Financial Analysis Hewlett Packard Corporation 2007
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Transcript of Financial Analysis Hewlett Packard Corporation 2007
HEWLETT PACKARD CORPORATIONBalance Sheet
as at December 31, _ _ _ _ _.2006 2005
$ in '000
Assets
Current Assets Cash & Cash Equivlent 16,400 13,911
Short-Term Investment 22 18
Account Receiveables 10,873 9,903
Financing Receiveables 2,440 2,551
Inventory 7,750 6,877
Other Current Assets 10,779 10,074
Total Current Assets 48,264 43,334
Non-Current Assets Property, Plant & Equipments 6,863 6,451
Long term financing Receivables 6,649 7,502
Goodwill 16,853 16,441
Purchased Intengible assets 3,352 3,589
Total Non-Current Assets 33,717 33,983
TOTAL ASSETS 81,981 77,317
EQUITY AND LIABILITIES
CURRENT LIABILITIES Notes Payable and S.Term Borrowing 2,705 1,831
Accounts Payables 12,102 10,223
Employee Compensation & Benefits 3,148 2,343
Taxes on earnings 1,905 2,367
Deferred Revenue 4,309 3,815
Accrued Restructuring 547 1,119
Other Accrued Liabilities 11,134 9,762
Total Current Liabilities 35,850 31,460
NON-CURRENT LIABILITIES Long-term Debt 2,490 3,392
Other Liabilities 5,497 5,289
Commitments & Contingencies - -
Total Non-Current Liabilities 7,987 8,681
Total Liabilities 43,837 40,141
SHARE CAPITAL AND RESERVES
Preferred Stock - -
Common Stock 27 28
Additional Paid in Capital 17,966 20,490
Prepaid Stock Repurchase (596) -
Retained Earnings 20,729 16,679
Other Accumulated Comprehensive Income (Loss) 18 (21)
Total Shareholder's Equity 38,144 37,176
TOTAL EQUITY AND LIABILITIES 81,981 77,317
- -
HEWLETT PACKARD CORPORATIONProfit & Loss Account
For the Year Ended December 31, _ _ _ _ _.
2006 2005 2004
$ in '000
Net Revenue
Products 73,557 68,945 64,046
Services 17,773 17,380 15,470
Financing Income 328 371 389
Total Net Revenue 91,658 86,696 79,905
Cost & Expenses
Cost of products 55,248 52,550 48,659
Cost of Services 13,930 13,674 11,962
Financing Interests 249 216 190
Research & Developments 3,591 3,490 3,563
Selling, General & Administrative 11,266 11,184 10,496
Amortization of Purchased Intangible Assets 604 622 603
Restructuring charges 158 1,684 114
In-process Research and Development Cha 52 2 37
Pension Curtailment - (199) -
Acquisition related charges - - 54
Total Operating Expenses 85,098 ### 83,223 75,678
Earning from operations 6,560 3,473 4,227
Interest & other, Net 606 189 35
Gains (Losses) on Investments 25 (13) 4
Dispute Settlements - (106) (70)
Earnings Before Taxes 7,191 3,543 4,196
Provision for Taxes 993 1,145 699
Net Earnings 6,198 2,398 3,497
Net Earnings per share;
Basic 2.23 0.83 1.16
Diluted 2.18 0.82 1.15
Weighted average shares used to compute net earnings per share
Basic 2,782 2,879 3,024
Diluted 2,852 2,909 3,055
HEWLETT PACKARD CORPORATION Financial Analysis
2006 2005
Liquidity Ratios
1. Net Working Capital:
= Current Assets - Current Liabilities = 48,264 - 35,850 = 43,334 - 31,460
= 12,414 11,874
The Company's net working capital increased over the period. In 2005, the company's net working capital was $ 11,874 million, which now increased 4.55 % and reached up to $ 12,414 million in 2006 .
2. Current Ratio: = Current Assets
Current Liabilities
= 48,264.00 43,334.00
35,850.00 31,460.00
= 1.35 1.38
The company's current ratio decreased in current year 2006. Company's Working Capital increased but the its current ratio about to meet Company's ability current liabilities out of its current assets decreased from 1.38 to 1.35.
3. Quick (Acid Test) Ratio: = Current Assets - Inventory
Current Liabilities
= 48,264 - 7,750 43,334 - 6,877
35,850 31,460
= 1.13 1.16
Company's Quick ratio show that the company's ability to made payments its current liabilities out of its most current assets also decreased in the current financial year 2006 as campared to 2005.
