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McDonalds mcd

McDonalds (MCD)Business Is Really Real Estate And Franchise

June 5th, 2016 Posted by Company Research Report No Comment yet

McDonalds company research.

MCD

McDonalds Company Research

Company’s History and Nature of Business

The business began in 1940; a restaurant opened by brothers Richard and Maurice McDonald in San Bernardino, California. The opening of a franchised was first acquired by Czech-American businessman Ray Kroc in Des Plaines, Illinois on 1955 which led its worldwide expansion and became listed on the public stock markets in 1965. Today, McDonald’s Corporation is the world’s largest chain of hamburger fast food restaurants which serves around 68 million customers daily in 119 countries globally.

The company was managing with its segment which includes the United States, Europe, Asia, the Middle East, and Africa. McDonalds’s offer variations to suit each consumer’s preferences and taste, its menu includes, hamburgers, cheeseburgers, several chicken sandwiches beverages, and many others. They have the passion for quality, that every single ingredient was tested and perfected to fit the operating system. As the company expands into international markets it becomes a symbol of globalization, its prominence has sometimes made as a topic of public debates about obesity, corporate ethics, and consumer responsibility.

How do they make money?

Mc Donald’s generates its income as an investor in properties, a franchiser of restaurants and an operator of restaurants. Around 154% of the restaurants are owned and operated by McDonald’s Corporation directly. Moreover, the business operates through a variety of franchise agreements and joint ventures, wherein they collect franchise fees and marketing fees and also collect rent which calculated on the basis of sales. The company’s policy includes organizing the supply of food and materials to the restaurant through approved third party logistics operators and strictly would not allow direct sales of food or materials to franchisees.

Moreover, the company retains all of the profit earned by company-owned restaurants, they also incur a cost that is largely fixed they ensure the profit of each restaurant is either maintained or increased. The owner of each franchised restaurant keeps all the profit they make through sales after paying McDonald’s a royalty for trading under the brand name and rent for operating in a company’s owned property. The main advantage of operating franchised restaurants is that it guarantees a stream of income as the company sees to it to reduce the level of risk while enabling.

Who is running the business and what is their background?

Corporate Governance is one of the main reason that these terms (CEO, CFO) exist. Corporate titles on company officials are means to identify its function and responsibility in the organization. Here are McDonald’s company official’s brief biographies.

CEO

Thompson, Donald

Mr. Donald has been President, Chief Executive Officer since July 2012, and was also elected as Director on 2011. Prior to that, he serves as President, McDonald’s USA from August 2006 to January 2010, Mr. Thompson has been with the Company for 22 years. Mr. Thompson provides a Company perspective in Board discussions about the business, particularly with respect to worldwide operations, competitive landscape, senior leadership and strategic opportunities and challenges for the Company. In addition, as an independent director of another public company, Mr. Thompson has gained additional perspectives, including on governance and operational matters relevant to the Company.

During his 23 years at McDonald’s, Thompson has helped drive business results and global strategic innovation across the organization. Since joining as an electrical engineer in 1990, he has held a variety of key leadership positions within the company including Regional Vice President, Division President, and Chief Operating Officer. Between 2006 and 2010, Thompson served as President of McDonald’s USA, the company’s largest business segment. Most recently as President and COO of McDonald’s Corporation, Thompson and his leadership team established three global growth priorities in support of the McDonald’s Plan to win: to optimize the menu, modernize the customer experience and broaden restaurant accessibility.

CFO   

Peter J. Bensen

Mr. Peter J. Bensen is Chief Financial Officer, Senior Executive Vice President of the company a position he has held since January 2008. He is responsible for all financials matter of the company including Accounting, Internal Audit, and Controls, Tax, Treasury and Investor Relation as well as IT, Shared Service, Facilities, and Aviation. Moreover, Mr. Bensen has joined McDonald’s in 1996 as Director of Financial Accounting & reporting and subsequently held positions of increasing responsibility. Prior to joining the company, He was a senior manager for Ernst & Young in Chicago, where he serves multi-national audit, clients. Mr. Bensen is a graduate of St. Joseph’s College in Rensselaer, Indiana.

Do you trust these people and are they confident?

Basing from their company’s profile, I do trust these people and I believe they are confident as they played some major roles. Each of their experiences is the best factors that they could contribute in order to the company’s progress.

McDonalds Value Investing

Financial Analysis

The above data shows that McDonald’s corporation has an average degree of liquidity; current ratios which have an average of 1.44 and the quick ratio was averaging to 1.18. It tells us that the company is capable of meeting its short-term obligations when the due date comes. Moreover, the solvency ratio has an average of 0.50, and the leverage ratio has an average of 0.85 percent, an indication that the company is solvent.

McDonald’s gross margin was averaging 38 percent and has a stable movement. Net margin was averaging 18.62 percent however, it is trending down year over year.

McDonalds Investment Valuation

The Investment Valuation has always been a topic in financial and business circles, the method used is the basic mathematical technique that calculates the value of an investment as the present value of all future cash flows expected to be generated by the investment.

McDonald’s has a sustainable growth rate of 17 percent, average, and the calculated margin of safety was 62 percent. Moreover, the market capitalization was $94.84 billion at a share price of $93.53 as of Aug.12, 2014.

The above table shows that the company has:

  • an average return on equity of 32.38,
  • book value per share was averaging of 14.45,
  • the price to earnings ratio has an average of 18.20, this is the price that the investors are willing to pay for the stock of the company.
  • Earnings per share were averaging $ 5.12 this is the company’s net earnings allocated to each share of common stocks.

CITATION

http://www.sec.gov/Archives/edgar/data/63908/000119312514140308/d666434ddef14a.htm http://www.reuters.com/finance/stocks/officerProfile?symbol=MCD&officerId=845631 http://news.mcdonalds.com/US/Executive-Team http://www.aboutmcdonalds.com/mcd/our_company/leadership/peter_j_bensen.html

Research and Written by Meriam

Edited by Cris

apple inc appl

AAPL Increased Brand Value by 21% and Still Claim the No. 1 Spot

March 16th, 2015 Posted by Company Research Report No Comment yet

Company Research

AAPL 1

About the Company (Timeline)

  • On April 1, 1976, Apple Inc. (APPL) is the largest information technology company founded by Steve Jobs, Steve Wosniak and Ronald Wayne on April 1, 1976.
  • On January 3, 1977, they were incorporated as Apple Computer, Inc., renamed as Apple Inc. on January 9. 2007, to reflect their new focus toward consumer electronics. Apple makes personal computers, portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications.
  • In 2013 Apple bought Wi-Fi Slam (Silicon Valley) in March, then Locationary Inc., Hopstop.com Inc. in July, Algo Trim AB (a Malmo-based developer of prepackaged software) in August, Prime Sense Ltd. in November, and Topsy Labs Inc in December.
  • In February 2014, Apple Inc. buys Burstly Inc., then Novauris Technologies Ltd. in April and Beats Electronics LLC (Beats) in August.

AAPL a multinational American corporation in Cupertino, California has changed the world’s information technology. Apple has a staff of computer designers and a diversified production line to successfully compete with IBM and Microsoft in the enterprise of computing market which started in the late 1970s.

Today, Apple’s market capitalization is more than these two companies, about $640.49B; IBM is 162.65B and MSFT is $391.21B. Despite this, Apple continues to buy more small and medium size companies that would help them in line with their products and services.

How do they make money?

Apple Inc. develops, designs, manufactures, sells iPhone, iPad, Mac, iPod, iTunes, Mac App Store, iCloud, Operating System Software, Application Software and Other Application Software. They deliver digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. Apple sells globally, through online and retail stores. They also conduct business through direct sales force and with third-party cellular network carriers including, retailers and resellers.

Apple is the company to look forward to, they are into bigger phones and phablets. Samsung is getting the smartphone market. Apple is into high market while low costing Chinese smartphone with Original Equipment manufacturer (OEMs) continue to capture the middle and low-end share.

Touch screens had been created and marketed before, but it was Apple that first adopted the user interface and made it a huge market. Lately, they achieved widespread success with their new iPhone 6 an innovation in mobile phones.

Apple increased its brand value by 21 percent to $118.9B still first place. Next in line is Google, the brand is valued at $107.43B increased by 15 percent. The Information came from Interbrand’s Best Global Brands ranking report as the world’s most valuable brand out of the top 100.

Who is running the business and what is their background?

AAPL 2

Mr. Timothy D. Cook is Chief Executive Officer and Director of Apple Inc. in August 24, 2011. He started in March 1998 as Senior Vice President for Worldwide Operations, Sales, Service and Support until 2002. In October 2005, he became the Chief Operating Officer. Before that, he was Executive Vice President of Worldwide Sales and Operations. He also was the Director of NIKE, Inc. and The National Football Foundation & College Hall of Fame, Inc. Mr. Cooks served as Vice President of Corporate Materials at Compaq Computer Corporation (‘Compaq’) from 1997 to 1998 and as Chief Operating Officer of the Reseller Division of Intelligent Electronics. And his 12 years with IBM’s Personal Computer Company in North and Latin America, working as Director of North American Fulfillment.

Mr. Cook was a Fuqua Scholar when he studied with Duke University for his MBA. And he graduated from Auburn University with a Bachelor of science degree in Industrial Engineering.

AAPL 3

Mr. Luca Maestri was Chief Financial Officer, Senior Vice President, and Principal Accounting Officer of Apple. He was appointed and served these positions basing on his more than 25 years of dedicated work experience in finance globally. He had a bachelor’s degree in Economics from Luiss University in Rome and a master’s degree in Science of Management from Boston University. Mr. Maestri has worked and lived in foreign places with excellent achievements internationally.

In March 2013, he joined Apple where he works with senior management for its financial role. Before this, he started his finance and working experience with General Motors for 20 years with important positions in expanding its business. He was also Chief Financial Officer of Nokia Siemens Networks and Xerox.

Apple Value Investing

Balance Sheet

Liquidity

The Current ratio declined in 2014 so as quick ratio. Cash and cash equivalent and short-term investment declined 38 percent while current liabilities increased 45 percent. Apple has short and long-term debt in 2013 and 2014 less than its net income and depreciation & amortization. Debt to equity ratio increased in 2014.

AAPL liquidity was good in 2010 to 2013 except in 2014. They introduced iPad air in its fifth generation with retina display and the launching of iPhone 6 and  6 Plus, iOS 8, Apple pay and Apple watch. They also had various business acquisitions like Beats Music, LLC., and Beats Electronics, LLC.  Latest quarter current and quick ratio increase 1.47 and 1.18.

In 2014 they issued $12.0B of long-term debt with varying maturities through 2044 and launched a commercial paper program, with $6.3B outstanding as of September 27, 2014. Debt to equity ratio increased and reduced solvency ratio.

Efficiency Ratio

Cash conversion cycle (CCC) shows longer time in paying their obligations to creditors than days sales outstanding and days inventory. In 2014 payable period increased 15 percent or more than 85 days for payables to be paid. Day sales outstanding increased by 19 percent or 31 days before it is sold or paid, and days inventory increased by 44 percent or 6 days before inventory is sold.

They have a low receivable turnover. AAPL has a problem in extending credit or collecting debts. Inventory turnover is high showing fast inventory sold and replaced.

Fixed asset turnover declined from 2011 meaning net sales is lower as a percentage of fixed asset investment. Apple was not as efficient in generating sales from their assets as the company asset grew.

Apple has a negative cash conversion cycle with high payable period. They are having problems in paying their creditors and suppliers.

Apple Income Statement

Profitability

In 2013, Apple declined in gross and net margins at the peak of the successful introduction of the fourth generation of iPad and iPad and iPad mini, a new MacBook Pro with Retina display, a new iPod touch, a new iMac, and expanded of iPhone 5 is dismay in expectation. The 11 percent declined in operating income and increased in other income of 148 percent and interest expense resulted to decrease net margin.

Dupont Analysis (Expanded Five Step Method)

Return on equity using the DuPont Analysis is computed by breaking down the following into five measures. First is the pre-interest pretax margin declines down in 2013 and 2014 because of operating income and expenses. Second, asset turnover increases 0.93 times in 2014 more than in recent years. The low turnover resulted in not investing in their asset. Third, the interest burden of long-term debt incurred in 2013 and 2014. Managing efficiently to maintain their tax efficiency as the fourth step. And the fifth step is equity multiplier increases in 2014 to 3.52 to increase in asset and decrease in equity. Thus, multiplying the results of the five steps will get the return on equity.

The bulk of the five parts of return on equity (ROE) comes from either net profit margin before its interest burden and tax efficiency, asset turnover and leverage. The case of AAPL  a return on equity coming from their sales in operations except in 2014. Increased in ROE comes from high leverage or an equity multiplier of 3.52, resulting to a high ROE of 68.4 percent.

Cash Flow Statement

Cash Flow Analysis

Net cash provided by operation has a growth of 102, 36, 6 and 11 percent. In 2013 operation decreases for net income and depreciation & amortization and abrupt increase in other working capital. Net cash used for investing show declined in 2013 and 2014 because of investment in plant, property & equipment, purchases in investments, sales/maturities in investments, and purchases of intangibles. Net cash in financing was provided by in 2010 and 2011 from common stock issued and other financing activities. And it was used for 2012 to 2014 common stock repurchases, the dividend paid and other financing activities despite common stock issued and debt issued. Thus, resulted in a net change in cash trending up in 2013 but declined down in 2014.

AAPL five-year operation shows that net cash was used heavily in investments in 2011 and 2012. Their effort garnered net cash from operations in 2012, 2013 and 2014 but in 2013 and 2014 they need to increase net cash through debt issued for common stocks was no longer enough to increase in dividend payments and common stock repurchase.

Margins

Cash flow margin declines in 2012 because of an abrupt, increase in operating cash flow and net sales. Free cash flow margin peak in 2010, but abruptly decreased in 2011, an increase in free cash flow over operating cash flow. Free cash flow remains sufficient despite growth in 2013 and 2014 of 8 and 12 percent.

AAPL has good margins in cash flow and free cash flow.

Apple Investment Valuation

Totem Method

The Totem method uses the financial calculator to compute the target price.

Apple has a 28 percent growth based on its present book value per share of $1.28 and future value of $19.02. It has a return on equity of 31.7  percent and their 5 years P/E ratio is 15.2. The return on the book in 5 years is $20.56 and the price in 5 years will be $312.51. The present value of the stock is $135.11 and as computed it resulted to after margin of safety (MOS) of $81.06. They have a dividend yield of 1.73 percent, thus the total value of dividend of $12.57. Adding the two values, price after MOS and the total value of dividend resulted in $93.64 as the target price or total value of the enterprise.

The current market price as of November 7, 2014, is $109.01 per share, more than the computed target price or the total value of $93.64. Indeed, an overvalued company and the current market price increase daily because of the coming Christmas season.

Conclusions

The following research on Apple Inc., shows both financial operations, management, and business strategies surpass immediate problems with their cash account. The products and services offered is the number one in the A & B markets categories are expensive. The reason sales growth was 9 and 7 percent in 2013 and 2014 despite the successful launching of their newest products in the market.

Apple is a good company to invest in. The management shows a strong personality to overcome today concerns. The current market price of $109.10 as of 11/7/2014 is valued more than the target price of $93.64. The company would merit a buy, but for now, will hold on until the target price achieves better profit.

Proper Citations:

Apple Inc. http://en.wikipedia.org/wiki/Apple_Inc.

Company background http://google.brand.edgar-online.com/DisplayFiling.aspx?TabIndex=2&FilingID=10264100&companyid=2035&ppu=%252fdefault.aspx%253fsym%253dAAPL

Business Organization http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10255004-19999-22848&type=sect&TabIndex=2&companyid=2035&ppu=%252fdefault.aspx%253fsym%253dAAPL

Timothy D. Cooks http://www.reuters.com/finance/stocks/officerProfile?symbol=AAPL.O&officerId=2486890

Luca Maestri http://www.reuters.com/finance/stocks/officerProfile?symbol=AAPL.O&officerId=88090

Financials https://www.google.com/finance?q=NASDAQ%3AAAPL&ei=fCxQVIjzOsKwkQXa7YHIDQ

Key ratios http://financials.morningstar.com/ratios/r.html?t=AAPL&region=usa&culture=en-US

Financials http://financials.morningstar.com/income-statement/is.html?t=AAPL&region=usa&culture=en-US

Valuation http://financials.morningstar.com/valuation/price-ratio.html?t=AAPL&region=usa&culture=en-US

Researched and Written by: Nellyt

Alibaba Has Great Margins but Slow Pay Master

October 16th, 2014 Posted by Company Research Report, Uncategorized No Comment yet

 BABA-7.png (299×87)

Company Research

About the Company

Alibaba Group Holding Limited (BABA) is an online and mobile commerce company. They were incorporated on June 28, 1999 through 18 people under the leadership of Jack Ma from Hangzhou, China. Alibaba works in wholesale and retail online marketplaces together with the its related companies. They also offer advertising and marketing services and other services such as electronic payment, cloud-based computing and network services and mobile solutions.

How does the company make money? 

Alibaba’s main source of revenue is the three retail marketplaces; one wholesale and two international. They offer a platform for third parties to provide technology infrastructure and marketing online for cloud computing services and internet infrastructure services. Cloud Computing intends to support its commerce ecosystem through providing distributed computing infrastructure in handling large volume of data and traffic generated by the company’s online marketplaces.

Do you know that Alibaba also provides payment and escrow services? Yes. They have contractual arrangement wherein third party receives and disburses money or documents for any transactions made in Alipay. As an e-commerce company, they have Taobao Markeplace, Tmall and Juhuasuan where people can buy stuffs online. In addition to its three online marketplace, Alibaba also have 1688.com, AliExpress.

Moreover, they also have small and medium enterprise (SME) loan business. The company provides micro loans to vendors on its wholesale and retail marketplaces.

As operators of their “ecosystem” as a platform for third parties, they generate revenues from China and international commerce retail and wholesale, cloud computing and internet infrastructure and others through online marketing services and commissions. Online marketing services includes  P4P marketing fees, Display marketing fees, Taobaoke commissions, Storefront fees, Commissions on transactions, Placement fees and Fees from Memberships and Value-added Services. Alibaba does not stop there and continue expanding their ecosystem to maintain the health and sustainability of its marketplaces. That is why they are the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013 of 529 in billions of Renminbi (RNB). Also, their three China retail marketplaces, generated a combined GMV of RMB1,833 billion (US$296 billion) from 279 million active buyers and 8.5 million active sellers in the twelve months ended June 30, 2014.

BABA competes with Tencent and Baidu. Tencent and Baidu has market capitalization in USD of 135.50B and 74.34B compared to BABA’s 216.37B.

Who is running the business and what is their background?

BABA 8

First off is Mr. Jack Ma, the Lead Founder and Executive Chairman of Alibaba Group Holding Limited. In 1999, he was the Group Chairman and Chief Executive Officer (CEO) with the overall responsibility for strategy and focus. Later in 2013, he stepped down as CEO to concentrate on the Group’s business strategy and development. He is a board of director of SoftBank Corporation and Huayi Brothers Media Corporation. He is also served as chairman of The Nature Conservancy’s China board of directors. Mr. Ma graduated in Hangzhou Teacher’s Institute with a bachelor’s degree in English.

Next is Mr. Jin Jianhang who serves as the President of Alibaba Group Holding Ltd since August 2014. He is a member of Alibaba’s founding team and served as senior vice president of corporate affairs from September 2009 to July 2014. As a founding member, he had served management roles like heading the marketing and website operations functions for one of their marketplaces. From 2008 to 2009 he was the general manager of China Yahoo! (later Yahoo! Koubei). He was the vice president of human resources and CEO office from 2006 to 2007.  He received a bachelor’s degree in journalism from Fudan University.

BABA 9a

Ms. Maggie Wu is the Chief Financial Officer for Alibaba Group Holding Limited since e May 10, 2013. She is in-charge for the company’s overall financial management like operations finance, reporting, internal control, tax and treasury as well as corporate finance and audit. She first joined Alibaba in July 2007 as chief financial officer of Alibaba.com. In mid 2012, she co-lead the privatization of Alibaba. After that, she served as deputy chief financial officer of Alibaba Group where she is responsible in overseeing key aspects of the company’s finance organization. Prior to Alibaba, she was an audit partner for 15 years at KPMG in Beijing. She is a member of the Association of Chartered Certified Accountants (ACCA) and a member of the Chinese Institute of Certified Public Accountants. Ms. Wu has a bachelor’s degree in accounting from Capital University of Economics and Business.

Value Investing

Balance Sheet

This focus on the asset, liability, and equity ending balances account of the Company BABA.

Alibaba 1

BABA’s current ratio are stable with the exception of 2012 when it peak at 2.37. Their quick ratio also trend up in 2012 at 1.9 but it retracted lower than previous years. Their total current asset growth has increases of 19, 111, 55 and 57 percent. This shows an increased in 2012 current asset, thus this accounts for the increased in its current ratio. Their total current liabilities have growth of 9, 69, 104 and 56 percent. It is noted that current ratio decreases in 2013 because of the sudden increase in their current liabilities. Summing it up, BABA has enough current asset and cash to pay off its current liabilities.

Their solvency ratios have increased in 2012 and have been recovering from a low of .34 in 2013. It drastically increased in 2012 of 431 percent because of the sudden trend up in net income from continuing operations. In 2013 the decrease was due to the increase in their total short and long term debts. In 2014, BABA’s solvency ratio increases 79.4 percent, because net income increased 171 percent despite the increase in total debts of 47 percent.

Debt to equity ratio was relative low for the pass three consecutive years of not more than 17 percent.  Starting in 2013 the company has been increasingly relying on debt of 2075 percent growth and a negative stockholders’ equity of -24 million Renminbi. In 2014 debt to equity ratio increased abruptly to a high of 140 percent for total debt growth of 47 percent.

BABA as seen in their balance sheet current and quick ratios means good liquidity, they can pay off current obligations as it becomes payable. Analysing behind the scene a question comes to mind why the sudden gaps in amounts from 2011 to 2012. The statements depicted a change in business strategy. Is this in preparation for their launching in New York Stock Exchange for their initial public offering or are they massively expanding into buying companies? The fact shows heavy increases in their total debts from 2011 to 2014. This means borrowing as they run out of money to the extent of depleting their stockholders’ equity in 2013 as reflected in their debt to equity ratio. Despite increases in total debts they still are solvent for the mere fact that net income from continuing operations jump up higher that previous years.

Efficiency Ratio

Is BABA efficient in its operations?

Alibaba 2

BABA has declining day sale outstanding. It takes increasing days from 121 to 261days to collect its accounts receivable. Their payable period has a growth rate of -40, 1433, -3.3 and 18 percent from 2010 to 2014. This shows a drastic increase in 2012, telling us that it takes more than three months for BABA to pay its invoices from trade creditors and suppliers compared to its previous years of only 8 days. Their cash conversion cycle has a growth rate of 7, 3, 84, and 9 percent. This is the total number of days it takes for their products and services to turn to cash. As seen in 2013 the increase in days account for the increased in receivable and payable turnover.

Their fixed assets and assets turnover has been increasing year after years except for a slight dip in 2012. It shows that they have been more effective in using their investment in fixed assets to generate revenues so as with their assets. This measures  BABA’s ability to generate net sales from fixed-asset investments, specifically property, plant and equipment (PP&E). This accounts for the increase in their sales revenue, for lower profit margins tends to have high asset turnover due mainly to cutthroat and competitive pricing.

Income Statement

Alibaba 3

Gross margin is 83.2, 80.4, 67.3, 71.8 and 74.5 with TTM of 73.5 from 2010 to 2014. This represents the percent of total sales revenue that the company retains after incurring the direct costs sold by BABA. Growth ratio trend of -3.5, -16, 6.7, and 3.7 percent.  And net margin is 26.44, 26.69, 21.11, 24.35, and 43.95 with TTM of 53.98. It is growing at 0.95, -21, 15, and 80 with TTM of 54 percent.

BABA gross margin increases only 3.7 percent in 2013, compared to 2012 of 6.7 percent. The higher the percentage, the more the company retains on each dollar of sales to service its other costs and obligations. Their net margin shot up from 2011 decrease to 80 percent growth in 2013.

Dupont Analysis

In Totem we are using the expanded five-step model of DuPont analysis. This provides us with insights as to what is driving a company’s return on equity.

The extended five-step DuPont Model breaks return on equity down into five components: pre-interest pretax profit margin, asset turnover, interest burden, tax efficiency and leverage ratio. Their pre-interest pretax margin keeps going up except for 2012.  The decline was the effect of the increased in earnings before interest and taxes (EBIT) of 176 and sales revenue of 212 percent. Succeeding years increase because of lesser growth in sales revenue compared to growth in EBIT. Their asset turnover increases with a dent in 2011 of 0.21. This means they are using their assets to generate sales revenue. The decreased account for the sudden increased in assets and sales revenue growth. Its interest burden started in 2012, showing their borrowings through long term debts with interest expenses to be paid. Their tax efficiency depicted within the level of 83 to 86 with a declined in 2011 of 76 percent. This means taxes went down slightly as compared to 2011. Its equity multiplier has been changing year after year. This depicted an increased in their financial leverage.

BABA’s return on equity breaks down the net profit margin into its pre-interest pretax profit margin. This is to assess the impact of their interest expense associated with increased leverage and its tax burden. In this capacity the increased of EBIT account for their increased in total operating expenses especially its selling, general and administrative (SGA) due to their expansion in buying companies like Shenzhen One-Touch, investments in technology to improve their ecosystem and privatization of Alibaba.com. In 2014 SGA expenses has an equity-settled donation expense of RMB1,269 million or US$205 million relating to the grant of options to purchase 50,000,000 of our ordinary shares to a non-profit organization designated by Jack Ma and Joe Tsai.They have lower net profit margin as compared to asset turnover except in 2011 and this cause the increase of return on equity (ROE) in 2014. Aside from this, increase in equity multiplier also account for high ROE. So, BABA is highly leveraged and it would be risky for default.

Cash Flow Statement

This captures both the current operating results and the accompanying changes in the balance sheet.

Net cash provided by operating activities had been consistently increasing. BABA adjusted net income and this represents net income (loss) before share-based compensation expense, amortization, impairment of goodwill, intangible assets and investments, gain (loss) on deemed disposals/disposals/revaluation of investments, and one-time expense items consisting of the Yahoo TIPLA amendment payment and an equity-settled donation expense.

Their net cash used for investing activities increased in prior years with abruptly increase much more in 2014 but in 2013 it declined down 545 million RMB. BABA had used their cash on investments in PPE, purchases of investment, and purchases of intangibles. The decreased was from cash provided from properties, plant and equipment reduction, net of acquisitions and other investing charges.

And net cash provided by financing uplifted years 2010, 2012 and 2014 from short term borrowing, long term debt issued, and in 2013 issuance of common and preferred stocks. They used cash for financing activities in their long term debt repayment, redemption of preferred stocks in 2014, treasury stocks repurchase, cash dividend payments in 2013 and 2014 and other financing activities. Thus, this resulted a declined in 2011 and 2013.

BABA is globally inclined in sales revenues and this effect of exchange rate from Chinese Yuan Renminbi (CNY) in millions to US Dollars and other currencies. Their Alibaba.com, AliExpress and AliPay are receiving payments in different currencies so, this accounts for the changes. Net change in cash had decrease in 2010 of -112, but it increases back until a sudden declined in 2014 of -80 percent.

BABA adjusted EBITDA, adjusted net income and free cash flow, each a non-GAAP financial measure, in evaluating their operating results and for financial and operational decision-making purposes. Therefore, their operation cash flow from nothing in 2010 has improved 325 percent in 2011. This drastically change their operations, likes the introduction of Logistics Warehouse and Shipping and Logistics Management Services on AliExpress, unveils Mobile Cloud Operating System, agreement with Alibaba Group, Yahoo!, and SoftBank  on Alipay and 38 new leading Chinese B2C Sites in Taobao Mall. And in 2012 the talks of privatization of Alibaba, repurchase and restructure of Yahoo!, and launches Yu Le Bao Platform and Tmall global so as US based investments as among what has been happening to BABA. Their cash had been finance by short term borrowings and long term debts so as issuance of common and preferred stocks for them to expand their operations, purchases of investments, intangibles and properties, plant and equipment. To the extent the decrease in 2013 total stockholders’ equity was primarily due to the repurchase of their ordinary shares from Yahoo in September 2012 and the privatization of Alibaba.com partially offset by the issuance of ordinary shares to finance the repurchase.

alibaba 5

Cash flow margin has reached the peak at 69 and dip in 2013. Net cash flow from operations has increased drastically in 2012 of 325 compares to net sales growth of only 161 percent. And declined in 2013 is just the opposite meaning more increased in net sales and lesser cash flow from operation. This is how efficient BABA converts its sales revenue to cash for expenses and purchases of assets and investments.

Free cash flow margin high at 92, decreased in 2012 and subsequent steady at 83 and 82. The decrease in 2012 account for the increase in net cash provided by operating activities less the capital expenditure of purchases of property and equipment, excluding acquisition of land use rights for, and construction of, their office campuses in China and intangible assets, adjusted for changes in loan receivables.

BABA’s cash flow margin has higher percentage or it is more than 50 percent. This means they have more cash available from the sales, so as its free cash flow ratios. The more free cash flows embedded in the operating cash flows the better it is. It is a very good indicator of financial health of a company.

Totem’s Method

Totem  method adopt the investment style which is applicable to the company. One valuation style is that seeks out undervalued companies whose stock price are temporary down, but whose fundamentals are sound in the long run. The financial calculator is our main instrument in computing the equity selection. This is to know whether BABA is under or overvalued.

BABA has a growth rate of 22 percent as computed base from present book value of 1.14 and future value of -3.78 from 2010 to 2014 and TTM. This resulted to a book value in 5 years of $10.26. Its average return on equity is 37.33 percent, the return on book in 5 years is $3.83 and the price in 5 years will be $172.43. Using the industry P/E ratio of 45 than its current P/E ratio of 53.2 which is more conservative will get the present value of the stock of $74.55 and after margin of safety or total value of appreciation of $44.73. Their current market price as of October 13, 2014 is 85.12.

Since their official initial public offering in New York Stock Exchange, BABA has a stock price or current market price that reached a high of $93.89 in September 19, 2014. But stock price had decreased down in September 23, 25 and October 1 of $87.17, 88.92, and 86.10. And today October 13, 2014 it is $85.12 which is 47.4 percent more than its total value of appreciation. This shows that stock price is overvalued.

Relative Valuation

This is a comparative study on their book value, earnings, price to earnings and returns to help in the valuation of company BABA. These are methods for comparison, in valuing of a company. One is the book value per share with abrupt increase in 2012, downslide to -0.01 in 2013 and reverted back in 2014. This is the effect of their over expansion and buying of companies to the extent of having no equity and increased long term debts to finance its investments. Its price to earnings (P/E) ratio current is 53.2 compared to industry P/E of 45 which Totem used to have a conservative computation for BABA’s TTM P/E ratio is only 39.24. This is an important equity valuation multiple helping as defined the market price per share over its annual earnings per share. Their earnings per share are 0.29, 0.34, 1.69, 3.89 and 9.9 with TTM of 0.34 from 2010 to 2014. It is the monetary value of earnings per each outstanding share of BABA’s common stock. This increased for their net income from continuing operations increased abruptly especially from 2012 to 2014 due to change in their business strategy uplifting their online marketing services and others. So, as their return on equity declined in 2012 and abruptly increased in 2013 and 2014.

BABA’s book value was $3.09 which increased after a week from its initial public offering in NYSE to $3.78 per share. Earnings per share in 2014 show a $9.90 or 10 per share from only 0.29 in 2010. This is a very massive increase per share, due to the successful launching which was unmatched and exceed their expectations. Their return on equity (ROE) increased shows how well BABA uses its investment funds to generate earnings growth.

Conclusion

Totem’s basis of valuation is the company’s five years financial records wherein BABA’s has limited results of their financial performance trailing with progress. The fact that the company is overvalued at $85.12 per share as of October 13, 2014 and total value as compute is only $44.73. This would merit a buy when the share goes undervalued or risk it since to date market price still went down to $84.95.

As all knows, BABA is one of the best-positioned companies within the global internet services space, both inside China and around the globe. Their shares have climbed by 25% since its initial public offering last month. BABA’s growth is higher than that of the rest of the industry and it seems impressive and sustainable.

CITATIONS

https://www.google.com/finance?q=NYSE%3ABABA&ei=WXEdVIihAoatkgXYvoHYBQ

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

http://www.alibabagroup.com/en/about/history

http://google.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=10205127-920-1972851&type=sect&TabIndex=2&companyid=934140&ppu=%252fdefault.aspx%253fcompanyid%253d934140

http://financials.morningstar.com/ratios/r.html?t=BABA&region=usa&culture=en-US

Researched and Written by: Nellyt

We Think Facebook is Worth $94

September 15th, 2014 Posted by Company Research Report No Comment yet

Facebook, Inc (FB) is an American online social media and social networking service company. It is based in Menlo Park, California. It was founded by Mark Zuckerberg, along with fellow Harvard College students and roommates Eduardo SaverinAndrew McCollumDustin Moskovitz, and Chris Hughes

Company Research  

Facebook Inc.

Nature of Business  

Mark Zuckerberg founded Facebook Inc., while he was studying psychology at Harvard University. He was a keen computer programmer who had developed a number of social-networking websites such as “Coursematch” and “Facemash.”

In February 2004 Mr. Zuckerberg launched “The Facebook” or Facebook, Inc., it engaged in building products to create a utility for users, developers, and advertisers. People use Facebook to stay connected with their friends and family, to discover what is going on in the world around them, and to share and express what matters to them to the people they care about.

Developers use the Facebook Platform to build applications and Websites that integrate with Facebook to reach its global network of users and to build personalized and social products.   The site’s features have continued to develop during 2007. Users can now give gifts to friends, post free classified advertisements and even develop their own applications – graffiti and Scrabble are particularly popular. Currently, the company continues to grow and give people the power to share and make the world more open and connected.

How do they make money? 

Facebook Inc., generate substantially all of their revenue from advertising and from fees associated with their payments infrastructure that enables users to purchase virtual and digital goods from its company’s developers with applications on the Facebook website.

Advertising revenue is generated by displaying ad products on Facebook properties, including company’s mobile applications and third-party affiliated websites or mobile applications. Marketers pay for ad products either directly or through their relationships with advertising agencies, based on the number of clicks made by users, the number of actions taken by users, or the number of impressions delivered.

Facebook, recognize revenue from the delivery of click-based ads in the period in which a user clicks on the content and action-based ads in the period in which a user takes the action the marketer contracted. They recognize revenue from the display of impression-based ads in the contracted period in which the impressions are delivered. Impressions are considered delivered when an ad is displayed to users.

FB also generates its income from payment and other fees from its users when they purchase virtual and digital goods from its developers with an application on the company’s websites.  Users can transact and make payments on the Facebook website by using debit and credit cards, PayPal, mobile phone payments, gift cards or other methods. The company will then receive a fee from developers when users make purchases in these applications using its Payments infrastructure.

FB recognizes revenue, net of amounts remitted to their developers. They have mandated the use of their payments infrastructure for game applications on Facebook, and fees related to payments are generated almost exclusively from games. Facebook, Inc other fee revenue, which has not been significant in recent periods, consists primarily of user-paid services and its ad serving and measurement products.

Who is running the business and what is their background?

Facebook Inc.

Mr. Mark Zuckerberg is the Founder of Facebook, Inc., and has been its Chief Executive Officer since July 2004. He is responsible for setting the overall direction and product strategy of Facebook. He leads the design of Facebook’s service and development of its core technology and infrastructure. Mr. Zuckerberg has been the Chairman and Director of Facebook Inc., since January 2012 and July 2004 respectively. He serves as a Member of the Investment Committee at FB Fund, L.P. Mr. Zuckerberg attended Harvard University, where he studied computer science.

Facebook Inc.

Mr. David M. Wernher serves as Chief Financial Officer, Vice President – Corporate Finance and Business Planning of Facebook Inc, effective June 1, 2014. Mr. Wehner has served as Facebook’s Vice President, Corporate Finance, and Business Planning since November 2012. From August 2010 through November 2012, He also serves as Chief Financial Officer of Zynga Inc. From February 2001 to July 2010, Mr. Wehner was employed at Allen & Company, an investment bank focused on media and technology where he served as a Managing Director from November 2006 to July 2010, and a director from December 2005 to November 2006.  He also served as an Analyst at JP Morgan Chase & Co, Research Division.

In his career, he worked as a Consultant with the global strategy consulting firm Monitor Company, where he advised clients in a range of industries both in the United States and Asia. Mr. Wehner joined the New York investment banking firm Allen & Company, LLC in 2001, where his responsibilities include principal investing, corporate finance and mergers & acquisitions advisory.  Mr. Wehner holds a B.S. in Chemistry from Georgetown University, and an M.S. in Applied Physics from Stanford University, where he was a National Science Foundation fellow.  

