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Principles of Finance
Fall 2013
Brenda Jansen
2
Table of Contents:
History……………………………………………………………………………………………………………………………………..3
Sector Analysis…………………………………………………………………………………………………………………………4
Industry Analysis………………………………………………………………………………………………………………………5
Capital Structure……………………………………………………………………………………………………………………...6
Financial Ratios…………………………………………………………………………………………………………………….7-25
Financial Strength……………………………………………………………………………………………………………………26
Financial Analysis…………………………………………………………………………………………………………………….27
Financial Recommendations……………………………………………………………………………………………………28
Sources……………………………………………………………………………………………………………………………………29
3
History
Intuit started in 1983 with the creation of Quicken personal finance software to help
people balance their checkbook. They have grown since then and have added brands such as
QuickBooks and TurboTax. QuickBooks is an accounting package geared toward small
businesses. TurboTax is a tax preparation software package. The company went public in 1993
and is publically traded on the NASDAQ with the symbol INTU. Over the years, Intuit has
acquired companies such as Mint.com and Electronic Clearing House.
4
Sector Analysis
Intuit’s sector is technology. This is a sector that continues to have growth and
innovation. Because of the high costs of materials, companies must have a large amount of
capital in order to compete. Some top financial companies include Microsoft, Adobe, SAP, and
Oracle.
The technology sector includes areas of equipment, hardware, software, and services.
There are companies who create the parts and materials that are needed to create these
technological products. Then there are companies who create hardware and software to help
the products run. Finally there are services available to help people know how to use their
product. All of these areas are vital the technology sector.
5
Industry Analysis
Intuit’s industry is application software. Application software is what a computer uses
to perform useful tasks beyond keeping it running. Microsoft Word is an example of this. Two
of Intuit’s competitors in this industry are SAP AG and Oracle Corporation.
SAP AG is a German-based application software company that offers many products
that are similar to Intuit’s. Some of SAP’s products include business application, database, and
cloud products.
Oracle Corporation has a little bit more of a broader base of products offered
encompassing areas of applications, database, operating systems, and servers. Some familiar
products include Java and the Linux operating system.
6
Capital Structure
Intuit
SAP
Oracle
19%
81%
2010
Debt Equity
18%
82%
2011
Debt Equity
14%
86%
2012
Debt Equity
46% 54%
2010
Debt Equity
0%
100%
2011
Debt Equity
0%
100%
2012
Debt Equity
37%
63%
2010
Debt Equity
31%
69%
2011
Debt Equity
41% 59%
2012
Debt Equity
7
Financial Ratios
Intuit SAP Oracle
2010 2011 2012 2010 2011 2012 2010 2011 2012
Gross Profit Margin
86.05% 84.90% 86.60% 68.76% 69.40% 68.78% 76.42% 78.83% 80.87%
Operating Profit Margin
31.95% 31.20% 29.73% 19.79% 34.69% 24.64% 34.30% 36.98% 39.52%
Net Profit Margin
18.38% 20.80% 20.57% 14.54% 24.16% 17.40% 23.99% 26.89% 29.38%
Return on Assets
12.41% 16.91% 15.64% 8.70% 14.80% 10.52% 11.62% 12.74% 13.35%
Return on Equity
24.24% 28.86% 24.30% 18.45% 27.08% 19.93% 21.49% 22.85% 24.47%
Return on Investment
20.35% 24.42% 21.29% 12.67% 26.99% 19.84% 15.67% 17.45% 17.30%