In Short, the HP Company's liquidity ratio results shows that the company's net working capital increased but the company ability to pay its currents liabilities out of its currents assest decreased as compared to the last financial year of 2005.
HEWLETT PACKARD CORPORATION Financial Analysis
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Activity (Asset Utilization) Ratios
1. Account Receivable Turnover = Net Credit Sale
Account Receivable
= 91,658.00 86,696.00 10,873.00 9,903.00
= 8.43 time 8.75 times
Accounts Receiveable turnover ratio show that Company net sale increased, the company's account receiveable also increased but the accounts receiveables turnover reduced. In this regard, company needed to be evaluate its policies in order to increase Account Receiveable turnover.
2. Collection Period: = 365 Days
Account Receivable Turnover
= 365 3658.43 8.75
= 43.30 days 41.69 days
As company's accounts receiveable turnover ratio slightly decline, this decline affect the company's collection period from the receiveables. The company's collection perioed increased as compared to 2005 from 41.69 (almost 42 days) to 43.30 (almost 43 days).
3. Inventory Turnover Ratio: = Cost of Good Sold
Inventory
= 69,427 66,440 7,750 6,877
= 8.96 time 9.66 times
Inventory Turnover ratio show that that the company's inventory turnover reduced as compared to the last financial year. In 2005, it was 9.66 times that now decline 7.24% and come down to 8.96 times.
4. Inventory Age: = 365 Days
Inventory Turnover
= 365 3658.96 9.66
= 40.74 days 37.78 days
HEWLETT PACKARD CORPORATION Financial Analysis
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Due to decrease in Inventory turnover ratio, this affect the company's inventory age that now increase 7.83 % from 37.78 days to 40.74 days that is holding of money in inventroy, instead of investing in other business operations.
Activity (Asset Utilization) Ratios (Con't)
5. Operating Cycle = Avg. Collection Period + Inventory Age
= 43.30 + 40.74 41.69 + 37.78
= 84.04 days 79.47 days
The Operating cycle of the HP Company increased in the current year from 79.47 days (Almost 79 days) to 84.04 days ( almost 84 days) that increased by almost 5.
6. Total Asset Turnover Ratio: = Sale
Total Assets
= 91,658 86,696
81,981 77,317
= 1.12 1.12
The HP's assets turnover results show that the company's remains the constant. There is not change in assets of the company in the current financial year.
HEWLETT PACKARD CORPORATION Financial Analysis
2006 2005
Leverage (Solvency, Long-Term Debt) Ratios
1. Debt Ratio: = Total Liabilities
Total Assets
= 43,837 40,141
81,981 77,317
= 0.53 0.52
The debt ratio of the company show that the company's debt liability against its total assets slightly increased as to last year from 0.52 to 0.53. This show that the share of debt in company increased.
2. Debt Equity Ratio: = Total Liabilities
Total Equity
= 43,837 40,141
38,144 37,176
= 1.15 1.08
Like the debt ratio of the company, the debt equity ratio also show that company's debt liability against its shareholders equity increased by 6.48% as compare to last year from 1.08 to the 1.15
3. L-Term Debt to Equity Ratio: = Long Term Debt
Total Shareholder Equity
= 2,490 3,392
38,144 37,176
= 0.07 0.09
HEWLETT PACKARD CORPORATION Financial Analysis
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The Long Term debt to share holders equity ratio results show that the company's long term debts against its shareholders equity reduced. In 2005 that was 0.09 that now decreased to 0.07 which is in favour of shareholders.
Profitability Ratios
1. Gross Profit Margin Ratio: = Gross Profit
Net Sale
= 22,231 20,256
91,658 86,696
= 0.24 0.23
HP gross profit margin slightly increased in current financial year. In 2005, it was 0.23 of the total sale and now it increase up to 0.24 with difference of 0.01.
2. Operating Profit Ratio: = Earning Before Interest & Taxes (EBIT)
Net Sale
= 7,191 3,543
91,658 86,696
= 0.08 0.04
Like gross profit margin, the company's current years operating profit increased. This year company's operating profit double increase as compare to last year operating profit. In 2005, the HP's operating profit was 0.04 of net sale that now is 0.08.
3. Profit Margin Ratio: = Net Profit
Net Sale
= 6,198 2,398
91,658 86,696
= 0.07 0.03
The company's profit margin also increased from 0.03 to 0.07 of net sale in this
HEWLETT PACKARD CORPORATION Financial Analysis
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current year. This show that the company take necessary steps to controll its expenses to increase its profits.