Do you trust these people and are they competent? 

Facebook Inc., hires and retain people who can contribute to developing its strategy, quickly innovate and build new products. CEO and CFO of the company are highly talented and able to show its competency, as well as demonstrated strong leadership. Therefore, my confidence and trust are absolutely positive as they both shows good management capabilities.

Value Investing

If you want to invest in a company, you need to know not only the nature of business, background and the people behind the success of the firm but most of all to know the financial standing of the company. And this could be found on the balance sheet, income statement and cash flow statement for the given period.

Balance Sheet

Financial Liquidity

Shown in the table below would determine how liquid the company Facebook is through calculations of data from 2010 to 2013.

Facebook inc.

Current ratio average in the past four years from 2010 to 2013 was 8.37, with the latest quarter of 12.81 times. This is the very high current ratio, while the quick ratio average was also 8.06 and the latest quarter was 12.48, which means the company has very high current resources. Looking at its details, cash is the number one contributor of this very high current ratio and quick ratio, which is 60, 62, 64 and 64 percent of total assets.

Their debt to equity ratio is minimal at an average of 0.13 while the solvency ratio is 86 percent average.

By looking at the above data, Facebook is financially healthy and stable. They are very liquid with high current resources. Their debt to equity is only 13 percent and the solvency ratio of 86 percent so above the general rule of thumb which is 20 percent.

Efficiency

The table below is the efficiency ratios of Facebook Inc., wherein it is used to analyze how well a company uses its assets and liabilities internally. Efficiency ratios can calculate the turnover of receivables, the repayment of liabilities, the quantity and usage of equity and the general use of inventory and machinery.

Facebook Inc.

Accounts receivable turnover can be used to determine whether the company is having trouble collecting on sales where they provide customers on credit. Facebook Inc., shows an increasing trend from 2010 to 2013 with TTM of 10.19 times which is a good sign. Converting this into Days sales outstanding which are computed as 365 days over accounts receivable turnover. The result is amazing with the declining trend from 69 days to 42 days and TTM of 36 days.

Days payable or payables period shows likewise a declining trend with TTM of 19 days. This means Facebook pays their payables in the short term within 22 to 15 days.

Fixed asset turnover measures the company’s effectiveness in generating sales from its investments in plant, property, and equipment. It has an up and down trend with a TTM of 3.39 times or 108 days.

Asset turnover measures the ability of a company to use its assets to efficiently generate sales. Facebook asset turnover has been slightly up in 2011 and down in 2012 and 2013 with a TTM of 0.55 times or 664 days. This means they don’t usually generate sales from their total asset.

Their cash conversion cycle (CCC) measures how long they will be deprived of cash if it increases its investment in resources in order to expand customer sales. This show that Facebook has a declining cash conversion cycle from 2010 to 2013 with a TTM of 16.8 days.

Efficiency ratios are important because an improvement in the ratios usually translates to improved profitability. Knowing its cash conversion cycle so they can utilize well their cash from sales more efficiently in more investments as well as its asset base – efficiently to generate sales and that is a very good thing.

Income Statement

Revenue is the amount of money that is brought into a company by its business activity. It is the “top line” or “gross income” figure from which costs are subtracted to determine net income.

The table below shows the detailed income of Facebook from 2010 to 2013 and the latest five quarters:

Facebook Inc.

Facebook Inc.

As observed in the above table the trend of revenue and gross income per annual data was yearly increasing which means it is getting higher and higher year after year. While the operation and net income of Facebook have a similar trend which declined in 2012 by 69 and 95 percent respectively.

Meanwhile, quarterly data shows that revenue, gross profit, and operating income were consistently going up in the first three-quarters, but slightly down in quarter 2014-03 however, it recovered in the quarter ending June 2014. Net income shows getting higher and higher every quarter.

Margin

It refers to the percentage results of gross income, operating income and net income over total revenue.

Facebook Inc.

Annual data showed that Facebook Inc., average gross margin was 77 percent, operating margin 37 percent and net margin was 19 percent. However, quarterly data shows the net margin of the company was getting higher and higher every quarter from 2013-06 to 2014-06 with the following percentage:  18, 21, 20, 26 and 27.  This means a good profitability for the company recovering after the 2012 crisis.

Dupont Analysis

It is an expression which breaks return on equity (ROE) into three parts. And this tells us how much profit the company generated for each dollar of total assets. Return on equity using the DuPont Method as computed by a Net profit margin x Asset turnover x Equity multiplier.

Facebook Inc., has the following data in TTM: Net profit margin = 24; Asset turnover = 0.55 and Equity multiplier = 1.13. Therefore, ROE equals 15 percent; which Facebook Inc., could return such profit for every dollar of equity. This is the portion of the return on equity earned on the debt at work in the business.

Cash Flow Statement

FB cash flow data from 2010 to 2013 are shown per the table below:

Facebook Inc.

Operating activities are transactions which include the cash inflows associated with sales interest and dividend revenues and cash outflows associated with operating expenses, interest and taxes. FB’s operating cash flow from 2010 to 2013 was positive and increasing yearly. It shows that the company is doing good and continue progressing. It has an average of $2,578M.

The company’s investing cash flow shows a negative balance from 2010 to 2013, with an average of $-3,418M. It indicates that cash outflows are greater than inflows on this category. The company was expanding through the purchase of investments yearly.

And financing cash flow, the balance were positive except in 2012 which is -667. Through looking back at its details the company retired the debt of $1,891M in 2012, so cash outflow exceeds cash inflow.

Free Cash flow

It is the cash left over after deducting capital expenditures from the operating cash flow.

The table below shows the free cash flow balance of Facebook from 2010 to 2013.

FB 9

FB’s free cash flow shows a positive balance, with an average of 1,559 and trailing twelve months of $3,208 from 2010 to 2013 operation.  It shows that the company is capable of expanding its business wider.

Valuation

In this investment valuation, the company’s historical financial records such as the balance sheet, income statement and cash flow statement are our basis aside from the key ratios. It is Totem’s philosophy to buy wisely when prices are down and to sell when prices rise a great deal. And doing this valuation is the heart of any investment decision.

Totem Investment uses this method. The financial calculator is our main instrument in computing the equity selection. The result data as seen below:

Growth    47%

Yield        0 %

Value of Appreciation                $   94.29

Value of Dividend                                 0

Total Value                                 $  94.29

Price investor is willing to pay    $363.52

Facebook Inc., has a company growth of 47% as a computed base from their book value. They had an average P/E ratio of 50 and a dividend yield of 0%. In computing the value appreciation it is the average ROE with the return of book value, price, and the average P/E all in 5 years. Therefore, the result of the present value after the margin of safety of 40% equals $94.29. And the value dividend is $0 resulted from dividend divided by interest rate of 15%, which is constant.So, the total of the two value appreciation and value dividend equals $94.29 as their total value. Comparing the total value of $94.29 with the current price per share of $77.43 dated September 10, 2014. This means the company stock is trading at an undervalued price of 17.9%. But the price investor is willing to pay amounting $363.52 as computed by multiplying historical P/E with expected earnings for five years.

Aside from these let us compare market values of the stock with the fundamentals, their earnings, book value, growth multiples and other metrics as shown in the table below:

FB 10

The book value per share showed an increasing trend of 129, 396, and 507 percent from 2009 to 2013 with TTM of $7.06 and an average of $3.58 per share. This is used to calculate the per share value of a company based on its equity available to common shareholders and just one of the methods for comparison in valuing of a company.

Its historical price to earnings has trended up and down ratio of 1666.7and 92.6 percent from 2012 to 2013 with TTM of 84 and an average of 879. P/E ratio is an equity valuation multiple. It is defined as market price per share divided by annual earnings per share.

Earnings per share have a growth ratio of – 0.98 and 0.59 with an average of 0.35 and TTM of 0.92 per share. It is the monetary value of earnings per each outstanding share of a company’s common stock.

Their return on equity (ROE) showed an up and down trend of -0.05, -0.98, and 2638 percent with an average of $14.75 and TTM of 15.44. ROE measures the rate of return on the ownership interest (shareholders’ equity) of the common stock owners. It is a gauge of a firm’s efficiency at generating profits from every unit of shareholders’ equity (also known as net assets or assets minus liabilities). This shows how well a company uses investment funds to generate earnings growth. ROE’s between 15% and 20% are generally considered good.

Conclusion

Totem Investment is looking for companies with a strong balance sheet or those with little debt, above average profit margin and ample of cash flow. So, as undervalued whose stock price is temporarily down, but whose fundamentals are sound in the long run.Facebook Inc., passed these criteria. Current market price is down at $77.48 per share dated September 12, 2014. So, compared to its total value of $94.29,  the company is undervalued and still merits a buy.

CITATIONS:

https://www.google.com/finance?q=FB&ei=OMv2U7DyKO_SigL7w4HACw  

http://www.reuters.com/finance/stocks/officerProfile?symbol=FB.O&officerId=2502019  

http://www.sec.gov/Archives/edgar/data/1326801/000132680114000032/fb-6302014x10q.htm   

Researched and Written by Nelly, Rio, and Meriam

Edited by Cris

King Digital has Successful Games with Doubts of Future

August 13th, 2014 Posted by Company Research Report No Comment yet

King

Company Research on King

King founded by Riccardo Zacconi and Melvyn Morris and incorporated on July 3, 2013. KING is an interactive entertainment company that makes games like Candy Crush Saga, Pet Rescue Saga, Farm Heroes Saga, Papa Pear Saga, and Bubble Witch Saga. The company designs digital games with puzzle element on mobile devices including tablets and mobile phones. Users access its games for free anywhere and anytime on king.com

In addition, King launches new game IPs on royalgames.com, for feedback from its core user base of VIP customers. The Company then identifies the games based on deep performance analytics and historical experience, then enhances them with additional features and capabilities in its Saga format before releasing them on Apple App Store, the Google Play Store, the Amazon App Store, and Facebook.

How does the company make money?

King Digital Entertainment offers its products and services to customers around the world, the operators in developing and monetizing casual online and mobile games. As of December 31, 2013, an average of 128 million DAUs played its games more than 1.2 billion times per day. The massive network 324 million monthly users and track record of long-term retention driven by game longevity and ability to cross-promote new games to its audience.

King2

King designed a technology platform to offer a seamlessly synchronized, cross-platform experience to their audience.

Who is running the business?

CEO

Mr. Riccardo Zacconi is one of the founders and has served on the board of director and as Chief Executive Officer, he has more than 14 years experience in the online and consumer industry. Previously, Mr. Zacconi served as Vice President of European Sales and Marketing at uDate.com Ltd., an online dating service, until it was acquired by InterActive Corporation in 2002. Prior to uDate.com, Mr. Zacconi was an Entrepreneur in Residence at Benchmark Capital Partners, Managing Director at Spray Network GmbH, a Qualified Case Leader at The Boston Consulting Group, Inc., and a consultant at LEK Consulting LLP. Mr. Zacconi holds a B.A. in Economics from LUISS University, Italy. 

CFO

Hope Cochran has served as Chief Financial Officer since October 2013. Ms. Cochran has more than 18 years of senior executive experience at various technology companies. Prior to joining us, Ms. Cochran served in several positions at Clearwire Corporation, most recently as Chief Financial Officer, until it was acquired by Sprint Nextel Corporation in 2013. Prior to Clearwire Corporation, Ms. Cochran served as Chief Financial Officer at Evant Incorporated, as Controller of the Americas – Sales Operations at PeopleSoft, Inc., as a founder and the Chief Financial Officer of SkillsVillage until it was acquired by PeopleSoft, Inc., in 2001, and as an auditor at Deloitte & Touche LLP. Ms. Cochran holds a B.A. in Economics and Music from Stanford University.

Value Investing Guide

Balance Sheet

Financial Liquidity

It is important to be knowledgeable about the financial status of every company we intend to invest in. Shown in the table below, we could determine how liquid the company is through calculations of data from 2012 to 2013 of King Digital.

king liq

Current ratio average for two years is 1.4 which means the current asset is 140 percent of current liabilities while the quick ratio is also 1.4 since the company has no inventory record. Debt to equity ratio and solvency ratio are both 0. Detailed data showed that King Digital is debt free.

Income Statement

This is the statement where we could find the historical earnings, expenses and the margin of the company.  This is also called “ Profit  & Loss Statement”.

Income

Revenue is the amount of money that is brought into a company by its business activity. It is the “top line” or “gross income” figure from which costs are subtracted to determine net income. The table below shows  the  detailed  income of  KING  from  2009 to 2013:

king inc

King started only in 2011, its revenue from 2011 to 2013 was 64, 164 and 1884, increasing year over year. It has a trailing twelve months of 2,285. Gross income has a similar pattern with the revenue, the team of 1569. Operating income was negative 2011 but continue to rise up in the succeeding years, with trailing twelve months of 812. This is the result after deducting total operating expenses from the gross income. Moreover, the company’s net income was also progressing with trailing twelve months of 642 and the average was  304.

Margin

It refers to the percentage result over total revenue.

king marg

The company’s gross margin was 69 percent trailing twelve months and a 66 percent average.  The highest percentage is in 2013 while its lowest is in 2011. The results also showed up and down with a slight difference. The operating margin was 36 percent time and a 35 percent average. And net margin was 28 percent trailing twelve months and average.  It shows here that the company continues to progress year after year since it started in 2011.

Cash Flow Statement

Cash Flow Statement provides information about an entity’s investing and financing activities during the accounting period as well as showing how much cash was generated by the period’s operation. It is categorized into operating, investing and financing:

king cf

Cash Flow From Operating Activities

King’s operating cash flow was continuously increasing from 2011 to 2013. The trailing twelve months was 816 with an average of 378. King’s financing cash flow also consistent negative balance on this category which means they are paying back their debt.

Free Cash Flow

Free cash flow is the amount left after deducting capital expenditures from the company’s operating cash flow.

king fcf

King’s free cash flow was a positive balance. It has an average of 364 and trailing twelve months of 788 from 2011 to 2013 operation.  It shows that the company has excess cash for possible expansion.

Investment Valuation

Enterprise Value

The concept of enterprise value is to calculate what it would cost to purchase an entire business. King enterprise value of 5.450B as of August 13, 2014 (Data derived from multiple sources or calculated by Yahoo! Finance). It measures the value of productive assets; both equity capital (market capitalization) and debt capital.

King’s market capitalization of 5.780B. King’s share outstanding as of today is 317.68M or $17 per share. Since enterprise value is lesser than its market value. It is a company’s theoretical takeover price when the buyer buys all of the stock and pay off existing debt while pocketing any remaining cash. The formula of Enterprise Value = Market Capitalization + Total Debt – (Cash and Cash Equivalent + Short Term Investment) wherein Market Capitalization = Market Price x Number of shares outstanding and Total Debt = Market value of Short Term Debt + Market value of Long Term Debt.

CITATIONS

http://www.sec.gov/Archives/edgar/data/1580732/000119312514113704/d564433df1a.htm https://www.google.com/finance?q=NYSE%3AKING&ei=Hr_qU8D5FoaPigKesoDIDQ http://www.reuters.com/finance/stocks/officerProfile?symbol=KING.K&officerId=2487362 http://finance.yahoo.com/q/ks?s=KING+Key+Statistics

Researched and Written By:  Meriam,, Rio and Nellyt

Re-edited by Criselda

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

Holly Frontier Corporation HFC

Holly Frontier an Independent Petroleum Refiners in The US

March 6th, 2014 Posted by Company Research Report No Comment yet

hfc 0

Holly Frontier Corporation (HollyFrontier), formerly Holly Corporation, is a petroleum refiner, which produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt.  Operates in two segments: Refining and Holly Energy Partners, L.P. The Refining segment includes the operations of its El Dorado, Tulsa, Navajo, Cheyenne and Woods Cross Refineries and NK Asphalt. The HEP segment involves all of the operations of HEP.

As of December 31, 2011, it operated five refineries having a combined crude oil processing capacity of 443,000 barrels per day that serve markets throughout the Mid-Continent, Southwest and Rocky Mountain regions of the United States. The Company merged with Frontier Oil Corporation (Frontier), on July 1, 2011. On November 9, 2011, HEP acquired from the Company certain tankage, loading rack and crude receiving assets located at its El Dorado and Cheyenne Refineries. The Company owns a 39% interest in Holly Energy Partners, L.P. (NYSE: HEP), which includes our 2% general partner interest.

How does the company make money?

HEP owns and operates logistic assets consisting of petroleum product and crude oil pipelines and terminal, tankage and loading rack facilities. Revenues are generated by charging tariffs for transporting petroleum products and crude oil through its pipelines and by charging fees for terminal petroleum products and other hydrocarbons, and storing and providing other services at its storage tanks and terminals.

Who is running the business?

holly frontier corporation

Mr. Michael C. Jennings, also known as Mike, has been the Chief Executive Officer and President of HollyFrontier Corporation since July 2011, also serves as Chief Executive Officer and President at HEP UNEV Pipeline LLC. Mr. Jennings has been the Chairman of the Board at HollyFrontier Corporation since January 1, 2013, He has 18 years of experience in finance and acquisitions with Cameron International Corporation (formerly, Cooper Cameron Corp.), Unimin Corp., British Petroleum and U.S. Trust Company of New York.

Mr. Jennings served as the Executive Vice President of Finance & Administration and Chief Financial Officer of Frontier Oil Corp. from June 14, 2005 to January 1, 2009. He served as Vice President and Treasurer of Cameron International Corporation from May 2000 to June 2005. From December 1998 to May 2000, he served as Vice President of Finance and Corporate Development of Unimin Corporation. Mr. Jennings holds a Bachelor of Arts degree in Economics and Government from Dartmouth College and a Master of Business Administration degree in Finance and Accounting from the University of Chicago.

holly frontier corporation

Mr. Douglas S. Aron is Chief Financial Officer, Executive Vice President of HollyFrontier Corporation. He served as Executive Vice President and Chief Financial Officer of HLS since November 2012, a position he previously held from July 2011 through December 2011. Prior to joining the Company, he was Executive Vice President and Chief Financial Officer of Frontier from 2009 until 2011. Additionally, he served as Vice President-Corporate Finance of Frontier from 2005 to 2009 and Director-Investor Relations from 2001 to 2005. He was responsible for the treasury department, investor relations and capital markets for Frontier Oil Corp. He served as a Commercial Lending Officer of Amegy Bank (formerly Southwest Bank of Texas) from March 1998 to March 2001. He served as Senior Vice President of Holly Logistics Services, L.L.C. Mr. Aron earned an MBA from the Jesse H. Jones Graduate School of Business at Rice University and a B.J. from the University of Texas at Austin.

Financial health

Let’s look into the liquidity and solvency ratios as our measurement of financial stability of Holly Frontier Corporation.

The current ratio of Holly Frontier Corporation showed an average of 1.73times. And it has been trending up since 2010 to 2012 and dip down in 2013 due to decrease in total current asset. This indicates their market liquidity or their ability to meet creditor’s demands is within the limits of generally accepted range of 1.5 to 3.0.

Holly Frontier’s quick ratio has an average 1.21 times and has been going up since 2008 but in 2013 it decreased in total cash. This means that a company has $1.21 of liquid assets available to cover each $1 of current liabilities.The company has  solvency  average of 68 percent and has been increasing after it decline to 17 percent in 2009.

Income Statement

 

Holly Frontier Corporation has an average of 11 percent. This number represents the proportion of each dollar of revenue that the company retains as gross profit. And the higher the percentage, the more the company retains on each dollar of revenue to service its other costs and obligations. As shown in above data it had increase from 2009 to 2011 and declined in 2012 and 2013 because of the decrease in gross profit.

They have a net margin an average 4 percent, this shows how much of each dollar earned by the company is translated into profits. As shown on table above HFC has increase in 2011 and then slightly declined in 2012 and 2013 due to decrease in net income.

Holly Frontier Corporation has an average 53 percent cash flow margin and TTM of 57 percent. This means the higher the percentage, the more cash available from the sales. Meanwhile its free cash flow ratio depicted an average of 5 percent and TTM of 68 percent. The more free cash flows are embedded in the operating cash flows of a company, the better it is. This is a very good indicator of the financial health of a company.

Investment Valuation

Valuation is at the heart of any investment decision, whether that decision is a buy, sell or hold. Totem’s Pricing Model adopts the investment styles applicable to the company. One valuation style is that,seeks out undervalued companies whose stock price are temporarily down but whose fundamentals are sound in the long run. The philosophy was to buy wisely when prices fall and to sell wisely when the price rise a great deal

Relative Valuation Methods

This is to compare market values of the stock with the fundamentals, their earnings, book value, growth multiples, and other metrics.

holly frontier corporation

The book value per share showed an increasing trend with TTM of $31.02 and an average of $19.09 per share. Its price to earnings increased 1,010 percent in 2009 then declined for the last two years and increase again 5.6 and 13.6 in 2012 and 2013 with TTM of  12.5 and an average of 21.36 per share. Earnings per share drop down $0.20 and 0.97 in 2009 and 2010, abruptly increased in 2011 and 2012 then declined to $3.64 in 2013 with an average of $3.72 per share. Holly Frontier Corporation return on equity drastically showed an up and then down trend with an average of $19.40. Generally, these indicate a good gauge of their profitability and was able to generate favorable returns on their earnings.

The summary data as seen in the table below:

Growth — 25%

Yield —  1.8 %

Value of Appreciation — $ 302.50

Value Dividend   —  5.47

Total Value  — 307.97

Price Investor is Willing to Pay — $ 1, 166.15

As computed Holly Frontier Corporation has an equity growth of 25 percent and dividend yield of 1.8 percent. To get the total value or the worth of the company using the formula value dividend plus the value appreciation. Wherein value appreciation of $302.50 is equivalent to Warren Buffet’s margin of safety of 40 percent of the calculated present value. And the value dividend of $5.47 is dividend divided by interest rate of 15% (which is constant). So, the total of the two resulted in $307.97 as their total value. Compares the total value of $307.97 with the current price per share of $45.57dated February 28, 2014. This indicates that the stock is trading at an undervalued price meaning a candidate for a buy. And price investor is willing to pay as computed by multiplying historical P/E with expected earnings in five years amounted to $1,166.15 per share.

Conclusion

 Holly Frontier’s current price was $45.57 over a total value of $307.95.   Plus, value investing is buying with a sufficient margin of safety of 50 percent as computed which is above 40%. Overall, with data as computed Holly Frontier Corporation is financially healthy and merits a buy.

3M Company MM

3M Company is Run by Very Competitive Persons

January 17th, 2014 Posted by Company Research Report No Comment yet

3M Company

3M Company (MMM) is a diversified technology company with a presence in the industrial and transportation; health care; consumer and office; safety, security and protection services; display and graphics, and electro and communications businesses.

How does the company make money?

Its products are sold through a number of distribution channels, including directly to users and through wholesalers, retailers, jobbers, distributors and dealers in a range of trades in a number of countries worldwide.

3M Company manages its operations in six business segments. These are Industrial and Transportation which serve a range of markets, such as an automotive original equipment manufacturer (OEM) and automotive aftermarket (auto body shops and retail), renewable energy, electronics, paper and packaging, food and beverage and appliance.

Health Care. Consumer and office which serves the markets that include medical clinics and hospitals, pharmaceuticals, dental and orthodontic practitioners, and health information systems. Safety, Security and Protection Services, serve a range of markets for the safety, security and productivity of workers, facilities and systems. Display and Graphics segment which serves markets that include the electronic display, traffic safety and commercial graphics and Electro and Communications segment which serves the world’s telecommunications companies with a range of products for fiber-optic and copper-based telecommunications systems for rapid deployment in fixed and wireless networks.

Who is running the business?

Mr. Inge G. Thulin is Chairman of the Board, President and Chief Executive Officer of 3M Company. He serves as President, Chief Executive Officer, Director Officer of the Company since February 24, 2012.Also served as the Company’s Executive Vice President and Chief Operating Officer from May 2011 to February 2012, with responsibility for 3M’s six business segments and International Operations

Mr. Thulin was Executive Vice President of International Operations from 2004 to 2011. Under his leadership, international sales grew to nearly $20 billion and today represents two-thirds of 3M’s sales. Prior to that has he held numerous leadership positions in Asia Pacific, Europe and Middle East, and across multiple businesses. Mr. Thulin holds degrees in Marketing and Economics from Gothenburg University.

Mr. David Meline is company’s Chief Financial Officer and Senior vice President. He served as Vice President, Corporate Controller and Chief Accounting Officer, 2008-2011. He also served as Chief Financial Officer, North America, General Motors Corp., 2007-2008. Mr. David was awarded an M.S. in Economics from the London School of Economics, an M.B.A in Finance from the University of Chicago, and a B.S. in Mechanical Engineering from Iowa State University.

We have reviewed the related ratios which guide us to determine how healthy 3M Company is for the past five years from 2008 to 2012. Here are the results:

The company’s current ratio was still above the standard of 2, while its quick ratio was 1.31 average. The company has minimal debt as shown above at 36 percent, while the solvency ratio was quite very high at 100 percent.

3M Company is undoubtedly financially healthy as far as its current resources is concerned and has the capacity to pay its obligations as its solvency ratio is 100 percent. With regards to its debt, at an average of 36 percent, we can say that it belongs to a debt-free company.

Earnings

Revenue shows an increase year over year except in 2009 versus 2008. The company registered a yearly growth of an average of 4.43 percent. The highest peak was in 2010 and 2011.

Its operating income has a yearly growth rate of -15.74, -7.74, 22.93, 4.39 and 4.94 percent from 2008 to 2012 . And net income yearly growth rate from 2008 to 2012 was -15.53, -7.72, 27.94, 4.85 and 3.76. Its TTM was 2.66 percent.

Margin

The company’s gross margin was increasing yearly from 2008 to 2010 however, it slightly down by 1 percent in 2011 and recovered by 1 percent in 2012. After deducting operating and other related expenses it resulted to a net margin of 15 percent ttm or an average of 14 percent.

The company’s net margin in the last 5 years is quite good considering this kind of industry.

Cash Flow

MMM’s operating cash flow indicate positive results, though it’s up and down trend, it shows that the company was effective in generating cash flow out of its revenue. Therefore, the company has sufficient funds for its operating activities.

Cash Flow from Investing Activities generate cash outflows, such as capital expenditures for property, plant and equipment, business acquisitions and the purchase of investment securities while inflows come from the sale of assets, businesses and investment securities.

3M Company’s investing cash flow shows negative results because cash outflows exceeded cash inflows.

Cash Flow from Financing Activities refer to the company’s continuous borrowing and repayment of debt. Similar to investing cash flow, the company’s cash outflow exceeded its cash inflows, thus, incurred a negative balance.

Cash flow margin of 3M Co is quite good at 19 percent both ttm and average. In addition, it has a positive free cash flow of $4173 ttm or 72 percent. Its average is 74 percent, which indicates that the company has available funds to pay additional dividends and invest new line of business. Free cash flow is the result after deducting capital expenditure from operating cash flow .

Investment Valuation

In our valuation of equity, we adopt the investment style which we think applicable to the company. Seeks out undervalued companies whose stock price are temporarily down, but whose fundamentals are sound in the long run. This philosophy was to buy wisely when prices fall and to sell wisely when the price rise a great deal. Shown here is the metrics.

With the result of the formula “Sustainable growth rate=ROE x (1- dividend payout ratio)”, it shows that 3M Co average SGR is 17.13 percent, result of the calculations shows that the margin of safety was averaging 65 percent.

Relative Valuation Methods

For 3M Co, the current book value per share was $26.15, with an average of $21.36 per share, while the price to earnings ratio in the trailing twelve months (ttm) was 19.3% per share and 15.52% average per share. Moreover, the earning per share at ttm was $6.38 and averaging $5.62 while the return on equity at ttm was $26.1 and has an average of $28.26 per share.

The table below shows the summary of calculations of 3M Co.

The growth was 31.82 percent, while the dividend yield was 2.03 percent. The calculated value of appreciation was $76.05, this is the required 40 percent. Further, the computed value dividend was $49.80 and the computed total value was $125.85. The price that the investor is willing to pay was $293.18. Furthermore, the market price of 3M Co to date was $122.84 per share. If we compare this to the total value of $125.85 per share, it indicates that the stock is trading at undervalued prices.

Conclusion

To sum it all, the results show that 3M Co (MMM) is financially healthy as far as its current resources are concerned the company is considered debt- free and 100 percent solvent.

Income wise, the company is continuously generating income, expenses is properly controlled which resulted to commendable profit margin. When it comes to generating cash flow, the company has sufficient cash flow used for operating activities and high free cash flow. In addition, the company has 28 percent able to sustain its operation internally without additional debt and equity.

CITATION

https://www.google.com/finance?q=NYSE%3AMMM&ei=rvZlUoiINIiwkgW_igE 

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

Researched and Written by  Rio and Meriam

Administradora de Fondos de Pensiones-Provida SA

Guide To Administradora de Fondos de Pensiones-Provida SA

November 26th, 2013 Posted by Company Research Report No Comment yet

Company Research on Administradora de Fondos de Pensiones-Provida SA

PVD

Provida is one of the oldest private pension fund administrators operating in Chile, maintaining a leading position in the Chilean private pension industry since its incorporation. As of December 31, 2012, according to official statistics released by the Superintendency of Pensions, Provida was the largest of the six AFPs operating in Chile in terms of the number of participants, contributors, assets under management, participants’ salary base and a number of branch offices. The Chilean private pension system was created in May 1981, when Decree Law 3,500 of November 13, 1980 (the “Pension Law”) was implemented to replace the prior social security system. Subsequently, on March 11, 2008, the Pension Reform Law was promulgated in order to improve the pension system, reinforcing the solidarity character of the system, extending its coverage, increasing competitiveness in the industry and boosting gender equality.

Nature of Business

Administradora de Fondos de Pensiones Provida S.A. (AFP Provida), is a private pension fund administrator. The Company’s services include the investment and collection of its affiliates’ contributions, the management of individual capitalization accounts and the provision of life and disability benefits, as well as senior retirement pensions. Further, Provida through its subsidiary Provida Internacional S.A. (Provida Internacional) maintains equity interests in private pension fund administrators operating in Peru, Ecuador, and Mexico. Provida is also authorized to establish local related corporations that may complement its line of business or invest in pension fund administrators or entities located in other countries whose business is related to pension matters. The Company’s majority shareholder is BBVA Inversiones Chile SA, with 51.62% of its interests.

How do they make money?

PVD2

The most significant source of revenues from operations for Provida is the monthly fee charged to participants in connection with deposits into his/her individual capitalization account. Under the Pension Law, an AFP is permitted to charge a fee for, collection and administration of mandatory contributions from pension payments of programmed withdrawals and temporary income, collection, and administration of voluntary savings, management, and transfer of voluntary pension savings to other entities and transfer of contribution made by voluntary participants.

Provida currently charges fees for each of the above services (as do the other AFPs, except for AFP Habitat and AFP Modelo, which do not charge fees for transferring contributions of voluntary participants).In accordance with the Pension Law, each AFP is allowed to set the fees it charges to its participants or pensioners. In connection with fees charged, the Pension Law establishes that each AFP must apply the same fee levels to each of its participants.

Management of contributions

The services provided by the AFPs in connection with collection and management of contributions include mandatory contributions and voluntary contributions made by its affiliates. Each dependent worker and an affiliate of Provida must contribute 10% of his/her taxable salary into his/her individual capitalization account. Such contributions are deducted from the affiliate’s salary and are used to purchase shares of some of the five types of funds that Provida managers. These funds are legal entities separate from Provida as Administrator.

Provida collects monthly mandatory contributions that are withheld from the salaries of Provida’s affiliates by their employers and those contributions from Provida’s self-employed affiliates and voluntary affiliates. Those monthly contributions are credited to each affiliate’s individual capitalization account.

In the case of dependent workers, each employer must provide Provida with a monthly payroll listing all its employees who are affiliates of AFP Provida, identifying the payments being made on behalf of each employee for pension contributions, both mandatory and voluntary. Self-employed workers prepare and submit their own payrolls. AFP Provida offers its affiliates the option to establish a voluntary savings account into which they may deposit additional funds to be invested in the elected pension fund.

Investment services

The general investment policy of the pension funds is determined by AFP Provida. The general objective of Provida’s investment activity is to administer the investment portfolios composed of the affiliates’ contributions in order to obtain the highest possible return for the level of risk and terms of these affiliates’ profiles.

Life and Disability Benefits

Before the Pension Reform became effective, Provida individually obtained insurance to cover its obligations to provide life and disability benefits to affiliates. If an affiliate dies or becomes disabled prior to the legal age of retirement (65 years of age for men and 60 to 65 years of age for women) and before accumulating sufficient funds in his/her individual capitalization account to finance payments to the affiliate or his/her beneficiaries regarding pension benefits required by law, the AFP has an obligation to make up the shortfall in the affiliate’s individual capitalization account. Under the law, each AFP is required to obtain an insurance policy with a licensed life insurer to provide coverage for this obligation.

Senior Pension Benefits

The Company provides specific senior pension benefits to their affiliates who meet the legal age requirement: 60 years of age for women and 65 years of age for men. At retirement, the affiliate chooses among four options for receiving his/her pension benefits: an immediate life annuity, a temporary income with deferred life annuity, a programmed withdrawal plan or an immediate life annuity with a programmed withdrawal plan.

Who is running the business?

The company needs brain and backbone to run smoothly. For AFP, let us meet and know them better.

Mr. Ricardo Rodriguez Marengo serves as Chief Executive Officer of Administradora de Fondos de Pensiones Provida SA. He was appointed to this post on February 1, 2007. He is Certified Public Accountant and holds a Bachelor’s degree in Business Administration from Pontificia Universidad Catolica de Argentina and a degree in Senior Management Program. Previously, he was the Commercial Chief Officer in AFJP BBVA Consolidar in Argentina. Mr. Marengo has 24,923 colleagues in 2,060 companies located in 110 countries and 12,744 executive movements have been recorded in the last 12 months.

Do you trust this person are they competent?

Yes, I trust company’s CEO because of his excellent records and length of service. On the other hand, there is no CFO data found for the company.

Value Investing Guide

Balance Sheet

The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates for the differences between different types of businesses. The table below tells us the 5 years averages of Administradora de Fondos de Pensiones balance sheet.

Solvency ratios measure the ability of a company to pay its long-term debt and the interest on that debt. a part of financial ratio analysis, it helps the business owner determine the chances of the firm’s long-term survival. Solvency ratio varies from industry to industry but generally, a solvency ratio of greater than 20% is considered financially healthy.

Liquidity is a business firm’s ability to repay its short-term debts and obligations on time. Short-term usually means one year or less. It is also characterized by a high level of trading activity.

Current Ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. The quick ratio, on the other hand, measures a company’s ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the company’s liquidity position.

Leverage used of various financial instruments or borrowed capital, such as margin to increase the potential return of an investment. It is also 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.

Ratio

Administradora de Fondos de Pensiones SA PVD’s current ratio has an average of 1.44 the rule of thumb is 2.0 it means that the company may fell a little short in paying its short-term debt and will need to collect its receivables in order to meet its payment. Quick ratio averaging 1.33 and the rule of thumb is 1.0, therefore, the company has the ability to pay its short-term debt using cash and near cash. In other words, PVD has sufficient cash to meet short-term debt. Solvency ratio averaging 15.23 and the rule of thumb is 20% considerable, and financial firms are subject to varying state and national regulations that stipulate solvency ratios. There are no records for the company’s debt which resulted in a zero (0) Leverage which represents a good standing of the company.

Income Statement

Gross margin is a company’s total sales revenue minus its cost of goods sold, divided by the total sales revenue and expressed as a percentage. Net margin is the ratio of net profits to revenues for a company or business segment – typically expressed as a percentage – that shows how much of each dollar earned by the company is translated into profits.

GM

The above table shows that PVD’s Gross margin has an average of 100 percent, which represents a good standing. Net margin has an average of 46.77 percent. This represents how much of each dollar earned by the company is translated into profits.

Cash Flow Statement

Cash flow margin is a measure of the money a company generates from its core operations per dollar of sales. The operating cash flow can be found on the company’s cash flow statement, and the revenue can be found on the income statement. A high operating cash flow margin can indicate that a company is efficient at converting sales to cash, and may also be an indication of high earnings quality.

Free cash flow (FCF) is a measure of financial performance calculated as operating cash flow minus capital expenditures. It represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base.

CFM2

Cash flow margin was averaging of 0.41 or 41 percent, which represents a high operating cash flow margin; an indication that a company is efficient at converting sales to cash. Free cash flow has an average of Ch. $ 108.33 or $21 million, which represents that the company is able to pay dividends, or expands its asset base.

