or a total value of $20.3 billion. Moreover, the future value was $177.53 per share and with a total value of $40.8 billion. In other words, if you were to invest $88.26 today at a rate of 11.49 percent, you will have $177.53 at the end of five times period.

In addition, the future value of $177.53 is equal to the present value of $88.26. Accepting an amount higher than $88.26 today and taking $177.53 at the end of 5 years, you would have taken the money today. By doing this, you will be able to invest at a higher amount at 11.49 percent equal to five years period. This will end up giving you higher than $177.53.  Furthermore, the calculated net income at year five was $19.64 with a total value of $4.5 billion.

Summary of the calculation

Growth 10.33%
Yield 3.07%
Value of appreciation $35.31
Value dividend $36.65
Total value $71.95
Market price $59.69
Price investors are willing to pay $197.93

The growth of book value was 10.33 percent and the yield was 3.07 percent. The calculated value of appreciation was $35.31, this is equivalent to the margin of safety, the Buffett style. In addition, the calculated value dividend was $36.65.  On the other hand, adding value dividend and the value of appreciation will give us a total value of $71.95.  Ensco PLC Class A stock has a total value higher than the current market price. Therefore, the stock is trading at an undervalued price. The price that the investors are willing to pay was $197.93 per share.

Conclusion

Finally, Ensco PLC Class A has a good business history from the beginning and continue to show its profitable progression. Further, the company’s CEO and CFO have done a satisfactory performance in the company from the time they joined ESV. Further, with regards to the fundamentals, it shows that the company was financially healthy and with little debt. The company is capable of generating cash that can be utilized for future expansion and for paying dividends. The Benjamin Graham method tells us that the stock is trading at a discount and undervalued. In addition, the Warren Buffett method of valuing stock shows that the stock of ESV was undervalued. Therefore, I recommend a BUY on the stock of Ensco PLC Class A.

CITATION 

Researched and written by Criselda

Twitter: criseldarome

 

Apple Inc (AAPL) Company Research Report

November 17th, 2013 Posted by Company Research Report No Comment yet

The Apple Inc (APPL) company research is a written document and published for our readers to guide them with their investing and make better decisions as to what stocks to Buy.

Company Profile

Apple Inc (AAPL) is an American technology company, headquartered in Apple IncCupertino, California. AAPL manufactures, designs, and markets communication devices to consumers, businesses and also in government entities. It is the top information technology serving the globe. Steve Jobs, Steven Wozniak, and Ronald Wayne incorporated Apple Inc (AAPL) on January 3, 1977. After three months of incorporation, Wayne sold his shares for $800. Wozniak and Jobs were high school friends, both were interested in electronics.

How does the Company Make Money?  

Apple Inc. designs manufacture and market mobile communication and media devices, personal computers and portable digital music players and related accessories. The Company’s products and services include iPhone, iPad®, Mac, iPod, Apple Watch, Apple TV, iOS, OS X and watchOS operating systems, iCloud, Apple Pay.
   apple-inc-appl
The Company sells its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers and also value-added resellers.

Who is Running the Business? 

Timothy Cook, Chief Executive Officer 

AAPL Timothy Cook

 

Historical Events
  • In August 2011, Tim was Apple’s Chief Operating Officer and was responsible for all of the company’s worldwide sales and operations, including end-to-end management of Apple’s supply chain, sales activities, and service and support in all markets and countries.
  • He also headed Apple’s Macintosh division and played a key role in the continued development of strategic reseller and supplier relationships, ensuring flexibility in response to an increasingly demanding marketplace.

Further,

  • Prior to joining Apple, Tim was vice president of Corporate Materials for Compaq and was responsible for procuring and managing all of Compaq’s product inventory.
  • Previous to his work at Compaq, Tim was the chief operating officer of the Reseller Division at Intelligent Electronics.
  • Tim also spent 12 years with IBM, most recently as director of North American Fulfillment where he led manufacturing and distribution functions for IBM’s Personal Computer Company in North and Latin America.
  • Tim earned an M.B.A. from Duke University, where he was a Fuqua Scholar and a Bachelor of Science degree in Industrial Engineering from Auburn University.

Peter Oppenheimer, Senior Vice President, and Chief Financial Officer 
AAPL Peter Oppenheimer

Peter Oppenheimer is Apple’s Senior Vice President and Chief Financial Officer. As CFO, Oppenheimer oversees the controller, treasury, investor relations, tax, information systems, internal audit and facilities functions. He reports to the CEO and serves on the company’s executive committee.

 

Historical Events

  • Oppenheimer started with Apple in 1996 as a controller for the Americas, and
  • in 1997 was promoted to vice president and Worldwide Sales controller and then to corporate controller.
  • Oppenheimer joined Apple from Automatic Data Processing (ADP), where he was CFO of one of the four strategic business units. In that capacity, he had responsibility for finance, MIS, administration, and the equipment leasing portfolio.

Further,

  • Prior to joining ADP, Oppenheimer spent six years in the Information Technology Consulting Practice with Coopers and Lybrand where he managed financial and systems engagements for clients in the insurance, telecommunications, transportation and banking industries.
  • Oppenheimer received a bachelors degree from California Polytechnic University, San Luis Obispo and an M.B.A. from the University of Santa Clara, both with honors.

Do you trust the people and are they competent?     

With Apple’s governance structure, the two senior officers, Timothy D. Cook, and Peter Oppenheimer have the ability to meet the standards of making business success through a high measure of responsibility.   For these reasons, I do trust them and they have the necessary skills and the ability for the success of Apple Inc.

Apple Inc Value Investing Guide

Apple Inc Balance Sheet

Liquidity and Solvency

In the financial analysis of a business, solvency can refer to how much liquidity a company has.  When referencing to the company’s ability to service debt, liquidity refers to the ability of the company to pay its short-term financial obligations, it also refers to the company’s capability to sell its assets quickly to raise funds. On the other hand, solvency is the company’s ability to meet its long-term financial obligations. A solvent company is one that owns more than it owes; in other words, its assets is higher than its liabilities.

AAPL Liquidity

Analysis

  • The table above shows that the current ratio of Apple Inc was averaging 1.89 or 1.89:1, this indicates that Apple Inc has $1.89 of current assets for every $1 of current liabilities.
  • On the other hand, the quick ratio was averaging 1.62 the rule of thumb is 1. This indicates that Apple has enough liquid resources to pay short-term debt. In other words, it shows the capability of Apple to meet short-term financial obligations.
  • Going forward, the solvency ratio is the capability of the company to meet its long-term financial obligations.  Apple has a 2.58 solvency ratio in 2012 and 2013.  It indicates that debt exceeds equity by more than twice.

Apple Inc Income Statement

Profitability    

Gross profit margin is a measure of profitability indicating how much of every dollar of profit is left over after deducting the cost of goods sold. While net profit margin is the percentage of income remaining, after the operating expenses, interest, taxes and preferred stock dividends have been deducted from gross profit.

AAPL ProfitabilityAnalysis

  • Apple’s gross margin and net margin was averaging 39.85 and 22.59 percent, respectively, this shows good profit margins. It also indicates the financial success and viability of Apple’s products and services.
  • Net margins measure the percentage of revenue that was left after deducting all of the expenses of the company. Same as how much cash was earned during a certain period.
  • To sum it up, it indicates that Apple Inc is financially sound and efficient in generating sufficient revenue for its business operation.

Apple Inc Cash Flow Statement    

AAPL CF

The Cash Flow Margin measures the efficiency of a company to convert its sales into cash.

  • The cash flow margin was averaging 0.30 or 30 percent. Cash flow margin is cash from operating activities as a percentage of sales.   The formula was cash from operating activities over total sales.
  • Moreover, Apple’s free cash flow was averaging $31.0 million. It tells us that the company was able to generate cash for future investments.

Apple Inc Investment Valuation 

The following model of equity valuation adopts the investment style of Benjamin Graham, the father of value investing. The essence of Graham’s Value Investing is that any investment should be worth more than the investor has to pay for it.  Graham’s valuation looks for undervalued companies whose stock price is lesser than the cost.

AAPL Graham

Analysis

  • The sustainable growth rate was averaging 38.75 percent, it evaluates how fast Apple Inc can grow without using additional funds from creditors or investors, in other words, it is the rate where Apple can keep its operation internally.
  • Moreover, the calculated margin of safety using the Benjamin Graham method was averaging 88 percent, it passed Graham’s requirement of at least 40 percent below the intrinsic value or the true value of the stock.
  • In addition, the market price to date, November 13, 2013, was $520.01 per share with $467.9 billion market capitalization.

Relative Valuation Methods   

The relative valuation methods for valuing a stock is to compare the market values of the stock with the fundamentals (earnings, book value, growth multiples, cash flow, and other metrics) of the stock.
AAPL Relative

Analysis

Let us understand what the relative valuation tells us.

  • The book value per share was averaging $95.06, in 2013, rise to $137.32, hence the growth of 291 percent in five years.
  • Price to Earnings ratio was averaging $15.17, this is the price that the investors are willing to pay for Apple’s earnings.
  • The earnings per share were averaging $29.26, this represents the company’s net earnings allocated to each share of common stock.
  • The return on equity was averaging 35.39 percent, this indicates how much profit Apple generates with the investment that the shareholders’ have invested.
  • Overall, it shows that Apple Inc was profitable.

Discounted Cash Flow Method   

The discounted cash flow analysis uses the free cash flow projections and discounts them to arrive at the present value. In this analysis, the five years historical financial data was used to arrive at the present value and the future value. The results can be seen in the table below.
AAPL DCF

Analysis

  • The discounted cash flow method shows that the present value of Apple’s equity was $1,012 per share and the total value was $943 billion.
  • The calculated future value was $2,341 per share with a total value of $2.1 trillion. This means, if you were to invest $1,012 today at a rate of 28 percent, you would have $2,341 at the end of six time periods or at the end of year 6. In other words, a future value of $2,341 is equal to a present value of $1,012. If you had a choice between taking an amount higher than the $1,012 today and taking the $2,341 at the end of six years, you should take the money today. Doing this, you would be able to invest at a higher amount at 28 percent for equal 6 years period, which would end up giving you more than $2,341.
  • The calculated net income for year 5 was $198 per share or $185 billion total value.

Warren Buffett Approach

Totem also adopts the Warren Buffett method using the financial calculator in our equity selection.  The table below indicates the summary of the calculations.
AAPL Buffett

Analysis

The stock indicates that Apple Inc was undervalued. In addition, the margin of safety or the value of appreciation was $404.83 per share. Furthermore, the value dividend was $236.33 per share, therefore, giving us a total value of $641.17 per share. Comparing $641.17 with the market price of $520.56, November 13, 2013, shows that Apple Inc stock is undervalued. Furthermore, the price that the investors are willing to pay was $2309.20 per dollar of earnings.

In Conclusion

The liquidity and solvency tests indicate that Apple Inc was financially stable and sound. While the profitability ratios and also the cash flow margins tell us that AAPL was capable of generating sufficient revenue. The company has money left for paying dividends and for future investments. Furthermore, the margin of safety and the sustainable growth rate using the Graham method has acceptable results. In addition, the discounted cash flow approach indicates a future value of $2,341 per share. When it comes to Warren Buffett method, it shows that Apple Inc stock is trading at an undervalued price.  Therefore, I recommend a BUY on Apple Inc stock.

CITATION

Researched and Written by Criselda

Twitter: criseldarome
Giant Interactive Group Inc-GA

Giant Interactive Group Inc (ADR) GA Is Profitable

December 5th, 2012 Posted by Company Research Report No Comment yet

Giant Interactive Group Inc (ADR) or simply GA is one of China’s leading online game developers and operators in terms of revenues. I want to find out how they manage to do that so let’s have a rundown on Dyne’s (from our Numbers team) value investing report.

