Financial Analysis Hewlett Packard Corporation 2007

HEWLETT PACKARD CORPORATIONBalance Sheet

as at December 31, _ _ _ _ _.2006 2005

$ in '000

Assets

Current Assets Cash & Cash Equivlent 16,400 13,911

Short-Term Investment 22 18

Account Receiveables 10,873 9,903

Financing Receiveables 2,440 2,551

Inventory 7,750 6,877

Other Current Assets 10,779 10,074

Total Current Assets 48,264 43,334

Non-Current Assets Property, Plant & Equipments 6,863 6,451

Long term financing Receivables 6,649 7,502

Goodwill 16,853 16,441

Purchased Intengible assets 3,352 3,589

Total Non-Current Assets 33,717 33,983

TOTAL ASSETS 81,981 77,317

EQUITY AND LIABILITIES

CURRENT LIABILITIES Notes Payable and S.Term Borrowing 2,705 1,831

Accounts Payables 12,102 10,223

Employee Compensation & Benefits 3,148 2,343

Taxes on earnings 1,905 2,367

Deferred Revenue 4,309 3,815

Accrued Restructuring 547 1,119

Other Accrued Liabilities 11,134 9,762

Total Current Liabilities 35,850 31,460

NON-CURRENT LIABILITIES Long-term Debt 2,490 3,392

Other Liabilities 5,497 5,289

Commitments & Contingencies - -

Total Non-Current Liabilities 7,987 8,681

Total Liabilities 43,837 40,141

SHARE CAPITAL AND RESERVES

Preferred Stock - -

Common Stock 27 28

Additional Paid in Capital 17,966 20,490

Prepaid Stock Repurchase (596) -

Retained Earnings 20,729 16,679

Other Accumulated Comprehensive Income (Loss) 18 (21)

Total Shareholder's Equity 38,144 37,176

TOTAL EQUITY AND LIABILITIES 81,981 77,317

- -

HEWLETT PACKARD CORPORATIONProfit & Loss Account

For the Year Ended December 31, _ _ _ _ _.

2006 2005 2004

$ in '000

Net Revenue

Products 73,557 68,945 64,046

Services 17,773 17,380 15,470

Financing Income 328 371 389

Total Net Revenue 91,658 86,696 79,905

Cost & Expenses

Cost of products 55,248 52,550 48,659

Cost of Services 13,930 13,674 11,962

Financing Interests 249 216 190

Research & Developments 3,591 3,490 3,563

Selling, General & Administrative 11,266 11,184 10,496

Amortization of Purchased Intangible Assets 604 622 603

Restructuring charges 158 1,684 114

In-process Research and Development Cha 52 2 37

Pension Curtailment - (199) -

Acquisition related charges - - 54

Total Operating Expenses 85,098 ### 83,223 75,678

Earning from operations 6,560 3,473 4,227

Interest & other, Net 606 189 35

Gains (Losses) on Investments 25 (13) 4

Dispute Settlements - (106) (70)

Earnings Before Taxes 7,191 3,543 4,196

Provision for Taxes 993 1,145 699

Net Earnings 6,198 2,398 3,497

Net Earnings per share;

Basic 2.23 0.83 1.16

Diluted 2.18 0.82 1.15

Weighted average shares used to compute net earnings per share

Basic 2,782 2,879 3,024

Diluted 2,852 2,909 3,055

HEWLETT PACKARD CORPORATION Financial Analysis

2006 2005

Liquidity Ratios

1. Net Working Capital:

= Current Assets - Current Liabilities = 48,264 - 35,850 = 43,334 - 31,460

= 12,414 11,874

The Company's net working capital increased over the period. In 2005, the company's net working capital was $ 11,874 million, which now increased 4.55 % and reached up to $ 12,414 million in 2006 .

2. Current Ratio: = Current Assets

Current Liabilities

= 48,264.00 43,334.00

35,850.00 31,460.00

= 1.35 1.38

The company's current ratio decreased in current year 2006. Company's Working Capital increased but the its current ratio about to meet Company's ability current liabilities out of its current assets decreased from 1.38 to 1.35.

3. Quick (Acid Test) Ratio: = Current Assets - Inventory

Current Liabilities

= 48,264 - 7,750 43,334 - 6,877

35,850 31,460

= 1.13 1.16

Company's Quick ratio show that the company's ability to made payments its current liabilities out of its most current assets also decreased in the current financial year 2006 as campared to 2005.