Profitability Ratios ( Con't )
4. Return on Investment: = Net income
Total Assets
= 6,198 2,398
81,981 77,317
= 0.08 0.03
The return on investment (Assets) of HP corporation increased more then double as last year. Last year the return was 0.03 of total assets (Investment) that now raised to 0.08.
5. Return on Equity: = Net income
Total Shareholder's Equity
= 6,198 2,398
38,144 37,176
= 0.16 0.06
The return on equity of HP corporation is also increased more then double of
last year. Last year the return on equity was 0.06 that now raised to 0.16.
HEWLETT PACKARD CORPORATION Financial Analysis
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Market Value Ratios
Market value ratio are final group of ratios that relates the firm's stock prices to its
earning (or book value) per share.
Year Mkt. Price O.Standing Net Income
$ S.holders (Million) $ in Million
2004 41.64 3500 48472005 40.31 3507 48722006 48.25 3511 5080
1. Earning per Share = Net Income - Preferred Dividend
Common Stock Outstanding
= 1.45 1.39
Where as some ratio are declining in 2005 & 2006 but the earning per share of share holder continuously increased over the time period specially time the company make sharp increase in earning
per share.
2. Price Earning Ratio: = Market Price per Share
Earning per Share
= 33.35 29.02
As we noted that earning per share increased, similarly the price earning ratio also increased.
HEWLETT PACKARD CORPORATION Financial Analysis
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In 2005, the PE Ratio was 29.02 that now raise ot 33.35.
3. Book Value Per Share = Total Stockholder's equity - Preferred Stock
Share Outstandings
0.01 0.01
Similarly, as the earning per share & price earning ratio of the company increases, the company shares book value also increased in 2006 from $ 4.66 to now $ 4.82.
HEWLETT PACKARD CORPORATION Financial Analysis
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Liquidity Ratios
1. Net Working Capital:
= Current Assets - Current Liabilities = 48,264 - 35,850 = 43,334 - 31,460 12,414.00 11,874.00
= 12,414.00 11,874.00
The Company's net working capital increased over the period. In 2005,
the company's net working capital was $ 11,874 M, which now increased 4.55 % and
reached up to $ 12,414 in 2006 .
2. Current Ratio: = Current Assets
Current Liabilities
= 48,264.00 43,334.00
35,850.00 31,460.00
= 1.35 1.38
In Coca-Cola Company, the Company's Current ratio also continuously decreasing as Net
Working Capital decreased. This shows that the Company's ability to meet it current liabilities out of its
current assets decreased. In 2004, it was 1.10 which reduced 0.06 in 2005 to 1.04. But in current Financial
HEWLETT PACKARD CORPORATION Financial Analysis
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year 2006, it further reduces with 0.09 form 1.04 to 0.95 rapidly as compared to 2005.
Liquidity Ratios (Con't)
3. Quick (Acid Test) Ratio: = Current Assets - Inventory
Current Liabilities
= 1.13 1.16
Quick (Acid Test) ratio is used to measure the value of organization most current assets to
meet/cover its current liabilities. Inventory & Prepaid expenses are not included because they not easily
convertible into cash or cash equivalent and are not capable of covering current liabilities.
Coca-cola Company's Quick (Acid Test) ratio also on decreasing trend. And this decreased
increased with the passage of time. In 2004, it was actually at 0.97 and came down at 0.90 in 2005. In
2006, this down ward trend continue and it further decreased and reached at 0.76 with a decrease of 0.12.
In Short, the Coca-Cola Company's liquidity ratio results show that the company is in
a weak position against its current liabilities and this trend is continue. If Company not take pay
HEWLETT PACKARD CORPORATION Financial Analysis
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attention to this situation, it creates serious problem for the company in future.
Activity (Asset Utilization) Ratios
Activity ratio are used to determine how quickly various accounts are converted into
sales or cash. It is necessary to evaluate the activity or liquidity of specific current accounts. For
this purpose, various ratios exist to measure the activity of receivables, inventory & Total Assets.
1. Account Receivable Turnover = Net Credit Sale
Avg. Account Receivable
*Avg. Account R/ = 10,388.00 #VALUE!
HEWLETT PACKARD CORPORATION Financial Analysis
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= - t #VALUE!
The Account Receivable Turnover ratio gives the number of times the account receivables
are collected during the year. The higher account receivable turnover, the better company in collecting
revenue from customers. Moreover, an excessively high ratio show that company follows stringent credit
policy.
In 2005, Company's account receivable turnover ratio was 10.38. The drop in this ratio shows
a problem in collecting the revenues from the creditors/customers. The company needs to re-evaluate its
credit policy.
