Oracle Corporation is a multi-national computer technology company located in Redwood, California which specializes in the development and marketing of computer hardware systems and enterprise software products. For the fiscal year of 2013 Oracle has posted solid numbers with revenues of 37.18 Billion with assets of 81.81 Billion dollars half of which is financed by debt. In general the company has shown to be strong and stable based upon the previous two years financials. All major ratios (See Exhibit A) stayed consistent, with slight growth across the board between 2012 and 2013. ORCL posted very high profit margins when compared to the industry, 37% in 2011 and 39% in 2012 compared to an industry average of 16%. The Asset Turnover for the company less than half that of the industry average, but given the high profit margins this is to be expected. The leverage ratio of the company stays around a very comfortable average of 1.80, but conclusive data cannot be drawn from this, as industry averages were not available at the time. Very strong, stable ROE’s for both years, almost 150% greater than that of the industry show’s a profitable company subject to little risk.
Ford Motor Company (F)
Ford Motor Company is a company firmly entrenched at the top of the Major Automotive Manufacturers. Albeit with slight decreases across the board when compared to 2011, Ford produced very strong financials for the year 2012. Sales decreased approximately two billion dollars but the EBT only decreased one billion dollars, showing that Ford decreased COGS by the same amount. This decrease in COGS mitigated a large hit to profit margin, with the company only posting a .7% loss. Profit margins almost doubling that of the industry also show that Ford is a company dedicated to keeping costs low.
The leverage ration for both years is unnervingly high, hovering right under 12%. While there could be many explanations for this, a more conclusion analysis cannot be provided, as industry data was not available at this time.
Ford did post an impressive ROE of 35.5%, more than the industry average of 10.2%, but these 2012 returns were absolutely dwarfed by the 2011 ROE of 134.5%. This drop in ROE can be attributed to the 2011 income tax of minus $11.5 billion insinuating the company received a large refund/credit in that year. Without at least two more years worth of data it is impossible to establish a trend thus we are not able to conclusively state whether the 2012 or 2011 ROE is the outlier.
Either way, the high ROE and profit margins compared to industry, the strong and steady interest burden ratio depict Ford as a strong, stable company. Industry leverage ratio averages should be calculated though, in order to see if the company is financing at levels that are unsustainable.
(Note: Due to the abnormally high leverage ratio of Ford Motor Company, it was omitted from the graph for aesthetic purposes)
While both companies did exhibit strong financials, the large outliers and lack of data on Ford Motors make this investment quite a bit riskier. The fact that there is not enough data to calculate an accurate leverage ratio is also quite unnerving. As a whole though, Ford did look to provide much stronger financials and looking further into the company would require a regression analysis. In order to perform said analysis on Ford Motor Company the past five years daily returns for both Ford Motors and the S&P 500 were used. Based on the data for Ford alone the calculated the average return (.218%) and standard deviation (3.193%) were able to be found. A regression was then perfomed utilizing excel, and verified it by dividing the Covariance between the average return of the S&P 500 and F divided by the Variance of the S&P.
In order to annualize the figures for daily returns…