In Short, the HP Company's liquidity ratio results shows that the company's net working capital increased but the company ability to pay its currents liabilities out of its currents assest decreased as compared to the last financial year of 2005.


2006 2005

Activity (Asset Utilization) Ratios

1. Account Receivable Turnover = Net Credit Sale

Account Receivable

= 91,658.00 86,696.00 10,873.00 9,903.00

= 8.43 time 8.75 times

Accounts Receiveable turnover ratio show that Company net sale increased, the company's account receiveable also increased but the accounts receiveables turnover reduced. In this regard, company needed to be evaluate its policies in order to increase Account Receiveable turnover.

2. Collection Period: = 365 Days

Account Receivable Turnover

= 365 3658.43 8.75

= 43.30 days 41.69 days

As company's accounts receiveable turnover ratio slightly decline, this decline affect the company's collection period from the receiveables. The company's collection perioed increased as compared to 2005 from 41.69 (almost 42 days) to 43.30 (almost 43 days).

3. Inventory Turnover Ratio: = Cost of Good Sold

Inventory

= 69,427 66,440 7,750 6,877

= 8.96 time 9.66 times

Inventory Turnover ratio show that that the company's inventory turnover reduced as compared to the last financial year. In 2005, it was 9.66 times that now decline 7.24% and come down to 8.96 times.

4. Inventory Age: = 365 Days

Inventory Turnover

= 365 3658.96 9.66

= 40.74 days 37.78 days


2006 2005

Due to decrease in Inventory turnover ratio, this affect the company's inventory age that now increase 7.83 % from 37.78 days to 40.74 days that is holding of money in inventroy, instead of investing in other business operations.

Activity (Asset Utilization) Ratios (Con't)

5. Operating Cycle = Avg. Collection Period + Inventory Age

= 43.30 + 40.74 41.69 + 37.78

= 84.04 days 79.47 days

The Operating cycle of the HP Company increased in the current year from 79.47 days (Almost 79 days) to 84.04 days ( almost 84 days) that increased by almost 5.

6. Total Asset Turnover Ratio: = Sale

Total Assets

= 91,658 86,696

81,981 77,317

= 1.12 1.12

The HP's assets turnover results show that the company's remains the constant. There is not change in assets of the company in the current financial year.


2006 2005

Leverage (Solvency, Long-Term Debt) Ratios

1. Debt Ratio: = Total Liabilities

Total Assets

= 43,837 40,141

81,981 77,317

= 0.53 0.52

The debt ratio of the company show that the company's debt liability against its total assets slightly increased as to last year from 0.52 to 0.53. This show that the share of debt in company increased.

2. Debt Equity Ratio: = Total Liabilities

Total Equity

= 43,837 40,141

38,144 37,176

= 1.15 1.08

Like the debt ratio of the company, the debt equity ratio also show that company's debt liability against its shareholders equity increased by 6.48% as compare to last year from 1.08 to the 1.15

3. L-Term Debt to Equity Ratio: = Long Term Debt

Total Shareholder Equity

= 2,490 3,392

38,144 37,176

= 0.07 0.09


2006 2005

The Long Term debt to share holders equity ratio results show that the company's long term debts against its shareholders equity reduced. In 2005 that was 0.09 that now decreased to 0.07 which is in favour of shareholders.

Profitability Ratios

1. Gross Profit Margin Ratio: = Gross Profit

Net Sale

= 22,231 20,256

91,658 86,696

= 0.24 0.23

HP gross profit margin slightly increased in current financial year. In 2005, it was 0.23 of the total sale and now it increase up to 0.24 with difference of 0.01.

2. Operating Profit Ratio: = Earning Before Interest & Taxes (EBIT)

Net Sale

= 7,191 3,543

91,658 86,696

= 0.08 0.04

Like gross profit margin, the company's current years operating profit increased. This year company's operating profit double increase as compare to last year operating profit. In 2005, the HP's operating profit was 0.04 of net sale that now is 0.08.

3. Profit Margin Ratio: = Net Profit

Net Sale

= 6,198 2,398

91,658 86,696

= 0.07 0.03

The company's profit margin also increased from 0.03 to 0.07 of net sale in this


2006 2005

current year. This show that the company take necessary steps to controll its expenses to increase its profits.

