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.

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

Who is running the business?

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. 

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.

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 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.

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:

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’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) company research.

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?

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.

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

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.

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

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.

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.

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.

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

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 (ITT) Company Research

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

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

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

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

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

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

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

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

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

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

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

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. (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

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

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

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.

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’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

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.

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.

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.

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

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

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

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) 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

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.

• 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.

• 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) 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

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

• 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

• 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.

• 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

• 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

• 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

• 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

• 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

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

• 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

Cash Flow from Operating Activities

• 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

• 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

• 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

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

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:

• 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. 

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.

• 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:

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:

• 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

• 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:

• 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:

• 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

• 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.:

• 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:

• 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

·

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:

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:

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 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.

Technical Communications Corporation (TCCO) manufactures communication security devices that allow users to scramble transmitted information to ensure privacy. Its products are used to protect communication over radios, telephones, fiber optic cables, and satellite links.

In value investing, it is important to be knowledgeable in the financial aspects of the firm we are planning to invest in. When we talk of financials, we refer to balance sheet, income statement and cash flow statement of the company.

Balance Sheet

Liquidity

Several financial ratios measure the liquidity of the firm. Those ratios are the current ratio, the quick ratio or acid test and net working capital ratio. Working capital and liquidity ratios of TCCO from 2007 to 2011 are as follows:

• Working capital in dollars was 4, 5, 6, 11 and 13, with an average of 7.8. This is the funds left after deducting short term obligations from the company’s current resources. As noticed here, there is a consistent increase per period for five years and positive results. ·
• The company’s current ratio was 5, 6, 3, 5 and 14. Average of 6.5, which means that its current asset was 650 percent of its current liabilities. It shows that the company possessed vast current resources consecutively for five years of operation.
• While quick ratio was 3, 4, 2, 4 and 11, with an average of 5, which means that current resources(net of inventory) were 500 percent of its short term obligations.
•  And networking capital ratio was .80, .71, .67, .73 and .87. Average of .76, which means that the average net working capital left was 76 percent after paying off its current obligations.

Based on the above table, the company is financially stable as far as its current resources were concerned. Working capital was consistently positive and continued to increase year over year.  Its current ratio had an average of more than 500 percent as well as its quick ratio. After the settlement of its current obligations, the company ’s working capital left was 76 percent.

Efficiency

Asset management ratios are the key to analyzing how effectively and efficiency your small business is managing its assets to produce sales. Asset management ratios are also called turnover ratios or efficiency ratios.  I asked Rio how exactly this efficiency thing goes for TCCO and gladly she gave me first-hand results, come on let see.

• Inventory turnover ratio was 1, 2, 1, 1 and 1, which shows that high turnover was in 2008 of two times while the rests were 1.
• Receivable turnover ratio was 12, 0, 0, 7 and 0. As noticed, the company was not selling on credit, since its receivable transactions were recorded in 2007 and 2010 only.
• Considering the company’s industry is in technology, its inventory was composed of communication equipment which is sellable to the same line of business only.  The company recorded minimal receivable in 2008 and 2011  with no payable. Most probably, the company sells its products on cash with order basis.

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. To calculate this, ratios such as debt ratio, debt to equity ratio and solvency ratio are needed. Then I remembered that this analysis was about Technical Communications Corporation. Do you know what I do next? Yes, you are right. I asked Rio again on what she found out after analyzing the company and she answered me this:

Technical Communications Corporation leverage results from 2007 to 2011 are as follows:

• Debt ratio was .07, .2, .33, .14 and .20, with an average of .19 which means that in five years’ time its total obligation was 19 percent against total assets of the company. The company is operating its business mostly on a cash basis with the minimal loan.
• Debt to equity ratio was .08, .25, .43, .17 and .25, with an average of .24. This tells us that its debt was only 24 percent of stockholder’s equity.
• And solvency ratio was 2, 2.7, .33, 1 and 1. Average of 1.4. This tells us that TCCO is 140 percent solvent.

Majority in Control

• Current liabilities to total asset was .07, .20, .33, .14 and .20. Average of .19. This tells us that the creditors, most probably suppliers have only 19 percent claims on the total assets of the company.
• Owners’ equity to total asset was .87, .80, .78, .86 and .80. Average of .82. This means that the stockholders or owners had the majority control of the total assets of the company at a percentage of 82.

Referring to the above data, the company continued to be financially sound with minimal obligation and high solvency ratio, thus, giving us the idea that the company is well managed.

Property, Plant & Equipment

TCCO’s investment in property, plant, and equipment has an average of 3 in five years’ period. As noticed, the company is conservative in acquiring real properties.  After deducting its accumulated depreciation, it resulted in a zero net book value of the PPE.

Income Statement

Profitability

• Net margin of the company has an average of 20 percent and is quite good. This is simply the after-tax profit a company generated for each dollar of revenue. The rule of thumb is higher net profit is preferable.
• Asset turnover ratio was 1, 1, .89, 1.47 and .80, with an average of 1.03. It means that  TCCO generates $1.03 average of sales for every $1 of assets.  As noticed, the asset turnover ratio tends to be inversely related to net profit margin or the higher the net profit margin, the lower the asset turnover.
• Return on asset of TCCO was .20, .14, .11, .53 and .13 with an average of .22. This means that the company generated a profit of $0.22  for each $1 in the asset.
• Return on equity was .25, .17, .14, .67 and .15. Average of .28. , which shows the firm’s earnings on the funds invested by the shareholders.
• Financial leverage or equity multiplier was 1.25, 1.17, 1.29, 1.25 and 1.15 with an average of 1.22. 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 .28 average which quantifies how well a company generates cash flow relative to the capital it has invested in its business.

The company’s net margin was good at an average of 20 percent. Its operating asset was efficiently used as the firm generated $1.03 average of sales for every dollar of asset and a  profit of $0.22. Return on equity was 28 percent average which means that the company earned $0.28 for every $1 of equity investment. And finally, the company’s return on invested capital has an average of 28 percent which shows its efficiency in generating cash flow relative to invested capital.

Income

• Revenue was 5, 7, 8, 22 and 12, with ttm of 9. The firm’s revenue was yearly increasing from 2008 to 2010 by 40, 14, and 175 percent but dropped in 2011 by 45 percent.
• Gross profit was 3, 4, 5, 16 and 10, ttm of 7. This is the result after deducting the cost of revenue from revenue.
• Operating income/income before tax was 1, 1, 0, 11 and 3. The difference of gross profit and the operating expense. TCCO’s operating income in 2008 was the same with 2007, breakeven in 2009, high in 2010 at $11 but dropped to $3 in 2011.
• And finally, income after tax was 1, 1, 1, 8 and 2, the company has the same after-tax income in 2007 to 2009, it rose up in 2010 but went down in 2011.

TCCO’s past five years performance was impressive in the sense that its revenue showed a positive result, although not that high it was performing well in 2007 to 2010. However, it dropped in 2011 by 45 percent. After deducting the cost of revenue, operating expenses and provision for income tax,  the company managed to maintain a positive income of $1 in the first 3 years, increased to $8 in 2010 but dropped in 2011 to $2.  The same trend goes with its revenue.

Expenses

• The cost of revenue was 2, 3, 3, 5 and 2, with ttm of 2. This represents 40, 43, 38, 23 and 17 percent of revenue.
• Selling, the general and administrative expense was 2, 2, 3, 3 and 3, with ttm of 3. This is also 40, 29, 38, 14 and 25 percent of revenue. Its high expense was in 2007 and 2009 in percentage.
• Income tax was 3 and 1 in 2010 and 2011 respectively, which is 14 and 8 percent of revenue.

Considering the industry of Technical Communications Corporation, its cost of revenue was not so high and almost the same percentage with its operating expense.

Margins

Gross margin was .60, .57, .63, .73 and .83. Average of .67. The result fluctuated per year, wherein its highest was in 2011 at 83 percent.

Operating income and pretax margin was .20, .14, 0, 50 and 25. Average of .22.  It was break-even in 2009, high in 2010 at 50 percent, however, dropped by 25 percent in 2011.

Net margin was .20, .14, .13, .36 and .17. Average of .20. The company incurred low net margin in 2009 but high in 2010 at 36 percent, resulted in an average of 20 percent in 5 years period.

TCCO’s gross margin was high at above 50 percent throughout five years of operation with an average of 67 percent. After considering all the related operational costs plus provision for income tax, the company’s net margin was 20 percent average. This is quite good, the company is managed well.

Modified Income Statement

As per the above table, the company’s revenue incurred an up and down trend with high sales in 2010, but the rests were of the same level. After deducting the cost of revenue and operational costs, it resulted in a positive net income which its highest peak was in 2010.

Cash Flow

Cash flow statement is the third statement of the financial statements which shows the cash outflows and inflows of the company.

The graph below shows us how the cash flow of TCCO looks like:

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.

Cash flow from operating activities of TCCO from 2007 to 2011 is as follows:

• Net income was 1, 1, 1, 8 and 2, which is the result of the normal day to day operation of the business. It shows that its peak was in 2010.
• Accounts receivable was -1 in 2011.
• Inventory was also -1 in 2011.
• While other working capital was 1, 1 and -2 from 2009 to 2011 respectively.
• So, its net cash provided by operating activities was 1, 1, 2, 9 and -1, wherein 2009 was high so far but dropped to -1 in 2011.

As shown in the above table, operating cash flow was good in the first four years. Its highest peak was in 2010, additions made was in other working capital while deductions were adjustments on receivables and inventory which resulted in a negative balance of 1 in 2011.

Cash Flow from Investing Activities

There was no related transaction to investing activities for the past five years in this company.

Cash Flow from Financing Activities

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

• Cash inflow was 1 due to common stock issued in 2010.
• Cash outflow was -5 due to the dividend paid in 2010 of -4 and 2011 of -1.
• Net cash provided by financing activities was -3 and -1 in 2010 and 2011 respectively. It has a negative result because cash out was greater than cash inflows. 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 Technical Communications Corporation from 2007 to 2011:

Free cash flow was the net amount after deducting capital expenditure from operating cash flow. For the past five years, the company did not invest in a fixed asset; therefore, its free cash flow was the same with its operating cash flow of 1, 1, 2, 9 and -1 from 2007 to 2011 respectively.

Cash Flow Ratios

Cash flow ratios measure a company’s ability to meet ongoing financial and operational commitments.    To determine how efficient the cash flow of the firm used in the business operation, we need to used different ratios.

• Operating CF to sales was .20, .14, .25, .41 and -.08. Average of .18, which means that the company generates an average of $0.18 of cash flow for every $1 dollar of sales.
• Operating cash flow ratio and current coverage ratio was 1,1,67, 3 and -1. Average of .93. It is the result of 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 1, 1,1,1, and 1. Average of 1 which shows that the company has available funds to retire additional debt, additional dividends and invest another line of business.
• Capital expenditure ratio was 0 because the company has no investment in real property during its five years of operation.
• Total debt ratio was 1, 1, .67, 3 and -1. Average of .93 which means that TCCO has 93 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. The higher the percentage ratio, the better the company’s ability to carry its total debt.

As shown above, the company is doing good in its operation, cash flow ratios show that TCCO has available funds to expand its business through the 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.

Written by Rio

Edited by Cris

Tencent Holdings Limited (700: Hong Kong) is a Chinese multinational investment holding conglomerate founded in 1998, whose subsidiaries specialize in various Internet-related services and products, entertainment, artificial intelligence, and technology both in China and globally. Wikipedia

Balance Sheet

The balance sheet is where we can determine how many resources they have their liabilities. Is Tencent Holdings Ltd liable or had sufficient fund to expand?

 Financial Liquidity

Financial liquidity is to measure a company’s strength over its short-term obligation. We used the current ratio to measure management efficiency to pay its current debt over their current resources, meaning current assets over current liabilities. The quick ratio can serve as the basis on how quickly the management pays its current debt. This can be calculated using the total current asset less inventory over current liabilities. Net working capital was a result of total working capital over total assets.

Tencent financial liquidity is very liquid and efficient. Based on TTM, it resulted that they had twice available cash both from their current obligation using current and quick ratio.  It means that in ever $1 of debt it had an equivalent amount available of $2.50. Net working is high at 40 percent in TTM or in every dollar of the asset they have a return of $.40.

Leverage

Leverage is used to measure the ability of the business to meet its long-term debt obligations; through debt ratio, debt-equity, and solvency. The debt ratio is the results of total liabilities over total assets; while debt equity is from total liabilities over equity. Solvency was from a total of income including depreciation over total liabilities.

Tencent Holdings Ltd’s leverage was highly indebted to equity holders at 68 percent and to creditors for up to 41 percent. They were solvent at 126 percent, meaning an available of income of  1.26 over their $1 of debt.

Majority Holders

The majority shareholder, according to Dyne, is calculated in order to determine who majority holder of the company was. It can be through using current liabilities over total assets,  wherein we can know if it is hold by current debtors. Long-term liabilities over total assets if it is in favor of bank or bond companies; and equity over total assets will be from stockholders.

For Tencent, the company was strongly dominated by its shareholders at 60 percent followed by creditors at 33 percent and by banks or bond holders at 7 percent.

Asset Management

Asset management measures a company’s efficiency in handling its resources. It can be viewed from receivable, payable and fixed asset turnover also inventory but I did not consider here in ten cents because only from 2007 to 2008 has a minimum of inventory. Receivable turnover can be calculated using total sales over receivable over the period; payable turnover is a result of sales over accounts payable; whereas fixed asset turnover is a result of total revenue over the net of PPE for the period.

Tencent was very efficient in managing wherein the result per total average turnover of receivable was  10, payable was 21 and fixed asset was 5. It tells us that in every $1 of sale, a company had an average turnover from receivable at 10 times, in payable at 21 times and in the fixed asset at five times. It was very efficient.

Cash Conversion Cycle

Cash conversion cycle measures the length of time. It was expressed in days, that it takes for a company to convert resource inputs into cash flows. It can be evaluated using the inventory conversion period plus receivable conversion period less payable conversion period.

The result based on average, Ten cents is very quick in converting their sales into hard cash, it was -22 days; it means the management can use it first prior to paying their obligation.

Property Plant and Equipment

Property, plant, and equipment or simply PPE is a company asset to business operations but cannot be easily liquidated. The value of PPE is typically depreciated over the estimated life of the asset because even the longest-term assets become obsolete or useless after a period of time.

Having a look at the above table, Tencent Holdings Ltd had a yearly investment in a fixed asset in five years which grew by 25 percent average. After deducting its accumulated depreciation, the net book value had a life span for a maximum of four years.

Tencent Income Statement

The income statement is where we can determine if the company is profitable or not. It was a statement of their sales, expenses, and profit.  Now, the question that will keep running in our minds is “Is the income of Tencent Holdings Ltd sufficient to cover its cost? Worry no more because we will surely get the answer in the following topics presented to us by Dyne.

Profitability

Profitability ratios measure the results of business operations or overall performance and effectiveness of the firm.  These are expressed as a percentage. Among these are net margins in which the net income will be divided into net sales. Asset turnover was the result of net income on total assets; return on assets; was the result of net income over total asset for the period; return on equity using DuPont was the combined result of net profit margin multiplied to asset turnover ratio and multiply by equity multiplier or financial structure ratio. The financial structure was based on the result of assets over stockholders equity and tax effect ratio based on net profit result over income before tax (PBT).

Tencent profitability per TTM is profitable and sustainable. A slight swing from net margin but TTM was closed to 31 percent or $.31 of every 1 of sales. The company had a high asset turnover at 140 percent or $1.4 in every $1 of the asset. Return on equity (ROE)  and Return on asset (ROA) were moderate at 75 and 44 percent, meaning in every $1 of equity and asset it had a payback of $.75 and .44 percent, respectively. The financial structure is very solid at 168 percent and even after tax it had a high return of 83 percent.

Revenue

Revenue is the main stream of the company.  Gross profit was a result of revenue less cost of revenue. Operating income, in addition, is the result of gross profit less operating expenses. Income before tax is operating income less or adds other sources of income and expenses. The net income is the bottom line or the result after all the expenses were applied.

Tencent Holdings Ltd revenue grew consistently with a minimum of 30 percent per year. Based on the graph you can see the growth at a rapid pace from revenue down to net income. Meaning, management efficiency is very effective and aggressive.

Expenses

Expenses, from the word itself, are all about cost and expenses incurred within the period. The cost of revenue is cost directly associated with sales whereas operating expenses are expenses that are related to the operation like salaries, advertising, and marketing expenses. As revenue grows there would be a possible growth of expenses.

Just like the income, the graph is ascending for the expenses. According to Dyne, based on the total expenses, the company had a minimum increase of 25 percent. At per TTM it showed higher expenses in cost of revenue represented at 55 percent, operating expenses was  35 percent and 10 percent for taxes.

Margins

Margins measure a company’s growth within the period. It can be seen through different margins. Among these are gross profit margin (gross profit over revenue); operating margin (operating income over revenue); EBIT is the result of EBIT over revenue, and net margin is the result of net income over revenue. Overall, it leads you to how much percentage of profit does a company after $1 sale.

Tencent margin result was high but declining, with an average of 2 percent. But it had a remarkable high of return that per TTM, with every $1 of sale, it had a return gross profit of $.62, operating return of .37 and EBIT of .38 and net margin of .31. This means that the management has a sufficient fund for the next rolling year.

Cash Flow

Cash flow is a statement where you can determine how much cash is coming in or out within a particular period. It is classified per activities which run from operating, investing up to financing. Having said that, Tencent cash flow summary revealed that they had an increasing inflow of cash from operating which was opposite from investing an increasing outflow of cash and an outflow based on TTM in financing. Therefore, per TTM net change in cash still resulted in the inflow of cash, since cash from operating was more than its company outflow by 16 percent.

Cash flow from Operating

Cash flow from operating was cash used or provided for the operation. It can be determined using the income method or reconciliation method. It differs from the user of data which income method basically begin from the net income result and add back all the non-cash operating while in reconciliation method it will use the result of total collection less total cash paid within the period. The total collection is the net result of net sales less account receivable and total cash paid are like cash payment made in purchases, operating expenses, interest, and taxes. Tencent Holdings Ltd showed that they had strong management in the collection.

It had rapid growth and per TTM net cash collected was equivalent to 48 percent, cash payments made was 52 percent. It means that in every $1 of sale they have available cash of $.48 which was very high.