Investment Valuation

The totem Investment model in the valuation of equity adopts the investment style of Benjamin Graham; this model 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 substantially more than an investor has to pay for it. He believed in thorough analysis, which we call fundamental analysis. He was looking for companies with a strong balance sheet or those with little debt, above average profit margin and ample cash flow. His valuation seeks out undervalued companies whose stock price is temporarily down, but whose fundamentals are sound in the end. His philosophy was to buy wisely when prices fall and to sell wisely when the price rises a great deal.

Sustainable

The sustainable growth rate was averaging 15.23 percent. This measure how much a firm can grow without borrowing more money. Furthermore, the margin of safety using the Benjamin Graham method was averaging 0.84 or 84 percent which passed Graham’s requirement of at least 40 percent. The market price as of November 26, 2013, is 86.90 with 1.9 billion market capitalization.

Relative Valuation Method

The relative valuation method 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 stocks.

PVD

The above table tells us that return on equity or ROE has an average of 29.89 this is the amount of net income returned as a percentage of shareholders equity. Book value per share was averaging 24.10 while Price to earnings ratio was averaging 6.96. This is the price that investors are willing to pay. The earnings per share were averaging $ 7.55. This is the company’s net earnings allocated to each share of common stocks.

The Warren Buffet Method

Totem also adopts the Warren Buffet method using the financial calculator in the equity selection. The table below shows my calculation.

PVD

The idea behind this method is when the total value is greater than the market price, the stock then is trading at an undervalued price. As shown in the table above, the total value is $173.48 and the market price used as of November 17, 2013, is 87.

Conclusion

The overall company’s valuation shows that PVD is financially stable. The margin of safety passed the criteria based on the Benjamin Graham method. The Warren Buffet method shows that the stock was undervalued, so therefore Administradora de Fondos de Pensiones is a good BUY.

CITATION:

http://www.sec.gov/Archives/edgar/data/931588/000095010313002682/dp37663_20f.htm#item4b

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

Researched and Written by Meriam

Edited by Cris

Adobe Inc (ADBE) Systems a Quick Look

November 22nd, 2013 Posted by Company Research Report No Comment yet

Adobe Inc. (ADBE) is an American multinational computer software company headquartered in San Jose, California. It has historically focused upon the creation of multimedia and creativity software products, with a more recent foray towards digital marketing software. Wikipedia

ADOBE-SYSTEMS-007

Nature of Business

Adobe Systems Incorporated (Adobe) is a diversified software company. The Company offers a line of software and services used by professionals, marketers, knowledge workers, application developers, enterprises and consumers for creating, managing, delivering, measuring and engaging with content and experiences across multiple operating systems, devices and media.

The Company markets and licenses its software directly to enterprise customers through its sales force and to end users through application stores and its Website at www.adobe.com. Adobe also distributes its products through a network of distributors, value-added resellers (VARs), systems integrators, independent software vendors (ISVs), retailers and original equipment manufacturers (OEMs).

adobe-creative-suite1

Who is Running the Business?

Narayen, Shantanu

Chief Executive Officer

Shantanu_Narayen_hi

Mr. Shantanu Narayen is President, Chief Executive Officer, Director of Adobe Systems Inc. He joined Adobe in January 1998 as Vice President and General Manager of Company’s engineering technology group. In January 1999, he was promoted to Senior Vice President, Worldwide Products, and in March 2001 he was promoted to Executive Vice President, Worldwide Product Marketing, and Development. In January 2005, Mr. Narayen was promoted to President and Chief Operating Officer, and effective December 2007, he was appointed Company’s Chief Executive Officer and joined the Company’s Board of Directors. Mr. Narayen serves on the board of directors of Dell Inc. Mr. Narayen holds a B.S. in Electronics Engineering from Osmania University in India, an M.S. in Computer Science from Bowling Green State University and an M.B.A. from the Haas School of Business, University of California, Berkeley.

Garrett, Mark

Chief Financial Officer

garrett-180x250

Mr. Mark Garrett is Chief Financial Officer, Executive Vice President of Adobe Systems Inc., since February 2007. Mr. Garrett served as Senior Vice President and Chief Financial Officer of the Software Group of EMC Corporation, a products, services and solutions provider for information management and storage, from June 2004 to January 2007, his most recent position since EMC’s acquisition of Documentum, Inc., an enterprise content management company, in December 2003. Mr. Garrett first joined Documentum as Executive Vice President and Chief Financial Officer in 1997, holding that position through October 1999 and then re-joining Documentum as Executive Vice President and Chief Financial Officer in 2002. Mr. Garrett is also a director of Informatica Corporation.

Income Statement

Profitability

1

Adobe’s gross margin and net margin was averaging 89.56 and 19.30 percent, respectively, this shows the profit of the company. It also indicates the financial success and viability of Adobe’s products and services. Net margins measure the percentage of revenue that was left after deducting all of the expenses of the company. In other words, it shows how much cash earned during a certain period. Overall, this shows that ADBE is efficient in generating enough revenue from its business operation.

Cash Flow Statement

1

The cash flow margin average is 0.35 or 35 percent. Cash flow margin is cash from operating activities as a percentage of sales.  Cash from operating activities over total sales. On the other hand, Adobe’s free cash flow was averaging $1.49 million. It tells us that the company can of generating enough revenue and has cash left for payment of dividends and for future investment.

Valuation

The Totem Investment model adopts the investment style which we think applicable to the company, we looked for companies with a strong balance sheet or those with little debt, above average profit margin and ample cash flow. One evaluation style is that,  seek out undervalued companies whose stock price are temporarily down, but whose fundamentals are sound in the long run. The philosophy was to buy wisely when prices fall and to sell wisely when the price rise a great deal.

1

The sustainable growth rate is 13.04 percent, this implies how fast Adobe Systems Inc can grow without using more funds from creditors or investors, or where the company can keep its operation internally. Meanwhile, the calculated margin of safety was 98.45 percent. The market price as of November 22, 2013, was $57.17 per share.

Adobe Relative Valuation Methods

1

The relative valuation interpreted the following data: the book value per share average is $10.63, Price to Earnings ratio average was $24.92, and this is the price that the investors are willing to pay for the company’s earnings. The earnings per share average are $1.42, this represents the company’s net earnings allocated to each share of common stock. On the other hand, the return on equity is 14.3 percent; this implies how much profit Adobe generates with the investment that the shareholders’ have invested.

Conclusion

The metrics and methods used have shown that Adobe Systems Inc. is financially stable and sound. Moreover, the profitability ratios and the cash flow margins imply that the company is capable and efficient of generating enough revenue for paying dividends and for future investments. The stock of Adobe Systems Inc. compares the total value with the current price indicates that the company is undervalued. With this, I recommend a BUY on the stock of Adobe Systems, Inc.

CITATIONS:

http://financials.morningstar.com/ratios/r.html?t=ADBE&region=USA&culture=en-US

https://www.google.com/finance?q=NASDAQ%3AADBE&ei=1bqOUriQLI6RkgWdJQ

http://www.reuters.com/finance/stocks/officerProfile?symbol=ADBE.O&officerId=175923

http://www.reuters.com/finance/stocks/officerProfile?symbol=ADBE.O&officerId=920528

Researched and Written by Karla

Edited by Cris

Is it a Go or a No for Blackberry – Totem Talk Value Investing Guide

July 23rd, 2013 Posted by Company Research Report No Comment yet

Blackberry Ltd or BBRY (formerly known as Research in Motion Limited (USA)) is a global leader in wireless innovation and developed mobile industry with the introduction of BlackBerry. Stories team had introduced Research in Motion Limited (USA) company research in the previous reports. This company research provides information about the company including its founder or how it started, history and development, its nature of the business, the people running and directing the company, how it makes money or in the industry,  suppliers and customers, workforce, and the company’s pay and working condition.

Please read the whole version of BBRY’s company research here:

http://totemtalk.com/research-in-motion-limited-usa-rimm/

Let us help you get to know more on current feedback and trends about the company that might help on your investing. Information was gathered from reliable sources that may include negative and positive news combined with our researcher’s interpretation of these data. For the latest news about Research in Motion Limited (USA), here is Cris’ company update:

http://totemtalk.com/blackberry-ltd-bbry-company-updates/

We all know the backbone of the company. We already met the people behind the company, the nature of their business. Now, let’s get ourselves updated with the financial status of the company. Rio, from our Numbers team will reveal the story behind the digits.

 Liquidity & Solvency

Rio reviewed further the liquidity and solvency of BBRY for the last four quarters, Q3-2012, Q4-2012, Q1-2013 and Q2-2013 in comparison with its performance in the past four years. Here are the results:

The company’s current ratio was still above the standard of 2, there was no change in material amount. Its quick ratio’s trend was still the same which did not go below 1.8 on the latest four quarters. When we speak about the solvency ratio, it was quite very high in the last four years but reduced to a moderate level in the first three quarters but consistently increasing. However, it tremendously dipped down to 9 percent in the 2nd quarter of 2013. It needs close monitoring.

BBRY is still financially healthy as far as its current resources are concerned. The company has the capacity to pay its obligations as its solvency ratio was above the standard rate of 20 percent except in the last quarter of 2013 which is too early to make a conclusion, as shown in the above table.

Financial Leverage

BlackBerry Ltd

The company operates its business with very little borrowing. Debt ratio average is only 27 percent while debt to equity ratio was 37 percent.

Efficiency Ratios

Efficiency ratios are used to measure the quality of the company’s receivables and how efficiently it uses its other assets. Let’s get to meet each of these efficiency ratios. 

  • Inventory turnover ratio represents the number of times inventory is sold and restocked each year.
  • The receivable turnover ratio measures the number of days it takes a company to collect its credit accounts from its customers.
  • Payable turnover ratio is the number of times the company pays its obligation each period. This ratio measures how the company pays its suppliers in relation to the sales volume being transacted.
  • Asset turnover ratio shows how efficient the company’s total assets generate sales.

The table below tells us how efficient BBRY uses its resources in generating revenue.

Efficiency ratios show that BBRY was consistent to be efficient yearly and quarterly in generating sales revenue out of its resources as shown in the above table.  There was no abrupt change noted.

Income Statement

  • · Revenue showed progress every year with a growth of 35, 33 and -7 percent while declining from Q3-2012 to Q1-2013 but recover in Q2-2013 by growth of 15percent. Its gross profit average had a growth rate of 29, 34 and -25 percent from 2009 to 2012  while 5, 26 and -3 percent in Q3-2012 to Q2-2013.
  • And income after tax was also increasing yearly by  30, 39 and -66 percent while from Q2-2012 to Q2-2013 results were -1.04, 9.89 and -1.86 percent.

Expenses

The majority of the expenses fall under the cost of revenue, which consumed a range of 54 to 71 percent on gross sales while operating expenses average from 2009 to 2012 was the only 23percent. However, in the last four quarters; 2nd quarter of 2012 to the 2nd quarter of 2013 it exceeded the total revenue of the company. It tells us that the company was not able to control its operating expenses.

Margin

  • Gross margin was slightly changed by an average of 2 percent both in yearly and quarterly data. After deducting operating and other related expenses it resulted in a negative 3 percent in the latest quarter. BBRY’s net margin did not even reach the standard of 20 percent in the past four year’s analysis.

Blackberry Cash Flow

Cash Flow from Operating Activities

The cash flow from operating activities of BBRY  indicates positive results, though it’s up and down trend, it shows that the company was effective in generating cash flow out of its revenue. So, the company has sufficient funds for its operating activities.

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 while inflows come from the sale of assets, businesses and investment securities.  For BBRY, its investing cash flow shows negative results because of cash outflows exceeded cash inflows.

Cash Flow from Financing Activities

This refers to the company’s continuous borrowing and repayment of debt.  Similar to investing cash flow, the company’s cash outflow exceeded its cash inflows.

Free Cash Flow

  • It shows positive results from 2010 to 2011 while negative in 2009 and 2012 however, it is consistent positive in the 3rd quarter of 2012 to the 2nd quarter of 2013.
  • Cash flow margin of BBRY from 3Q-2012 to 1Q-2013 was going up however it dropped to 21 percent in Q2-2013.

After getting all those results, I asked Rio for the overall view. Gladly she gave me her quick answer. Please join me on the conclusion below.

Conclusion

“Results of my analysis show that BBRY is still financially healthy as far as its current resources are concerned. The company is debt- free and insolvent only in the last quarter of 2013. Income wise, the company is continuously generating income, however, its operating expenses are uncontrolled which resulted in a negative profit margin. When it comes to generating cash flow, the company has sufficient cash flow used for operating activities and positive free cash flow”, Rio said.

We already know the financial health of BlackBerry Ltd from Rio’s report. How about the market value of the company? This is where Cris’ investment valuation report will bring us delight. She will inform u of the pricing status of the company. So, what are we waiting for? Let’s get to it.

The Investment in Enterprise Value on BlackBerry Ltd        

The concept of enterprise value is to calculate what it would cost to purchase an entire business. Enterprise Value (EV) is the present value of the entire company.  It measures the value of the productive assets that brought about its product or services, both equity capital (market capitalization) and debt capital.

In this evaluation, I believed the historical data is important and not just the current data, “Cris explained. As we can see in the table, it shows that the market capitalization dropped 75 percent in 2011. A dropped can be noticed again during 2012 and the trailing twelve months 2013 by 17 and 23 percent, respectively. Further, the company has zero debt, thus the enterprise value was lesser of 13 percent as the cash represents 13 percent of the enterprise value. The equation for buying the entire BBRY was 100 percent equity. The current cash per share was $5.39 while the average cash per share was $3.93.

The takeover price of the entire business of BlackBerry Ltd to date, July 18, 2013, was $2 billion at $3.77 per share.  While the market price to date was $9.24 per share. The difference was 59 percent.

 The Margin of Safety

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. Value investing is based on the assumption that two values are attached to all companies, the market price and the company’s business value or true value.

Now, let us reveal what the table would say about BBRY’s margin of safety.

The table tells us that the historical margin of safety averaged to 58 percent, while 2012 and ttm2013 has zero margin of safety. This means that the current margin of safety was insufficient and is not a good candidate for a buy position because there will be no safety in buying the stocks of BBRY.  This further implies that the true value of the stock is lesser than the market price.

Intrinsic Value

Intrinsic value factors the calculations for the margin of safety.

The historical intrinsic value was averaging $217 and the annual growth was averaging 49 percent, in addition, the earning per share was averaging $2.44.

For the annual growth, please see the table below:

BlackBerry Ltd

To summarize, the average growth of BlackBerry Ltd was favorable as well as the return on equity. However, the previous year 2012 and the trailing twelve months of 2013 showed an unfavorable outcome. Return on equity was negative 7 and 2 on 2012 and trailing twelve months, respectively.

In order to determine the trend in the true value of the stock of BBRY and the market price, Cris prepared a graph for our easy understanding.

Explanation

As seen in the graph above, the true value line or the IV line was high during the period 2008 up to 2010. Then it dropped very steeply at 87, 93 and 135 percent from 2011 up to the trailing twelve months, respectively. It fell below the market value; this means there was a zero margin of safety in the current period, further it means that the stock price was trading above the true value of the stock.

Price to Earnings/Earning Per Share (P/E*EPS)             

BlackBerry Ltd

The stock of BBRY was undervalued. The P/E*EPS was averaging 32 percent while the price was averaging 29 percent.

Enterprise Value (EV) / Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) or (EV/EBITDA)               

BlackBerry Ltd

The table for EV/EBTDA indicates that it will take 5 years to recover the cost of purchasing the entire business of BBRY.  In other words, it will take 5 times of the cash earnings of the company to cover the costs of purchasing the entire stock. 

In the earlier part of this report, Rio gave us the summary about the financial health.

Summary

BBRY’s market capitalization dropped 75 percent in 2011. While in 2012 and the trailing twelve months 2013, it dropped again by 17 and 23 percent, respectively. Further, the company has zero debt, thus the enterprise value was lesser by 13 percent as the cash represents 13 percent of the enterprise value. The equation for buying the entire BBRY was 100 percent equity. The current cash per share was $5.39 while the average cash per share was $3.93.

The takeover price of the entire business of BlackBerry Ltd to date, July 18, 2013, was $2 billion at $3.77 per share.  While the market price to date was $9.24 per share. The difference was 59 percent.

Margin of Safety

The historical margin of safety averaged 58 percent, while 2012 and ttm2013 has zero margin of safety.  This further implies that the true value of the stock is lesser than the market price. The historical intrinsic value was averaging $217 and the annual growth was averaging 49 percent, in addition, the earning per share was averaging $2.44. The ROE was negative 7 and 2 for 2012 and trailing twelve months, respectively.

Further, the relative valuation indicates that in the P/E*EPS stock price of Blackberry was undervalued. The P/E*EPS was averaging 32 percent while the price was averaging 29 percent.

Furthermore, the EV/EBTDA indicates that it will take 5 years to recoup the cost of buying the entire business of BBRY.  In other words, it will take 5 times of the cash earnings of the company to recover the costs of purchasing the entire company.

Overall

It shows a frustrating result in the market value of the company as well as the deteriorating growth in the current periods. The downfall of Blackberry’s price was very steep and climbing to the top might be hard, as the company has a long way to go to make a comeback to its former condition. Although, the price seems undervalued considering the relative valuation, the intrinsic value of the company reveals the true value of the stock, thus indicating that the stock is trading above its true value. Cris concluded,”Since the company is still in its early phase of transformation, I therefore recommend a SELL on the stock of Blackberry Ltd.

Researched and Written by: Meriam, Karla, Rio and Cris

Interested to learn more about the company? Here’s company research to know more of it’s background and history; and investment valuation for the pricing.

Research In Motion Ltd (RIMM)

Is it a Go or a No for Blackberry Limited (BBRY)

July 23rd, 2013 Posted by Company Research Report No Comment yet

BlackBerry Ltd or BBRY (formerly known as Research in Motion Limited (USA)) is a global leader in wireless innovation and developed mobile industry with the introduction of BlackBerry. Stories team had introduced Research in Motion Limited (USA) company research in the previous reports. This company research provides information about the company including its founder or how it started, history and development, its nature of the business, the people running and directing the company, how it makes money or in the industry,  suppliers and customers, workforce, and the company’s pay and working condition.

Please read the whole version of BBRY’s company research here:

http://totemtalk.com/research-in-motion-limited-usa-rimm/

Let us help you get to know more on current feedback and trends about the company that might help on your investing. Information was gathered from reliable sources that may include negative and positive news combined with our researcher’s interpretation of these data. For the latest news about Research in Motion Limited (USA), here is Cris’ company update:

http://totemtalk.com/blackberry-ltd-bbry-company-updates/

We all know the backbone of the company. We already met the people behind the company, the nature of their business. Now, let’s get ourselves updated with the financial status of the company. Rio, from our Numbers team, will reveal the story behind the digits.

 Liquidity & Solvency

Rio reviewed further the liquidity and solvency of BBRY for the last four quarters, Q3-2012, Q4-2012, Q1-2013 and Q2-2013 in comparison with its performance in the past four years. Here are the results:

bbryliq

The company’s current ratio was still above the standard of 2, there was no change in material amount. Its quick ratio’s trend was still the same which did not go below 1.8 on the latest four quarters. When we speak about the solvency ratio, it was quite very high in the last four years but reduced to a moderate level in the first three quarters but consistently increasing. However, it tremendously dipped down to 9 percent in the 2nd quarter of 2013. It needs close monitoring.

Explanation

BBRY is still financially healthy as far as its current resources are concerned. The company has the capacity to pay its obligations as its solvency ratio was above the standard rate of 20 percent except in the last quarter of 2013 which is too early to make a conclusion, as shown in the above table.

Financial Leverage

The company operates its business with very little borrowing. Debt ratio average is only 27 percent while debt to equity ratio was 37 percent.

Efficiency Ratios

Efficiency ratios are used to measure the quality of the company’s receivables and how efficiently it uses its other assets. Let’s get to meet each of these efficiency ratios. 

  • Inventory turnover ratio represents the number of times inventory is sold and restocked each year.
  • The receivable turnover ratio measures the number of days it takes a company to collect its credit accounts from its customers.
  • Payable turnover ratio is the number of times the company pays its obligation each period. This ratio measures how the company pays its suppliers in relation to the sales volume being transacted.
  • Asset turnover ratio shows how efficient the company’s total assets generate sales.

The table below tells us how efficient BBRY uses its resources in generating revenue.

Efficiency ratios show that BBRY was consistent to be efficient yearly and quarterly in generating sales revenue out of its resources as shown in the above table.  There was no abrupt change noted.

Income Statement

  • · Revenue showed progress every year with a growth of 35, 33 and -7 percent while declining from Q3-2012 to Q1-2013 but recover in Q2-2013 by growth of 15percent. Its gross profit average had a growth rate of 29, 34 and -25 percent from 2009 to 2012  while 5, 26 and -3 percent in Q3-2012 to Q2-2013.
  • And income after tax was also increasing yearly by  30, 39 and -66 percent while from Q2-2012 to Q2-2013 results were -1.04, 9.89 and -1.86 percent.

Expenses

Explanation

The majority of the expenses fall under the cost of revenue, which consumed a range of 54 to 71 percent on gross sales while operating expenses average from 2009 to 2012 was the only 23percent. However, in the last four quarters; 2nd quarter of 2012 to the 2nd quarter of 2013 it exceeded the total revenue of the company. It tells us that the company was not able to control its operating expenses.

Margin

  • Gross margin was slightly changed by an average of 2 percent both in yearly and quarterly data. After deducting operating and other related expenses it resulted in a negative 3 percent in the latest quarter. BBRY’s net margin did not even reach the standard of 20 percent in the past four year’s analysis.

Cash Flow

Cash Flow from Operating Activities

Cash flow from operating activities of BBRY  indicates positive results, though it’s up and down trend, it shows that the company was effective in generating cash flow out of its revenue. So, the company has sufficient funds for its operating activities.

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 while inflows come from the sale of assets, businesses and investment securities.  For BBRY, its investing cash flow shows negative results because of cash outflows exceeded cash inflows.

Cash Flow from Financing Activities

This refers to the company’s continuous borrowing and repayment of debt.  Similar to investing cash flow, the company’s cash outflow exceeded its cash inflows.

Free Cash Flow

BlackBerry Ltd

  • It shows positive results from 2010 to 2011 while negative in 2009 and 2012 however, it is consistent positive in the 3rd quarter of 2012 to the 2nd quarter of 2013.
  • Cash flow margin of BBRY from 3Q-2012 to 1Q-2013 was going up however it dropped to 21 percent in Q2-2013.

After getting all those results, I asked Rio for the overall view. Gladly she gave me her quick answer. Please join me on the conclusion below.

Conclusion:

“Results of my analysis show that BBRY is still financially healthy as far as its current resources are concerned. The company is debt- free and insolvent only in the last quarter of 2013. Income wise, the company is continuously generating income, however, it is operating expenses are uncontrolled which resulted in a negative profit margin. When it comes to generating cash flow, the company has sufficient cash flow used for operating activities and positive free cash flow”, Rio said.

We already know the financial health of BlackBerry Ltd from Rio’s report. How about the market value of the company? This is where Cris’ investment valuation report will bring us delight. She will inform us of the pricing status of the company. So, what are we waiting for? Let’s get to it.

The Investment in Enterprise Value on BlackBerry Ltd        

What is enterprise value? The concept of enterprise value is to calculate what it would cost to purchase an entire business. Enterprise Value (EV) is the present value of the entire company.  It measures the value of the productive assets that brought about its product or services, both equity capital (market capitalization) and debt capital.

BlackBerry Ltd

“In this evaluation, I believed the historical data is important and not just the current data.  As we can see in the table, it shows that the market capitalization dropped 75 percent in 2011. A dropped can be noticed again during 2012 and the trailing twelve months 2013 by 17 and 23, respectively. Further, the company has zero debt, thus the enterprise value was lesser of 13 percent as the cash represents 13 percent of the enterprise value. The equation for buying the entire BBRY was 100 percent equity. The current cash per share was $5.39 while the average cash per share was $3.93.

The takeover price of the entire business of BlackBerry Ltd to date, July 18, 2013 was $2 billion at $3.77 per share.  While the market price to date was $9.24 per share. The difference was 59 percent.

 Margin of Safety

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. Value investing is based on the assumption that two values are attached to all companies – the market price and the company’s business value or true value.

Now, let us reveal what the table would say about BBRY’s margin of safety.

BBRY MOS

The table tells us that the historical margin of safety averaged to 58 percent, while 2012 and ttm2013 have zero margins of safety. This means that the current margin of safety was insufficient and is not a good candidate for a buy position because there will be no safety in buying the stocks of BBRY.  This further implies that the true value of the stock is lesser than the market price.

Intrinsic Value

 

The historical intrinsic value was averaging $217 and the annual growth was averaging 49 percent, in addition, the earning per share was averaging $2.44.

For the annual growth, please see the table below:

BBRY IV

To summarize, the average growth of BlackBerry Ltd was favorable as well as the return on equity. However, the previous year 2012 and the trailing twelve months of 2013 showed an unfavorable outcome. Return on equity was negative 7 and 2 in 2012 and trailing twelve months, respectively.

In order to determine the trend in the true value of the stock of BBRY and the market price, Cris prepared a graph for our easy understanding.

BBRY Graph

As seen in the graph above, the true value line or the IV line was high during the period 2008 up to 2010. Then it dropped very steeply at 87, 93 and 135 percent from 2011 up to the trailing twelve months, respectively. It fell below the market value; this means there was a zero margin of safety in the current period, further it means that the stock price was trading above the true value of the stock.

Price to Earnings/Earning Per Share (P/E*EPS)             

BBRY PE EPS

The overall issue of P/E*EPS tells us that the stock of BBRY was undervalued. The P/E*EPS was averaging 32 percent while the price was averaging 29 percent.

Enterprise Value (EV) / Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) or (EV/EBITDA)               

BBRY EV EBITDA

The table for EV/EBITDA indicates that it will take 5 years to recover the cost of purchasing the entire business of BBRY.  In other words, it will take 5 times the cash earnings of the company to cover the costs of purchasing the entire stock. 

In the earlier part of this report, Rio gave us a summary of financial health. This time Cris will do the honor of sharing us the wrapped up details of her report.

Summary:

BBRY’s market capitalization dropped 75 percent in 2011. While in 2012 and the trailing twelve months 2013, it dropped again by 17 and 23 percent, respectively. Further, the company has zero debt, thus the enterprise value was lesser by 13 percent as the cash represents 13 percent of the enterprise value. The equation for buying the entire BBRY was 100 percent equity. The current cash per share was $5.39 while the average cash per share was $3.93.

The takeover price of the entire business of BlackBerry Ltd to date, July 18, 2013, was $2 billion at $3.77 per share.  While the market price to date was $9.24 per share. The difference was 59 percent.

Margin of Safety

The historical margin of safety averaged 58 percent, while 2012 and ttm2013 have zero margins of safety.  This further implies that the true value of the stock is lesser than the market price. The historical intrinsic value was averaging $217 and the annual growth was averaging 49 percent, in addition, the earning per share was averaging $2.44. The ROE was negative 7 and 2 for 2012 and trailing twelve months, respectively.

Further, the relative value indicates that the overall issue of P/E*EPS shows that the stock of BBRY was undervalued. The P/E*EPS was averaging 32 percent while the price was averaging 29 percent.

Furthermore, the EV/EBITDA indicates that it will take 5 years to recoup the cost of buying the entire business of BBRY.  In other words, it will take 5 times the cash earnings of the company to recover the costs of purchasing the entire company.

Overall

Overall view, it shows a frustrating result in the market value of the company as well as the deteriorating growth in the current periods. The downfall of BBRY’s price was very steep and climbing to the top might be hard, as the company has a long way to go to make a comeback to its former condition. Although the price seems undervalued considering the relative valuation, intrinsic value of the company reveals the true value of the stock, thus indicating that the stock is trading above its true value. Cris concluded, “Since the company is still in its early phase of transformation, I, therefore, recommend a SELL on the stock of BlackBerry Ltd.”

Researched and Written by Meriam, Karla, Rio, and Cris

Interested to learn more about the company? Here’s company research to know more of its background and history; and investment valuation for the pricing.

Telecom Argentina S.A. (ADR) teo

Will the Telecom Argentina SA ADR (TEO) Show Good Trend of Income

April 8th, 2013 Posted by Company Research Report No Comment yet

Telecom Argentina S.A. (TEO) is the major local telephone company for the northern part of Argentina, including the whole of the city of Buenos Aires. Briefly known as Sociedad Licenciataria Norte S.A., it quickly changed its name, and is usually known as simply “Telecom” within Argentina. Wikipedia

Telecom Argentina Investment Guide

To give us a detailed statement, let me give thanks for the Internet because I sought some help on this. To spill the bean, Telecom Argentina S.A. (ADR) is an Argentina-based company primarily engaged in the provision of national fixed-line telecommunication services, international long-distance service, data transmission, and Internet services, as well as mobile telephony. I shared this to you because this report will give us the number side of the company. Knowing what the business is all about is a big help for us.

Balance Sheet

Liquidity

Liquidity is very important since without cold cash business operation cannot run smoothly and effectively. There are several ratios to measure liquidity and they are the current ratio, quick ratio, and working capital ratio.

  • The average current ratio was .76 which clearly indicates that the current asset was only 76 percent against current liabilities.
  • Current asset less inventory over current liabilities or quick ratio was .69 average This clearly means that its monetary asset was 69 percent.
  • And TEO incurred a negative working capital ratio of 35 percent which tells us that that the company’s current liabilities are greater than current assets.

As clearly shown in the above table, TEO was not financially healthy in the year 2007 to 2011, however, it was improving year after year.

Asset Management/Efficiency

Asset management measures the efficiency of the company’s current resources as well as long term asset to generate revenue of the company.  The asset management ratios of the company as shown below:

  • Inventory turnover ratio was 43 times average. This ratio tells how often the company turns its inventory during the course of the year. Because inventories are the least liquid form of asset, a high inventory turnover ratio is generally positive.
  • Receivable turnover ratio was 10 times average which indicates how quickly TEO customers are paying the accounts. The greater the number of times receivables turn over during the year, the shorter the time between sales and cash collection.
  • Payable turnover ratio was 6 times average. This reveals how often payables turn over during the year. A high ratio means there is a relatively short time between the purchase of goods and services and payment for them. A low ratio may be a sign that the company has chronic cash shortages.
  • Asset turnover ratio was 1.1 average. The total asset turnover ratio shows how efficiently total assets generate sales. The higher the total asset turnover ratio, the better and the more efficient asset base is used to generate sales.

Calculating the turnover ratios in the number of days equivalent, its inventory was 9 days average, receivable was 35 days and payable was 66 days. It shows an advantage for the company since the funds could be used for short term investment to earn more returns before payables will due for payment.

Cash Conversion Cycle

Cash Conversion Cycle measures how fast a company can convert cash on hand into even more cash on hand. So this means, the lower the number, the better for the company.

I’m wondering how Rio got the results from the above table so I asked her. To know the cash conversion cycle we need to add the inventory conversion period and receivable conversion period and then subtract the payable conversion period. Using this formula, the CCC resulted in negative 22 for TEO.

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, while the other way is through the use of the owner’s funds or equity.

Debt ratio, debt/equity ratio and the solvency ratio of TEO from 2007 to 2011 are shown below:

  • Debt ratio average was .54 which tells us that total liabilities was half of its total assets while debt to equity ratio was 1.24 or total debt was 124 percent of owner’s equity.
  • And solvency ratio was 49 percent which means that the company is solvent.

The company uses its funds as collateral to make additional borrowing as shown on the debt-equity ratio.  In addition, leverage is useful to fund company growth and development through the purchase of assets. But if the company has too much borrowing, it may not be able to pay back all of its debts.

Property, Plant, and Equipment

For this section, we can determine the company’s investment in fixed assets which could be used in long term periods. 

  • Gross PPE investment of TEO average was 23953, its expansion started in 2009 which showed an increase yearly.
  • Accumulated depreciation was 17077 which is equivalent to 71 percent of the gross PPE.
  • And, the net value of property, plant, and equipment was 6876 average or equivalent to 29 percent.

By looking at the table, using an estimated life of 5 years, the property had been used up for 3.6 years long and has a remaining service life of 1.4 years more.

Telecom Argentina Income Statement

Income

The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the “top line” or “gross income” figure from which costs are subtracted to determine net income.

The income of TEO from 2007 to 2011 is: 

  • Revenue was continuously increasing per year, with trailing twelve months of 21219. Its growth rate in 5 years was 17, 15, 20 and 27 percent.
  • Gross profit was 11749. This is the result after deducting the cost of goods sold from the total revenue. The trend is increasing year after year.
  • Operating income was 3803 ttm, this is the result after deducting operating expenses from gross profit. It has a growth rate of 25, 35 14 and 22 percent in five years.
  • Income before tax was 3998 ttm. This is the company’s income before deduction of income tax wherein it was also continuously increasing per year.
  • And income after tax, trailing twelve months was 2534, the bottom line of the business operation, has a yearly growth of 9, 48, 36 and 20 percent.

TEO was showing a good trend of income in five years period, with increasing figures yearly, it did not incur a negative amount from 2007 to 2011. The trend of growth was consistent which clearly show that the company is managed well.

Expense

This refers to the cost of running the business. This includes the direct cost of materials or services, operating and others such as taxes and licenses.

Details of TEO’s expenses from 2007 to 2011 are shown below:

  • The average cost of revenue was 9470 which is equivalent to 51 percent of the total revenue.
  • Operating expense was 7,946 which is 28 percent of the total revenue; another expense ttm was 818 equivalent to 6 percent and total expenses of 8764 trailing twelve months.

For us to understand things further, the cost of revenue is the direct cost of the products or services. Operating expenses include sales, administrative and research. Other expense includes interests, taxes, and licenses.

Margin

Margin refers to the percentage result over total revenue. Gross profit margin measures profitability after considering the cost of goods sold while operating profit margin measures profitability based on earnings before interest and tax expense. Net profit margin is often referred to as the bottom line and takes all expenses into account.

  • Gross margin is the percentage result of gross profit over gross revenue. Trailing twelve months gross margin of TEO was 49 percent of revenue.
  • Operating margin was 20 percent.
  • Pretax margin was 17 percent, this is the income before tax of the company over total revenue and net profit margin was 11 percent, the percentage result of the net income over total revenue.

The net profit margin of TEO was not impressive at 11 percent. It is below the standard level of 20 percent.

Profitability

The profitability ratios help users of a company’s financial statements determine the overall effectiveness of management regarding returns generated on sales and investments.

Profitability ratios of the company from 2007 to 2011 showed that:

  • Net margin was 11 percent average which is below the standard level of 20 percent.
  • Asset turnover was 1.13. It is a measure of how effective a company converts its assets into sales. Asset turnover ratio tends to be inversely related to the net profit margin, the higher the profit margin the lower the asset turnover and vice versa.
  • Return on asset was 20 percent. It was yearly progressing in five years period.
  • Return on invested capital was 25 percent, with an increasing trend in the last five years which started at 19 percent until 31 percent in 2011.
  • Return on equity using the DuPont model was 28 percent which considers the financial leverage of 2.24.   If the company is zero-debt, its ROE was 13 percent.

Profitability ratios of the company were not so impressive, net margin was only 11 percent with a return on invested capital of 25 percent. Its return on equity was 28 percent which includes assets which were acquired on credit or loaned.

Modified IS

The income statement of TEO was simplified using the three segments; the revenue, expense and net income. What’s with the graph and table below, we’ll find out through Rio’s explanation:

  • Revenue was yearly improving in five years period, with ttm of 21219.
  • The total expense which includes the cost of sales, operating and other expenses were 18685.
  • After deducting expenses, TEO’s net income was 2534.

Total revenue of TEO has a trailing twelve months of 21219, with a total expense of 18685 or equivalent to 88 percent of the total revenue, which resulted to a net income of 2534 or 12 percent of revenue.

Telecom Argentina Cash Flow

Okay, here’s the thing about cash flow. Rio said that it is a statement of sources and uses of cash. It provides information about the cash flows associated with the operations and also investing and financing activities during the period. It has 3 categories, namely; operating activities, investing activities and financing activities.

Operating Cash Flow

This is the key source of a company’s cash generation. In this section of the cash flow statement, net income is adjusted for non-cash charges and the increases and decreases to working capital items.

Operating cash flows of TEO from 2007 to 2011 are:

  • Total cash inflow was 4292.  This includes net income, depreciation and amortization, deferred income taxes and other non-cash items.  Total outflow was -453 or the changes in accounts receivable, inventory, and other working capital.
  • Net cash provided by operating activities was 4798. It shows that balances are all positive in five years period and are increasing yearly.

Operating cash flow of TEO shows sufficient funds left for investing activities which means the company has the capability to acquire additional assets, invest other lines of business and retire debts.

Investing Cash Flow

Investment cash flows are cash received from the sale of long-life assets or spent on capital expenditure (investments, acquisitions, and long-life assets).

For TEO’s transactions from 2007 to 2011, let us see the next table.