Current Ratio
1.25 1.20 1.87 1.39 1.54 1.05 2.76 2.60 3.24
Quick Ratio
1.25 1.20 1.87 1.39 1.54 1.05 2.74 2.59 3.22
Total Debt to Total Assets
48.81% 41.42% 35.64% 52.94% 45.33% 47.22% 45.27% 43.71% 44.82%
Debt to Equity
19.07% 18.19% 14.13% 45.59% 0.34% 0.44% 37.14% 30.96% 41.42%
Times Interest Earned
18.37 23.76 41.33 19.24 29.26 23.02 15.12 17.92 18.44
Average Collection Period
35.66 36.23 31.33 96.22 94.88 91.64 80.10 71.33 68.95
Inventory Turnover
#DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 27.72 49.73 29.64
Total Asset Turnover
0.67 0.81 0.76 0.60 0.61 0.60 0.48 0.47 0.45
P/E Ratio 22.14 21.63 22.31 24.74 14.12 26.54 20.29 13.20 14.37
Price to Book
5.37 6.24 5.42 4.57 3.82 5.29 4.36 3.02 3.52
Sales Growth Rate
8.45% 10.41% 9.53% 9.29% 10.50% 15.76% 32.92% 4.21% 0.16%
Profit Growth Rate
18.25% 8.93% 11.72% 4.52% 11.53% 14.72% 27.21% 7.49% 2.75%
8
Gross Profit Margin
2010 2011 2012
INTU 86.05% 84.90% 86.60%
SAP 68.76% 69.40% 68.78%
ORCL 76.42% 78.83% 80.87%
Gross Profit Margin is a measure of how much revenue is left over after the Cost of
Goods Sold is taken into account. The percent of revenue that remains is what the company will
use to pay for various expenses that the company will incur.
By looking at this graph, we can see that over the past three years all of the companies
studied remained relatively the same. Oracle saw a little bit of growth from 76.42% to 80.87%.
Intuit remained the winner in each of the past three years.
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
2010 2011 2012
Gross Profit Margin
INTU
SAP
ORCL
9
Operating Profit Margin
2010 2011 2012
INTU 31.95% 31.20% 29.73%
SAP 19.79% 34.69% 24.64%
ORCL 34.30% 36.98% 39.52%
Operating Profit Margin is a measure of how much revenue is left after taking care of
variable costs. This ratio is often used to measure pricing strategy and operating efficiency.
By looking at the graph, we can see that over the past three years, Intuit’s operating
profit margin has slightly declined (31.95% to 29.73%) while Oracle’s has increased (34.30% to
39.52%). SAP had an increase of 15% from 2010 to 2011 (19.79% to 34.69%) but then fell 10%
from 2011 to 2012 (34.69% to 24.64%). Oracle is the winner here with Intuit coming in second.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
2010 2011 2012
Operating Profit Margin
INTU
SAP
ORCL
10
Net Profit Margin
2010 2011 2012
INTU 18.38% 20.80% 20.57%
SAP 14.54% 24.16% 17.40%
ORCL 23.99% 26.89% 29.38%
Net Profit Margin is calculated by taking net income divided by sales. This percent
measures how much of every dollar of sales is actually retained in earnings.
By looking at the graph, we can see that over the past three years, Oracle has remained
the winner. Oracle has grown from 23.99% to 29.38% while Intuit has only grown about 2%
(18.38% in 2010 to 20.80% in 2011 and then falling to 20.57% in 2012). SAP rose 10% from 2010
to 2011 (14.54% to 24.16%) but fell 7% from 2011 to 2012 (24.16% to 17.40%) for an overall
increase of 3%.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2010 2011 2012
Net Profit Margin
INTU
SAP
ORCL
11
Return on Assets
2010 2011 2012
INTU 12.41% 16.91% 15.64%
SAP 8.70% 14.80% 10.52%
ORCL 11.62% 12.74% 13.35%
Return on Assets is calculated by dividing net income by total assets. ROA is a measure
of how profitable a company is relative to its total assets and shows how efficiently
management is using the company’s assets to generate earnings.