Cash Flow from Investing

Cash flow from investing is activities of cash were the company put their money. In particular was an acquisition of fixed asset like PPE, intangibles and other investment like stock or bonds.

Tencent is a holding investment company which the classification of the industry itself, we could expect that their investment is possibly moving. The result of net cash flow from investing was highly increasing and the main sources were coming from the purchase of investment represents 76 percent average from the NCFI.

Cash Flow from Financing

Cash flow from financing is flows of cash were the company used or provide. Among are from stockholders, bank or bondholder and also if the company paid a dividend.

Tencent net cash flow in financing resulted in 65 percent equivalent of cash inflow from debt issued in 2011. On the other hand, common stock repurchased had an increase of 68 percent in 2011 and also a continued dividend paid which trending upward but in 2009 marked at 56 percent paid increased.

Free Cash Flow

The free cash flow is a metric wherein you can determine if the company has a sustainable fund after applying their expenditure. Tencent graph of free cash flow was very impressive due to the high result in operating but a minimal increase of CAPEX expenditure. This is the reason why  Tencent is focused on the purchase of an investment.

Cash Flow Efficiency

We are now down to the last topic of this report…the cash flow efficiency or CFE. What basically is this CFE all about?

Cash flow efficiency is variation metrics using the result of cash flow from operating over sales, current debt, CAPEX and total debt of the company. The graph below showed the results for Tencent Holdings Ltd.

Tencent cash flow was very effective and efficient.  Per TTM, they can generate cash from the sales an equivalent of 47 percent, available cash from the operation of 198 percent. An average free of cash at 89 percent, very high return from CAPEX at 1073 percent or 10 times back to investors and free from debt either short term or long term debt at 164 and 198 percent respectively.

Written by Dyne

Edited by Cris

This value investing guide is the star of our report, the Groupon Inc (GRPN) Rio, part of our Numbers team, made this analysis to walk us through the financial health of the company.

Balance Sheet

Liquidity

Liquidity refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset. To know how liquid the company is, we used ratios. current ratio, quick ratio, and working capital. For Groupon Inc. results from 2009 to June 2012, Rio gave us the results below.

• Current ratio in percentage was 1.4, .47, 1.33 and 1.27. For the three years period and as of June 2012, the current asset was greater than current liabilities except in the year 2010 where its ratio was only 47 percent, however, it recovered in 2011.
• Quick ratio was the same as its current ratio since the company has no inventory account.
• Working capital in dollars was 4,-196, 328 and 301. As noted in the above table, it was positive $4 in 2009, dropped to -196 in 2010 but recovered in 2011 by having a positive balance of 328 and $301 as of June 2012, which shows that it’s improving.

Out of the past 3  years’ performance of Groupon Inc., the year 2010 was not good as its current resources was smaller than its current obligations with a ratio of  47 percent and the working capital was  a negative balance. However, its performance in 2011 started to improve at 133 percent.

Efficiency

Efficiency ratios are used to measure the quality of the company’s receivables and how efficiently it uses its other assets. 

• Receivable turnover ratio was 15, 17 and 15. This is the number of times its receivable turns over a period of time.  Receivables turnover is a ratio that works hand in hand with average collection period to give the business owner a complete picture of the state of the accounts receivable.
• Payable turnover ratio was 12 and 39. 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.  A low percentage would  indicate a healthy ratio with all bills be paid in a timely manner.
• Fixed asset turnover ratio was 45 and 31. This tells us that the company has generated $0.45 and $0.31 of sales for every $1 of fixed asset.  The fixed asset turnover ratio looks at how efficiently the company uses its fixed assets, like plant and equipment, to generate sales. If you can’t use your fixed assets to generate sales, you are losing money because you have those fixed assets.
• Total asset turnover ratio was 1, 1.87 and .91.    The total asset turnover ratio shows how efficiently your assets, in total, generate sales. The higher the total asset turnover ratio, the better and the more efficiently you use your asset base to generate your sales.

In the past three years of operation, the company has fairly utilized its resources in generating income to continue to run its business operation.

Leverage

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. A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others.

• Debt ratio was 3, .98, .60 and .61. The company’s obligations were high in 2009 but have managed to lower it down in 2010 and succeeding periods.
• Debt to equity was -1.50, 46.63, 1.52 and 1.55. It was negative in 2009, extremely high in 2010 at 46.63 but able to lower it down in 2011 and 1st half of 2012.
• Solvency ratio was -.02, -1.01, -.23 and -.01. The company has a negative chance of paying off its obligations in case of bankruptcy. The company is insolvent.

Majority in Control

• Current liabilities to total asset ratio was .67, .97, .56 and .55 as of first half of 2012, this means that the creditors have 55 percent in control of Groupon Inc. assets.
• Stockholders’ equity to total assets ratio was -2, .02, .40 and .39 which tells us that the owners have only 39 percent claims on the total asset of the company.

Therefore, the creditors have the majority claims on the company’s total asset of 55 percent. The foregoing analysis further shows that Groupon Inc. total obligations were 61 percent of total assets and 155 percent of owners’ equity while its solvency ratio was negative,  which means no chance of paying off its total debt in case of bankruptcy.

Property, Plant, and Equipment

This refers to the company’s investment in property, plant, and equipment. Fixed asset investment in Groupon Inc. from 2010, 2011 and as of June 2012  are as follows:

• Gross PPE was 18, 66 and 111 which shows that the company was expanding yearly with a growth of 267 percent and 68 percent respectively.
• Its accumulated depreciation was 2, 15 and 28 which is equivalent to 11 percent, 23 percent and 25 percent of the total cost.
• Net PPE was 16, 51 and 83.

Based on the above table, if we assigned 5 years as the estimated life of the fixed asset, the remaining life would then be 3.7 years as of June 2012. Therefore, the property is still usable for 3.7 years before it is fully depreciated.

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.

Profitability

The income statement is important because it shows the profitability of a company during the time interval specified in its heading. Now, let’s take a look at Groupon Inc.’s  profitability from 2009 to 2011:

• Net margin was -.07, -.59 and -.16. It showed a consistent negative balance in three years period.
• Asset turnover was 1, 1.87 and .91. which showed a consistent positive result,  which measures the effectiveness of the company to convert its assets into revenues
• Return on asset was -.07, -1.10, -.14 . This tells us how much profit the company generated for each dollar of total assets.  The company showed a negative result.
• Return on equity was .03, -52.50, -.36. It reveals the percentage of profit after income taxes that the corporation earned on its average common stockholders’ balances during the year.
• Financial leverage was -.50, 47.75 and 2.52, this measures the financial structure ratio of the company base on total assets against total stockholders equity.
• Return on invested capital was -.20, -32.50 and -.36, the financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business.

Income

• Revenue was 15, 713 and 1610 which showed a yearly growth of 4653 percent and 126 percent respectively. This tells us that its business was doing good as far as its revenue is concerned.
• Gross profit was 10, 280, 1352 with a yearly growth of 2700 percent and 383 percent respectively and it is doing good as well.  This is the result after deducting the cost of revenue from total revenue.
• Operating income was -1, -420 and -233. The company incurred a consistent net loss due to high selling, general and administrative expenses.
• Income before tax was -1, -420 and -254.
• Income after tax was -1, -390 and -279.

Based on the above table, the company showed an impressive performance in generating revenues for the three years of operation. Its gross profit showed an increasing growth every year. However, after deducting the related expenses on selling, general and administrative, it resulted in a net loss in its three years of operation. Therefore, the company needs review and proper control of its expenses to continue operation of its business.

Expenses

Now, let us move on and take a look at the expenses of Groupon Inc. for the year 2009 to 2011:

• The cost of revenue was 5, 433 and 259. This is equivalent to 33, 61 and 16 percent of the total revenue.
• Selling/general/administrative expense was 11, 497 and 1589 which showed that it is greater than the cost of revenue. It even bloated by 4418 percent and 220 percent in 2010 and 2011 respectively.
• Income tax was 0, -7 and 44.

On the foregoing analysis of Groupon Inc., we noted that the ratio of the selling, general and administrative expenses to sales were 73, 70 and 99 percent which was very much higher than its cost of revenue of only 33, 61 and 16 percent respectively. Therefore, the company incurred a net loss.

Margins

With regards to margins, below are the results of Groupon Inc.:

• Gross margin was .67, .39, .84. an average of .63. This is the percentage of gross profit to total revenue.  As shown above,   the company’s gross margin is within its normal level.
• Operating margin was -.07, -.59, -.14 average of -.27. This is the percentage of operating income to total revenue. Since the operating income incurred a negative balance, so its margin also incurred a negative percentage.
• Pretax margin was -.07, -.59, -.16, average of -.27
• Net margin was -.07, -.55, -.17, average of -.26.

As shown in the above table, Groupon Inc. gross margin was high at 67 percent in 2009, went down to 39 percent in 2010 but recovered in 2011 to 84 percent. However, the operating expenses of the company were too high which resulted in a negative balance of the operating income and net margin.  So the company needs to be managed well, to give focus on the operating expenses since these are controllable in nature. They have to determine which are necessary to the operations and which are not.

Modified Income Statement

As per above data, the company’s revenue was increasing every year with lower cost, however, its expenses were not controlled resulting in a net loss in three years period. The company has to implement proper control of its expenses without sacrificing sales.

Cash Flow

The cash flow statement is one of the three most important financial statement a business owner uses in cash flow analysis. The concept of cash flow is different from the concept of profit or net income and the business owner should think of each in different terms and analyze each from different perspectives.

Shown below is the cash flow of Groupon Inc.

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.

Cash flow from operating activities from 2009 to 2011 of Groupon Inc. are as follows:

• Net income was -1, -413 and -298 with ttm of -44. In three years period of operation, the company incurred a negative net income.
• Depreciation and amortization were 0, 13 and 32 with ttm of 41.
• Accrued liabilities was 5, 95 and 189 with ttm of 177.
• Other working capital was 4, 147 and 362 with ttm of 187.
• Net cash provided by operating activities was 8, 87 and 290. with ttm of 393. It shows that after adjustments made on the cash inflows and outflows of the business transactions related to its operation the company has still remaining cash to continue run its business.

Net cash provided by operating activities of Groupon Inc. showed a positive balance with a growth of 987 percent and 233 percent respectively, although its net income was consistently negative in three years period. This is due to the adjustments made which involved depreciation and amortization, accrued liabilities and other working capital.

Cash Flow from Investing Activities

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

Shown below is the cash flow from investing activities of Groupon Inc. from 2009 to 2011.

• Investment in PPE was 0, -15 and -44 with ttm of -62. The company deferred its investment in 2009 and started in 2010 and expanded in 2011 by 193 percent.
• The company made an acquisition of an asset in 2010 of $4 and -57 in 2011.
• Its purchase of investment was -32 in 2011 while the company purchase of intangibles was -1 and -15 in 2010 and 2011 respectively. However, the company’s other investing activities was -1 in 2009.
• So, its net cash used for investing activities was -2, -12  and -147 with ttm of -185. It showed a negative balance since these are cash outflow transactions.

Groupon Inc. has expanded its business through investments on PPE, intangibles and other investing activities which resulted in negative net cash used for investing activities.

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. For Groupon Inc., cash flow from financing activities from 2009 to 2011 is shown below

• Based on the above table, total cash inflows was $1896 which is consist of debt issued $5 in 2010; common stock issued $30,585 and 1266 and excess tax benefit $10.
• Total cash outflows was $994 which are debt repayment -14, preferred stock repaid -55, -35; common stock repurchased $-503, -354; dividend paid $-26 and -1 and other financing activities $-6 in 2011.
• Net cash provided by financing activities was $4, 30 and 867.

On the company’s financing activities, its net cash had a positive balance of $4, 30 and 867.This is due to its issuance of common stock in 2009 to 2011 where they got funds to pay a dividend as well as repurchase common stock and repayment of preferred stocks.

Free Cash Flow

Free cash flow is the money left over after deducting capital expenditure (CAPEX) from operating cash flow. For Groupon Inc., its free cash flow from 2009 to 2011 are as follows:

Free cash flow was 7, 71 and 232 with trailing twelve months of 316. Its growth in 2010 versus 2009 was  914 percent and 227 percent in 2011. It tells us that the company has funds available to retire additional debts, increase dividends or invest a new line of business.

Cash Flow Ratios

Cash flow ratios are indicators of a company’s liquidity. They are used to determine how solvent, liquid and viable the firm is.  Ratios used to analyze Groupon Inc  from 2009 to 2011 were:

• Operating cash flow to sales was .53, .12 and .18. This is the comparison of the operating cash flow versus total revenue of the company. It measures how well a company’s daily operations can transform sales of their products and services into cash.
• Operating cash flow ratio was .80, .24 and .29. This tells us how much cash flow can cover the short term obligation of the company.
• Free cash flow ratio was .88, .82 and .80. Free cash flow is the money left after deducting capital expenditure and shown here that it has still funds available to retire additional debts, increase dividends and invest another line of business.
• Capital expenditure ratio was 0, 5.44 and 5.58. This is the percentage of operating cash flow against CapEx. In 2010 and 2011 the ratio was 5 times high which means the company has the ability to acquire assets using its free cash flow.
• Total debt ratio was .18, .23 and .27. The ratio of the company’s operating cash flow against total liabilities was increasing per period, however, it is not sufficient to settle the company’s total liabilities.

Based on the above analysis, Groupon Inc. operating cash flow and free cash flow showed a positive balance and consistently increasing per period, however, it is not sufficient to pay off its total obligations.

Written by Rio
Edited by Cris

NutriSystem Inc. (NTRI) is a provider of weight management products and services. To know where the company is leading to when it comes to financial status, thus we begin by analyzing their financial statement in this value investing guide. 

NTRI Balance Sheet

Liquidity

When we speak of liquidity, we pertain to the ability of a certain company to pay its short-term debt obligations. If that’s the case, what would it be for Nutrisystem  Inc.? Let us have a look at the table below.

Financial liquidity of NTRI showed their ability 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 wherein the trend of first three years increased then decreased down to 2.85 percent in 2010 and 2011 with average five years of 3.0. The quick ratio, on the other hand, is the result of dividing quick asset (current asset minus inventory) over current liabilities. It showed the same trend as a current ratio but average of 1.91 percent was lesser. The company’s net working capital ratio or the result of working capital over total asset depicted an inconsistent up and down trend with an average of 52.4 percent.

The overall financial liquidity of NutriSystem  Inc. depicts that the company is financially healthy. There have enough funds to settle obligations and creditors. Even net working capital ratio dipped down to 4.09 percent and 18.9 in 2008 and 2010 due to the financial crisis, they were still able to recover in 2009 and 2011. This means that they have sufficient working capital.

Efficiency Ratios

NTRI has a high receivable turnover ratio averaging 40.5 times implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable was efficient and remarkable. Its inventory levels of 8 times trailing twelve months indicate better performance and efficiency in controlling their inventory. But sometimes a high turnover may result in loss of revenue due to inventory shortage. Payable turnover average 6 to 7 times a year means the company pays off their suppliers. This means they have an average of almost two months credit from their supplies. Fixed asset turnover and asset turnover were trending down which means lower ratios. Thus, they are not generating more revenues from their investments of fixed assets and assets as a whole.

• The receivable turnover ratio is the number of times accounts receivable is collected throughout the year. Wherein it showed a declining trend in 2008 and 2009 but eventually increased in 2010 and 2011, leaving an average of 40.5 times. This is considered, definitely, a high receivable turnover.

• Inventory turnover ratio shows how many times a company’s inventory is sold and replaced over a period. This depicted an increasing trend with a slight decrease in 2009, maybe this is due to the economic crisis in the US. But it increased again in 2010 and 2011 with a good trailing twelve months of 8 times.

• Likewise, payable turnover ratio shows investors how many times per period the company pays its average payable amount.In the case of NutriSystem  Inc., it increased to 8 times in 2008 but went down 6 times in 2011 with 7 times in trailing twelve months.

• The 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 yearly with only 13 trailing twelve months. So, a lower fixed-asset turnover ratio means that the company has not been effective in using the investment in fixed assets to generate more revenues.

• Asset turnover ratio is a number of sales generated for every dollar’s worth of assets. This showed a high volume but a decreasing trend yearly for NutriSystem. This meant a lower amount of sales generated for every dollar of total assets.

Cash Conversion Cycle

Cash conversion cycle (CCC ) measures how quickly the company converts its products into cash through sales. CCC is a good sign for NutriSystem Inc. Cash from receivables was converted fast; therefore, cash can be used or financed again in operations. Let’s find out why through the following results:

• Receivable conversion period measures the number of days it takes a company to collect its credit accounts from its customers. Nutrisystem Inc. had an increasing trend from 2007 to 2009 of 8 to 10 days but sadly decreased in 2010 to 8 and 9 in 2011. But overall a lower number of days is better because this means that the company gets its money more quickly.

• The days’ sales in inventory or inventory conversion period tell the business owner how many days on an average it takes to sell inventory. With the company, it showed a declining trend yearly and trailing twelve months of 45 days. The usual rule is that the lower,  the better since it is better to have inventory sell quickly than to have it sit on the shelves.

• While payable conversion period measures how the company pays its suppliers in relation to the sales volume being transacted. This showed an increasing trend of almost 54 days and 51 trailing twelve months for the company to pay its suppliers.

• Cash conversion cycle validates the effectiveness of the company’s resources in generating cash. Wherein it shows an increasing trend in 2008 of 39. 8 but decreases down in 2009 to 2011 of 10.5 days.

Leverage

• Debt ratio indicates what proportion of debt a company has in relation to its assets.  Wherein from 2007 to 2009, it has been slightly decreasing but in 2010 to 2011 it abruptly increased to 50 percent and it had an average of 36.4 percent. This indicates that Nutrisystem Inc. has more assets than debt.

• Debt to equity ratio is a measure of the relationship between the capital contributed by creditors and the capital contributed by shareholders. This showed a decreasing trend for NutriSystem Inc except in 2010 and 2011 wherein it increased to 100 percent. This means that the company has a high debt/equity ratio and have been aggressive in financing their growth with debt.

• Solvency ratio determines how well the company is able to meet its debts as well as obligations, both long-term and short-term. The trend depicts a decreasing ratio year after year but has an average of 103.6 percent.

By looking into their debt ratio, we can get the idea about the leverage of NutriSystem Inc. along with the potential risks they are facing in terms of its debt load. In 2011 they have more assets than debts. Debt to equity ratio showed that a 100 percent means that the debt equal to equity or a lot of debt was used to finance and increased operations. So,  Nutrisystem, Inc. could generate more revenues than it would have without outside financing. But the cost of this debt financing may outweigh the gain that they generate on the debt through investment and business activities.  Eventually, this can lead to bankruptcy if not handled properly by their management and leave nothing to shareholders.

