Financial Analysis
Oracle sells software for database-management and network products, application-development productivity tools, and end-user applications. Its principal product, the Oracle relational database-management system, runs on supercomputers, mainframes, minicomputers, microcomputers, and personal computers. The firm also offers consulting and systems-integration services. Foreign sales make up about 50% of revenue.
Oracle sees the wisdom in managing business data. Oracle also offers business applications for data warehousing, customer relationship management, and supply chain management. The company made an unsolicited bid to acquire PeopleSoft for about $5.1 billion in June 2003. By early 2004 the offer had increased to $9.4 billion, but was later reduced to $7.7 billion to reflect market conditions. The Department of Justice filed antitrust lawsuits in seven states to block the deal, and started hearings on June 7. Peoplesoft's lawsuit against Oracle is scheduled to go to court November 1 in Alameda, California.
Long-Term Debt Ratio (Long-Term Liabilities/Total Assets)
The long-term debt ratio is a metric used to measure a company's financial risk by determining how much of the company's assets have been financed by debt and is calculated by dividing long-term debt by a company's total assets.
May 04
May 03
May 02
Long-Term Debt
Other Noncurrent Liabilities
Long-Term Liabilities
Total Assets
Long-Term Debt ratio
It would seem that Oracle's Long-Term Debt Ratio is improving, as in May '04 only 3.423% of the total assets was financed by debt, compared to 4.805% in May '02. The financial risk is steadily decreasing, which indicates a good risk management of the company. However, for a complete analysis, one must take into consideration the value of the interest ratio paid to creditors, the amount of dividends paid to shareholders and when the long-term loans are due. One may find that financing the assets based on Long-Term Debt is "cheaper" than doing in based on Shareholders' Equity.
Current Ratio (Current Assets/Current Liabilities)
The Current Ratio compares current assets (cash, inventory, accounts receivable) to current liabilities (obligations due within one year) and is calculated as Current Assets/Current Liabilities
As a variant, one may calculate the Quick or Acid Test ratio which is a current ratio that distinguishes current assets that can be converted quickly into cash (cash, marketable securities) from those that cannot (inventory, accounts receivable). Its values is (Cash + Marketable Securities)/Current Liabilities.
May 04
May 03
May 02
Current Assets
Cash
Net Receivables
Inventories
Other Current Assets
Total Current Assets
Current Liabilities
Accounts Payable
Short-Term Debt
Other Current Liabilities
Total Current Liabilities
Current Ratio
Oracle's Current Ratio is increasing, which indicates that the value of the current assets tends to grow, compared to current liabilities, which increase at a slower pace. That means that Oracle' short-term financial situation is improving. However, the company's management could consider more profitable uses for the current assets, especially for the large amount of cash, which seems to have a slight ascending trend..
Fixed Assets Turnover (Sales/Average Fixed Assets),
Fixed asset turnover is the ratio of sales (on the income statement) to the value of the fixed assets (on your balance sheet). It indicates how well the business is using its fixed assets to generate sales.
Generally speaking, the higher the ratio, the better because a high ratio indicates that the business has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that the company has over-invested in plant, equipment, or other fixed assets.
May 04
May 03
May 02
Revenue (Sales)
Net Fixed Assets
Other Noncurrent Assets
Total Fixed Assets
Average Fixed Assets
Fixed Assets Turnover
1632 6,223
9475/1954,5 4,851
9573/2277 4,203
The Fixed Assets Turnover is significantly higher in May '04 than the one recorded in May '02. Oracle is using its fixed assets in an excellent manner, and while Revenue is growing, the Average Fixed Assets are decreasing, which means that the company gains more from less fixed assets, which is remarkable, because Fixed Assets tend to grow each time a company has positive results. Oracle' CFO seems to have chosen a differnent strategy than most financial officers do when confronted with increasing Revenue.
Total Asset Turnover (sales/average total assets)
The total asset turnover is the ratio of total sales (on the income statement) to total assets (on the balance sheet) and indicates how well a business is using all its assets (rather than just inventories...
In computing the ratio, one might compute total assets by averaging the total assets at the beginning and end of the accounting period.
May 04
May 03
May 02
Revenue (Sales)
Total Current Assets
Net Fixed Assets
Other Noncurrent Assets
Total Fixed Assets
Total Assets
Average Total Assets
Total Asset Turnover
11913,5 0,85
9475/10032 0,94
9673/9050,5 1,07
The Total Asset Turnover is decreasing, which is not a good sign, considering that the company is not using its total assets as it should, or at least as it did in 2002. Although Fixed Assets Turnover has increased, it would seem that Current Assets are not used properly and do not generate high enough Revenue. The management team at Oracle should have in mind a different strategy for the allocation of the assets, especially of the current assets.
Return On Equity (net income - preferred stock dividend/average stockholders equity).
Return On Equity (ROE) is a measure of how well a company used reinvested earnings to generate additional earnings, equal to a fiscal year's after-tax income (after preferred stock dividends but before common stock dividends) divided by book value, expressed as a percentage. It is used as a general indication of the company's efficiency; in other words, how much profit it is able to generate given the resources provided by its stockholders. Investors usually look for companies with returns on equity that are high and growing. Return On Equity (ROE) is an accounting valuation method similar to Return on Investment (ROI). Because the numerator (Net Income) is an unreliable corporate performance measurement, the outcome of the formula for ROE must also be unreliable to determine success or corporate value. However the formula keeps showing up in many annual reports still.