In this graph, we can see that Intuit was the winner in all three years. Both Intuit and
SAP had declines from 2011 to 2012. Intuit’s decrease was only by 1% (16.91% to 15.64%) while
SAP’s was by 4% (14.80% to 10.52%). Oracle had some small gains over the three years (11.62%
in 2010 to 13.35% in2012) and is getting close to where Intuit is at.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
2010 2011 2012
Return on Assets
INTU
SAP
ORCL
12
Return on Equity
2010 2011 2012
INTU 24.24% 28.86% 24.30%
SAP 18.45% 27.08% 19.93%
ORCL 21.49% 22.85% 24.47%
Return on Equity is calculated by dividing net income by shareholder’s equity. ROE is a
measure of profitability by showing how much profit is generated by shareholder investment.
In this graph, we can see that Intuit’s ROE is higher than SAP and Oracle in 2010 and
2011 and relatively equal to Oracle in 2012. This is due to the fact that Intuit and SAP both
decreased from 2011 to 2012 (Intuit from 28.86% to 24.30% and SAP from 27.08% to 19.93%).
Oracle, on the other hand, had an increase from 2011 to 2012 (22.85% to 24.47%).
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2010 2011 2012
Return on Equity
INTU
SAP
ORCL
13
Return on Investment
2010 2011 2012
INTU 20.35% 24.42% 21.29%
SAP 12.67% 26.99% 19.84%
ORCL 15.67% 17.45% 17.30%
Return on Investment is used to evaluate the efficiency of a company’s investments. The
return of an investment (gains minus cost) is divided by the cost of the investment.
In this graph, we can see that Intuit is the winner in 2010 and 2012 with SAP in the lead
in 2011. All three companies decreased from 2011 to 2012, some more than others. SAP
decreased more than Intuit did (7% vs. 3% decline) making it so Intuit came out on top in 2012.
Oracle remained relatively equal from 2011 to 2012 and only dropped a fraction of a percent.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2010 2011 2012
Return on Investment
INTU
SAP
ORCL
14
Current Ratio
2010 2011 2012
INTU 1.25 1.20 1.87
SAP 1.39 1.54 1.05
ORCL 2.76 2.60 3.24
The Current Ratio is calculated by dividing current assets by current liabilities. This ratio
is a measure of how well a company is able to pay its short-term obligations using its current
assets on hand.
Looking at this graph we can see that Oracle is the clear winner here. They are at least
double that of the other two companies in all three years. Although Intuit improved in 2012
from 1.20 to 1.87, they are nowhere near the same level of Oracle’s 3.24. While Intuit and
Oracle both had increases from 2011 to 2012, SAP saw a decrease of 0.49. This is one area
where Intuit could definitely improve.
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2010 2011 2012
Current Ratio
INTU
SAP
ORCL
15
Quick Ratio
2010 2011 2012
INTU 1.25 1.20 1.87
SAP 1.39 1.54 1.05
ORCL 2.74 2.59 3.22
The Quick Ratio is very similar to the Current Ratio but only includes the most liquid
assets. It is calculated by subtracting inventory from current assets and then dividing this by
current liabilities. This is again a measure of a company’s short-term liquidity but this time the
short-term obligations are only met with the most liquid assets.
The Quick Ratio is the same as the Current Ratio for Intuit and SAP because neither
company has an inventory figure (Intuit and SAP both deal primarily in software while Oracle
does both hardware and software). This makes Oracle look even better than the other two
companies. Again Oracle is the winner in all three years with Intuit making some gains in 2012
to 1.87 and SAP falling to 1.05.
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
2010 2011 2012
Quick Ratio
INTU
SAP
ORCL
16
Total Debt to Total Assets
2010 2011 2012
INTU 48.81% 41.42% 35.64%
SAP 52.94% 45.33% 47.22%
ORCL 45.27% 43.71% 44.82%
Total Debt to Total Assets is a leverage of total debt in terms of total assets. It includes
both long-term and short-term debt and tangible and intangible assets. In this case, the higher
the ratio, the higher the degree of risk. This makes a lower percentage more ideal.
