I.INTRODUCTION………………………………………………….……………1
Background and History………………………………………………………1
Business Description……………………………………………………………3
Industry Attractiveness………………………………………………………..3
Applications…………………………………………………………………….4
Oracle Services…………………………………………………………………5
II.FINANCIAL ANALYSIS……………………………………………………….5
Liquidity Ratios…………….………………………………………………….5
Asset Management Ratios……………………………………………………..6
Financial Leverage Management Ratios……………………………………..6
Profitability Ratios…………………………………………………………….7
Market-Based Ratios…………………………………………….…………….8
Dividend Policy…………………………………………………….…………..9
III.CONCLUSION AND RECOMMENDATIONS………………………………9
Oracle’s Investment Analysis…………………………………………………9
Oracle’s Loan Analysis…………………………………………………….….11
A. INDUSTRY GROWTH …………………………………………………………….12
B. COMPARE A STOCK’S PERFORMANCE TO ITS INDUSTRY………………12
C. COMPARE NASDAQ/INDUSTRY/ORCL………………….……………………13
D. COMPARE TO ITS COMPETITORS…………………………………………….13
E. SPLITS……………………………………………………………………………….14
F. BROKERS RECOMMENDATIONS………………………………………………14
WORKS CITED………………………………………………………………………..15
Oracle Corporation is a technology company that supplies software for the use of information management. They develop, manufacture, market and distribute computer software that helps other corporations manage their data so they can better grow and prosper.
In 1977, Larry Ellison, Bob Miner, and Ed Oates founded System Development Laboratories. After being inspired by a research paper written in 1970 by an IBM researcher titled “A Relational Model of Data for Large Shared Data Banks” they decided to build a new type of database called a relational database system. The original project on the relational database system was for the government (Central Intelligence Agency) and was dubbed ‘Oracle.’ They thought this would be appropriate because the meaning of Oracle is source of wisdom.
In 1978, Software Development laboratories moved from their offices in Santa Clara to ones in Menlo Park, the heart of the Silicon Valley. To better explain what they did, they changed their name to Relational Software Inc., or RSI.
In 1979, RSI developed and distributed its first commercial SQL database V2, there was no version 1. In 1982, RSI changed its name to Oracle Systems Corporation, which later changed again to Oracle Corporation. They reasoning behind this was that they thought by naming the company after the product it would help the company obtain more recognition.
In 1983, Oracle decided to make the Relational Database Management System (RDBMS) portable. They then introduce V3, the first portable database to run on Personal Computers, minicomputers and mainframes.
In 1984, Oracle Corporation’s revenues reach $12.7 million and they move into a new eighty-four thousand square foot building in Belmont, CA. They also went international by working with companies in Canada, Netherlands, and a limited portion in the United Kingdom.
In 1985 they hit $23 million in revenues and expanded to Austria, Germany, Japan, Sweden, and Switzerland. Their Initial Public Offering was on March 12, 1986, the same year their revenues reached $55 million. The stock opened at a price of $15 and closed at $20.75. Oracle Corporation expanded to Australia, Finland, France, Hong Kong (limited), Norway, and Spain.
In 1987, Oracle’s revenues were $131 million, as they officially become the worlds largest DBMS (Database Management System) software company. They began their consulting and support business as a way of helping their customers maximize the use of their software. Currently, Oracle is the fourth largest consultant as they spread into Brazil, China, Cyprus, Malaysia, and New Zealand.
In 1989, Oracle Corporation earns $571 million while opening up shop in Chile, Greece, Korea, Portugal, Turkey, Venezuela, and Taiwan. They now sell products in 86 countries around the world.
In 1990 Oracle reaches $916 million and 1991 they reach $1,028 million in revenues while expanding to Belgium, Argentina, Colombia, Costa Rica, and the Philippines.
Revenues steadily grow to $8,827 million in 1999 and Oracle Corporation continues to improve on its product, releasing Oracle8i, the first Internet database, the same year (Oracle Corporation, 2000a).
Oracle designs, develops, and supports computer-software products. This software is used for database management and network products, application development productivity tools, and end user applications. The company’s principal product, the oracle relational database-management system, runs on supercomputers, mainframes, microcomputers, and personal computers. The company also offers consulting, support, and system integration services for its customers. Oracle Corporation provides the software that powers the Internet.
Oracle Corporation is the one of the largest suppliers of database software. Independent research indicates that Oracle now has over two times the market share of closest competitors IBM DB2. Oracle is more Popular in Unix and window NT computers that dominate the Internet. All ten of the world’s largest websites use Oracle software. Sixty-five percent of the future 100 companies use oracle for e-business.
Oracle Corporation is the one of the world’s largest and fastest growing suppliers of applications software. Their CRM and ERM applications are completely Internet technology. Their Competitors still sell old client – server system.
Customer relation management Enterprise resource planning
Database is the largest business but applications are the fastest growing business. Today they are the only company to offer complete software suites for both Enterprise resource planning (ERP) and customer relation management (CRM). Oracle is the number one application service provider (ASP) on the Internet.
