STMP Balance Sheet
In value investing, Stamps.com Inc has sufficient resources to continuously run its business has proven to its liquidity related ratios.
Financial liquidity of the company plays a vital role in value investing. It is used to determine how capable the company of continuously running its business smoothly. It can be measured by the related ratios on current assets such as current ratio, quick ratio, and working capital. For Stamps.com Inc, below is the data from 2007 to 2011:
- The current ratio was 5.62, 5.2, 3.93, 2.23 and 5.07. Average of 4.41. STMP has an average current ratio for its five years in the operation of 4.41, which means that its current assets are 441 percent compared to its current liabilities.
- Quick ratio was 5.62, 5.2, 3.93, 2.23 and 5.07. Average of 4.41. The company has no recorded inventory, so its quick ratio has an average of 4.41, which tells us that its monetary assets were 441 percent against its current liabilities.
- Working capital was $60, 63, 41, 16 and 57. Average of $47. Working capital of the company shows a positive balance. However, its trend increased in 2008 by 5 percent but dropped by 35 percent and 61 percent in 2009 to 2010 respectively and recovered again with an increase of 256 percent in 2011. In spite of this trend, the company is capable to pay off its current obligations.
Leverage is a business term that refers to borrowing. If a business is “leveraged,” it means that the business has borrowed money to finance the purchase of assets. The other way to purchase assets is through use of own funds or equity. One way to determine leverage is to calculate the debt-to-equity ratio, showing how much of the assets of the business were financed by debt and how much by equity (ownership). Below is the financial leverage ratio of Stamps from 2007 to 2011:
- Debt ratio in percent was .12, .16, .16, .23 and .13. Average of .16, which tells us that 16 percent of the company’s assets were loaned.
- Debt to equity in percent was .14, .19, .18, .30 and .15. Average of .19. It also tells us that the company’s equity is 19 percent of its total assets.
- Solvency ratio was 1.08, .80, .50, .54 and 1.93. Average of .97, which means that Stamps is 97 percent solvent. It is computed by dividing its net income by tax plus depreciation by its total liabilities.
- Current liabilities to total assets was .12, .16, .16, .23 and .13. Average of .16. The company’s current liabilities, when compared to its total assets, were 16 percent average, which means that the creditors have only 16 percent claims on Stamps total assets.
- Stockholders’ equity to total assets was .55, .84, .85, .77 and .87. Average of .84. Tells us that the owners have 84 percent claims on the company’s total assets.
Based on the results of the leverage ratio analysis, the firm did not borrow big amount of money from outside creditors. Instead, they did utilize more on the owners’ funds as shown that 84 percent of its total assets were owners’ equity.
Plant, Property & Equipment
This category consists of assets that are tangible and relatively long-lived. The firm has acquired these assets in order to use them to produce goods and services that will generate future cash inflows. These were recorded at cost upon acquisition of these assets.
The fixed asset turnover ratio measures the company’s effectiveness in generating sales from its investments in plant, property, and equipment. In Stamps, the ratio has an average of 37 meaning the company’s fixed asset has 37 times average turn per period.
Earnings quality is an important aspect of evaluating an entity’s financial health, yet investors, creditors, and other financial statement users often overlook it. Earnings quality refers to the ability of reported earnings to reflect the company’s true earnings, as well as the usefulness of reported earnings to predict future earnings. The evaluation of earnings is often difficult because companies highlight a variety of earnings figures which are the revenues, operating earnings, net income, and pro forma earnings. In addition, companies often calculate these figures differently. The income statement alone is not useful in predicting future earnings.
The company’s net profit margin showed a decrease of 11.97 percent, 7.52 and 6.47 in 2008 to 2010 compared to 2007. But it leaped high in 2011 to 25.86 percent, a 4 times fold compared to 2010. This means that Stamps increased their revenue in 2011 to 102 million dollars and earned a net income of around 26 million dollars compared to 2010 which is 6 million dollars only. Asset turnover is gradually increasing every year, therefore this depicts that they were efficient in converting their assets into revenues.
Return on Assets
Stamps return on assets showed an up and downtrend for the last four years but in 2011 it reached a height of 31.76 percent. This means that they had increased their earnings for every dollar of total assets as compared to previous years. For their financial leverage measured by equity multiplier, showing the portion of the return on equity that was the result of debt, wherein it was trending upward with a slight decrease in 2009. Then increased in 2010 by 1.30 percent but decreased again in 2011 to 1.15. This means that they can control their total liabilities within their current operations. In fact, it went to 22.99 million dollars in 2010 but managed to decrease it the following year to 12.94.