  • Total cash inflow was 174 average. Sources of these are PPE reductions, sales/maturities of investments and other investing activities while cash outflows are investments in PPE, net acquisitions,  purchases of intangibles and other investing activities, it has an average of  -3961.
  • Net cash used for investing activities shows negative balance throughout in five years period because cash outflows are more than its inflows and the company expanded its investments in real properties.  The trailing twelve months was -3089.

Financing Cash Flow

From the name, financing cash flow accounts for external activities such as issuing cash dividends, adding or changing loans or the issuing and selling more stock. 

Financing activities of TEO from 2007 to 2011 are:

  • Cash inflow was 141 average and derived from debt issued. Cash outflows are debt repayment, dividends paid and other financing activities which have an average of -1664.4.
  • Net cash provided(used for) financing activities from 2007 to 2011 was -1575, -1558, -1686, -1832 and -965 which are all negative balance. This is because its cash outflows exceed cash inflows.

Under this category, financing cash flow of TEO incurred negative balance because the bulk of payments are debt repayments, payments of dividends and other financing activities. “Cash inflows are not enough to offset cash outflows,” Rio added.

Free Cash Flow

I’ve learned from Rio that positive free cash flows indicate funds available to retire additional debts, increase dividends and invest a new line of business. For negative free cash flow, this indicates the financing is needed to support the operations. So what about for TEO? Is it positive or negative? Rio will give us the answer.

Free cash flow of TEO was 1702, 1758, 1797, 1892 and 3217, with trailing twelve months of 2329. These are cash flow balance after deducting capital expenditure from operating cash flow.

Cash Flow Ratios

Commonly used cash flow ratios are cash flow margin, operating cash flow ratio, free cash flow, capital expenditure, and total debt ratio. These are used as indicators of liquidity and to evaluate the risk that may happen in the business.

  • For TEO, cash flow margin was 23 percent which means that the company generates $0.23 of cash for every dollar of sales revenue. Its operating cash flow ratio was 87 percent. it measures the liquidity of the company in the short run since it relates to current debt. While free cash flow was 49 percent which tells us that the company has 49 percent left of cash flow after deducting capital expenditure. Capital expenditure was 2.33 which reflects the efficiency of an entity in employing its operating funds to maintain its assets.
  • Finally, the total debt ratio was 63 percent.  This ratio indicates a company’s ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company’s ability to carry its total debt.

The above data shows that TEO is efficient enough in handling cash in its business, with a cash flow margin of 23 percent which is greater than the standard of 20 percent and its free cash flow ratio was 49 percent which indicates that it has available funds to retire additional debts, increase dividends and even invent new business.

Conclusion

TEO has limited resources to fund its business in the short term period as shown in its liquidity ratios, the debt-equity ratio was 1.24, but improving, since it is yearly decreasing. The company’s revenue was yearly increasing however, its net margin was only 11 percent,  while its cash flow margin was 23 percent and free cash flow of 49 percent.  Recommended a HOLD until such time net margin reaches the standard level.

Written by Rio
Edited by Cris

DryShips-inc-drys

DryShips Inc (DRYS) as a Global Shipping Transportation Company

March 13th, 2013 Posted by Company Research Report No Comment yet

DryShips Inc (DRYS) is a global shipping transportation company specializes in the transportation of dry bulk cargoes. Not only, but they also provide reliable and trusted transportation services at competitive cost.

Who started the company and why?

DryShips Inc. is a Marshall Island registered company which was formed on September 9, 2004. The company is located at Omega Building, 80 Kifissias Avenue, Amaroussion GR 151 25, Greece. Its stock is listed on NASDAQ. The core of the business is building and maintaining enduring relationships with charterers of dry bulk carriers and providing reliable seaborne transportation services at competitive cost.

The company’s current CEO, Mr. George Economou, has been active in shipping since 1976 and formed the company’s related technical and commercial ship-management company, Cardiff Marine Inc.

It found in the suburb of Maroússi, 12km/7.5mi north of Athens that occupies the site of the ancient deme of Athmonia, where there was a sanctuary of Artemis Amarysia. In more recent times it has become known through Henry Miller’s “Colossus of Maroussi”.

What is the background of DryShips Inc? Its history and development?

What is the nature of DryShips Inc. business?

Offshore drilling refers to a mechanical process where a wellbore is drilled through the seabed. It is typically carried out in order to explore for and subsequently extract petroleum which lies in rock formations beneath the seabed. Also, offshore drilling presents environmental challenges, both from the produced hydrocarbons and the materials used during the drilling operation. 

DryShips Inc. is a holding company affianced in the ocean transportation services of dry bulk cargoes and crude oil worldwide. The company is a global shipping transportation company specializing in the transportation of dry bulk cargoes through its majority owned subsidiary, Ocean Rig UDW Inc. It owns and operates dry bulk carrier vessels and oil tankers and offshore drilling services through the ownership and operation of ultra-deep-water drilling units. Company’s vessels are able to trade worldwide in a multitude of trade routes carrying a wide range of cargoes for a number of industries. Their cape size and Panamax dry bulk carriers carry predominantly coal and iron ore for energy and steel production as well as grain for feedstocks. The handymax and handy size dry bulk carriers carry iron and steel products, fertilizers, minerals, forest products, ores, bauxite, alumina, cement, and other construction materials. The company’s common stock is listed on the NASDAQ Global Select Market where it trades under the symbol “DRYS.”

Who is running DryShips Inc and their background?

The chief financial officer is the CFO of a company and the chief executive officer is the CEO of a company. The CFO is responsible for a company’s financial affairs and reports to the CEO. To differentiate between the two, think of the CFO as the head of the company’s financial departments and the CEO as head of the entire company. Meriam and Karla will now introduce to us the people running the company and bits of information on their background.
CEO

Mr. George Economou served as chairman, president, and chief executive officer of DryShips Inc. since its inception in 2004. He has overseen the company’s growth into the largest US-listed dry bulk company in fleet size and revenue and the second largest Panamax owner in the world. From 1981-1986, he held the position of general manager of Oceania Maritime Agency in New York. He has been a director and the president of All Ships Ltd. and since 2010; he has been a member of the board of directors of Danaos Corporation. Mr. Economou was born and raised in Athens, Greece and a graduate of Athens College completed his higher education in the United States at the Massachusetts Institute of Technology in Boston. He is a graduate of the Massachusetts Institute of Technology and holds both a Bachelor of Science and a Master of Science degree in Naval Architecture and Marine Engineering and a Master of Science in Shipping and Shipbuilding Management.

CFO

Mr. Ziad Nakhleh is the chief financial officer of DryShips Inc., since November 2009 and he had 12 years of finance experience. He served as a chief financial officer of Aegean Marine Petroleum Network Inc. He was extensively involved in maintaining investor confidence and contributing to the expansion of the company by way of corporate and asset acquisitions. Mr. Nakhleh was engaged in a consulting capacity to various companies in the shipping and marine fuels industries. He was employed at Ernst & Young and Arthur Andersen in Athens. He is a graduate of the University of Richmond in Virginia and is a member of the American Institute of Certified Public Accountants.

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

Dry Ships Inc. has three committees namely: audit, compensation and nominating. The role of the compensation committee is to set appropriate and supportable pay programs that are in the organization’s best interests and aligned with its business mission and strategy. With the adoption of the executive and director compensation disclosure rules by the SEC, changes to the accounting for certain equity awards, and more active shareholder groups wanting a “say on pay,” the compensation committee is working harder to meet the requirements of all observing parties.

Mr. Harry G. Kerames. He is the chairman of the audit committee and member of the compensation committee and an independent director of DryShips Inc.,since July 29, 2009. He has over 22 years of experience in the transportation industry. He has been the managing director of Global Capital Finance where he was responsible for the firm’s shipping practice. Mr. Kerames served as chief marketing officer of Charles R. Weber Company Inc., a ship broker and marine consulting firm, where he brokered tanker freight derivatives, and co-founded a freight derivatives hedge fund. He received a Bachelor of Science from the University of Connecticut.

Mr. Evangelos Mytilineos, the chairman of compensation committee and member of nominating committee. He is an independent director since December 2008. He has over 20 years of experience in the shipping industry. He served as a senior executive in the Peraticos and Inlessis group of companies, which are involved in the drybulk and tanker shipping sectors. Mr. Mytilineos studied at the Athens University of Economics. Mr. George Demathas is an independent director of DryShips Inc., since July 18, 2006. He was also a director of Ocean Rig ASA from 2008 to 2010. He has been the chief executive Officer and a director of Stroigasitera Inc. He has been involved in Malden Investment Trust Inc. in association with Lukoil, working in the Russian petrochemical industry. Mr. Demathas is based in Moscow and travels widely in Europe and the United States. He has a Bachelor of Arts in Mathematics and Physics from Hamilton College in New York and a Master of Science in Electrical Engineering and Computer Science from Columbia University.

How do they make money?

Voyage charter is a charter where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified freight rate per ton. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably during the duration of the period of each voyage. A voyage is deemed to begin upon the completion of discharge of the vessel’s previous cargo and is deemed to end upon the completion of discharge of the current cargo.

The company has three reportable segments from which it derives its revenues: Dry bulk, Tanker and Drilling segments. Currently, revenues in the offshore drilling segment depend on two ultra-deepwater drilling rigs and four drill ships. DRYS makes most of its profits by chartering its vessels to other companies that pay a contracted daily rate to use the ships. It is also derived from contracts including day rate based compensation for drilling services.

They generate all revenues in U.S. Dollars in the drybulk and tanker segments but incur approximately 26.7 percent of operating expenses and the majority of general and administrative expenses in currencies other than the U.S. Dollar, primarily the Euro.

How do they fit in the industry they operate in?

Dry bulk cargo is cargo that is shipped in quantities and can be easily stowed in a single hold with little risk of cargo damage. The company faces competition in Dry Bulk, Tanker and Drilling Industry. Competition for the transportation of dry bulk cargo by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel as well as company’s reputation as an owner and operator. It also competes with other owners of dry bulk carriers in the Capesize, Panamax and Supramax size sectors.

The tanker industry is highly competitive, arises primarily from other vessel owners, some of whom have substantially greater resources than DRYS. Offshore contract drilling industry is highly competitive with several industry participants, none of which has a dominant market share and is characterized by high capital and maintenance requirements. Major competitors are: Navios Maritime, Eagle Bulk, Excel Maritime, Genco Shipping and Diana Shipping.

Who are their suppliers and customers?

Offshore drilling simply means the process of exploiting mineral resources in the seabed; most of those resources are related to the oil and gas industries. Drilling is conducted by several kinds of specialized vessels, some with a planing hull supporting huge legs and a drilling platform, some with legs more than 300 feet long that rest on the seabed to support a drilling platform, and some that are ships, either purpose-built or converted from other forms of commercial vessel, with a drilling rig on top.

DRYS has three reportable segments such as; the Drybulk , Tanker, and Drilling, which reflects the international organization of the company and are strategic business that offers different products and services. DryBulk fleet mainly carries a variety of dry bulk commodities including major bulk items such as coal, iron ore, and grains, and minor bulk items like bauxite, phosphate, fertilizers and steel products. Drilling business segment is consists of trading of the drilling rigs and drill ships through ownership and trading of such drilling rigs and drill ships. Tanker business segment is consists of vessels for the transportation of crude and refined petroleum cargoes. Its customers generally fall within three categories: national oil companies, large integrated major oil companies and medium to smaller independent exploration and production companies. DRYS and its predecessor, Ocean Rig ASA, both have an established history with 121 wells drilled in 13 countries for 23 different customers.

What is their workforce like?

A skilled worker is any worker who has some special skill knowledge, or ability in their work. They may have attended a college, university or technical school or, a skilled worker may have learned their skills on the job. DRYS only requires highly skilled personnel to work in their company. They are the ones who operate and provide technical services and support for its business in the offshore drilling sector worldwide.

As of December 31, 2011, the company employed 1,305 employees, the majority of whom are full-time crew employed on drilling units. Continued operations depend upon on key management personnel, particularly chairman and chief executive officer Mr. George Economou. DRYS has an agreement with TMS Bulkers, as a successor to Cardiff, which was in the business of providing commercial and technical management for over 22 years, and continue to provide competitive employment opportunities on company’s vessels in the future.

How do they treat their employee? Its pay and working condition like?

Equity Incentive Plan Agreement is a legal contract between a corporation and its employees to provide the employee with an interest in the corporation. The purpose of an Equity Incentive Plan is to strengthen the financials of the corporation by providing incentive stock options to its employees. The Plan serves as a means to attract, retain, and motivate corporate personnel. DRYS has a strong commitment topromoting honest and ethical business conduct by all employees in compliance with the laws that govern the conduthe ct of the company’s business worldwide. It developed a code of business ethics and conduct, the code, which applies to all affiliates of the company and all employees, directors, officers, and agents of the company.

On January 16, 2008, the company’s board of directors approved the 2008 Equity Incentive Plan. This plan has three retirement benefits plans for employees and managed as well as funded through Norwegian Life insurance. The company renders a stock-based compensation which represents restricted common stock granted to employees and directors for their services. On January 18, 2008, the company entered into a Stockholders Rights Agreement in which declared a dividend payable of one preferred share purchase right.  

CITATION

Who started the company and why?

http://www.dryships.com/pages/profile.asp http://en.wikipedia.org/wiki/DryShips_Inc http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm

What is the nature of the business?

http://www.dryships.com/pages/overview.asp http://www.sec.gov/Archives/edgar/data/1308858/000131786113000013/f021313drys6kpricing.htm http://www.google.com/finance?q=NASDAQ%3ADRYS&ei=7boqUaC_H8nEkgWyuQE http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm

What is the background of the company? Its history and development? http://www.google.com/finance?q=NASDAQ%3ADRYS&ei=7boqUaC_H8nEkgWyuQE http://www.reuters.com/finance/stocks/companyProfile?rpc=66&symbol=DRYS.O http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312511099671/d20fa.htm

Who is running the company and their background? http://www.dryships.com/pages/management.asp http://www.reuters.com/finance/stocks/companyOfficers?symbol=DRYS.O&WTmodLOC=C4-Officers-5 http://www.dryships.com/pages/management.asp http://www.reuters.com/finance/stocks/companyOfficers?symbol=DRYS.O&WTmodLOC=C4-Officers-5

Who is directing the company? How are the committees structured? http://investing.businessweek.com/research/stocks/people/committees.asp?ticker=DRYS http://www.reuters.com/finance/stocks/officerProfile?symbol=DRYS.O&officerId=1462786 http://investing.businessweek.com/research/stocks/people/person.asp?personId=33771930&ticker=DRYS&previousCapId=13580386&previousTitle=DRYSHIPS%20INC http://investing.businessweek.com/research/stocks/people/committees.asp?ticker=DRYS http://www.reuters.com/finance/stocks/officerProfile?symbol=DRYS.O&officerId=1315286 http://investing.businessweek.com/research/stocks/people/person.asp?personId=8351841&ticker=MYTIL:GA&previousCapId=13580386&previousTitle=DRYSHIPS%20INC http://investing.businessweek.com/research/stocks/people/committees.asp?ticker=DRYS http://www.reuters.com/finance/stocks/officerProfile?symbol=DRYS.O&officerId=957821

How do they make money? http://www.wikinvest.com/stock/DryShips_%28DRYS%29 http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000091957412005110/d1313146_6-k.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312511099671/d20fa.htm

How do they fit in the industry they operate in? http://www.dryships.com/pages/profile.asp http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.wikinvest.com/stock/DryShips_%28DRYS%29

Who are their suppliers and customers? http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000091957412005110/d1313146_6-k.htm

What is their workforce like? http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312512118109/d316138d20f.htm

How do they treat their employee? What is the pay and working condition like? http://dryships.irwebpage.com/files/dryscoe.pdf http://www.sec.gov/Archives/edgar/data/1308858/000119312511099671/d20fa.htm http://www.sec.gov/Archives/edgar/data/1308858/000119312511099671/d20fa.htm

Researched and Written by Meriam and Karla
Edited by Cris

Navios Maritime nm

Navios Maritime Holdings (NM) Moderate Financial

February 20th, 2013 Posted by Company Research Report No Comment yet

Balance Sheet

Financial Liquidity 

For NM’s liquidity, the following is their results from 2007 to 2011 operations.

  • Current ratio was 1.88, 1.86, 2.18, 1.73 and 1.47. Average of 1.83, which shows that in five years period it is fluctuating, its highest ratio was in 2010.
  • The quick ratio was 1.88, 1.82, 2.11, 1.64 and 1.38. Its average was 1.77 which is also up and downtrend and high in 2010 while the lowest was in 2012 at 1.38.
  • Working capital ratio average was .09, which shows positive result throughout its five years of operation, trending down with the highest ratio in 2008 at .20. Its lowest was 2011 and 2012 at .04.

As long as the company’s current asset could meet its current liabilities when due, the company is considered liquid. Therefore, NM is a liquid company; its current resources can meet its current obligations when becoming due. However, it did not meet the standard ratio of 2.

Asset Management/Efficiency

Laid below are the data gathered by Rio for Navios Maritime Holdings Inc.’s efficiency ratios from 2007 to 2011:

  • The average inventory turnover ratio was 34.96 times and it takes 11 days to sell its stocks.
  • The receivable turnover ratio was 7.64 times average which is equivalent to 52 days for its receivable to collect.
  • While payable turnover ratio was 12.19 times and 33 days for the company to pay its suppliers.
  • Asset turnover ratio average was .31 times. This ratio indicates the productivity of total assets in generating revenues.

Cash Conversion Period

Let’s see NM’s cash conversion cycle through the table and graph below:

Cash conversion cycle of Navios Maritime Holdings Inc. was 30 days average. In 2007, it was negative 1 since the inventory balance was 0. However, thereafter until 2011, it went high. This tells the owner the number of days that cash or capital stays tied up in the business processes of the firm.

 Leverage

Debt ratio, debt to equity ratio and the solvency ratio of NM from 2007 to 2011 are as follows:

  • Debt ratio was .61, .64, .68, .71 and .64. Its average was .66 which means that total liabilities of the company was 66 percent against total assets.
  • Debt to equity was 1.56, 1.80, 2.17, 2.47 and 1.75, an average of 1.95. It tells us that total liability was 195 percent of the owners’ equity.
  • Average solvency ratio was .12 which means that the company did not meet the standard percentage of 20.

By looking at the above data, NM’s total debt was more than 50 percent of its total asset, more so with total equity which was 195 percent average. It indicates that the company expanded its assets through borrowings. Thus, it contributed to a lower solvency ratio of 12 percent.

Let’s get to find out now who has the majority claimants of the company based on total assets.

  • Current liabilities to the total asset has an average of .11 which means that the company’s creditors have only 11 percent claim.
  • While long-term liabilities to the total asset was .47 which tells us that the banks and bondholders have only 47 percent claim.
  • And, stockholders’ equity to the total asset was .34 which means that its stockholders have only 34 percent claims on the total assets of NM.

“Therefore, it shows that the majority claimants of the total assets of the company are the banks and bondholders which have a percentage of 47,” Rio said.

Property, Plant & Equipment

Investment in the Navios Maritime Holdings Inc. in property, plant, and equipment from 2007 to 2011 are the following:

  • The gross property, plant, and equipment have an average of 1,487 in five years period. It shows that its expansion had increased which started in 2010 doubling it’s 2009.  Yearly percentage of growth was 75, 109, 44 and -17 percent.
  • Accumulated depreciation was 135 average which is equivalent to 9 percent only.
  • The cost of PPE was 1,352 average in five years or 91 percent of the total cost of the fixed asset.

Therefore,  if the estimated life of the property was 5 years, its used life was the only half year, so, the property could still be usable for 4 and a half years more.

Income Statement

Income

  • Revenue was 758, 1246, 599, 680 and 689 with trailing twelve months of 656. It was trending up and down which has a growth rate of 64, -52, 14 and 1 in 2011.
  • Gross profit was 731, 153, 213, 296 and 299 with ttm of 258. Its percentage growth was -79, 39, 39 and 1.
  • Operating income was 676, 53, 95, 132 and 138. It is the result after deducting operating expenses from gross profit.
  • Income before tax was 275, 64, 69, 146 and 41 with a growth rate of -77, 8, 112 and -72 percent.
  • And income after tax was 271, 119, 68, 146 and 41, with ttm of 41.  This is the result of applying the provision for income tax.

The income of NM was up and down. Its revenue almost doubled in 2008 but decreased by 52 percent in 2009, rose back by 14 percent in 2010 and 1 percent in 2011. However, its income after tax showed a decrease of 56 percent in 2008, 43 percent in 2009 but recovered in 2010 by an increase of 115 percent but dropped in 2011 by 72 percent.

“Overall result was positive although there were an up and downtrend,” Rio explained.

Expense

Expense refers to any deduction from the company’s earnings in a given period.  Details of NM’s expense from 2007 to 2011 are as follows:

  • The cost of revenue was 28, 1093, 385, 384 and 391, ttm of 398 which is equivalent to 4, 88, 64, 56 and 57 of revenue.
  • Operating expense was 54, 100, 119, 164 and 160 with ttm of 153, equivalent to 7, 8, 20, 24 and 23 percent of revenue.
  • And total expense was 459, 149, 183, 256 and 267 whose average was equivalent to 36 percent of the total revenue.

NM’s expense percentage to revenue was the cost of revenue average of 54 percent, operating expense 16 percent and other expense 19 percent of a total of 36 percent.

Margin

Margin refers to the company’s total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. From 2007-2011, here are the margin of Navios Maritime Holdings Inc.

  • Gross margin was .96, .12, .36, .44 and .43, ttm was .46. This is the percentage result of the gross profit over revenue.
  • Operating margin was .89, .04, .16, .19 and .20, ttm of .30. This is the operating income over revenue in percent.
  • Pretax margin  was .36, .05, .12, .21 and .06. with ttm of .16
  • And net profit margin was .36, .10, .11, .21 and .06, ttm was .17. This is the bottom line express in percentage.

Above data shows the percentage result of NM’s profit over its revenue. The average gross margin was 46 percent, operating margin was 30 percent after deducting the operating expenses and net profit margin was 17 percent.

Profitability

Profitability ratios help users of a company’s financial statements determine the overall effectiveness of management regarding returns generated on sales and investments. Let’s see what Rio got in NM’s profitability ratios from 2007 to 2011.

  • Net margin of NM was .36, .10, .11 .21 and .06 average of .17. It is the bottom line of the income statement expressed in percent. As noted, it was high in 2007 at 36 percent and very low in 2011 at 6 percent.
  • Asset turnover ratio has an average of .31 times.
  • Return on asset was .14, .03, .02, .04 and .01 with an average of .05.
  • Financial Leverage was 2.56, 2.80, 3.17, 3.47 and 2.75. Average was 2.95.
  • Return on Invested capital was .07 average in five years period.
  • Return on equity of NM was 15 percent using the DuPont method; if debt-free is only 5 percent.

Return on Equity using the DuPont Method

There are three components in the calculation of return on equity using the traditional DuPont model. They are the net margin, asset turnover, and equity multiplier. By examining each input individually, we can discover the sources of a company’s return on equity and compare it to its competitors.

The net profit margin is simply the after-tax profit that a company generated for each dollar of revenue. While asset turnover is a measure of how effectively a company converts its assets into sales. And the equity multiplier, a measure of financial leverage, allows the investor to see what portion of the return on equity is the result of debt.

To calculate the return on equity using the DuPont model, simply multiply the three components (net profit margin, asset turnover, and equity multiplier.) or follow this formula:

Return on Equity = (Net Profit Margin) (Asset Turnover) (Equity Multiplier).

“Through this method, we could determine what is the real ROE of the company if debt-free and what portion was the returns of the company earned on the debt at work in the business”, Rio said.

Modified Income

Rio really wanted us to understand things further so she made a graph which comprised the three areas of the income statement. So let’s get to know the graph better.

  

The data above shows that:

  • Revenue of NM from 2007 to 2011 was 758, 1246, 599, 680 and 689 with trailing twelve months of 656.
  • Total expenses were 487, 1127, 531, 534 and 648. ttm of 625 which include the cost of revenue, operating and others.
  • And net income was 271, 119, 68, 146 and 41, trailing twelve months of 31.

The five years period profit and loss statement of NM company tells us that its total expense reached as high as 83 percent average resulting in a net income of 17 percent. Its high figures were in 2007 and 2010 and the lowest in 2011 but all positive result. What can we say to this company then? “Good enough to this company,” Rio answered.

Cash Flow

Presented below is Navios Maritime Holdings Inc Cash Flow. But as mentioned there are three categories. Why don’t we tackle each? Let’s go.

Cash Flow from Operating Activities

Net cash provided by operating activities of NM from 2007 to 2011 was 128, -28, 216, 182 and 107. ttm was 110.  All results are positive, except in 2008 which was negative 28, but immediately recovered in 2009 to 2011. It means that the company has available funds for investing.

Cash Flow from Investing Activities

For Navios Maritime Holdings Inc., investing transactions from 2007 to 2011 were:

  • Total cash inflows were 353, 75, 67, 552 and 120 which came from PPE reductions and other investing activities, while
  • Cash outflows were  -369, -527, -868, -682 and -295 which are an investment in PPE, acquisitions, purchase of investment and other investing activities.

Investing cash flow of NM showed a negative balance throughout its five years period because cash outflows were more than its cash inflows on investing activities.

Cash Flow from Financing Activities

Total cash inflow was 382, 322, 1016, 901 and 621 which came from debt issued and common stock issued. Cash outflow, on the other hand, was -165, -135, -390, -920 and -588 which were debt payment, repurchase of treasury stock, cash dividends and other financing activities.

The financing cash flow of NM results was positive in 2007 to 2009 and 2011 because its cash inflows exceed cash outflow while in 2010 cash outflow was -920.  Its cash inflow was 901 resulting in a negative balance of 19.

 Free Cash Flow

The free cash flow of Navios Maritime Holdings Inc. was 83, -446, -562, -400 and -87.  Cash flow shows a negative balance because of high capital expenditure starting 2008 to 2011. It indicates that financing is needed to support current operations and programs.

It is important to note that negative free cash flow is not bad in itself. If free cash flow is negative, it could be a sign that a company is making large investments. If these investments earn a high return, the strategy has the potential to pay off in the long run. Thanks to Rio for that wonderful explanation.

Cash Flow Ratios

For NM, cash flow ratios used from 2007 to 2011 are:

  • Cash flow margin average was .17. It shows that the company is able to create $0.17 of cash out of $1 dollar in revenue.
  • Average operating cash flow ratio was .52 which is not good at all.  The company is not generating enough cash to pay off its short-term debt which is a serious situation. It is possible that the firm may not be able to continue to operate.
  • Free cash flow ratio was .17 ttm.  It is a measure of the financial strength of the company.
  • Capital expenditure was -.78 which tells us that the company has no financial ability to invest in itself through capital expenditure.
  • And total debt ratio was .06 which indicates NM’s ability to cover the total debt with its yearly cash flow from operations.

The overall cash flow of NM is not impressive as shown through its cash flow ratio results.  Cash flow margin was .17, operating cash flow was.52, capital expenditure was -.78 and total debt ratio was .06; insufficient to cover its total debt.

Alright, probably this is my favorite part of the article. Not that it was close to ending but this is where I can see the perspective of the reader. So with this, I want to know what Rio can say to the overall of Navios Maritime Holdings Inc.

Conclusion:

As to the financial strength of the company, its liquidity is at a moderate level with average cash conversion cycle of 30 days, leverage not so high however solvency is below normal. For the company’s margin and returns, net margin average in five years was 17 percent and returns on equity which include debt was 15 percent, however, if debt-free was only 5 percent. And for its cash flow, average cash flow margin was 17 percent and cash flow ratios showed that it is not impressive, did not meet the standard level.

Taking into consideration all the things mentioned above, therefore, my stand on this company is HOLD.

Written by Rio
Edited by Cris

AstraZeneca Plc (AZN) has Enough Funds to Continue Business

January 22nd, 2013 Posted by Company Research Report No Comment yet

AstraZeneca plc (AZN) is a British-Swedish multinational pharmaceutical and biopharmaceutical company. In 2013, it moved its headquarters to Cambridge, UK, and concentrated its R&D in three sites: Cambridge; …Wikipedia

Balance Sheet

Financial Liquidity

Liquidity is the ability of the firm to convert assets into cash. It is also called marketability or short-term solvency. For AstraZeneca plc (ADR)’s financial liquidity from 2007 to 2011, Rio presented a graph below:

What does this mean?

  • The current ratio was 1.12, 1.21, 1.35, 1.50 and 1.49, with an average of 1.33  which shows that current asset of the company is greater than its current liabilities by an average of 133 percent.
  • Quick ratio was .99, 1.09, 1.25, 1.40 and 1.37, average of 1.22. This is the monetary asset of the company. On average, it is 122 percent which means that it is also greater than its current obligations except in 2007 which was only 99 percent.
  • Working capital ratio was .04, .06, .11, .15 and .15. Average of .10. This is the percentage result of networking capital over total assets.

AZN is financially healthy as shown on the above data, wherein its current resources exceeded current obligations and its working capital showed growth each year.

Financial Leverage

Financial leverage of AstraZeneca plc (ADR) from 2007 to 2011 is detailed below:

  • Debt ratio had an average of .62. It means that the company’s total liabilities were 62 percent of total assets.
  • Debt to equity ratio average was 1.71 or total liabilities reached as high as 171 percent when compared to total equity.
  • Solvency ratio has an average of .31 which shows that the company was 31 percent able to pay off its total obligations.

The company operates its business within its normal level of borrowing. Its total debt was 62 percent of total asset and 171 percent of total equity. Leverage is not necessarily a bad thing. Leverage is funding company growth and development through the purchase of assets. But if the company has too much borrowing is risky because it might not be able to pay back all of its debts.

Asset Management/Efficiency Ratios

  • Inventory turnover ratio average was 3.48 times. This signifies the number of times inventory is sold and restocked each year.
  • The receivable turnover ratio has an average of 4.71 times. It measures the number of days it takes a company to collect its credit accounts from its customers.
  • The payable turnover ratio was 5.58 times average in five years period. This is the number of times the company pays its obligation each period. This ratio measures how the company pays its suppliers in relation to the sales volume being transacted.
  • Asset turnover ratio was .62 times average. Asset turnover ratio shows how efficiently your assets, in total, generate sales. The higher the total asset turnover ratio, the better and the more efficient you use your asset base to generate your sales.

Efficiency ratios show that AstraZeneca plc (ADR) was efficient and effective enough in generating sales out of its resources if compared to other company of the same industry. Converted into days, inventory turnover was 104 days, receivable turnover was   77 days while payable turnover was 65 days.

Property, Plant, and Equipment

Investment in property, plant and equipment of AZN from 2007 to 2011 are as follows:

  • PPE, gross was 15,502 average in 5 years. This is the average total cost of the fixed asset at the time of acquisition.
  • Accumulated depreciation was 8303 average. This is a cumulative depreciation of an asset up to a single point in its life.
  • Netbook value of PPE was 7206 average. This is the net cost of the property after deducting the accumulated depreciation.

Using the available data above, fixed asset investment shows that AstraZeneca plc (ADR) has used up the property for 2.7 years.  Therefore, the average remaining life is 2.3 years to fully use the property.

AstraZeneca Income Statement

Income

The income or revenue is the amount of money that is brought into a company by its business activities. You might be thinking what would it be if we analyze AZN’s income, right? For that, Rio has the answer.

  • Revenue was 29559, 31601, 32804, 33269 and 33591; ttm was 29347, which shows that the revenue of AstraZeneca was increasing every year. Its percentage growth was 7, 4, 1 and 1 percent respectively.
  • Gross profit was 23140, 25003, 27029, 26880 and 27565; ttm was 23557. Its growth per year was 8, 8 -1 and 3 percent.
  • Operating income was 8094, 9144, 11543, 11494 and 12795; ttm was 22606.
  • The Income before tax was 7983, 8681, 10807, 10977 and 12367. It’s ttm was 7916. This is the company’s income per year before deducting income tax.
  • Income after tax was 5595, 6101, 7521, 8053 and 9983; ttm was 6262. As you can see, it is increasing yearly by 9, 23, 7 and 24 percent.

As shown per above data, the company’s income increased consistently per period from 2007 to 2011. Its highest percentage growth was 7 percent in 2008, with minimal growth of 1 percent in 2010 and 2011.

Expenses

Expenses are inevitable in operating a business. Rio mentioned different kinds of expenses where AZN allotted its money from 2007 to 2011. But before that, she explained what those expenses are one by one. According to her, the cost of revenue is the expense a company incurred in order to manufacture, create or sell a product.  It includes the purchase price of raw materials as well as the expenses of turning it into a product. Operating expenses are the selling, general and administrative expenses of the company. Other expenses are those not classified under cost and operating.

  • The cost of revenue was 6419, 6598, 5775, 6389 and 6026. ttm was 5790. This is equivalent to 22, 21, 18, 19, 18 percent of the total revenue.
  • Operating expense was 15046, 15859, 15486, 15386 and 14770 which is 51, 50, 47, 46 and 44 percent of revenue.
  • Another expense was 2499, 3043, 4022, 3441 and 2812. ttm of 16344. Other than operating expense is another expense which is 8, 10, 12, 10 and 8 percent of sales. This already includes provision for income tax.
  • Finally, total expense was 17545, 18902, 19508, 18827 and 17582. ttm of 17295. This is the total of operating and other expense equivalent to 59, 60, 59, 57 and 52 percent of revenue.

The overall expenses of the company against total revenue in percentage represents the following:  For the cost of revenue, it has an average of 19.6, for operating expenses, an average of 47.6 and other expense represents 9.6, a grand total of 76.8. It tells us that the company is able to generate revenue that is sufficient for all the daily expenses of the company in its operation. It is enough to sustain all the expenses.

Margin

From 2007 to 2011, gross margin down to net margin of AstraZeneca plc (ADR) are:

  • Gross margin was .78, .79, .82, .81 and .82 which shows that it is impressive. The result is progressing each year.
  • Operating margin was .27, .29, .35, .35 and .38.  The trend is similar to gross margin with consistent progress.
  • Pretax margin was .27, .27, .33, .33 and .37.
  • Net profit margin was .19, .19, .23, .24 and .30.  Its percentage in 2008 was the same in 2007 and continued to rose up until 2011.

AstraZeneca margin was very competitive and progressive. Its gross margin had a yearly increase of an average of 2 percent except in 2010 wherein it slightly down by 1 percent but had recovered in 2011, while the operating and pretax margin was consistent. Its net margin has same percentage in 2007 and 2008, increase by 4 percent in 2009, and 1 and 6 percent respectively in 2010 to 2011.

Profitability

Profitability ratios help users of a company’s financial statements determine the overall effectiveness of management regarding returns generated on sales and investments.

For AstraZeneca, profitability ratios from 2007 to 2011 are:

  •  Net margin was .19, .19, .23, .24 and .30, ttm of .21. It is the after-tax profit a company generated for each dollar of revenue.
  • Asset turnover was .62, .68, .60, .59 and .64, ttm was .62 which shows that AstraZeneca is effective in converting its assets into sales.
  • Return on asset was .17, .19, .20, .20 and .23. ttm of .20. It tells us how much profit a company generated for each dollar in the asset.
  • Return on equity was .54, .55, .52, .47 and .53 with ttm of .52. This tells us that the company generates a return of $0.54, $0.55, $0.52, $0.47 and $0.53 invested in equity.
  • Financial leverage or equity multiplier was 3.25, 2.94, 2.66, 2.42 and 2.27. ttm was 2.71.
  • Return on invested capital was .22, .23, .36, .25 and .33. ttm was .28, which shows that the company generated $0.28 average return on invested capital.

Profitability ratios of AstraZeneca plc (ADR) were impressive and the company is doing well in its business. Net margin was improving each year with an average of 21 percent. Asset turnover was .62, return on equity was .52 while return on asset and return on invested capital was .20 and .28 respectively.

Modified Income Statement

To summarize it all,  revenue, total expense and net income of AstraZeneca from 2007 to 2011:

  • Revenue’s growth is consistent yearly although not by bulk.
  • Total expense was 23964, 25500, 25283, 25216 and 23608, ttm was 23,085.
  • Net income was 5595, 6101, 7521, 8053 and 9983, ttm was 6262. The trend is same as in revenue, trending up yearly.

Cash Flow

Cash Flow from Operating Activities

Operating cash flow transactions of AstraZeneca from 2007 to 2011 are as follows:

  • Depreciation & amortization was 1856, 2620, 2087, 2741 and 2550.
  • Inventory was 442, 185, 6, 88 and -256.
  • Other working capital was -885, -395, 1379 and 467.
  • Other non-cash items was -1886, -2349, 8523, -3120 and 6168.
  • Net cash provided by operating activities was 7510, 8742, 11739, 10680 and 7821. It shows positive result throughout its 5 years of operation. It means it has funds available to retire additional debts and pay dividends to shareholders.

