Finance

Xerox is a leading international company in technology . It has a well-known brand. In This report we will investigate the Financial performance strategy of Xerox in comparison with 

HP Company, by using the fundamental analysis that involves delving into the financial statements. Which we will be looking at revenue, expenses, assets,liabilities and all the other financial aspects of a company. and predicting for company's future performance. Over the 

years Xerox has successfully been able to innovate new technologies . Its continued success and financial strength of this company has enabled strategic diversification into the external marketplace, which is a substantial area for future growth.

1

Table of Contents

Inner cover page………………………………………………………………….……….

Abstract ……………………………………………………………………………..…….

Table of content…………………………………………………………………………...

Chapter one : Introduction……………………………………………………………...

 Background…………………………………………………………………………… .....

 General Objective……………………………………………………………...…….

 Specific objective……………………………………………………………………

 Project question……………………………………………………………………...

 Company Profile…………………………………………………………………………..

 Background……………………………………………………………………...…..

 Vision………………………………………………………………………………..

 Mission………………………………………………………………………...….…

 Services……………………………………………………………………..…….…

Chapter Two Methodology………………………………………………………………..

 Research design ……………………………………………………………….…...

 Fundamental analysis………………………………………………………….......

 Data Collection ……………………………………………………………………

 Limitations of the study……………………………………………………….……

Chapter Three Data Analysis & Findings………………………………………….……

Financial Ratios………………………………………………………………….………

 Liquidity Ratios…………………………………………………………….………

 Long-Term Solvency Ratio………………………………………………….……..

 Turnover Ratios…………………………………………………………….………

 Profitability Ratios………………………………………………………….……...

 Market Value Ratios…………………………………………………….………….

Chapter four Conclusion& Recommendations …………………………………………

 Liquidity Ratios……………………………………………………………………

 Long-Term Solvency Ratio………………………………………………………...

 Turnover Ratios…………………………………………………………………….

 Profitability Ratios………………………………………………………………….

 Market Value Ratios………………………………………………………………..

Estimations……………………………………...…………………………………

Conclusion…………………………………………………………………………

Recommendations…………………………………………………………………

References……………………...………………...……………………..………………….

Appendixes…………………………………………………………………………………

Chapter 1

Introduction

General Objective:

The aim of the study is to measure the financial position of the company for a period of

five years and its position in the world market through investigating its performance and the best level to reach.

Specific objective:

The study well help us to determine the specific objective:

 To evaluate the liquidity ratios of the corporation and its ability to meet its short-

term obligation.

To evaluate the financial leverage ratios of the corporation with the provide information on a degree of the firm`s fixed financing obligations and its ability to satisfy those obligations.

 To evaluate the assets managements ratios of the corporation and its ability to

manage resource efficiently.

 To evaluate the profitability ratios of the corporation on the amount of income

from each dollar of sales.

 To evaluate the market value ratios of the corporation that would descried the

financial condition in terms of amounts per share of stock.

Project questions:

Is Xerox making a profit and surviving ,and where the company is in its life

cycle ( high growth, development , maturing or decaling ) ?

Is Xerox able to repay its debts?

Company Profile

"Xerox has world renowned capabilities, industry-leading technology and knowhow, and a talented, high-performing team dedicated to delivering exceptional service to our customers and partners." – Jeff Jacobson, CEO

Background

Chapter 2

Methodology

Research design:

The primary purpose of the research is to examine the financial position of the

corporation so it’s important to gather and analysis a useful date. So will use quantitative

data such as balance sheet, Income Statements and Ratio analysis that were collected

from the company website and other specialized websites. To measure Xerox financial 

performance for a period of five years. We used the (Fundamental analysis ) which  identifies the strengths andweaknesses of the company to establish the relationship between

the items of the balance sheet and the income statement process. It also helps in the short-term and long-term forecasting and growth that can be identified with the help of financial 

performance. The analysis is the process of evaluation of the relationship between the components of

the financial statements in order to gain a better understanding of the situation and the

performance of the company. This analysis can be done by the management of the

company or by third parties, that is, owners, creditors and investors.

Financial Analysis

Evaluating or Estimating the financial performance of a company

How to evaluate or estimate the company's financial performance of the company?

After understanding the financial statement items, it is necessary to use them. It is very important to know the difference between the net profit of a company and another. However, is it possible to say that the company that has higher net profit is better than the other which has lower net profit? Are they both profitable? Are they both successful?