Return on Equity
Their return on equity depicted an increase in 2008 from 10.51 percent to 11.90, and then up and down in 2009 to 2010 of 8.02 to 9.23 but 2011 showed an increase of 38.0. This means that Stamps.com Incorporation was earning revenues from money invested by their stockholders, as depicted by the increase in their revenues of 18.75 percent in 2011. To further understand the thought, below is the detailed summary of the profitability ratio from 2007-2011
- Net margin in percent was 12.43, 11.97, 7.52, 6.47, and 25.86. This simply is the after-tax profit a company generated for each dollar of revenue.
- Asset turnover was 0.76, 0.86, 0.90, 1.17, and 1.23. This measures the effectiveness of a company to convert its assets into sales.
- Return on assets was 9.42, 10.26, 6.77, 7.54, and 31.76. This tells us how much profit the company generated for each dollar on total assets.
- Financial leverage was 1.14, 1.19, 1.18, 1.30, and 1.15. This measures the financial structure ratio of the company base on total assets against total stockholders’ equity.
- Return on equity was 10.51, 11.90, 8.02, 9.23, and 38.00. The company could return such percent for every dollar of equity.
Revenues from 2007 to 1st quarter of 2012 are as follows:
- Revenue in million dollars was 86, 85, 82, 86, 102, and 28. This was the company’s total earnings.
- Gross profit was 61, 62, 59, 62, 75, and 26. These were the earnings after deducting the cost of revenues.
- Operating income was 7, 4, 6, 1, 17, and 26. This was the company’s income after deducting all operating expenses.
- Income before income tax is 11, 7, 7, 2, 18, and 5. This was the income after interest and other income (expenses).
- Net income was 11, 10, 6, 6, 26, and 16. This was the company’s income after deducting income taxes.
Stamps.com Inc revenues were constant for the last four years with a growth ratio of 1.45 percent, -1.05, -3.28 and 4.16, and then abruptly increase by 18.75 percent in 2011. Average revenue for five years of 88.2 compared to 28 million dollars in the first quarter of 2012; means that their revenues are definitely increasing. Both gross profits and operating income were on an increasing and decreasing trend for the last four years and then increased again in 2011. Their operating income showed a growth ratio of -42.83, -32.34, 30.38, -74.81 and 1075.97. The income before income tax differed because of the other income and expenses. Net income showed a decrease in 2008 to 2010 of 10 million dollars, 6, and 6, then an increase to 26 and 16 for the 1st quarter of 2012 along with its growth ratio of -35.21, -4.71, -39.23, -10.44 and 374.78.
What causes the increase in revenue? As you can see the company increased their total assets from 57 million dollars in 2010 to 108 in 2011, so as to their stockholders’ equity from 44 million dollars in 2010 to 94 in 2011. This means they capitalize on total assets to augment their revenues.
Expenses from 2007 to 1st quarter of 2012 are as follows:
- Cost of revenue in million dollars was 25, 23, 23, 24, 26, and 3 for the 1st quarter 2012.
- Operating expense was 54, 58, 53, 60, and 58.
- Other income (expense) was 4, 3, 1, 0, 1, and (21) for the 1st quarter of 2012.
- Provision for income tax was 0, (3), 1, (4), (8) and (12) for the 1st quarter of 2012
The company’s cost of revenue was 29.49 percent, 26.98, 27.9, 27.69 and 25.80 of revenue with an average of 24.2 which meaning, that first quarter 2012 of 3 is lesser than one-fourth of average, so the cost of revenue is decreasing. While operating expense was 62.83 percent, 67.77, 65.02, 70.6, and 54.24 of revenue with an average of 63.69. And other income and expense were 5.20, 3.44, 1.12, 0.14 and 0.55 of revenue with the average of 2.09. Thus, net income was 12.88, 8.69, 8.20, 1.86, and 17.51 of revenue or an average of 9.83.
The company’s cash flow from 2007 up until 2011 will be discussed to us by one of our Numbers team member, Dyne.
Cash Flow Statement
Cash flow would simply mean the cash in and out of the business. It was classified into three segments– the operating, investing and financing. In operating, it was cash provided or used for the operations which are basically from the revenue. In both investing and financing, it was cash provided and used for investment and financing.
