garmin_ltd_write_up_to_use.docx
Garmin Ltd. (GRMN) is the global leader in satellite navigation. It is a company that designs, manufactures and markets portable, fix mounted and hand held Global Positioning System (GPS) devices. It also manufactures devices for communication that utilizes the combination of GPS technology and cellular technology for better coverage. Its products serve the automotive, mobile, wireless, outdoor, recreation, marine, aviation and OEM applications. In 2000, Garmin Ltd became a public company and is currently trading on the NASDAQ (GRMN).
The company’s success is contributed by the quality of material and products that they deal with as well as its mission to enhance people’s lives through manufacturing of useful products by using this complex technology called GPS. This way the customer’s daily lives become less complicated and improved. Garmin also has a proven track record of solid revenue and earnings per share growth (www.forbes.com/garmin).
Balance Sheet Analysis:
The balance sheet ratios for Garmin for different years test the company’s liquidity and financial strength. “The smart business analyst comes to the balance sheet first to gauge the overall health of the company” (JWMI 530, Week Three, Lecture One). Garmin’s balance sheet represents the snapshot of its financial position on the last day of the year. (Brigham & Ehrhardt, 2011). Garmin seems to have a very strong balance sheet due to the company having zero long term and short term debt and plenty of cash. With, $1.27 billion dollars in cash (Garmin, 2012), approximately 20% of the company’s market cap consist of cash. This measurement is very important when determining a company's financial health. Garmin has a current ratio of 2.8, which tells us they are efficient on their operating cycles and/or have the ability to turn its products into cash (www.investopedia.com). A clear indication, that Garmin can deploy cash for strategic acquisitions, increase inventory, share buybacks, and payment of dividends. The past four years have also seen a tremendous growth in “short term investments” – from $19 million in 2009 to $153 million in 2012 (www.wikinvest.com/stock/GRMN). This echoes their strong cash position, as they are able to invest more intostocks and bonds to earn higher interest rates. (www.investopedia.com).
Income Statement Trends:
When you want to know about trends in a company’s sales and profits, this is where you look first – Income Statement (JWMI 530, Week Three, Lecture Two). Garmin has taken control over its finances to be financially ahead of other companies in the same industry. In the last 4 years, Garmin has seen revenues remain relatively flat ($2.7 Billion to $2.9 Billion), though the company’s net income dropped from $703M in 2009 to its current $542M, its gross profit remained steady at a current $1.4 Billion (GRMN, 2012). This gross profit reflects a high “gross margin” of 55.08% compared to its key competitors; Trimble Navigation (52.47%), Tomtom (51.09%) and Analogic (39.07%). Garmin’s five year gross margin average (from 2008-2012) is 50%.
Cash Flow Analysis:
Even as Garmin reported a large net income during the year, the amount of cash reported on its year-end balance sheet may be the same or even lower than its beginning cash (Brigham & Ehrhardt, 2011). In their year-end 2012 filing, Garmin started with $1.28 Billion in cash, had $684 Million cash flow from operating activities, $-496 Million of net cash flows from investing activities, and $-250 Million of net cash flow from financing activities (finance.yahoo.com/garmin). The financing activities were attributed to payment of cash dividends and the repurchase of common stock. This gave Garmin a net change in cash of $-56 Million, which equated to 1.23 Billion net cash at the end of this period.
Main Competitors Trends:
With the North American personal navigation market experiencing a decline, TomTom (Garmin’s closet GPS competitor), and Garmin will be looking at strategic ways to weather the storm with growth in its other segments. Navteq another competitor was purchased by Nokia back in 2008. Garmin, which has a better cash position than TomTom can take this opportunity to tightentheir belts and widen the gap. Garmin’s current “gross margin” is at 55.2% as of June 30, 2013, compared to TomTom which is at 51.1 for the same period. Navteq’s last “gross margin in 2007 was 53.57%. Both, Garmin and TomTom’s “gross margin” has been on a steady incline since 2008, putting them in a good position to be profitable. They can continue this trend in two ways, by increasing the prices of the goods it sells and keeping its COGS (Cost of Goods Sold) unchanged or they can keep the sales price unchanged and pressure their suppliers to reduce the COGS. The game plan for Garmin is to continue to gain global market share in the PND industry (http://investing.businessweek.com). Garmin continues to grow it sales in the U.S. and Asia, as well as TomTom picking up market share in Europe, as Garmin sales fell 20% in that region. Garmin holds the advantage here, boasting no debt load and a strong cash and cash equivalent position.
References
Brigham & Ehrhardt (2011), Financial Management, Theory and Practice, 13 Editions
Garmin (GRMN) 2012, Income Statement via Wikinvest, www.wikinvest.com/stock/Garmin
http://www.gurufocus.com/term/COGS/GRMN/
http://finance.yahoo.com/GRMN
www.forbes.com/garmin
www.garmin.com/pressroom
www.ycharts.com/garmin
http://www.investopedia.com/terms/shorttermdebt.asp
http://investing.businessweek.com/research/financials.asp/ticker=GRMNFinancial Statements for Garmin Ltd (GRMN)
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