In fact, both companies in the example have considerable net profit but the major question is not still answered. It is probable that we do not know the value of investment in both of them to compare. We do not also know their profit of the previous years? Does their profit increase? We do not also get the profit of similar companies to compare to our company.

This leads us to study the financial ratios because they are very important and useful for estimating the company's financial position.

Financial Ratios

If a business A achieved $ 10 million sales and $ 250 net profit. The next year the sales reached $ 20 million and $1.2 million net profit, how do we estimate its financial performance?

In fact, the company achieved higher sales and net profit but the net profit doesn’t match the increase in sales as there is higher cost. It is the same case when the current liabilities are doubled and the current assets increased 10%. It is also the same when the profit increases two times while the fixed assets increase four times.

The financial analysts have created other financial indicators to correlate the most important ratios.

Profitability Ratios

A. Gross Profit Margin

It is the gross profit divided by net sales. The more it increases compared to the competitors of the same industry, the more efficient the processes are. That is because the sales costs compared to the net sales are less than the competitors.

For example, a company makes school bags sold 100 items at the end of the year. Each item was sold at $5 but its cost was $4. This means that:

Net sales = $500

Sales cost = $ 400

Gross profit = $ 100

Gross Profit Margin = 20%

If your competitor's Gross Profit Margin is 25%, it means the competitor is able to increase the difference between the cost of the item and its price. Therefore, the competitor is able to decrease the cost of the item.

B- Net Profit Margin

It is the Net profit divided by the Net Sales. This ratio shows the company's ability to achieve profit as a result of sales. It is noteworthy that the profit margin may become high but the net profit is low as the sales cost does not include the additional costs of marketing, administrative expenses and loan interest. In this case, this is an indicator of the basic processes success but it is also an indicator of the company's failure in other sides. That is to say, there are additional expenses that are not related to the basic costs of the item. For instance, if your company achieved net profit margin 10% last year while the competitor achieved 8%, but his additional expenses were higher than yours. It is due to his high marketing, administrative expenses, and higher loan interest.

C- Return On Equity (ROE)

It is the net profit divided by average equity. Equity differs throughout the years. So it is necessary to use the average equity which is 0.5. The average equity at the beginning of the year is added to the average equity at the end of the year. However, some analysts use the previous mentioned equation but others use the average equity at the end of the year which can be used in other ratios.

It is a good indicator as it shows the return on investment which is the return on equity. The less this ratio is, the worse the company's performance is.

Here is a good example that can demonstrate this ratio as a considerable evidence of the company's performance.

You and your friend decided to establish a stationary. Each one shared half of the amount to start it ($20,000). The company's first year profit was $1000. It was kept. The next year, the profit was $4000. How can we calculate Return On Equity?

Average equity = (21,000 + 20,000) * 0.5 = 20,500

Return = $ 4,000

ROE ratio = 20,500 / 4,000 = 19.5%

It is a good return if it is higher than the interest rate of the bank loan. It is noteworthy that there is a difference between the profit at the beginning of the year and the end of the year. In addition, the first year profit is lower than the next years. It is due to the unawareness of the shareholders and in return there are high advertisement expenses and other expenses, too. It is necessary to know that financial analysis depends on many other ratios of the company.

D- Return On Assets

It is value of dividing the net profit by total assets. Total assets or average total assets can be used as an argument.

This ratio is similar to Return On Equity. Both of them estimate the return on investment in two different ways. Return On Assets measures the company's capability to invest its assets such as machinery, buildings, lands and inventory. It is true that some activities need greater assets than others. We have to be aware that comparing two companies in the same industry is not an indicator of success or failure of one of them over the other. It is better to compare the same company's indicator of this year to previous or compare it to the same company that has the same activity.

Efficiency Ratios or Asset Management Ratios or Activity Ratios

A- Inventory Turnover

It is a ratio got by dividing the sales cost by average inventory or inventory. This indicator shows the inventory turnover during a period of time such as a year. In this way we can calculate the average time of the inventory in the company's stores. It is calculated as shown

Turnover period (in days) = 365 ( a period of a year) / inventory turnover average. This ratio indicates the speed of selling the products.

B- Receivables Turnover

It is the ratio we get when we divide net sales by the average receivables.

Efficiency Ratios or Asset Management Ratios or Activity Ratios

A- Inventory Turnover

It is value of dividing the sales cost by inventory. This indicator shows the inventory throughout a definite period such as a year. This ratio helps calculate the period of product in the inventory. It is the inventory calculated days = 365. It indicates the speed of selling the product.

