I need a financial analysis of another company and following this format of the file attached.

Financial Analysis of HP Company Page 2 of 13 Huong Nguyen Financial Report of HP Company Place of Employment 1. CWP Consulting 2. Address of the company : 1505 22nd Street, NW Washington, DC 20037 3. Date of Employment: 09/08/2014 Purpose of Report: to satisfy the requirements for internship. Date of Report: 11/20/2014 Academic Supervisor's Name: Tina Latimer Page 3 of 13 Table of Contents Executive......................................................................................................3 Introduction...................................................................................................3 HP Strategies...................................................................................................4 Objectives......................................................................................................4 Financial Ratio Analysis.....................................................................................9 1) Analyzing Liquidity.................................................................................5 2) Analyzing Debt......................................................................................6 3) Analyzing Profitability.............................................................................6 4) Analyzing Efficiency................................................................................7 5) Analyzing Value.....................................................................................8 Nature of Problem............................................................................................9 Solutions Suggestions.......................................................................................9 Recommendation............................................................................................10 Conclusions..................................................................................................10 References....................................................................................................11 Page 4 of 13 Executive This financial analysis report examines Hewlett Packard (HP) in order to evaluate company performance and financial health. Overall company strategies were reviewed and considered along with the financial analysis to come to a conclusion for recommendation of investment. The reports introduction gives an overview to the computer/technology industry and expands on the strategies executed by HP. The financial analysis covers the company's common-size income statements and balance sheets, comparative income statements and balance sheets, and various financial statement ratios such as liquidity, debt, profitability, efficiency, value from year 2006 to year 2010. HP is a well-known company competing in an ever evolving and expanding industry. The industry is in every segment from personal to educational to professional. HP is a more mature company having been founded in 1939. While the company offers both products and services, HP has a slightly diverse portfolio and is a bit more brand recognized as a trusted and quality company. From years 2006-2010, HP had strong growth in their sales and net profit. Through this time span, HP secured a good liquidity risk for its shareholders. The marginal operating performance on average for HP was strong. HP strategies work to entice investors as the company is doing well in the market. HP higher sales revenue and dividends paid out along with a strong and reputable brand name make it an attractive investment. Introduction The computer/technology industry has many key players with two of the major competitors being Dell and HP. The computer industry has come a long way since its first inception with the Page 5 of 13 invention of Electronic Numerical Integrator and Computer in 1946. This industry is comprised of many items such as computers, monitors, printers, scanners, mainframes, servers, electronic computer components, networking and workstations to name a few. The industry started a major growth phase in the 1980's with the production of the personal computer and has grown ever since with many new products introduced. Innovations within this industry have had positive rippling effects to outside industries, from manufacturing to banking. While the United States market is fairly saturated and mature, the computer/technology industry is very much in the growth phase on a global basis. The drivers behind this growth are both innovations in technology and especially increased consumer spending in Asia and Africa. The international value of this industry is expected to grow and surpass $620 billion in 2011, roughly a 27% increase from 2006. Dell and HP possess major market share within the computer/technology industry due to brand name loyalty, advanced supply chain management techniques and producing innovating products for an affordable price. Strategy HP operates in a competitive environment to gain market share at segmented price intervals. The firm has increased marketing efforts to enhance their brand recognition and strived to reduce cost through improved supply chain management and technology innovation. Also, the company has room for