Giant Interactive Balance Sheet

Dyne said that we need to apply some metrics to determine a company’s liquidity, leverage, solvency and their effectiveness in handling their resources.

Financial Liquidity

Financial liquidity will help us measures how liquid is the company in terms of their assets. Through different ratios such as current ratio, quick ratio, and net working capital, we can merely determine the status of the company when it comes to this matter.  I asked Dyne if GA can quickly turn their assets to pay its current obligations or through the results of operation will sustainable to roll out for another more years. And she presented to me the answer below.

  GAL

GA financial liquidity results were very high. Current ratio turns out per total average had a ratio of 6 against 1 debt. They also quickly turned their asset at the ratio of 17:1. Or if we put this, it tells us that in every $1 of debt they have free and available of 6 and 17 times of their short-term debt,  as per current and quick ratio output, respectively. Networking was very safe at an average of 72 percent. Sounds good for Giant Interactive Group Inc (ADR), right?

Financial Leverage 

  GAleverage

Digging deeper, GA’s financial leverage was impressive with an average debt from current creditor and equity which were equivalent to 14 and 16 percent, respectively. They were very solvent at 117 percent average, meaning they have an available of 1.17 against their total obligation of $1.

Cash Conversion Cycle

 Referring to the graph below, we can say that GA cash conversion cycle results per average were seven (7) days. It turns out that their collection cycle was 25 days in average against their disbursement which was only18 days cycle. It simply means that the company was paying more on cash than credit.

  GA CCC

Asset Management 

Asset management also measures management effectiveness in handling their resources by using the result of receivable turnover which in terms of sales, payable turnover, and fixed asset turnover. 

GA AM

Giant Interactive Group Inc (ADR) ‘s asset management was efficiently managed with an average percentage of  351, 53 and 9 for the receivable, payable and fixed asset, respectively. It tells us that in every sale of 358 percent, they only had an equivalent of accounts receivable at 1%. In payable turnover, only 53 percent of sale was on credit. The same goes for fixed asset turnover, wherein every 9 percent of the sale, they had a 1 percent used of the asset life.

PPE 

GA ppe

Majority Holders

GA MH

Based on GA’s total average on their five years of operation, the company was highly ruled and financed by equity holders itself with an equivalent of 86 percent compared to local creditors at 14 percent. It tells us, that in every $1 of the asset, equity holders own $.86 and the remaining was for local creditor at  $.14.  

Giant Interactive Income Statement

The income statement is where you can determine if the company is profitable or their business was trending in the market.

Modified Income Statement 

GA MIS

GA revenue trend went upward except in 2009 because it dropped down by 22 percent per average. However, the company was able to make up and grew by 3 percent yearly. The same thing happened with expenses. It went down in 2009 by 8 percent but able to increase by 14 percent per average.

Margins

  • Gross margin was a result percentage from net revenue less cost of revenue equals to gross profit over revenue.
  • While the operating margin was a result percentage from gross profit less operating expenses equals to operating income over the net revenue.
  • Moreover, the EBIT margin was a result of an income before interest and taxes over the net revenue.
  • And the pretax margin was the result of pretax income over net revenue
  • Finally, the net margin was the percentage result from net income over the net revenue.

GAM

GA margin was very profitable but the trend was moving slightly downward; net margin declined annually from 2008 to 2011 by 1, 4, 5, and 12 percent, respectively. By seeing the graph, gross margin dropped down by 2 percent in 2009 and recovered in 2010 and 2011 by 1 percent. Compared to net margins, it continuously went downward from 2009 to 2011. It means, operating and interest expenses continued to grow.

ROE DuPont method

ROE DuPont model was assessing the company’s return on equity which will help us determine in analyzing the three key affected areas:

  • Operating efficiency, which is measured by net profit margin;
  • While, asset use efficiency, which is measured by total asset turnover;
  • In addition, financial leverage, which is measured by the equity multiplier.

ROE (DuPont formula) = (Net profit / Revenue) * (Revenue / Total assets) * (Total assets / Equity) = Net profit margin * Asset Turnover * Financial leverage

After analyzing GA ROE results using DuPont, showed that it slowed down by 3 percent in 2008 and continued to drop by 64 percent. But the good news is, ti recovered at 14 and 46 percent in 2010 and 2011, respectively or per TTM ROE equivalent was 285 percent. This means that in every $1 of equity you have a return of $2.85, very high.

Revenue

By merely looking at the table below, you will see there is revenue per category itself. These are gross profit which a result of revenue less cost of revenue; operating income or the result of gross profit less operating expenses; the income before taxes which is the result of operating income less interest; and the net income or the result of income before tax fewer taxes.

GA R

GA revenue shows went down in 2009 by 22 percent but it was recovered in 2010 and continues in 2011 by 2 and 26 percent, respectively. Even if GA encountered a went down in 2009, their overall maintains a positive income every year.

Expenses

GA e

GA expenses were very high with regards to their incurred in the operating. It dropped down by 54 percent but then again, it increased again by 39 percent in 2011.

So we are heading down to the last part of the financial statement…the cash flow

Giant Interactive Cash Flow

Summary of Cash Flow

Summary of cash flow was the result of per activities from operating, investing, financing and net change in cash.

Moreover, it showed that Giant Interactive cash was high during 2007 and it indicates also high cash used during 2008. It also is shown that in 2009 it had the smallest cash used for the operation. Probably, this indicates that during this year, there was a  drop down cash provided in operating activities.

 Cash Flow from Operating

We are applying the reconciliation method which all cash collection fewer cash payments was net cash flow from operating activities.

GACFO

NCFO went down from 2008 to 2009 at 48 percent and recovered in 2010 and 2011 at 27 and 19 percent, respectively. It had a decrease in the collection during 2009 and a lot of expenses paid. This mainly the reason why NCFO suddenly drop down.

 Cash Flow from Investing 

Giant Interactive Group Inc

GA NCFI had high cash used during 2008 in a purchase of investments. Small participation from the purchase of PPE dropped down in 2009. This is due to cash that came in from the sale of maturities of investments. It shows that it has a sale of investments high during in 2010, which results in net cash provided by the company.

Cash flow from financing

Giant Interactive Group Inc

For Giant Interactive Group Inc’s NCFF, the table above showed that there was cash coming in during 2007 from common stock issued. A high cash out was accounted during 2008 due to common stocks repurchased and the same thing happened in 2011 due to dividend payout.

Cash Flow Efficiency

Cash flow efficiency is a cash flow metrics in variations of the results from its sales, liabilities. Available capital expenditures, free cash flow and the results of operating. The following formula will clear our minds on how the resulting percentage comes out.

  • CC ratio (Current Coverage ratio) was the result of net operating cash flow over current liabilities.
  • While the total debt ratio was based on net operating cash flow over total debt.
  • Moreover, Capex ratio was the result of net operating cash flow over capital expenditures.
  • On the other hand, the FCF ratio was a result of free cash flow over net operating cash flow.
  • CFO ratio was a result of net operating cash flow over their current liabilities or current obligation.
  • CFO to sales ratio was a result of net operating cash flow over its sales for the period.

Giant Interactive Group Inc

Giant Interactive cash flow was financially healthy showing very high results on CAPEX  during 2010 at 2789 percent.  Next were  CFO and current coverage ratio both at 184 percent during 2008. Free cash flow was high during 2010 at 97 percent.

Written by Dyne
Edited by Cris

 

 

knight-capital-group-inc-kcg2

Knight Capital Group Inc (KCG) Is Highly Leveraged

September 17th, 2012 Posted by Company Research Report No Comment yet

Knight Capital Group Inc (KCG) was an American global financial services firm engaging in market making, electronic execution, and institutional sales and trading. Source: WikiPedia

Knight Capital Group Inc (KCG) Balance Sheet

The balance sheet allows us to see how much a company owes (liabilities)and how much it owns (assets). To keep things in balance between assets and liabilities, we have retained earnings (equity). I evaluated the following key indicator like financial liquidity, leverage, among who had majority control and asset management.

Financial Liquidity

Financial liquidity is to determine the ability to pay short-term debt accounts payable that can be converted quickly to cash. Commonly used liquidity ratios include the current ratio, working capital ratio, and net working capital. The current ratio is an indicator of a company’s short-term liquidity; which divides current assets by current liabilities. In addition, the working capital ratio is used as a barometer to measure a company’s over health and liquidity; which is current assets less current liabilities divided by total assets. Networking capital indicates the ratio or percentage of working capital against total assets.

KCG financial liquidity

Explanation

Financial liquidity ideal results were equivalent to 1 or 100 percent or more. KCG based on the graph had only a total average of 71 percent availability over their current liabilities. In other words, in every $1 of short-term debt, they had available assets of net working capital was declining, it was down to 20 percent based on 2008 results. It had an average of 5 percent means still they were are unable to meet the short-term debt.

Leverage

Leverage is the amount of debt used to finance a firm’s assets. A firm with significantly more debt than equity is considered to be highly leveraged. It is composed of debt ratio, debt to equity and solvency. The debt ratio is to determine how many total assets financed by borrowing funds, through the results of a current asset over current liabilities. Further, debt to equity ratio is the ratio of total shareholders’ equity financed by borrowing funds, from the result of total liabilities over the result of total stockholders’ equity. Furthermore, the solvency ratio measures a company’s ability to meet long-term obligations. Through the result of income after tax add the depreciation and divide to the result of current and long-term liabilities.

KCG leverage

Explanation

KCG leverage is too high in terms of the short term. The company finance from borrowed funds was equivalent to $.68 for every $1 of debt. Based on equity, it had an average of 213 percent financed by borrowed funds. It means that in every $1 of equity it was financed two times and it was too high. The ideal solvency result is 20 percent.

Majority in Control

In evaluating,  it is also important to consider who is in majority control of the company. To determine, it includes control from current liabilities to total assets which to identify how much will be claimed by the creditor against total assets of the company. On the other hand, long-term debt to total assets is to make out how much claim has the banks or the bondholder against its total assets. Then, stockholders’ equity to total assets is to know how much the owner can claim in its total assets.  Let us see the results for Knight Capital Group Inc.

KCG mjority control

Explanation

From the above results; if we based on their total five years of operation; the majority in control was the creditor holder at 33 percent, followed by the stockholder at 32 percent then last to bank/bondholder only at 6 percent. Though from the first three years, it was the stockholders it went down to 20 percent in 2011 compared to the creditor which rose up to 43 percent.

Asset Management

Asset management is composed of the following: total asset turnover, receivable turnover ratio, and payable ratio. When we speak of total asset turnover, it tells us the number of times that the assets turn per period, from the results of revenue over current assets. While receivable turnover ratio measures the number of days that companies collect its receivable or convert it into cash by using the result of outstanding receivable over its revenue for the period multiplied by 365 days. Then, the payable turnover ratio is to determine the number of days that the company pays its obligation to its suppliers from the outstanding accounts payable over its total cost of revenue multiplied by 365 days.

KCG Asset Management

Explanation

Based on the table above, KCG ’s five years of operation it showed that the company had a minimum of 167 days to convert their sales into cash. While in the total five years of operation, their minimum of the number of days to pay to its supplier were  529 days.

KCG Income Statement

The income statement is the bottom line result of the business for the period after deducting all the direct cost associated with its revenue and the operating expenses like admin and maintenance cost. Then, we can determine the net margins. Below are the results, in terms of their profitability, revenue, expenses and margin report for Knight Capital Group Inc.