Profitability Ratios ( Con't )

4. Return on Investment: = Net income

Total Assets

= 6,198 2,398

81,981 77,317

= 0.08 0.03

The return on investment (Assets) of HP corporation increased more then double as last year. Last year the return was 0.03 of total assets (Investment) that now raised to 0.08.

5. Return on Equity: = Net income

Total Shareholder's Equity

= 6,198 2,398

38,144 37,176

= 0.16 0.06

The return on equity of HP corporation is also increased more then double of

last year. Last year the return on equity was 0.06 that now raised to 0.16.


2006 2005

Market Value Ratios

Market value ratio are final group of ratios that relates the firm's stock prices to its

earning (or book value) per share.

Year Mkt. Price O.Standing Net Income

$ S.holders (Million) $ in Million

2004 41.64 3500 48472005 40.31 3507 48722006 48.25 3511 5080

1. Earning per Share = Net Income - Preferred Dividend

Common Stock Outstanding

= 1.45 1.39

Where as some ratio are declining in 2005 & 2006 but the earning per share of share holder continuously increased over the time period specially time the company make sharp increase in earning

per share.

2. Price Earning Ratio: = Market Price per Share

Earning per Share

= 33.35 29.02

As we noted that earning per share increased, similarly the price earning ratio also increased.


2006 2005

In 2005, the PE Ratio was 29.02 that now raise ot 33.35.

3. Book Value Per Share = Total Stockholder's equity - Preferred Stock

Share Outstandings

0.01 0.01

Similarly, as the earning per share & price earning ratio of the company increases, the company shares book value also increased in 2006 from $ 4.66 to now $ 4.82.


2006 2005 2006 2005

Liquidity Ratios

1. Net Working Capital:

= Current Assets - Current Liabilities = 48,264 - 35,850 = 43,334 - 31,460 12,414.00 11,874.00

= 12,414.00 11,874.00

The Company's net working capital increased over the period. In 2005,

the company's net working capital was $ 11,874 M, which now increased 4.55 % and

reached up to $ 12,414 in 2006 .

2. Current Ratio: = Current Assets

Current Liabilities

= 48,264.00 43,334.00

35,850.00 31,460.00

= 1.35 1.38

In Coca-Cola Company, the Company's Current ratio also continuously decreasing as Net

Working Capital decreased. This shows that the Company's ability to meet it current liabilities out of its

current assets decreased. In 2004, it was 1.10 which reduced 0.06 in 2005 to 1.04. But in current Financial


2006 2005 2006 2005

year 2006, it further reduces with 0.09 form 1.04 to 0.95 rapidly as compared to 2005.

Liquidity Ratios (Con't)

3. Quick (Acid Test) Ratio: = Current Assets - Inventory

Current Liabilities

= 1.13 1.16

Quick (Acid Test) ratio is used to measure the value of organization most current assets to

meet/cover its current liabilities. Inventory & Prepaid expenses are not included because they not easily

convertible into cash or cash equivalent and are not capable of covering current liabilities.

Coca-cola Company's Quick (Acid Test) ratio also on decreasing trend. And this decreased

increased with the passage of time. In 2004, it was actually at 0.97 and came down at 0.90 in 2005. In

2006, this down ward trend continue and it further decreased and reached at 0.76 with a decrease of 0.12.

In Short, the Coca-Cola Company's liquidity ratio results show that the company is in

a weak position against its current liabilities and this trend is continue. If Company not take pay


2006 2005 2006 2005

attention to this situation, it creates serious problem for the company in future.

Activity (Asset Utilization) Ratios

Activity ratio are used to determine how quickly various accounts are converted into

sales or cash. It is necessary to evaluate the activity or liquidity of specific current accounts. For

this purpose, various ratios exist to measure the activity of receivables, inventory & Total Assets.

1. Account Receivable Turnover = Net Credit Sale

Avg. Account Receivable

*Avg. Account R/ = 10,388.00 #VALUE!


2006 2005 2006 2005

= - t #VALUE!

The Account Receivable Turnover ratio gives the number of times the account receivables

are collected during the year. The higher account receivable turnover, the better company in collecting

revenue from customers. Moreover, an excessively high ratio show that company follows stringent credit

policy.