Looking at this graph we can see that in 2010 Oracle had the lowest ratio while Intuit
has the lowest in 2011 and 2012. Intuit has made the significant difference in the percent of
total debt to assets dropping from 48.81% to 35.64%. Both SAP and Oracle had declines from
2010 to 2011 but increased slightly from 2011 to 2012. Although Intuit wasn’t the winner in
2010, they have since improved their situation and have done much better in the recent two
years.
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
2010 2011 2012
Total Debt to Total Assets
INTU
SAP
ORCL
17
Debt to Equity
2010 2011 2012
INTU 19.07% 18.19% 14.13%
SAP 45.59% 0.34% 0.44%
ORCL 37.14% 30.96% 41.42%
Debt to Equity is calculated by dividing total liabilities by shareholder equity. This ratio is
an indication of debt the company is using to finance their assets.
By looking at the graph you can see that SAP significantly decreased their debt from
2010 to 2011 (45.59% to 0.34%). Intuit has been able to decrease their debt by 5% over the
past three years (19.07% to 14.13%). Oracle had a decrease from 2010 to 2011 (37.14% to
30.96%) but then increased from 2011 to 2012 (30.96% to 41.42%). Although SAP had a high
percentage of debt in 2010, they were able to get out of debt and came out the winner in 2011
and 2012. 14.13% debt for Intuit is not bad but it definitely could improve.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
2010 2011 2012
Debt to Equity
INTU
SAP
ORCL
18
Times Interest Earned
2010 2011 2012
INTU 18.37 23.76 41.33
SAP 19.24 29.26 23.02
ORCL 15.12 17.92 18.44
Times Interest Earned is calculated by taking earnings before income and taxes (EBIT)
and dividing by interest expense. It measures how many times a company can cover its interest
charges on a pretax basis.
Looking at the graph we can see that the number of times interest earned for Intuit
nearly doubled from 2011 to 2012 (23.76 to 41.33). SAP, on the other hand, decreased from
2011 to 2012 (29.26 to 23.02). Oracle remained about the same with small increases (15.12 in
2010 to 18.44 in 2012).
-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
2010 2011 2012
Times Interest Earned
INTU
SAP
ORCL
19
Average Collection Period
2010 2011 2012
INTU 35.66 36.23 31.33
SAP 96.22 94.88 91.64
ORCL 80.10 71.33 68.95
Average Collection Period is calculated by taking accounts receivable divided by average
daily credit sales (Sales/365 days). It is measured in the average amount of days that it takes for
a company to receive payments from its customers. A lower ratio is favorable because it means
that a company is collecting on their receivables more times throughout the year.
Looking at this graph we can see that Intuit’s average collection period is over half that
of the other two companies studied in 2012 (31.33 vs. 91.64 vs. 68.95). This is quite significant
because it shows that Intuit is collecting on their receivables in a much timelier manner than
the other two companies.
-
20.00
40.00
60.00
80.00
100.00
120.00
2010 2011 2012
Average Collection Period
INTU
SAP
ORCL
20
Inventory Turnover
2010 2011 2012
INTU 0 0 0
SAP 0 0 0
ORCL 27.72 49.73 29.64
Inventory Turnover is calculated by taking cost of goods sold divided by inventory. It
measures how many times inventory is sold and replaced within a given period (usually a year).
Intuit and SAP do not have Inventory figures so their inventory turnover is zero. Oracle is
the only company that has inventory numbers so they are the only one that has an inventory
turnover. This is probably due to the fact that Oracle does much more than just provide
application software while Intuit and SAP just provide application software.
0
10
20
30
40
50
60
2010 2011 2012
Inventory Turnover
INTU
SAP
ORCL
21
Total Assets Turnover
2010 2011 2012
INTU 0.67 0.81 0.76
SAP 0.60 0.61 0.60
ORCL 0.48 0.47 0.45
Total Asset Turnover is calculated by dividing sales by total assets. It measures how
much sales is generated for every dollar of assets. It is used to see if companies are growing
revenue in proportion to assets.