Cash flow from operating activities indicates positive results, though it’s up and down trend, it shows that the company was effective in generating cash flow out of its revenue. So, the company has sufficient funds for its operating activities.

 Cash Flow from Investing Activities

  • Total cash outflows of AstraZeneca from 2007 to 2011 was -16605, -4079, -2988, -2802 and -2279 while total inflows were only 1718, 183, 512, 462 and 257.
  • As a result, net cash used for investing activities was -14887, -3896, -2476, -2340 and -2022 which showed negative results because total cash outflows exceed total cash inflows.

Cash Flow from Financing Activities

Shown below were the financing activities of AstraZeneca from 2007 to 2011:

Net cash provided by (used for) financing activities of AstraZeneca plc (ADR) was 6051, -6362, -3629, -7220 and -9321. It shows a positive result in 2007 due to its high other financing activities. However, the next periods were negative results because its cash outflows also exceeded cash inflows.

Free Cash Flow

Free cash flow is the result after deducting capital expenditure from operating cash flow. It shows positive results from 2007 to 2011 of 5831, 4703, 8782, 8499 and 6524. It indicates that funds are available to retire additional debts, increase dividends or invent new lines of business. However, if it’s negative, it indicates the financing is needed to support current operations and programs.

Cash Flow Ratios 

Provided below were the most important cash flow ratios with their corresponding calculations and interpretation. 

  • Cash flow margin was .25, .28, .36, .32 and .23. Also called operating cash flow margin and margin ratio,  cash flow margin measures how well a company’s daily operations can transform sales of their products and services into cash.
  • Operating cash flow was .49, .66, .67, .64 and .50. Operating cash flow relates to cash flows that a company accrues from operations to its current debt. It measures how liquidity a firm is in the short run since it relates to current debt and cash flows from operations.
  • Free cash flow was .78, .54, .75, .80 and .83. It is the percentage of free cash flow over operating cash flow.
  • Capital expenditure was 4.47, 2.16, 5.03, 13.50 and 9.32. This is the ratio that measures a company’s ability to acquire long-term assets using free cash flow. As the CF to CAPEX ratio increases, it is usually a positive sign. If a company has the financial ability to invest in itself through capital expenditures (CAPEX), then it is thought that the company will grow.
  • Total debt ratio was .23, .28, .34, .32 and .26. This ratio provides an indication of a company’s ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company’s ability to carry its total debt.

To sum it all, cash flow ratios show that AstraZeneca has enough funds to continue running its business.

Written by Rio
Edited by Cris

BHP Billiton plc

BHP Billiton is Struggling with Numbers

January 16th, 2013 Posted by Company Research Report No Comment yet

Financial Liquidity

  • Current ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. BHP Billiton plc (ADR) showed an increasing trend from 2008 to 2010 then declined in 2011 and 2012, with growth ratio of 43 percent, 1, -33, -27 and average of 1.47 times.
  • Quick ratio, on the other hand, measures a company’s ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio is, the better the position of the company. The trend went up from previous year and decreased in 2011 and 2012 with growth ratio of 47 percent, 1, -36, -33 and average of 1.12 times.
  • And their net working capital ratio or essentially the cash needed to run the business over their total asset showed a growth ratio of 7 percent, 0, -62, -80 and an average of 7.

A current ratio of 0.93 during 2012 which was under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. This mainly showed that the company was not in good financial health but it does not necessarily mean that it will go bankrupt as there were many ways to access financing. However, it is definitely not a good sign. The quick ratio is more conservative than the current ratio, a more well-known liquidity measure because it excludes inventory from current assets for some companies have difficulty turning their inventory into cash. BHP Billiton plc (ADR) short-term financial strength in 2011 and 2012 was insufficient in the event that short-term obligations need to be paid off immediately. And their net working capital ratio has lower and declining rates meaning lesser cash to run the business over the amount of their total asset.

Asset Management 

  • Receivable turnover is a measure used to quantify a firm’s effectiveness in extending credit as well as collecting debts. Wherein, turnover showed a decreased in 2009 of 6.79 times or 54 days and a declining growth ratio of 32 percent, 26, 17 with an average of 9.78 times or 39 days in 2010 to 2012.
  • The inventory turnover is a measure of the number of times inventory is sold or used in a given period. Its turnover showed a decreasing trend with a slight increase in 2012 which is inversely related to the number of days which was increasing and declined in 2012. This has a growth of 28 percent, 8, 0, -4 with an average of 82 days.
  • Payable conversion period is an indicator of how long BHP Billiton plc is taking to pay its trade creditors. This showed an up and down trend with a growth ratio of 16 percent, 1, -3, 3 and an average of 101 days.
  •  Fixed asset turnover ratio measures a company’s ability to generate net sales from fixed-asset investments – specifically property, plant and equipment (PP&E) – net of depreciation. This showed a decreasing trend, a slight increase in 2011 with a growth ratio of -26 percent, -3, 14, -24 and an average of 1.10 times.

BHP Billiton plc (ADR) has indirectly extending interest-free loans to their clients in terms of accounts receivable. This means they have a high ratio or number of times in their collection per year, depicting an efficient extension of credit and collection of accounts receivable which average 39 days. Their inventory turnover has an average of 4.53 times a year, this means an average of 82 days for inventory was being purchased and sold. It is important to understand how quickly the business usually needs to purchase new inventory. Their payable conversion period showed an average of 101 days or more than three months. Thus, cash conversion period fluctuates up and down with an average of 20 days for the whole process of purchasing, inventory, receivables (sales) turn into cash. The shorter the cycle, the less time capital is tied up in the business process, for the better of the company’s bottom line.

A higher fixed-asset turnover ratio shows that the company has been more effective in using the investment in fixed assets to generate revenues. Wherein the past four years they had been doing good except in 2012, it showed a declined to 0.88. This means major purchases are made for net PP&E to help increase output.

 Debt Management Ratio

  • Debt ratio indicates what proportion of debt a company has relative to its assets. This indicated a consistent debt below 50 percent which was the same for two years but declined in 2010 of 8 percent and 2 in 2011 and back again to 49.
  •  The debt-to-equity ratio is a measure of the relationship between the capital contributed by creditors and the capital contributed by shareholders. Wherein this showed a consistent growth ratio in 2009, a declined of -14.4 percent in 2010 and -2 in 2011 but recovered to increase 18 percent in 2012.
  •  Solvency ratio determines how well the company is able to meet its debts as well as obligations, both long-term and short-term. This showed a growth ratio with an up and down trend of -52 percent, 87, 531, -88 and an average of 203 percent.
  •  Payable turnover ratio, a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. This was calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period. This shows an up and down trend with a growth ratio of -14.6 percent, -1, 3.7, -2 and a five-year average of 3.61.

BHP Billiton plc (ADR) showed that it has more assets than liabilities. This means the company was not highly leveraged or financed by debts, since ratio it less than 50 percent. And they had high debt/equity ratio which generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. Their solvency ratio depicted how solvent and financially sound the company is, but it went down in 2009 and 2012 because net income decreased. And the increase of solvency ratio in 2011 of 663 percent was due to a decrease in long-term liabilities of 555 million dollars as compared to the rest of the years.

Payable turnover ratio depicted an average of almost 4 times, this means they pay their creditors three to four times a year.

Majority In Control Based on Total Asset 

Who’s the majority in control of BHP Billiton plc (ADR)? According to Nelly, if we were to base it on their total five years of operation, the majority in control of their total asset are their stockholders at 51 percent then their creditors of 17 and last to their bank/bondholder at 13 percent average.

  • Current liabilities to total assets identifies how much will be claimed by the creditor against total assets. This showed an up and down trend with an average of 17 percent.
  •  While long term debt to total assets is to make out how much claim has the banks or the bond holder against its total assets with an average of 13 percent.
  • Then, stockholders equity to total assets is to know how much the owner can claim in its total assets. This showed an average of 51 percent.

Plant, Property, and Equipment

Looking into its fixed assets — the plant, property & equipment, is knowing if it still has a useful life in their business operations. Based on the data below, the remaining book value of the PPE was 67 percent, using the percentage method of depreciation. This means it has 3.34 useful years remaining which is very much lower and may often increase in value depending on local real-estate conditions.

  • Gross plant, property, and equipment is the gross total of fixed assets cost, this shows an increasing trend with a growth ratio of 10.5 percent, 9, 20, 32 and it has an average of 94,339.20 million dollars.
  •  Accumulated depreciation is to reduce the carrying value of an assets to reflect the loss of value due to wear,  tear and usage. This also showed an increasing trend with a growth ratio of 24 percent, 2, 15, 19 and an average of 31,208.20 million dollars or 33 percent of gross.
  • The net plant, property, and equipment is the result after deducting the accumulated depreciation from gross PPE, wherein it showed an increasing trend with a growth of 3 percent, 13, 23, and 39.

Income Statement

BHP Billiton plc (ADR)’s income statement indicates how the revenue or money was received from the sale of products and services before expenses are taken out and transformed into the net income which is the result after all revenues and expenses have been accounted for.

Profitability 

  • Net margins or the result of net profit divided by net revenue is an indication of how effective the company was in their cost control. For the higher the net margin the more effective the company is in converting revenue into actual profit. This depicted an up and down trend for the last five years with a growth ratio of  -54 percent, 108, 32.9, -35.2 with an average of 23.12 percent.
  •  Their asset turnover is a number of sales generated for every dollar’s worth of assets. It is calculated by dividing revenues by total assets. Wherein it showed a declining trend with a slight increase in 2011, growth ratio was -26 percent, -4, 19, -17 and an average of 0.71.
  •  Return on assets shows how profitable a company’s assets are in generating revenue. This indicated an up and down trend with a growth ratio of -66.8 percent, 99, 62.5, -46 and an average of 16.74.
  •  Financial leverage is the degree to which an investor or business utilize borrowed money. This showed a growth ratio of -0.50 percent, -7.10, -1.09, 8.28 and an average of 1.91.
  • Return on equity measures the rate of return on the ownership interest of the common stock owners. This depicted a growth ratio of -66.8 percent, 91.6, 56.2, -44 and an average of 31.82.
  •  Return on invested capital which refers to the rate of earnings on the amount of capital invested during the period. This indicated an up and down trend with a growth ratio of -67.2 percent, 97.6, 80.2, -47, and an average of 24.16.

BPH Billiton plc (ADR) profitability indicates that the company showcased a good performance during 2008 and 2011 compared to 2009, 2010 and 2012.  A low net margin means lower net income earned from each dollar of revenues but the higher a company’s profit margin compared to its competitors, the better. Its asset turnover ratio tends to be inversely related to their net profit margin, wherein the higher the net profit margin the lower the asset turnover. The investors can compare companies using this to determine which business is more attractive. And this means they earn more from revenue than converting assets to revenue. Their return on assets depicted a fluctuating earnings for every dollar of total assets due to their net income and total assets growth ratio yearly was in an up and down trend, with increases in 2010 and 2011.

In terms of their returns using the DuPont Model; wherein, an equity multiplier is used to measure their financial leverage, allows investors to see what portion of the return on equity was the result of debt.

In the case of BHP Billiton plc (ADR), financial leverage was decreasing and only increase in 2012 thus this indicates no difficulty in paying interest and principal while obtaining more funding. While their return on equity show a high favorable decreasing trend thus the bulk of the return comes from profit margins and sales. It showed how well a company uses investment funds to generate earnings growth, and a ROE’s between 15 percent and 20 percent are generally considered good. Likewise,  the return on invested capital was fluctuating up and down, the increase was due to financial leverage or shareholders’ return on investment associated with borrowing.

Income 

Provided below is BBL’s income from 2008 to 2012.

  • Their revenue means how much money a company has generated in terms of “sales”, representing the amount of money a company brings in for selling its goods and services. This showed a growth ratio of -15.5 percent, 3.9, 35.8, 0.67 and it has a five-year average of 61,536.8 million dollars.
  •  Gross profit shows how much of their markup a company receives the goods and services it sells after deducting its cost of revenue. Wherein it depicted a growth ratio of -20.5 percent, 9.8, 50.7, -5.2 and an average of 38,271.6 million dollars.
  • Income before taxes refers to the gross taxable income of the company before deducting the income taxes. This showed a growth ratio of -50.5 percent, 68.5, 59.7, -26.3 and it has an average of 21,789.8 million dollars.
  •  Net income is what’s left over for a company after all expenses have been accounted for. This indicated a growth ratio of -61.8 percent, 116.5, 85.8, -34.8 and it has an average of 14,610.8 million dollars.

BPH Billiton plc (ADR) revenue for five years decrease in 2009 of -15.5 percent, and succeeding years it slightly went up with an abrupt increase in 2011 of 35.8 percent. This means revenue so as its gross profit and income before taxes was affected by US financial crisis in 2009 and 2010 but had recovered its earnings in 2011 and 2012. Therefore, net income showed a dipped in 2009 of -61.8 percent and 2012 of -34.8.

Expenses

  • The cost of revenue was the amount the company paid for the goods that were sold during the year.  This depicted a growth ratio of -7.72 percent, -3.97, 13.2, 12.6 and an average of 23,265.2 million dollars.
  •  Operating expense was the expenses incurred in conducting their regular operations of the business. This showed a growth ratio of 33.34 percent, -29.2, 36.5, 34.08 and has an average of 16,481.8 million dollars.
  •  Provision for income tax was the amount allocated for their payment of income taxes. This showed an up and down trend with a growth ratio of -22.3 percent, 24.15, 11.36, 2.47 and an average of 6,687.8.
  •  Other income (expenses) was the amount represented by other means or nonoperating income (expenses). This showed a growth ratio of -64.4 percent, -37.7, 3.83, -61.4 and it has a five-year average of -491.2 million dollars.

Overall total expenses have been increasing except for a slight declined in 2010 of -10.22 percent, for this showed a decrease of cost or revenue of -3.97 so as operational expenses of -29.2. This means during the financial crisis in 2008 and 2009, BPH Billiton PLC (ADR) tightens on their expenses as depicted in a decrease in total expenses to increase net earnings during the year.

Modified Income Statement 

I think it’s high time for us to sum up the income statement. What we have below is the interpreted summary of income statement based on its revenue, total expenses, and net income.

BHP Billiton plc (ADR) is a diversified miner that supplies aluminum, coal, copper, iron ore, mineral sands, oil, gas, nickel, diamonds, uranium, and silver indicated in the graph revenue was increasing except for 2009. Total expenses which were only 74.66 percent of average revenue indicated that expenses incurred were three-fourths. As a result, net income leftover was good at 23.74 percent.

Margins 

The following ratios show margin that represents the BBL’s ability to translate sales dollars into profits at various stages of measurement.

Overall margins showed how efficient the company’s management was able to sustain their profits. Despite the declined in 2009 they were able to recover in 2010 but declined again in 2012 due to a decrease in gross profit, operating and EBT margins.

Net Change in Cash 

  • Net cash provided by operating activities. To calculate this, one must calculate cash generated from customers and cash paid to suppliers. The difference between the two reflects cash generated from operations. This showed a growth ratio of 3 percent, -4, 67, -18 and an average of five years amounting 21,881.20 million dollars.
  • Net cash provided by (used for) financing activities is where the company reports the money that it took in and paid out in order to finance its activities. In other words, it calculates how much money the company spent or received from its stocks and bonds including any dividend payments that the company made to its shareholders, any money that it made by selling new shares of stock to the public, any money it spent buying back shares of its stock from the public, any money it borrowed, and any money it used to repay money it had previously borrowed. This indicated a down and uptrend of -83.9 percent, 349.7, 201.8,  -84.3 with an average of -5,467.4 million dollars.
  • Net change in cash has been affected by the exchange rate of different currencies used thus a net change in cash from operations, investments and financing resulted in an up and down trend of 415.6 percent, -75.6, -46.2, -118.9 with an average of five years of 496.6 million dollars.
  •  Cash at the beginning of the period, this showed an increasing trend with declined in 2012, growth ratio of 74.02 percent, 159.6, 14.9, -19.06 with an average of 7,987.4 million dollars.
  •  Cash at the end of the period, likewise this showed an increasing trend with decreases in 2011 and 2012, growth ratio of 159.5 percent, 14.9, -19.06, -51.6 with an average of 8,484 million dollars.

Looking at BPH Billiton plc (ADR) operating cash flow, this will show you whether a company is burning more money than it is earning. In this case their operating cash flow a gauge of company’s liquidity indicates they were able to generate sufficient positive cash flow to maintain and grow its operations, but it required external financing especially in 2011 and 2012, for they purchased investments amounting 5, 045 and 12,897 million dollars that cause a negative net change in cash. Therefore, a positive cash flow is a good sign, while negative cash flow needs to have a one-time explanation (an investment or expense that will not be repeated; for example, an acquisition or a new factory or purchase of investments).

Free Cash Flow 

Operating cash flow showed an up and down trend with a growth ratio of 3.87 percent, -4.99, 67.8, -18.9 and an average of 21,881.2 million dollars. Its capital expenditure indicated likewise an uptrend with a decline in 2010 and 2011. It has a growth ratio of 21.87 percent, -1.24, 8.15, 67.5 and an average of 12,322.6 million dollars. Deducting from operating cash flow it resulted in a free cash flow with a growth ratio of -13.5 percent, -10.1, 157.2, -73.3 and has an average of 9,558.6 million dollars.

BHP Billiton plc (ADR) in 2012 depicted a decline in operating cash flow, so as a decrease in capital expenditure. This means that operations were affected by US financial crisis as seen by the declined in revenue in 2009.  Free cash flow indicated a decreasing trend except for 2011 but overall they have sufficient funds needed for operations.

Written by Nelly
Edited by Cris

Interested tin learning more about the company Here’s investment guide for a quick view, company research to know more of it’s background and history; and investment valuation for the pricing.

Microsoft Corporation (MSFT) Behind the Innovation in the Technology

January 16th, 2013 Posted by Company Research Report No Comment yet

Microsoft Corporation (MSFT) is an American multinational technology company with headquarters in Redmond, Washington. It develops, manufactures, licenses supports and sells computer software, consumer electronics, personal computers, and related services. Wikipedia

Have you heard the latest operating system in town? Yes, Windows 8. I bet you already know what company is behind this latest innovation in the technology world. Without any further ado, let us allow the Stories team — Meriam and Karla, present this company research about Microsoft Corporation.

Who started Microsoft Corporation and why?

Almost every computer installed all over the world has dedicated its applications to Microsoft. And we all have Bill Gates and Paul Allen to thank that for. Microsoft Corporation enables people and businesses throughout the world realize their full potential by creating technology that transforms the way people work, play, and communicate.

Microsoft Corporation was founded by Bill Gates and Paul Allen on April 4, 1975. They are childhood friends who both have a passion for computer programming, seeking to make a successful business by utilizing their shared skills. Bill Gates was born in Seattle on 1955 and was first exposed to computers at school in the late 1960s. Paul Allen is the son of two Seattle librarians.

The company develops and markets software, services, and hardware that deliver new opportunities, greater convenience, and enhanced value on most people’s lives.

The process of developing and implementing various sets of instructions to enable a computer to do a certain task is what we call Computer Programming. Furthermore, it is also the process of designing, writing, testing, debugging and maintaining the source code of computer programs, software, and applications we are using today.”

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

What is the nature of Microsoft Corporation business?

MSFT is a software product line specializing in engineering methods, tools and techniques for creating a collection of similar software systems from a shared set of software assets using a common means of production.

They are an American multinational corporation headquartered in Redmond, Washington and is the largest software company in the world and have offices in more than 100 countries. The company is committed to developing, licensing and supporting a range of software products and services. Microsoft designs and sells hardware, and delivers online advertising to the customers. Operating system server applications, business and consumer applications, and software development tools, as well as Internet software, technologies, and services.

MSFT operates in five segments: Windows & Windows Live Division (Windows Division), Server and Tools, Online Services Division (OSD), Microsoft Business Division (MBD), and Entertainment and Devices Division (EDD).

Who is running the company and their background?


microsoft-ceoMr. Steven A. Ballmer is the chief executive officer of Microsoft Corporation. He graduated from Harvard University with a bachelor’s degree in mathematics and economics. He joined Microsoft in 1980 and was the first business manager hired by Bill gates. He became Executive Vice President, Sales and Support since February 1992. He served as President from July 1998 to February 2001. Mr. Ballmer served as corporate vice president and CFO of Microsoft’s Business Division (MBD)

CFOMr. Peter S.Klein holds a bachelor’s degree from Yale University. He is a Master of Business Administration from the University of Washington. He spent 13 years in corporate finance in the Seattle area, primarily in the communications and technology sector. Mr. Klein joined Microsoft in 2002 and was named Chief Financial Officer in November 2009. He was CFO of Microsoft’s Server & Tools Business Group (STB). He became Chief Financial Officer of Server and Tools from July 2003 to February 2006 and served as Corporate Vice President, Chief Financial Officer, Microsoft Business Division from February 2006 to November 2009.

Corporate finance is the amount, expressed as a percentage, that is earned on a company’s total capital calculated by dividing the total capital into earnings before interest, taxes, or dividends are paid.

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

The company’s strategic planning defines its process, direction and making decisions on allocating their resources to pursue a particular strategy. In order to determine the organization’s direction,  it is important to understand its current position and the possible avenues through which it can pursue a particular course of action.

MSFT’s audit committee is responsible for the appointment, compensation, retention, and oversight of the independent auditor engaged to issue audit reports on companies financial statements and internal control over finances.

Bill Gates is the chairman of the board. He has unparalleled knowledge of the Company’s history, strategies, technologies, and culture and is considered a technology visionary. Mr. Gates retired as an employee effective July 1, 2008, but continues to serve as an advisor on key development projects.

Helmut Panke, Ph.D. is the chairman of Regulatory and Public Policy. Mr. Panke understands product manufacturing processes, how to manage a company through business cycles and intense competition, and how to build and sustain a globally recognized and respected brand.

Charles H. Noski is the chairman of audit and governance and nominating committee. He has an extensive background in finance, accounting, risk, capital markets, and business operations, also has a unique portfolio of business skills. He provides services to leading organizations in the accounting and auditing fields reflects his expertise in finance and accounting matters.

Dina Dublon is the chairman of the compensation committee. She holds a B.A. in economics and mathematics from the Hebrew University of Jerusalem and an M.S. from the Business School at Carnegie Mellon University.

How do they make money?

Windows Division revenue comes from Windows operating system software purchased by original equipment manufacturers (“OEMs”). Generates revenue by developing, licensing, and supporting a wide range of software products and services. MSFT does business worldwide, wherein revenue increased due to strong sales of Server and Tools products and services and the 2010 Microsoft Office system.

Profit is earned primarily from usage fees and advertising. Its cloud-based computing services include Bing, Windows Live Essentials suite, Xbox LIVE service, Microsoft Office 365, Microsoft Dynamics CRM Online customer relationship management services and the Azure family of platform and database services.

Usage cost is an additional cost incurred in repairing or replacing items damaged in assembling handling installing, and/or testing.

How do they fit in the industry they operate in?

Microsoft Corporation is a rivalry in the technology sector derived rapidly with changing and disruptive technologies, shifting user needs, and frequent introductions of new products and services.

Competition among platforms, ecosystems, and devices. Face from firms that provide competing platforms, applications and services. Competitors vary in size from Fortune 100 companies to small, specialized single-product businesses and open source community-based projects. Competes with: Apple Computer, Inc.; Hewlett-Packard Company; International Business Machines Corporation; Logitech International SA; Novell, Inc.; Sony Corporation; Sun Microsystems, Inc.; Time Warner Inc.; Yahoo! Inc.

MSFT continues to develop versions of products with basic functionality that are sold at lower prices than the standard versions.

Information Technology people knew what software is. But for those, just like me, that aren’t familiar with this, I asked some help over the Internet. Software means computer instructions or data. This is anything that can be stored electronically is software, in contrast to storage devices and display devices which are called hardware.

Who are their suppliers and customers?

Company’s growth depends on their ability to innovate by offering new and adding value to their existing software and service offerings.

Primary products and services rendered by MSFT’s segment: Windows & Windows Live Division, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division. Includes operating systems for personal computers (PCs), servers, phones, and other intelligent devices. Its clients are individual consumers, small- and medium-sized organizations, enterprises, governmental institutions, educational institutions, Internet service providers, application developers, and OEMs. Markets and distributes products and services primarily through the following channels: OEM; distributors and resellers; and online.

Originally an OEM (original equipment manufacturer) REG was a company that supplied equipment to other companies to resell or incorporate into another product using the reseller’s brand name. Sometimes it is referred to as “bulk packed”, “white box”, “brown box” and “gray market”.

What is their workforce like?

As of June 30, 2012, MSFT employed approximately 94,000 people on a full-time basis, 55,000 in the U.S. and 39,000 internationally.

On January 2009, announced and implemented a resource management program to reduce discretionary operating expenses, employee headcount, and capital expenditures. The record employee severance when a specific plan has been approved by management, the plan has been communicated to employees, and it is unlikely that significant changes will be made to the plan. Success is highly dependent onthe  company’s ability to attract and retain qualified employees. None of their employees are subject to collective bargaining agreements.

Program management refers to the process of managing several related projects often with the intention of improving an organization’s performance.

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

MSFT has an employee stock purchase plan (the “Plan”) for all eligible employees, in which employees may purchase shares having a value not exceeding 15 percent of their gross compensation during an offering period. It has a savings plan in the U.S. that qualifies under Section 401(k) of the Internal Revenue Code, and a number of savings plans in international locations.

The compensation program allows the compensation committee and board to determine pay based on a comprehensive view of quantitative and qualitative factors designed to produce long-term business success. Microsoft designed the executive officer’s benefits programs to attract, motivate, and retain the key executives who drive our success and industry leadership.

CITATION

Who started the company and why?

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

http://www.sec.gov/Archives/edgar/data/789019/000119312512451049/d423661d424b2.htm

What is the background of the company? Its History and Development?

http://www.google.com/finance?q=NASDAQ%3AMSFT&ei=MTzFUKi5LtCZlQWeHg

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

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

What is the nature of the business?

http://www.google.com/finance?q=NASDAQ%3AMSFT&ei=MTzFUKi5LtCZlQWeHg

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

http://finance.yahoo.com/q/pr?s=MSFT+Profile

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

www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm

https://www.google.com/url?q=http://www.fundinguniverse.com/company-histories/microsoft-corporation-history/&sa=U&ei=y0bFUM_DAaKKmQWls4GgCQ&ved=0CAcQFjAA&client=internal-uds-cse&usg=AFQjCNGAgEzJfySDeeYx4e-VVgwBJKeMow

Who is running the company and their background?

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm p12

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htmp12

Who is directing the company

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34 p12

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34 p18

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34 p14

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34 p14

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34 p13

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34

How do they make money?

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

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm p26

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm p51

http://en.wikipedia.org/wiki/Microsoft_Corporation#cite_note-BBCTL-8

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm p4

How do they fit in the industry they operate in?

https://www.google.com/url?q=http://www.fundinguniverse.com/company-histories/microsoft-corporation-history/&sa=U&ei=y0bFUM_DAaKKmQWls4GgCQ&ved=0CAcQFjAA&client=internal-uds-cse&usg=AFQjCNGAgEzJfySDeeYx4e-VVgwBJKeMow

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm p14

http://www.sec.gov/Archives/edgar/data/789019/000119312511200680/d10k.htm p15

Who are their suppliers and customers?

http://www.google.com/finance?q=NASDAQ%3AMSFT&ei=MTzFUKi5LtCZlQWeHg

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

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

http://www.sec.gov/Archives/edgar/data/789019/000119312512451049/d423661d424b2.htm

http://www.sec.gov/Archives/edgar/data/789019/000119312511200680/d10k.htm p81

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm p10& 11

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm

What is their workforce like?

http://www.sec.gov/Archives/edgar/data/789019/000119312511200680/d10k.htm p52

http://www.sec.gov/Archives/edgar/data/789019/000119312511276022/d230161d10q.htm

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm

ttp://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm

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

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm pp83

http://www.sec.gov/Archives/edgar/data/789019/000119312512316848/d347676d10k.htm

http://www.sec.gov/Archives/edgar/data/789019/000119312511200680/d10k.htm p18

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34

http://www.sec.gov/Archives/edgar/data/789019/000119312512418708/d375562ddef14a.htm#sum375562_34 p20

Researched and written by Meriam and Karla
Edited by Cris

Vale SA

Vale S.A (VALE) Is Financially Healthy

January 9th, 2013 Posted by Company Research Report No Comment yet

Vale S.A. (VALE) is a Brazilian multinational corporation engaged in metals and mining and one of the largest logistics operators in Brazil. And Vale, formerly Companhia Vale do Rio Doce is the largest producer of iron ore and nickel in the world. Wikipedia

Balance Sheet

VALE SA Liquidity

Liquidity refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset. Assets that generally can only be sold after a long exhaustive search for a buyer are known as a liquid. Since the main cast of our report is Vale SA, let’s analyze if the company has been liquid from 2007-2011 through the liquidity ratios presented below.

  • Working capital ratio of the company was .02, .20, .12, .11 and .08. with an average of .11. This means that working capital (current asset-current liabilities) was only  11 percent compared to the company’s total asset. Its high working capital was in 2008 at 20 percent.
  • The current ratio was 1.13, 3.21, 2.32, 1.77 and 1.97, with an average of 2.68. This tells us that the current resources of Vale were greater than its current obligations by an average of 2.68.
  • And quick ratio (current asset inventory over current liabilities) was .75, 2.67, 1.97, 1.53 and 1.49 average of 2.44. This shows that the company has a less monetary asset in 2007 while its peak was in 2008 at 2.67.

To consider a firm financially healthy is to have a current and quick ratio of at least 2. With this, current resources of Vale SA is good enough to continue running its business.

VALE SA Asset Management/Efficiency

Efficiency ratios are used to measure the quality of the company’s receivables and how efficiently it uses its other assets. By looking at the table below, this will give us the idea of how efficient Vale SA  uses its other assets from 2007 to 2011.

  • Average inventory turnover ratio of Vale SA was 4.49. This ratio tells how often a business turns its inventory in a year. Because inventories are the least liquid form of asset, a high inventory turnover ratio is generally positive. On the other hand, an unusually high ratio compared to the average for your industry could mean a business is losing sales because of inadequate stocks on hand.
  • The receivable turnover ratio was 5.66 times average. Receivables turnover is a good way to gauge the effectiveness of the company’s payment terms. If this number is low compared to the industry average, it may mean payment terms are too lenient or that you are not doing a good enough job on collections.
  • The payable turnover ratio of Vale SA was 11.84 times average. Payables turnover trends can help a company assess its cash situation. Just as accounts receivable ratios can be used to judge a company’s incoming cash situation, this figure can demonstrate how a business handles its outgoing payments.
  • Asset turnover ratio of the company was .39 average.  This compares the sales revenue of a company to its total asset.  This ratio tells us how effectively and efficiently a company is using its assets to generate revenues as well as indicates the productivity of assets in generating revenues.

Based on the above data, if we are going to convert its efficiency into days,  Vale’s inventory was  81 days, days receivable was 64 and days payable was 31 days.

VALE SA Leverage

The Leverage is the relationship between debt financing and equity financing, also known as the debt-to-equity ratio. Leverage is not necessarily a bad thing. Leverage is useful to fund company growth and development through the purchase of assets. But if the company has too much borrowing, it may not be able to pay back all of its debts.

Debt ratio, debt to equity and solvency ratio of Vale SA from 2007 to 2011 is  detailed below:

  • The company’s debt ratio was .57, .47, .44, .47 and .40. an average of .47. It means that its total liabilities was only 47 percent average compared to the total asset.
  • Its debt to equity ratio was 1.31, .88, .80, .87 and .66. with an average of .90.  The company’s total obligations were high is 2007 at 131 percent compared to stockholders’ equity, however, the company managed to lower it down to 66 percent in 2011.
  • Solvency ratio was .32, .43, .18, .35 and .52. Averagely, it is quite good, a solvency ratio of .20 is good enough as a rule of thumb.

Vale SA’s invested capital was half loan, total debt compared to total asset was 47 percent and 90 percent of total stockholder’s equity. The company was not highly leveraged as they managed to lower it down in 2011.

In order to know who are the majority claimants of the company, we used the following ratios:

  • Current liabilities to total asset was.11 average which means that the creditors have 11 percent claims of the total asset of the company.
  • Its long-term liabilities to total asset was .20, this tells us that 20 percent will be claimed by the banks or bondholders.
  • And stockholders’ equity to total asset was .53 average. It means that  53 percent of the total asset of Vale belong to its stockholders, therefore, they are the majority claimants of the company’s property.

VALE SA Property, Plant & Equipment

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

Let’s have a glance of Vale SA’s investment in PPE from 2007 to 2011:

  • The company’s investment in PPE has an average of $83,934 in 5 years. If we deduct its accumulated depreciation of $15,217, the net value of the fixed asset would be  $68,716.

Using the above scenario, we estimate a 5-year useful life of the property, so the remaining life will be 4.1 years to be usable.  Therefore, the company could save for 4 years for the use of the existing fixed asset.

Income Statement

This is the financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.

VALE SA Income

Income is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the “top line” or “gross income” figure from which costs are subtracted to determine net income.  Vale SA’s income from 2007 to 2011 are detailed below:

  • Revenue was 32242, 37426, 23311, 45293 and 58990, its TTM (trailing twelve months) was 48099. Its growth in 2008 was 16 percent, however, it dropped by  38 percent in 2009, but recovered in 2010 until 2011 by 94 and 30 percent.
  • The company’s gross profit was 15779, 19785, 9690, 26479 and 32607 with TTM of 12820. Its growth is also trending up except in 2009 wherein it dropped by 51 percent, the lowest performance in five years.
  • Operating income and income before tax was 15233, 13217, 7123, 20314 and 26799. with ttm of 12820. Both have the same figures and the trend was it lowered by 13 percent in 2008 and 46 percent in 2009 but rose up in 2010 by 185 percent and 32 percent in 2011.
  • Finally, income after tax was 11825, 13218, 5349, 17264 and 22885. ttm was 12830. A growth of 12 percent in 2008, dropped down to 60 percent in 2009, however, it recovered by 223 percent in 2010 and 33 percent in 2011.

Revenue of Vale SA showed a successive positive balance in 5 years period. The trend was up and down but continuously have positive growth in the year 2010 to 2011. Its net income results were impressive at 27 percent.

VALE SA Expense

The economic costs that a business incurs through its operations to earn revenue. In order to maximize profits, businesses must attempt to reduce expenses without also cutting into revenues. Because expenses are such an important indicator of a business’s operations, let’s take a look at Vale’s expenses from 2007 to 2011:

  • The cost of revenue was 16,463, 17641, 13624, 18814 and 26383. Its percentage of total revenue was 51, 47, 58, 42 and 45. with 55 percent ttm.
  • The operating expense was 546, 6568, 2567, 6165 and 5808 which was 2, 18, 11, 14 and 10 percent of revenue. And, its highest operating expense was in 2008 and the lowest in 2007.
  • Likewise, another expense of Vale was 2994, -1, 1774, 2718 and 4147 or an average of  6 percent in five years.
  • And total expense was 3540, 6567, 4341, 8883 and 9955 which was equivalent to 11, 18, 19, 20 and 17 percent of total revenue.

Proportionate of Vale’s expenses against its total revenue was 55 percent cost of revenue, operating expense was 11 percent, other expense 6 percent and total expense average were 17 percent to total revenue.

VALE SA Margin

The margin is a measure of profitability expressed in percentage.  Vale’s  gross margin, operating margin, pre-tax margin and net profit margin from 2007 to 2011 are detailed below:

  • The company’s gross margin was .49, .53, .42, .58 and .55, average was .51. This is the gross profit compared to sales expressed in percentage.
  • Its operating margin and pretax margin were .47, .35, .31, .45 and .45 with average of .41. Its highest was in 2007 and the lowest in 2009 because of low sales in the same year.
  • Net profit margin was .37, .35, .23, .38 and .39. its ttm  was .27. The results showed that in 2009, the net profit margin was only 23 percent it’s lowest while 39 percent in 2011.

Considering its industry, gross margin of Vale was impressive at an average of 51 percent, operating margin was 41 percent with a net margin TTM of 27 percent. Its low margin in 2009 was affected by the low sales of the company.

VALE SA Profitability

What I’ve found out from Rio is that profitability ratios help users of a company’s financial statements determine the overall effectiveness of management regarding returns generated on sales and investments. Commonly used profitability ratios are gross profit margin, operating profit margin, and net profit margin.

What are the results for Vale SA from 2007 to 2011? Let’s find out.