According to an excellent site on management and financial ratios, the degree to which Return On Equity (ROE) overstates the economic value depends on at least 5 factors:
1. length of project life (the longer, the bigger the overstatement)
2. capitalization policy (the smaller the fraction of total investment capitalized in the books, the greater will be the overstatement)
3. The rate at which depreciation is taken on the books (depreciation rates faster than straight-line basis will result in a higher ROE)
4. The lag between investment outlays and the recoupment of these outlays from cash inflows (the greater the time lag, the greater the degree of overstatement)
5. The growth rate of new investment (faster growing companies will have lower Return On Equity)"
On top of this, ROE is sensitive to leverage: assuming that proceeds from debt financing can be invested at a return greater than the borrowing rate, ROE will increase with greater amounts of leverage.
May 04
May 03
May 02
Total Net Income
Shareholders' Equity
Preferred Stock Equity
Common Stock Equity
Total Equity
Average Stockholders Equity
Total Asset Turnover
2681/7157,5 37%
2307/6218,5 37%
2224/5279,5 42%
Oracle's ROE is steadily going down. This means that the company hasn't done such a good job reinvesting its earnings, and that the earnings based on resources provided by its stockholders are slowly decreasing. The financial manager might want to reconsider the way stockholders' equity is invested, because, otherwise, it shall be more difficult to attract investments. However, one should consider the reasons (mentioned above) for which ROE does not exactly reflect the financial situation of a company.
Conclusion
Ratios
Valuation Ratios
Company
Industry
Sector
S&P 500
P/E Ratio (TTM)
Price to Sales (TTM)
Growth Rates (%)
Company
Industry
Sector
S&P 500
Sales - 5 Yr. Growth Rate
Financial Strength
Company
Industry
Sector
S&P 500
Quick Ratio (MRQ)
Current Ratio (MRQ)
Profitability Ratios (%)
Company
Industry
Sector
S&P 500
Gross Margin (TTM)
Gross Margin - 5 Yr. Avg.
Management Effectiveness (%)
Company
Industry
Sector
S&P 500
Return On Equity (TTM)
Oracle seems to be in a good position by their valuation ratios; their high P/E ratio is nearly double the industry average. However, an investor should notice extremely lower rates for Oracle's growth compared to the industry and it's sector. This could be due to a mixture of economic and envirnmental factors…
Bibliography
1. http://www.hoovers.com/oracle/--ID__14337 -- /free-co-fin-annual.xhtml http://www.chromesplash.com/jcallinan.com/oracle/financial_ratios.htm
http://www.valuebasedmanagement.net/methods_roe.html
4. Van Horn, J Financial Management and Policy, 11th ed., Prentice Hall, New Jersey, 1998
See on the Internet at http://www.valuebasedmanagement.net/methods_roe.html
For all of these strengths however it is well-known that Oracle databases are high maintenance and often require one full time system administrator to keep them optimized. This is necessary for keeping the audit tools up-to-date and functioning, and also supporting patching of the database when updates arrive. Second, Oracle's pricing and maintenance policies are often considered exceptionally high for the market and are often questioned by customers (Evans, 10). Recommendations
Software Testing Strategy Computers and their applications have brought about waves of changes in various areas of science and technology. It is also gaining widespread prominence in the field of business and management. So the requirement of a quality oriented technological implementation, having a range of usage is the order of the day. The few gazillion dollars worth software industry is constantly evolving with the needs of people and organizations across
The vision Oracle has is one of unifying all of their enterprise applications into their Fusion architecture and creating a single unifying Service oriented Architecture (SOA) was first announced in 2006 (Krill, 13). Since that time Oracle has continually strived to create an SOA in Fusion that would appeal to its corporate customers. The proposed Fusion SOA platform has been designed to be robust and scalable enough to encompass enterprise-level
Further, Oracle also has templates and process definitions for the electronics components market as well. Lastly the financial modules with Oracle can also be used for local government reporting in addition to SOX compliance. For the small business of $2M their needs are drastically different than the $100M distributor that has offices across multiple geographies. The $2M company for purposes of this example is a manufacturer of air conditioning spare
The reality is however that legacy systems pose the greatest potential risk to any enterprise, as these platforms are anachronistic in terms of security support, lack many common safeguards, and don't have the necessary Application Programmer Interfaces (APIs) to scale globally as a secured platform (Gupta, Roth, 2007). Legacy systems were designed in an era where single authentication for an entire enterprise system was sufficient enough, and the concept
SAP'S EXTERNAL FINANCIAL REPORTING SAP External Financial Reporting SAP's external financial reporting History of SAP SAP has a proud 40-year history that is founded on their mantra of innovation. Their success has come from their innovative culture. The company was founded in 1972 when five like-minded former IBM employees came together and created a company with the vision of providing clients with technological innovations. The company was called Systemanalyse und Programmentwicklung (SAP) which was