B- Receivables Turnover

It is the value got by dividing the net sales by average receivable accounts. It enables the company to calculate the average receiving period in days.

Receivable turnover ratio (in days) = Number of days of the period (365 days = a year) / Receivables Turnover. This ratio shows whether the receiving period is short or long. We should know that the long receiving period does not necessarily mean that there is a managerial failure as some companies offer long periods of paying back as installments to encourage clients to buy more.

C- Total Assets Turnover

It is the ratio got when dividing the net sales by average total assets. The higher this ratio is, the better it is. This ratio must be different from a sector to another because the some activities need more fixed total assets than others.

Liquidity Ratios or Financial Strength Ratios

A- Current Ratio

It is the current assets divided by current liabilities. If the current assets are less than the current liabilities, it is probable that the company will face problems in paying liabilities. A clear example is shown here.

Suppose you are a rich business man. An investor tries to get a loan from you. He tries to convince you to lend him money for his project. The investor says he is able to pay you back in a couple of months assuming that his clients will pay him pack in the next two months. In addition, he says he has a two-month inventory that will be sold soon. He says he also will sell his share this month. You feel doubt. Will he be able to pay me back? In short, it is the current ratio that enables him to pay the loan back.

B- Quick Ratio

It is the quick current assets (the current assets – inventory) / current liabilities. It is similar to the Current Ratio but the inventory is not included because it needs time to be liquefied. In the previous example, the inventory may not be sold and expire. Quick ratio is important because it ensures the company's ability to pay its liability.

Financial Leverage ratios or debt ratios

A- Debt Ratio

It is the total liabilities divided by the total assets. It shows the company's capability to pay its long and short-term liabilities.

B- Debt to equity ratio

It is the total liabilities divided by equity. It is the way to indicate the extent to which the company depends on debt to finance investment.

Dividend Yield and Payout Ratios

A- Dividend Yield

It the annual distributed profit for each share divided by the share market value. It is very important for investor who is interested in the periodical financial yield. For example, if someone needs to buy shares in the stock to get minimum annual revenue, it is important to know the dividend yield to decided whether to buy or not.

B- Payout Ratio

It is the ratio of dividend yield to the net profit. It shows the company's policy in paying out profits.

Types of Analysis

A- Absolute Analysis

It is evaluating the company's current performance. In case it loses, it is an indicator of bad performance. In addition, if the current liabilities are more than current assets, this is an indicator of bad performance, too. If the return on investment is less than the bank interest, so it is a very bad indicator of the company's performance.

It will be clear in the example.

The following are financial ratios. It facilitates understanding of the company's performance.

Net Profit = $ 1,000,000

Return On Equity = 2%

Price to Earning Ratio = 5

Quick Ratio = 0.4

What do we conclude from the above mentioned numbers?

It is clear that the company achieved great profits this year but the other numbers show the opposite. There is a low Return on Equity and Quick Ratio indicates the decrease in liquidity. In addition, The Price to Earnings Ratio shows the fear of investors towards the performance of the company.

Financial Periodical Analysis

This type of analysis evaluates the company's advances and bad performance periodically. If the profits increase by time, it is a good indicator and vice versa. However, the company may achieve high profits but they are less than the previous year. In the same way, return on equity may be high but it is less than the previous year or vice versa. Numerical analysis and the financial statement of the same company for subsequent years enable the analyst to know the level of the company's performance.

For example, the graph shows that the profits of the company from 2002 to 2005 increased a year after another to indicate that continuous progress and its better future.

Another example shows the change in another company's net sales throughout four years. There is a noticeable degree of sales decrease. That is a clear indicator of company's bad performance. The sales are $60 million which is considered a big amount in a small company in the same activity. However, it doesn't show that the performance of the company is good because there is a great decrease in sales a year after another.

Relative Analysis

It is important to compare the financial statements of different companies of the same industry and activities in the same area and country. That's because the market can help a company have higher performance rates during the previous year and vice versa. On the other hand, some ratios are low because of the activity. Some industries must have enormous fixed assets like STC to continue in the market. So, comparing companies in the same activity in the same area shows acceptable considerable information that helps evaluate the performance.

In fact, some specialized organizations calculate the financial ratios in each sector of business. These calculations help compare a company to the sector. They can point out strengths and weaknesses as well as threats and opportunities.