growth, especially as they enter the portable tablet market. It will also be interesting to see how HP fairs in the cell phone market with its recent acquisition of the company Palm. Objectives The primary objectives for this financial analyst report are within the computer/technology industry. Suggestions for company improvement as well as recommendations for investment will Page 6 of 13 be discussed. The company's performance will cover the years spanning from 2006 through 2010, with analysis of each company's common-size income statement, common-size balance sheet, comparative income statement, comparative balance sheet and financial statement ratios. Financial Ratio Analysis 1) Analyzing Liquidity: Current Ratio and Acid Test Ratio Average current ratio for Dell was 1.19 and the acid test ratio was 1.14. These averages are better in comparison to HP's current ratio of 1.17 and acid test ratio of 1.00, which tells that Dell has more current assets to cover its short term liabilities and makes Dell a safer and more financially strong company. HP had a risky year in 2008 when its current ratio fell below 1.00, ending at 0.98, but shouldn't be focused on too much considering that their net revenue in sales averages 7.96% growth rate and is averaging a 39.33% net income growth rate. Collection Period Dell's ability to collect customers payments on accounts receivable is stronger than HP's, with Dell taking 32.04 days on average compared to HP's 49.74 days. While both companies collection period was longer than the normal business benchmark of 30 days, Dell was much more successful in collection from its customers and thus reduced the liability for risky accounts receivable. The shorter period for collection also enables Dell Page 7 of 13 to pay for its inventory and not have to expose them to greater amounts of short term debt through increased working capital financing. Days to Sell Inventory Dell inventory holding period was much shorter than HP, with Dell having days to sell inventory ratio of 6.70 on average and HP having an average ratio of 32.02. Dell operates in slightly leaner production manner than HP and is able to quickly move inventory through its distribution networks. The quicker a company is able to sell its inventories, the quicker the clock begins to receive payment to be able to pay back money owed on inventories acquired and sold, and not have to increase your working capital financing. 2) Analyzing Debt: Debts to Equity Ratios Dell's five year average of total debt to equity was 5.23, compared to HP lower average ratio of 1.65. This shows that Dell had more debt (creditors) financing than equity (shareholders) financing. Long term debt for to equity on average for Dell was 0.29 and HP was 0.22. While many feel that debt from creditors is more harmful because of the interest paid on the principle borrowed, the advantage here is that once the creditor is paid back, they are gone and off the payroll. Whereas equity financing involves more shareholders owning parts of the company, which reduces the dividend payout per shareholder as well as waters down earnings per share. Dells approach to being more heavily financed through debt than equity may be in an attempt to keep earnings per share at an increased level. Page 8 of 13 3) Analyzing Profitability: Return on Assets and Return on Common Equity An important ratio is the return on assets ratio for its ability to measure earnings per dollar from its assets. The five year average for return on assets of Dell was 13.06% while HP's was 9.07%. This higher percentage for Dell reflects a more efficient use of its assets and higher earnings from products sold per company asset. Both companies have strong return on assets that goes to show the loyal base of customers each brand name of the two companies has. Return on common equity is another important profitability ratio. This ratio measures the earnings success of its capital investments through common shareholders. The return on equity for Dell averaged 81.46% while HP averaged 23.91. An observation of this profitability measure shows that Dell is possibly much more attractive for potential investors for its ability to effectively manage and use funds generated through shareholders' equity. Profit Margin Ratios Dell's gross profit margin average of 17.77% was lower than HP's average of 24.04% HP controls a larger portion of the computer market as represented through this ratio. Dell also posted lower operating profit margins and pretax profit margin compared to HP. Dell's higher selling, general and administrative expenses are cause for lower operating and pretax profit margins, partly due to new retail and certain global distribution relationships. As expected from the precursors above, net income was also lower for Dell when compared to HP. Dell needs to encroach more forcefully into HP's large market share to positively influence its sales. Operating expense components should be Page 9 of 13 addressed as well to find cost savings measures to increase operation income in order to ultimately increase its net income. 