Free Financial Analysis Essay Sample
Income statement normally gives a summary of how the particular business generates its revenues and pay expenses for period of a given time through both operating and non-operating activities. It also shows either the net profit accrued or loss. A close scrutiny as pertains to Aastra, it appears as though the company is doing very well. However, one will get assured of it by focusing on the specific categories within the income statement such as sales.
The term sales in this given case is used to refer the total amount of money this given company has earned in a given period of time through the successive running of the business. For Aastra, the sales in year 2009 were $832.897 million compared to $832.1 million for the year 2008 and then there was a slight increase in the year 2009.
The results as pertains to the year 2009 in inclusive of the sales acquired from Ericsson for the entire 12 months, while the 2008 results include only eight months since the acquisition time which was on April 30, 2008. Also, the Company's reporting currency is the Canadian dollar so foreign exchange rates between the Canadian dollar and global currencies have positively affected the Company's reported operating results.
The second important category in the income statement is the gross margin which represents the total percentage of the total sales revenue that the company retains after incurring the direct costs associated with producing the goods and services sold by the company. In Aastra Company the Gross margin increased from 44.9% of sales in 2008 to 45.9% of sales in 2009. This given kind of an increase was due to the fact that the Company was able to benefit from a favorable mix of products sales and continue their efforts to produce more units that have higher margin software solutions in their system sales.
The third part is the expense section, which happens to be the opposite of revenues Expenses, usually refers to the costs that a business incurs through its operations to earn revenue. In order to maximize profits, businesses must attempt to reduce expenses without making an attempt to make a gain through evasion of revenues. In Aastra, expenses are usually broken out into several categories such as selling, general and administrative Research and development, Depreciation and Amortization, Interest expense and Foreign exchange loss.
It is also notable that the most positive and effective categories in expense for Aastra in the year 2009 were the Depreciation and Amortization expense together with the Interest expense and goodwill. Depreciation and amortization expense decreased from $26.4 million in 2008 to $23.0 million in 2009. This was owing to intangible assets becoming completely amortized at the end of 2008. The interest expense was $1.2 million in 2009 compared to $2.4 million in 2008 and a significant decrease of 41% which is lead to the repayment of three loans in 2009.
This shows the level of cash liquidity at hand and in the rest of the world their coverage ratio is actually above the industry average. In goodwill section, the goodwill was over stated, meaning that 9 million had to be written off in 2009.For all the positive effectives in the expensive section, the Net earnings increased from $11.5 million in 2008 or 1.3% of sales to $44.6 million or 5.4% of sales in 2009 including the tax and non-operation income which was $ 2.836 million as investment income.
Balance sheet analysis
The Balance Sheet is a report of the asset and liability accounts. Assets are things that belong to the company like cash, capital, and account. Liabilities are obligations of the business, like bills one has to pay, money one has borrowed from a bank or investors. The assets normally contain the current assets and long-term assets, current liability and long-term liability.
The current assets represent the value of all assets that are reasonably expected to be converted into cash within one year. In Aastra's current assets, it will be quite relevant to point out the significant change achieved during year 2009 comparing to the year 2008. The top line, cash and cash equivalents proves to be the single most important item on the balance sheet. Cash is the fuel of a business in that without cash, one cannot run the business.
Aastra's Cash and cash equivalents include highly liquid investments with original maturity dates of less than 90 days which was equal to $113.5 million in 2009 comparing to $97.6 million in the year 2008 owing to the positive increase in cash flow activates in 2009. Accounts receivable is Money owed by customers. In other words it is means the company has made a sale but is yet to collect the money from the customers. Every company has a different period of time to collect the account depending on how much efficiency the collection agency has. Aastra's accounts receivables decrease by 25% and it is assumed that that could be the efficiency of their collection while they have somewhat a similar sales for the both years.
Other important categories in current assets inventory are the raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. In Aastra, the inventory in 2009 decreased by 25% comparing to 2008 and that meant that the inventory turnover in days which also refers to the number of times a company's inventory is sold and replaced over a period, was lower than in 2008 and that was a good singe for the company's health.
One of the considerable aspects in order to know the way the company is able to achieve any of its obligations is to check the working capita which is equal to current assets - current liabilities. In Aastra, working capital in 2009 was $184 million and that means the company can cover its obligations easily at the same time if need be.
Long-term asset analysis
Long-term asset refers to the assest that cannot be turned into cash easily in less than one year. The most important long-term assets in Aastra are property, plant and equipment, net investment in leases and intangible assets. Each of them has some changes. First, property, plant and equipment which is tooling, Computer hardware, Equipment Furniture, vehicles, buildings and leasehold improvements and they lose their net book value in different amounts as a result of the decrease in accumulated depreciation in straight- line method. The total amount of book value decrease was 11% in 2009 comparing to 2008 and it seems to be fair.
Next important category is the net investment in leases, which increased by 46% and it is indict that they have a high liquidity for a long term and they find a high return rate to invest. The last category has an effect on the long term's asset intangible assets namely Patents Customer relationships, Trade name license, Non-compete agreement, Computer software and Order backlog Licensed technology. This is because of the depreciation as a large amount of their book value is lost. The decrease was by %28 in 2009 comparing to 2008.
Current and long liability analysis
Current liability means the company's debts or obligations that are due within one year. In Aastra, it is well seen as pertains to a significant decrease with a record of 32% in current liability 2009 and that being due to the cut in borrowing for the particular current period. For the total long term liability, an attempt is being made to decrease the debt they owe by 54% it can be indicated that they depend on returned earning and issuing new stock rather than having a debt to reduce the borrowings cost for the long time.
Retained earnings analysis
It is retained by the company to be reinvested in its core business or to pay debt. Aastra had $34 million for year 2009 as retained earnings which reflects the net income performance Increase of 20% comparing to 2008.
Statement of Cash flows analysis
The statement of cash flows is a measure how cash flowed into and out of the company for period of time. Cash inflows usually arise from one of these three activities, financing, operations and investing. Also, it is important to note that the statement of a business's cash flows is often used to gauge financial performance. If the company has cash on hand it is able to invest the cash back into the business in order to generate more cash and profit.
In Aastra, the indirect cash follow method is usually followed. The first activity is the cash that comes from operating cash and it was generated through running its business in 2009. The net operation cash flows was $68,123 million and $26,848 million in 2008 and it was increase of $26,779, that being due to the increase in net income. It is apparent that this has a direct impact to operation cash flows.
The other activity following the operation cash flows is the financing cash flows activity and it is kind of financing for the company to support their business from outside resources such as a loans or stocks. In Aastr there is a slight difference in financing cash outflows which refers to the dividends distributed in 2009 while in 2008 they never gave dividends. The last activity in cash flow statement is the investing cash flows which is the change in a company's cash position as a result of any increase or decrease from capital investments such as plant and equipment. In Aastra, the total cash outflows from investment activity went down from $ 91,705 million in 2008 to 13,508 million in 2009, the major change in 2008 being the Ericsson's acquisition. Lastly, cash and cash equivalents by the end of year was $113,596 million and in the perspective, that showing the extent into which the cash base is strong in Aastra.