Application software sales increased 61% to $ 447 million in Q4, led by CRM sales, which grew 161% rate. Database software sales increased 12% to $1.2 billion.
The idea of a single global database.
“ We help our customers transform their business using the Internet. Together we achieve remarkable results. The measure of success is solely that they perform better then the customers of our competitors”, said Raymond J. Lane (President and chief operating officer).
Oracle service gives their customers competitive advantage. An integrated services capability –comprised oracle consulting, oracle support services and oracle Education-is central to oracle e-business solution strategy. In FY99, Oracle services continued to expand, growing by 30.1 percent. This business performance reflects customer’s increasing need for technology expertise on a global basis and has made oracle Services a significant factor in the success of their enterprises. Consulting, education and support revenues increased 7% to 1.5 billion (Oracle Corporation, 2000c).
Since its creation, Oracle Corporation has steadily grown within its market, as have its revenues. The question then rises: Would I invest my hard earned money in this company? To answer this question, a Financial Analyst would first look at many different analytical ratios to determine Oracle Corporation’s future potential on the stock market.
The first would be a liquidity ratio called a current ratio. Liquidity ratios tell an analyst how liquid a company is or how much cash on hand they have to pay off current debts or liabilities. Taking the company’s current assets and dividing by their current liabilities calculates a current ratio (Moyer, McGuigan, Kretlow 1999, 72-3). In Oracle’s case, their current ratio is 1.86 and compared to the industry average of 3.75, this tells me that they are liquid or have enough cash on hand to pay off all liabilities but that they are below the industry average (Oracle Corporation, 2000b).
Taking sales and dividing by total assets calculate the Asset Turnover ratio. This figure will let an analyst know how effectively a company utilizes its resources in order to produce sales. Oracle’s is 1.25 and the Industry average is 0.72 which indicates that Oracle is doing a positive job in resource management for the purpose of increasing sales and is doing it better than the average software and programming company (Oracle Corporation, 2000d).
Financial Leverage Management Ratios
Next, we will look at Oracle’s Financial Leverage Management ratios to help determine their ability to receive funds from creditors. The first ratio we will take a look at is the Debt ratio, which indicates how much of the corporation’s total assets are financed with credit. In 1996 it was 44%, in 1997 it was 49%, in 1998 it was 47%, in 1999 it was 46%, and in 2000 it was 48%. This is showing a trend of increasing debt, but not a strong trend. It would appear that they are maintaining just under half of their total assets being financed by credit. There was no industry average, which we could find, to compare this statistic with (Oracle Corporation, 2000b).
The Debt-to-Equity ratio tells us how much of their activities are funded by debt and is calculated by taking total debt and dividing it by total equity. In 1998, Oracle’s debt-to-equity ratio was 10.2%, in 1999 it was 8.2%, and currently in 2000 it is 5%, which indicates a strong trend down. These are very positive numbers; it indicates that Oracle is reducing its amount of funds it finances its activities, like projects, with.
This will make them look good in the eyes of creditors if they would decide to borrow money to finance anything.
The next group of ratios is called Profitability Ratios and they let an analyst know how effective a company is making its investment and financing decisions. The first one is the Gross profit margin, which is equated by taking the sales minus the cost of sales and dividing the sum by sales (Moyer, McGuigan, Kretlow 1999,80). Oracle’s is currently 70.95%, which is very good. But when compared to the industry average of 75.58%, it indicates that Oracle is behind when compared to the average company.
Net profit margin measures how much profit a company earns from its sales after all expenses are deducted, including taxes and interest. It is calculated by simply taking a company’s earnings, after taxes are taken out, and dividing it by the sales number. Oracles net profit margin is 62.16%, which is very good, especially when it is compared to the industry average of 20.45%. The average net profit margin over the last five years for Oracle is 23.38% and compared to the industry five year average of 12.48% is a good indicator of high profitability. This shows that not only has Oracles sales profits been above the industry average this past fiscal year but also above average for the past five fiscal years, a good indicator of future potential and growth (Oracle Corporation, 2000c).
The Gross Profit Margin measures a company’s profitability of sales after you deduct the cost of sales. This basically measures efficient management is in making decisions in reference to pricing and productions costs. Currently, Oracle’s gross profit margin is 71%, which is just under the current industry average of 76%. This could indicate that Oracle’s pricing policies or production methods are less efficient than the average industry company (Moyer, McGuigan, Kretlow 1998, 80).
Another very important ratio to an analyst and an investor is the ROI or the Return on Investment ratio. This important statistic is figured out by simply taking the earning after taxes and dividing it by the total assets. The ROI will compare a company’s net income to its total asset investment. Oracle’s ROI is currently 131.71%, which is astounding when compared to the industry average of 4.59% and the S&P 500 average of 14.66%. The five-year average ROI for Oracle is 48.78%, the industry average is 25.18%, and the S&P 500 is 14.52% (Oracle Corporation, 2000d). This is a very positive indicator of someone’s potential return on his or her investment in Oracle Corporation. It basically says that people who invested this last fiscal year and the last five fiscal years have earned a profit on their original investment. This would definitely encourage a person to invest in Oracle Corporation (Moyer, McGuigan, Kretlow 1999, 81).