Majority Control of the Company Based on its Total Assets

• Current liabilities to total assets identifies how much will be claimed by the creditor against total assets which declined for the first three years and increased slightly in 2010 of 14 percent and 2.25 with an average of 26.38.

• While long-term debt to total assets is to make out how many claims the banks have or the bondholder against its total assets.  This show an increasing trend, and visibly that in 2010 and 2011 it has a long-term debt of 23.3 percent against its total assets.

• Then, stockholders equity to total assets is to know how much the owner can claim in its total assets which showed a good portion of the total asset for the first three years and went down in 2010 and 2011 to 50 percent due to the long-term debt share.

Based in NutriSystem Inc. a total five years of operation the majority in control of their total asset is their stockholders at 63.96 percent than their creditors of 26.38 and last to their bank/bondholder at 9.78 percent average. For the first three years stockholders maintained a high ratio but because of the long-term debt acquired in 2010 and 2011, it shared with their total assets that lower the portion of shareholders.

Plant, Property & Equipment

• Gross plant, property, and equipment is the gross total of fixed assets cost, this showed a trend that was increasing yearly for the last five years. It had a growth ratio of 32 percent, 2.4, 40, and 10 with an average of 47.6 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. Wherein it also shows a yearly increasing trend with an average of 21.2 million dollars which is 44.5 percent of the average cost of plant, property, and equipment.

• Net plant, property, and equipment is the result after deducting the accumulated depreciation from gross PPE, this showed a decrease in 2009 but it increased back in 2010 and 2011. It had an average of 26.4 million dollars which is 55.4 percent of the average cost.

NTRI Income Statement

An income statement allows the business as well as investors to understand if the company is operating efficiently and successfully. 

Profitability

• Their net margins, the after-tax the profit a company generated for each dollar of sales, showed a downward trend and has a growth ratio of -49.8 percent, -18.8, 20.8, -53.6 and trailing twelve months of 1.12.

• Their asset turnover which measures the effectiveness of the company to convert its assets into revenues likewise showed a decreasing trend and has a growth ratio of -2 percent, -17, -0.63, -16 and trailing twelve months of 2.70.

• The return on assets tells us how much profit the company generated for each dollar of total assets. It decreased from 2007 to 2009 of -50.8, -32.5 but the increase of 20.3 percent in 2010 and abruptly drops again in 2011 of -61 percent. This tells us that they tried to recover in 2010 but earnings went down in 2011 causing lesser returns from assets.

• Their return on equity the company could return such profit percent for every dollar of equity. For the past three years, it has been moving down it recovered 40 percent growth in 2010 but still, it went down 50.4 percent in 2011.

• 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. Almost the same with return on equity except that in 2011 it declined more of 64.5 percent.

• The company’s financial leverage this measures the financial structure ratio of the company base on total assets against total stockholders equity.  This shows a decreasing trend for the first three years but it abruptly increases in 2010 and 2011 with a trailing twelve months of 2.14.

NutriSystem Inc.’s profitability trend does not look good especially when it declined in the first three years and current year. 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. This means that they earn more from revenue than converting assets to revenue. The investors can compare companies using this to determine which one is the most attractive business.

Their return on assets depicted unsatisfactory earnings for every dollar of total assets due to their net income and total assets growth ratio yearly which was on a downward trend but somehow managed to increase in 2010 and abruptly declined again in 2011. 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;  it also declined but abruptly increased back in 2010 to 2011 due to the acquired long-term debt of 35 million dollars. Even if their return on equity showed a high favorable decreasing trend due to the financial crisis in the US, sales went down so as their earnings. The bulk of the return comes from profit margins and sales. Likewise, cash flow earned from the invested capital because of the crises also plays unsteadily. So, overall profitability was not quite impressive.

Income

This shows how much money NutriSystem  Inc. had brought in for the last five years in million dollars.

• 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 shows that Nutrisystem Inc. sales trend went down with a growth ratio of -11.5 percent, -23.3, -3.4, -21.4 and trailing twelve months of 406 million dollars.

• Gross profit shows how much of their markup a company receives on the goods and services it sells after deducting its cost of revenue wherein it also depicted a decreasing trend.

• Operating profit is the best indicator of a company’s true performance in their operations.This is the result of deducting all the expenses incurred in their operations, wherein it showed a downhill trend of -44.7 percent, -52.2, 23.3, and -64. It recovered in 2010 but still abruptly decreased again in 2011.

• Net income is what’s left over for a company after all expenses have been accounted for.Same as operating profit, the trend  was downward after deducting the provision for income taxes

Expenses

The table below showed how much NutriSystem  Inc. spent (in million dollars) over the last five years of their operation.

• The cost of revenue was the amount NutriSystem Inc. paid for the goods that were sold during the year. This showed a declining trend and growth ratio of -6.8 percent, -28, -7.8, and -12.

• Operating expense was the expenses incurred in conducting the company’s regular operations of the business. This depicted an up and decreasing trend with the growth ratio of 3.6 percent, -6.9, -4.1 and -20.3.

• Other income and expense were the non-operating income and expenses from their business. This reflected the income and expense in 2007 to 2009 only.

• Provision for income tax was the amount allocated for their payment of income taxes. This shows a growth ratio of -44.2 percent, -67.6, 72.7 and -68.4.

Margins

Nutrisystem Inc.’s margin tells us the total performance of their business operations. It showed a good profit margin of at least more than 50 percent, unfavorable declining operating margin with the ratio below 30 percent and lastly, a net margin of less than 10 percent. This means operations are in a bad shape to have margins below our scaling standards.

• 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 52.86 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. Which has an average of 11.5 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 has a 7 percent average only.

Above graph presents us the modified income statement of Nutrisystem Inc. The movement was all decreasing from 2007 to 2011. This tells us that sales of their products diminished so as its cost or expenses, leaving a merger net income yearly. Overall operations were affected by the lower sales and problem in marketing their products.

NTRI Cash Flow Statement

Cash flow statement helps us determine if Nutrisystem Inc. 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

Nutrisystem Inc. had sufficient cash flow provided from operating activities but it seems to be declining down yearly except for 2010 favorable increase. This tells us that they are having problems on their sales, not in their operations. But eventually, operations inventory and payables will be affected if sales of products slow down. 

Their net income showed a diminishing trend and growth ratio of -55.7 percent, -36.9, 17.2, -64.7 with trailing twelve months of 5 million dollars and only in 2010 it recovered to have a positive growth. Its depreciation and amortization increased for the first three years but eventually settled to 12 million dollars in 2010 and 2011. Deferred income taxes showed the negative difference of -2 and -3 in 2007 and 2009 with a positive 4 in 2010. As noted, Nutrisystem Inc. paid their workers or employees with stock for compensation. Their inventory trends look unstable with up and down differences every year. Accounts payable, accrued liabilities and income taxes payable seems to have differed only in 2009 to 2011. Other working capitals have the balance of -12 in 2008 and 2010 the rest have positive amounts of 4, 1 and 12. And other non-cash items showed balances only in 2007 to 2009 with no amounts for 2010 and 2011. Thus, overall they had a net cash flow from operations which started good but in decreasing trend except in 2010 with a trailing twelve months of 39 million dollars.

Cash Flow from Investing Activities

Net cash used for investing activities was used in investments in PPE, purchases of investments, sale/maturities of investments and other investing activities. This means Nutrisystem, Inc. has used funds wisely into their investing activities amounting favorably good to the sale in 2007, 2010 and 2011.

Their investments in plant, property, and equipment showed negative amounts with a growth ratio of -36.8 percent, -33.3, 1.5 and -60 with trailing twelve months of -10 million dollars. In 2008 they had a PPE reductions of 1 with a net acquisition of -6. They had purchases of investments in 2007 amounting -193, 2009 of -30, 2010 of -1 and -10 in 2011 with trailing twelve months of -19. They also had sale/maturities of investments in 2007 of 243, 2008 of 2, in 2010 and 2011 of 10 and 21 respectively. With other investing activities, the company had 2 in 2007. Therefore, net cash used in investing activities had an up and down trend yearly, with positive differences in 2007 of 33 and in 2011 of 3, with negative amounts of -14, -39 and -10 in 2008 to 2009 respectively.

Cash Flow from Financing Activities

The cash flow from financing activities was provided by debt issued through long-term debt in 2010 and 2011 amount 30 million dollars each. NTRI’s cash provided by common stocks issued of 2 and 1, and other financing activities of 6 and 2 in 2007 and 2008. Moreover, they used cash from financing activities to pay debt repayments in 2011 of 30 million dollars and common stocks repurchased from 2007 to 2010. They also paid dividends from 2008 to 2011 and other financing activities from 2009 to 2011 with trailing twelve months of -20 and -4. Therefore, net cash flow from financing activities has a declining trend with growth ratios of -29.8 percent, -68.8, 176, -67 with trailing twelve months of -23.

As we can see NTRI borrowed money only in 2010 and 2011 and even paid half in 2011. The bulk of cash flow was used in the repurchased of common stock, dividend payments, and other financing activities. Thus accounts for the balance of cash flow from financing.

Free Cash Flow

To get if the company have the free cash flow to be used in operations and expansions, we deduct from operating cash flow a number of capital expenditures. Therefore, we can say that NutriSystem Inc. has sufficient free cash flow but in a decreasing trend yearly with the growth ratio of -10 percent, -39.5, -4, and -17 and trailing twelve months of 28 million dollars.

Net Change in Cash

The overall cash flow of NTRI. showed that in 2007 and 2011 they have a positive amounts 28 and 27 million dollars respectively, with negative amounts in 2008 to 2010. This means that the company’s 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 crisis and decreases in sales of their products. Thus, the cash at the end of each period after deducting the net change in cash from cash at the beginning of period likewise decreased.

The graph shows cash from operations, investments and financing and the result net change in cash. This depicts a five-year period and the flow from operations appears to slowly go down year after year. Investing activities declined from the first three years and went up in 2010 and 2011. While the company’s financing activities went up in their first three years, then down in 2010 and up again in 2011. Net change in cash started good but the succeeding three years it went down and up again in 2011.

Cash Flow Statement Efficiency 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 as well as the results of NTRI:

• 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. It showed a slight decreased in 2008, a dip in 2009 of -19.4 percent, increase of 21.3 in 2010 and abrupt decrease again in 2011 of -10.6 with trailing twelve months of 9.6 percent.

• 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 shows a good liquidity in terms of using cash flow as opposed to income which is sometimes a better gauge. Herein it indicates an up and down trend increase in 2008 of 13.6 percent, decrease in 2009 of -34.9, increase in 2010 of 17.5 and decreases down in 2011 of -31.6 for NTRI.

• 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. It shows sufficiently the company has free cash flow. Even if the trend is declining down yearly, in 2011 it increases 47.9 percent and trailing twelve months to 23 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. This shows an up and down trend with 3.90 trailing twelve months. 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, the result of operating cash flow over total liabilities. Wherein it shows that Nutrisystem, Inc. has a good total debt ratio the first three years but in 2010 and 2011 it decreases down to 0.89 and 0.63 due to the long-term debt they acquired. And this means operating cash flow will not be sufficient the last.

• Current coverage ratio measures how much cash available after paying all its current debt. It is determined by cash flow from operating less dividend over current liabilities. It resulted in a decreasing trend except in 2010 and had a growth ratio of -6.2 percent, -50.3,  27.8, and -40.8. This means that after paying off dividends their operating cash flow is no longer enough to pay their current obligation in 2009 and 2011.

Written by Nelly

Edited by Cris

Facebook Inc Value Investing Guide

Facebook Balance Sheet

Financial Liquidity

Liquidity ratio expresses a company’s ability to repay short term creditors out of its total cash. It shows the number of times short term liabilities are covered by cash. In order for the investors to determine the liquidity of the company, it is important to evaluate the current assets and current liabilities, if these could meet its current obligations. If current assets do not exceed current liabilities by a comfortable margin, the company may be unable to pay its current bills. For Facebook Inc., results from 2010 to June 2012 are as follows:

• The company’s current ratio was 5.77, 5.12 and 11.6 which means that current asset was 11 times greater than current liabilities as of June 2012;
• Its quick ratio was the same with current ratio since the company had no inventory account; and
• Working capital in dollars was 1,857, 3,705 and 10,933.  The company’s working capital was extremely high and continuously increasing by 99.5 percent and  195 percent respectively.

After getting the results, the question would be “Does the company has sufficient resources to stay in business in the short term?” According to Rio, Facebook Inc. has enough and sufficient resources to stay in business in the short term as proven by its liquidity ratios. They showed extremely high current resources against current liabilities particularly cash account which contributed 85 percent of its total current asset.  The company is very liquid and capable to settle all its obligations and can even invest additional product lines.

The company differs from other companies which involve inventory, high receivable and high payables. Facebook Inc. derived its income online through advertisements and other forms which are classified as cash in nature. However, the company has recorded a minimal balance of accounts receivable and accounts payable. To this, we have computed its efficiency ratios as follows:

The receivable turnover ratio was 5 and 7 for the two years period, while its payable turnover ratio was 68 and 59 and fixed asset turnover ratio was 3 and 3. The company showed very impressive returns on its investments.  Thus, it has the capability to continue its business operation.

Leverage

Company leverage relates to how much debt it has on its balance sheet and at the same time, measure of financial health. In every business, it is important to know the ratio of its total obligations versus total resources of the company. Debt to equity ratio will show us a better idea of the company’s financial condition along with its operational efficiency. A company with a high proportion of long term debt is said to be high leverage. Somehow, long term liabilities are risky because if bondholders/banks are not paid promptly, they can take legal action to obtain payment, such action in extreme cases, force the company into bankruptcy.

For Facebook Inc.’s leverage, its debt, debt to equity and solvency ratios for 2010, 2011 and June 2012 are:

• The company’s debt ratio was 0.28, 0.23 and 0.11 which shows that its debt obligation continues to lower  down and,  as of June 2012 Facebook Inc.’s total debt was 11 percent of total asset;
• Debt to equity ratio was 0.38,  0.29 and 0.12 meaning total liabilities were reduced by 12 percent as of June 2012 against total equity; and
• And solvency ratio was 0.90, 0.92 and 0.63. This tells us that the company was able to settle all obligations upon due date.

The above table presented that as of June 2012, current liabilities to total assets was .80  which means that the creditors have 80 percent claims on the total assets of the Facebook, while the ratio of stockholders equity to total assets was .89 which also tells us that 89 percent of the company’s assets belong to the owners of the company. Therefore, the owners or stockholders have the majority control of FB.

FB’s investment in property, plant, and equipment for 2010, 2011 and as of June 2012 shows that:

• The company continues to expand through the investment of fixed assets. Gross PPE  as of June 2012 was $2,734. Deducted by its accumulated depreciation of $629  or  23 percent of the total cost,
• Net book value of PPE was $2,105 which is equivalent to 77 percent of the total cost.

Using an estimated useful life of the property of 5 years, deducting its used life of 1.2 years as of June 2012, the remaining life of the PPE was 3.8 years. Therefore, Facebook Inc.’s investment in PPE will last for more than 3 ½ years before it is fully depreciated.

Facebook Income Statement

Profitability

The overall objective of a business is to earn a satisfactory return on the funds invested in it and consistent with maintaining a sound financial position, hence profitability ratios are used. With Facebook Inc., its profitability ratios for two years period – 2010 and 2011-and the trailing twelve months (TTM) are as follows:

• Net margin of the company was .31 and .27 with TTM of .13 which shows that it declined in 2011 by 4 percent.
• Asset turnover was .66 and .59. TTM of .29. It is computed as revenue over the total asset, where asset turnover tells an investor the total sales for each $1 of assets.
• Return on asset was .34 and .27 which tells us how much profit a company generated for each $1 in assets.
• Return on equity was .47 and .35. , tells us how much profit FB earned in comparison to the total amount of shareholder equity on the balance sheet.
• Financial leverage or equity multiplier was 1.38 and 1.29, computed as assets over total stockholders’ equity.
• Return on invested capital was .43 and .36. This is the financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. 

Profitability ratios of FB show a high level in 2010 but slightly decline in 2011 because of the increase in operating expenses which doubled the previous year.Although its revenue also increased, it could not cope up with the high expenses. It is compared to a domino effect; once one is affected, it affects all.

Income

Available financial data of Facebook Inc. per records only started the year 2010, so its income for 2010 and 2011 are:

• Revenue in million dollars was 1,974 and 3,711. TTM of 4,327. It shows a growth rate of 88 percent in 2011, while TTM is 16 percent.
• Gross profit was 1,481 and 2,851. TTM of 3,237  which was  75, 77 and 75 percent of revenue. This was company’s income after deducting its cost of revenue.
• Operating income was 1,032 or52 percent to revenue and 1,756, which is 47 percent to revenue. TTM was 3,188 or equivalent to 74 percent of revenue. This was the company’s income after deducting all operating expenses.
• Income before taxes was 1,008 and 1,695. TTM of 515. In percent, it was 51 and 46 of revenue and this was the income after interest and other income and expenses.
• Net income was 606 and 1,000 with TTM of 577. It was the company’s income after deducting income taxes, with a growth of 65 percent in 2011. It is equivalent to 31 and 27 percent of the company’s revenue.

Facebook Inc.’s total revenue showed a growth rate of 88 percent in 2011 compared to its earnings in 2010, with a gross profit rate ranging  from 75 to 77 percent. Its operating income  was 52 percent in 2010 and 47 percent in 2011 while the company’s net income was  31 and 27 percent of total revenue.  Considering these results, the company is doing well in its operation.

Expenses

Looking into their expenses, we would be able to know how much the company spent in their operations for two years from 2010  to 2011.

• The cost of revenue in dollars was 493 and 860, TTM of $1,090. This represented 25 and 23 percent of total revenue. The cost of 2010 was almost doubled in 2011, its increase was 43 percent since its sales also increased.
• Sales, the general and administrative expense was 449 and 1,095, which was equivalent to 23 and 30 percent of revenue. It abruptly rose to 144 percent in 2011.
• Another operating expense was $2 and 19. TTM of P2,673. This accounts .1, .5 and 62 percent of revenue
• Interest expense was 22 and 29, equivalent to 1 percent of the total revenue and
• Provision for income tax was 402 and 695 with TTM of -62.  This ranges from 19 to 20 percent of revenue while TTM was -1 percent.

