Profitability and Risk
Red Hat's service/subscription model yields high gross margins. The current gross margin for the company is 83.4%, the operating margin is 16% and the net margin is 11.7%. Gross margins are typically high in this industry, and the major expense is the selling, general and administrative expensive. Containing this expense is key to profitability for Red Hat. Over the past five years, Red Hat has shown the ability to control this cost. SGA expenses were 48.6% of gross revenue in FY2011, compared with 53.5% in FY2007.
Another method of examining profitability is to analyze the cash flow statements to see where the company makes its cash. Cash flows from operations were $255 million in FY 2011, compared with $236 million in FY 2010, an increase of 8%. The company also invests in debt securities for sale with some of its free cash flow, and these net investments were $276 million FY2011. These investments provided positive cash flow in FY2010. The company embarked on a purchase of treasury stock in FY2011, increasing such purchases substantially. These figures show that the cash flow is healthy, and cash flow from operations is both stable and increasing slightly.
Red Hat has a high degree of liquidity and solvency. The company's current ratio is 1.77, and its cash ratio is 0.68. Last year, the company's current ratio was 1.99 and the cash ratio was 1.15. These figures point to a slight decline in liquidity, although the company remains liquid. Red Hat has no long-term debt. The capital structure of the firm in total is 59% equity and 41% liabilities, most of which come in the form of deferred revenue. This analysis shows that Red Hat has healthy cash flow and this cash flow is not going to be compromised by debt obligations any time soon.
Red Hat's performance is strong, but it is also important to compare the firm's performance to that of its industry peers. This is because it is important to ascertain whether the firm's performance is a reflection of its own inherent strength or just a function of operating in a generally favorable industry. It is important to consider that the Five Forces analysis determined that the industry was a generally favorable one in which to operate. Red Hat's comparisons with the industry (MSN Moneycentral, 2011) are generally substandard:
Metric
Red Hat
Industry
5-year gross margin avg
84.4%
76%
5-year net margin avg
12.7%
21.2%
Current ratio
1.8
2.5
Receivables turnover
6.8
8.4
Asset turnover
0.5
0.6
5-year ROE avg
8.4%
27.5%
5-year ROA avg
4.4%
14.6%
5-year ROC avg
6.3%
21.1%
These figures show that while the company has a slightly better gross margin it generally underperforms the industry. This could be a reflection of the company lacking economies of scale relatively to competitors. Red Hat operates in 65 countries, but earns less than $1 billion in revenue. Some of its competitors make tens of billions in revenue, so there are definitely scale disadvantages for Red Hat. Of particular note in these figures is the return on equity. The company's lack of debt in its capital structure means that it is financed predominantly with equity. As a result, its ROE is lower than that of its competitors, many of whom use leverage to improve their return on equity.
In the long-run, however, there is reason for optimism with respect to Red Hat's financial position. The company's profitability should increase...
Vision Company Background Company Overview Clear Vision is a premier manufacture of cutting edge personal vision solutions. The company's new breakthrough product, Liquid-Drop Contact Lenses, will create an entirely new niche in the eye care industry. The company is headquartered in the U.S. And manufactures their products domestically. The entire production facility is FDA approved and the company produces high quality goods that are all focused on the eye care industry. The
Commerz Bank AG Company background -- Environmental scan -- Strategies and Recommendations -- Implementation plan -- Risk management: Action plan CommerzBank AG -- Valuing Customers The study of CommerzBank AG meta-analyses will provide a critical analysis of how the organization's vision, mission, and people strategies and values statements are aligned with the proposed strategic plan. Keywords like "people strategies" "vision" "values statements" "mission" "strategic plan" "internal environmental analysis" "external environmental analysis" will be used
JetBlue Company Background Organizational mission Vision Value statements Environmental scan Review of strategies and a recommendation for the best strategy for the organization Implementation plan Functional tactics Action items Milestones and Deadline Resource allocation Key success factors Budget and forecasted financials Break-even chart Risk management plan Contingency plans for identified risks JetBlue is one of the leading airline carriers in the United States. The airline company has long been at the forefront of ensuring that passengers are exposed to quality service and products. Since the advent of
Apple Company Background Apple: Executive Summary Company Background Vision Statement Although Apple does not explicitly state their vision, it can be assumed from their mission statement and values that its vision for itself is structured in the continuation of its innovations in modern technology. The company has a clear vision for both the present and the future. It envisions being a major force in the technology and entertainment markets. The company now wishes to
In fact, in scanning documents about Southwest, one finds that they have been accused of being insensitive to the issue of larger built passengers. It appears that, at times, SW requires large passengers purchase two seats or not fly. Of course, as with most controversial issues, there are layers of issues surrounding this controversy: are Americans becoming larger? Are SW seats smaller to squeeze more profit into a flight?
The gross margin for the company in this quarter was 80.9%, up from the previous quarter and also up significantly year-over-year. The first full quarter of Windows 7 results will the third quarter of fiscal 2010, and the result of that quarter will not be released until April 22, 2010 according to the Microsoft Investor Relations website. Corporate Solution/Action Taken During the development of these two latest iterations of Windows, Microsoft
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now