4) Analyzing Efficiency: Cash Turnover The measure of how efficient a company utilizes its cash and cash equivalents to create sales revenue is depicted with the cash turnover ratio. In respect to this ratio, Dell averaged 5.60, while HP averaged 7.09. This showed that HP used its cash and cash equivalents more efficiently to build revenue. On the other hand, it shows that HP used its cash and cash equivalents while Dell refrained from using its cash and cash equivalents, as evident in the common size analysis, showing that Dell retained on average 31.77% of cash and cash equivalents to assets while HP averaged 12.41%. Inventory Turnover Inventory turnover represents how fast companies turn their inventories into sales revenue. Dell had a much slower inventory turnover on average, 58.38, than HP's 11.86. Over the past five years more companies have became better at the Dell model of sales direct to customers which has overall effected Dell's sales as evident in the comparative analysis showing on average Dell grew sales by 1.86% while HP grew at 7.96%. Also, HP has become more efficient in their inventory distribution cycle and the amount of inventories held in relation to total assets, dropping from 9.45% in 2006 to 5.19 by 2010. Dell's turnover ratio was directly affected by its increase in inventory to total assets growing from 2.53% in 2006 to 3.12 % by 2010. The increase in Dell's inventories to Page 10 of 13 total assets percentage coupled with declining sales growth over the past five years was a cause for their much higher inventory turnover rate. Total Assets Turnover Total assets turnover measures how efficiently a company utilizes total assets to create sales revenue. On average, Dell's ability to generate more profit from its assets was double that of HP, being 2.15 to 1.07 respectively. This shows that for overall assets held, Dell had a better record of generating sales 5) Analyzing Value: Price to Earnings Ratio and Earnings Yield The price to earnings for Dell on average was 16.35, lower than HP's 18.52. From this statistical ratio, HP is able to show that its investors have higher expectations of their company performance by being committed to paying a higher price per share to own HP stock over the past five year time span. However, with Dell showing better results when it came to liquidation and return on investment, they are able to portray to potential investors that they are the better buy at a lower price per share when compared to HP. Earnings yield represents the amount of earnings generated for every dollar invested. Here, Dell has a better showing on average with 7.02% compared to HP's 6.25%. This ratio can be another point of persuasion that Dell is the better buy for it being properly priced when talking of earnings yield over the years 2006 to 2010. Nature of Problem Page 11 of 13 HP's current ratio was 1.10 at the end of 2010, 1.22 at the end of 2009 and as low as 0.98 in 2008. This remains below the industry average of 1.56 and 1.47 respectively. This indicates that the company could be in a weaker financial position than other companies in the industry. Solutions Suggestions HP's area of improvement is with its collection period. Currently, the collection period is too long and is causing HP to use its working capital funds to pay for its inventories sold that they have yet to collect payment on. The days to sell inventory should be addressed as well, either reduce inventory produced are enhance buyer incentives for HP products even further than current level to move the products more quickly off the shelves Recommendation HP owns a larger market share than Dell due to enhanced product and services diversification. With HP's larger brand name and recent acquisitions over the last several years makes them an interesting investment. Their price per share is believed to be undervalued and a good buy for such a prominent company, and their expanding market exposure into the tablet and possibly cell phone industry could increase their market share even more. There is also the dividend factor with HP stock, which creates a built in incentive for potential investors. Currently Dell does not participate in distributing dividends to its shareholders. HP has had substantial gains in the market through Page 12 of 13 diversification of sales and services offered. Also, HP appears to have a better management of their operating expenses, which allows for them to post better net incomes. Conclusion Companies' are strong and healthy investments for potential investors. After reviewing their company strategies and recent year's financial statements and ratios, it is believed that HP would be a better investment with its larger diversification, brand name, lower operating expenses, larger net incomes, higher sales volumes and better growth potential in the long run. References Investopedia (n.d.). Retrieved from http:// www.investopedia.com Yahoo! Finance (n.d.). Retrieved from http://finance.yahoo.com Yahoo! industry center (n.d.). Retrieved from http://biz.yahoo.com/ic Google Finance (n.d.). Retrieved from http://www.google.com/finance Hewlett-Packard Company and Subsidiaries. (Jan 2010). Form 10-K. Hewlett-Packard Company and Subsidiaries. (Jan 2009). Form 10-K. Hewlett-Packard Company and Subsidiaries. (Jan 2008). Form 10-K. Hewlett-Packard Company and Subsidiaries. (Jan 2007). Form 10-K. Hewlett-Packard Company and Subsidiaries. (Jan 2006). Form 10-K. Page 13 of 13