  • Net margin was .37, .35, .23, .38 and .39. TTM was .27. This is the bottom line of the business operation which shows how much of each sales dollar shows up as net income after all expenses are paid.
  • While the asset turnover ratio was .39 TTM. It shows that the company is doing well in using its assets to generate sales.
  • In addition, return on equity was .46, .31, .13, .29 and .34. Its trailing twelve months was .31 and it shows that the company is doing a good job using the investors’ money.
  • Moreover, financial leverage or equity multiplier was 2.31, 1.88, 1.80, 1.87 and 1.66, ttm was 1.90. It is derived by dividing asset by its stockholder’s equity. It allows the investor to see what portion of the ROE is the result of debt.
  • Finally, return on invested capital was .19 TTM. This ratio determines the amount of return that a firm could earn on additional contributed capital. The calculation measures the return generated when a company converts its capital into capital expenditures, which generate revenues from core operations.

Based on the above data, Vale ‘s profitability is good, with no negative result. Its overall performance shows that its peak year was in 2011 while its lean period was in 2009. This was due to low sales in 2009 which resulted in the low-profit-margin, however, total performance was impressive.

Cash Flow

Cash flow statements facilitate decision making by providing a basis for judgments concerning the profitability, financial condition, and financial management of a company. It is categorized into three; operating cash flow, investing cash flow and financing cash flow. The graph below shows the cash flow of Vale from 2007 to 2011:

VALE SA Cash Flow from Operating Activities

Operating cash flows are cash received or expended as a result of the company’s internal business activities. It includes cash earnings plus changes to working capital.

Transactions affecting the operating cash flow of Vale SA from 2007 to 2011 are as follows:

  • Net income was 11825, 13218, 5456, 17453 and 22652. TTM was 12522. This is the result of the normal transaction of the business.
  • While the depreciation and amortization were 2186, 2807, 2722, 3260 and 4122.
  • On the other hand, accounts receivable was 0, -466, 616, -3800 and -821. while
  • Its inventory was -343, -467, 530, 503 and -1343.
  • Moreover, other working capital was 1579, -338, 26, 541 and -725.
  • Other non-cash items were -3535, 1729, -2276, 1478 and 1993.
  • So, its net cash provided by operating activities was 11012, 17114, 7136, 19669 and 24496 with TTM of 20515. It is a consistently positive balance.

After the adjustments on the operating activities transactions of Vale company, its net operating cash flow was still high at $20515 TTM.  It has money left for future expansion.

VALE SA Cash Flow from Investing Activities

Cash received from the sale of long-life assets or spent on capital expenditure (investments, acquisitions, and long-life assets) fall under this category.

Transactions related to cash flow from investing activities of Vale company from 2007 to 2011 are:

  • Total cash outflow was -10048, -11535, -13765, -19138 and -16943 which are investments in PPE, purchases of investments and other investing activities.
  • While total cash inflow was 1042, 134, 606, 1954 and 2874 which includes sales/maturities of investments and PPE reductions.
  • So, net cash used for investing activities was -9006, -11401, -13159, -17184 and -14069.

Net cash used in investing activities of Vale SA incurred a negative balance because cash outflow was more than its cash inflow transactions under-investing category.

VALE SA 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.

valecf

  • Total cash inflow was 0, 15210, 5339, 6693 and 2442. These came from debt issued and common stock issued.
  • While total cash outflow was  -5209, -6206,- 4714, -9262 and -16813,  which were debt repayment, repurchase of treasury stock, cash dividends paid and other financing activities.
  • So, net cash provided by (used for) financing activities was -5209, 9004, 625, -2569 and -14371. Its negative balance was due to cash outflow exceeds cash inflow while positive balance, the company has more than enough funds to offset cash out under financing category.

Under financing cash flow activities, it incurred a negative balance in 2007, 2010 and 2011 because cash outflow transactions were greater than cash inflows. Meanwhile, cash outflows exceed cash inflows in 2008 and 2009 which resulted in a positive balance.

VALE SA Free Cash Flow

This is a measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it’s tough to develop new products, make acquisitions, pay dividends and reduce debt.

valefcf

  • Free cash flow of Vale SA from 2007 to 2011 was 4361, 8142, -960, 7022 and 8421. It has a negative balance in 2009 because it is capital expenditure exceeds its operating cash flow balance, however, rests of the period shows a positive result.

The company shows that it is financially healthy consecutively from 2007 to 2008 and 2010 to 2011. It means it has available funds to retire debts and pay dividends. However, it was negative in 2009 by 13 percent.

VALE SA Cash Flow Ratios

Cash flow analysis uses ratios that focus on cash flow and how solvent, liquid, and viable the company is. Here are the most important cash flow ratios with their calculations and interpretation for Vale SA operation from 2007-2011.

  • Cash flow margin is the result of dividing the operating cash flow by total revenue. For Vale SA, its trailing twelve months was .43 which means that for every dollar of sales, it generates cash flow of $0.43.
  • While the operating cash flow was the result of dividing the operating cash flow by total current liabilities. Vale SA’s trailing twelve months was 1.51 which shows that it can meet financial obligations thru cash generated by operating activities.
  • On the other hand, the free cash flow ratio compares the company’s free cash flow to its operating cash flow. The company incurred a negative result in 2009 of .13, however, recovered in the succeeding period.
  • Further, the capital expenditure ratio was 1.66, 1.99, .88, 1.56 and 1.52. its TTM was 1.19. It measures the company’s ability to acquire long-term assets using free cash flow.  It shows that the company can invest in itself in capital expenditures.
  • Furthermore, the total debt ratio was .34 TTM. It tells us of a company’s ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company’s ability to carry its total debt.

Finally, Vale SA, as far as its profitability ratios are concerned,  shows impressive results except in its free cash flow in 2009 which was negative -0.13. However, the company managed to recover thereafter.

Written by Rio
Edited by Cris

Microsoft-Corporation-MSFT

Microsoft Corporation (MSFT) A Stable Company

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

Microsoft Corporation (MSFT) is an American multinational technology company with headquarters in Redmond, Washington. It develops, manufactures, licenses supports and sells computer software, consumer electronics, personal computers, and related services. Wikipedia

Microsoft Balance Sheet

Liquidity

Liquidity ratios help financial statement users evaluate a company’s ability to meet its current obligations. In other words, liquidity ratios evaluate the ability of a company to convert its current assets into cash and pay current obligations. Thanks to Rio for that brief description. But the question now is, how liquid was Microsoft Corporation from 2008 to 2012 and last quarter using the following ratio: working capital ratio, current ratio, and quick ratio?

Facts

  • The working capital ratio of the company was 0.18, 0.29, 0.34, 0.42,  0.43 and 0.33 for the latest quarter. This is the percentage of networking capital against the company’s total asset.
  • The current ratio was 1.45, 1.82, 2.13, 2.6, 2.6 and 2.68 for the latest quarter.  It shows that current asset was 268 percent of current liabilities, meaning the company’s current resources was greater than its current obligation.
  • And the quick ratio was 1.25, 1.58, 1.9, 2.35, 2.41 and 2.44 for the latest quarter. This also tells us that the company’s monetary asset (current minus inventory) was also greater than its current liability.

Above data show how financially stable Microsoft Corporation is as far as its current resources are concerned. Working capital as of the latest quarter shows its capability to continue running its business well. 

Asset Management

Asset management ratios are the key to analyzing how effectively and efficiency your business in managing its assets to produce sales. The asset management ratios are also called turnover ratios or efficiency ratios. 

Shown below are the efficiency ratios of Microsoft Corporation from 2008 to 2012:

  • Inventory turnover ratio was 14 times average. This measures the number of times business sells its stock in a 12-month period.
  • The company’s receivable turnover ratio was 5 times average. This shows how long, on average, a business takes to collect the debts owed to it by customers who have purchased their goods on credit.
  • The payable turnover ratio was 16 times on average. This number reveals how quickly the company pays its bills. The payable turnover ratio reveals how often MSFT’s payable turn over during the year.
  • And the asset turnover ratio got.71 average. This measures the productivity of the business (i.e. how much worth of sales revenue can be generated from the assets employed). This means that for every $1 of the net asset, the business generates $0.71 of sales revenue.

Explanation

If we convert the inventory turnover of 14 times average in days, it is 26 days, while the company’s receivable turnover ratio of 5 times average will be 73 days and the payable turnover ratio of 16 times average was 22 days. Based on the above performance, Microsoft Corporation is efficiently managed. 

Debt Management/Leverage

For Microsoft Corporation, leverage ratios from 2008 to 2012 are detailed below. This will give us if the company is high leverage or not.

  • The company’s debt ratio was .50, .49, .46, .47, 45 and .48 average in five years period. This is the comparison between the total liabilities against total assets. It shows that MSFT’s debt ratio did not exceed 50 percent wherein .45 in 2012 was its lowest so far.
  • Debt to equity ratio measures total liabilities against its total equity. For Microsoft Corporation, it was 1.01, 0.97, 0.86, 0.90, 0.83 and an average of .91. The year 2008 was over by 100 percent but it is slowly reduced that in 2012 it dropped to .83.
  • Solvency is the company’s ability to pay its total debt when becomes due. The company had 0.54, 0.45, 0.54, 0.50, 0.36 and 0.48 average in five years. As a rule of thumb, 0.20 ratio is good enough.

Explanation

When it comes to debt management or leverage, the company observed fulofcontrol on its long-term investments on credit. As shown above, its debt ratio was up to 50 percent only while its debt to equity was managed to reduce to 0.83 in 2012. The company is also able to pay off its total obligations as they become due at 0.48 average solvency.

Property, Plant & Equipment 

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

For MSFT, its investment on property, plant, and equipment from 2008 to 2012 is shown below:

  • The company’s gross PPE was $16,221 average. As shown in the above table its fixed asset expanded per year,  its lowest investment was in 2008 at $12,544  and its highest was in 2012 at $19,231.
  • Accumulated depreciation was $8,654 average or 53 percent in five years period.
  • And net PPE was $7,568 average which is equivalent to 47 percent.

Based on the above table, the average used life of the PPE investment is 2.7 years and the remaining useful life of the PPE investment would now be 2.3 years. This is based on the estimated five years shelf life of the property.

Income Statement

A financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically over a fiscal quarter or year.

Income

I guess most of us knew what an income is. But to have some refreshment here, it is the amount of money, as defined, a company actually receives during a specific period, including discounts and deductions for returned merchandise.

MSFT’s income from 2008 to 2012 is shown below:

  • Revenue of the company was increasing except in 2009 which was lower by 3 percent, however in the succeeding years it continues to increase, its trailing twelve months was $72,359. It grew 5 percent on average.
  • Gross profit was 48,822, 46,282, 50,089, 54,366 and 56,193, with ttm (trailing twelve months) of 54,438.
  • The company’s operating income was 22,492, 20,363, 24,098, 27,161 and 21,763. Its ttm was $19,868.
  • Its income before tax 23,814, 19,821, 25,013, 28,071 and 22,267. It has a ttm of $20,495.
  • And finally, income after tax of MSFT has a trailing twelve months of 15706 which is 22 percent of total revenue.

Explanation

Overall income of MSFT is doing well, its revenue and gross profit have the same trend of growth rate while its operating income in 2012 dropped down by  20 percent due to increase in operating expenses within the same year. Income before tax and after-tax income are 28 and 22 percent respectively. There’s no negative balance throughout the five years period.

Expenses 

These are money spent or cost incurred in an organization’s efforts to generate revenue, representing the cost of doing business. In five years period, from 2008 to 2012, the following are the expenses of Microsoft Corporation:

  • MSFT’s cost of revenue was 11,598, 12,155, 12,395, 15,577 and 17,530.  It had an increased each year for 5 years with an average growth of 11 percent. MSFT’s cost of revenue trailing twelve months was 25 percent of total revenue
  • Operating expense’s trailing twelve months was 34570. This was equivalent to 48 percent of revenue.
  • Other expense was 4,811, 5,794, 5,338, 4,011 and 4,785. TTM was 4,162 or 6 percent of revenue.
  • Total expense was 31,141, 31,713, 31,329, 31,216 and 39,215 which was 64, 69, 63, 57 and 70 percent of revenue.

Margins

This ratio looks at how well a company controls the cost of its inventory and the manufacturing of its products and subsequently pass on the costs to its customers. Let’s take a look at the margin of MSFT from 2008 to 2012:

  • Gross margin of Microsoft Corporation was up and down trend, showing an average fluctuation of 1.5 percent.
  • Its operating margin has no movement in 2008 and 2009, dropped by 2 and 3 percent in 2010 to 2011 and recovered by 8 points in 2012.
  • The company’s pretax margin was low in 2012 at 30 percent but marked its highest percentage in 2010 and 2011 at 40 percent.
  • Finally, its net profit margin was 29, 25, 30, 33 and 23 percent, with the highest percentage in 2011 at 33 percent and its lowest was 23 percent in 2012.

Profitability

I’m not that familiar with different terminologies so I asked Rio for the definition of profitability and this is what I’ve learned. Profitability ratios show a company’s overall efficiency and performance. We can divide profitability ratios into two types: margins and returns. Ratios that show margins represent the firm’s ability to translate sales dollars into profits at various stages of measurement. On the other hand, ratios that show returns represent the firm’s ability to measure the overall efficiency of the firm in generating returns for its shareholders.

Explanation

  • The company’s average net margin was 9 percent, with 10 percent marked in 2009 while 7 percent in 2011. This is the bottom line result of the day to day normal business transactions.
  • Asset turnover has an average of 71 percent. It is a measure of how effectively a company converts its assets into sales. It is inversely related to net profit margin, the higher the net profit margin the lower the asset turnover.
  • Return on asset was 0.33, 0.25, 0.29, 0.26 and 0.18 in 2012. Its average was 0.26. It measures the amount of profit earned relative to the firm’s level of investment in total assets. A Higher percentage is better because the company is doing a good job using its assets to generate sales.
  • Return on equity was 0.66, 0.50, 0.54, 0.49 and 0.34, with an average of 0.51. It is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company.
  • Financial leverage was 2.01, 1.97, 1.86, 1.90, and 1.83, with an average of  1.91. It is useful to the investor, it allows to see what portion of the ROE is the result of debt.
  • Return on invested capital was .49, .34, .37, .34 and .22. with an average of .35. It is the percentage result of net income over invested capital. For MSFT, its return on invested capital was 35 percent.

As far as its profitability ratios are a concern, the results of MSFT is quite good, there’s no mark of a negative result, so the company is doing good in its business.

Cash Flow

Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. It has three categories: operating cash flow, investing cash flow and financing cash flow.

Cash Flow from Operating Activities

Operating cash flows are cash received or expended as a result of the company’s internal business activities. It includes cash earnings plus changes to working capital. Over the medium term, this must be net positive if the company is to remain solvent.

Related transactions of MSFT’s operating cash flow from 2008 to 2012 are wrapped up below:

Explanation

  • Net income of Microsoft Corporation was 17,681, 14,569, 18,760, 23,150 and 16,978; ttm of 15706. This is the result of the company’s day to day business transactions. It consistently showed positive results.
  • Depreciation and amortization was 2,056, 2,562, 2,673, 2,766 and 2,967; ttm was 2951.
  • Its investments losses (gains) was 683,  -208, -362 and -200; ttm of -159. In 2009, the company incurred an investment loss of 683 but thereafter its investments resulted in having gains.
  • Deferred income taxes was 935, 762, -220, 2 and 954, with ttm of 590.
  • Other working capital was -2,435, -2,393, 2,899, -1,049 and 829. ttm was -205. It shows negative in the year 2008-2009 and 2011, however, a positive result in 2010 and 2012.
  • So, its net cash provided by operating activities was 21,612, 19037, 24073, 26994 and 31626. Its ttm was 31617. It shows consistent positive results.

The cash flow from operating activities of MSFT tells us that the company has funds to retire additional debts, pay dividends and expand through investment in another line of business.

Cash Flow from Investing Activities

Cash received from the sale of long-life assets or spent on capital expenditure (investments, acquisitions, and long-life assets). 

  • Total cash inflow was 27,729, 25,997, 22,578, 22,777 and 45,275, with ttm of 49,480. This represents sales/maturities of investment.
  • Total cash outflow was -32,316, -41,767, -33,892, -37,393 and -70,061. These were an investment in PPE, acquisitions, purchase of investment and other investing activities.
  • So, net cash used for investing activities was -4587, -15770, -11314, -14616 and -24786 which showed a negative balance because transactions affecting cash outlays exceeded cash inflows.

Cash flow from investing activities of Microsoft Corporation incurred a negative balance because cash outflows are more than cash inflows. It involves the only transaction on sales/maturities of investment.

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.

  • MSFT’s total inflow was 3,494, 6,657, 6,523, 9,213 and 2,006. Included here were debt issued, common stock issued and the excess tax benefit from a stock base.
  • Total cash outflow was negative 12,934, -7,463, 13,291, 8,376 and 9,408. It included debt repayment repurchased of common stock, dividends paid and other financing activities. This also showed negative results because outflows transactions were more than cash received by the company.

The company’s financing cash flow was a consistent negative balance because cash outflows exceeded cash inflows.

Free Cash Flow

The graph below will reveal the free cash flow of Microsoft Corporation from 2008 to 2012:

  • Free cash flow of MSFT from 2008 to 2012 was 18,430, 15918, 22096, 24639 and 29,321. Its ttm was 29,145. It showed a consistent high running balance throughout its five years of operation.
  • Free cash flow shows that the company had huge funds to pay its obligations; current, long term and dividends to its stockholders and even enough to invest new lines of business.

Cash Flow Ratios

Cash flow analysis uses ratios that focus on cash flow and how solvent, liquid, and viable the company is. Here are the most important cash flow ratios that Rio used with her calculations and interpretation on Microsoft Corporation.

  • Cash flow margin was 0.36, 0.33, 0.39, .39 and 0.43;  its ttm  was .44. Cash flow margin measures how efficiently a company converts its sales dollars to cash.
  • Operating cash flow was 0.72, 0.70, 0.92, 0.94 and 0.97. ttm of .85. It measures how well current liabilities are covered by the cash flow generated from a company’s operations.
  • Free cash flow was 0.85, 0.84, 0.92, 0.91 and 0.93.  It shows that the company has excess funds after paying expenses and dividends.
  • Capital expenditure was 6.79, 6.10, 12.18, 11.46 and 13.72. with ttm of 12.79. A ratio that measures a company’s ability to acquire long-term assets using free cash flow. The cash flow to capital expenditures (CF to CAPEX) ratio will often fluctuate as businesses go through cycles of large and small capital expenditures.
  • Total debt ratio was 0.59, 0.50, 0.60, 0.52 and 0.58; ttm of 0.56. This ratio provides an indication of a company’s ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company’s ability to carry its total debt.

Explanation

Cash flow ratios of MSFT show that the company’s cash flow margin has a ttm of .44. Therefore, the company is efficient in converting its sales in dollars to cash. Operating cash flow is also impressive at 0.85. Its capital expenditure is also high which means that the company is able to acquire long-term assets using its free cash flow. Finally, the total debt ratio is 50 percent and above, so the company has the ability to carry its total debt up to 50 percent.

Written by Rio
Edited by Cris

Great Northern Iron Ore Properties

Great Northern Iron Ore Properties made Business Sustainable

December 21st, 2012 Posted by Company Research Report No Comment yet

Great Northern Iron Ore Balance Sheet

Financial Liquidity

Liquidity is a firm’s ability to pay its short-term debt obligations. Its financial ratios, this will help us determine how liquid the firm is or how successful it will be in meeting its short-term obligations.

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The table relays the following:

  • The current ratio is the result of dividing current assets by current liabilities. This showed a downward trend in 2008 and 2011, with a growth ratio of -17.3 percent, 7.5, consistent at 2.0 times but in 2011 it decrease again to -22 percent and has an average of 1.93 times.
  • The quick ratio, on the other hand, is the result of dividing quick asset (current asset minus inventory) over current liabilities. GNI don’t hold any inventory on iron ore.
  • And their net working capital ratio, the result of working capital over the total asset. This indicated an up and down trend with a growth ratio of 7.1 percent, -20, 45.8, -31.4 and an average of 0.28.

Great Northern Iron Ore has the same good current and quick ratios results because they don’t hold any inventory but only a  trust leases land to major mining corporations. This indicated that they had sufficient funds or current asset to pay off their current debts and liabilities meaning they are financially liquid. Looking into their net working capital, they depicted sufficient funds needed to run the business thus, they have operational liquidity. And with their total asset, it resulted to a favorable and average ratio of 28 percent for the continuity of their business.

Efficiency

The concept of efficiency ratios is to analyze how well a company uses its assets and liabilities internally. These ratios are meaningful when compared to peers in the same industry and can identify a business that is better managed relative to the others. They are important because any improvement in ratios usually translate to improved profitability.

Wondering if the result is in favor of Great Northern Iron Ore Properties? Nelly wrapped up things for us.

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  • The receivable turnover ratio measures the number of times average receivables are collected during the period. This was computed as net sales over average receivable and resulted in an up and down trend with a growth ratio of -10 percent, -35, 54, -8 and an average of 3.93 times.
  • The payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. This is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period. They don’t maintain payables and showed only payable turnover ratio in 2007 and 2008 which was decreasing trend of -3.89 percent in growth.
  • Fixed asset turnover ratio measures a company’s ability to generate net sales from fixed-asset investments — specifically property, plant and equipment (PP&E) – net of depreciation. This showed an increasing trend but a slight dipped happened in 2009 with a growth ratio of 41 percent, -16.7, 40, and 92.9, with an average of 7.15.
  • Asset turnover ratio was a number of sales generated for every dollar’s worth of assets. Wherein this showed an up and down trend with a growth ratio of 16.8 percent, -27, 50.6, 14.8 and average of 1.10 for GNI.

The company as a trust leases properties to major mining corporation does not hold much receivable nor payables and they do not have any inventories to maintain in their operations. Therefore they have a low receivable turnover which averages 4 times a year. And it has a payable turnover that averages 6 times a year which is not bad for this kind of firm. They also had a higher and increasing trend fixed-asset turnover ratio which dips 16.7 percent in 2009 due to US financial crisis that had greatly affected mining companies.

GNI had been more effective in using the investment in fixed assets to generate revenues. Same as to the result of their asset turnover which was up and down too in 2009. The higher the number, the better for this will indicates pricing strategy.

Cash Conversion Period

Cash conversion cycle or CCC measures how long a firm will be deprived of cash if it increases its investment in resources in order to expand business revenues. Thus, it is a measure of the liquidity risk entailed by growth.

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  • Receivable conversion period measures the number of days it takes a company to collect its credit accounts from its customers. GNI showed at least two to three months average except for 2009 wherein it reach more than 4 months to collect.
  • While payable conversion period measures how the company pays its suppliers in relation to the sales volume being transacted.  The company only have credit in 2007 to 2009 which averages one to two months before it was paid
  • Cash conversion period or cycle refers to the time span between a firm’s disbursing and collecting cash. GNI showed an average of two months.

Their receivable conversion period has an average of 96 number of days implies the company should re-assess its credit policies in order to ensure the timely collection of impart credit that is not earning interest for the firm, especially trust leases, are bounded by lease contract. While payable conversion, they have minimal to nil business transaction done in credit only in 2007 to 2009 which averages one to two months before it was paid. And total conversion period takes more than two months to turn credit to cash needed in the business.

Leverage

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  • Debt ratio indicates what proportion of debt a company has relative to its assets. This showed an up and down trend and it has an average of 41.2 percent.
  • The debt-to-equity ratio is a measure of the relationship between the capital contributed by creditors and the capital contributed by shareholders. This showed an upward trend with an abrupt dip of 33.5 percent in 2009 and has an average of 73.3.
  • Solvency ratio determines how well the GNI is able to meet its debts as well as obligations, both long-term and short-term. This attributed that in 2007 and 2008, it has a long-term debt wherein it was 1400 and 950 percent more than its obligations.

Great Northern Iron Ore Properties showed that it has more assets than liabilities. This means the company was not highly leveraged or financed by debts, since ratio it less than 50 percent except in 2011. Debt to equity indicated that it has high ratios meaning they were taking advantage of the increased profits that financial leverage may bring. And solvency ratio depicted how solvent and financially sound the company is.

Major Control of the Company Based on Total Assets

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  • Current liabilities to total assets identifies how much will be claimed by the creditor against total assets. This showed an up and down trend with an average of 31.8 percent.
  •  While long-term debt to total assets is to make out how much claim has the banks or the bond holder against its total assets. The banks and bondholders have claimed on their total assets the first two years but three years after they don’t have any long-term debt.
  • Then, stockholders equity to total assets is to know how much the owner can claim in its total assets. This showed an average of 58.8 percent.

Based on their total five years of operation, the majority in control of their total asset are their stockholders at 58.8 percent, then their creditors of 31.8 and last to their bank/bond holders at 3.1 percent average.

Plant, Property & Equipment

The idea of analyzing this is to look through its fixed assets, plant, property & equipment and see if it still have a useful life in their business operations.

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  • Gross plant, property, and equipment is the gross total of fixed assets cost, this shows a trend that was constant for the first four years and a slight increase in 2011.
  • Accumulated depreciation is to reduce the carrying value of an assets to reflect the loss of value due to wear,  tear and usage. This showed a trend of gradual increase every two years.
  • The net plant, property, and equipment is the result after deducting the accumulated depreciation from gross PPE, wherein it indicated a lesser value left in their PPE.

Based on the above data, the remaining book value of the PPE of Great Norther Iron Ore Properties was 7.65 percent, using the percentage method of depreciation. This means it has 0.38 useful years remaining which is very much lower and may often increase in value depending on local real-estate conditions.

Great Northern Iron Ore Income Statement

Great Northern Iron Ore Properties income statement shows whether the company made or lost money from  2007 to 2011.

Profitability

Every firm is most concerned with its profitability. One of the most frequently used tools of financial ratio analysis is profitability ratios which are used to determine the company’s bottom line and its return to its investors. 

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  • Their net margins which simply is the after-tax profit a company generated for each dollar of sales. This has a growth ratio of 1 percent, -9, 8.4, 2.9 and an average of 83.21.
  • Their asset turnover which measures the effectiveness of the company to convert its assets into revenues. This showed an upward trend with a slight dip in 2009. It has a growth ratio of 16.8 percent, -27, 50.6, 14.8 and an average of 1.10.
  • The return on assets, this tells us how much profit the company generated for each dollar of total assets. This indicated an upward trend except for 2009, with growth ratios of 17.4 percent, -33.6, 64, 17.4 and an average of 91.9.
  • The company’s financial leverage this measures the financial structure ratio of the company base on total assets against total stockholders equity. This showed an increasing trend with a growth ratio of 23.2 percent, -16.1, 13.9, 18 and an average of 1.70.
  •  Their return on equity the company could return such profit percent for every dollar of equity. Still, this showed increasing results with a growth ratio of 33.19 percent, -32.3, 59.4, 36.8 and as the average of 153.28.
  • Their return on invested capital, this is the financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. This has generated returns same as their return on equity.

Profitability, based on the ratio that showed returns representing the firm’s ability to measure the overall efficiency in generating earnings for its shareholders, marked a favorable result for five years. But due to US financial crisis, there was a slight declined in 2009.

Dupont Model is used to summarize above ratios and to show where the component parts of the return on asset (ROA) comes from as well as the return on equity (ROE). This is very helpful in determining where financial adjustments need to be made. In Great Northern Iron Ore Properties, they have higher net margins and low volume of asset turnover, this tends to be inversely related. This means they earned more from converting revenue to earnings than assets itself. Return on assets depicted satisfactory earnings for every dollar of total assets due to their net income upward trend except in 2009. Thus, the higher the percentage, the better, because that means the company is doing a good job using its assets to generate sales.

With regards to their return on equity, it shows high increasing returns except in 2009 declined. And financial leverage showed likewise an increasing trend and a dip in 2009. But the bulk of the returns comes from profit margin and sales.

Income

Of course, we all know that income plays a vital role in running a business. This will help sustain the company in long run. For Great Northern Iron Ore Properties, the table will reflect us their earnings generated from 2007 to 2011 business operations.

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  • Their revenue is how much money a company has brought in yearly. This showed a growth ratio of 23.5 percent, -28.6, 40, 28.6 and an average of 20.
  • Operating income is the best indicator of a company’s true performance in their operations. This showed a growth ratio 28.6 percent, -38.8, 54.5, 35.2 and average 16.6.
  • Net income is what’s left over for a company after all expenses have been accounted for, and this amounted just the same with their operating income.

The company’s income growth ratio indicated that business was doing good, in 2009 decreased in revenue due to US financial crisis was compensated in 2010 increase in revenues of 40 percent. This was caused by delayed in lease collections from mining companies affected by the crises. Their operating and net income were both the same because this means that they don’t have any transactions on non-operating income or expense. In addition, the two showed good results because they have minimal total cost and expenses to gain a favorable profit.

Expenses

This is the cost and expenses incurred during the course of their business.

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  • The cost of revenue was the amount the company paid for the goods that were sold during the year. This showed that they only have cost from 2007 and 2008. Last three years no cost was incurred.
  • Total operating expense was the expenses incurred in conducting their regular operations of the business. This composed sales, general and administrative and the depreciation expense involving their properties. Overall total expenses showed a growth ratio of 33 percent, -25, and remain consistent at 3 percent with an average of 3.4.

Great Northern Iron Ore total expenses account an average of 17 percent of revenue. Wherein cost of revenue was 2 percent, sales, general and administrative was 10 percent and depreciation expense was 5 percent. This showed a minimal percentage of total expenses.

 Modified Income Statement

gni11

The company deals in property lease to mining companies and as indicated in the graph revenue was increasing except for 2009. And total expenses which were only 17 percent of average revenue indicated that they had minimal expenses incurred. So, net income leftover was good at a higher margin of 83 percent.

Margins

Ratios that show margins represent the firm’s ability to translate sales dollars into profits at various stages of measurement. 

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The overall margins showed how efficient GNI’s management was. They were able to sustain their profits despite the decline in 2009 since they were able to recover in 2010. This reflected an impressive operating and net margins which were very high and profitable as well as their returns.

Great Northern Iron Ore Cash Flow Statement

 Cash from Operating Activities

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Cash flow from operating activities comes from their net income adding back depreciation and amortization, other working capital and other noncash items to get the net cash provided by operations. This showed a growth ratio of -12.5, 14.2, -6.3, 40 and an average of 16.4 percent for GNI. They had a good cash flow from operations except for declined in 2008 and 2010 due to other working capital.

Cash from Investing Activities

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Cash flow from investing activities comes from their purchases of investments, sales/maturities of investments and other investing activities to get the net cash used in investing activities. Wherein this showed a growth ratio of 600 percent, -50, 300, -100 and an average of -.40. They don’t have purchases transaction in investments for the first two years only other investing activities. And it purchases average a -4.4 percent, sales, and maturities of investments average 4.0 percent and other investing activities of 0.20 thus, leaving a net cash used for investments average of -0.40.

Cash from Financing Activities

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Cash flow from financing activities comes from cash dividend paid to get net cash used for financing activities. Wherein this depicted a growth ratio of -6.25 percent, 0, 13, 17.6 and an average of -16.6. This means they had used cash flow in financing activities to pay off cash dividend and they don’t have financing activities from other sources.

Net Change in Cash

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The cash flow of Great Northern Iron Ore Properties had a good operating cash flow with slight decreases in 2008 and 2010 due to US financial crisis. And in their investing activities resulting from gains (losses) from investments in the financial markets and operating subsidiaries, and changes from amounts spent on investments in capital assets showed minimal change. While financing activities measure the flow of cash between the company, its owners, and creditors. This indicated negative numbers meaning the company is servicing debt, but it can also mean the company is making dividend payments which investors might be glad to see.

Free Cash Flow

Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value.

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The table above showed that Great Northern Ore Properties was not investing much on capital expenditure thus indicating an operating cash flow equivalent to its free cash flow. While free cash flow doesn’t receive as much media coverage as earnings do, it is considered by some experts to be a better indicator of a company’s financial health.

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. In view thereof, the following formula shows how the resulting percentage come out for GNI.

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Cash flow analysis uses ratios that focuses on cash flow and how solvent, liquid, and viable the company is. Here are the most important cash flow ratios as well as the results after analyzing Great Northern Iron Ore Properties:

  • Operating cash flow to sales ratio measures how much cash generated from its revenue for the period and gives investors an idea of the company’s ability to turn sales into cash. This had an up and down trend for GNI’s  past five years and a growth ratio of -28.7 percent, 58.2, -33, 9.85 with an average of 83. This is an important indicator of its creditworthiness and productivity, wherein a high percentage means the company will be able to grow for it has sufficient cash flow to finance additional production and a lower ratio indicates the opposite.
  • Operating cash flow ratio measures how much cash left after considering short debt by using the result of operating cash flow from operations over current liabilities. This showed an up and down trend with a growth ratio of -50 percent, 100, -37.5, -8 and an average of 290 for five years. This indicated how liquid GNI was despite the declining growth, so they still have the ability to meet current liabilities without having to sell assets.
  • Free cash ratio helps us conclude if the company will grow in the future. GNI had no capital expenditure for the five years of operations, therefore they had a free cash flow ratio of 100 percent of operating cash flow. A Higher value of free cash flow to operating cash flow indicates a better financial strength.
  • Capital expenditure ratio measures company sustainability in maintaining their assets. The company does not have expenditures creating future benefits or to add to the value of an existing fixed asset with a useful life extending beyond the taxable year.
  • Total debt ratio measures company efficiency, the result of operating cash flow over total liabilities. This showed an up and down trend with growth of -42 percent, 72, -19.8, -11.2 with an average of 218. This means the company has sufficient operating cash flow to pay off total liabilities.
  • And current coverage ratio measures how much cash available after paying all its current debt. In this case, the company experienced a varied changes year after year with the growth ratio -78 percent, 705, -99, 25.8 and an average of 103 for five years. These changes were caused by a number of cash dividend payments made to shareholders.

Written by Nelly
Edited by Cris

Jinpan International Limited-jst

Jinpan International Limited (JST) Financially Healthy

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

Jinpan International Limited (JST), through its subsidiaries, designs, manufactures and sells electrical power control and distribution equipment in China, the United States, and Europe. Source Bloomberg

Balance Sheet

Liquidity

jstliq

  • The current ratio of JST was 2.62, 2.18, 3.07, 2.38 and 2.20 with an average of 2.49. This shows that the company’s current resources were greater than its current liabilities by an average of 249 percent for the last five years period.
  • Its quick ratio, which is current asset less inventory was 1.92, 1.60, 2.48, 1.97 and 1.81, an average of 1.96; also shows that it has an average of 196 percent for the same period.
  • And JST’s net working capital ratio was .50, .40, .50, .44 and .41 or average of .45 in five years. We get this by dividing the networking capital by the total asset of the company.
  • Finally, its working capital (in dollars) which is a current asset less current liabilities was 60, 65, 91, 101 and 114, its average was 86.2. There was a trending up of its business from 2007 to 2011 as clearly shown in the above table. There was an expansion of business seen as its working capital was increasing per year.

Looking up at the above data, the company is doing well in its business with sufficient current resources. The company is considered financially healthy according to Rio.

Efficiency or Asset Management

jsteffic

  • Inventory turnover ratio was 4.62, 4.97, 6.12, 4.90 and 6.08. The company has an average inventory turnover of 5.34 for the last five years. This is the number of times the inventory moved and replaced.
  • The receivable turnover ratio of the company was 2.79, 2.69, 2.48, 1.93 and 2.03, with an average of 2.39 in five years. Receivables turnover looks at how fast we collect on our sales or how many times each year we clean up or totally collect our accounts receivable.
  • Its payable turnover ratio was 20, 14.45, 15.90, 11.31 and 9.78. an average of 14.29. It reveals how often payables turn over during the year.  It shows that the company pays its supplier 14 average each period.
  • Fixed asset turnover ratio was 10, 6.63, 5.48, 4.32 and 5.63. It has an average of 6.41 for the last five years.  It shows that the ratio is trending down so there’s a need to look closer into it.

Leverage

Below is where you can see the debt ratio, debt to equity and solvency ratio of Jinpan International Limited from 2007 to 2011.

jstlev

  • Debt ratio of the company was .32, .34, .25, .33 and .35, with an average of .32. It shows that its leverage is below 50 percent.
  • Debt to equity was .47, .51, .34, .49 and .54. an average of .47. It also shows that total obligation was 47 percent of equity.
  • While solvency ratio was .44, .40, .72, .24 and .29. an average of .42, which shows that there’s a decrease in 2010 and 2011 because of the company’s increase in short-term debt during this period.

In order to determine who has the majority control of the company’s total assets, we also use the following ratios:

  • Current liabilities to total asset was .30, .34, .24, .32 and .34. an average of .31. It tells us that the creditors, particular suppliers have 31 percent claims on the total asset of the company.
  • Long-term liability to total asset was .01, 0, .02, .01 and .01. an average of .01. It shows that only 1 percent will go to banks or bondholders.
  • Stockholders’ equity to total asset was .69, .66, .75, .67 and .65 average of .68 which shows that the stockholders or owners have 68 percent claims on the company’s total asset, so they are the major claimant of the company.

