Financial Analysis
Oracle sells software for database-management and network products, application-development productivity tools, and end-user applications. Its principal product, the Oracle relational database-management system, runs on supercomputers, mainframes, minicomputers, microcomputers, and personal computers. The firm also offers consulting and systems-integration services. Foreign sales make up about 50% of revenue.
Oracle sees the wisdom in managing business data. Oracle also offers business applications for data warehousing, customer relationship management, and supply chain management. The company made an unsolicited bid to acquire PeopleSoft for about $5.1 billion in June 2003. By early 2004 the offer had increased to $9.4 billion, but was later reduced to $7.7 billion to reflect market conditions. The Department of Justice filed antitrust lawsuits in seven states to block the deal, and started hearings on June 7. Peoplesoft's lawsuit against Oracle is scheduled to go to court November 1 in Alameda, California.
Long-Term Debt Ratio (Long-Term Liabilities/Total Assets)
The long-term debt ratio is a metric used to measure a company's financial risk by determining how much of the company's assets have been financed by debt and is calculated by dividing long-term debt by a company's total assets.
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May 03
May 02
Long-Term Debt
Other Noncurrent Liabilities
Long-Term Liabilities
Total Assets
Long-Term Debt ratio
It would seem that Oracle's Long-Term Debt Ratio is improving, as in May '04 only 3.423% of the total assets was financed by debt, compared to 4.805% in May '02. The financial risk is steadily decreasing, which indicates a good risk management of the company. However, for a complete analysis, one must take into consideration the value of the interest ratio paid to creditors, the amount of dividends paid to shareholders and when the long-term loans are due. One may find that financing the assets based on Long-Term Debt is "cheaper" than doing in based on Shareholders' Equity.
Current Ratio (Current Assets/Current Liabilities)
The Current Ratio compares current assets (cash, inventory, accounts receivable) to current liabilities (obligations due within one year) and is calculated as Current Assets/Current Liabilities
As a variant, one may calculate the Quick or Acid Test ratio which is a current ratio that distinguishes current assets that can be converted quickly into cash (cash, marketable securities) from those that cannot (inventory, accounts receivable). Its values is (Cash + Marketable Securities)/Current Liabilities.
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Current Assets
Cash
Net Receivables
Inventories
Other Current Assets
Total Current Assets
Current Liabilities
Accounts Payable
Short-Term Debt
Other Current Liabilities
Total Current Liabilities
Current Ratio
Oracle's Current Ratio is increasing, which indicates that the value of the current assets tends to grow, compared to current liabilities, which increase at a slower pace. That means that Oracle' short-term financial situation is improving. However, the company's management could consider more profitable uses for the current assets, especially for the large amount of cash, which seems to have a slight ascending trend..
Fixed Assets Turnover (Sales/Average Fixed Assets),
Fixed asset turnover is the ratio of sales (on the income statement) to the value of the fixed assets (on your balance sheet). It indicates how well the business is using its fixed assets to generate sales.
Generally speaking, the higher the ratio, the better because a high ratio indicates that the business has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may indicate that the company has over-invested in plant, equipment, or other fixed assets.
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May 03
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Revenue (Sales)
Net Fixed Assets
Other Noncurrent Assets
Total Fixed Assets
Average Fixed Assets
Fixed Assets Turnover
1632 6,223
9475/1954,5 4,851
9573/2277 4,203
The Fixed Assets Turnover is significantly higher in May '04 than the one recorded in May '02. Oracle is using its fixed assets in an excellent manner, and while Revenue is growing, the Average Fixed Assets are decreasing, which means that the company gains more from less fixed assets, which is remarkable, because Fixed Assets tend to grow each time a company has positive results. Oracle' CFO seems to have chosen a differnent strategy than most financial officers do when confronted with increasing Revenue.
Total Asset Turnover (sales/average total assets)
The total asset turnover is the ratio of total sales (on the income statement) to total assets (on the balance sheet) and indicates how well a business is using all its assets (rather than just inventories...
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