The modified graph shows the relationship of revenue, total expense, and net income comparatively from 2010 to 2011:

The company’s revenue showed a high growth of 88 percent in 2011; a good sign of a starting business, while the cost of revenue was 25 and 23 percent. After deducting the cost of revenue, its gross profit ranges from 75 to 77 percent. The company’s operating expenses were 23 and 30 percent of revenue, its operating income showed a decrease from 2010 to 2011 by 5 percent due to an increase in operating expenses. And net income was 31 and 27 percent of revenue. The profit margin had declined by 4 percent in 2011 affected by the increase in operating expenses.

Facebook Cash Flow

The statement of cash flows reveals how a company spends its money (cash outflows) and where the money comes from (cash inflows). Cash flow statement of Facebook  Inc. was shown below: 

Cash Flow from Operating Activities

Operatingcashflow is the key source of a company’s cash generation. It is the cash that the company produces internally. Cash flow from operating activities of Facebook Inc. from 2010 to 2011 are as follows:

• The company’s net income was $606 and 1000. TTM of 577. It shows that the net income in 2011 rose by 65 percent against 2010.
• Its depreciation and depletion were $139 and 323. TTM of 449 which showed that it increased in 2011 by 132 percent because of additional investment in property, plant, and equipment.
• Other Working Capital was $145 and 166.  with TTM of -542.  It expanded in 2011 by 14 percent.
• Accrued liabilities was $20 and 38. TTM of 285.
• Cash flow from operating activities was $698 and 1549.  TTM of 1758.  It shows us that it doubled in 2011 with a growth rate of 122 percent.  

Cash flow from operating activities shows a high balance in 2010 as well as 2011, the amount was more than doubled in 2011. It shows that the company was doing well in their two years of operation.

Cash Flow from Investing Activities

Cash flow from investing activities is the key source of a company’s cash generation. It is the cash that the company produces internally as opposed to funds coming from outside investing and financing activities. For the year 2010 to 2011, cash flow from investing activities of Facebook Inc. are:

Total cash outflow was -3,937 which composed of:

• Investment in property, plant and equipment was -293 and -606. TTM is -1187. Facebook expanded in 2011 in PPE by 107 percent.
• Its acquisition, net was -22 and -24, with TTM of -595. The company increased its acquisition in 2011 by 9 percent only.
• And purchases of investment was -3,028 in 2011, while

Total cash inflow was $626. It included the following:

• Sales/maturity of investment was 629. TTM was 1,863.
• Other investing activities were -9 and 6. TTM of 6.
• Net cash used for investing was -324 and -3,023. TTM of -8,008. The bulk of investment in Facebook Inc. was in 2011 wherein property, plant and equipment were 107 percent against 2010 and purchase of investment of $3,023.

The above table shows that Facebook incurred a negative balance on investing cash flow because of its expansion through investments in which its cash outflow exceeds cash inflow. 

Cash Flow from Financing Activities

Debt and equity transactions dominate this category. Companies continuously borrow and repay debt. The issuance of stock is much less frequent for investors, particularly income investors and the most important item is cash dividends paid. Similar transactions to investing cash flow also involved cash outflow and inflow. Cash flow from financing activities of FB from 2010 to 2011 are: 

• Debt repayment was -90 and -181. TTM of 8, which shows that it doubled in 2011.
• Common stock issued was 500 and 998. TTM of 6761. It shows that in 2011 stock issued was increased by 99 percent.
• Other financing activities were 371 and 381. TTM of 440.
• So, its net cash provided by financing was 781 and 1198, which showed a positive balance. It means that cash came in was greater than cash out. It further increased in 2011 by 53 percent.

Based on the above table, Facebook Inc. had money left for its financing activities. The company generated cash through the issuance of common stocks which was $500 in 2010 and increased to $998 in 2011 and  Also,  also through other financing activities. While cash out was in repayment of debt with minimal amount involved.

Free cash flow is the funds left after deducting capital expenditures from operating cash flow. Results for Facebook as follows:

Free cash flow of Facebook was 405 and 943. TTM of 571. It shows that it doubled its amount in 2011 compared to 2010. This means that the company has money left over after paying its expenses and dividends.

Cash Flow Ratios

For Facebook Inc., cash flow ratios for 2010 and 2011 are as follows:

• Operating cash flow to sales was .35 and .42. It is the proportion of the cash flow provided for the operation to its revenue. There was an increase of 7 percent in 2011.
• Operating cash flow ratio and current coverage ratio was .31 and .34. It measures how liquid a firm is in the short run since it relates to current debt and cash flows from operations.
• Free cash flow ratio .58 and .61. A measure of financial performance calculated as operating cash flow minus capital expenditures. It shows that it is above 50 percent and progressing by 3 percent.
• Capital expenditure ratio was 2.38 and 2.56, which provides information on how much of the cash generated from operations will be left after payment of capital expenditure to service the company’s debt. If the ratio is 2, it indicates that the company generates two times what it will need to reinvest in the business to keep operations going;  the excess could be allocated to service the debt.
• Total debt ratio was .84 and 1.08, which shows the percentage of operating cash flow against its total liabilities. 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.

Cash flow ratios of Facebook against revenue, capital expenditure, free cash flow, current and total liabilities showed an impressive result. These are progressing in the succeeding months by having an increase which tells us that Facebook is doing very well in its business. It is worth investing in this kind of company as far as its financials are concerned.

Written by Rio

Edited by Cris

Facebook Inc (FB).

Value Investing Guide on Facebook Inc.

Balance Sheet

Financial Liquidity

Liquidity ratio expresses a company’s ability to repay short term creditors out of its total cash. It shows the number of times short term liabilities are covered by cash. In order for the investors to determine the liquidity of the company, it is important to evaluate the current assets and current liabilities, if these could meet its current obligations. If current assets do not exceed current liabilities by a comfortable margin, the company may be unable to pay its current bills. For Facebook Inc., results from 2010 to June 2012 are as follows:

• The company’s current ratio was 5.77, 5.12 and 11.6 which means that current asset was 11 times greater than current liabilities as of June 2012;
• Its quick ratio was the same with the current ratio since the company had no inventory account; and
• Working capital in dollars was 1,857, 3,705 and 10,933.  The company’s working capital was extremely high and continuously increasing by 99.5 percent and  195 percent respectively.

After getting the results, the question would be “Does the company has sufficient resources to stay in business in the short term?” According to Rio, Facebook Inc. has enough and sufficient resources to stay in business in the short term as proven by its liquidity ratios. They showed extremely high current resources against current liabilities particularly cash account which contributed 85 percent of its total current asset.  The company is very liquid and capable to settle all its obligations and can even invest additional product lines.

The company differs from other companies which involve inventory, high receivable and high payables. Facebook Inc. derived its income online through advertisements and other forms which are classified as cash in nature. However, the company has recorded a minimal balance of accounts receivable and accounts payable. To this, we have computed its efficiency ratios as follows:

The receivable turnover ratio was 5 and 7 for the two years period, while its payable turnover ratio was 68 and 59 and the fixed asset turnover ratio was 3 and 3. The company showed very impressive returns on its investments.  Thus, it has the capability to continue its business operation.

Leverage

Company leverage relates to how much debt it has on its balance sheet and at the same time, measure of financial health. In every business, it is important to know the ratio of its total obligations versus the total resources of the company. Debt to equity ratio will show us a better idea of the company’s financial condition along with its operational efficiency. A company with a high proportion of long term debt is said to be high leverage. Somehow, long term liabilities are risky because if bondholders/banks are not paid promptly, they can take legal action to obtain payment, such action in extreme cases, force the company into bankruptcy.

For Facebook Inc.’s leverage, its debt, debt to equity and solvency ratios for 2010, 2011 and June 2012 are:

• The company’s debt ratio was 0.28, 0.23 and 0.11 which shows that its debt obligation continues to lower  down and,  as of June 2012 Facebook Inc.’s total debt was 11 percent of the total asset;
• Debt to equity ratio was 0.38,  0.29 and 0.12 meaning total liabilities were reduced by 12 percent as of June 2012 against total equity; and
• And solvency ratio was 0.90, 0.92 and 0.63. This tells us that the company was able to settle all obligations upon due date.

The above table presented that as of June 2012, current liabilities to total assets was .80  which means that the creditors have 80 percent claims on the total assets of the Facebook, while the ratio of stockholders equity to total assets was .89 which also tells us that 89 percent of the company’s assets belong to the owners of the company. Therefore, the owners or stockholders have the majority control of FB.

FB’s investment in property, plant, and equipment for 2010, 2011 and as of June 2012 shows that:

• The company continues to expand through the investment of fixed assets. Gross PPE  as of June 2012 was $2,734. Deducted by its accumulated depreciation of $629  or  23 percent of the total cost,
• Netbook value of PPE was $2,105 which is equivalent to 77 percent of the total cost.

Using an estimated useful life of the property of 5 years, deducting its used life of 1.2 years as of June 2012, the remaining life of the PPE was 3.8 years. Therefore, Facebook Inc.’s investment in PPE will last for more than 3 ½ years before it is fully depreciated.

Income Statement

Profitability

The overall objective of a business is to earn a satisfactory return on the funds invested in it and consistent with maintaining a sound financial position, hence profitability ratios are used. With Facebook Inc., its profitability ratios for two years period – 2010 and 2011-and the trailing twelve months (TTM) are as follows:

• Net margin of the company was .31 and .27 with TTM of .13 which shows that it declined in 2011 by 4 percent.
• Asset turnover was .66 and .59. TTM of .29. It is computed as revenue over the total asset, where asset turnover tells an investor the total sales for each $1 of assets.
• Return on asset was .34 and .27 which tells us how much profit a company generated for each $1 in assets.
• Return on equity was .47 and .35. , tells us how much profit FB earned in comparison to the total amount of shareholder equity on the balance sheet.
• Financial leverage or equity multiplier was 1.38 and 1.29, computed as assets over total stockholders’ equity.
• Return on invested capital was .43 and .36. This is the financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. 

Profitability ratios of FB show a high level in 2010 but slightly decline in 2011 because of the increase in operating expenses which doubled the previous year. Although its revenue also increased, it could not cope up with the high expenses. It is compared to a domino effect; once one is affected, it affects all.

Income

Available financial data of Facebook Inc. per records only started the year 2010, so its income for 2010 and 2011 are:

• Revenue in million dollars was 1,974 and 3,711. TTM of 4,327. It shows a growth rate of 88 percent in 2011, while TTM is 16 percent.
• Gross profit was 1,481 and 2,851. TTM of 3,237  which was  75, 77 and 75 percent of revenue. This was the company’s income after deducting its cost of revenue.
• Operating income was 1,032 or52 percent to revenue and 1,756, which is 47 percent to revenue. TTM was 3,188 or equivalent to 74 percent of revenue. This was the company’s income after deducting all operating expenses.
• Income before taxes was 1,008 and 1,695. TTM of 515. In percent, it was 51 and 46 of revenue and this was the income after interest and other income and expenses.
• Net income was 606 and 1,000 with TTM of 577. It was the company’s income after deducting income taxes, with a growth of 65 percent in 2011. It is equivalent to 31 and 27 percent of the company’s revenue.

Facebook Inc.’s total revenue showed a growth rate of 88 percent in 2011 compared to its earnings in 2010, with a gross profit rate ranging from 75 to 77 percent. Its operating income was 52 percent in 2010 and 47 percent in 2011 while the company’s net income was  31 and 27 percent of total revenue.  Considering these results, the company is doing well in its operation.

Expenses

Looking into their expenses, we would be able to know how much the company spent in their operations for two years from 2010  to 2011.

• The cost of revenue in dollars was 493 and 860, TTM of $1,090. This represented 25 and 23 percent of total revenue. The cost of 2010 was almost doubled in 2011, its increase was 43 percent since its sales also increased.
• Sales, the general and administrative expense was 449 and 1,095, which was equivalent to 23 and 30 percent of revenue. It abruptly rose to 144 percent in 2011.
• Another operating expense was $2 and 19. TTM of P2,673. This accounts .1, .5 and 62 percent of revenue
• Interest expense was 22 and 29, equivalent to 1 percent of the total revenue and
• Provision for income tax was 402 and 695 with TTM of -62.  This ranges from 19 to 20 percent of revenue while TTM was -1 percent.

The modified graph shows the relationship of revenue, total expense, and net income comparatively from 2010 to 2011:

The company’s revenue showed a high growth of 88 percent in 2011; a good sign of a starting business, while the cost of revenue was 25 and 23 percent. After deducting the cost of revenue, its gross profit ranges from 75 to 77 percent. The company’s operating expenses were 23 and 30 percent of revenue, its operating income showed a decrease from 2010 to 2011 by 5 percent due to an increase in operating expenses. And net income was 31 and 27 percent of revenue. The profit margin had declined by 4 percent in 2011 affected by the increase in operating expenses.

Cash Flow

The statement of cash flows reveals how a company spends its money (cash outflows) and where the money comes from (cash inflows). Cash flow statement of Facebook  Inc. was shown below: 

Cash Flow from Operating Activities

Operating cash flow is the key source of a company’s cash generation. It is the cash that the company produces internally. Cash flow from operating activities of Facebook Inc. from 2010 to 2011 are as follows:

• The company’s net income was $606 and 1000. TTM of 577. It shows that the net income in 2011 rose by 65 percent against 2010.
• Its depreciation and depletion were $139 and 323. TTM of 449 which showed that it increased in 2011 by 132 percent because of additional investment in property, plant, and equipment.
• Other Working Capital was $145 and 166.  with TTM of -542.  It expanded in 2011 by 14 percent.
• Accrued liabilities was $20 and 38. TTM of 285.
• Cash flow from operating activities was $698 and 1549.  TTM of 1758.  It shows us that it doubled in 2011 with a growth rate of 122 percent.  

Cash flow from operating activities shows a high balance in 2010 as well as 2011, the amount was more than doubled in 2011. It shows that the company was doing well in their two years of operation.

Cash Flow from Investing Activities

Cash flow from investing activities is the key source of a company’s cash generation. It is the cash that the company produces internally as opposed to funds coming from outside investing and financing activities. For the year 2010 to 2011, cash flow from investing activities of Facebook Inc. are:

Total cash outflow was -3,937 which composed of:

• Investment in property, plant and equipment was -293 and -606. TTM is -1187. Facebook expanded in 2011 in PPE by 107 percent.
• Its acquisition, net was -22 and -24, with TTM of -595. The company increased its acquisition in 2011 by 9 percent only.
• And purchases of investment was -3,028 in 2011, while

Total cash inflow was $626. It included the following:

• Sales/maturity of investment was 629. TTM was 1,863.
• Other investing activities were -9 and 6. TTM of 6.
• Net cash used for investing was -324 and -3,023. TTM of -8,008. The bulk of investment in Facebook Inc. was in 2011 wherein property, plant and equipment were 107 percent against 2010 and purchase of investment of $3,023.

The above table shows that Facebook incurred a negative balance on investing cash flow because of its expansion through investments in which its cash outflow exceeds cash inflow. 

Cash Flow from Financing Activities

Debt and equity transactions dominate this category. Companies continuously borrow and repay debt. The issuance of stock is much less frequent for investors, particularly income investors and the most important item is cash dividends paid. Similar transactions to investing in cash flow also involved cash outflow and inflow. Cash flow from financing activities of FB from 2010 to 2011 are: 

• Debt repayment was -90 and -181. TTM of 8, which shows that it doubled in 2011.
• Common stock issued was 500 and 998. TTM of 6761. It shows that in 2011 stock issued was increased by 99 percent.
• Other financing activities were 371 and 381. TTM of 440.
• So, its net cash provided by financing was 781 and 1198, which showed a positive balance. It means that cash came in was greater than cash out. It further increased in 2011 by 53 percent.

Based on the above table, Facebook Inc. had money left for its financing activities. The company generated cash through the issuance of common stocks which was $500 in 2010 and increased to $998 in 2011 and  Also,  also through other financing activities. While cash out was in repayment of debt with minimal amount involved.

Free cash flow is the funds left after deducting capital expenditures from operating cash flow. Results for Facebook as follows:

Free cash flow of Facebook was 405 and 943. TTM of 571. It shows that it doubled its amount in 2011 compared to 2010. This means that the company has money left over after paying its expenses and dividends.

Cash Flow Ratios

For Facebook Inc., cash flow ratios for 2010 and 2011 are as follows:

• Operating cash flow to sales was .35 and .42. It is the proportion of the cash flow provided for the operation to its revenue. There was an increase of 7 percent in 2011.
• Operating cash flow ratio and current coverage ratio was .31 and .34. It measures how liquid a firm is in the short run since it relates to current debt and cash flows from operations.
• Free cash flow ratio .58 and .61. A measure of financial performance calculated as operating cash flow minus capital expenditures. It shows that it is above 50 percent and progressing by 3 percent.
• Capital expenditure ratio was 2.38 and 2.56, which provides information on how much of the cash generated from operations will be left after payment of capital expenditure to service the company’s debt. If the ratio is 2, it indicates that the company generates two times what it will need to reinvest in the business to keep operations going;  the excess could be allocated to service the debt.
• Total debt ratio was .84 and 1.08, which shows the percentage of operating cash flow against its total liabilities. 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.

Cash flow ratios of Facebook against revenue, capital expenditure, free cash flow, current and total liabilities showed an impressive result. These are progressing in the succeeding months by having an increase which tells us that Facebook is doing very well in its business. It is worth investing in this kind of company as far as its financials are concerned.

Written by Rio

Edited by Cris

Almost Family Inc. (AFAM) and its other subsidiaries provide home health-care and adult day care services in the eastern and mid-western of the United States. Analyzing this company financials, let’s begin with its balance sheet analysis as to guide on value investing. This is to determine Almost Family Inc.’s financial liquidity, efficiency, and strength.

AFAM Balance Sheet

Almost Family Inc. showed a good start from 2007 to 2011 with a working capital growth ratios of -39 percent, 40, 471, 80, and -11. This means that despite the decline in 2011, its TTM is greater than the 2011 working capital. So, this prospectively indicated that Almost Family Inc. is financially healthy with its current resources enough to settle obligations and creditors. It was only in 2008 that current ratio decrease and the quick ratio was less than 1 due to an economic crisis in the US during this time, but they had recovered and depicted sufficient funds.