Cash Flow from Operating Activities
The results of the net cash provided by operating activities can be used to reinvest in the business, repay debt and pay dividends. In Stamps, from 2007 to 2010 it declined. Based on their total of five years of operation, 2007 represents 28 percent then went down to 8 percent in 2010. This was due to the fact that the net income was also declining. It was corrected in 2011. It grew by 17 percent with the increase also of net income by 44 percent. Probably in 2012, it will go up based on the net cash provided by operating activities in Q1 increased by 27 percent from 2011Q1 data.
The net cash provided by operating activities means a net of cash generated from operations. It can be computed using the net income and added back the non-cash items related.
- Net income in million was $11, 10, 6, 6 and 26. Total for five years was 59. In 2012Q1 was 16 compared in 2011Q1 was 3.
- Depreciation and amortization were 3, 2, 1, 1 and 1.Total for five years were 8.
- Another non-cash item was 3, 3, 0, -3, and -8. Total for five years was -5.
- Net cash provided by operating activities was 17, 12, 10, 5and 15. Total for five years was 59. In 2012Q1 was 11 compared in 2011Q1 was 3.
The basis for computing the cash flow from operating using the direct method of accounting is taking all the cash collection then deduct all the cash payments made by the company.
- Cash collection was 86, 85, 82, 85 and 96. Total for five years was 434.
- The payment for purchases was 25, 23, 21, 23 and 26
- Payment for operating expenses was 54, 58, 53, 60 and 58
- Cash payment for income taxes was 0, -3, 1, -4 and -8
- Total cash flow from operating activities was 7, 7, 7, 6 and 20
With this, cash collection is the main core. If the cash collection was short over the cash payments made, the cash flow would be in negative. In Stamps, the cash collection from 2007 to 2010 there was no big movement except in 2011. It increased to 2 percent. The same thing in total cash flow from operating, no movement except in 2011 which increased to 30 percent, due to the decrease of operating expenses and the provision of income tax.
Cash Flow from Investing Activities
The net cash from investing activities for five years resulted in a total of 76. It tells us, the company has more cash provided than cash used. It indicated that only in 2009 and 2010 that they had negative cash, due to the purchase of an investment that was over than the cash from sales/maturities of investment.
After we know the result of cash from operating, it can be used as our basis if the company can utilize the cash either to invest, to purchase additional capital expenditure, purchase of an investment or acquire a business.
Investing activities are:
- Investments in property, plant, and equipment were -1, -1, 0, -2 and -1. Total for five years was -5.
- Purchases of investments were -44, -33, -25, -25 and -2. Total for five years was -129.
- Sales /maturities of investments were 91, 58, 21, 24 and 14. Total for five years was 208.
- Net cash used for investing activities was 47, 23, -4, -1 and 11. Total for five years was 76.
Cash Flow from Financing Activities
STMP net cash from financing from 2007 to 2010 were used to repurchases of treasury stock, though it was declining. The total was represented by 102 percent over the total net cash from financing for five years. In 2012, it has cash provided by 22 percent which was from other financing activities. The cash from financing activities is where we can see how the company raised cash. It shows the following:
- Common stock issued and 1, 1, 0 and 0. Total for five years was 3.
- Repurchases of treasury stock was -33, -27, -14, -14 and -5. Total for five years was -93.
- Other financing activities was 0, 0, 0,-25 and 25.
- Net cash provided by (used for) financing activities was -32, -26, -13, -40 and 20. Total for five years was -91.
Net Change in Cash
The net change in cash was cash available after paying all their expenses and obligation. It showed how much cash was made for a particular year. Below are the results:
- Net change in cash was 32, 9, -8, -37 and 46
- Cash at beginning of period was 12, 44, 53, 45 and 8
- Cash at end of period was 44, 53, 45, 8 and 54
The cash at the end of the period was in sideways. It resulted with all in positive, though the net change in cash in 2009 and 2010 was in negative since the cash at beginning of period was positive, still, it resulted in positive.
Free Cash Flow
Free cash flow can be determined using the operating cash flow result in less the capital expenditure and dividend paid. The following were the results:
- Operating cash flow was 17, 12, 10, 5 and 15
- Capital expenditure was -1, -1, 0, -2 and -1
- Free cash flow was 16, 11, 10, 3 and 14
The free cash flow from 2007 to 2010 went down successively and jumped to 79 percent in 2011, due to the operating cash flow that was also declining and the capital expenditure in total represented at 8 percent over the total operating cash flow.
Written by Rio, Nelly and Dyne
Edited by Cris