In both the absolute and periodical analyses, the numbers on the financial statements and the financial ratios can be used. On the other hand, in the relative analysis, we can use the financial ratios only as it is useless to compare the liabilities and the profits of different companies. Therefore, it is useful to compare net profit margins or return ratios of different companies.

Pre-set goals comparison

Before the year starts, the company management sets some goals to be achieved during the next year including some financial targets after the end of the year. The management compares what have been achieved to the pre-set targets to spot the weaknesses and the causes. This type of analysis is a major tool for evaluating the internal performance of the workers.

It is important to realize that all the required information is not included in the financial statements. But analysts can manipulate the numbers after considering other factors such as changes of the market, new competitors, new investment projects and temporary costs. For example, a successful company may lose after high profits because of launching a new project that will be profitable after some years. However, a company may get high profits because there is a sudden increase in demand of its products although it can become lower during the next years because of the company's performance.

There are other financial ratios not mentioned in our report but can be understood. For instance, we can evaluate the marketing expenses of a company are higher than required, it is necessary to compare the marketing expenses to net sales and compare it to other companies.

More than one type of financial analysis must be used to evaluate the company's performance. In most cases, the absolute, relative and periodical analyses should be used. For instance, a company is successful and has the least loss in a certain problematic sector. It is important to consider the sector performance. Using different types of analysis gives an integrated view. In addition, investors are not interested in comparing the internal targets to the results.

Using numbers and financial ratios affect the analyst's decision. Some of them are more important than the others.

Data Collection :

The study was conducted from the period of 2013 till 2017 in comparison with HP . The data of

the  study is a secondary data which was provided from the annual reports of the corporation. We used the Fundamental analysis this approach will help us

to determine the strength and weakness and are we making enough profit that will allow

us to grow. Finally are we having the three source of new money (share money or

owner`s money ,loan capital put up by the bank and retained profit generated by the

business).

Limitation of the study :

 Fundamental analysis relies on a considerable amount of data to test the

significance of variables which sometimes is  not easy to acquire. therefore, some

data are often contaminated with reporting errors which must first be identified

and corrected.

 Fundamental analysis usually does not give us specific entry and exit points, so

the trades can be pretty risky. It is very difficult to find a method of translating all

of the different information into specific entry and exit points for a particular

trading strategy.

 Fundamental analysis information that is shown in financial statement is not

precise since it is based on practical experience and the conventions and rules

developed .therefore Financial statements do not always disclose the correct

financial position of the business concern as they are influenced by the personal

opinions, judgment, subjective view and whims of accountant of each concern.

 Fundamental analysis Balance sheet is a concern in statics document that might

disclose the financial position of a particular date. Meanwhile, Income

statement  may have information that be disclosed which may not be the real

profit as many items shown in the profit & loss statements may not be real.

Chapter 3

Data Analysis and Findings

Financial Ratios

Liquidity Ratios

Current Ratio

Current Ratio

Xerox Current Ratio gives the company the ability to pay back its short-term liabilities with their assets. The trend goes high in 2017 to refer to the future ability to pay its obligations.

On the other hand, HP trend goes slightly down to refer to the limited ability to pay its loans. In this way, it will not be easy to operate and grow well.

Quick Ratio

Quick Ratio

In 2017, Xerox has increased its liquid assets to cover its current liabilities but HP has nearly the same level for the last five years since 2013. That means HP can hardly pay their bills without selling less of their inventory.

Long-Term Solvency Ratio

Total Debt Ratio

Total Debt Ratio

In 2013 and 2014, Xerox had higher debt ratio to put the company is a risk but the ratio decreased dramatically in the three subsequent years to lower its financial risk. Compared to Xerox, HP total debt ratio increased slightly but never reached the level of Xerox in the above mentioned years.

Equity Multiplier

Equity Multiplier

Xerox was threatened in 2014 with equity multiplier because of debt financing used to acquire assets and maintain operations. Although it decreased in 2015 up till now 2027, it is still a threat.

HP has a slight increase in that multiplier but it owns less of the company assets than the creditors. Both companies still face a risk.

Long-term Debt Ratio

Long-term Debt Ratio

Long term debt in Xerox was relatively low in 2013.But it increased from 2014 to 2017. However, it has fewer debts than its capital. This indicates that Xerox 's financial obstacles nearly diminish.