Liquidity

Liquidity is a firm’s ability to pay its short-term debt obligations. Its financial ratios will help us determine how liquid the firm is or how successful it will be in meeting its short-term obligations. As we can see in the table above, current ratio was consistently increasing for the last four years and decrease slightly in 2011 of 10.8 percent compared to trailing twelve months (TTM) which decreased by 11.6. On the other hand, its quick ratio decreased of 17 percent in 2008, increase 123 and 46.8 in 2009 and 2010. It decreases again in 2011 of 13.5, and TTM of only 1.19. This means that Almost Family Inc. is liquid and has the ability to pay their short-term creditors.

Working Capital

Their working capital in million dollars and the difference between current assets and current liabilities. It also shows an increasing trend for the last four years with a slight dip in 2011 of 11 percent. Its TTM depicts 263 million dollars.

As we can see in the graph below, Almost Family Inc. manage their receivables at an average of 8 same as to their TTM. Payables were being paid with an average of 28 times and it is lower than TTM which is 29 times. This also showed an increase in 2009 and 2010 of 58 percent and 10.6, meaning high accounts payable turnover may be a signal that AFAM isn’t receiving very favorable payment terms from its own suppliers. Regarding its fixed asset turnover ratio they had been efficient and they have a good profit earning capacity meaning higher ratios with the greater intensive utilization of fixed assets.

Efficiency Ratios

• The receivable turnover ratio is the number of times accounts receivable are collected throughout the year. Almost Family Inc. showed a good receivable management with an average of 8.2 times which tend to increase in 2008 but slightly decreased down in 2009 to 2011.
• Likewise, payable turnover ratio shows investors how many times per period the company pays its average payable amount. In the results, AFAM depicted an average of 28 times a year.
• And 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. A higher fixed-asset turnover ratio shows that a company is more effective in using the investment in fixed assets to generate revenues. With Almost Family Inc. had a high fixed asset turnover ratio averaging to 76 times yearly and the trend decreased down in the first three years with a slight increase in 2010 and decrease again in 2011.

Cash Conversion Cycle

Explanation

• Receivable conversion period gives a measure of the number of days it takes a company to collect on sales that go into accounts receivables (credit purchases). They had an average 45 days to collect credit sales with a trend of slightly decreasing for the first three years then increases in 2010 and 2011.
• Payable conversion period gives a measure of how long it takes the company to pay its obligations to suppliers. This has an average of 15 days with a trend of decreasing down and a slight increase in 2011.
• Cash conversion cycle validates the effectiveness of the company’s resources in generating cash. AFAM has an average of 30 days and has a trend of slight increases.

Overall cash conversion period was not so bad for Almost Family Inc. They managed a well efficient conversion cycle for receivables have only an average of 45 days to be converted to cash the same with TTM. Their payables have a shorter term average of 15 days to pay their obligations to suppliers wherein TTM show a much shorter term of only 12.5 days. This means that they do not have a favorable payment term with their suppliers. Total cash conversion cycle of 30 days validates the effectiveness of the company’s resources in generating cash.

Interpretation

Looks like another graph is here with leverage ratios as a heading.  Financial analysts make use of solvency ratios to measure the financial soundness of a business or a company and a high solvency ratio indicates a healthy company. Different industries have different standards as to what qualifies as an acceptable solvency ratio, but, in general, a ratio of 20 percent and higher is considered healthy. Potential lenders may take the solvency ratio into account when considering making further loans.

Leverage Ratios

Explanation

• Debt ratio indicates what proportion of debt a company has relative to its assets. Wherein AFAM, it showed a trend of a slight and constant decline with an increase of 4 percent in 2011.
• Debt to equity ratio is a measure of the relationship between the capital contributed by creditors and the capital contributed by shareholders. The trend started with a high debt to equity ratio of 48.6 percent indicates that a company may not be able to generate enough cash to satisfy its debt obligations. Its growth decreases down abruptly from 30.8 percent, 94, 72.6, and 11.
• Solvency ratio determines how well the company is able to meet its debts as well as obligations, both long-term and short-term. The trend depicts a higher increasing ratio year after year.

Interpretation

Regarding its debt ratio which has an average of 28.8 percent indicates that they have more assets than debt.  This measure gives investors an idea of the extent of company’s leverage along with the potential risks it faces in terms of its debt-load. Their debt to equity ratio, an average of 17 percent showed the extent to which shareholders’ equity can fulfill a company’s  obligations to creditors in the event of a liquidation. Their low debt-to-equity ratios may indicate that Almost Family Inc. was not taking advantage of the increased profits that financial leverage may bring. Insolvency ratios, they do not have short-term liabilities from 2009 to 2011 as well as long-term liabilities decreases down meaning the company is very solvent.

Overview

In totality, the relationship of ownership of the company’s total assets shows that an average of 16.7 percent was claimed by their suppliers or creditors, 10.2 average by bank holders. Moreover, an average of 71.5 by their shareholders. This means that the owners have the majority claims of the company’s total assets.

When investing in a certain company, investors would also look into its fixed assets if it is still useful in their business operations. In Almost  Family Inc., its investment from 2007 to 2011 are as follows:

Plant, Property & Equipment

Explanation

• Their property, plant, and equipment had a gross of 14.6 million dollars average for the past five years and it has a trend of inconsistent up and down.
• Accumulated depreciation was 10.6 million dollar which represents 72.6 percent of the average cost.
• So, PPE, net book value was 3.8 million dollars equivalent to 27.4 percent of the average cost.

Therefore, they used capital lease in their fixed assets. In relation to this, AFAM uses capital lease in their fixed assets.  This accounts for the high fixed asset turnover ratio and the slight increases in PPE, gross amount.

On the lighter note, capital lease is a lease that is classified as a purchase by the lessee which meets one or more of the following criteria: the lease term is greater than 75 percent  of the property’s estimated economic life; the lease contains an option to purchase the property for less than fair market value; ownership of the property is transferred to the lessee at the end of the lease term; or the present value of the lease payments exceeds 90 percent of the fair market value of the property

AFAM Income Statement

Almost Family Inc. income statement allows a business as well as investors, to understand if the company is operating efficiently and successfully. First, let us look into the profitability of the company using the profitability ratios as our measuring gauge and it is computed as shown in Table 1 with TTM.

Explanation

• Their net margin which simply is the after-tax profit a company generated for each dollar of sales. It had an average of 7.38. The trend has been going up with the growth of 33 percent, 7.7, 10.5 and a decline of -32.8 in 2011.
• Their asset turnover, which measures the effectiveness of the company to convert its assets into revenues,  resulted from an average of 1.78.  The trend had been consistently decreasing gradually year after year.
• The return on assets tells us how much profit the company generated for each dollar of total assets. AFAM had an average of 13.04. Its trend has been going up and down for the last five years w and TTM also showed a decrease by  9.5.
• Their return on equity the company could return such profit percent for every dollar of equity. It had an average of 19.77. But the trend increased a bit in 2008 with  3.4 percent then declined yearly by  19.8, 7.9, and 42 with a decrease of 10.6 on TTM.
• Return on invested capital is the financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. For AFAM, it had an average of 16.09 and it was up and down for the last five years.
• The company’s financial leverage measures the financial structure ratio of the company base on total assets against total stockholders equity. An average of 1.5 was the result for Almost Family Inc.

Profitability

Looking into its profitability; which is measured by the success of a business in maintaining a satisfactory earning power and steadily increasing ownership equity; AFAM net margins depicted a favorable and consistent growth compared to their asset turnover which was gradually declining. Therefore, this showed an inverse relationship with high net margin against the low volume of asset turnover. Meaning they earned more from revenue than converting assets to revenue.

Their return on assets depicted unsatisfactory earnings for every dollar of total assets. This was due to their net income and total assets growth ratio yearly which caused an up and downtrend.

The return on equity showed a favorable first two years but due to the financial crisis in the US, in 2009 to 2011  returns declined down. And financial leverage or the portion of the equity which was the return on debts showed unpredictable decreases and slight increase. Therefore the bulk of the return comes from profit margins and sales. Likewise, return on invested capital because of the crisis, cash flow earned from invested capital played unsteadily. So, overall profitability was not quite impressive.

Income

Explanation

• Their revenue is how much money a company has brought in a certain period, wherein it showed a yearly increasing trend with a TTM of 352 million dollars. Growth ratio was61 percent, 40, 13, and 0.89.
• Gross profit showed how much of their markup a company receives on the goods and services it sells. This also been depicting an increasing trend with a decline in 2011.  Growth ratio was  67.6, 38.4, 15, and -5.5.
• Operating profit is the best indicator of a company’s true performance in their operations. AFAM growth ratio on this was of 28.5, 50, 23.8, and -32.7.
• Income before tax is the earnings after deducting non-operating income and expenses, which showed a minimal cost of more or less than one million dollars.
• Net income is the leftover of a company after all expenses have been accounted for, wherein Almost Family Inc. constantly increased except for 2011. It had a growth ratio of 100 percent, 56, 24, and -32.

Almost Family Inc.’s income generated had been constantly increasing but noting its growth ratios, they were all down.Considering this, Almost Family Inc. experienced a problem in their revenues causing a decline and their cost was consistently yearly increasing, too. This means that business in home health-care and adult day care services was slowing down and most people in the United States depended on their Medicare. When the time comes and income cannot longer pay for all their cost and expenses their company would be in deep trouble,” Nelly explained.

Expenses

We are basically done with income. But as we all know, a company needs to spend money to make money and these outflows from providing and selling its services are called expenses. Then what are the breakdowns of their expenses?

Explanation

• Cost of revenue was the amount the company paid for the goods that were sold during the year. It had a growth ratio of 54.6 percent, 40, 10.8, and 8.4.
• Total operating expense was the expenses incurred in conducting their regular operations of the business and it had a growth ratio of 57, 37.6, 12.8, and 4.5.
• Interest expense was interest on their debt or long-term liabilities use in their business which showed a consistent amount for the first year years.
• Provision for income tax was the amount allocated for their payment of income taxes. Almost Family Inc. had a growth ratio of 120, 54.5, 23.5 and -33.

In their expenses, its cost of revenue accounts for 47 percent of revenue and the total operating expenses account for 39.8, moreover, interest expense of 0.23 and provision for income tax of 5.15. So, overall expenses had the total of  92 percent leaving an average net of 7.4 percent.

Margins

 The margins as computed represents the percentage of revenue which will help us look deeper into our analysis of their income and expenses. Results for AFAM are the followings:

Explanation

• Gross margin indicates the percentage of revenue dollars available for expenses and profit after the cost of merchandise is deducted from revenues. For AFAM, gross margin accounts for an average of 52.8 percent of revenue. Further, this means that cost of sales was so high for a service company to incurred almost one half of their revenue 
• Operating margin is the operating income expressed as a percentage of sales or revenue after deducting the operating expenses from gross profit. EBIT margin is the EBT expressed as a percentage of sales or revenue after deducting the non-operating income and expenses from operating income. AFAM operating margin averages 12.68 percent and EBIT margin of 12.37. And their net margin accounts only 7.38 percent of revenue. Both increased yearly for the first four years except in 2011 wherein they both declined as well.
• 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. This show also an increasing trend and decline in 2011.

AFAM had a very high maintenance on their cost and operating expenses. 

AFAM Cash Flow Statement

The statement of cash flows reveals how a company spends its money (cash outflows) and where the money comes from (cash inflows). It has 3 categories; the cash flow from operating activities, and the cash flow from investing activities and cash flow from financing activities. The graph below shows the cash flow statement of Almost Family Inc.

Cash Flow from Operating Activities

Cash flow from operating activities of AFAM from 2007 to 2011 are as follows:

Explanation

• Net income was 8,16,25,31 and 21. TTM was  20 which showed a consistent increase for the first 4 years, then dropped in 2011 by 32 percent.
• Depreciation and amortization was 1,1,2,3 and 3; TTM of 3.
• Deferred income tax was 1,1,1,3 and 4and TTM of 3.
• Other working capital was -4,-12,-2,3 and -5. TTM of -4 which shows a negative result in 2007 to 2009 and 2011.
• Non-cash item was 2,4,4,4 and 2. TTM of 3.
• Net cash provided by operating activities was 7, 9, 27, 35 and 26. TTM marked 20. It showed that the company expanded during its first 4 years by 28 percent, 200 and 30 but dropped in 2011 by  26 percent.

The net cash flow provided for operation of Almost Family Inc. showed a positive balance and its increasing during its first four years but slightly decreased in 2011 by 26 percent. This means the company can still afford for investing.

Cash Flow from Investing Activities

Under this category of cash flow statement are cash inflows and outflows. As shown in the investing activities of AFAM, all transactions are cash out and these are:

Explanation

• Investment in PPE was -1, -1, -2, -3 and -3. TTM of -3, which shows that AFAM did not invest more in fixed asset, and
• The net acquisition was -9,-60,-7,-3 and -37. TTM of -33, with high asset acquisition in 2008 of $60 and followed by $37 in 2011, leaving the rest periods at a minimal level.
• Therefore, net cash used for investing activities was -9,-61,-9,-5 and -40; and TTM of -36, which showed that its balance from 2007 to 2011 was negative because all transactions involved cash outlay.

As shown in the above table, AFAM is conservative in the investment of fixed asset during its five years of operation; however, its acquisition was high in 2008 as well as in 2011. Its cash flow for investing activities incurred a negative balance since there was no cash inflow transaction during these periods and only cash outflow.

Cash Flow from Financing Activities

Cash flow from financing activities consists of transactions not classified under operating under-investing. These are transactions that happened only once each period, while others happened twice every five years period. Similar to cash flow from investing, it also involves cash inflow and cash outflow. For AFAM, the following are transactions under financing activities from 2007 to 2011:

Explanation

• Total cash outflow was -32, which are debt repayment of -29 and -2 in 2009 and 2010 only and repurchase of common stock -1.
• Total cash inflow was 82, which are common stock issued of 42 and 28 in 2008 and 2009, and other financing activities of -1, 11, 0 and  2, therefore;
• Net cash for financing activities was -1, 53, 0 and -1, it’s a negative 1 in 2007, high in 2008 at 53 and negative 1 in 2010.

Cash flow from financing activities of Almost Family Inc. showed a positive balance in 2008 because of common stock issuance and other financing activities. Moreover, the rest of the periods have -1 and 0 since its cash inflow transactions were offset with its cash outflow.

Free Cash Flow

Free cash flow represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. It is a measure of financial performance calculated as operating cash flow minus capital expenditures. Almost Family Inc. had available funds to retire additional debts, increase dividends and invest new lines of business.

• Free cash flow of AFAM in dollars was 6, 8, 25, 32 and 23. TTM of 17. It shows that it was increasing per year from 2007 to 2010 but dropped by $9 in 2011. It further shows a positive result which indicates that the company has enough funds to pay its obligations; current, long-term and dividends to its stockholders.

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 for AFAM company:

Explanation

• Operating cash flow to sales ratio measures how much cash generated from its revenue for the period.
• Further, operating cash flow ratio measures how much cash left after considering short debt. 
• Free cash ratio helps us conclude if the company will grow in the future.  Operating cash flow less dividend paid less capital expenditure over operating cash flow.
• Capital expenditure ratio measures company sustainability in maintaining their assets by using the result of operating cash flow over capital expenditure for the period.
• Total debt ratio measures the company’s efficiency from the result of operating cash flow over total liabilities.
• Current coverage ratio measures how much cash available after paying all its current debt. It can be determined by cash flow from operating less dividend over current liabilities.

Explanation

Based on the above table and graph, operating cash flow to sales has an average of .07 and it slightly decreased by 1 percent in 2008. Thereafter, it rose up by 5 percent and 1 percent and went down again in 2011 by 2 percent. Further, the average operating cash flow and current coverage ratio were .79, which showed an up and downtrend starting at 47 percent in 2007, dropped to 24 in 2008. Further, with high marks in 2009 and 2010 at 108 percent and 125 percent respectively but went down in 2011 by 35 percent. Furthermore, free cash flow had an average of 89 percent. Started at 86 percent in 2007 slightly increased by 3 and 4 percent in 2008 and 2009 but went down by 2 and 3 percent in 2010 and 2011, respectively.

Overview

Almost Family Inc.’s capital expenditure ratio had an average of 2.32.It was low in 2008 due to material acquisitions made. However, recovered in 2009 to 2010 but declined again in 2011 at 65 percent. Least investment made was noted in 2010. Therefore, total debt ratio had an average of .53. It means that AFAM operating cash flow was 53 percent proportionate to its total obligations.

Written by: Nelly and Rio

Edited by Cris

Kingstone Companies, Inc. (KINS), which has its headquarters in Kingston, New York, provides property and casualty insurance products through its subsidiary, Kingstone Insurance Company. Wikipedia

Balance Sheet

Liquidity

Liquidity is the ability of the firm to convert assets into cash. It is also called marketability or short-term solvency. The liquidity of a business firm is usually of particular interest to its short-term creditors since the liquidity of the firm measures its ability to pay those creditors. Current resources of the Kingstone are still sufficient to pay off its current obligation as the business continues to run. Being an insurance company, there was no inventory involved. Let’s have a further review of the liquidity of the company from 2007 to 2011 through the results below:

Facts

• Current ratio in percent was .94, .75, 5.60, 4.50 and 2.29. Average of 2.81. The current ratio is calculated by dividing the current asset by current liabilities. The average current ratio of Kingstone was 2.81, which means that the current asset of the company is 281 percent against its current liabilities.
• Quick ratio in percent was .94, .75, 5.60, 4.50 and 2.29. Average of 2.81. The company’s monetary resources are also 281 percent higher than its current liabilities.
• Working capital in dollars was -1, -1, 23, 21 and 18. Average of 12. Kingstone’s working capital showed negative results in 2007 and 2008, however, it immediately recovered high in 2009  at $23 but slightly decreased from 2010 to 2011 by $2 and $3 respectively.

Explanation

Usually, a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery. For Kingstone, we could not calculate its cash conversion cycle since the company has no inventory and no accounts payable balance.

Leverage

Leverage is a business term that refers to borrowing. If a business is “leveraged,” it means that the business has borrowed money to finance the purchase of assets. The other way to purchase assets is through the use of owner funds or equity. Leverage is not necessarily a bad thing. It 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.

