Yahoo Corporation is a Technological Company
Yahoo Corporation is a technological company involved in innovative technologies to help mobilize resources and create opportunities around the world. It has formed various partnerships and supports a number of projects around the world through training and technological access. It basically deals with web hosting. It earns its profits through advertisements by various companies and providing internet connectivity. The company released its financial statements for the period up to 30th September 2011. These included its balance sheet, income statement and its cash flow statement. Comparing these with the financial statements of the previous financial year (the year ended 30th December 2010); there has been a significant increase in the profit margins and investment levels.
The company is in a good liquid position; it is able to meet its short term and long term obligations as and when they fall due. Considering its current ratio which is given by: total current assets divided by its total current liabilities; (3404.59/1201.59 = 2.83), this implies that Yahoo’s assets’ of the value $2.83 are being used to meet its $1.00 of its current liabilities. It is in a position to meet quickly its current liabilities at a very comfortable position since it s able to convert its current assets quickly into cash (its quick ratio is given by its total current assets less inventory, divided by total current liabilities).
Another evidence of good liquidity position is the, fact that, its debt to equity ratio is not below 1. The company is able to leverage its debt against the capital employed by its owners by ensuring that, the liabilities of the company do not exceed the net worth of the capital employed. This is advantageous to the company as its creditors do not have more stakes in the company than the shareholders. The 0.17 debt to equity ratio implies that $0.17 of debt and $1.00 of equity is being employed to meet its obligations.
Altman Z score measures the physical fitness of the company. The Z-score for Microsoft is 2.73 given by:
Given the company’s Z score to be 2.23, this implies that that company is not on the safe side and should exercise precaution when dealing with debt. It should ensure that the amount of company’s debt is kept at very low levels as possible to avoid chances of the company going bankrupt with years of its operation since the last date of preparation of its financial statements
The company has made good amounts of profit in the previous financial year
Out of the assets employed in its assets employed in its operations it makes a 34% return on the assets. This is given by the net assets divided by average total assets (293.29/857.39). This is an indication that the company is applying its assets to good and productive use. The owners’ capital invested in the company is applying its assets to good and productive use. The owners’ capital invested in the company is also being put into good use as there is an increase in its return from 2.67% to 3% in the year up to 30th September, 2011. The company makes $0.34 cents on every $ 1.00 sale they make. This is a good profitability level and the company should stay in business while at the same time looking for the other avenues to increase its profits. Change in strategy through of new products can be considered. Still the company can increase its profitability level by increasing its assets and ensuring they are being used to their maximum capacity. Good maintenance should also be part of its strategy to increase profitability.
In terms of efficiency, the company can be rated at 7 points given a rating scale of 1-10 with 10 being the most efficient. It has been able to rotate its inventory in sales 6 times in the given fiscal year. This implies that there is high demand of the company’s products and ensure that it delivery is made on time to ensure that they retain their customers for the goods sold. 15% of the total cost of goods is being funded by its suppliers. This is the accounts payable to sales ratio which is calculated by dividing the total amount payable in the books by the net sales multiplying by 100% (131.47/857.39). Comparing the above figures to those of the previous financial period (December 2010), there has been an increase in funding from the accounts payable. However, training programs should be devised to ensure an improvement in the efficiency of the company’s management. The products should be manufactured only when the customer makes orders as this will help reduce the cost of the sales by eliminating/reducing the storage costs to be incurred by the company.
The proportion of the company’s debt to its equity is at 0.17 (debt/equity =2067.49/12460.11) this implies that there is $0.17 debt for every $1.00 equity. This amount should be reduces to a lower level to ensure that the share holders have more stakes in the company than its creditors. The company is to apply an approach which reduces the total amount of debt generally and instead fund most of its projects and activities through owner’s capital. This will reduce the interest expense and will have an incremental effect on the basic earning per share and hence increased rating in the stock exchange mortal.
In conclusion, the company generally is at a good financial position
It is highly liquid, very profitable and its capital structure is favorable to the shareholders. However this should be improved by reducing the debt to equity ratio. The Z score though indicates that the company is not at a better position, it needs to work on its financing strategies to reduce its chances of going bankrupt in the coming years of operation. It needs to take its Z score value to 3 and above.