Profitability

Profitability is a key measure for the business success; its composition of net margin ratio which defines as the net results after deducting all the expenses, from net income over revenue for the period. Asset turnover measures effectiveness how their assets easily convert to sales; through revenue over the total asset.  Return on assets or ROA tells us how much profit the company generated for each dollar of total assets by the result of net income over a total asset.

On the other hand, return on equity (ROE), using DuPont, measures the return of such profit percent for every dollar of equity. It can be determined using the result of the net profit margin multiplied by asset turnover. The financial structure ratio is the specific mixture of long–term debt and equity that a company uses to finance its operations. Further, the tax efficiency ratio measures how much profit left after deducting the income tax. It can be determined using the result of net income over profit before tax.

KCG Profitability Graph

KCG PROF2

Explanation

Did Knight Capital Group Inc. become profitable? The graph showed that KCG profitability within five years was in the positive result. It had a high net margin result in 2008 at 19 percent and went down from 2009 to 2011 to 8 percent a  total of $.12 generated per $1 of the sale. ROE had $0.03 generated in every $1 sale.

Revenue

Revenue is the source of income received from its normal business activities, usually from the sale of goods and services to customers. And gross profit is an income after deducting the associated cost directly from goods or services. In addition, operating income is the result after considering its operations and general expenses of the company. Moreover, income before tax is an income after deducting the taxes.

KCGRfinal new

Explanation

The revenue data and its graph imply that it was progressive except in 2010 which slow down by 1 percent. And the gross profit went continuously upward. In addition, the income before tax shows a declining trend from 2009 at 122 percent. However, recovered in 2011 by 20 percent.

Expenses

KCGENEW

Explanation

How did the expenses affect their margin? KCG expenses graph and table tell us that they have high expenses incurred in operating compared to the cost of revenue. This is no doubt since they are equity market makers and institutional brokerages. In other terms, they have lots of expenses probably in salaries and involved with research. Thus the business nature itself could define their expenses. The increase in operating expenses is not worrisome since the revenue result could justify and it was effective. It also showed that the percentage of operating expenses really affects the net margin.

Margins

The Margin determines how much can be generated in every $1 of the sale. It is composed of a gross profit margin. Further, the operating margin denotes how much percentage left after deducting the operating expenses. Furthermore, earnings before income tax or simply EBIT is the result of income before taxes. The net margin ratio or the equivalent percentage after applying all the expenses for that period.

KCG Margin Graph

KCG MARGINNEW

Explanation

Gross profit had generated a profit of $.79 over $1 on sale. And the operating margin and EBIT had the same result. The two both declined from 36 percent in 2009 and in 2010 down to 14 percent have an average $.21 generated in every $1. On the other hand, the net margin had a total average return at $.12 in every $1. It tells us they had a profitable result though in a declining trend.

KCG Cash Flow

Cash flow is a statement that helps in determining if the company has available cash for the operation alone. In other words, if they have a good free cash flow to maintain the maintenance of its resources. and if they had an excess of funds to refinance or cash available for business expansion.

Cash Flow Summary Graph

kcgfinal new

Explanation

The cash flow summary of KCG was in sideways. The cash flow from 2007 and 2008 was progressive with an equivalent of 36 and 57 percent. And then went down in 2009 and 2010 by 4 and -19 percent and went up by 22 percent in 2011. It tells us the management is recovering and efficient. In addition, the cash flow from investing in 2007 to 2009 had cash due to sales of mature investment.

Interpretation

Moreover, an outflow resulted due to the high cash used in the purchasing of PPE that purchases in investment. Financing had a reversed transaction from investing which from 2007 to 2009; it had an outflow of cash used for another financing. While, from 2010 and 2011 it had an inflow of cash due to long-term debt issued at 337 percent and change in short-term borrowing at 288 percent, respectively.

Cash Flow from Operating Graph

KCG new CFO

Explanation

Net operating cash flow had a negative result in 2010 due to the net income represented at 15 percent. Other asset and liabilities had a decreased of 84 percent. And also the increase of payables at 89 percent over their five years of operations.

  • Cash flow from operating ratio of sales measures how much cash generated from its revenue for the period.
  • And the operating cash flow ratio; by using the result of operating cash flow from operating over current liabilities;  measures how much cash left after considering short debt.
  • In addition, free cash ratios help us conclude if the company will grow in the future. Through the result of operating cash flow fewer, dividends paid less capital expenditure over operating cash flow.
  • Capital expenditure ratio measures company sustainability in maintaining their assets by using the result of operating cash flow over capital expenditure for the period.
  • Moreover, the total debt ratio is the result of operating cash flow over total liabilities. This measures the company’s efficiency.
  • Next, the current coverage ratio measures how much cash available after paying all its current debt.

knight capital group inc.

Explanation

Cash flow ratio results implied that based on the data and the movement showed. The operating cash flow of sales had an average of 11 percent In other words, $.11 generated in every $1 of sales. The operating cash flow ratio and the current coverage ratio was 269 percent in 2008. And went down to -26 percent in 2010; resulted in 80 percent average or $.80 cash available for every $1 of debt.

Interpretation

Free cash flow was not stable, fell down during 2009 due to fixed asset exceeded by -110 percent or $.57 in every $1. Capital expenditure was sufficient even though the company suffered -177 percent in 2010. It resulted in an average of 389 percent or $3.89 available cash over $1 of CAPEX maintenance. In addition, total debt ratio; through positive; was not sufficient with an average of $.09 for every $1 of debt.

Research and Written by Dyne

Edited by Cris

Sasol Limited SSL

Sasol Limited (SSL) Able to Roll the Dice on the Business Run?

August 17th, 2012 Posted by Company Research Report No Comment yet

Sasol Limited (SSL), knowing the financial status is like going for a general check-up to find out if you are healthy and fit to work. This indicates whether; for a company; is able to roll the dice on the business run.

Sasol Balance Sheet

Sasol Liquidity

Liquidity ratio measures how the company is able to meet and to pay off its near obligations. To compute for liquidity of Sasol is to analyze the following ratios as shown in the table below:

Particulars 2006 2007 2008 2009 2010 Ave
Current ratio 1.69 1.61 1.99 2.02 2.35 1.93
Quick ratio 1.31 1.0 1.26 1.46 1.63 1.33
Working capital (in dollars) 14,676 14,509 27,316 26,769 30,854 22,824.80
Free cash flow (in dollars) 417 4,261 6,327 15,166 -579 5,118.4
  • Working capital in dollars had an average of 22,824.80. It tells us that the company has sufficient resources to meet current obligations.
  • The current ratio was 1.93 on average. It means that the company had 193 percent current assets for every $1 of current liabilities.
  • Quick ratio was 1.33 average. It tells us that the company has 133 percent of quick assets for every $1 of current liabilities.
  • Free cash flow in dollars was an average of 5,118.4. It indicates that the company has money left over after expenses and dividends have been paid. The creditors have no worries of the company’s default in payments.

Sasol Efficiency

Of course, when talking about company financials, inventory is on the line. This is portioned of the business assets that are ready for sales. How to compute for this is to use the asset management ratios. For Sasol Limited, the following are the results:

  • Inventory turnover is 6.07, 4.17, 3.72, 6.07 and 4.81 for 2006 to 2010, respectively with an average of 4.96. This tells us that the average dollar volume of inventory is used up almost five times average in five years.
  • Inventory turn day was 59, 86, 97, 59 and 75. Average of 75 days. This tells us that the company keeps an average of 75 days or two and a half months of inventory on hand.
  • Accounts receivable turnover was 7.92, 7.89, 6.61, 11.03 and 7.99. An average of 8.29. This tells us that the company’s accounts receivable have an average of 8 times turn each period.
  • Average collection period was 45, 46, 55, 33 and 45.  Average 44.66 or 45. It means that the company must wait for an average of 45 days for its receivables to be converted into cash.
  • The fixed assets turnover ratio in percent was 1.31, 1.3, 1.67, 1.62 and 1.31.  Average of 1.44. It tells us that the company is generating an average of 1.44 of revenue for every $1 of fixed assets. This is considered a good ratio meaning the company is using its plant, property, and equipment effectively and efficiently.
  • The working capital turnover ratio was 1.57, 1.72, 1.88, 1.72 and 1.37. Average of 1.65. This means that the working capital of the company has 2 times turns each period. The ratio is low meaning the company is not efficient in utilizing its working capital.

Sasol Leverage

We are basically done with the inventory. Now it’s time to know the financial leverage. When we speak of leverage, we are pertaining to the amount of debt used to finance a firm’s assets. In line with this, below are the results for Sasol Limited.

Particulars

2006 2007 2008 2009 2010

Ave

Debt Ratio 0.49 0.48 0.45 0.43 0.39 0.45
Debt-to-Equity ratio 0.96 0.93 0.83 0.74 0.65 0.82
Current Liabilities to Total Assets 0.21 0.20 0.20 0.18 0.15 0.19
Long Term Liabilities to Total Assets 0.15 0.11 0.11 0.09 0.09 0.11
Net Worth to Total Assets 0.51 0.52 0.55 0.57 0.61 0.55
Interest Coverage 30.1 22.3 29.5 9.7 11.3 20.58
Cash Flow to Debt 0.27 0.28 0.27 0.50 0.25 0.31
Equity Multiplier 1.96 1.93 1.83 1.74 1.65 1.82
  • Debt ratio was 0.45 on average.  This means that the company’s debt capital was 45 percent.
  • Debt to equity ratio was 0.82 in average or total liabilities had 82 percent out of total equity. This means that the company’s creditors have fewer claims than the shareholders.
  • Current liability to total asset had an average of 0.19. This tells us that the creditors/note holders had 19 percent claims against total assets.
  • Long-term liability to total asset was 0.11 on average. This tells us that the banks/bondholders had 11 percent claims against total assets.
  • Net worth to total assets was 0.55 on average. Stockholders/owners had 55 percent claims against total assets.
  • Interest coverage was 21 percent in average meaning the company had 21 percent income before interest and tax against total interest. It further tells us that the company will not default on its payment of interest.
  • Cash flow to debt was 0.31. Tells us that the company has funds for its debt at an average of 31 percent.
  • Equity multiplier was 1.82 in average. The results show that it has a lower equity multiplier meaning that the company’s asset doesn’t finance by debt.  This also shows a number of assets owned by the firm for each equivalent monetary unit owner claims, held by stockholders. This ratio is best compared to other industry.

Facts:

  • The cash and cash equivalent growth in percent were 181, 144, 597 and 447 for 2007 to 2010 respectively. It tells us that in 2008 it decreased by almost 40 percent, but increased by 453 percent in 2009 and down again by 150 percent. In the vertical analysis, it represents 7 percent average of the total assets.
  • Total receivable in percent was 141, 210, 139 and 168 for 2007 to 2010, respectively.  It represents 13 percent of total assets. It shows that the ratio was up and down trend and the highest was in 2008.
  • A total current asset in percent was 106, 152, 147 and 149 for 2007 to 2010 respectively. It represents 35 of total assets. It shows that it was high in 2008 and the ratio increased from 2009 to 2010.
  • Property, plant, and equipment were 119, 124, 135 and 148 for 2007 to 2010 respectively. It represents 60 percent of the total assets.
  • Long-term investment in percent was 114, 162, 215 and 325 for 2007 to 2010 respectively. It shows that it is increasing from 2006 to 2010.  It represents 2 percent of total assets.
  • Notes receivable long term in percent was 155, 132, 141 and 113 for 2007 to 2010. This represents 1 percent of the total assets.
  • A total asset in percent was 115, 136, 141 and 152 for 2007 to 2010 respectively. For total assets, the trend is increased by 5 percent to 21percent from 2006 to 2010.

