Systemax Inc (SYS) to Treat with Extra Careful

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

Balance Sheet

Financial Liquidity

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

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


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:








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

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


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.


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. 


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. 


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

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