Looking at this graph we can see that all three companies remained relatively the same
over the past three years with some small increases and decreases. Intuit jumped from 0.67 in
2010 to 0.81 in 2011 but then fell to 0.76 for an overall increase of 0.09. SAP rose 0.01 but then
fell 0.01 to remain at 0.60. Oracle fell from 0.48 in 2010 to 0.45 in 2012. Intuit is the winner
here showing that they are able to turnover their assets faster than the other two companies
studied.
-
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
2010 2011 2012
Total Asset Turnover
INTU
SAP
ORCL
22
P/E Ratio
2010 2011 2012
INTU 22.14 21.63 22.31
SAP 24.74 14.12 26.54
ORCL 20.29 13.20 14.37
P/E Ratio (or Price-Earnings Ratio) is calculated by taking the market stock price and
dividing by the earnings per share (Net Income/Outstanding Shares). It is a measure of a
company’s current share price compared to its per-share earnings.
By looking at this graph we can see that SAP is the winner in 2010 and 2012 with Intuit
coming out on top in 2011. SAP decreased from 24.74 in 2010 to 14.12 in 2011 and then rose to
26.54 in 2012. Intuit remained relatively the same and only increased 0.17 over the three years
(22.14 to 22.31). Oracle declined from 20.29 in 2010 to 13.20 in 2011 and then rose to 14.37 in
2012.
-
5.00
10.00
15.00
20.00
25.00
30.00
2010 2011 2012
P/E Ratio
INTU
SAP
ORCL
23
Price to Book
2010 2011 2012
INTU 5.37 6.24 5.42
SAP 4.57 3.82 5.29
ORCL 4.36 3.02 3.52
Price to Book is calculated by taking the market stock price and dividing by the book
value per share (Shareholder Equity/Outstanding Shares). It equals the amount of money per
share an investor would receive if, in theory, a company were to cease operations and liquidate
all of its assets.
By looking at this graph we can see that Intuit is the winner in all three years. In 2012
however SAP is getting very close to the level that Intuit is at. Intuit decreased from 6.24 in
2011 to 5.42 in 2012 while SAP increased from 3.82 in 2011 to 5.29 in 2012. Oracle had an
overall decline from 4.36 in 2010 to 3.52 in 2012. Although Intuit is ahead in all three years, it
needs to increase in the upcoming years in order to stay above SAP.
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
2010 2011 2012
Price to Book
INTU
SAP
ORCL
24
Sales Growth
2010 2011 2012
INTU 8.45% 10.41% 9.53%
SAP 9.29% 10.50% 15.76%
ORCL 32.92% 4.21% 0.16%
The Sales Growth Ratio shows how much a company’s sales have increased from the
previous year. It is calculated by taking the current year sales and subtracting the prior year
sales and dividing this number by the prior year sales.
By looking at this graph we can see that Oracle had significant growth in 2010 but
almost no growth in 2012. Intuit has consistent growth every year ranging from 8-10% each
year. SAP growth has increased over the years with 9.29% in 2010 and 15.76% in 2012. None of
the companies had a decline in sales over the past three years, which is good.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
2010 2011 2012
Sales Growth Ratio
INTU
SAP
ORCL
25
Profit Growth
2010 2011 2012
INTU 18.25% 8.93% 11.72%
SAP 4.52% 11.53% 14.72%
ORCL 27.21% 7.49% 2.75%
Profit Growth Ratio is a measure of how much a company’s gross profit has increased
from the previous year. It is calculated by taking the current year gross profit and subtracting
the prior year gross profit and dividing this number by the prior year gross profit.
By looking at this graph we can see that Oracle had a high growth rate in 2010 (27.21%)
but grew only 2.75% in 2012. SAP has improved their growth rates over the past three years
from 4.52% in 2010 to 14.72% in 2012. Intuit decreased from 18.25% in 2010 to 8.93% in 2011.