One way to determine leverage is to calculate the debt-to-equity ratio, showing how much of the assets of the business are financed by debt and how much by equity (ownership). For Kingstone Companies Inc., debt ratio, debt to equity ratio and solvency ratio from 2007 to 2011 are as follows:

Facts

• Debt ratio was .74, .44, .79, .78 and .77. Average of .71, which means that the company’s debt capital average was 71 percent of its total assets.
• Debt to equity ratio was 2.83, .80, 4.20, 3.54 and 3.60. Average of 2.99. The company’s debt has an average of 299 percent of shareholders’ equity.
• Solvency ratio was 0, 0, .09, .05 and .07. Average of .04, which means that Kingstone is only 4 percent solvent.  Solvency is the ability to pay all debt obligations as they became due.
• Current liability to total asset was .70, .44, .09, .10 and .20. Average of .31 which means that the average current liabilities was 31 percent of its total assets, so the creditors have 31 percent claims on the total assets of Kingstone.
• Stockholders’ equity to total assets was .26, .56, .19, .22 and .21. Average of .29. The average owners’ equity was 29 percent of total assets, therefore, the shareholders have only 29 percent claims on the total assets of the company.

Based on the analysis, Kingstone Companies Inc. is in deep debt and has only a 4 percent chance of paying all debt obligations. Therefore, the company needs close monitoring before a decision is made.

Asset Management

Property, plant, and equipment (PPE) is 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. Fixed asset turnover ratio measures the company’s effectiveness in generating sales from its investments in PPE. It is especially important for a manufacturing firm that uses a lot of plant and equipment in its operations to calculate this ratio.

• For Kingstone, its fixed turnover ratio has an average of 5.80. It is just fair enough considering the value of the company’s investment in property, plant, and equipment.
• Kingstone has not invested much in the fixed asset as shown on the balance sheet statement, its fixed asset in the year 2007 and 2008 was fully depreciated, while there’s a remaining balance of $2 per period for the year 2009 to 2011 respectively.

And now Nelly will give us the second part…the income statement.

Income Statement

Kingstone Companies Inc. deals with DCAP Group, which is an independent storefront insurance agency that offers automobile, motorcycle, boat, life, business, and homeowners insurance.

Profitability

Let us have a view on their profitability. To compute for this, we have what we called profitability ratios or metrics used to know the ability of the company to generate earnings against expenses. For Kingstone, results are as follows:

• Net margin in percent was -0.83, -107.24, 62.88, 4.55 and 9.04. This simply is the after-tax profit a company generated for each dollar of revenue.
• Asset turnover was 0.24, 0.06, 0.25, 0.39, and 0.43. This measures the efficiency of the company to convert its assets into revenues.
• Return on assets was -0.20, -5.98, 15.54, 1.77 and 3.90. This tells us how much profit the company generated for each dollar on total assets.
• Financial leverage was 3.78, 1.79, 5.07, 4.53 and 4.55. This measures the financial structure ratio of the company base on total assets against total stockholders equity.
• Return on equity was -0.78, -17.12, 61.64, 8.43, and 17.72.  The company could return such profit percent for every dollar of equity.
• Return on invested capital was -0.33, -12.20, 52.63, 7.60 and 16.27. This is a financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business.

Explanation

In terms of profitability, the net profit margin showed a decrease in 2007 to 2008 of -0.83 and -107.24 which reflected a decrease in net income, too. In 2009 net margin abruptly increase to 62.88 percent, however, it declined in 2010 and 2011 to 4.55 and 9.04 percent, respectively. Asset turnover dipped down in 2008 but increase back from 2009 to 2011. It showed that Kingstone was greatly affected during the financial crisis in 2008 that is why it is difficult to earn revenues from their assets. Return on assets showed a decrease for the first two years, then it abruptly increased in 2009 too but dropped down in 2010 and a slight increase in 2011. This means that earnings from total assets were unpredictable, especially with the decrease net income for 2007 and 2008.

Interpretation

Financial leverage marked an up and down trend. The debt was also unpredictable in relation to total assets and total stockholders’ equity. It was high in 2009 of 5.07 and low in 2008 by 1.79. So, their return on equity decreased in 2007 and 2008, and then it was very impressive in 2009 with a high increase of 52.63. A decrease again in 2010 and but recovered back in 2011 by 16.27. This means that earnings on equity were very profitable in 2009 and they gradually earned back in 2010 and 2011 in reference to their losses in 2007 and 2008. Their return on invested capital generated a cash flow showing a fair return on the capital invested in the business with an average of 12.79.

Revenue

When it comes to income from 2007 to 2012 1st quarter, Kingstone marked the following results:  

• Revenue in million dollars was 6, 1, 8, 22, and 28, with an average of 13.  Its 2012 1st quarter was 7. This was the company’s total earnings.
• Operating income was -1, -1, 0, 2, and 4.  Its 2012 1st quarter was 1. This was the company’s income after deducting all operations expenses.
• Income before taxes was -1, -1, 5, 2, and 4.  Its 2012 1st quarter was 1. This was the income after interest and other income and expenses.
• Net income was 0, -1, 5, 1, and 3. Its 2012 1st quarter was 1. This was the company’s income after deducting income taxes.

Explanation

The company’s revenue showed a good start. Average depicted 13 million dollars and 2012 1st quarter was 7, so therefore it is more than one-half of average, meaning revenue is definitely increasing favorably. Its operating income was down the first three years in 2007 to 2009 but recovered in 2010 and 2011 of 2 and 4 million dollars, respectively. This means operating margin was -24.24, -111.81, -2.85, 8.56 and 12.97 from 2007 to 2011. This was a hopeful figure that eventually operations had recovered definitely so as to their income before tax margin of -9.49, -64.41, 65.48, 8.56, and 12.97. Their net income has a net margin of -0.83, -107.24, 62.88, 4.55 and 9.04 from 2007 to 2011. Thus, net income was profitable in 2009 with an impressive net margin and the succeeding years had been fair enough.

Expenses

What about the expenses incurred by Kingstone Companies Inc. from 2007 to 2011 as well as its 2012 first quarter?

• Operating expenses was 7, 2, 8, 20 and 24, with an average of 12.20 and its 2012 1st quarter of 6.
• Interest expense was 1 in 2007 and none for the following years with an average of 0.20.
• Other income and expense were 1, 1 and 6 in 2007 to 2009 and none for 2010 and 2011 with an average of 1.6.
• Provision for income taxes was 1 and 1 in 2010 and 2011, with an average of 0.40.
• Income from discontinued operations was 1 in 2008, with an average of 0.20.

Considering the company’s expenses, they don’t have the cost of revenue and their operating expense accounts for 93.84 percent of revenue. This means their margin for other income and expenses would be more or less than 7 to 6 percent, which is very low. While interest expense was 1.53, other income and expense were 12.33, provision for income taxes was 3.07 and income from discontinued operations was 1.53. Therefore, net income accounts an average of 12.30.

Conclusion

“In conclusion, I can say that insurance business is very lucrative and unpredictable business for I also worked in an insurance company for almost eight years. Revenue was likely unpredictable because this would greatly depend on the finances of the persons, business, and corporate entity. If they don’t have excess funds they would just forgo insurance or get just a minimum coverage or protection. Another thing is that sometimes if insurance is yearly renewable, the company renew this policy without payment and this accounts for the increasing accounts receivables. In the U.S. wherein people or employers are very keen on getting protection as a must, so, therefore, this is indeed a lucrative business,” Nelly explained.

And now, you will find the cash flow for Kingstone Companies Inc. from 2007 to 2011 which was summed up by Dyne.

Cash Flow

Cash flow statement is the primary indicator of business health. It will determine how effective cash flow management will help protect the financial security of its business.

Cash Flow from Operating Activities

The net cash provided or used by operating activities was a net cash remained after considering the result of the net income; add/deduct any changes in the working capital and also the non-cash items which relate to the operation. In KINS, the following accounts affect the result of cash flow from the operation:

• Net income in $ million was 0, -1, 5, 1 and 3.
• Other working capital was 0, 1, 2, 1 and 5
• Other non-cash items was -1, 0, -5, 0 and -1
• Net cash provided by operating  activities was 0, -1, 1, 4 and 7

The result of cash flow from operating activities of KINS was progressive, it indicates that from 2007 to 2008 was their downturn, due to the net loss; but for the remaining three years which from 2009 to 2011 the net cash provided grew by 87 percent in contribution of working capital which represents a 60 percent increase.

Cash Flow from Investing Activities

Cash from investing activities was an activity of the cash where the company utilizes it. As reviewed, Kingstone Companies Inc. is basically a provider of insurance products to small and medium businesses also to individuals. The following are where the company used its cash:

• Investment in property, plant, and equipment was zero.
• Acquisitions, net was 1, 0, 0 from 2009 to 2011
• Purchases of investments were -8, -10 and -13 from 2009 to 2011
• Sales/maturities of investments were 4, 6 and 6 from 2009 to 2011
• Other investing activities was 2, 1, 2, 0, 0
• Net cash used for investing activities was 2, 1, 0, -4 and -7.

The cash from investing activities of KINS was notable. Being an insurance provider they are more focus on the purchase of investment instead of PPE. It means, while waiting for the maturity of each of their plan holder, they used it first for investment. It results, the net cash for investing from 2007 to 2008 was positive which the inflow was exceeding the outflow or while 2010 and 2011 were in negative result due to the purchase of investment went up by 23 percent.

Cash Flow from Financing Activities

Below was the result

• Debt issued from 2009 to 2011 was 1, 0 and 0
• Debt repayment from 2008 to 2011 was -1, -1, 0 and -1
• Common stock issued was zero for five years.
• Common stock repurchased was zero for five years.
• Dividend paid for five years was zero.
• Other financing activities was -2, -1 and zero from 2009 to 2011.
• Net cash provided by (used for) financing activities was -2, -1, 0, 0 and -1

Results showed that cash from financing activities of KINS was in a slump. In 2009 and 2010 shows no activity. It means the company was very conservative in financing that it was declining all throughout their five years of operation.

Cash Flow Efficiency

Net change in cash will help us determine how much cash coming in and out per one accounting cycle. This can be use as the basis for management decision in planning for their future growth. Kingstone’s outflow has exceeded their inflow as shown below:

• Net change in cash was 0, -1, 0, 0 and 0
• Cash at beginning of period was 1, 1, 0, 1 and 0
• Cash at end of period was 1, 0, 1, 0 and 0

The free cash flow was the result using the operating cash flow less the amount of capital expenditure and also dividend. Below were the results:

• Operating cash flow was 0, -1, 1, 4 and 7
• Capital expenditure was zero
• Free cash flow was -1, -1, 1, 4 and 7

Explanation

The operating cash flow ratio measures how much cash from the operation can cover the short-term obligation of the company. Below was the result:

• Net cash provided by operating  activities was 0, -1, 1, 4 and 7
• Total current liabilities was 16, 4, 5, 6 and 14
• The operating cash flow ratio in percentage was 0, -25, 20, 67 and 50

The operating cash flow ratio result that in every $1 of debt the company equivalent cash available was 0. -.25, .20, .67 and .50 from 2007 to 2011. It tells us, they have no sufficient cash from the operation to cover its short-term debt.

The total debt ratio measures how much cash from the operation available to pay its total debt. The following was the result of KINS:

• Net cash provided by operating   activities was 0, -1, 1, 4 and 7
• Total liabilities was 17, 4, 42, 46 was 54
• The total debt ratio indicates, in every $1 of total debt the company available cash was 0, -.25, .02, .09 and .13. It means the company had no enough funds for their total debt.

Written by Nelly, Rio, and Dyne

Edited by Cris

Who started Kingstone Companies Inc and why?

What makes insurance companies important is that they help us pay things we pretty much can’t cover. My mom used to work for this company that offered not only her health insurance but to me and my dad as well. Pretty neat, don’t you think? With that, we kept going back and forth trying to avail of the offer. And since we’re talking about insurance products here, why don’t you allow me to open up to you the doors on our company research about Kingstone Companies Inc (KINS).

Kingstone Companies Inc. was formerly known as DCAP Group, Inc. and was founded in 1961. Barry Goldstein is 10 percent owner of KINS. The Co-Operative Fire Insurance Company was organized in 1886. The first officers were John H. Bagley, Jr., Omar V. Sage, and Clarence E. Bloodgood. The company offers technical assistance in the establishment and/or operation of insurance agencies and insurance brokerage businesses.

A cooperative or co-operative, as what Meriam and Karla have revealed to me, is an autonomous association of persons who voluntarily cooperate for their mutual social, economic, and cultural benefit. Cooperatives include non-profit community organizations and businesses that are owned and managed by the people who use its services (a consumer cooperative) and/or by the people who work there (a worker cooperative)

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

So basically, they did not just emerge out of nowhere, right? There has got to be some explanation behind every success, or so we thought. Florence and Karla have listed some really awesome facts about their background, history and development as well.

• The company was founded in 1886, with its headquarters in Kingston, New York
• Kingstone Companies Inc. redeemable preferred stock has been reported as a liability of $1,299,231 on December 31, 2009
• On April 17, 2009, Kingstone Companies Inc. sold all of its assets
• The company acquired KICO on July 1, 2009
• From June 2009 to March 2010, KINS borrowed $1,450,000 and issued promissory notes in such huge amount
• The company issued 787,409 shares of common stock in exchange for 1,299 shares, effective on June 30, 2010
• In 2011, KINS received a license to write property and casualty insurance in Pennsylvania
• In 2011, the company declared its first quarterly dividends on common stock
• On July 11, 2011, the company reduced the interest rate from 12.625% to 9.5% per annum
• The company obtained a $500,000 line of credit on December 27, 2011
• The A.M. Best rating for KICO was upgraded from B (Fair) to B+ (Good) last 201

What is the nature of business?

As far as I know, an insurance company is equal to insurance. That’s just about it. What I don’t know is that KINS is actually more than that. As a matter of fact, they are the leading regional provider of insurance products intended for small, middle sized business and of course, for individuals as well. It modified itself from a broker into an underwriter, where insurance is still its main business. The company performs two lines of business, franchising, ownership and operation of storefront insurance agencies and premium financing of insurance policies. Its focus is on automobile, motorcycle and homeowners insurance and their customer base is mainly individuals rather than businesses. In addition, Kingstone Companies Inc. is the parent company of Payments, Inc., an NYS licensed Insurance Premium Finance Company.

When asked what insurance was, all I could blurt out is “Oh, you know…that stuff when people get paid for, when something broke…” Silly me. With that, I asked help from Meriam and Karla about it. They said, “Insurance is a form of risk management used to hedge against the risk of a contingent, unsure loss. Insurance means the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the insurance. The insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. Insurance is also defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment.”

Who is running Kingstone Companies Inc and their background?

A company would never ever function without the proper people who are only but fitting in their positions. So for Kingstone Companies, Inc., they are led by a team of executive personnel namely: Mr. Barry B. Goldstein, the Chief Executive Officer and Chief Financial Officer in the person of Mr. Victor Brodsky.

Mr. Barry B. Goldstein is the President, Chief Executive Officer and Chairman of the Board of Kingstone Companies Inc. He held several executive positions in the company such as Treasurer and Chief Financial Officer. He also previously served in AIA Acquisition Corp as President for 7 years. He has extensive experience in insurance and investment industry. He earned a B.A. and M.B.A. from the State University of New York at Buffalo.

Mr. Victor Brodsky is the Chief Financial Officer and Secretary of Kingstone. He was previously connected to Vertical Branding Inc. Mr. Bradsky holds a BBA degree with the accounting major from Hofstra University. He spent 16 years of his career in Michael &Adest firm in New York. He is also a certified CPA in New York.

There are loads of courses in college that any person with the heart in Business Administration could possibly take. And one of them is the Master of Business Administration (MBA or M.B.A.). It is a master’s degree in business administration, which attracts people from a wide range of academic disciplines. The MBA (Master of Business Administration) is a postgraduate degree that is awarded to students who have mastered the study of business. The MBA degree is thought to be one of the most prestigious and sought after degrees in the world.

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

Aside from the people who are running the company, there has got to be someone directing it. Janice and Karla have whipped up some of the information we oh-so need, including on how their committees are structured.

Kingstone Companies Inc. has three committees with four independent directors and a chairman of the board. The committees are audit, compensation, and nominating committee. Mr. Barry B. Goldstein is the current chairman of the board. For the committee members, they are the following: 

Mr. Jay Haft, 76, is an independent director and member of the board of directors. He is a strategic and financial consultant with extensive experience in the Russian market. He has been the director of the company since July 2009. Mr. David A. Lyons, 62, is a non-executive member of the board. He is an expert in business consultation, corporate finance, and mergers and acquisitions. He has been with the company as the director since July 2009. At 51, Mr. Jack D. Seibald is the independent director of the company. He has depth knowledge in administrative service, equity research, investment management and prime brokerage service. He has been a member of the board since the year 2006. Lastly, is Mr. Michael R. Feinsod. At 41, is a non-independent director of Kingstone. He is an investment analyst, broker-dealer, and expert in finance, legal services. He served the company since July 2009 as director.

Once you feed anything that has to do with business and numbers into my brain, absolutely sure I will ask again. Maybe I was probably programmed that way since the day I was born. So for the nth time, I had to seek some help from our research team. Why they still haven’t pulled my hair out because I ask too much? That I don’t know. (Smile)

Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value. Although the principle is different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

How do they make money?

Okay. Here goes. I got sick of dengue last November. With that, my mom was just thankful enough that she works for a company that offers insurance for her family because if not, I would have rotted to death because of losing blood. (Okay, maybe not. But still!) So because of that, it came to me, how does one insurance company make money anyway? That question lingered on because no one has answered me until then. With Janice and Karla’s report, I somehow knew.

Kingstone believes that consistent provision of excellent customer service to its policyholders, producers and claimants is one of the key successes to the financial growth of the company. The company derives its revenue from their two prime subsidiaries, the KICO and Payments Inc. KICO’s sales are from the earned premiums, ceding commissions, from quota share reinsurance, investment income and net realized and unrealized gains and losses on investment securities.

Cash earnings of the company are derived from the premium finance loans, the collection of principal and interest income. The company receives certain interest and dividends from the invested assets wherein it is recognized when investment securities are sold for more than their costs or amortized costs. Another income of the company is from installment fee and fee charged to reinstate policy and premium finance fee on loans.

Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage or credit). Underwriting is one of the aspects of insurance that makes most people’s eyes glaze over. Underwriters deal with statistics — they’re number crunchers. Many people who have an insurance policy don’t even know that at some point their application passed through an underwriter’s hands. Oh great. Thanks research team for the additional information.