Cash and cash equivalent were high in 2009, which represents 14 percent of the total assets, from 2006 the cash was improving from 3 percent to 14 percent and 10 percent in 2010. Total receivable was high in 2009 because sales were also high in 2009. The increase was 69 percent and sales increased by 11 percent during the same year. Its total current assets, PPE and long-term investment rose from 2006 to 2010; which were good. While notes receivable was decreasing from 2006 to 2010, meaning the collection is being handled effectively. Its total assets were improving as well from year to year.

The overall results tell us that Sasol is financially sound.

Sasol Income Statement

Return on assets or ROA for short, tells an investor how much profit a company generated for each $1 in assets. Return on equity (ROE), tells investors how much profit a company earned in comparison to the total amount of shareholder equity on the balance sheet.

  • Return on assets in percent was 10.1, 14.3, 16.0, 9.4 and 10.2. Average of 12.
  • Return on equity in percent was 19.8, 27.6, 29.3, 16.3 and 16.8. The average is 21.96.

Return on assets had an average of 12 percent or the average return of revenue for every $1 of investment in assets, while the return on equity had an average of 21.96 percent. Sasol earns $0.22 of revenue average for every $1 investment in equity. It indicates a fair return on the money the investors have put into the company.

Sasol Income

2006 2007 2008 2009 2010
Total revenue 82,395 98,127 129,943 137,836 122,256
Gross profit 33,848 38,130 55,309 49,328 43,073
Operating income 17,212 25,621 33,816 24,666 23,937
Income before tax 17,116 25,703 33,657 24,195 23,372
Income after tax 10,582 17,550 23,528 13,715 16,387
Net income 10,406 17,030 22,417 13,648 15,941
  • The company’s total revenue was 82,395, 98,127, 129,943, 137836 and 122,256. It showed that year it was increasing except in 2010 which dropped by 11 percent.
  • Its gross profit was 33,848, 33,130, 55,309, 49,328 and 43,073 which was also increasing per year except in 2010 which slightly decreased. It shows a growth of 12.65 percent, 45.05, -10.81 and -12.68 percent from 2007 to 2010, respectively.
  • The company’s operating income was 17,212, 25,621, 33816, 24,666 and 23,937 with a yearly growth of 48.86 percent, 31.99, -27.06 and -2.96 percent.
  • The income before tax 17,116, 25,703, 33,657, 24,195 and 23,372. It showed 50.17 percent, 30.95 percent, -28.11 percent  and -3.40 percent from 2007 to 2010 respectively.
  • Income after tax in dollars was 10,582, 17,550, 23528, 13715 and 16,387.
  • Net income was 10,406, 17,030,22,417, 13648 and 15,941. Its growth in percent showed 63.66, 31.63, -39.12 and 16.80 .

Sasol’s total revenue from 2006 to 2008 moved consistently upward with a gradual increase in 2009 and drop down to -11.3 percent in 2010 but it has a good indication of a 4.7 percent increase in Q2 of 2011. After considering the cost of revenue, the gross profit of the company was still efficient in covering the operating expenses with an average of five years at 20 percent. It also moved upward from 2006 to 2008 and down in 2009 and 2010 but it was corrected with an 8 percent increase in Q2 of 2011.

Sasol Expenses

  • Cost of revenue in thousand dollars was 48,547, 59,997, 74,634, 88,508 and 79,183. The computed average was 70,173.80. The figures showed an increase from 2006 to 2009 but in 2010, there was a decrease of 11 percent against 2009. It also showed 61 percent average against total revenue.
  • Selling/general/and administrative expense in thousand dollars was 9,550, 11,912, 16,404, 24,918 and 16,890. The computed average was 15,934.80. It indicated that from 2006 to 2009 results increased while the gap in 2010 decreased by 32 percent compared to 2009. It represented 14 percent average against total revenue.
  • Income tax was in thousand dollars was 6,534, 8,153, 10,129, 10,480 and 6,985. The computed average was 8,456.20. It showed an increase from 2006 to 2009 but with a decrease in 2010 of 33 percent gap in 2009. It also shows 7 percent average of against total revenue or 7 percent average of the taxable income.

The computed cost of revenue is higher at 61 percent of total revenue which would depend on the nature and operation of the business. Selling/general/and administrative expense was 14 percent plus 7 percent of income tax. Out of these expenses, still, it shows that the company resulted in a net income of 18 percent.

Sasol Profit Margins

  • Gross margin in percent was 41, 39, 43, 36 and 35.  Average of 39. It is increasing between the year 2007 and 2008 but it shows a decrease in between the year 2006 to 2007 and from the middle of the said years up to the year 2010.
  • Operating margin in percent was 21, 26, 26, 18 and 20.  Average of 22 percent. The trend showed an increase in three consecutive years from 2006 to 2008 but down in 2009 of 8 percent and increase again by 2 percent in 2010.
  • EBIT in percent was 20.90, 26.1, 26, 17.90 and 19.60.  Average of 22.
  • Pretax margin in percent was 20.8, 26.2, 25.9, 17.6 and 19. The average is 22 percent.
  •  EBIT and pre-tax resulted with the same margin, the trend showed an increase in three consecutive years from 2006 to 2008 but decrease in 2009 of about 8 percent then increase again by 2010 of about 2 percent.

Sasol Cash Flow

Cash Flow Statement is categorized into three: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities.

Sasol Cash Flow from Operating Activities

Cash flow from operating activities indicates a positive result continuously for five years period. It shows that the company is effective in generating cash flow from its revenue.

  • Cash flow from operating activities in dollars was 13,713, 16,306, 17,182, 30,838 and 15,529 for  2006 to 2010 respectively. Average of 18,713.60.
  • Working capital in dollars was 3,988, -4,929, -5,581, -3,059 and -3,688 for the year 2006 to 2010 respectively. Average of -4,249.
  • Other operating cash flow in dollars was 3,688, -3,059, -5,581, -4,929 and -3,988 for 2006 to 2010 respectively. Average of -4,249.

Sasol Cash Flow from Investing Activities

Cash flow from investing activities has a negative balance from 2006 to 2010. It means that the company has no cash for investing. Contributing factor to having a negative balance is the company’s purchase of a fixed asset on a yearly basis.

  • Cash from investing activities was -$12,283, -10,545, -10,844, -12,518 and -16,704 for the year 2006 to 2010 respectively. Average of -$12,578.80.  It tells us that the company had no cash for investing. Sale of business and sale of fixed assets contributed much on cash inflow.

Total cash outflow was  -$62,894, which are:

Particulars 2006 2007 2008 2009 2010
Purchased of Fixed Assets -$13,269 – $12,023, -$10,838 -$15,546 -$16,057
Purchase/Acquisition of Intangibles -$27 -$22 -$17 -$126 -$51
Other Investing Cash Flow $1,013 $1,500 $11 $3,154 -$596

Total cash inflow was $5,082, which are:

Particulars 2006 2007 2008 2009 2010
Acquisition of Business -$147 -$285 -$431 -$30
Investment, Net -$524 -$1,248
Purchase of Investment -$62 -$79 -$42 -$89 -$47
Sale of Fixed Assets $542 $193 $184 $697 $208
Sale/Maturity of Investment $16 $7 $14
Other Investing Cash Flow $ 77 -$529  -$393 -$393 $477

Sasol Cash Flow from Financing Activities

Cash flow from financing activities had a negative result, therefore, it indicates that the company’s cash outflows exceeded its cash inflows for investing. Total cash inflow was -5,565 while the total cash outflow was -7,990.

  • Cash flow from financing activities was -1,277, -2,893, -8,415, -1,193 and  -2,701 for the year 2006 to 2010 respectively. Average of -3,295.8. It has a negative balance successively for five years.
  •  Total cash inflow was -9,452 which is issuance (retirement) of stocks  $431,  -$3,337,  -$6,825, $75 and $204 for 2006 to 2010 respectively
  • Total cash outflow was -7,027  from 2006 to 2010 which are: issuance (retirement) of debts, Net  -1,633,  852, -1,132, -1,056 and -2,596  respectively and other financing cash flow was -75, -408, -458,  -212 and  -309   respectively.

Free cash flow measures the company’s capability to cover capital expenditures maintenance and determine if the company has still funds for future expansion.

  • Free cash flow was 417, 4,261, 6,327, 15,166 and -579 for 2006 to 2010 respectively. Average of 5,118.8. It showed that the company had sufficient funds to pay its obligations from 2006 to 2009 respectively. It means that there was money left over after paying operating expenses from 2006 to 2009 but no funds in 2010 since it showed a negative balance.

Sasol Cash Flow Ratios

Sasol Limited cash flow analysis uses ratios that focus on cash flow and how solvent, liquid, and viable the company is.

  • Cash flow from operation to net income ratio was 1.32, .96, .77, 2.26 and .97.. Average of 1.18.  It was higher by 126 percent average versus net income. It indicates the company’s ability to generate cash from income.
  • Cash flow return on asset was .1329, .1369, .1226, .2114 and .0992.. Average of 14.07 percent. It indicates that the company was able to generate cash on invested assets.
  • Cash flow margin was .17, .17, .13, .22 and .13.. Average of 16 percent which was a good indication of the company’s ability to generate cash relative to revenue.
  • Cash flow solvency in percent was 27.13, 28.38, 26.99, 49.71 and 25.14.  Average of 31.67. It indicates that the company had 31.67 percent of cash flow for every $1 of total liabilities, more than enough to settle its obligations.
  • Cash flow return on equity in percent was .10, .12, .13, .23 and .12.. Average of .14. This means that the company was able to generate a cash return of $0.14 for every $1 of equity.

Cash flow from operating activities effectively generated cash from revenue for its operation from 2006 to 2010 while cash from investing activities had a negative balance from 2006 to 2010 which clearly indicates that there was no cash from investing activities. Cash from financing activities also showed a negative result for its five years in operation due to its yearly acquisition of fixed assets, therefore indicating there were no funds for financing activities. Free cash flow tells us that the company had excess cash after paying operating expenses from 2006 to 2009 but no funds for 2010. Cash flow solvency indicated that the company had sufficient cash flow to settle its obligations. Sasol was able to generate a return of more than enough money invested in assets.

Written by Cris, Dyne, Wilmay, Nelly and Rio
Edited by Cris
kaman-corporation-kamn2

Kaman Corporation (KAMN) Company Research

August 2nd, 2012 Posted by Company Research Report No Comment yet

Kaman Balance Sheet

Financial Liquidity

Kaman Corporation is a diversified company operating in two business segments which is Aerospace and Industrial Distribution.

Liquidity is the ability of the firm to convert assets into cash. It is also called marketability or short-term solvency. The liquidity of a business firm is usually of particular interest to its short-term creditors since the liquidity of the firm measures its ability to pay those creditors.

In our guide to value investing for Kaman Corporation, its financial liquidity was computed through ratios from 2007 to 2011 as shown in the table below.

kaman balance sheet a

  • Current ratio average for five years of operation was 2.8, which shows that the company’s current assets was greater than current liabilities by 280 percent.
  • Quick ratio was 1.30. It tells us that Kaman’s monetary assets which is current assets less inventory, was 130 percent and was also greater than its current liabilities.
  • Working capital was $338 average in five years of operation. This is the funds left after deducting current liabilities from current assets. Kaman’s working capital showed a positive balance, increasing from year to year except in 2008 which slightly down by $1.