2. Collection Period: = 365 Days
Account Receivable Turnover
= #DIV/0! d #VALUE!
Collection period is the number of days it takes to convert/collect a sale credit sale) into cash.
In 2005, Company's collection period was 35.17 days (almost 35 days) that now increased to
37.77 days (almost 38 days). Now company's problems increased as the Company's account receivable
time period reduced and Secondly, the company's collection period efficiency decreased.
HEWLETT PACKARD CORPORATION Financial Analysis
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Activity (Asset Utilization) Ratios (Con't)
3. Inventory Turnover Ratio: = Cost of Good Sold
Average Inventory
* Avg. Inventory = 7,313.50 #VALUE!
= 11.64 t #VALUE!
Inventory turnover ratio describes that how many times the inventory (Finished goods ) are
moved/sold. Holding of excess inventory show that Company funds tied up in inventory, high inventory
carrying cost and as well as risk of obsolescence.
In 2005, Company's Inventory turnover ratio was 5.76 that now reduce slight to 5.33 times.
This shows that there is stocking of goods that may be due the introduction of new product line or due
obsolete goods that have actually no worth.
4. Inventory Age: = 365 Days
Inventory Turnover
= 31.37 d #VALUE!
Inventory age is the ratio of calculating the time period for inventory/finished goods to be
HEWLETT PACKARD CORPORATION Financial Analysis
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hold with the company.
In 2005, Company's Inventory age was 63.33 days (almost 63 days) which in 2006 increased
to 68.52 days (almost 69 days) with a difference of 6 days that is not good for the company. As much
lengthening the holding period show potentially greater the risk of obsolescence.
Activity (Asset Utilization) Ratios (Con't)
5. Operating Cycle = Avg. Collection Period + Inventory A
= #DIV/0! d #VALUE!
The Operating cycle of an organization is the number of days it take to convert inventory
and account receivables to cash. For every business entity, the minimum/short operating cycle is
desirable.
The Coca-cola Company's operating cycle in 2006 is 106.28 days (almost 106 days) that are
more then the operating cycle of last year 2005. In 2005, the operating cycle was 98.50 days (almost 99
days) which now length by 7 days. This is an unfavorable trend to tied up amount of money with the
non-cash assets or any investment.
HEWLETT PACKARD CORPORATION Financial Analysis
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6. Total Asset Turnover Ratio: = Sale
Avg. Total Assets
* Avg. Total Asset = 79,649.00 #VALUE!
= - #VALUE!
The Operating cycle of an organization is the number of days it take to convert inventory
and account receivables to cash. For every business entity, the minimum/short operating cycle is
desirable.
The Coca-cola Company's operating cycle in 2006 is 106.28 days (almost 106 days) that are
more then the operating cycle of last year 2005. In 2005, the operating cycle was 98.50 days (almost 99
days) which now length by 7 days. This is an unfavorable trend to tied up amount of money with the
Leverage (Solvency, Long-Term Debt) Ratios
HEWLETT PACKARD CORPORATION Financial Analysis
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Leverage (Solvency) is the company's ability to meet its long-term obligations as they
become due in future. Solvency analysis concentrated on the long-term financial and operating
structure of the business. Further more the solvency is dependent long-run profitability, unless the
organization is not profitable the organization will not be able to meet its long-term debts.
1. Debt Ratio: = Total Liabilities
Total Assets
= 0.5347 0.5192
The debt ratio compares the total liabilities (total debt) to total assets. It shows the percentage
of total funds obtained from the creditors for business operations.
The Coca-cola Company's debt ratio show that in 2005 the company make improvement in its
debt ratio and reduce it from 0.4913 to 0.4442 . But in 2006, the company slightly improve its debt ratio
from 0.4442 of 2005 to 0.4353 in 2006. This shows that the degree of debt decreased to total assets.
7 Debt Equity Ratio: = Total Liabilities
Total Equity
= 1.15 1.08
The debt equity ratio is the significant measure of solvency ratio. In high debt result, it will
HEWLETT PACKARD CORPORATION Financial Analysis
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less flexibility for company in obtaining more funds in tight money market. High debt equity ratio also
make it difficult fro the company to meet interest charges and principal payments at maturity.
The Coca-cola Company's debt equity ratio show that the company’s debt equity ratio slightly
improved as compared to 2005 & 2004.
Leverage (Solvency, Long-Term Debt) Ratios
3. Interest Coverage Ratio: = Earning Before Interest & Taxes (EBIT)
Interest Expense
= #VALUE! #VALUE!