The return on stockholders’ equity is another important statistic to look at for profitability. It is formulated by, again, taking the earnings after taxes, and dividing it by the stockholder’s equity. Oracle Corporation’s is currently at 131.71%, which is an extremely impressing percentage, especially when compared to the industry average of 4.6%. This is not only a positive indicator for Oracle’s profitability, but also indicates that their asset management and profit margins are working well to influence the profits of the company.
The next ratio is the Profit-to-Earnings ratio, which is an indicator of potential growth of a company’s earnings. The P/E ratio is read the higher the P/E multiple, the higher the risk and the greater the growth potential. Oracle’s is currently 35.97 times and compared to the industry average of 39.25 indicates Oracle is a little behind in growth potential. This may indicate that Oracle is a lower risk than the average software and programming company, it has lower growth prospects than average, or both. It has, however, been steadily growing over the last five years, which is a good indicator for its future trends on the stock market (America Online, Inc., 2000).
The Market-to-book ratio (P/BV) for Oracle Corporation is currently 149, high compared to the industry average of 4.72. The last five fiscal years averaged for Oracle is 54.24, and the industry’s is 29.78 (America Online, Inc., 2000). It is calculated by taking the market price per share and dividing it by the book value per share. The book value per share is formulated by taking total common stockholder’s equity and dividing it by outstanding shares (Moyer, McGuigan, Kretlow 1998, 83-4). This indicates that Oracles high P/BV is a trend and will continue to increase above the industry average
The dividend policy or Oracle Corporation will hopefully be an indicator in how and where they plan to grow and their strategies for their dividends (Moyer, McGuigan, Kretlow 1999, 83).
The Payout Ratio is calculated by taking the dividend per share and dividing it by the earnings per share. Oracle’s is currently 0 and has been for the last three fiscal years, while the current industry average payout is 39.25%; obviously much higher than zero. I believe the reason that Oracle has not paid out any dividends in the last three fiscal years is because they are reinvesting all profits back into the corporation for projects to enable them to expand within their market.
Dividend Yield is calculated by taking the expected dividend per share and dividing it by the stock price. Oracle’s is currently 0 again, and the industry average is 2.9%. A company with a low dividend yield will usually be an indicator of high potential future growth in the market, something a long-term investor in the company would like to hear (America Online, Inc. 2000).
Oracle’s revenue trend and growth in the industry, as seen in Appendix A, C, and D, are strong indicators that they are one of the major competitors within their particular software and programming industry. As seen in Appendix B and E, their stock’s performance has been steadily growing, splitting four times in the past four years. They have a very strong net profit margin, return on investment, and return on stockholders’ equity, which are good indicators for potential growth in the future. Out of twenty-nine investment brokers, twenty-five recommend to buy and four to hold, as seen in Appendix F.
Even though they had some low averages when compared to their industry, like current ratio, we believe they are postured very well for future endeavors within the software and programming industry. So, to answer the question of whether or not we would invest in this company, we would say “yes”, but for the long haul, definitely not a short-term investment.
Even though they have a current ratio that is below the industry average, they still have enough funds and assets to cover their liabilities. Their debt ratio is currently 48%, basically half of their assets are from lenders. Even though this may seem somewhat high, they have maintained this ratio within 2% for the last five years, setting a good trend for the corporation. They also have a very low debt-to-equity ratio, indicating that they have enough equity to easily pay off any funds acquired from creditors. As a creditor I would feel safe in lending them funds for any future projects or endeavors.
5-year Weekly Chart of the Dow Jones U.S. Technology, Software Index
Appendix B: COMPARE A STOCK’S PERFORMANCE TO ITS INDUSTRY
Appendix C: COMPARE NASDAQ/ INDUSTRY/ORCL
Appendix D: COMPARE TO ITS COMPETITORS.
Appendix F: BROKERS RECOMMENDATIONS
StrongBuyModerateBuyHoldModerateSellStrongSell
Bibliography:
WORKS CITED
Oracle Corporation 2000a. Investor Relation – Corporate History. 20 July.
Internet: http://www.oracle.com/corporate/.
Oracle Corporation 2000b. Investor Relations – Financials. 21 July. Internet:
http://ww.oracle.com/corporate/.
Oracle Corporation 2000c. 1999 Annual Report – Introduction. 21 July. Internet:
http://www.oracle.com/corporate/annual_report/99/index.html.
Oracle Corporation 2000d. Financial Highlights. 22 July. Internet:
http://www.oracle.com/corporate/annual_report/99/financial/index.html?finhgh99.html.
Moyer, Charles R., and McGuigan, James R., and Kretlow, William J. 1998.
Contemporary Financial Management. South-Western College Publishing:
Cincinnati, Ohio, 64-106.
America Online, Inc. 2000. Personal Finance – Investment Research. 30 July.
http://research.web.aol.com/index.adp?T1=orcl&item=4.