In 2005, Company's account receivable turnover ratio was 10.38. The drop in this ratio shows

a problem in collecting the revenues from the creditors/customers. The company needs to re-evaluate its

credit policy.

2. Collection Period: = 365 Days

Account Receivable Turnover

= #DIV/0! d #VALUE!

Collection period is the number of days it takes to convert/collect a sale credit sale) into cash.

In 2005, Company's collection period was 35.17 days (almost 35 days) that now increased to

37.77 days (almost 38 days). Now company's problems increased as the Company's account receivable

time period reduced and Secondly, the company's collection period efficiency decreased.


2006 2005 2006 2005


3. Inventory Turnover Ratio: = Cost of Good Sold

Average Inventory

* Avg. Inventory = 7,313.50 #VALUE!

= 11.64 t #VALUE!

Inventory turnover ratio describes that how many times the inventory (Finished goods ) are

moved/sold. Holding of excess inventory show that Company funds tied up in inventory, high inventory

carrying cost and as well as risk of obsolescence.

In 2005, Company's Inventory turnover ratio was 5.76 that now reduce slight to 5.33 times.

This shows that there is stocking of goods that may be due the introduction of new product line or due

obsolete goods that have actually no worth.

4. Inventory Age: = 365 Days

Inventory Turnover

= 31.37 d #VALUE!

Inventory age is the ratio of calculating the time period for inventory/finished goods to be


2006 2005 2006 2005

hold with the company.

In 2005, Company's Inventory age was 63.33 days (almost 63 days) which in 2006 increased

to 68.52 days (almost 69 days) with a difference of 6 days that is not good for the company. As much

lengthening the holding period show potentially greater the risk of obsolescence.


5. Operating Cycle = Avg. Collection Period + Inventory A

= #DIV/0! d #VALUE!

The Operating cycle of an organization is the number of days it take to convert inventory

and account receivables to cash. For every business entity, the minimum/short operating cycle is

desirable.

The Coca-cola Company's operating cycle in 2006 is 106.28 days (almost 106 days) that are

more then the operating cycle of last year 2005. In 2005, the operating cycle was 98.50 days (almost 99

days) which now length by 7 days. This is an unfavorable trend to tied up amount of money with the

non-cash assets or any investment.


2006 2005 2006 2005

6. Total Asset Turnover Ratio: = Sale

Avg. Total Assets

* Avg. Total Asset = 79,649.00 #VALUE!

= - #VALUE!

The Operating cycle of an organization is the number of days it take to convert inventory

and account receivables to cash. For every business entity, the minimum/short operating cycle is

desirable.

The Coca-cola Company's operating cycle in 2006 is 106.28 days (almost 106 days) that are

more then the operating cycle of last year 2005. In 2005, the operating cycle was 98.50 days (almost 99

days) which now length by 7 days. This is an unfavorable trend to tied up amount of money with the



2006 2005 2006 2005

Leverage (Solvency) is the company's ability to meet its long-term obligations as they

become due in future. Solvency analysis concentrated on the long-term financial and operating

structure of the business. Further more the solvency is dependent long-run profitability, unless the

organization is not profitable the organization will not be able to meet its long-term debts.

1. Debt Ratio: = Total Liabilities

Total Assets

= 0.5347 0.5192

The debt ratio compares the total liabilities (total debt) to total assets. It shows the percentage

of total funds obtained from the creditors for business operations.

The Coca-cola Company's debt ratio show that in 2005 the company make improvement in its

debt ratio and reduce it from 0.4913 to 0.4442 . But in 2006, the company slightly improve its debt ratio

from 0.4442 of 2005 to 0.4353 in 2006. This shows that the degree of debt decreased to total assets.

7 Debt Equity Ratio: = Total Liabilities

Total Equity

= 1.15 1.08

The debt equity ratio is the significant measure of solvency ratio. In high debt result, it will


2006 2005 2006 2005

less flexibility for company in obtaining more funds in tight money market. High debt equity ratio also

make it difficult fro the company to meet interest charges and principal payments at maturity.

The Coca-cola Company's debt equity ratio show that the company’s debt equity ratio slightly

improved as compared to 2005 & 2004.


3. Interest Coverage Ratio: = Earning Before Interest & Taxes (EBIT)

Interest Expense

= #VALUE! #VALUE!