How do they fit into the industry they operate in?

It’s a tough world out there once you get all weakling and all. There will be competitors along the way but hey, KINS isn’t stepping out of their game that soon, as far as our research team has dug up.

KINS top competitors are American International Group, Inc., New York, NY, the Allstate Corporation Northbrook, IL Government Employees Insurance Company and Washington, DC. Barry Goldstein, KINS Chairman, and CEO, is not convinced with some competitor’s ‘one size fits all’ on-line only approach. Automobile insurance business competes with numerous agents and brokers in the market. They competed with insurers like GEICO Insurance which sells insurance policies directly to their customers. Operation and financial condition might be affected by a loss of business to competitors who render similar services.

We got this insurance package years ago by some company my grandfather worked in. But of course things aren’t always the same with every company, right? An insurance package that assembles the basic coverage required by a business owner in one bundle, as what Meriam and Karla could possibly recall, is called Business Owner Policy or BOP. It is also a combined protection from all major property and liability risks in one package. It is usually sold at a premium that is less than the total cost of the individual coverage. BOP targets small and medium-sized businesses and typically contains business interruption insurance, which provides reimbursement for up to a year of lost revenue resulting from an insured property loss.

Who are their suppliers and customers?

For suppliers and customers, Meriam and Karla have rounded up some valuable information about that. Let’s read on below.

KINS’ products are comprised of personal lines, commercial automobile, for-hire vehicle physical damage only policies, private passenger physical damage, general liability policies and canine legal liability policies. The personal line refers to property insured, while automobile policies are for different vehicles including private passenger physical damage.

Through its subsidiary, KINS companies offer property and casualty insurance products to small businesses and people in New York, likewise, contracts with a third party licensed premium finance company. Services are offered through independent retail and wholesale agents, and brokers. The company provides its services priority in New York and eastern Pennsylvania.

Wholesale insurance broker… what are they? A wholesale insurance broker, as defined by Meriam and Karla, may be the perfect resource for those who have been unable to find coverage anywhere else. Most individuals are familiar with using traditional insurance agents to locate appropriate policies, while there are independent retailers who are the source of much of what is new and different.

What is their workforce like?

Since we’ve pretty much covered the little details, let’s move on to their workforce. What is it like working under one heck of a company like KINS?

Kingstone is dedicated to their customers through promoting personal service which made the company successful.

The company makes business through independent retail, wholesale agents and brokers. As of December 31, 2011, Kingstone has a total of 49 employees all of whom are located in New York. KINS is highly dependent on the successful and uninterrupted functioning of the information technology. Insurance producers are also the company’s partners in business.

Insurance producers, from what I heard from Janice and Karla, are licensed professionals who sell and serve insurance products. Producers may become licensed to sell property and casualty products such as auto or homeowner insurance, or life and health insurance products like medical insurance and term life insurance.

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

 It’s very important that a company not only focuses on what others see on the outside but also how they give attention and treat their employees. Janice and Karla have some report on their pay and working conditions too. The company believes they have a good working relationship with their employees. None of the employees were covered by a collective bargaining agreement.

Kingstone management and personnel follow certain company code of ethics policy. Non-executive director receives a retainer’s fee annually, attendance fee per board and committee meeting attended and the additional fee for committee chair. Executives like the president receive the following compensation: annual base salary, annual bonus, stock option award and other incentives per employment agreement. They adopted the 2005 Equity Participation Plan which provides issuance of incentive stock options, non-statutory stock options and restricted stock to eligible executive and employees. Insurance producer receives excellent, consistent personal service coupled with competitive rates and commission levels from the company.

I should probably learn some words of a business or numbers dictionary. This is getting confusing. Gladly, Janice and Karla were there to aid my concerns regarding policyholder. The policyholder is an entity that owns an insurance policy and has the right to exercise all privileges under the contract of insurance, except where restricted by the rights of an assignee. A policyholder may or may not be the insured, or the sole or one of the beneficiaries of the policy. They are also called policy owner. 

Compensation Table

The table below shows the pay structure of executives and directors of KINS from fiscal years 2007 to 2011.

Gossips

There. We’re almost done. Florence and Karla have just decided to give you one final summary to clear up any uncertain horizons in your mind.

APRIL 27, 2012, OLDWICK, N.J., reported that A.M Best Co. has affirmed the financial strength rating of B+ (Good) and issuer credit rating (ICR) of “bbb-” of Kingstone Insurance Company (Kingstone) (Kingston, NY). The outlook for all ratings was stable. The ratings and outlook reflect Kingstone’s adequate capitalization, favorable operating performance, moderate investment leverage ratios and local market knowledge in New York.

From bloomberg.com datedMarch 01, 2011, Kingstone Insurance Company extended employment agreement with John Reiersen to serve as Executive Vice President effective January 1, 2012, Barry Goldstein to succeed as President and CEO. Sam Yedid, a director of KICO and Chairman of its Compensation Committee, stated, “The amendment that KICO has entered into with John Reiersen is important to its long-term stability. Our Board is very pleased that this will ensure a smooth transition for KICO of CEO responsibilities to Barry Goldstein as well as continued guidance and assistance from John for the foreseeable future. The combination of Barry’s excellent management abilities and John’s vast industry experience bodes well for the future of KICO.”

Earlier on April 17, 2009, another report, DCAP Group announced the closing of a sale of 16 retail insurance. “Proceeds from the sale will be used to reduce the company’s indebtedness,” said Victor Brodsky, DCAP’s Chief Accounting Officer.

On May 7, 2009, DCAP announces a sale of a franchise business. “In this difficult marketplace we have been able to dispose a number of businesses at a price approximating book value,” said Victor Brodsky, DCAP’s Chief Accounting Officer.

Kingstone Companies Inc. gained a positive image and reputation after receiving a good rating along with its subsidiary, Oldwick. The good rating reflected the company’s great performance with regards to their revenues and income. The extension of John Reiersen’s employment to serve as Executive Vice President could impact the company’s operation as Mr. Reiersen has been driving force in further developing and improving KICO. However, with DCAP Group Inc., former name of the company, the downfall they have experienced before was with selling their retail agencies to reduce the company’s indebtedness.

 CITATIONS

Who started the company and why?

http://www.kingstoneinsurance.com/

http://trade.mar.cx/US77480679

http://finance.yahoo.com/q/pr?s=KINS

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

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm

http://www.kingstonecompanies.com/about.asp

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

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

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm

What is the nature of the business ?

http://marketpublishers.com/report/insurance/kingstone_companies_inc_swot_analysis_bac.html

http://www.answers.com/topic/dcap-group-inc

http://pro.edgar-online.com/ipo.aspx?ColLeft=613ecf6a-b2a7-4b42-a0c8-809161372aec&ColRight=76baaeb6-2549-44f5-8e1d-cd700701e704&ci  

http://www.kingstonecompanies.com/about.asp

http://www.sec.gov/Archives/edgar/data/33992/000135448812002558/kins_10q.htm

Who is running the company and their background?

http://www.sec.gov/Archives/edgar/data/33992/000102177112000036/proxystatement2012.htm

http://www.kingstonecompanies.com/execteam.asp 

http://www.reuters.com/finance/stocks/officerProfile?symbol=KINS.O&officerId=186620

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm p48

http://www.kingstonecompanies.com/execteam.asp?rec_id=100026

http://www.reuters.com/finance/stocks/officerProfile?symbol=KINS.O&officerId=1033484

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

http://www.sec.gov/Archives/edgar/data/33992/000102177112000036/proxystatement2012.htm p16

http://www.sec.gov/Archives/edgar/data/33992/000102177112000036/proxystatement2012.htm p16

http://www.sec.gov/Archives/edgar/data/33992/000102177112000036/proxystatement2012.htm p16

How do they make money?

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm  p39

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm  p2

http://www.sec.gov/Archives/edgar/data/33992/000135448812002558/kins_10q.htm  p36

http://www.sec.gov/Archives/edgar/data/33992/000135448812002558/kins_10q.htm  p36

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm  p20&21

How do they fit into the industry they operate in?

http://investing.businessweek.com/research/stocks/snapshot/snapshot_article.asp?ticker=KINS:US

http://www.sec.gov/Archives/edgar/data/33992/000135448812002558/kins_10q.htm  p25

http://pro.edgar-online.com/ipo.aspx?ColLeft=613ecf6a-b2a7-4b42-a0c8-809161372aec&ColRight=76baaeb6-2549-44f5-8e1d-cd700701e704&cikid=

Who are their suppliers and customers?

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

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=KINS:US  

http://investing.businessweek.com/research/stocks/snapshot/snapshot_article.asp?ticker=KINS:US

http://www.answers.com/topic/dcap-group-inc

What is their workforce like?

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm  p5

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm  p16

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm  p45

http://www.commercialmutual.com/

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

http://www.sec.gov/Archives/edgar/data/33992/000135448812001575/kins_10k.htm  p51

http://filings.issuerdirect.com/viewer/index/33992/000102177112000036/  p6

http://www.sec.gov/Archives/edgar/data/33992/000102177112000036/proxystatement2012.htm  p4

http://www.sec.gov/Archives/edgar/data/33992/000102177110000043/q.htm  p19

Gossips

http://www.marketwatch.com/story/am-best-affirms-ratings-of-kingstone-insurance-companies-inc-and-its-subsidiary-2012-04-27

http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=KINS:US&sid=aVILv0OGzRIU

http://www.bloomberg.com/apps/newspid=newsarchive&sid=aCWiHubpWSqc 

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aUjbmYYw1J.c 

Researched and Written by Meriam, Janice, and Karla

Edited by: Stephanie  and Maydee

This section of our article will give you the guide to value investing in how the financial status of Investment Technology Group Inc (ITG) goes along in the business.

Balance Sheet

For stock investors, the balance sheet is an important consideration for investing in a company because it is a reflection of what the company owns and owes. The strength of the company’s balance sheet can be evaluated by working its capital adequacy, asset performance, and capitalization structures.

Financial Liquidity

Financial liquidity of Investment Technology Group is good as far as its current resources are concerned. It has plenty of cash to settle its current as well as long term obligations. To compute for this, we used the current ratio, quick ratio, and working capital from 2007 to 2011 and the results were indicated below:

• The current ratio in percent was 1.12, 1.24, 1.31, 1.11 and 1.22. Average of 1.18. The company’s proportion of current assets is 122 percent against its current liabilities.
• The quick ratio in percent was 1.12, 1.24, 1.31, 1.11 and 1.22. An average of 1.18, which means that its monetary assets are 18 percent more than its current liabilities.
• Working capital in dollars was  150.93, 189.48, 236.09, 170.77 and 169. Average of $183.25. ITG’s working capital showed a positive balance throughout its five year period with an average of $183.25. It means that the company is able to pay off its current and long term obligations.

Leverage

Based on the company’s performance through financial leverage ratio calculations, there was a need to continuously observe and monitor if the company could generate enough funds out of its resources to continuously run its business operation without additional borrowings made.

Another way to measure the financial stability of a company is through its financial leverage. Every investor should want to know if the business he wanted to invest in is not in depth debt. It is not bad to borrow money from banks or other creditors provided that such is closely monitored and no lapses in repayments. Let us find out the financial leverage ratio of ITG from 2007 to 2011 on the data below:

• The debt ratio in percent was .66, .53, .49, .66 and .69. An average of .61 or 61 percent of the total assets of the company was owed from creditors.
• Debt to equity ratio in percent was 1.98, 1.14, .96, 1.91 and 2.25. Average of 1.65. This means that ITG’s debt is equivalent to 165 percent average against its equity.
• Solvency ratio was .08, .13, .05, .01 and 0. An average of .05. It means that the company is only 5 percent solvent. This is unhealthy.
• Current liability to total asset was .60, .47, .45, .64 and .67. An average of .57. This shows us that the creditors have 57 percent claims on the company’s total assets.
• Stockholders’ equity to total assets was .34, .47, .51, .34 and .31. An average of .39, which means that the owners or shareholders have only 39 percent claims on ITG’s total assets.

Asset Management

There are several general rules that should be kept in mind when calculating asset turnover. First, asset turnover is meant to measure a company’s efficiency in using its assets. The higher the number, the better;  but investors must be sure to compare a business in its industry since it is a misconception to compare completely unrelated businesses. In relation to the profit margin, the higher a company’s asset turnover, the lower its profit margin tends to be (and vice versa). For ITG, its fixed asset turnover ratio has an average of 15.64.

We would say that earnings of ITG  are classified into high quality when expressed as EBITDA since it is exclusive of the estimated amount. Earnings are important to shareholders because dividends are paid based on annual earnings. Sometimes earnings are expressed as EBIT (earnings before interest and taxes), or EBITDA (earnings before interest and taxes, depreciation and amortization. Earnings per share (net profit divided by the number of shares). For ITG, its earnings results from 2007 to 2011 are as follows:

• EBIT in dollars was 174.18, 199.31, 202.78, 104.41 and 67.94. Average of 149.7. The company’s reported income before interest and tax deduction has an average of $149.7.
• EBITDA in dollars was 196.68, 235.31, 256.98, 165.21 and 130.34. Average of 196.9. This is the average income of an ITG company before interest and tax, depreciation and amortization
• Earnings per share was 2.21, 2.48, 2.61, .97 and .55. Average of 1.76.

ITG Income Statement

The reliability of the income statement as a report of the company’s performance differs widely among various types of companies. Net income of a retail store that sells only for cash has a high inventory turnover. Leases of its building and equipment are of high quality because the reported amount is relatively not influenced by estimates, while an income is of lower quality if it contains large items that require estimates of future events (such as depreciation expense).

Profitability

One area to consider in this area of financial statement is profitability. To calculate for this, we used the DuPont Method which consists of three components as shown below:

• Net profit margin (NI/Sales) was 16.3, 15.2, 15.0, 6.8, 4.2 and -31.43. This simply was the after tax profit a company generated for each dollar of revenue.
• Capital Turnover (Sales/Assets) was 48.0, 41.0, 40.3, 37.4, and 27.0 and 0.24. This measured the effectiveness of a company to convert its assets into sales.
• Financial structure ratio (Assets/Shareholder’s Equity) was 241, 298, 214, 196, 291 and 325. This measured the financial leverage of the company

Calculation

Then multiply every three components to get;

• Return on equity in percent was 18.3, 16.9, 15.4, 5.2, 2.8 and -23.33. The company could return such percent for every dollar of equity.

Computation of the return on assets:

• Operating margin (EBIT/Sales) was 29.06, 27.3, 25.6, 12.1, 8.6 and -36.12. This measured the operations efficiency of the company.
• Asset turnover was 48.0, 41.0, 40.0, 37.0, 27.0, and 24.0. This measured the total utilization efficiency of assets.

Lastly, multiply the two components and you get;

• Return on assets was 7.90, 6.24, 6.06, 2.53, 1.13, and -7.64. This tells us how much profit the company generated for each dollar on total assets.

Explanation

ITG’s profitability analysis from 2006 to 2010 tells us that the company was able to generate a return on equity at an average of 11.72 or 12 percent for every $1 of investing capital, which was in a declining trend since 2008. It also declined to -23.33 percent during 2011. This means that ITG operations went down as portrayed by a decrease also in net income but in the 1^st quarter of 2012, its prospective net income showed a good amount of 5.458 million dollars compared to 23.98 million dollars to -180 in 2010 and 2011, respectively.

Return on Assets

Return on assets (ROA) is an indicator of how profitable a company relative to its total assets. It showed a declined trend from 2006 to 2008 and a big leap in 2009 decreasing to a -7.64 percent in 2011. This means that the company is not progressing in using total assets enough to generate steady revenue, especially that in 2008 during the worldwide economic crisis, where it broke down a -62.64 percent decline in net income from 114.64 million dollars to 42.83 in 2008 and 2009, respectively.

Revenues

Let’s look into the total revenues, operating income, and net income of ITG. By comparing its income from 2006 to 2011, we could get the following results:

• Total revenue in million dollars was 599.48, 731.00, 762.98, 633.07, 570.75 and 572. This was the company’s total earnings.
• Operating income was 174, 199, 196, 76, 49, and -207. This was the company’s income after deducting all operations expenses.
• Net income was 98, 111, 115, 43, 24, and -180. This was the company’s income after deducting income taxes.

Explanation

Total revenues depicted an increase in 2007 and 2008 of 21.94 percent and 4.38 but decreased by -17.03 and -9.84 in 2009 to 2010. In 2011 it increased slightly to 0.22.  then 2012 1st quarter decreases again to -9.13. This show a roller coaster trend meaning total revenues was not stable for ITG; it depends mostly from commissions and fees from investments plus recurring revenues from connectivity fees, software and analytical products, maintenance, customer technical support, investment research services, and others.

Operating income looks almost the same with total revenues showing growth in 2007 and 2008 of 8.43 percent and 3.53, the decline in 2009 to 2010 of -60.90 and -35.47 to -103.96 in 2012. This was caused by the increasing amount of operating expenses. While net income increase in 2007 and 2008 of 13.46 and 3.18, and then decreased in 2009 and 2010 of -62.64 and -44.02, to -39.13 in 2012.

Earnings per Share

In their earnings per share, it showed that from 2006 to 2008 they were earning as much as 2.21 dollars, 2.48, and 2.61 per share respectively. However, from 2009 to 2011 it declined down to 0.97, 0.55 and -4.42. This really would cause an alarming concern that management should look into their operations and find the means to solve their problem.

Expenses

What about their expenses for the year 2006 to 2010? Kindly take a look at the results provided below:

• Cost of revenue was 80.70, 112.00, 95.08, 95.62 and 85.39Selling, general and administrative expenses was 344.60, 419.69, 465.13, 458.49 and 435.37
• Income tax was 64.04, 77.76, 80.88, 33.62 and 25.35. In 2011 was 26.84; 2012 1st quarter was 3.036.
• Operating expenses in 2011 was 778.67. In 2012 1st quarter was 127.88.

Explanation

The analysis of the expenses of the company from 2006 to 2010 tells us that, the cost of revenue represents 14.26 percent, while the operating expenses represent 64.9, and income taxes was 10  against average total revenue. In 2011 and 2012 1st quarter operating expenses account for -136 percent and 93.77 while income tax accounts for 4.69 and 2.22 against total revenue. Thus, the total deduction from average total revenue was 89.17 and the remaining 11.5 will be the net income average percentage; in 2011 and 2012 1st quarter was only -31.4 and 4.01. Therefore, this showed a very tight margin for net income against their total revenues, meaning that operations were heavily burdened by increasing expenses incurred.