The above data shows that Jinpan International Limited ran its business with minimal debt; the sources of funds were internal. They have sufficient current resources to fund its business, the company is well managed and continue expanding.

Property, Plant, and Equipment

jstppe

  • Investment in property, plant, and equipment of JST was 19, 34, 41, 51 and 61. Average of 41. It shows that the company expanded its investment every year with a percentage growth of 79, 20, 24, and 20 percent respectively.
  • Accumulated depreciation was 7, 10, 13, 17 and 22, an average of 14. This is equivalent to 37, 29, 32, 33 and 36 percent of the gross PPE.
  • Net property, plant, and equipment were 12, 24, 29, 34 and 40. with an average of 28 which is equivalent also to 63, 71, 71, 67 and 66 percent of the total cost.

With the above-given data, the remaining life of the company’s PPE would then be 3 years more before it would be fully depreciated.

Income Statement

Profitability

jstincome

  • Net margin was .13, .13, .18, .10 and .11, which shows that within two years it was the same, increased by 5 in 2009 but decline in 2010 by 8 percent and slightly went up in 2011. Its 5 years average was 13 percent.
  • Asset turnover ratio was .99, .98, .87, .64 and .81, with an average of .86. It shows that the company is effective in converting its assets into sales. It also shows that the asset turnover ratio is inversely related to net profit margin if asset turnover is high net margin is low and vice versa.
  • Return on asset was .13, .12, .16, .06 and .09. an average of .11.  It tells us that the average profit the company has generated for each $1 dollar of the asset was $0.11.
  • Return on equity was .19, .19, .21, .09 and .13. an average of .16, which tells us the average profit a company earned in each $1  of shareholder equity was $0.16.
  • Financial leverage was 1.46, 1.51, 1.34, 1.50 and 1.54. an average of 1.47. This is the ratio of assets to total stockholders’ equity.
  • Return on invested capital was .19, .19, .21, .09  and .13. average of .16.

Income

jstincome

  • Revenue was 120, 159, 159, 147 and 225. its ttm was 162.  The company’s revenue shows an up and downtrend in five years of operation. It increased by 32 percent in 2008, no growth in 2009, dropped by 7 percent in 2010, however it recovered and increased by 53 percent in 2011.
  • Its gross profit was 42, 51, 67, 57 and 82, with ttm of 60.  It also shows an up and downtrend on its growth. In 2008, its growth was 21 percent, in 2009, 31 percent, however, in 2010 it decreased by 15 percent but immediately recovered and 44 percent increased in 2011.
  • Operating income was 19, 23, 31, 15 and 27.  The trend of its growth was also the same with its revenue and gross profit wherein 2010 was its lowest and 2009 was its peak.
  • Income before tax was 19, 24, 32, 18 and 28. This is the company’s income before deduction of income tax.
  • Income after tax was 16, 20, 29, 14, and 24.  This is the net income of the company after applying the provision for income tax.

As noticed on the above data,  we have seen that its revenue grew year after year. Its peak was in 2011, the same trend was with Jinpan’s gross profit. However, operating income, income before tax and income after tax have the same trend of its growth, its peak was in 2009 while the lowest was in 2010.

Expenses

jstexpense

  • The cost of revenue of JST was 78, 109, 92, 90 and 142.  It represents 65, 68, 58, 61 and 63 percent of revenue.
  • Selling, general and admin was 23, 27, 36, 42 and 56, which are 19, 17, 23, 29 and 25 percent of revenue.
  • Income tax was 2, 3, 3, 4 and 3. It is 2, 2, 2, 3 and 1 percent of revenue.

Above table shows that the company’s expenses were within the normal level of each category. The business is satisfactorily handled and managed. It seems that Jinpan International Limited is on the good track.

Margin

jstmarg

Gross margin was .35, .32, .42, .39 and .36. The total average was .37. The result showed an up and down per year. It decreased by 3 percent in 2008, increased by 10 percent in 2009 then decreased again by 3 percent in 2010 and another 3 percent in 2011.

  • Operating margin was .16, .14, .19, .10 and .12.
  • Pretax margin was .16, .15, .20, .12 and .12. This is the income of the company before tax expressed in percentage.
  • Net profit margin was .13, .13, .18, .10 and .11. It is the net income of the company expressed in percentage. Its highest was in 2009 and the lowest in 2010 at 10 percent.

Based on records, the company’s highest gross margin was in 2009, and so with its operating margin, pretax margin and net profit margin. The least was in 2008 for gross margin and 2010 for operating margin, pretax margin and net profit margin.

Modified IS

jstmodi is

  • The above table shows that its revenue was not going up always that during 2010 it went down. The highest revenue was in 2011. Its total expenses were also fluctuating with the highest record was in 2011.
  • Resulted in a net income averaged of 21. Its peak record was in 2009 and with lowest in 2010.

JST company is well managed as far as its income statement is concerned. The company did not experience any negative result.

Cash Flow

jstcflow

Cash Flow from Operating Activities

jstcfo

  • Net income was 16, 20, 29, 14  and 24. ttm of 21,  this is the result of the normal day to day operation of the business. Its peak was in 2009.
  • Depreciation & amortization was 1, 2, 4, 4 and 4.
  • Accounts receivable was 0, -13, -6, -10 and  -32. ttm was -26.
  • Prepaid expenses were -3, 4, -5, -19 and 17. ttm of 21.
  • Other working capital was -10, -2, -2, 17 and -14
  • Other non-cash items was 1, 0, 0, 0 and 1.
  • So, its net cash provided by operating activities was  0, 18, 22, 2  and 4.   It was zero in 2007 but have enough balance in 2008 and 2009,  however, due to adjustments on prepaid expenses, accounts receivable and other working capital it resulted to a minimum balance in 2010 and 2011.

As shown in the above table, operating cash flow was used up in 2007, however, it was good in 2008 and 2009  having a positive result but dropped to a minimum balance in 2010 to 2011.  Transactions affecting operating cash flow aside from the net income were accounts receivable, prepaid expenses and other working capital.

Cash Flow from Investing Activities

jstcfi

  • Investment in PPE  was -7, -14, -8, -8 and -8.
  • Purchases of investments was -13, 0, 0, 0 and -2.
  • Purchase of Intangibles  was  0, -5, 0, 0 and -5.
  • And other investing in activities was 0.
  • Net cash for investing activities was -19, -19, -8, -8 and -15.  It shows a negative result throughout its five years of operation.

Data of JST shows that investing cash flow of the company resulted in a negative balance of its transactions involved cash outflows.  What are those? These were an investment in PPE, purchase of investments, purchase of intangibles and other investing activities.

Cash Flow from Financing Activities

jstcff

  • Debt issued was 0, 43, 12, 17 and 48.
  • Debt repayment  was 0, -42, -17, -5 and -39
  • Cash dividends paid was -2, -2, -2, -2 and -2.
  • Other financing activities was 3, 0, 1, 0, 0.
  • Net cash provided by financing activities was  1, -1, -6,  10 and  6.  Total cash inflow was 3, 43, 13, 17 and 48 which are debt issued other financing activities. While total cash outflow was -2, -44, -19, -7 and -41 consist of debt repayment and cash dividends paid which resulted in a net financing cash flow of 1, -1, -6, 10 and 6.

Free Cash Flow

jstfcf

Free cash flow was the net amount after deducting capital expenditure from operating cash flow. For the past five years, Jinpan International Limited’s free cash flow was -7, -1, 14, -7 and -9.  It shows that the company incurred a negative free cash flow in 2007, 2008 2010 and 2011 while in 2009, however, the company incurred a positive free cash flow of 14.

Written by Rio
Edited by Cris

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

 

 

GameStop-Corp-GME

GameStop’s Corp (GME) Favorable Return on Equity

November 29th, 2012 Posted by Company Research Report No Comment yet

GameStop Corp (GME).

Gamestop Corp Balance Sheet

Financial Liquidity

Liquidity measures help us to ascertain the ability of a certain company to pay operating expenses and other short-term or current liabilitiesLiquidity measures are calculated using current assets and liabilities. The reason behind this is because current liabilities are debts that must be paid or obligations that must be fulfilled within 1 year. And also, they are paid out of current assets which are received as cash or otherwise used within 1 year.

On an extra note, low liquidity measure would indicate either one company is having financial problems or is poorly managed; hence, a fairly high liquidity ratio is good. However, it shouldn’t be too high, because excess funds incur an opportunity cost and can probably be invested for a higher return. And current ratio gives an investor a better idea of how much safety a company has in paying its current liabilities regardless of the size of the company.

GameStop Corp. showed a good current ratio. As opposite, the quick ratio declined and a bit low percentage and net working capital also depicted a lower but still sufficient amount which would be essentially the cash needed to run the business. 

GameStop Corp. had a good current ratio, meaning they have more current assets than current liabilities. However, growth dipped down by -18 percent in 2009, and following years by 10, -3.9, and 0.8 with an average of 1.26 times. Its quick ratio went the same as current ratio, but without the value of inventory and prepaid expenses in the numerator. This showed a down and up trend with a growth ratio of -43 percent, 44, -25 and 0. The net working capital ratio or the result of working capital against total asset displayed a positive low amount of working capital and has a growth ratio of -57 percent, 67, -20, and -12.5.

Efficiency

When it comes to GameStop Corp. had a high receivable turnover ratio meaning a fast turnover in receivable collections or receivables quickly turn to cash which was favorable for the company to use and invest cash in their operations.  A decreasing and lower inventory turnover rate may point to overstocking, obsolescence, or deficiencies in the product line or marketing effort. However, in some instances, a low rate may be appropriate, such as where higher inventory levels occur in anticipation of rapidly rising prices or expected market shortages.

Their accounts payable turnover played around 6 to 7 times a year. This means a higher ratio is more favorable as payables are being paid more quickly. Nelly told me that the higher the fixed asset turnover ratio, the better because a high ratio indicates the business has less money tied up in fixed assets for each unit of currency of sales revenue. With GameStop Corp., they had a declining ratio during 2010 and 2011 may indicate that the business is over-invested in the plant, equipment, or other fixed assets. The good news was, the company recovered to increase at 1.7 percent in 2012.

Let’s have a look at the table below.

The receivable turnover ratio measures the number of times receivables are collected during the period. Wherein GME showed a down and uptrend with a growth ratio of -8.1 percent, -3.2, 4.7, 0.5 and average of 149.91 times.

The inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. This showed a decreasing trend with a growth ratio of -2.65 percent, -10.34, -3.85,  -4.33 and an average of 6.42 times.

Accounts payable turnover ratio is a short-term liquidity measure used to quantify the rate at which a company pays off its suppliers. It is calculated by taking the total purchases made from suppliers and dividing it by the average accounts payable amount during the same period. GME depicted an up and down trend with a growth ratio of 2.2 percent, -4.34, 5.45, 7.6 and an average of 6.95 times.

Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the value of fixed assets (on the balance sheet). It indicates how well the business is using its fixed assets to generate sales. Just like accounts payable turnover ratio, it also showed an up and down trend with a growth ratio of 13.3 percent, -3.49, -1.25, 1.7 and an average of 15.84 times.

Cash Conversion Cycle

Cash conversion cycle validates the effectiveness of the company’s resources in generating cash.

Receivable conversion period measures the number of days it takes a company to collect its credit accounts from its customers. This show a growth ratio of 9 percent, 3, -4.6, -0.40 with an average of 2.49 days for GameStop Corp. 

The days’ sales in inventory or inventory conversion period tell the business owner how many days, on average, it takes to sell inventory. GME had a growth ratio of 2.7 percent, 11.6, 3.9, and 4.6 with an average of 57.27 days. The usual rule is that the lower,  the better since it is better to have inventory that sells quickly than to have it sit on the shelves.

While payable conversion period measures how the company pays its suppliers in relation to the sales volume being transacted. This showed a down and uptrend for the last five years with a growth ratio of -2.1 percent, 4.5, -5.2, -7 and an average of 52.61 days to pay its suppliers.

Cash conversion period decreased by -0.65 days during 2008 but it subsequently increased yearly, with a growth  ratio of 3.4 percent, 1.81, 0.86, 0.59 and an average of 7.14 days.

Leverage

I remember Nelly said “The lower the percentage, the less leverage a company is using and the stronger its equity position.” Or if we put in layman’s term, it goes as, the higher the ratio, the more risk that company is considered to have taken on.

GameStop Corp

The debt ratio compares a company’s total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company. This depicted a decreasing trend with a growth ratio of -4 percent, -8, -4.4, -14 and average of 45 percent.

  • The debt-to-equity ratio is a measure of the relationship between the capital contributed by creditors and the capital contributed by shareholders. This also showed a decreasing trend with a growth ratio of -5.8 percent, -15.5, -8.5, and -21.3 with an average  of 83 percent.
  • The solvency ratio measures the size of a company’s after-tax income, excluding non-cash depreciation expenses, as compared to the firm’s total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations. This showed a favorable solvency ratio which has an increasing trend with a growth ratio of 23 percent, 19.8, 91, and 100 with an average of 107 percent.

Major Control of the Company based on Total Asset

  • Current liabilities to total assets identify how much will be claimed by the creditor against total assets. This showed an up and down trend for the last five years with an average of 34 percent.
  • Long-term debt to total assets, on the other hand, is to make out how much claim has the banks or the bond holder against its total assets.  This show a decreasing trend with an average of 8 percent.
  • Then, stockholders equity to total assets is to know how much the owner can claim in its total assets which showed an increasing trend with a growth ratio of 4 percent, 7.8, 3.6, and 10.5 with an average of 55 percent for five years.

Based in GameStop Corp total five years of operation the majority in control of their total asset are their stockholders at 55 percent than their creditors of 34 and last to their bank/bondholder at 8 percent average.

Plant, Property & Equipment

  • Gross plant, property, and equipment is the gross total of fixed assets cost, this shows a trend that was increasing yearly for the last five years. It has a growth ratio of 16.8 percent, 14.8, 13.9, and 5.8 with an average of 1,236 million dollars for five years.
  • Accumulated depreciation is to reduce the carrying value of an asset to reflect the loss of value due to wear,  tear, and usage.  Wherein it shows a yearly growth trend with an average of 669.8 million dollars which is 54 percent of the average cost of plant, property, and equipment.
  • The net plant, property, and equipment is the result after deducting the accumulated depreciation from gross PPE, this showed a gradual increase yearly with a dip down in 2012 of -6.7 percent.  It has an average of 566.2 million dollars which is 45.8 percent of the average cost.
  • Looking into its fixed assets is to if they still have a useful life in their business operations.  Therefore, based on the above data, the remaining book value of PPE was 45.8 percent, using the percentage method of depreciation; this means it has 2.29 useful years remaining.

Gamestop Corp Income Statement

An income statement allows a business as well as the investors themselves, to understand if the company is operating efficiently and successfully.

Profitability

The graph below will show us how the trend goes for GameStop Corp.

  • Their net margins or the after tax profit a company generated for each dollar of sales showed an up and down trend with a growth ratio of 11.3 percent, -7.96, 3.6, -17.4 and trailing twelve months of 3.55 percent.
  • Their asset turnover which measures the effectiveness of the company to convert its assets into revenues likewise depicted an up and down trend with a growth ratio of 6.53 percent, -9.43, -1.56, 2.12 and a trailing twelve months of 2.09 percent.
  • The return on assets, this tells us how much profit the company generated for each dollar of total assets. This showed up and down trend with a growth ratio of 18.7 percent, -17.06, 2.13, -15.7 and trailing twelve months of 7.43 percent.
  • The company’s financial leverage this measures the financial structure ratio of the company base on total assets against total stockholders equity. This showed a decreasing trend with growth ratios of -3.44 percent, -7.14, -3.85, -9.14 and trailing twelve months of 1.48 percent.
  • Their return on equity the company could return such profit percent for every dollar of equity. This depicted an up and down trend with growth ratios of 7.46 percent, -21.5, -3.32, -21.1 and trailing twelve months of 11.16.
  • Their return on invested capital, this is the financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. Same as return on equity it has an up and down trend with a growth ratio of 21.8 percent, -16.8, 3.03, -14.9 and trailing twelve months of 10.68.

GameStop Corp’s profitability indicates that in 2009 it has a good performance compared to 2008 and their subsequent years. A low net margin means lower net income earned from each dollar of revenues. Net profit margins vary by industry, but all else being equal, the higher a company’s profit margin compared to its competitors, the better. Its asset turnover ratio tends to be inversely related to their net profit margin, wherein the higher the net profit margin the lower the asset turnover. The investors can compare companies using this to determine which one is a more attractive business. And this means they earn more from revenue than converting assets to revenue.

Their return on assets depicted a fluctuating earnings for every dollar of total assets due to up and down trend in net income and total assets growth ratio yearly was an up and down trend.

In terms of their returns using the DuPont Model wherein an equity multiplier is used to measure their financial leverage allowing investors to see what portion of the return on equity was the result of debt. In the case of GameStop Corporation financial leverage was decreasing thus this indicates no difficulty in paying interest and principal while obtaining more funding. While their return on equity show a high favorable decreasing trend thus the bulk of the return comes from profit margins and sales. Likewise, the return on invested capital was fluctuating and cash flow earned from invested capital also plays unsteadily.

Income

This show how much money in million dollars GameStop Corporation has brought in for their last five years.

  • Their revenue means how much money a company has generated in terms of “sales”, representing the amount of money a company brings in for selling its goods and services. This showed an increasing trend with a growth ratio of 24.1 percent, 3.08, 4.35, 0.81 and an average of 8,800.41 million dollars.
  • Gross profit shows how much markup a company receives on goods and services it sells after deducting its cost of revenue wherein it also depicts a decreasing trend. The same with revenue, GameStop Corp in an increasing trend with a growth ratio of 25.1 percent, 7.24, 4.22, 5.59 and an average of 2,347.12 million dollars.
  • Operating profit is the best indicator of a company’s true performance in their operations. For this is the result after deducting all the expenses incurred in their operations, wherein it shows an up and down trend with a growth ratio of 37.6 percent, -6.09, 3.94, -13.4 and an average of 603.77 million dollars.
  • Income before taxes refers to the gross taxable income of the company before deducting the income taxes. This showed a fluctuating trend with a growth ratio of 43.7 percent, -7.16, 5.58, -11.6, and an average of 566.80 million dollars.
  • Net income is what’s left over for a company after all expenses have been accounted for. Likewise, this depicted an up and down trend with a growth ratio of 38.2 percent, -5.28, 8.14, -16.6 and an average of 362.35 million dollars.

Earnings for the year 2008 was good producing a 24.1 percent growth but succeeding years it went down to only 3.08, 4.35 and 0.81 which mean sales or revenue was not doing well anymore. And after deducting the cost of revenue averaging 73.3 percent, its gross profit leftover would be around 26.7 percent.  This indicates that huge amount of revenue goes to the cost of revenue, represent the direct costs associated with the goods and services the company provides. Its operating profit after deducting their operating expenses accounts only 6.86 percent of revenue and income before taxes of 6.44 percent. Therefore their net income has only a merger share of around 4.1 percent, too small to pass our grade in scaling standards.

Expenses

This show how much GameStop Corp. had spent (in million dollars) with their in operations and others for the last five years.

  • The cost of revenue was the amount the company paid for the goods that were sold during the year. This showed an increasing trend and a slight decrease in 2012 with a growth ratio of 23.8 percent, 1.64, 4.4, and -0.93.
  • Operating expense was the expenses incurred in conducting their regular operations of the business. This depicted an increasing trend for the last five years with a growth ratio of 18.3 percent, 15.2, 4.24, and 12.03.
  • Provision for income tax was the amount allocated for their payment of income taxes. This likewise showed an increasing trend with a growth ratio of 23.4 percent, 3.88, 4.28 and 1.74.
  • Total expenses amount averages 8,404.74 million dollars or 95.5 percent of revenue. Wherein cost of revenue is 73.3 percent, operating expenses of 19.8, and provision for income taxes of 2.4 from average total revenue of 8,800.41 million dollars.

Modified Income Statement

Nelly presented to us a graph below which further indicates the flow of their revenues, total expenses and net income in their yearly and average data. This was done, to visualize the whole picture of their business operations.

The table shows that total expenses show an increasing trend in revenue and net income slight in an upward and downward trend.

Margins

  • Their gross margin indicates the percentage of revenue dollars available for expenses and profit after the cost of merchandise is deducted from revenues. And this averages 26.6 percent.
  • Operating margin is the operating income expressed as a percentage of sales or revenue after deducting the operating expenses from gross profit. Which have an average of 6.9 percent?
  • Earnings before income and tax (EBIT) margin is calculated through EBIT divided by net revenue. This showed an average of 6.4 percent for GameStop Corp.
  • And the net margin is the net income expressed as a percentage of sales or revenue after deducting provision for income tax from income before tax. And it has a 4.1 percent average only.

GameStop Corp displayed a lower gross profit margin of 26.6 percent. This means a huge percentage goes to their cost of revenue. It had also an unfavorable operating margin with 6.9 percent ratio and lastly, a net margin of less than 10 percent. To cut this short, their operations were in bad shape to have margins below scaling standards.

Cash Flow Statement

Cash flow statement helps us determine if GameStop Corp. has available cash for their operation or if they have a good free cash flow and excess funds to refinance operations for business expansion.

Cash from Operating Activities

Cash flow from operating activities comes from their net income adding back depreciation/depletion, deferred income taxes, non-cash items and changes in working capital to get the net cash provided by operations. This showed a growth ratio of 11.2 percent, 9.09, -8.22, 5.67 and it has an average of 580.67 million dollars. It means that the company had sufficient operating cash flow. 

Cash from Investing Activities

Cash flow from investing activities comes from their purchase of fixed assets, acquisition of business,  and other investing activities to get the net cash used in investing activities. This showed an acquisition of business amounting -630.71 million dollars in 2009 but prior and succeeding years trend was increasing except in 2012 it abruptly declined 16 percent, with average of -325.29 million dollars.

Cash from Financing Activities

Cash flow from financing activities comes from other financing cash flow, issuance of stock in 2008 and 2009. This was used to the retirement of stocks from 2010, 2011 and 2012, and retirement of debt to get net cash provided by or used for financing activities. Cash from financing activities showed that they were active in paying off their obligations as well as the retirement of stocks the last three years.

Net Change in Cash

GameStop Corporation has a good net cash beginning and ending balances which were sufficient after the transaction has been completed and all charges and deductions related to the transaction have been subtracted. This was used to double check the result of cash from operations, investing and financing, the net change in cash. Investors can use net cash to help determine whether a company’s stock offers an attractive investment opportunity and to assess whether they have enough cash to make investments in future expansions.

Foreign exchange effects are the gain or loss on foreign investments due to changes in the relative value of assets denominated in a currency other than the principal currency with which a company normally conducts business. A rising domestic currency means foreign investments will result in lower returns when converted back to the domestic currency. The opposite is true for a declining domestic currency. This means a net change in cash had been increasing or decrease due to the effect of foreign exchange.

Free Cash Flow

To get if the company have free cash flow to be used in operations and expansions, we deduct from operating cash flow amount their capital expenditures resulting to free cash flow.  showed that GameStop Corporation had sufficient free cash flow after deducting its capital expenditure. It had also a growth ratio of 14.9 percent and 31.2 from 2008 to 2010, with a slight dip of 18.07 percent in 2011 and recovered an increase of 16.76 percent in 2012. As a whole, they have an average of five years amounting to 403.63 million dollars indicating the company’s financial health.

Cash Flow Efficiency Ratio

Cash flow analysis uses ratios that focus on cash flow and how solvent, liquid, and viable the company is. Here are the most important cash flow ratios:

Operating cash flow to sales ratio measures how much cash generated from its revenue for the period and gives investors an idea of the company’s ability to turn sales into cash. This showed an up and down trend with a growth ratio of -10.2 percent, 13.8, -12.1, 4.8 with an average of 6.6 percent. The greater the amount of operating cash flow, the better. There is no standard guideline for operating cash flow/sales ratio, but obviously, the ability to generate consistent and/or improving percentage comparisons are positive investment qualities.

Operating cash flow ratio measures how much cash left after considering short debt by using the result of operating cash flow from operations over current liabilities.  This has a growth ratio of -10.4 percent, 10.7, -13.1, 13 depicting an up and down trend with an average of 36.94. This showed a good liquidity in terms of using cash flow as opposed to income which is sometimes a better gauge.

Free cash ratio helps us conclude if the company will grow in the future. Through the result of operating cash flow, less dividend paid less capital expenditure over operating cash flow despite an up and down trend it still showed sufficiently the company have free cash flow.

Capital expenditure ratio measures company sustainability in maintaining their assets. This can be done by using the result of operating cash flow over capital expenditure for the period.  GameStop had an upward trend except for 2011 wherein it slightly decreased to 2.99 but recover in 2012 to 3.78 with an average of 3.28. So, the company has the financial ability to invest in itself through capital expenditures (CAPEX), then it is thought that the company will grow.

Total debt ratio measures company efficiency and it is the result of operating cash flow over total liabilities. A growth ratio of -3.87 percent, 16.27, -5.47, 26.83 and an average of 28.11.

Current coverage ratio measures how much cash available after paying all its current debt. It is determined through cash flow from operating less dividend over current liabilities. The same result goes with operating cash flow ratio because for they did not have any dividend payments.

Written by Nelly
Edited by Cris

GameStop-Corp-GME

GameStop Corporation (GME) World’s Largest Video Game Retailer

November 28th, 2012 Posted by Company Research Report No Comment yet

GameStop Corp. (GME) is an American video game, consumer electronics, and wireless services retailer. The company is headquartered in Grapevine, Texas, United States, a suburb of Dallas, and operates 7,267 retail stores throughout the United States, Canada, Australia, New Zealand, and Europe. Wikipedia

Who started GameStop Corp and why?

GameStop Corp.

GameStop has a lineage that includes several retailing names now relegated to the historical graveyard. It was originated as Babbage’s Inc., the first software retailer store in Dallas Texas which was named after Charles Babbage, the 19th-century British mathematician.

GameStop Corp.

James B. McCurry

Babbage’s Inc. was initiated by two Harvard Business School classmates, James B. McCurry, and Gary M. Kusin. They established a chain of software stores, subsidize on the burgeoning computer and home video industries with an expectation of increasing consumer interest in computer equipment and games. After several changes of names, it became GameStop Inc. in 1999.

For the awareness of everyone, Computer and software stores comprise establishments primarily engaged in retailing new computers, computer peripherals, and prepackaged computer software without retailing other consumer-type electronic products or office equipment, office furniture and office supplies; or retailing these new products in combination with repair and support services.

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

timeline

What is the nature of  GameStop Corp. business?

nature

Additional bits of information from Meriam and Janice. Retail software is computer software sold to end consumers, usually under restricted licenses. It is also called full retail, the term used to describe a full version of a software package that is sold at online or brick-and-mortar stores.

GameStop is an American video game and entertainment software retailer, located in Grapevine Texas United States. It is one of the biggest U.S players in retail sector specializing in video game and PC amusement software. In line with this, GME is the largest retailer of new and used games, hardware, entertainment software, and accessories.

The company operates approximately 1,750 retail stores located in 49 states under the GameStop Brand. Moreover, the retail network and family of brands include 6,628 company-operated stores in 15 countries worldwide and online at www.GameStop.com. It has a list of subsidiaries such as GameStop, Inc., GameStop.com, Inc., Marketing Control Services, Inc.; Sunrise Publications, Inc., Babbage’s Etc. LLC; and Gamesworld Group Limited.

Who is running GameStop Corp. company and their background?

The company is the world’s largest multichannel video game retailer. It is under the supervision of the executive officers, namely, Mr. J. Paul Raines and Mr. Robert A. Lloyd.

GameStop Corp.J. Paul Raines is the chief Executive officer of GameStop Corp., since June 2010, and upon joining the company, he served as the chief operating officer from September 2008 to June 2010. Prior to GameStop, he served various management positions for eight years with The Home Depot (“Home Depot”) and spent four years in global sourcing for L.L. Bean, and ten years with Kurt Salmon Associates in the consumer products group. He is a member of the board of directors of Advance Auto Parts, Inc. (“Advance Auto Parts”), and serves the Finance Committee and compensation Committee as chairperson.

Mr. Raines has extensive experience in the strategic, operational and merchandising aspects of retail businesses, and broad international experience in Europe and Asia. He shares to the board the insights he gained from his experience and expertise in the areas of retail strategy, store operations, customer service, merchandising, manufacturing, marketing, loss prevention, real estate, supply chain and global sourcing. Paul provides the company an additional unique perspective into corporate management and board dynamics at another specialty retail public company.

GameStop Corp.Robert A. Lloyd, on the other hand, is the executive vice President and chief financial officer since June 2010. He served as company’s Chief Accounting officer wherein he held the position from October 2005 to February 2010. Prior to that, he was the vice president – finance of GameStop or its predecessor companies from October 2000 and was the controller of GameStop’s predecessor companies from December 1996 to October 2000. Mr. Lloyd held several financial management positions as a controller or chief financial officer, primarily in the telecommunications industry. He also serves positions in the public accounting firm of Ernst & Young. Robert is a certified public accountant.

Global sourcing is a way of sourcing from the global market for goods and services across geopolitical boundaries? It is procurement method in which a business seeks to find the most cost effective location to manufacture a product even if the location is in a foreign country. 

I also learned from Janice that the method includes low-cost skilled labor, low-cost raw material and other economic factors like tax breaks and low trade tariffs.

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

GameStop comprises of three committees, the audit, compensation and nominating and corporate governance. The board is headed by chairman of the board, as well directors of which are independent.

Meet Ms. Stephanie M. Shern, the director, and chair of the audit committee. She has been serving the position since 2002. She was the vice chair and global director of Retail and Consumer Products for Ernst & Young LLP (“Ernst & Young”), and a member of Ernst & Young’s Management Committee from 1995 to 2001. Ms. Shern is a CPA and has extensive financial experience. She is a member of the American Institute of CPAs and the New York State Society of CPAs, and a member of Pennsylvania State University’s Smeal College Accounting Advisory Board and a founding member of Tapestry Network’s Lead Director Network. Stephanie inputs to the board vast leadership, financial, international, marketing/consumer industry and retail experience from her nearly 40-year finance career focused significantly on retail and consumer industries in both the United States and abroad.

Mr. Gerald R. Szczepanski, on the other hand, is an independent director and has been serving as a director for the company and its predecessor companies since 2002. He is the chairman of the compensation committee and a member of the audit committee. Mr. Szczepanski was the co-founder and chairman and chief executive officer of Gadzooks, Inc., a publicly traded specialty retailer of casual clothing and accessories for teenagers from 1994 to 2005. Gerald shares to the board over his 35 years of experience in the retail business and has extensive leadership experience of a public company in the specialty retail industry.

Then there’s their non-executive director and chairman of the nominating and corporate governance committee in the name of Mr. Jerome L. Davis. He has been the director of the company since October 2005. He is the current vice president of Food and Retail for Waste Management, Inc. (“Waste Management”), a leading provider of integrated environmental solutions in North America. Mr. Davis is currently serving as a  director and a member of the compensation committee and the nominating and corporate governance committee of Apogee Enterprises, Inc. (“Apogee”), since 2004, and for five years, he chaired the finance and enterprise risks committee of the company. Mr. Davis gives the board his 30 years of experience in Fortune 500 companies and has extensive expertise and insight in multiple areas including marketing and sales, strategy development.

Bankruptcy is a legal status of an insolvent person, firm or corporation, one who cannot repay the debts they owe to creditors. Bankruptcy is imposed by a court order, often initiated by the debtor, this is in most jurisdictions. I learned from Janice that in the United States the term bankruptcy is applied more broadly to formal insolvency proceedings.

How do they make money?

Working under a video game software company is no joke. Wondering where they get their revenues from? Janice has the answers for that.

The company’s sales and profits are primarily driven by the physical stores or from the company’s operating segments: United States, Canada, Australia and Europe.

GameStop records revenue from the sales of their digital products which generally allow consumers to download software or play games on the internet wherein they get a commission. They also sell new and used video game hardware, physical and digital video game software, accessories, as well as PC entertainment software and other merchandise. Revenue is recorded at the time of sale of the products, net of sales discounts, reduced by a provision for sales returns. Other incomes are from advertising revenues for Game Informer which is recorded upon release of magazines for sale to consumers.

This is the business strategy they used to gain more profit is through advertising in newspapers, television and other media to introduce and make the products available to the customers. Another way to increase market share is through increasing awareness of the GameStop brand and membership in the loyalty program, expanding the sales of used video game products, and expanding market leadership position by focusing on the launch of new hardware platforms as well as physical and digital software titles.

How do they fit in the industry they operate in?

Video game industry is the economic sector involved with the development, marketing, and sales of video games. The industry provides lots of job opportunities to people globally. 

GameStop Corp. generally competes with mass merchants and regional chains, computer product and consumer electronics stores, internet-based retailers, and other U.S. and international video game and PC software specialty stores. They also contest with toy retail chains; mail-order businesses; catalogs; direct sales by software publishers; and online retailers and game rental organizations.

Likewise, the company competes with other sellers of used video game products and other PC software distribution firm. Additionally, they compete with other forms of entertainment activities, including browser, social and mobile games, movies, television, theater, sporting events and family entertainment centers. Their top competitors are Electronics Boutique Holdings Corp., Best Buy Co., Inc., Circuit City Stores, Inc., Wal-Mart Stores, Inc., Toys “R” Us, Inc., Target Corporation, Kmart Corporation; and Amazon.com, Inc.

Who are their suppliers and customers?

They deal with new and used video game hardware, and digital Video games software, accessories, as well as personal computer (PC) entertainment software. Other products include controllers, memory cards, and other add-ons; liked playing games and trading cards. Furthermore, they sell a variety of digital goods which generally allow consumers to download software or play games on the internet. Likewise, it renders company’s products primarily through its GameStop, EB Games, and Micromania stores, as well as through its electronic commerce websites. Moreover, they offer GameStop TV in many of its locations and publish Game Informer, a video game magazine with some 7.2 million subscribers.

The company’s suppliers rely on foreign sources, generally in Asia who manufacture a portion of products which they purchased, buy, sell, and trade program that creates value for customers while recycling products no longer being played.

Interactive software is used for entertainment, role playing, and simulation. It is played on a specialized device, mobile device or personal computer, video games which have become extremely realistic, not only in their graphics and animation but in their themes.

What is their workforce like?

The company is in a fast-paced business that demands much and delivers much to those who always improve. To remain in the industry, GameStop looks for individuals who are competitive and demand the best of themselves, and someone who strives to meet and surpass the next challenge, and who set the bar continuously higher.

Approximately, the company has a total 17,000 full-time salaried and hourly employees and between 33,000 and 54,000 part-time hourly employees worldwide. Some of our international employees are covered by collective bargaining agreements, while U.S. employees are not represented by a labor union or are members of a collective bargaining unit. GameStop hires and retains employees who know and enjoy working with the products; this is a line to assist the customers better. Each of stores is managed by one manager, one assistant manager and between two and ten sales associates, most are part-time employees.

Moreover, the success of the company relies on the ability to attract, motivate and retain key management for their stores and skilled merchandising, marketing, financial and administrative personnel at our headquarters. It depends as well on the continued services of the key executive officers; any loss of the key people will adversely affect the business operations.

A store manager is the person responsible for managing the personnel and the economic performance of the store. They handle the day-to-day operation and directly reports to a district or general manager.

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

Executive people receive compensation which comprises of the following elements; base salary, annual incentive bonus, targeted total annual cash compensation, long-term incentives and total compensation (cash and long-term incentives). Some of the executive officers underwent an employment agreement with the company wherein they get stock options or restricted stock, and cover severance and termination benefits. GameStop also provides savings plan to employees who meet the eligibility requirements, primarily age, and length of service. Another benefit provides are the defined contribution 401(k) plan.

For people working in the physical store, to encourage them to sell the full range of our products and to maximize our profitability, employees are provided with targeted incentive programs to drive overall sales and sales of higher margin products. In some locations, employees have the opportunity to take home and try new video games, to enable them to better explain the games with the customers.

The compensation package, for everybody’s information, is a mixture of salary and benefits received by the employee from his employer. When evaluating job offers, one should not only consider the salary but also the total package.

Pay Structure

Gossips

On November 13, 2012, www.businessweek.com announced that: GameStop ‘Call of Duty’ Sales Top 1 Million in First Day. “Black Ops II’ is shaping up to be our biggest game launch of all time,” Tony Bartel, president of the Grapevine, Texas-based chain said today in an e-mail, “GameStop sold more than 1 million units worldwide during our midnight launch period.”

According to www.bizjournals.com on October 25, 2012: GameStop to debut new GameStop Kids stores. “This is really a way for us to take share away from people who are in the toy business and have an expanded assortment,” CEO Paul Raines said, “and show people how to drive kids to new experiences, new products or an expanded assortment of existing products like Skylanders and Angry Birds.”