Kaman’s liquidity on its five years of operation was very impressive. It shows that its business was financially stable, wherein the company was capable to pay its short-term as well as long-term obligations and can even invest to other line of business.

Efficiency ratios are used to measure the quality of the company’s receivables and how efficiently it uses its other assets. For five years period from 2007 to 2011, Kaman’s efficiency are:

kaman balance sheet b

  • Inventory turnover ratio was 3 times average each period. This shows that its products are not so in demand in the market. Sales to inventory ratio shows the number of “turns” in inventory. If the ratio is very high, it may indicate that the business is losing sales to competitors because they are under stocked or customers are buying elsewhere.  If ratio is too low, this may show that the inventories are stagnant.
  • Receivable turnover ratio was 8 times average per year. Receivables turnover is a ratio that works hand in hand with average collection period to give the business owner a complete picture of the state of the accounts receivable. Receivables turnover looks at how fast we collect on our sales or, on average, how many times each year we clean up or totally collect our accounts receivable.
  • Payable turnover ratio was 14 times average. A low percentage would indicate a healthy ratio with all bills be paid in a timely manner.
  • And fixed asset turnover ratio was 16 times average.

To gauge how efficient the company in handling its resources, also consider its industry, since it varies from industry to industry. We cannot compare food lines inventory off take to non-food lines since normally, food lines are sellable than non-foods. Kaman’s performance was quite good considering its industry.

The day’s sales in inventory or inventory conversion period tells the business owner how many days, on average, it takes to sell inventory. The usual rule is that the lower, the better, since it is better to have inventory sell quickly than to have it sit on the shelves. Receivable conversion period measures the number of days it takes a company to collect its credit accounts from its customers. A lower number of days is better because this means that the company gets its money more quickly. While payable conversion period measures how the company pays its suppliers in relation to the sales volume being transacted. A low percentage would indicate a healthy ratio. For Kaman, conversion period from 2007 to 2011 are:

kaman balance sheet e

  • Inventory conversion period was 112 days average which means it takes almost 4 months to sell its inventory.
  • Receivable conversion period was 48 days which tells us that its credit accounts have more than 1.5 month to collect.
  • Payable conversion period was 35 days average which means that the company pays its suppliers within 35 days.
  • Cash conversion cycle was 125 average days. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties.

Considering Kaman’s line of business, wherein products are not so in demand in the market, with line-up of competitors, cash realization is within normal level, provided, that there is a continuous transaction, proper handling and control and close monitoring.

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 owner 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 are financed by debt and how much by equity.

 

  • The company’s debt ratio was 0.57 average which means that Kaman total obligations was 57 percent of the total assets.
  • While debt to equity ratio was 1.40. It tells us that Kaman’s total obligations were more than its owners’ equity at 140 percent.
  • And solvency ratio was 0.12 average which means that the company is 12 percent solvent.
  • Current liabilities to total assets was 0.24 which tells us that 24 percent of the company’s total assets are controlled by the creditors mostly suppliers.
  • Stockholders’ equity to total assets was 0.43 average which also means that the owners have 43 percent claims on the company’s total assets.

Based on the above findings, Kaman Corporation was indebted by 57 percent against total assets. With its debt of 140 percent against total equity, the company must have to closely monitor regular settlement of its debt to bring it to manageable level.

Property, Plant & Equipment

Property, Plant & Equipment 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 are recorded at cost upon acquisition of these assets.  From 2007 to 2011, the company’s acquisition of plant, property and equipment are as follows:

kaman balance sheet d

  • Average property, plant and equipment was $206.
  • Accumulated Depreciation average of $122 which is equivalent to 59 percent of the total cost of PPE.
  • Net book value of PPE was $84 or 41 percent of the total cost.

Referring to the above data, property, plant and equipment of Kaman is not yet fully depreciated with remaining life of 41 percent. By using the percentage method of depreciation, the company could still use the fixed asset for two more years.

I think we are basically done with the balance sheet. It’s high time to move on the income statement. Take a look at the table below. They are the results of profitability ratios of Kaman from 2007 to 2011. But what are those? Good thing Nelly explained everything.

Kaman Income Statement

Profitability

kaman IS a

  • Net profit margin; simply the after tax profit a company generated for each dollar of sales; had a yearly average of 3.43. This depicts that it decline in 2008 of 45 percent compared to 2007 net margin of 5.51. But, in 2009 to 2011 it increases yearly of 0.40, 2.1, and 17 percent.
  • Their asset turnover; which measures the effectiveness of the company to convert its assets into revenues; showed an average of 1.63 percent.
  • Return on assets has an average of 5.64 percent and this tells us how much profit the company generated for each dollar on total assets. Which show that in 2007 returns has the highest 8.84 with decreases in 2008 and 2009 and slightly increases in 2010 and 2011 of 8 percent and 17.8.
  • Their financial leverage was 2.4 in average. This measures the financial structure ratio of the company base on total assets against total stockholders’ equity. Resulting as the equity multiplier, it allows the investors to see what portion of the return on equity is the result of debt.
  • Return on equity had an average of 12.64; the company could return such profit percent for every dollar of equity. This was computed through DuPont method wherein the formula is net profit margin multiply with asset turnover multiplied with equity multiplier.
  • Return on invested capital with an average of 9.91. This is the financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business.

The data tells us that net profit margins vary across different companies, making it important for comparison a potential investment against its competitors. A higher net profit margin is preferable as a general rule of thumb. Kaman’s asset turnover ratio tends to be inversely related to the net profit margin. The higher the net profit margin for the last five years, the lower the asset turnover and this is more attractive to investors By comparing the results on returns earned on debts or their financial leverage to returns on profit margin and sales, they earned more on internally generated sales  which was impressive and favorable to investors.

Income

How is the revenue going on with Kaman Corporation for its five years of operation? Nelly computed for it and put the data into table as shown below:

kaman IS b

  • Revenue was the company’s total earnings per year wherein Kaman Corporation show an average of 1,260.6 million dollars for the last five years. Its trend increase slightly in 2008, decrease in 2009, then increases in 2010 and 2011.
  • Their gross profit was the company’s total earnings after deducting its cost of revenue.  Its trend was same as their revenue with a yearly average of 343 million dollars.
  • Operating income was the company’s total earnings after deducting all operations expenses. Wherein their trend showed a fixed-down-up movement with an average 67.2 million dollars.
  • Their income before tax was the income after interest and other income and expenses, wherein it shows an average of 60.2 million dollars. It’s showed an increase in 2008, decrease in 2009 and then increase in 2010 and 2011.
  • While their net income was the company’s income after deducting income taxes with a yearly average of 42.8 million dollars. It showed a decreasing trend in 2008 and 2009 and then increases in 2010 and 2011.

Looking into their income, Kaman’s revenue depicts a yearly growth ratio of 9.54, 15.43, -8.56, 15.03 and 13.62 from 2007 to 2011. This means their revenue was trending upward except in 2009 wherein revenues declined so as net income decreased. Their operating income has a growth ratio of 35.35, 0.83, -17.35, 8.34 and 52.00. This show drastic changes yearly meaning operating expenses fluctuates. Its net income growth ratio has depicts a 75.92 percent, -36.34, -8.29, 9.07 and 43.61 yearly. The decrease in net income in 2008 was cause by the increase in cost of revenue and operating expenses while in 2009 it was due to decrease in their revenues.

Expenses

How about with their expenses from its five years of operations? Listed below are the expenses incurred during 2007 to 2011:

kaman IS c

  • Their cost of revenue was the amount the company paid for the goods that was sold during the year. This had an average of 917.4 million dollars and it represents 73 percent of revenue.
  • While their operating expense was the expenses incurred in conducting their regular operations of the business. And it has an average of 275.8 which is 22 percent of revenue.
  • Their provision for income tax was the amount allocated for their payment of income taxes. And this had an average of 21.4 which represents 2 of revenue.

Overall expenses or total expenses result an average of 97 percent of revenues leaving a merger amount of 3 percent for their net income from revenues. This means KAMN’s expenses on their operations gets a huge chunk on their revenue which is unfavorable, therefore, to improve their net margin they should tighten on their budgeting and costing.

Margins

I’ve learned that profitability can be measured in two ways. One is from returns (which we tackle on the early part of the income statement; and the other one is from margins. For Kaman Corporation, Nelly laid the margins percentage of revenue from 2007 to 2011.

kaman IS d

  • Gross profit margin has a yearly average of 27 percent.
  • Operating margin has an average of 5.3.
  • EBT margin has an average of 4.8.
  • Net margin has an average of 3.

To double check Kaman Corporation as a manufacturing company, it has only a gross margin averaging to 27 percent.  This means cost of revenue holds 73 percent which was almost three fourth of their total earnings. Therefore, after deducting their operating expenses, operating margin was only 5.3 and EBT margin 4.8 minus the non-operating expenses. Thus, net margin left an average of 3 percent of revenue.

We are down now to the last part of Numbers team report and that is the cash flow.

Kaman Cash Flow

Cash flow statement is one of the useful tools that laying all the facts. This encompasses the result from the operating side up to financing activities.

Cash Flow from Operating Activities

Indirect method or reconciliation method starts with net income and converts it to net cash flow from operating activities. In other words, the indirect method adjusts net income for items that affected the reported net income but didn’t affected cash. A sample you can see from table 1 below.

Direct method also called the income statement method; reports cash receipts and cash disbursements from operating activities. The difference between these two amounts is the net cash flow from operating activities.

To compute net cash flows from operating activities, non-cash changes in the income statement are added back to net income, and net cash credits are deducted. Like as what you can see from table 1. Net income was net earnings from the revenue for the period after all deducting its direct cost and operating expenses. Depreciation and amortization was an allocation of asset, it was added back since it was not cash generating. Inventory was an item that was ready or available goods for sale. Other non-working capital was a change from accounts receivable or accounts payable. Other non-cash item refers to allowance for doubtful accounts or unrealized gains and losses in investment.

The net cash provided from operating activities for their five years of operation only blew up by 63 percent in 2009 against 2007 and went down in 2011 by 56 percent. This was due for the net income had only results in 2007 and 2011.The movement of depreciation was consistently increasing, while the inventory had only increase in 2009 by 246 percent.

 kaman CF a

On other hand, operating cash flow results using direct method, are:

kaman CF b

In direct method, cash collection was the based then deduct all the cash payments made by the company for that period. Cash payment for purchases was the purchases made within the period; cash payments for operating was cash paid in terms of operating expenses like salaries; while cash payments for income taxes was a taxes paid due for that year.

The net cash from operating indicated that Kaman Corporation had insufficient cash, the cash payments made exceeds over their cash collection. It had an average of -113 percent deficits.

Cash Flow from Investing Activities

Cash flow from investing was an activity of cash that focuses on where the company invested or utilized their cash. Based from the total, they venture in acquisition more than in PPE with equivalent percentage of 106 and 36 percent. This is because Kaman Corporation is a diversified company that conducts business in the aerospace and industrial distribution markets.

 kaman CF c

The net cash for investing activities indicates; in 2007 it had only a positive result to 40 percent based in total, due to the contribution of other investing activities which represents at 106 percent positive. In 2008 to 2009 was decline by 82 percent and from 2010 to 2011 was up to 38 percent. The movement was due for the acquisition in sideways.

