Next, Complete the Following

Comparing Financial Ratios

Go to MSN Money. (http://investing.money.msn.com/investments/key-ratios) and type in a ticker symbol for a company with the first letter of your last name.

Next, complete the following: a. Select “Key Ratios” on the left menu panel. b. There are several categories listed for ratios. Select one “Financial Condition Ratio” and one “Management Efficiency Ratio”. c. Open the Profile section on the left menu panel and you will see “Industry” is identified. Find a competitive company within that industry and compare those ratios to the ones you just found.

Examine your findings and determine whether your company outperforms its competition based on financial ratios. Identify where your firm seems to lag. Describe how your firm compares with the industry and speculate as to why you believe your firm is performing as it is.

For this week’s assignment, I selected Cisco Systems (NASDAQ: CSCO) a leading provider of networking technologies and management tools. Having noticed that the Industry field is blank, I am unclear why MSN Money does not have this information. Still, having awareness in this industry, I selected Cisco’s chief competitor, Juniper Networks, Inc., (NYSE: JNPR) for comparative purposes. Cisco’s and Juniper’s Key Ratios are listed as such, per the MSN Money website (MSN Money, 2013):

INDUSTRY:

GROWTH RATES % CSCO JNPR S&P 500

Sales (Qtr vs year ago qtr) 5 2.6 4.4

Net Income (YTD vs YTD) NA NA NA

Net Income (Qtr vs year ago qtr) 44 459.3 13.9

Sales (5-Year Annual Avg.) 5.69 9.01 5.72

Net Income (5-Year Annual Avg.) 1.86 (12.37) 4.76

Dividends (5-Year Annual Avg.) NA NA 5.07

Due to MSN Money’s inability to identify an industry for either company, I will first compare the two companies performance against the Standard & Poor’s 500 Index, and then against each other. For the purpose of this assignment, my “Financial Condition Ratio” for these two companies is Debt/Equity Ratio, and the “Management Efficiency Ratio” is Revenue/Employee, both which will be revisited in a few paragraphs. From the view of these two values, and comparing both Cisco and Juniper against the Standard & Poor’s 500 index (S&P 500) we can see that both companies underperformed in this perspective. Digging around on the MSN Money site, I did find that Cisco underperformed the “industry” where Earnings Growth Rates over the last five years was +12.5% for the industry, +5.7% for Cisco, -0.7% for Juniper (which is apparently in a different industry) and +5.7% for the S&P500 (MSN Money, 2013). Finding this detail makes the comparison become far more difficult to complete. The following ratios may help a bit.

Ratio Cisco Juniper S&P500 Debt/Equity Ratio 0.29 0.14 0.097 Revenue/Employee 709,074 475,641 1.05 million

To put this challenge in better context, consider this table that attempts to paint the picture of the differences between these companies:

Measure Cisco Systems Juniper Networks Sales $47.25 billion $4.39 billion Income $9.32 billion $261.23 million Net Profit Margin 19.72% 5.95% Market Cap $113.74 billion $8.74 billion

As can be seen here, Cisco is a vastly larger company with far more capital funds available, higher margins, revenue, and more assets to support their business.

In terms of where Cisco lags, they actually appear quite solid from my novice perspective. They are on par with the S&P which, given the “Great Recession” and how technology seems to take the first blows in terms of capital spending, this is probably admirable performance.

References

Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial finance. Retrieved from http://www.bridgepointeducation.com

MSN Money. (2013, May). Retrieved from http://investing.money.msn.com/investments