An Article coming from www.fool.com on September 8, 2012, stated that: Is It Game Over for GameStop? According to Joel Greenblatt’s “Magic Formula,” GameStop is a great buy — high return on capital and a cheap stock at 5 times cash flow. But as Fool analyst Austin Smith notes, there are downsides to this company.

On August 16, 2012, www.reuters.com said that: GameStop slashes sales outlook, raises the dividend. “Clearly the industry has had a tough first half,” GameStop Chief Executive Officer Paul Raines told Reuters. “The NPD data is significantly down, and perhaps the industry has declined more than anyone, even analysts’ groups, thought it would.”

The video-game retailer sold more than 1 million copies of Activision Blizzard Inc. “Call of Duty: Black Ops II” on its first day. They are launching a new store concept which shows continued confidence by GameStop management in brick-and-mortar retail in the highly digital gaming industry. On the other hand, GME has seen an 11 percent drop in revenue for the most recent quarter and is operating in a deteriorating environment. Also, the company sharply reduced its sales forecast for this year 2012.

CITATION

Who started the company and why?

http://www.today.mccombs.utexas.edu/2010/11/carpenter-kusin-robertson-new-mccombs-hall-of-famers

http://www.123people.ca/ext/frm?ti=personensuche%20telefonbuch&search_term=jim%20mccurry&search_country=CA&st=suche%20nach%20personen&target_url=aHR0cDovL3d3dy5hY2cub3JnL2F0bGFudGEvZXZlbnRzL2V2ZW50LmFzcHg%2FRXZlbnRJZD0yMjIy&section=image&wrt_id=418

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

http://www.fundinguniverse.com/company-histories/gamestop-corp-history/

http://www.chacha.com/question/what-gamestop-is-the-first-gamestop-what-is-gamestop-store-number-one-and-what-is-the-phone-number

What is the background of the company? Its History and Development?

http://www.fundinguniverse.com/company-histories/gamestop-corp-history/

http://www.google.com/finance?q=NYSE%3AGME&ei=3uiiUNCmIojzkQXIZw

http://www.sec.gov/Archives/edgar/data/1326380/000119312512262005/d354414d10q.htm p11

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm

What is the nature of the business?

http://www.fundinguniverse.com/company-histories/gamestop-corp-history/

http://www.sec.gov/Archives/edgar/data/1326380/000119312512381205/d385850d10q.htm p18

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

http://phx.corporate-ir.net/phoenix.zhtml?c=130125&p=irol-irhome

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=GME

Who is running the company and their background?

http://www.reuters.com/finance/stocks/officerProfile?symbol=GME&officerId=1236761

http://www.sec.gov/Archives/edgar/data/1326380/000119312512225064/d339099ddef14a.htm p4

http://www.sec.gov/Archives/edgar/data/1326380/000119312512225064/d339099ddef14a.htm p12

http://www.reuters.com/finance/stocks/officerProfile?symbol=GME&officerId=775171

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

http://insiders.morningstar.com/trading/insider-committees.action?t=GME

http://www.sec.gov/Archives/edgar/data/1326380/000119312512225064/d339099ddef14a.htm p6

http://insiders.morningstar.com/trading/insider-committees.action?t=GME

http://www.sec.gov/Archives/edgar/data/1326380/000119312512225064/d339099ddef14a.htm p6

http://insiders.morningstar.com/trading/insider-committees.action?t=GME

http://www.sec.gov/Archives/edgar/data/1326380/000119312512225064/d339099ddef14a.htm p5

How do they make money?

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p8

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm#tx283661_15

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm#tx283661_15

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p2

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p4&5

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p39

How do they fit in the industry they operate in?

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p18

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p6

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p15

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p19

Who are their suppliers and customers?

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p2

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=GME

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p13

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p18

http://finance.yahoo.com/q/pr?s=GME

http://investing.businessweek.com/research/stocks/financials/drawFiling.asp?formType=10-K

What is their workforce like?

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p14

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p16

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p18

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

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm#tx283661_15 p F-30

http://www.sec.gov/Archives/edgar/data/1326380/000119312512225064/d339099ddef14a.htm p21

http://www.sec.gov/Archives/edgar/data/1326380/000119312512225064/d339099ddef14a.htm p22

http://www.sec.gov/Archives/edgar/data/1326380/000119312512225064/d339099ddef14a.htm p24

http://www.sec.gov/Archives/edgar/data/1326380/000119312512225064/d339099ddef14a.htm p33

http://www.sec.gov/Archives/edgar/data/1326380/000119312512134615/d283661d10k.htm p14

 

Researched  and Written by Meriam, Janice and Karla
Edited by Cris

Humana-Inc-HUM

Humana Inc (HUM) Is Financially Stable And Healthy

November 9th, 2012 Posted by Company Research Report No Comment yet

Humana Inc (HUM) shows that the company is financially stable and healthy in the past five years.

Humana Balance Sheet

Liquidity ratios of Humana Inc. from 2007 to 2011 are as follows:

huliq

  • Working capital in dollars was 4861, 5324, 6820, 7418 and 7972, with an average of 6469. This is the funds left after deducting short-term obligations from the company’s current asset.  As we noticed, the company is doing good, its working capital is consistently increasing year to year and continued to have positive results.
  • The company’s current ratio was 4.27, 4.27,4.80, 4.55 and  4.65. The average was4.51, which means that its current asset was 451 percent of its current liabilities. It shows that the company possessed vast current resources.
  • Its quick ratio was also 4.27, 4.27, 4.80, 4.55 and 4.65, with an average of 4.51, which means that current resources(net of inventory) were 451 percent of its short-term obligations since the company has no inventory.
  • And net working capital ratio was .37, .41, .48, .46 and .45 with an average of .43. This means that the average net working capital left was 43 percent after paying off its current obligations.

Analysis

Based on the above table, the company is financially stable as far as its current resources are concerned. Working capital was consistently positive and continued to increase yearly.  Its current ratio has an average of more than 451 percent as well as its quick ratio and after the settlement of its current obligations, the company’s  working capital left was 43 percent.

Humana Inc. is a health insurance company, its current assets are consists of short-term investments and cash and cash equivalents and premiums and other receivables. The company has no inventory, accounts receivable as well as accounts payable. 

hulev

Facts

  • Debt ratio was .69, .66, .59, .57 and .54, with an average of .61 which means that in five years time its total liabilities was  61 percent against total assets. The company’s total debt when compared to its total assets reached more than 50 percent.
  • Debt to equity ratio was 2.20, 1.93, 1.45, 1.33 and 1.20, with an average of 1.62. This tells us that its debt was  162 percent of owners’  equity.
  • And solvency ratio was .12,  .10, .15,  .15 and  .18. The average was .14. This tells us that  Humana Inc. is 14 percent solvent.

humajor

  • Current liability to total asset was .11, .12, .13, .13 and .12. The average was .12. This tells us that the creditors, most probably suppliers have only 12 percent claims on the total assets of the company.
  • Long term liability to total asset was .13, .15, .12, .10 and .09with an average of .12 meaning that the banks have also 12 percent claims on the company’s assets.
  • Owners’ equity to total asset was .31, .34, .41, .43 and .46. The average was .39. This means that the stockholders or owners have the majority control of the total assets of the company at a percentage of 39.

Referring to the above data, the company was indebted at an average of 61 percent of total assets and 162 percent if compared to its owners’ equity. As a health insurance company, the company is operating its business through loans.

Humana Property, Plant & Equipment

The table below shows us the investment in property, plant, and equipment of Humana Inc. from 2007 to 2011:

huppe

Humana Inc. has an investment in PPE of 637, 711, 679, 815 and 912, with an average of 751 in five years’ period; however, there was no record of accumulated depreciation. The company had only recorded depreciation and amortization of 185, 220, 250, 263 and 270 or average of 238 and this represents 29, 31, 37, 32 and 30 percent of the gross PPE.

Humana Income Statement

Profitability

Profitability ratios of  Humana Inc. from 2007 to 2011 are as follows:

huprof

  • Net margin of the company has an average of .03 percent and is quite low. This is the after-tax profit a firm generated for each dollar of revenue.
  • Asset turnover ratio was 1.96, 2.22, 2.19, 2.10 and 2.08, with an average of 2.11 which means that Humana Inc. generates $2.11 average of sales for every $1 of assets.  As noticed, the asset turnover ratio is inversely related to the net profit margin, the higher the asset turnover the lower the net margin and vice versa.
  • Return on asset  was .06, .05, .07, .07 and .08 with an average of .07. This means that the company generated a profit of $0.07  for each $1 in the asset.
  • Return on equity was.32, .22, .28, .25 and .28. The average was.27 which shows the firm’s earnings on the funds invested by the shareholders or owners. The company’s high ROE was in 2007.
  • Financial leverage or equity multiplier was 3.20, 2.93, 2.45, 2.22 and 2.20. an average of 2.62. This is derived by dividing total asset by total stockholders’ equity. It allows the investor to see what portion of the ROE is the result of debt.
  • Return on invested capital was .15, .10, .14, .13 and .15.Average of .13. This shows us how well a company generates cash flow relative to the capital it has invested in its business.

Analysis

The company had a low net margin of 3 percent average. Its operating asset was efficiently used as the firm generated $2.11 average of sales for every dollar of the asset while it has also generated a profit of $0.07. Return on equity was 27 percent average which means that it earned $0.27 for every $1 of equity investment. And finally, the company’s return on invested capital had an average of 13 percent which shows the company’s efficiency in generating cash flow relative to invested capital or  $0.13 for each dollar of invested capital.

Income

huincome

  • Revenue was consistently increasing per year with a growth rate of 14, 7, 9 and 9 percent respectively from 2007 to 2011.
  • Gross profit was 5019, 5238,  6185, 6780 and 8009, trailing twelve months of 8064. The trend is increasing year after year. This is the result after deducting the cost of revenue from revenue.
  • Operating income/income before tax was 1289, 993, 1602, 1750 and 2235with trailing ttwelve monthsof 1966.This was the difference between gross profit and the operating expense.  Humana Inc. operating income in 2008  declined by 23 percent compared to 2007 results, but they were able to recover in 2009 and continue trending up until 2011.
  • And finally, income, after tax was 834, 647, 1040, 1099 and 1419 and trailing twelve months, was 1248. The company’s after-tax income in 2008  declined by 22 percent but managed to rise up in 2009 until  2011.

Analysis

The past five years performance of Humana Inc. was impressive because it showed positive revenue, with consistently increased per year. After deducting the cost of revenue, operating expenses and provision for income tax, the company maintained a positive income throughout its five years of operation, with a slight decline in 2008. The good thing is the company was to recover thereafter until 2011.

Expenses

Shown below are the expenses of  Humana Inc. from 2007 to 2011:

huexp

  • The cost of revenue was 20271, 23708, 24775, 27088 and 28823, with ttm of 30211. This represents 80, 82, 80, 80 and 78 percent of revenue.
  • Selling, the general and administrative expense was  3476, 3945, 4228, 4663 and 5395, with ttm of 5713. This is also 14, 14, 14, 14 and 15 percent of revenue.  The trend was also increasing per year.
  • Income tax was 456, 346, 562, 650 and 816, with ttm of 718, which is equivalent to 2, 1, 2, 2 and 2 percent of revenue.

Considering the industry of  Humana Inc. as a health care insurance, we could not compare it with a marketing or manufacturing company whose returns,  percentage wise reached as high as 20 percent. In the insurance industry,  5 percent net margin is quite high enough.

Margins

Detailed below is the company’s margin from 2007 to 2011:

humarg

  • Gross margin was .20, .18, .20, .20 and .22. The average was .20. The result fluctuated in 2008 by 2 percent; however, immediately recover and increased by 2 percent in 2011.
  • Operating income and pretax margin was .05, .03, .05, .05 and .06. with an average of .05.  with the same trend went to gross margin also.
  • Net margin was .03, .02, .03, .03 and .04. Average of  .03. The company incurred low net margin in 2008 but high in 2011 at 4 percent, resulted to an average of 3 percent in 5 years period.

Humana Inc. gross margin was at a normal level at 20 percent average throughout five years of operation with this kind of industry. After considering all the related operational costs plus provision for income tax, the company’s net margin was only 3 percent average. This is quite low; the company must exert effort to at least hit the 5 percent mark.

Modified Income Statement

humodi

  • As per above table, the company’s revenue was consistently going high, with its highest in 2011. with a yearly growth rate of  14, 7, 9 and 9 percent respectively.
  • After deducting the cost of revenue and operational costs, it resulted in a positive net income with its highest peak was in 2011.
  • The past year’s performance of Humana Inc. as far as its income statement is concerned is quite good and well managed.

Humana Cash Flow

The graph below shows us how the cash flow of  Humana Inc.:

hucflow

  • Net income was 834, 647, 1040, 1099  and 1419, which is the result of the normal day to day operation of the business. Its peak was in 2011.
  • Accounts receivable was 658, 61, -153, -60 and -46.
  • Depreciation & amortization was 185, 220, 250, 263 and 303.
  • While other operating expenses was  92, 24, 19, 58 and 81.
  • So, its net cash provided by operating activities was 1224, 982, 1422, 2242 and 2079.  The result was trending up except in 2008  wherein it dropped by 20 percent against 2007 but thereafter it continued to increase, however it slightly decreased in 2011 by  7 percent.

As shown in the above table, operating cash flow was good throughout its five years period, it shows a positive result.  Transactions affecting cash flow operating apart from the net income were accounts receivable, depreciation and amortization and other operating expenses.

Cash Flow From Investing Activities

Transactions related to cash flow from investing activities of Humana Inc. from 2007 to 2011 are as follows:

hucfi

  • Sales/Maturity of Fixed maturity was 3059, 5867, 5534, 3833 and 2882.
  • Acquisition & disposition was -493, -423, -12, -832 and -226.
  • Purchase of investments was -3489, -5681, -7197, -4589 and -3678.
  • Property & equipment, net was -213, -262, -184, -222 and -336.
  • And other investing activities was -709.
  • Net cash for investing activities was -1845, -498, -1859, -1811 and -1359.

Data of Humana Inc. shows that investing cash flow of the company resulted in a negative balance since its cash outflow was more than its cash inflow.  Total cash outflow in the past 5 years was -4904, -6366, -7393, -5643 and -4240 and total were 28,546; while its cash inflow was 3059, 5867, 5534, 3833 and 2882 with a total of 21175.  Overall difference was -7371.

Cash Flow from Financing Activities

hucff·

Change in short-term borrowings was 326, -1448, -250, 35 and -56.

  • Long-term debt issued was 749 in 2008,
  • Long-term debt payment  in 2008 was -51,
  • Common stock issued in 2007 was 62,
  • Repurchase of treasury stock was -27, -106, -23, -109 and -541,
  • Cash dividends paid was -82 in 2011,
  • Other financing activities was 561, 303, 354, -298 and -338,and
  • Net cash provided by financing activities was  921, -554, 81, -371 and -1017.

Transactions involved under this category, financing cash flow, were limited to issuance of common stock and payment of dividends to shareholders in 2010 and 2011 only.

Free Cash Flow

Shown below is the free cash flow of  Humana Inc. from 2007 to 2011:

hufcf

Free cash flow was the net amount after deducting capital expenditure from operating cash flow. For the past five years, the company free cash flow was 1011, 720, 1238, 2020 and 1743.  It shows that Humana Inc. has sufficient funds to retire long-term debt, pay dividends and invest additional lines of business.

Cash Flow Ratios

Cash flow ratios measure a company’s ability to meet ongoing financial and operational commitments. The following ratios are used on computingHumana Inc.’s cash flow  from 2007 to 2011:

hucfratios

Facts

  • Operating CF to sales was .05, .03, .05, .07 and .06; average of .05, which means that the company generates an average of $0.05 of cash flow for every $1 dollar of sales.
  • Operating cash flow ratio and current coverage ratio was  .83, .60, .79, 1.07 and  .95. an average of .85. It is the result after dividing cash flow from operation by total current liabilities. This tells us how much cash flow can cover the short-term obligation of the company.
  • Free cash flow ratio was .83,  .73, .87, .90, and  .84.with an average of .83. It shows that the company has available funds to retire additional debt, additional dividends and invest another line of business.
  • Capital expenditure ratio was 5.75, 3.75, 7.73, 10.1 and 6.19 with an average of 6.7. By the way, capital expenditure is a ratio that measures a company’s ability to acquire long-term assets using free cash flow. It shows us that the company has the ability to invest in itself.
  • Total debt ratio was .14, .11, .17, .24  and  .22 with an average of .18. This means that Humana Inc has only 18 percent ability to carry its total debt.  This ratio provides an indication of a company’s ability to cover total debt with its yearly cash flow from operations. According to Rio, the higher the percentage ratio; the better the company’s ability to carry its total debt.

Analysis

As shown above, the company is doing well in its operation, cash flow ratios show that  Humana Inc. has available funds to expand its business thru investment of other lines. In the same manner, it has also the ability to cover not only short-term debt but long term debt as well.  With regards to its CAPEX, the company has the ability to acquire long-term assets using its cash flow, so the company will further grow.

Written by Rio

Edited by Cris

DeVry-Inc

DevRy Inc is in Medium Scale for Financial Liquidity

November 7th, 2012 Posted by Company Research Report No Comment yet

DeVry University is a for-profit college based in the United States. The school was founded in 1931 by Herman A. DeVry as DeForest Training School and officially became DeVry University in 2002. Wikipedia

Balance Sheet

The balance sheet is a statement wherein we can determine how liquid and efficient based on the resources one company had.

Liquidity

Financial liquidity will tell us how liquid and quick of the company can turn their assets into cash in order to pay its current debt.

The net working capital ratio was the results of net working capital over total assets. DeVry Inc per total average in five years was considered in medium scale in terms of financial liquidity available at 1.42 of every $1 of debt. It had a slight slowdown during 2009 at .98. The same thing happened in net working capital; movement was in sideways but still, they had an available of 8 percent over their total assets.

Leverage

Leverage measures efficiency of the company in handling their debt from short-term to long term. I’m having a thought now if DeVry Inc had positive leverage. Let’s find out on the graph below.

DV leverage based on the total average is 28 and 39 percent of debt ratio and debt equity ratio, respectively; meaning they had low leverage which in every $1 of the asset only .28 and .39 finance by the local creditor and equity holder, respectively. They had a high solvency ratio at 53 percent.

Cash Conversion Cycle

The entire cash conversion cycle is a measure of management effectiveness. Lower conversion is better. As we all know, cash is king and is the start and the end of a business. No business can start without cash, and all businesses end in cash, whether it be liquidated or sold out. This is why a business that can manage its cash efficiently will do better than its competitor. Cash conversion cycle, start off with cash, becomes inventory and accounts payable, which then becomes sales and accounts receivables before converting into cash again.

What can we say about the cash conversion of Devry Inc?

DV cash conversion cycle results were impressive an average of 5 days cycle but a little monitoring in payables and receivables because of the average of receivable at 21 days while payables were 16 days. It tells us that they will pay first their payables prior to have a collection and there a credit term was only 15 days maximum.

Asset Management

Asset management measures efficiency in handling the company’s resources.

DV asset management as per total average in five years of operation it had 17 days receivable turnover and payable turnover at 24 days whereas fixed asset turnover at four years maximum will be useful.

PPE

The PPE of DV was increasing yearly and based on presuming estimated life of five years, their PPE has a remaining life of 3 years.

 Majority Holders

Majority holders determine who the major claimants of the assets of the company are.

I want to know who is/are for Devry Inc so I asked some help for Dyne.

DeVry Inc was highly financed by equity holders at 72 percent, then by local creditors at 20%then the bank or bondholder at 8 percent. It tells us that in every $1 of asset the equity holder will claim at .72, the local creditor at .20 and banks or bondholder is .08.

Income Statement

The income statement is where we can determine if the company’s revenues are on trend at the same time if they are profitable or not?

Modified Income Statement

DV revenue from 2008 to 2011 was highly increasing an average of 20 percent but in 2012 was slightly down by 4 percent. Total expenses were consistently increasing with an average of 16 percent per year. The net income was also increased from 2008 to 2011 at an average of 13 percent. In 2012, it dropped down to 132 percent from 2011 due to net income affected by the revenue results.

Expenses

DeVry Inc’s expenses consistently went upward an average per year by 12 and 14 percent respectively for the cost of revenue and total operating expenses whereas income tax has an average increase yearly by 25 percent from 2008 to 2011 but in 2012 it went down by 157 percent.

Margins

The margin is one kind of metrics in determining the profitability of the company to generate earnings relative to sales. One is gross margin which reveals how much a company earns taking into consideration the costs that it incurs for producing its products or services; a ratio of gross profit ( revenue less cost of revenue) over company’s revenue. Second is EBIT (Income before interest and taxes) is a measure of a company’s profitability that excludes interest and income tax expenses.

Does DeVry Inc profitable use this metric?

DV margins were relative to its revenue in the first four years ( 2008 to 2011). It slowly went upward by 3 percent but need to highly monitor since the result of 2012 drop down by 9 percent based on net margin. It tells us that for their four years 2008 to 2011 out of $1 it has an average return of .03 but in 2012 alone it went down by .09.

ROE using the DuPont Model

DV ROE shows from 2008 to 2010 were increasing from 4 to 7 percent and went down in 2011 and 2012 at 1 to 16 percent respectively. It was highly affected by the financial structure ratio went down by 10 percent in 2011; operating margin and capital turnover in 2012 drop down by 13 percent both. Applying the DuPont model in our analysis is a big part and it helps us determine if ROE of the company is affected by three things:

  • Operating efficiency, which is measured by net profit margin;
  • Asset use efficiency, which is measured by total asset turnover; and
  • Financial leverage, which is measured by the equity multiplier.

It result to the formula of ROE (DuPont formula) = (Net profit / Revenue) * (Revenue / Total assets) * (Total assets / Equity) = Net profit margin * Asset Turnover * financial leverage.

We are basically done with the first two parts of the financial statement. It’s now high time to deal with the last part and that’s the cash flow.

Cash Flow

Before we start, I asked Dyne to define cash flow. And she said “Cash flow statement is where you can determine if the company is financially healthy and stable.

Cash flow Summary

DV net cash from operating activities, according to Dyne, was highly increasing upward from 2008 to 2011 with an average of 15 percent but drop down in 2012 by 47 percent. The net cash flow from investing shows every two years increased. Whereas cash net used in financing was in sideways. It results in a net change in cash per average cash provide at 9 percent.

Cash flow from Operating

DV cash from operating activities grew successively from 2008 to 2011 by 15 percent but drop down in 2012 of 47 percent. This was due to cash collection was also increasing from 2008 to 2011 but went down in 2012 and the cash payments were continuously up.

Cash Flow from Investing

DV investing activities shows in every two years has an additional activity from its investment. In 2009 they invested in acquisitions and a slight increase in PPE while in 2010 and 2011 an increased in PPE and acquisition.

Cash Flow from Financing

Free Cash Flow

DV free cash flow from 2008 to 2011 went upward with an average of 20 percent increase per year and in 2012 it was still a positive result but drop down by 84 percent compared with 2011 data.

Cash Flow Efficiency

DV cash efficiency was very efficient. It indicates with all positive results. They are very efficient based in TTM which from CAPEX ratio with an equivalent of $2.15 for every $1 of a fixed asset, operating and current coverage available at .88, for total debt at .64 and free cash flow ratio available at .53 and from sales at .13.

Written by Dyne

Edited by Cris

Interested in learning more about the company? Here’s investment guide for a quick view, company research to know more of its background and history; and investment valuation for the pricing.

exxon-mobil-corporation-xom

Exxon Mobil Corp (XOM) Is Highly Leveraged

October 31st, 2012 Posted by Company Research Report, Uncategorized No Comment yet

BALANCE SHEET

 Financial Liquidity

Liquidity helps to ascertain an Exxon’s ability to pay operating expenses and other short-term, or current liabilities. In 2010 and 2011 it has a low liquidity measure and it indicate that the company might be having  financial problems, or that the company is poorly managed. Hence, a  fairly high liquidity ratio is good, however, it shouldn’t be too high,  because excess funds incurred an opportunity cost and can probably be  invested for a higher return.

Exxon Mobil Corporation

By looking at the graph, the current ratio of Exxon is less than 1, and their net working capital which used to run the business and to pays its current liabilities was not sufficient for the last two years. A negative working capital means that a company is unable to meet its short-term liabilities with its current assets. In other words, the net working capital of Exxon Mobil Corporation had an average of 18 percent.

Financial liquidity shows the ability of the company to pay its short-term debt obligations.  As we can see in the table above, the current ratio is the result of dividing current assets by current liabilities. It showed a downward trend from 2007 to 2011. The quick ratio is the result of dividing quick asset (current asset minus inventory) over current liabilities.  The net working capital ratio is the result of working capital over current liabilities.

 Efficiency

Exxon Mobil Corporation

  • The receivable turnover ratio is the number of times it was collected throughout the year.
  • Inventory turnover ratio shows how many times a company’s inventory is sold and replaced over a period. This showed a growth ratio from 2007 to 2011 of 22 percent.
  • The payable turnover ratio shows investors how many times per period the company pays its average payable amount.
  • And fixed asset turnover ratio measures a company’s ability to generate net sales from fixed asset investments – specifically property, plant, and equipment – net of depreciation.

Exxon Mobil Corporation showed a favorable average of 13 times a year wherein receivables are being collected. This indicates that they are efficient in their collections. And inventory takes an average of 20 times sold and replaced which was enough to replenish additional finished products. And their payable has an average of 10 times a year While fixed asset turnover showed that it falls down in 2009.  So, they are not generating more revenues from their investments in fixed assets but in 2011, it slightly recovered to 2.27 which means a progressive improvement.

Cash conversion cycle

Exxon Mobil Corporation

  • Receivable conversion period measures the number of days it takes a company to collect its credit accounts from its customers.
  • The days’ sales in inventory or inventory conversion period tell the business owner how many days, on average, it takes to sell inventory.
  • Payable conversion period measures how the company pays its suppliers in relation to the sales volume being transacted.
  • Cash conversion cycle validates the effectiveness of the company’s resources in generating cash.

The average cash conversion cycle takes 19.4 days to convert their goods to cash. With their receivable conversion period of 29 days, inventory takes 18 days to sell and payable to suppliers takes 28 days to pay. So, this indicates that cash from receivables was converted fast, so cash can be used or financed again in their operations.

 Leverage

Exxon Mobil Corporation has a debt ratio that depicts that they have more assets than debts. And if the ratio is greater than 0.5, most of the company’s assets are  financed through debt. Thus, companies with high debt/asset ratios are said to be “highly leveraged,” not highly liquid and could be in danger if  creditors start to demand repayment of debt. But with Exxon, they are within the limits of 50 percent. While they have a low debt-to-equity ratio indicating that the company was not taking advantage of the increased profits that financial leverage may bring.

Debt ratio indicates what proportion of debt a company has relative to  its assets.  Wherein it has been stable at 50 percent from 2007 to 2008, increase to 53 percent in 2009 and 2011 with a slight decrease in 2010 to 52 percent.

  •  The debt-to-equity ratio is a measure of the relationship between the  capital contributed by creditors and the capital contributed by  shareholders. It also shows the extent to which shareholders’ equity can  fulfill a company’s obligations to creditors in the event of liquidation.
  • Solvency ratio determines how well Exxon is able to meet its debts as well as obligations, both long-term and short-term. It started as a very high solvent company with 553 and 611 percent, but it went down in 2009 and 2010 by 325 and 301 percent with the slight increase of 15.6 percent in 2011. Thus, a solvency ratio of greater than 20 percent is considered financially healthy.

 Major control of the company based on total asset

  • Current liabilities to total assets identify how much will be claimed by the creditor against total assets.
  •  While, long-term debt to total assets, on the other hand, is to make out how much claim has the banks or the bond holder against its total assets.
  •  Then, stockholders equity to total assets is to know how much the owner can claim in its total assets.

Based in their total five years of operation the majority in control of their total asset are their stockholders at 48 percent followed by their creditors of 22 and last to their bank/bondholder at 3 percent average.

 Plant, property, and equipment

Presented below is the summary of Exxon Mobil Corporation PPE results:

Exxon Mobil Corporation

  • Gross plant, property, and equipment are the gross total of fixed assets cost.This showed an upward trend yearly for the last five years. It had a growth ratio of -3.4 percent, 13, 22, and 5.4 with an average of 325,005 million dollars for five years.
  • Accumulated depreciation is to reduce the  carrying value of assets to reflect the loss of value due to wear, tear, and usage.  Wherein it shows a yearly growth trend with an average of 165,896 million dollars which is 51 percent of the average cost of plant, property and equipment.
  • The net plant, property, and equipment are the result after deducting the accumulated depreciation from gross PPE, this show an increase in 2008 then a decrease in 2009 but it increases back in 2010 and 2011. It has an average of 159,109 million dollars which is 49 percent of the average cost.

Looking into its fixed assets, it has still useful life in their business operations.  Therefore, based on the above data, the remaining book value of the PPE was 49 percent, using the percentage method of depreciation; this means it has 2.45 useful years remaining.

INCOME STATEMENT

Profitability

By looking at the profitability, we can measure  the success of a business in maintaining a satisfactory earning power and steadily increasing ownership equity.

  • Their return on assets depicted unsatisfactory earnings for every dollar of total assets in 2009 due to their decrease in net income and succeeding years has a declining growth from  36 down to 14 in 2011.
  •  While their return on equity showed a favorable first two years but due to the financial crisis in the US, in 2009 returns declines down. But recovered in 2010 and 2011 with declining growth ratio of 37.2 and 15.2 percents.
  • And financial leverage the portion of the equity which was the return on debts showed slight increases and a dip down in 2010. This means that the company was not taking advantage of the increased profits that financial leverage may bring.
  • Likewise, the return on invested capital because of the crises, cash flow earned from invested capital dip down in 2009.

 Income

Exxon Mobil Corporation revenues depicted the same trend wherein it all dipped down in 2009 meaning the US financial crisis had greatly affected company’s sales. But the good thing about it was they had recovered based on the succeeding year’s growth ratios on earnings.

Exxon Mobil Corporation

  • Their revenue means how much money a company has generated in terms of “sales”, representing the amount of money a company brings in for selling its goods and services. This showed an up  and down trend with a growth ratio of 18 percent.
  • Gross profit shows how much of their markup a company receive on the goods and services it sells after deducting its cost of revenue wherein it also depicts a decreasing trend. Likewise, the same trend with revenue with a growth ratio of 10 percent.
  • Operating profit is the best indicator of a company’s true performance in their operations. For this is the result after deducting all the expenses incurred in their operations. This has a growth ratio of 16 percent.
  • Net income is what’s left over for a company, after all, expenses have been accounted for. Exxon Mobil Corporation depicted good earnings with a growth ratio of 11 percent.

  Expenses

Exxon Mobil Corporation

  • The cost of revenue was the amount the company paid for the goods that were sold during the year. This showed an up and down trend and growth ratio of  24 percent, -26.7, 23.8,  and 16.9 with trailing twelve months of $312,813 million.
  • Operating expense was the expenses incurred in conducting their regular operations of the business. This depicted an up and down trend with a growth ratio of 5.5 percent, -40, 6.1, and 56.5.
  •  The other income  was the non-operating income or expenses from their business. This reflected an increasing other  income  only in 2009 to 2011  with trailing twelve months of $2,758 million.
  • Provision for income tax was the amount allocated for their payment of income taxes. This shows a growth ratio of 22.3 percent, -58.6, 42.6 and 44.

 Modified Income Statement

What is a modified income statement? It’s a graph that shows the relationship or the flow of revenue, expenses and net income.

Exxon Mobil Corporation

For Exxon Mobil Corporation, they depicted an abrupt dip down due to the US financial crisis in 2009. But revenue and total expenses in 2010 and 2011 had recovered and increased subsequently during the period.

 Margins

Exxon Mobil Corporation’s margin tells us the total performance of their business operations.

Exxon Mobil Corporation

  • Their gross margin indicates  the percentage of revenue dollars available for expenses and profit after  the cost of merchandise is deducted from revenues. And this averages 36.4 percent.
  • And their operating margin is the operating income expressed as a percentage of sales or revenue  after deducting the operating expenses from gross profit. The result showed an average of 14.8 percent.
  • While the net margin is the net income expressed as a percentage of sales or revenue after deducting provision for income tax from income before tax. And it had an 8.2 percent average only.

Exxon Mobil Corporation showed a profit margin of less than 50 percent, unfavorable declining operating margin  with ratio below 17 percent and lastly, a net margin of less than 10 percent. This means that manufacturing operations, as what she told me, have margins below our scaling standards. On the other hand,  but net income reflected a sufficient and impressive earnings.  For for they had recovered from their declined income in 2009 which was due to financial crises in the US.

CASH FLOW STATEMENT

Cash flow statement helps us determine if Exxon Mobil Corporation has an available cash for the operation or if they have a good free cash flow and excess of funds to refinance operations for business expansion.

Cash flow from operating activities

Cash flow from  operating activities comes from their net income adding back depreciation  and amortization, investment/asset impairment charges in 2009, deferred income taxes, inventory, prepaid expenses, other working capital and other noncash items to get the  net  cash provided by operations. This showed a growth ratio of 14.9 percent, -52.4, 70.2, and 14.3. They had a good cash flow from operations except for declined in 2009 net income due to the decrease in revenue.

Cash flow from investing activities

Cash flow from investing activities comes from their investments in plant, properties and equipment, acquisitions, purchases of investments, sales/maturities of investments and other investing activities to get the net cash used in investing activities. The company showed a  growth ratio of 59.3 percent, 44.6, 7.9 and -8.4 with trailing twelve months of -15,415 million dollars. They were doing well in their investments for the first four years but in 2011, it slightly declined.

 Cash flow from financing activities

Cash flow from financing activities comes from debt issued, debt repayment, common stock issued, repurchases of treasury stocks, cash dividend paid and other financing activities to get net cash provided by or used for financing activities. Wherein this depicted a growth ratio of 14.8 percent, -38, -1.3,  and 4.9 with trailing twelve months of -29,725 million dollars. This means they had used cash flow in financing activities to the extent that it was declining down with the slight improvement in 2011.

  • The cash flow of Exxon Mobile Corporation showed that it was affected by the exchange rate differences were  favorable in 2007 and 2009 but in 2008, 2010 and 2011 it decrease down. This means that the company cash flow from operations  in 2008 to 2010 was not enough after deducting the investing  and financing activities. This may be due to the US financial crises. The cash at the end of each period after deducting the net change in cash from cash showed a decreasing trend as well.

Free cash flow

Reviewing their free cash flow, we deduct from operating cash flow amount their capital expenditures resulting to free cash flow to be used in operations and expansions.  This shows that Exxon Mobil Corporation had sufficient free cash flow but indicating  up and down trend yearly with the growth ratio of 10.4 percent, -85.2, 262.2, and 13.1 with trailing twelve months of $22,804 million.

Cash flow efficiency ratios

  • Operating cash flow to sales ratio measures how much cash generated from its revenue for the period. This showed a growth ratio of -6.9 percent, -26.4, 36.9, and -9.5. This means that not much earnings come from operations.
  •   Operating cash flow ratio measures how much cash left after considering short debt by using the result of operating cash flow from operating over current liabilities. This showed a growth ratio of 36.3 percent, -55.1, 41.6 and -7.6. Herein operating cash flow was sufficient only in 2009, the rest of the years it was not enough to pay for their current liabilities.
  •  Free cash ratio helps us conclude if the company will grow in the future. Through the result of operating cash flow, less dividend paid less capital expenditure over operating cash flow. This showed that free cash flow was sufficient to pay dividends and capital expenditures except in 2009, which reflected a -8.3 percent.
  •  Capital expenditure ratio measures company sustainability in maintaining their assets. By using the result of operating cash flow over capital expenditure for the period.
  • Total debt ratio measures company efficiency, from the result of operating cash flow over total liabilities. The first five results showed an up and down trend with the growth ratio of 20.1 percent, -55.3, 34.1, and 0.64. The more capital a company has (the assets) compared to debt (the liabilities), the less leveraged or stronger equity position it is said to have. The more debt compared to assets a company has, the more highly it is leveraged. Herein the company reflected that it has a total liabilities than their operating cash flow, so they are highly leveraged.
  • Current coverage ratio measures how much cash available after paying all its current debt.  It can determine through cash flow from operating less dividend over current liabilities. This showed a growth ratio of 38.2 percent, -63.2, 63.6 and -6.2, with trending a dip down twice in 2009 and 2011. However, only in 2008, it has a favorable coverage ratio that is more than 1:1 or a 100 percent greater showing that the company can repay all debt within one year. With regards to the current coverage, in broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders. This means the company’s current liabilities were more than the operating cash flow after paying off dividends. Therefore, cash flow from operation was not sufficient for their current obligations.

Written by Nelly

Edited by Maydee

Note:

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