Cash Flow from Financing Activities

Net cash provided or used in financing activities was mainly contributed from debt issued, debt repayment, dividend paid and other financing activities. Debt issued is a company cash provided for the business. Debt repayment is a restructuring of existing debt that the company used for the operation. Dividend paid is a cash dividend paid by the company during the period. Other financing activities are normally from the increase/decrease in debt issue costs, increase/decrease in financing costs and increase/decrease in minority interest.

kaman CF d

Table 4 showed that the net cash from financing activities of Kaman Corporation was quietly impressive; since for their five years only in 2007 and 2009 they had a negative result. This was due to the dividend and other financing cash flow paid for that respective years. The rest was positive due to the debt issued by the company.

Cash Flow Ratios

Operating cash flow to sales ratio compares the operating cash flow of the company to its sales revenue. It will help us determine, the ability of a company to generate cash from its sales. In other words, it shows the ability of a company to turn its sales into cash. It is expressed as a percentage. Though there is no any standard guideline but a consistent and/or increasing trend in this ratio is a positive; indication of good debtor’s management.

kaman CF e

By referring to table 5, operating cash flow ratio to sales ratio of Kaman Corporation was on grade C. It indicated that in every $1 of sales they can only generate at $.02,-.01, .06, .03 and .03 from 2007 to 2011, respectively.

Operating cash flow ratio help us measures the company’s ability how they operating efficiently. From operating activities result over the total current liabilities or obligation of the company. For Kaman Corporation, the result was  negative in 2008. In total result to 17 percent; it means in every $1 the company cash will be used was $.17. Table 6 furthers explains this.

The free cash flow is to provide a measure of what is available to the owners of firm after providing for capital expenditure to maintain the existing assets and to create new assets for the future growth. The higher free cash flows to operating cash flows ratio is a very good indicator of financial health of a company. For Kaman Corporation, it showed results as indicated in the table 7 below.

 

The free cash flow result of Kaman Corporation from 2008 to 2011 was declining from 214 down to 36 percent. In average; it represent at 84 percent. It means, in every $1, the company had $.84.

Written by Rio, Nelly and Dyne

Edited by Criselda

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

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

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

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.

freeport mcmoran copper and gold inc

Freeport McMoRan Copper Inc (FCX) Company Research

May 24th, 2012 Posted by Company Research Report No Comment yet

Freeport McMoRan Inc (FCX) features picture above was taken way back in Arizona; these guys gave a friend a hand when he needed most, brave souls.  I didn’t realize Freeport-McMoran Copper and Gold Inc. was founded in Arizona until now.

Freeport McMoRan Company Research

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

  • On 1881, Phelps Dodge entered mining.
  • Freeport has roots in the mineral industry in the early 1900s.
  • Phelps Dodge quit the import-export business in 1906.
  • The company began to diversify in 1931.
  • Produced nickel during WW2, and potash in the 1950s.
  • On 1955, invested $119 million and constructed a nickel-cobalt mine at Moa Bay.
  • In 1956, the company formed Freeport Oil Company.
  • In 1961, the company entered the kaolin business.
  • By 1966, Freeport Indonesia, Inc. was founded.
  • McMoran Oil & Gas was formed in 1967.

May 1970

  • Construction of an open pit mine began in May 1970.
  • In the mid-1980s, it was the first to use solution extraction and electrowinning.
  • Freeport McMoran Copper and Gold Inc. was founded in 1987 and is established in Phoenix, Arizona.
  • On 1988, Grasberg copper-gold deposit discovered in Indonesia.
  • On 1989, series of expansions begun after the Grasberg discovery.
  • On 1991, a new 30-year term contract to 10 years extensions was signed with the Indonesia government.
  • Freeport McMoRan completed the acquisition of Atlantic Copper (formerly Rio Tinto Minera) in 1993.
  • Remaining eighty percent of FCX was publicly listed on NYSE in 1995.
  • In 1997, Freeport McMoRan received approval from Indonesia’s Minister of Environment for the expansion of the milling rate up to 300,000 metric tons of ore per day.
  • On 1998, the fourth concentrator mill expansion completed, Freeport McMoRan became one of the world’s leading producer of copper and gold.

December 1999

  • Received Montgomery-Watson Environmental Audit in December 1999.
  • On 2001, Freeport McMoRan signed a special voluntary Trust Fund agreement with the Amungme and Kamoro villagers.
  • Bought 23.9 million common shares from Rio Tinto for $882 million in 2004.
  • Achieved record copper and gold production in 2005.
  • The company showed consistent performance resulted in record revenue, earnings, and cash flow in 2007. (Production from Grasberg was one of the factors.)
  • Phelps Dodge merged with Freeport McMoRan Copper and Gold Inc. in March 2007.

Freeport McMoRan nature of business?

Freeport McMoRan Copper and Gold Inc is one of the world’s leading producers of copper, molybdenum, and gold. The company markets copper in seven principal forms: Bayway Operations Specialty Copper Products, Continuous Cast Copper Rod, Copper Cathodes, Copper Concentrate, Copper Electrode & Bare Wire, Copper Sulfate, and Magnetite. Gold is used for jewelry, industrial and electronic applications and sold throughout the world. Molybdenum is a key alloying element in steel and the raw material for several chemical-grade products.

Freeport McMoran Copper operations through its principal operating subsidiaries and they continuously develop their mining strategy. The company was headquartered in Phoenix, Arizona, incorporated under the laws of the state of Delaware on November 10, 1987. The company has principal operating subsidiaries are PT Freeport Indonesia, Freeport McMoran Corporation (formerly Phelps Dodge) and Atlantic Copper.

Freeport McMoRan is known as the largest publicly traded copper and molybdenum producer in the world, mines and mills ores containing copper, gold, molybdenum, and silver.  The company applies “variable cutoff grade” strategy for underground ore bodies used by geologists and geological engineers.

Copper is used as a ductile metal with very high thermal and electrical conductivity.  Pure copper is soft and malleable.  Copper was used as a conductor of heat and electricity, a building material, and are part of various metal alloys.

Molybdenum is the free element, silvery metal with a gray cast. Industrially, molybdenum compounds are used in high-pressure and high-temperature applications, as pigments and catalysts.

Freeport McMoRan Leadership and their background?

Let’s look into people behind the company. Richard C. Adkerson is the President, CEO, director, and has been a board member in Freeport McMoRan since 2006. He previously was CFO from October 2000 to December 2003 and he served as Co-Chairman of the Board of McMoran Exploration Co. (MMR) since 1998. He is CEO since 2003 and president since 2008. He also completed an advanced management program at Harvard Business School (HBS). HBS is part of Harvard University in Boston, Massachusetts, United States. HBS is recognized as one of the top business schools in the world. Mr. Richard C. Adkerson has been with the company for 23 years.

The second-in-command is the CFO. Kathleen L. Quirk has been with the company for 21 years. She worked as the Treasurer of Freeport-McMoran Copper since 2000, then Chief Financial Officer since December 2003.  She was Executive Vice President since March 2007.  Her responsibility includes tax, investor relations, treasury, and finance.  She is a graduate of Louisiana State University with a BS degree in Accounting.

Do you know what does a Treasurer does? A treasury is where currency or things of value are received and paid. The Treasurer heads the treasury.

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

Freeport McMoran Copper board of directors is 12 members with various perspectives and experience in the mining industry, geology, business, finance, economics, accounting, and public affairs. Directors are elected to oversee the activities of a company. We will focus on the members charged with heading the committees.

Robert A. Day is an independent and nonexecutive director since 1995, director of McMoran exploration, founding chairman of W. M. Keck Foundation, and chairman of the audit committee of FCX. Graham H. Devon, Jr. is an independent and nonexecutive director since 2000. He was the President of R. E. Smith Interests, and chairman of corporate personnel committee of FCX. Robert J. Allison is an independent and nonexecutive director since 2001. He was chairman of Anadarko Petroleum Corporation and chairman of nominating and corporate governance committee of FCX. Stephen H. Siegel is an independent and nonexecutive director, a founding executive officer of Advanced Delivery & Chemical Systems, Inc. (ADCS), and an investor and current chairman of the public policy committee of FCX.

What is their workforce like?

The competitive edge of the company is the innovation and workforce.  The global workforce totaled of 31,800 employees and 27,400 subcontractors were by unions as of December 31, 2011.

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

The pay structure of Freeport-McMoran Copper and Gold Inc. is a combination of cash and equity-based incentive payment to attract and retain directors to serve. The principal part of executive officer salary is base salaries, annual incentive awards, and long-term incentive awards; all of these are “total direct compensation.” As a rough guide, the individual base salary is about 13% of the executive officers’ salary.

The compensation committee links the company’s performance to incentive compensation using cash (short-term), performance-based restricted stock units (long-term), and stock options (long term). Nonexecutive directors and advisory directors may exchange or defer all or part of their annual fee and meeting fees for an equivalent number of shares of the common stock on the payment date, based on the fair market value.

Gossips

What is happening with the company lately? On 14 December 2011, Reuter reported that FCX resolved PT-FI labor problems and updates the status of PT-FI operations. The labor strike that started on September 15, 2011, has ended.

Tatyana Shumsky, with 4-traders.com through Dow Jones Newswires, reported on March 19, 2012, that (FCX) copper-mining operations in Indonesia are back after labor-related disruptions during the first quarter. Richard Adkerson said. “We are seeing progress in returning to normal operations. Milling rates are back above 200,000 tons per day; from around 115,000 throughout the first quarter.” Reuters reported on April 19, 2012; a sharp drop in first-quarter profit, partly due to lower metal sales following labor problems at its Grasberg mine in Indonesia. The result was a loss of 80 million pounds of copper output and around 125,000 ounces of gold production.

Freeport McMoRan Value Investing

So far we have been exploring the qualitative side provided by our Stories team.  The rest of the post will be from our Numbers team. They will help us analyze the numbers and interpret the meanings.

Freeport McMoRan Balance Sheet

Liquidity

In value investing, the balance sheet is a formal statement showing the financial condition, or the ability to pay its obligations, with liquidity, solvency, and stability of the company. We can find out what happened and not what is happening.  It shows the past. Here the working capital shows that FCX has sufficient resources to meet their current obligations; current asset was greater than its current debts, with a slight dip in 2008 to 2010, overall the ratio is impressive at 2.62, on average. The average for quick ratio was 1.31. This consists of liquid assets over the current liability.  By 2011 both ratios had increased from the dip in 2008.

Working capital, current ratio and quick ratio for 2007 to 2011 are as follows:

  • Working capital was $2,034, 2,075, 4,464, 6,088 and 7,107. Average of $4,353.60 with an uptrend.
  • Current ratio was 2.90, 1.66, 2.48, 2.62, and 3.42, averaged 2.62. To put it another way; there was $2.62 of current assets for every $1 of current liabilities, on average.
  • Quick ratio was 0.75, 0.66, 1.49, 1.64, and 2.03. Like having $0.75, 0.66, 1.49, 1.64, and 2.03 for every $1 of current liabilities.

The company’s accounts receivable turnover is averaging 12 times; funds are not tied up in receivables. Average collection period was 33 days. This number indicates how strict or relax the company’s credit policy towards the customer. Freeport-McMoRan Copper & Gold Inc. takes an average of 65 days to sell the entire inventory while payables took an average of 24 days to be paid.