The interest coverage ratio shows the number of times before tax earnings cover interest

expense. We can say that it is a safety margin indicator that tells how much decline in earnings an orga-

nization can bear/control.

The Coca-cola Company's Interest coverage in 2006 is 30.44 that shows a positive indicator

and show that more earnings are available for interest charges payments as compared to last year 2005.

4. L-T Debt to Equity Ratio: = Long Term Debt


2006 2005 2006 20054. L-T Debt to Equity Ratio: =

Total Shareholder Equity

= 0.0653 0.0912

The long-term debt to equity ratio is balance between the firms long term debts and its owner

equity.

The Coca-cola Company's long-term debt of equity ratio slightly increase in 2006 at 0.0777

from 0.0706 in 2005. This shows that the company's long-term debts increased over the year while these

were decreased in 2005 as compared to 2004 from 0.0726 to 0.0706.

Profitability Ratios

Profitability ratios reflects the company positions as per their operations and the return

of the organization . What organization's net income or loss after its operations/business activities.


2006 2005 2006 2005

1. Gross Profit Margin Ratio: = Gross Profit

Net Sale

= #DIV/0! #DIV/0!

The gross profit margin reveals the percentage of each dollar left over after the business has

paid for its goods. The higher the gross profit earned, the better.

Current year 2006, the Coca-Cola Company's gross profit margin slightly increased to 0.6611

from 0.6453 in 2005. This is a positive result for the company that shows company make effort to reduce

its merchandising/manufacturing cost.

2. Operating Profit Ratio: = Earning Before Interest & Taxes (EBIT)

Net Sale

= #VALUE! #VALUE!

The operating profit margin ratio of the company decreased in current financial year 2006.

As we note that the company's gross profit ratio increased and its operating profit ratio decreased that

show the company has to face some increase in its operating expenses or may be some external factor

due to which the company's operating cost not remain in control.


2006 2005 2006 2005

Profitability Ratios ( Con't )

3. Profit Margin Ratio: = Net Profit

Net Sale

= #DIV/0! #DIV/0!

Profit margin ratio indicates the profitability generated from revenue. It is an important ratio of the company that summeries the company's profitability and its operations performance.

In current year of 2006, the company maintain its profit constant at the rate of last year profits. The profit margin ratio results shows that the earning power of the company remained static.

4. Return on Investment: = Net income

Avg. Total Assets

* Avg. Total Asset = 79,649 #VALUE!

= 0.0778 #VALUE!

Return on investment (Or Assets) is the main measure of observing the performance of any business. ROI (ROA) shows extent to which earnings are achieved on the investment made in business.


2006 2005 2006 2005

ROI indicates efficiency with which management has used its available resources to generate income.

The Coca-Cola Company's current year return on investment slightly increased from 0.1604

to 0.1711 in 2006. This shows that the company's assets productivity increased over the period.

5. Return on Equity: = Net income

Avg. Shareholders

* Avg. Shareholder = 37,660 #VALUE!

= 0.1646 #VALUE!

Return on Common Equity (ROE) is the measure the rate of retrun earned on the common

Stockholder' investment.

In 2005, the ROE was 0.3018. There has been slightly increase in the return on equity of the

stockholders.

Market Value Ratios

Market value ratio are final group of ratios that relates the firm's stock prices to its

earning (or book value) per share.

Year Mkt. Price O.Standing Net Income


2006 2005 2006 2005 Year

$ S.holders (Million) $ in Million

2004 41.64 3500 48472005 40.31 3507 48722006 48.25 3511 5080

1. Earning per Share = Net Income - Preferred Dividend

Common Stock Outstanding

= 1.45 1.39

Where as some ratio are declining in 2005 & 2006 but the earning per share of share holder continuously increased over the time period specially time the company make sharp increase in earning

per share.

2. Price Earning Ratio: = Market Price per Share

Earning per Share

= 33.35 29.02

As we noted that earning per share increased, similarly the price earning ratio also increased. In 2005, the PE Ratio was 29.02 that now raise ot 33.35.

3. Book Value Per Share = Total Stockholder's equity - Preferred Stock

Share Outstandings

0.01 0.01

Similarly, as the earning per share & price earning ratio of the company increases, the company shares book value also increased in 2006 from $ 4.66 to now $ 4.82.

Documents

Financial Analysis Hewlett Packard Corporation 2007