They increased to 11.72% in 2012 but were not able to have the same growth that they had in
2010.
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
2010 2011 2012
Profit Growth Ratio
INTU
SAP
ORCL
26
Financial Strength
Intuit is a strong company because their products such as QuickBooks and TurboTax
have good brand recognition. When people do their taxes, many use TurboTax to help them
makes sense of all the various forms and such. Because people have to do their taxes every year
and the tax code changes every year, Intuit can keep coming out with new software that people
will buy.
After looking at Intuit’s ratios, there are some areas in which the company is doing really
well. Their debt ratios good as they have the lowest Total Debt to Total Assets and the highest
Times Interest Earned. This shows that the company is not relying too heavily on debt as
compared to assets and is able to collect interest more times throughout the year.
Intuit also has good efficiency ratios. They have been able to make timely collections on
their receivables and are doing so much faster than the other companies (in over half the time).
Intuit has also been able to turnover their assets more times during the year than the other two
companies studied. This means that they are able to generate more sales for every dollar of
assets.
There are also some profitability ratios where Intuit is doing well. Three ratios where
Intuit came out on top were the Gross Profit Margin, Return on Assets, and Return on Equity.
The Gross Profit Margin shows that Intuit has plenty of revenue left over after Cost of Goods
Sold to cover various expenses. Return on Assets measures net income in terms of assets while
Return on Equity measures net income in terms of shareholder equity.
27
Financial Analysis
Intuit is a relatively small company when compared to large software companies such as
Microsoft. There is definitely room for Intuit to expand their horizons and explore new areas of
application software. In their first product, Quicken, Intuit saw an everyday problem of
balancing the check book and created a software program to make things easier for people.
What Intuit needs is another big thing to help improve people’s lives.
Intuit could also see more growth in their sales and gross profit. It is good that Intuit has
been able to remain profitable over the past three years but their growth rates have started to
slow. If they aren’t able to grow their sales and gross profit, the company will eventually die off.
Intuit could also improve in their liquidity. The Quick and Current Ratios showed that
Intuit is struggling to cover their short-term obligations with short-term assets. They need to be
able to turn their assets into cash within a shorter time period.
28
Financial Recommendations
Taking all of this into account, I would make three recommendations for Intuit. First off,
they need to search for new areas in which they can expand their business so that they are able
to see growth in their sales and gross profit. If a company isn’t growing, they are eventually
going to fade out. This is especially important in the area of technology because things are
constantly changing and if you aren’t able to catch up, you are dead.
Second, Intuit needs to improve their liquidity so that they are able to turn their assets
into cash more quickly. It is important that they are able to cover their short-term obligations
with their short term assets. If you start digging into you long term assets in order to cover your
short-term liabilities, something is wrong within the company.
Finally, Intuit needs to stay strong in the areas where they have high performance. The
key is for Intuit to remain strong in their profitability ratios because if they aren’t earning a
profit, they could go out of business. They also need to continue to rely on assets more than
debt because it is unhealthy for a company to rely too heavily on its debt. By continuing to be
efficient, Intuit is able to use their resources wisely on things that are important. One way they
are able to do this is by making timely collections on their receivables.
29
Sources
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n.d. Web. 23 Nov. 2013.
"Investopedia." Investopedia. N.p., n.d. Web. 30 Nov. 2013.
"Less Complexity. More Innovation." About Oracle. N.p., n.d. Web. 23 Nov. 2013.
"SAP.com | SAP." SAP.com | SAP. N.p., n.d. Web. 23 Nov. 2013.
"Yahoo Finance - Business Finance, Stock Market, Quotes, News." Yahoo Finance. N.p., n.d.
Web. 23 Nov. 2013.
"YCharts - Stock Charts, Stock Ratings & Economic Indicators." YCharts - Stock Charts, Stock
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