week 6 assignment
Running head: INTUIT, INC.
Financial Analysis of Intuit, Inc.
Student’s Name
Professor’s Name
Course Title
Date
Company Overview
Intuit, Inc. is a United States based Software Company and belongs to computer software industry. The company was founded by Scott Cook and Tom Proulx in 1983. The company develops financial and tax preparation software for small businesses, accountants and individuals. The company is well known for its business accounting program QuickBooks and personal finance programs Turbo Tax and Quicken. The company is headquartered at Mountain View, California, US. Bill Campbell is the chairman and Brad Smith is the President and CEO of the company. Ticker symbol of the company is INTU and the website of the company is www.intuit.com.
Analysis of Ratios
Profit Margin Ratio
It is a profitability ratio. It calculates the net income earned in relation to each dollar of sales generated. It calculates the percentage of sales left after paying all the business expenses. To calculate profit margin ratio net income is divided by total revenue of the period. The net profit margin measures profitability after consideration of all revenue and expense, including interest, taxes, and non-operating items (Fraser & Ormiston, 2004). The numbers for both net income and total revenue are extracted from the consolidated statements of operations.
|
Profit Margin |
Formula & Calculation |
2015 |
2014 |
|
|
Net income/Total net revenue |
8.71% |
20.10% |
|
|
Net income |
$365 |
$853 |
|
|
Total net revenue |
$4,192 |
$4,243 |
The ratio of the company stood at 20.10% for the year 2014 but it declined to 8.71% during the year 2015. The primary reason for decrease in the ratio was decline in the sales of the company and increase in the cost and expenses. The sales for the year 2015 declined by $51 million whereas the cost and expenses increased by $511 million. The ratio is important for investors and creditors as they use it to measure the effectiveness of the company to convert its sales into income. The consolidated statements of operations is on page no. 50 of annual report for the year 2015 and page no. 51 for the year 2014.
Return on Shareholder’s Equity (ROE)
It is a profitability ratio that is used to measure the ability of the company to generate profit from the investments of its shareholders. It shows the profit that is generated by each dollar of shareholder’s equity. To calculate the ratio the net income of the period is divided by average shareholder’s equity. Average shareholder’s equity is determined by adding the ending shareholder’s equity of current year and previous and then dividing it by two. The numbers of net income are extracted from statement of operations whereas those of shareholder’s equity are extracted from the Consolidated Balance sheets.
|
Return on Shareholder's Equity (ROE) |
Formula & Calculation |
2015 |
2014 |
|
|
Net income/ Average shareholder's equity |
0.13 |
0.27 |
|
|
Net income |
$365 |
$907 |
|
|
Average shareholder's equity |
(2332+3078)/2 |
(3078+3531)/2 |
|
|
|
$2,705 |
$3,305 |
The ROE of the company stood at 0.27 for the year 2014, but due to sharp decline in the net income of the company the ROE of the company reduced to 0.13 in the year 2015. It shows less efficient utilization of the shareholder’s equity during the year 2015. The consolidated balance sheets are on the page no. 52 and 53 of the annual report for the year 2015 and 2014 respectively whereas the statements of operations are on page no 50 and 51.
Current Ratio
It is a liquidity ratio and measures the ability of the company to pay off its short term obligations with its current assets. It is helpful for the investors and creditors to understand the liquidity position of the company and to find out that how easily the company will be able to pay off its current liabilities. To calculate current ratio, current assets are divided by current liabilities. A current ratio of 2 is considered as ideal. It means that ideally a company should possess double current assets than its current liabilities. Fraser & Ormiston, 2004 gave the opinion that “the available cash resources to satisfy these obligations must come primarily from cash or the conversion to cash of other current assets. The numbers of current assets and current liabilities are extracted from consolidated balance sheets.”
|
Current Ratio |
Formula & Calculation |
2015 |
2014 |
|
|
Current assets/Current liabilities |
1.47 |
1.84 |
|
|
Current assets |
$2,560 |
$2,621 |
|
|
Current liabilities |
$1,744 |
$1,421 |
The ratio of the company stood at 1.84 and 1.47 for the year 2014 and 2015 respectively. It indicates that the efficiency of the company has declined during the year 2015. The primary reason for the decline in the ratio is that the investments of the company have decreased by $176 million due to which the current assets have decreased. The consolidated balance sheets are on the page no. 52 and 53 of the annual report for the year 2015 and 2014 respectively.
Interest Coverage Ratio
It is a financial ratio and helps to find out the ability of the company in making payments of interest on its debts as they arise. It shows the efficiency of the company to afford interest on the debts. It is helpful for investors and creditors to find out the risk and profitability of the company. Brigham & Houston, (2009) opined that the interest coverage ratio measures the extent to which operating income can decline before the firm is unable to meet its annual interest costs. To calculate the ratio the earnings before earnings and taxes are divided by interest expenses. Both the numbers can be located from the consolidated statements of operations.
|
Interest Coverage Ratio |
Formula & Calculation |
2015 |
2014 |
|
|
Earnings before earnings and taxes/ Interest expenses |
27.33 |
42.39 |
|
|
Earnings before earnings and taxes |
$738 |
$1,314 |
|
|
Interest expenses |
$27 |
$31 |
The interest coverage ratio of the company stood at 27.33and 42.39 for the year 2015 and 2014 respectively. The ratio decreased during the year 2015 because the earnings before interest and taxes decreased by $576 million or 43.84%.
Most Important Ratio as Potential Vendor
If I had been an accountant to the potential vendor then the most important ratio for me would had been the current ratio because dues of my company would had been accounts payable for the Intuit, Inc., which are a part of current liabilities, and this ratio indicates the ability of the company in paying its current liabilities. The second ratio of my interest would have been profit margin ratio.
Most Important Ratio as Potential Investor
If I had been an accountant to potential investor then the most important ratio for me would have been the profit margin ratio as it measures the profitability of the company and the price of the shares as well as cash dividends highly depend on the net income of the company. As an investor the other ratio that should be considered are earnings per share, dividend payout, gross profit ratio and price to earnings.
Opinion
In my opinion all the four ratios are showing decrease during the year 2015. The quick ratio is below ideal, profit margin has decreased more than 50%, return on shareholder’s equity has declined as well as interest coverage ratio has also declined. It shows that the company is underperforming. It is not the right time to invest in the stock of the company. The financial position of the company can tumble in near future.
References
Frase, L., & Ormiston, A. (2004). Understanding Financial Statements. New Jersey: Pearson
Prentice Hall.
Brigham, E., & Houston, J. (2009). Fundamentals of Financial Management. Mason:
Cengage Learning.
http://investors.intuit.com/financial-information/annual-reports/default.aspx
http://s1.q4cdn.com/018592547/files/Intuit-FY14-Form-10-K-FINAL-CLEAN-to-RRD-pdf.pdf