Freeport McMoRan Cash Conversion Cycle

Cash conversion cycle shows an average of 73 days during the five years of operation. This measures liquidity and provides the interval in which additional short-term financing might be needed. It takes only a month for receivable and two months for inventory to turn into cash. During the same period, the company can pay creditors within 24 days. The details below are the breakdown of the various parts needed for the cash conversion cycle for the period between 2007 and 2011:

  • A rough gauge on how fast receivables are converted to cash. Accounts receivable turnover was 13.1, 14.7, 8.3, 7.8, and 18.3. Average collection period was 28, 25, 44, 47, and 20 days. Average of 33 days.  This measure the movement of accounts receivables or the average time it takes to collect an account.
  • Inventory turnover was 5.87, 6.4, 5.2, 5.5, and 5.4. Average of 5.7 times inventory. Inventory conversion period was 62.2, 57, 70, 66, 67.6 days. The company takes about 65 days to sell the entire inventory.
  • Payables turnover ratio was 14.2, 15.3, 16.9, 14.9, and 15.4. Average of 15.3 times. Average day payable was 25.7, 23.9, 21.6, 24.5, and 23.7days. Average of 24 days for payables to be paid.
  • Thus, the cash conversion cycle was 64, 58, 92, 88, and 64 days. Average of 73 days.  The time for cash to complete the operating cycle was 73 days.

To determine how efficient management is we need to look into fixed assets and total assets. The company’s fixed assets turnover ratio was 0.91, 0.92, 0.91, 0.91 and 0.91. The calculation is the ratio of revenue to fixed assets. Total assets turnover ratio was 0.42, 0.76, 0.58, 0.65, and 0.65. The average is 0.612 or 61.2 cents of revenue was generated for every $1 of total assets. Fixed assets turnover was constant for the average five years except in 2008 in which it slightly increased due to increases in total assets.

Leverage

Leverage is when the firm is financed with current or long-term debt capital. The debt ratio is slightly decreasing year after year. On average, 60.6 percent of the total asset is supplied by long-term debt or banks. Debt to equity ratio was high in 2008 since have been decreasing; with an average 170.6 percent. The higher the level of equity the more stable the company’s earnings; the basis for determining the debt ceiling. Solvency has to do with how the company’s ability to meet the interest repayment schedules associated with its long-term obligations. The solvency ratio shows that from 2007 to 2009, after tax net profit plus depreciation is not enough, but in 2010 to 2011 shows a higher solvency ratio of 119 percent and 162 percent respectively. This is enough to service the short and long-term obligations.

Ownership of the company’s total assets are; creditors have 11.6 percent claims on the company’s total assets while the bondholders have 60.6 percent. Owners or stockholders have on average 39.4 percent claim against total assets.  The details for 2007 to 2011 are below:

  • Debt ratio was 0.55, 0.75, 0.65, 0.57and 0.51. The average was 0.606 or 60.6 percent of the company’s total liabilities against its total assets.
  • Debt to equity ratio was 1.23, 3.05, 1.85, 1.35, and 1.05. Averaged 170.6 percent of total liabilities against total equity; the extent the company is levered.
  • Solvency ratio was 0.52, -1.43, 0.55, 1.19, and 1.62.
  • Current liabilities to total assets were 0.10, 0.14, 0.12, 0.13 and 0.09.
  • Total liabilities to total assets were 0.55, 0.75, 0.65, 0.57and 0.51.
  • Equity to total asset was 0.45, 0.25, 0.35, 0.43 and 0.49.

Efficiency

Return on asset (ROA) reflects what was earned on the investment of all the resources committed to the company. On average, the return was -10 percent and -16.3 percent from capital from equity holders or return on equity (ROE). Both ratios show a dip in 2008 and gradually recovered from 2009 to 2011; the operations had a stable increase. Here’s the summary for 2007 to 2011:

  • Return on asset was 7.3, -47.4, 10.6, 14.8, and 14.2. Average of -10 percent. The company lost 10 percent of the value in the five years period.
  • Return on equity was 16.3, -191.7, 30.1, 34.7, and 29.2.

Freeport McMoRan Income Statement

Now, let’s focus on the income statement. Why are we looking at the income statement? What are the trends for revenue and profit margins; what are the various margins. What is the relationship between revenue and margins? What are some key items affecting and driving these trends? How is the company’s ability to manage costs? How profitable is the company?

We have to determine how the company generates profit or loss. Two key areas we will be exploring are the total volume of business the company can generate and at the same time what sort of margins throughout the production cycle from gross profit margins to net profit margins. We analyze the revenue to determine the trend; if a trend was, what is the likelihood the trend will continue, and how that will affect the company’s profit? The second area is the margins; to help us determine how competitive the company with the competition.

Income

Revenue from 2007 to 2011 was trending up; 2009 was the year it went down by 15 percent, averaged in five years was 20 percent. Operating margin loss 71.5 percent in 2008, recovered in 2009 with an increase of 160 percent. The net margin was profitable, in 2008 down by 62.2 percent but recovered gradually by 18 percent, 22.8 percent from 2009 to 2010. Below are the results from 2007 to 2011:

  • Total revenue in $billion was 16.94, 17.8, 15.04, 18.98 and 20.88
  • Gross profit margin in percentage was 42.3, 27.1, 46.7, 50.6 and 47.7.
  • Operating profit margin ratios in percentage were 37.7, -71.5, 42.9, 47.3 and 43.4.
  • Income before tax in percentage was 36.2, -74.7, 38.7, 44.8 and 42.2.
  • Net profit margin was 17.6, -62.2, 18.3, 22.8 and 21.8.

Expenses

We also analyzed the cost and expenses. We want to know how the company managed cost. How these affect operations and what are the total expenses for the year?  The results of cost and other expenses incurred for the year 2007 to 2011 are:

  • The cost of revenue against total revenue was 58, 73, 53, 49 and 52.
  • The operating expense against total revenue in percentage was 5, 99, 4, 3, and 4.
  • Income tax over total revenue in percentage was 14, -16, 15, 16 and 15.

Through the cost of revenue to income tax expense, the management was efficient in managing total expense, except in 2008, wherein, the cost of revenue rose by 15 percent and the total operating expense reached at 99 percent of total revenue.

Freeport McMoRan Cash Flow Statement

To determine how management used funds we have to study the cash flow statement. This statement is used with the balance sheet and income statement.  The cash flow statement shows the incoming funds and the outgoing funds in three areas; operating, investing and financing.

Cash Flow from Operating Activities

Cash from operating activities is generated from the actual business. We can determine what was left from sales after the company pays the expense incurred while selling and converting the sales to cash.

Management was effective in generating cash from the operation. The starting line was the net income, which dropped by -376.5 percent in 2008 and -133.8 percent in 2009, corrected by 56.9 percent 2010. Depreciation increased 41.0 percent in 2008. The unusual item increased by 10848.7 percent in 2008. While, working capital decreased by -171.6 percent in 2008, -35.0 percent in 2009, then, went up 32.7 percent in 2010. Net cash from operating activities decreased by 45.9 percent in 2008 then reversed with a 305 percent increase in 2009, an increase of 42.7 percent and 5.5 percent for 2010 and 2011, respectively.

  • Net income was 3,779, -10450, 3,534, 5,544 and 5,747, average of 1,630.8 for five years.
  • Depreciation was $1,264, 1,782, 1,014, 1,036 and 1,022.
  • Unusual item was 152, 16,642, -56, -115, and -102.
  • Change in working capital was 1,223, -876, -5,692, -755 and -537.
  • Cash from operating activities was 6,225, 3,370, 4,397, 6,273 and 6,620.

Cash Flow from Investing Activities

Next, we will focus on cash from investing. This will provide us with clues on what is happening with the company in buying and selling assets.  Is the company growing organically or through mergers and acquisitions? What is the current direction of the company with investments?

The cash was used throughout the years from 2007 to 2008 to pay for assets and expenses. Fixed asset increased by 35.19 percent in 2008, it went down by 70.64 percent in 2009. The other investing cash flow was in 2009 while cash inflow went up by 982.05 percent.

Below are the results:

  • Purchase of fixed asset was -1,755, -2,708, -1,587, -1,412 and -2,534, average of $1,999.20 for five years.
  • Other investing cash flow was -53, 344, -39, 23 and -26.
  • Cash from investing activities was -14,861, -2,318, -1,601, -1,869 and -2,535 average of -4,636.80 for five years.

Cash Flow from Financing Activities

Cash from financing activities, here we can determine how the company raise funds to finance operations to the acquisition; what management prefer between debt and equity?

The company raised money through debt financing in 2007.  In the same year the outflow of cash to service the debt was high, later the repayment tapered.  What I noticed was that in the same year cash outflow for dividend was not as high as 2008 and 2010. The net inflow of cash in 2007 overshadowed past and later years. After 2007, the company increased the repayment level. The details are below for 2007 to 2011:

  • Financing cash flow items is $-1,223, -482, -473, -688 and -313.
  • Total cash dividends paid is $-596, -948, -229, -980 and -1,423.
  • Issue (retire) debt, net is $5,555, 124, -1,050, -1,654 and -1,265.
  • Cash from financing activities is $9,355, -1,806, -1,012, -3,322 and -3,001.

Sources
History & Development

http://www.fcx.com/company/history.htm
http://en.wikipedia.org/wiki/Freeport-McMoRan
http://www.sec.gov/Archives/edgar/data/831259/000083125912000014/a2011form10-k.htm
http://finance.yahoo.com/q/pr?s=FCX+Profile

Products & Services

http://www.sec.gov/Archives/edgar/data/831259/000083125912000014/a2011form10-k.htm
http://www.fcx.com/metals/products.htm
http://www.fcx.com/metals/fmi/tomarket.html

Organizational Structure

http://www.sec.gov/Archives/edgar/data/831259/000083125912000014/a2011form10-k.ht.
http://en.wikipedia.org/wiki/Freeport-McMoRan
http://www.fcx.com/company/structure.htm

MANAGEMENT

CEO

http://www.fcx.com/ir/bios.htm
http://www.sec.gov/Archives/edgar/data/831259/000083125912000014/a2011form10-k.htm#s0C0DA546DD21BAB601B0A861FCDDB768
http://images.businessweek.com/slideshows/20110830/highest-paid-ceos-with-mbas/slides/2
http://www.sec.gov/Archives/edgar/data/831259/000119312512191204/d328627ddef14a.htm
http://www.forbes.com/lists/2012/12/ceo-compensation-12_Richard-C-Adkerson_94C5.html

CFO

http://www.sec.gov/Archives/edgar/data/831259/000083125912000014/a2011form10-k.htm#s0C0DA546DD21BAB601B0A861FCDDB768
http://www.fcx.com/ir/bios.htm#top
http://www.boardroominsiders.com/executive-profiles/5305/Freeport-McMoRan-Copper-and-Gold-Inc./Kathleen-L.-Quirk

Board of Directors & Committees

http://www.sec.gov/Archives/edgar/data/831259/000119312512191204/d328627ddef14a.htm
http://www.fcx.com/ir/board.htm
http://www.reuters.com/finance/stocks/officerProfile?symbol=FCX&officerId=18542
http://www.marketwatch.com/investing/stock/fcx/insiders?pid=21345
http://www.reuters.com/finance/stocks/officerProfile?symbol=FCX&officerId=171535
http://www.reuters.com/finance/stocks/officerProfile?symbol=FCX&officerId=835276

Workforce

http://www.sec.gov/Archives/edgar/data/831259/000083125912000014/a2011form10-k.htm#s0C0DA546DD21BAB601B0A861FCDDB768

Stories Team: Karla, Janice, Meriam, and Nelly

Numbers Team:  Nelly and Dyne

Edited by Cris

Accenture plc acn

Accenture Plc (ACN) a Multi-Business Company

May 15th, 2012 Posted by Company Research Report No Comment yet

Company Research

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

To understand Accenture Plc, I believe, it is important to understand its history. Accenture started back in 1953, much like others; out of necessity.  Through the years, the company went through massive changes.