Compared to Xerox, HP can more effectively control its long term debt than Xerox .

Turnover Ratios

Receivable Turnover

Receivable Turnover

Both companies are able to collect cash from customers to pay their obligations in a short period of time. Consequently, this can indicate that sales can improve to a great extent.

Fixed Assets Turnover

Fixed Assets Turnover

Xerox was able to invest its fixed assets to get revenues higher than HP throughout the period of five years. Each dollar of fixed assets in Xerox got the average of 9.75% in sales but while HP got 5.52. This leads to say that total assets, inventory, fixed assets and receivables were well managed.

Total Asset Turnover

Total Asset Turnover

Xerox generates nearly half a dollar in sales for every dollar of assets while Hp generates more than half a dollar for each dollar of assets. This indicates that both can effectively deploy their assets.

Profitability Ratios:

Profit Margin

Profit Margin

Xerox has the average of 5.24% of profit for each dollar in Sales. Similarly, HP gets 4.69% average in profit for each dollar of sales through 2013 to 2017. This considerable ratio gives a boost to both of them to cover their operating costs.

Return on Assets Ratio

Return on Assets

Xerox made its highest point of income in 2013 and 2014 then the ratio started to decline gradually till it reached 1.20% in 2017. Its efficiency of using its assets to generate earnings decreased.

HP reached 4.06% , its highest level in 2016 in five years. Similar to Xerox, HP its ability to manage their assets decreased in 2017.

Return on Equity

Return on Equity

In Xerox, 2016 was a flourishing point in profit to be used as equity base for its investors. But HP was able to exceed Xerox in the previous year. However HP had the lowest Return on Equity in four years to reach 0.26 in 2017. This demonstrates that HP did not achieve enough profit compared to Xerox.

Return on Investment

Return on Investment

In 2013 and 2014 HP was relatively higher in return on investment ratio which reached 12.24% . This percentage indicates that they both have efficiency in investment. But Xerox was still better than HP in 2016 and 2017.

Earnings Per Share

Earnings Per Share

In 2016, Xerox had -1.98 decrease in earnings but followed by a slight decrease to reach 0.71.

Noteworthy, 2013 and 2014 were nearly 4% average in EPS. In 2017 the EPS shows that investors did not expect both Xerox and HP would get high earnings.

Chapter 4

Conclusion and Recommendations

Xerox ( TTM vs 5-year period )

When comparing a company to the level of the industry, it becomes clear to what extent it makes advances or decrease. The most important elements in the financial ratios that evaluate the company's performance are the profitability and management effectiveness.

Xerox' five-year average of gross margin, operating margin, pretax margin, and net profit are a good indicator for its profitability. However, it is easy to say that the last five years starting 2013 to 2017 are similar to the last twelve months in the average margins. But when we look carefully at the graph below, the TTM Gross Margin is higher than the 5-year average. On the contrary, the other TTM margins are a bit lower than the 5-year average margin.

The other side of the performance indicator is the management effectiveness. It includes ROE, ROA, and ROI. It is noteworthy that ROE is the highest of them. TTM average ROE is higher than the 5-year average. This indicates that it is a good point for the company. On the other hand TTM average ROA and ROI are similar to 5-year average.

HP ( TTM vs 5-year period )

The Gross margin of profitability in HP in TTM in 2017 is near the average of 5-year period. On other hand, the other average of TTM margins is subzero unlike the 5-year average. That means profitability is not considerable.

For HP management effectiveness, the position is worse. ROE is the lowest in TTM average. In addition, TTM ROA and ROI average is also worse than the 5-year period. It needs to be in focus of the management team.

Conclusion

Xerox has high profitability and management effectiveness levels than HP in the last five years when both are compared to the industry. It is well known that in finance profitability and good management are the result of the best implantation of the best chosen strategies. This helps the company achieve their goals easily.

Xerox has paved the way for more advances in technology and it can open new markets all over the globe and give jobs to those who wait for work opportunities. The world trend is high quality printing and communication.

There are also other factors that can affect the company's profitability and effective management. The competitors are one of them. However, it is the fast growing industry that ensures the new innovations and profitability in Xerox.

Recommendations

(Xerox)

1- Expand profits to be able to achieve future goals.

2- Open more markets for the company's new products to make use of geography.

3- Managing inventory warehouses effectively by combining the parts and finished products together.

4- Support online selling in the Middle East especially Saudi Arabia to decrease costs.

References