Conclusion

“In conclusion, I can say that ITG was earning good in 2006 to 2008. But due to the worldwide financial crisis, their operations were badly hit and start to dwindle down. Total revenue declined; operating expenses and income taxes increased so, naturally net income also decreases to the extent that the company was losing in 2011. But in the 2012 1st quarter the company recovered a good sizable amount of net income of 5.5 million dollars. Total assets increase accounts for the increase in receivables thus, return on assets increase to 1.43 percent. While return on equity gave 8.2 results due to the increase in net income and a decrease in stockholders’ equity” Nelly said.

ITG Cash Flow Statement

The statement of cash flows is an integral part of a company’s financial statements. Does, it tells us the most important thing of all. And how much cash a company generates. It documents both cash coming in and cash going out of a business-income and expenditures. Moreover, it has three activities which are the operating, investing and financing.

Cash Flow from Operating

ITG had a negative result in 2007 and recovered in 2008 with an increase of 129 percent. In 2009 to 2011 it was shrinking. The main reason was that net income was also declining. The 2012Q1 had a negative result of 53 percent if we compared it from 2011Q1.

Cash from operating activities can be computed using the indirect method of accounting through the net income of the company and add or deduct the key accounts that give an impact for this activity like by deducting the accounts receivable and adding the accounts payable. Below are the results:

• Net income in million dollars was 111, 115, 43, 24 and -180
• Accounts receivable was -596, 474, 16, -793, 128 and -764
• Accounts payable was 384,-317,-41, 862, -130, 700
• Cash from operating activities was -109, 380, 97, 176, 67 and 1. In 2011Q1 was-58 compared to 2012Q1 was -123.

Explanation

Cash collections were the sum of total sales less the increase and add the decrease of accounts receivable. This is to determine if the management was effective in handling their collection. Below are the results:

• Total sale was 731, 763, 633, 571 and 572
• Accounts receivable was -596, 474, 16, -793 and 128
• Cash collection was 1,327, 289, 617, 1,364 and 444.

The above results showed that the cash collection of the company was in sideways. It had a bulk collection in 2010, represented at 55 percent due to the decrease of accounts receivable.

Cash payment

The cash payments for purchases where the sum of the total cost of revenue. Deduct the increase or add the decrease of inventory and add the increase or deduct the decrease of accounts payable. These are the total cash paid by the company for their purchases per year. The following are the results for ITG:

• Cost of revenue, the total was 112, 95.08, 95.62, 85.39 and 91.60
• Total inventory for five years was zero
• Accounts payable was 384, -317, -41, 862 and -130
• Cash payment for purchases was 496.00, -221.92, 54.62, 947.39 and -130.

Explanation

Results shown was erratic in movement. In 2008, it had 324 percent down, due to the decrease of accounts payable and in 2010, up to 94 percent due to the increase of accounts payable. It indicates the cash payments paid for the operating expenses were also in sideways. It showed that only in 2011 they had an increase of 36 percent.

Cash payments for operating expense were the total cash paid for the operating expenses like selling or general and admin expenses also for unusual expenses. This can be computed by taking all the operating expenses and add the increase or deduct the decrease of prepaid expenses and then add the decrease or deduct the increase of accrued expenses. In ITG’s five years of operation, they had no record of prepaid and accrued expenses, then, the total operating expenses – 404.05, 452.27, 447.41, 427.47 and 671.75, results from 2007 to 2011 – were considered as the total cash payments for operating expenses.

Explanation

The cash payments for income tax were the sum of income tax total and by adding the decrease or deduct the increase of income taxes payable. Cash payments for income tax decreased from 2008 to 2011. It indicates that the year 2011 had decreased to negative 109 percent. This was due to the decline in the net income of the company. The results are:

• Income tax – total was 77.76, 80.88, 33.62, 25.35 and -179.79
• Income tax payable was 0, 3, -25, 10 and -6
• Cash payment of income taxes was 77.76, 77.88, 58.62, 15.35 and -173.79.

By using the direct method of accounting, the cash from operating activity results are:

• Cash collection was 1,327, 289, 617, 1,364 and 444
• The cash payment for purchases was 496.00, -221.92, 54.62, 947.39 and -38.40
• While, cash payment for operating expenses was 404.05, 452.27, 447.41, 427.47, and 671.75
• In addition, the cash payment of income taxes was 77.76, 77.88, 58.62, 15.35 and -173.79
• Net cash flow from operating activities was 349.19, -19.25, 56.42, -26.46 and -15.52.

Explanation

The total operating activities for five years were 344. The total cash collection for five years was represented at 1173 percent over the total cash operating activities, while the cash payment for purchases was 359 percent of the total cash payments. Operating expenses were 698 percent and the total cash payments for income taxes was 16 percent. It tells us the company had a greater percentage expense out in operating expense compared to the purchases.

The cash payments for operating activities using the direct method in accounting only had positive results in 2007 and 2009; the other years showed negative results. It was calculated using the cash collection less the cash payments for purchases, for operating expenses, and for income tax.

Cash Flow from Investing

To determine how much cash used for investing and where a company invested, we see that in the investing activities section in cash flow. The normal cash outflow compositions are the purchase of a fixed asset, intangibles, and acquisition of business and purchase of other investment. The inflow is the sale of maturity of investments. In ITG, the following are:

• Sales/maturity of investments was 3, 3, 0, 0 and 2
• Acquisition and disposition was -15, -6, -2, -49 and -36
• Purchase of intangibles, net was -41, -43, -38 and -29
• Other investing activities were -63,-26, -15, -15 and -23
• Net cash used for investing activities was -74, -70, -60, -102 and -86.

Explanation

The net cash flow from investing of ITG was a straight negative result; the movement was also in sideways. It means, every year they kept on investing. It had a big impact on investment through the purchase of intangibles, represented at 39 percent total over the total of investing, and followed by other investment at 36 percent then the acquisition of a business represented at 27 percent.

Cash Flow from Financing

The cash flow from financing activities includes sales and re-purchases of corporate stocks, dividend payments, and long-term borrowings, from here we can determine the company’s funding commitments and why the business needs the money. For ITG, it resulted in the following:

• Change in short-term borrowing was 101, -76, -25, 0 and 2.
• Long-term debt issued was 0, 0, 0, 0, and 25.
• Long-term debt repayment was -28, -38, -48, -47 and -4.
• Common stock issued was 14, 7, 11, 11 and 10.
• Repurchases of treasury stock were -50, 0, -23, -50 and -39
• Other financing activities were 6, 0, -2, -4 and -6.
• Net cash provided by (used for) financing activities was 43, -130, -64, -90 and -12.

The cash flow from financing resulted that it was in 2007 they had cash provided at 17 percent over the total cash in financing activities. From 2008 to 2011 had negative cash used in particular for long term debt repayment and repurchase of treasury stock.

Free Cash Flow

The free cash flow represents the company’s ability to generate cash but also signals that the company should be able to continue funding its operations. It can also determine the company’s ability to pay debt, dividends, buy back stock and facilitate the growth of the business. Below were the results of ITG free cash flow:

• Net cash provided by operating activities was -109, 380, 97, 176 and 67
• While, capital expenditure was 15, 47,45, 87 and 65
• In addition, free cash flow was -124, 333, 52, 89 and 2.

The free cash flow has indicated that in 2007 they had negative results and recovered in 2008 to 2011 with positive free cash flow but it was shrinking due to the cash from operating which was also in sideways.

Cash Flow Solvency

• Net cash provided by operating activities was -109,380,97,176,67.
• On the other hand, total liabilities were1397,898,835, 1661 and 1507.
• While cash flow solvency was -0.08, 0.42, 0.12, 0.11 and 0.04.

The cash flow solvency represented at every $1 of debt was -0.08,0.42,0.12,0.11 and0.04 from 2007 to 2011, respectively. It means, the company had no sufficient cash to pay its debt.

Written by: Rio, Nelly, and Dyne

Edited by Cris

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

Sasol Balance Sheet

Sasol Liquidity

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

• Working capital in dollars had an average of 22,824.80. It tells us that the company has sufficient resources to meet current obligations.
• The current ratio was 1.93 on average. It means that the company had 193 percent current assets for every $1 of current liabilities.
• Quick ratio was 1.33 average. It tells us that the company has 133 percent of quick assets for every $1 of current liabilities.
• Free cash flow in dollars was an average of 5,118.4. It indicates that the company has money left over after expenses and dividends have been paid. The creditors have no worries of the company’s default in payments.

Sasol Efficiency

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

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

Sasol Leverage

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

• Debt ratio was 0.45 on average.  This means that the company’s debt capital was 45 percent.
• Debt to equity ratio was 0.82 in average or total liabilities had 82 percent out of total equity. This means that the company’s creditors have fewer claims than the shareholders.
• Current liability to total asset had an average of 0.19. This tells us that the creditors/note holders had 19 percent claims against total assets.
• Long-term liability to total asset was 0.11 on average. This tells us that the banks/bondholders had 11 percent claims against total assets.
• Net worth to total assets was 0.55 on average. Stockholders/owners had 55 percent claims against total assets.
• Interest coverage was 21 percent in average meaning the company had 21 percent income before interest and tax against total interest. It further tells us that the company will not default on its payment of interest.
• Cash flow to debt was 0.31. Tells us that the company has funds for its debt at an average of 31 percent.
• Equity multiplier was 1.82 in average. The results show that it has a lower equity multiplier meaning that the company’s asset doesn’t finance by debt.  This also shows a number of assets owned by the firm for each equivalent monetary unit owner claims, held by stockholders. This ratio is best compared to other industry.

Facts:

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

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

The overall results tell us that Sasol is financially sound.

Sasol Income Statement

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

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

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

Sasol Income

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

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

Sasol Expenses

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

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

Sasol Profit Margins

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

Sasol Cash Flow

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

Sasol Cash Flow from Operating Activities

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

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

Sasol Cash Flow from Investing Activities

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

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

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

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

Sasol Cash Flow from Financing Activities

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

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

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

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

Sasol Cash Flow Ratios

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

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

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

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

Sasol Balance Sheet

Liquidity

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

• Working capital in dollars had an average of 22,824.80. It tells us that the company has sufficient resources to meet current obligations.
• The current ratio was 1.93 in average. It means that the company had 193 percent current assets for every $1 of current liabilities.
• Quick ratio was 1.33 average. It tells us that the company has 133 percent of quick assets for every $1 of current liabilities.
• Free cash flow in dollars was an average of 5,118.4. It indicates that the company has money left over after expenses and dividends have been paid. The creditors have no worries of the company’s default in payments.

Efficiency

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

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

Leverage

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

• Debt ratio was 0.45 in average.  This means that the company’s debt capital was 45 percent.
• Debt to equity ratio was 0.82 in average or total liabilities had 82 percent out of total equity. This means that the company’s creditors have fewer claims than the shareholders.
• Current liability to total asset had an average of 0.19. This tells us that the creditors/note holders had 19 percent claims against total assets.
• Long term liability to total asset was 0.11 in average. This tells us that the banks/bond holders had 11 percent claims against total assets.
• Net worth to total assets was 0.55 in average. Stockholders/owners had 55 percent claims against total assets.
• Interest coverage was 21 percent in average meaning the company had 21 percent income before interest and tax against total interest. It further tells us that the company will not default on its payment of interest.
• Cash flow to debt was 0.31. Tells us that the company has funds for its debt at an average of 31 percent.
• Equity multiplier was 1.82 in average. The results show that it has a lower equity multiplier meaning that the company’s asset doesn’t finance by debt.  This also shows a number of assets owned by the firm for each equivalent monetary unit owner claims, held by stockholders. This ratio is best compared to other industry.

Facts

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

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

The overall results tell us that the company is financially sound.

Sasol Income Statement

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

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

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

Income

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

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

Expenses

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

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

Margins

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

Sasol Cash Flow

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

Cash Flow from Operating Activities

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

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

Cash Flow from Investing Activities

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

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

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

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

Cash Flow from Financing Activities

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

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

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

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

Cash Flow Ratios

Cash flow analysis uses ratios that focus on cash flow and how solvent, liquid, and viable the company is. For Sasol Limited, cash flow ratios from 2006 to 2010 are:

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

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

Kaman Balance Sheet

Financial Liquidity

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

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

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

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

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

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

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

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

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

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

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

Leverage

Leverage is a business term that refers to borrowing. If a business is leveraged it means that the business has borrowed money to finance the purchase of assets. The other way to purchase assets is through use of owner funds, or equity.

One way to determine leverage is to calculate the debt-to-equity ratio, showing how much of the assets of the business are financed by debt and how much by equity.

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

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

Property, Plant & Equipment

Property, Plant & Equipment consists of assets that are tangible and relatively long-lived. The firm has acquired these assets in order to use them to produce goods and services that will generate future cash inflows. These are recorded at cost upon acquisition of these assets.  From 2007 to 2011, the company’s acquisition of plant, property and equipment are as follows:

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

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

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

Kaman Income Statement

Profitability

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

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

Income

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

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

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

Expenses

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

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

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

Margins

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

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

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

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

Kaman Cash Flow

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

Cash Flow from Operating Activities

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

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

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

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

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

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

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

Cash Flow from Investing Activities

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

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

Cash Flow from Financing Activities

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

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

Cash Flow Ratios

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

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

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

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

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

Written by Rio, Nelly and Dyne

Edited by Criselda

Kaman Corporation (KAMN) is an American aerospace company, with headquarters in Bloomfield, Connecticut. It was founded in 1945 by Charles Kaman. During the first ten years, the company operated exclusively as a designer and manufacturer of several helicopters that set world records and achieved many aviation firsts. 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. The liquidity of a business firm is usually of particular interest to its short-term creditors since the liquidity of the firm measures its ability to pay those creditors.

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

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

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

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

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

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

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

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

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

Leverage

Leverage is a business term that refers to borrowing. If a business is “leveraged,” it means that the business has borrowed money to finance the purchase of assets. The other way to purchase assets is through use of owner funds, or equity.

One way to determine leverage is to calculate the debt-to-equity ratio, showing how much of the assets of the business are financed by debt and how much by equity (ownership). For Kaman Corporation, in  five years period from 2007 to 2011, results are:

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

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

Property, Plant & Equipment

Property, Plant & Equipment consists of assets that are tangible and relatively long-lived. The firm has acquired these assets in order to use them to produce goods and services that will generate future cash inflows. These are recorded at cost upon acquisition of these assets.  From 2007 to 2011, the company’s acquisition of plant, property and equipment are as follows:

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

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

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

Income Statement

Profitability

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

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

Income

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

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

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

Expenses

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

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

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

Margins

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

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

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

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

Cash Flow

Aspiring for investing or buyback stocks? Think hard, work hard; bolster your confidence by studying, applying strategies and reviewing the financial results of the company.  Cash flow statement is one of the useful tools that laying all the facts. This encompasses the result from the operating side up to financing activities.

Cash Flow from Operating Activities

Let’s start from operating activities which there are two formats used; one is the indirect method and the other one was the direct method.

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

Direct method also called the income statement method; reports cash receipts and cash disbursements from operating activities. The difference between these two amounts is the net cash flow from operating activities (see Table 2).

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

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

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

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

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

Cash Flow from Investing Activities

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

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

Cash Flow from Financing Activities

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

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

Cash Flow Ratios

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

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

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

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

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

Written by: Rio, Nelly and Dyne

Edited by: Maydee and Stephanie

TUES Balance Sheet

Liquidity

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

Explanation:

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

Working Capital

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

Efficiency Ratios

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

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

TUES efficiency ratios from 2007 to 2011:

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

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

Cash Conversion Cycle

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

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

CCC from 2007 to 2011:

Explanation:

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

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

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

Explanation

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

Plant, Property & Equipment

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

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

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

TUES Income Statement

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

Profitability

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

Moreover,

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

Conclusion:

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

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

Explanations

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

Income

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

The income from 2007 to 2011:

• Overall income showed an abrupt increase from 2007 to 2008, decrease in 2009 and 2011 with an increase in 2008 and 2010.
• Revenues in million dollars had a yearly average of 749.  This was the company’s yearly total earnings. Its first-quarter revenue of 173 represents 23 percent of average revenue.
• Gross profit had an average of 279.4; this was company’s income after deducting its cost of revenue. Its first-quarter gross profit of 66 represents 23.6 percent of average gross profit.
• Operating income had an average of 14.2; this was company’s income after deducting all operations expenses. Its first-quarter operating income of -6 represents -42.3 of average operating income.
• Income before taxes had an average of 12; this was the income after interest and other income and expenses. The first quarter income before taxes of -7 represents -58.3 of average income before taxes.
• Net income had an average of 7.6; this was the company’s income after deducting income taxes. Its 1st quarter net income of -4 represents -52.6 of average net income.

Expenses

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

Expenses and margins from 2007 to 2011 as follows:

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

TUES Cash Flow Statement

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

Cash Flow from Operating Activities

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

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

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

Table 1

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

Table 2

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

Explanations:

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

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

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

Table 3

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

Cash Flow from Financing Activities

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

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

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

Table 4

Free Cash Flow

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

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

Table 5

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

Table 6

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

Written by Rio, Nelly and Dyne
Edited by Cris

Systemax Balance Sheet

Financial Liquidity

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

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

Efficiency

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

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

Further interpretation of cash conversion cycle:

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

Leverage

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

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

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

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

Systemax Income Statement

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

Profitability

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

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

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

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

Income

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

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

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

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

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

Expenses

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

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

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

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

Systemax Cash Flow Statement

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

Cash Flow from Operating Activities

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

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

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

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

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

Cash Flow from Investing Activities

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

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

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

Cash Flow from Financing Activities

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

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

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

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

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

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

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

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

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

Cash Flow Ratios

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Rio, Nelly and Dyne
Edited by Cris

Balance Sheet

Financial Liquidity

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

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

Efficiency

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

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

Further interpretation of cash conversion cycle:

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

Leverage

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

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

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

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

Income Statement

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

Profitability

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

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

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

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

Income

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

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

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

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

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

Expenses

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

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

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

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

Cash Flow Statement

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

Cash Flow from Operating Activities

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

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

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

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

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

Cash Flow from Investing Activities

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

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

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

Cash Flow from Financing Activities

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

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

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

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

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

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

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

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

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

Cash Flow Ratios

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

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

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

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

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

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

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

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

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

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

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

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

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

Written by Rio, Nelly and Dyne
Edited by Cris