  • Started in 1993 as a business and technology consulting division of accounting firm Arthur Andersen.
  • In the 90s, there was tension between Andersen Consulting and Arthur Andersen.
  • And by January 1993, the company was doing business in 23 countries throughout North America, Europe, Asia, and the Pacific.
  • In addition, January 1, 2001, Andersen Consulting became Accenture.
  • And on July 19, 2001, Accenture went public with the New York Stock Exchange (NYSE).
  • Meanwhile, in October 2002, the General Accounting Office (GAO) identified Accenture as publicly-traded federal contractors incorporated in a tax haven country.
  • Moreover, February 29, 2012, the company was named as a defendant in the litigation.
  • Lastly on March 21, 2012, the Board of Directors declared a cash dividend of $0.675 per share on Class A ordinary shares.

What is the nature of Accenture Plc business?

Accenture PLC is a global company, organized to improve their client’s operations. They supply people with the skills to get a job done; the technology to accomplish a task; or expertise to outsource a business function. Noteworthy, Accenture owns the following companies: Coritel BPM, Avanade, Navitaire, Accenture Federal Services, Accenture Defense Group, Accenture Technology Solutions, Accenture SAP, Digiplug, Accenture Mobility, Accenture Interactive, and  Accenture CAS.

Accenture is a management consulting company located in Dublin, Republic of Ireland. The business is providing technology services and outsourcing. Outsourcing is common these days but It turns out the word outsourcing was used near the turn of the 21st century, to mean contracting the work which previously done in-house to some third party provider.

Business Extension

Accenture’s have businesses in the digital phone, local and long distance video phone, high-speed internet, wireless, television, home security, home security and automation, computer support, energy,  small business, and services.  I had no idea Accenture was into so many businesses.

They are organized into five segments within the company; Communications, Media & Technology, Financial Services, Health, and Public Service and Products and Resources.  At the center of these segments, Accenture’s global delivery network is focused in India and the Philippines.

I wasn’t sure what it meant so I went to their website to get this point clarified. According to the website, it is the ability to tab on a global pool of talents to meet their client’s needs, and at the moment, their talent pool comes from India and the Philippines. As of February 29, 2012, the total employment was 246,000, an increase of 2,000 additional employee since November 30, 2011, due to demands.

Who is running the company and their background?

The CEO of the company is Pierre Nanterme. He is responsible for making decision and policy for the company. He is on the Board of Directors. Meanwhile, Mr. Nanterme is the one coming up with the plans and getting it implemented. His job is to interact with clients and stakeholders of the company. Further, he joined Accenture in 1993 and in 2011 was made CEO. Furthermore, he is a graduate from ESSEC (École Supérieure des Sciences Économiques et Commerciales) Business School in Paris.

Second, in command, Pamela J. Craig serves as Chief Financial Officer. She is responsible for accounting, treasury, tax, investor relations, finance, and strategic planning. She joined in 1979 as a certified public accountant. Three years later shifted to consulting and nine years afterward made partner in 1991. She has a Master of Business Administration degree from New York University and a Bachelor degree with honors in economics from Smith College.

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

The Board of Directors governs and oversee the strategy, operations, and management of Accenture. They look after the senior management for the owners.  Here we are looking for competent and honest people to represent equity stakeholders. They serve in the Audit Committee, Compensation Committee, Nominating Committee, Corporate Governance Committee, and the Advisory Committee.

Audit Committee is headed by William L. Kimsey, a Director since 2003. Dennis F. Hightower is a Director since 2010, he is the Chairman of both Compensation and Nominating Committee. The Corporate Governance Committee is lead by Charles Giancarlo, a Director since 2008.

What is their workforce like?

Accenture has more than 246,000 employees with varied experience and expertise serving it’s clients globally in 120 countries within five segments.  The employees have access to what they called clients engagements teams.  These are subcontractors, experts, professionals, and specialists. The company considers employees as the most important asset.

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

Employees are paid on a total compensation package. The cash portion has three components: base compensation,  annual bonus plan, and individual performance. There are three performance programs:  Key Executive Performance Share, Senior Officer Performance Equity Award, and Performance Equity Award. In addition, employees are encouraged to balance career aspiration with a healthy lifestyle, through what they called “Total Rewards” package. I like the ideas of a total reward concept.  I wonder how that works in the real world?

Gossips

According to The Street published by Business Wire on April 26, 2012: Accenture Claim Components, was rated “Strong Positive”, the highest possible rating. In Gartner’s latest “Market Scope for North American Property and Casualty Insurance Claims Management Modules.”

What is Accenture Claim Components? It is a web-based technology solution designed to help insurers from the world’s largest to smaller carriers. To improve the efficiency of their claims in handling operations. In addition, more than 65,000 claims handlers worldwide use it to process more than 40 million insurance claims each year. The system is linked to the carrier’s financials and reserve management.

As Lead Management Consultant

Reuters news on Monday, 13 Feb 2012, Accenture PLC was selected as the lead management consultant and information technology partner under a contract signed in June 2011. This is to develop a new national crime management system for the Norwegian National Police Directorate (POD) to support police investigations and criminal prosecutions in Norway.

However on earlier news from Reuters written by Siddharth Cavale on Thursday, Dec 15, 2011: Chief Financial Officer Pamela Craig said: “The company also cut its earnings forecast for the fiscal year by 4 cents to $3.76-$3.84 per share, to reflect foreign exchange fluctuations.”

Latest News

According to a report published by Business Wire on April 25, 2012, Mark Spelman, managing director, Strategy, Accenture said,

Quote: “There’s a double paradox in that European businesses are cutting back on skills development at the very time when they should invest more, and skills shortages are persisting in spite of a very large pool of unused talent here and across the world,”.

Value Investing

Balance Sheet

Now, we continue with our analysis of the financial results for the past five years, from 2007 to 2011. Currently, our Numbers team is responsible for helping us make sense; decode the meaning behind the numbers. Over time our goal is to make the analysis as simple as can possibly be. However, that will take time. Meanwhile, we continue to share with you what we currently have; the quality of our current report. 

Rio, in our Numbers team, wrote, “The company was able to meet its current obligations; payment of salaries to its staffs, utility bills and make loan payments. On average, there are $1.4 of assets to every $1 of liabilities.” How do we know that? Look at working capitals, current ratios and quick ratios for 2007 to 2011. Further, working capitals were 1,091, 2,311, 2,751, 2,996 and 3,565, respectively.  Furthermore, current ratios and quick ratios were 1.2, 1.3, 1.4, 1.5 and 1.4.

Cash Conversion Cycle

Cash conversion cycle averaged 14 days for five years of operation from 2007 to 2011; the length of time for cash to complete the operating cycle. It is a measure of liquidity. It also indicates the time interval of which additional short-term financing might be available.

Solvency pertains to the company’s ability to meet the interest costs and repayment schedules associated with its long-term debts. Creditors have 54 percent claim on the company’s total assets while the bondholders have a 78 percent claim on the company, on average. While the stockholders have an average of 22 percent claim against total assets.

Return on Assets (ROA)

Return on assets (ROA) reflects what the company earned on the investment of all the financial resources committed to the firm. Accenture earned on average 13.32 percent from the total assets used in the company.  Moreover, the return on equity averaged 60.88 percent; 60.2, 66.6, 56.1, 62.8 and 58.7, for 2007 to 2011, respectively. 

Income Statement

Let’s focus our attention in on income and expense over a period of time and to provide important insights into how effective the management in controlling its expense.

  • Total revenues in $billion were 21.42, 25.31, 23.17, 23.09 and 27.35.
  • While, gross profit margins in percentage were 28, 28, 30, 31 and 31.
  • Likewise, operating profit margin ratios in percentage were 12, 12, 11, 13 and 13.
  • Income before taxes in percentage were 12, 12, 12, 13 and 13.
  • And, the Income after-tax margins in percentage were 8, 9, 8, 9 and 9.
  • Moreover, net profit margins in percentage were 6, 7, 7,  8, and 8.

Explanation

The company was able to generate sufficient revenue for its daily business operation in the five years. Gross profit margin is trending up. Its operating profit margin is stable at an average of 12 percent. Income before taxes and income after taxes were 12 percent and 8 percent, respectively. Likewise, the net profit margin indicates a stable margin of 7 percent during its five years of operation.  Overall, shows the profitability of the company.

Expenses for the period 2007 to 2011:

  • The cost of revenue against total revenue in percentage was 72, 72, 70, 69 and 69.
  • While operating expense against total revenue was 16, 16, 17, 19 and 18.
  • In addition, the income tax rate was 34.2, 29.3, 27.6, 29.3 and 27.3 percent of the taxable income.

Explanation

All expenses were categorized. The cost of revenue or the direct costs incurred in producing the revenue shows an average of 70 percent. While the operating expense or the selling, general and the administrative expense was 17 percent. In addition, income tax represented 4 percent, on average. The overall expense was 91 percent plus the extraordinary items. Total overall expenses were 98.2 percent and the remaining  7.08 percent, as the net profit.

Return on Asset Ratio

The return on assets ratio, in general, indicates an upward trend, except in 2009 where the rate went down by 1 percent. It gives the investors a return of $0.13 for every $1 investment in assets. Return on equity gives the investors a decent return of  61 percent or $0.61 for every $1 of equity.  The earning per share indicates favorable results. Profitability ratios for 2007 to 2011:

  • Return on asset was, 12, 14., 13, 14. and 15 for every $1 of assets.
  • On the other hand, return on equity was 60, 67, 56, 63 and 59 for every $1 of equity.
  • Moreover, the earnings per share (EPS) was 2, 3, 2, 3 and 3.

Cash Flow

Cash flow statement provides the in and outs of the movement of cash in three key areas; operation, investing and financing. Cash flow from operating activities showed that the company has more than enough funds for its operating activities from 2007 to 2011. The last bullet point below provides a wonderful upward trend of the company cash injection from running the business.

Facts

  • Net Income in $billion was 1243.15, 2197.19, 1938.15, 2060.46 and 2553.24, average of 1998.44.
  • On the other hand, depreciation in $million was 444.5, 491.42, 498.59, 474.69 and 513.26.
  • Non-cash items in $million was 798.3, 376.56, 785.03, 470.96 and 532.78.
  • In addition, changes in working capital were $252.29, -171.97, 1.42, 26.78 and 38.85.
  • Moreover, cash flow from operating activities was $2630.57, 2803.25, 3160.20, 3091.62 and 3441.74.

Explanation

Cash flow from investing activities showed a negative balance in five years period of operation. Total cash inflow was $1288.48 while total cash outflow was -$3185.26. Here the negative balance isn’t necessarily a bad thing.  The amount of outflow exceeds the incoming funds.  The company must be exchanging cash for assets. The details for 2007 to 2011 (in dollars):

  • Cash flow from investing activities was -$350.45, -323.99, -245.17, -273.77 and -703.39. Total of -1896.77.
  • Moreover, cash outflow was -$-1250.46, -646.17, -274.73, -292.83 and -721.07. Total of -3185.26.

Cash Flow from Borrowing

The last areas are the cash flow from borrowing or repaying a liability. Cash flow from financing activities also has a negative balance for five years period. The company is reducing its liability. Financing activities from 2007 to 2011 (in dollars):

  • Cash flow from financing activities was -$2127.71, -2161.52, -1850.30, -2429.03 and  -2121.50.
  • In addition, the total cash inflow was -$1819.70, -1820.27, -1450.67, -1633.85 and -1614.51; total of -8339.
  • Likewise, total cash outflow was -$308.01, -341.26, -399.63, -795.17 and -506.99; total of -2351.06.

Written by: Janice, Meriam, Karla, Nelly, Cris, and Rio

Edited by Cris

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