The interest coverage ratio shows the number of times before tax earnings cover interest
expense. We can say that it is a safety margin indicator that tells how much decline in earnings an orga-
nization can bear/control.
The Coca-cola Company's Interest coverage in 2006 is 30.44 that shows a positive indicator
and show that more earnings are available for interest charges payments as compared to last year 2005.
4. L-T Debt to Equity Ratio: = Long Term Debt
HEWLETT PACKARD CORPORATION Financial Analysis
2006 2005 2006 20054. L-T Debt to Equity Ratio: =
Total Shareholder Equity
= 0.0653 0.0912
The long-term debt to equity ratio is balance between the firms long term debts and its owner
equity.
The Coca-cola Company's long-term debt of equity ratio slightly increase in 2006 at 0.0777
from 0.0706 in 2005. This shows that the company's long-term debts increased over the year while these
were decreased in 2005 as compared to 2004 from 0.0726 to 0.0706.
Profitability Ratios
Profitability ratios reflects the company positions as per their operations and the return
of the organization . What organization's net income or loss after its operations/business activities.
HEWLETT PACKARD CORPORATION Financial Analysis
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1. Gross Profit Margin Ratio: = Gross Profit
Net Sale
= #DIV/0! #DIV/0!
The gross profit margin reveals the percentage of each dollar left over after the business has
paid for its goods. The higher the gross profit earned, the better.
Current year 2006, the Coca-Cola Company's gross profit margin slightly increased to 0.6611
from 0.6453 in 2005. This is a positive result for the company that shows company make effort to reduce
its merchandising/manufacturing cost.
2. Operating Profit Ratio: = Earning Before Interest & Taxes (EBIT)
Net Sale
= #VALUE! #VALUE!
The operating profit margin ratio of the company decreased in current financial year 2006.
As we note that the company's gross profit ratio increased and its operating profit ratio decreased that
show the company has to face some increase in its operating expenses or may be some external factor
due to which the company's operating cost not remain in control.
HEWLETT PACKARD CORPORATION Financial Analysis
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Profitability Ratios ( Con't )
3. Profit Margin Ratio: = Net Profit
Net Sale
= #DIV/0! #DIV/0!
Profit margin ratio indicates the profitability generated from revenue. It is an important ratio of the company that summeries the company's profitability and its operations performance.
In current year of 2006, the company maintain its profit constant at the rate of last year profits. The profit margin ratio results shows that the earning power of the company remained static.
4. Return on Investment: = Net income
Avg. Total Assets
* Avg. Total Asset = 79,649 #VALUE!
= 0.0778 #VALUE!
Return on investment (Or Assets) is the main measure of observing the performance of any business. ROI (ROA) shows extent to which earnings are achieved on the investment made in business.
HEWLETT PACKARD CORPORATION Financial Analysis
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ROI indicates efficiency with which management has used its available resources to generate income.
The Coca-Cola Company's current year return on investment slightly increased from 0.1604
to 0.1711 in 2006. This shows that the company's assets productivity increased over the period.
5. Return on Equity: = Net income
Avg. Shareholders
* Avg. Shareholder = 37,660 #VALUE!
= 0.1646 #VALUE!
Return on Common Equity (ROE) is the measure the rate of retrun earned on the common
Stockholder' investment.
In 2005, the ROE was 0.3018. There has been slightly increase in the return on equity of the
stockholders.
Market Value Ratios
Market value ratio are final group of ratios that relates the firm's stock prices to its
earning (or book value) per share.
Year Mkt. Price O.Standing Net Income
HEWLETT PACKARD CORPORATION Financial Analysis
2006 2005 2006 2005 Year
$ S.holders (Million) $ in Million
2004 41.64 3500 48472005 40.31 3507 48722006 48.25 3511 5080
1. Earning per Share = Net Income - Preferred Dividend
Common Stock Outstanding
= 1.45 1.39
Where as some ratio are declining in 2005 & 2006 but the earning per share of share holder continuously increased over the time period specially time the company make sharp increase in earning
per share.
2. Price Earning Ratio: = Market Price per Share
Earning per Share
= 33.35 29.02
As we noted that earning per share increased, similarly the price earning ratio also increased. In 2005, the PE Ratio was 29.02 that now raise ot 33.35.
3. Book Value Per Share = Total Stockholder's equity - Preferred Stock
Share Outstandings
0.01 0.01
Similarly, as the earning per share & price earning ratio of the company increases, the company shares book value also increased in 2006 from $ 4.66 to now $ 4.82.