Analysis of 10k of Dish Network and Direct TV
Executive Summary
Organizations have to work extremely hard to maintain their effectiveness in the market as it is something which induces them to work hard for the economic prosperity. Every company that worked under a specific industry always try to maximize its financial belongings and shareholder’s wealth, but is really important for them to mitigate the issues relating to it which certainly leads to higher economic prosperity.
Financial based competitiveness could be extremely important for the sake of an organization in particular. The main perspective of this assignment is to analyze the financial power of two different companies operating in a same line of business . The companies which have been selected for the same analysis are, Dish Network and Direct TV. According to the result, financial position of Direct TV is more effectively than that of Dish Network. There is only a single thing in which Dish Network is higher than that of Direct TV, which is Current Ratio; otherwise all of the financial based ratios are in the favor of Direct TV in particular. With the help of this particular analysis, it is also showing that investors would prefer to go with Direct TV as compared to Dish Network. With the help of effective recommendations mentioned below Dish Network can enhance their effectiveness.
Part-1
Overview of Companies
Dish network is the American based organization that deals in providing services of direct broadcast satellite. The company is engaged to provide a wide range of services such as satellite TV, Satellite based internet, aural programming, and bilateral TV services that are available for either residential or business consumers across the globe. The company has been associated to cater the nation with matchless satellite services since 1980. Moreover, during the year 2013, the company achieved great milestones by hitting 14 million subscribers who are facilitated from their premium services. Every company’s progress is affiliated with their workforce and the company has got the services of 34,000 working groups with having a proportion of 25,000 that are based in the United States. The head quarter of the company is situated in Meridian, Colorado. Joseph Clayton has been in a charge of undertaking the responsibilities of chief executive officer CEO since 2011. The principal activity of Dish Network is based on satellite TV. Its products are similar to other satellite and cable companies. The viewers can choose from a range of service packages, paying higher for additional channels. By the year 2013, the company’s financial stability was in stable mode and posted annual revenue of $ 13.9 billion by having a net income of $807.49 million during the same year. However, the company’s total assets and equity amounted to be $ 20.375 billion and $ 997.005 million respectively. The company provides its services by means of digital transmit operations center, satellite and restrictive access system.
Dish TV is also committed to offer direct telecast services through satellite medium. This broadcast company is located in El Segundo, California. The company was founded by Hughe corporation in the year 1985 and is one of the reputed company in terms of offering a wide range of broadcasting services to not only in the United States but in diverse destinations. The company duly introduced their digital broadcasting on satellite TV within the premises of the United States as well as Latin America in the year 1994. The company is competitive enough giving hard time to their fellow competitors that are Dish Network and TV cable services operators. By the year 2012, the company successfully made a network of 35.56 million subscribers from all of their accessible areas. The services offering by the company mainly encompasses with alternative local television stations, transmitting TV networks, pay television services, satellite radio services, and private video services. Their services are available for both audiences based on homes and commercial areas. The company’s services delivery including some of the world's most advanced technology and flawless image experience. As far as company financial highlights are concerned, the company has reported a turnover of $ 31.754 billion at the end of the fiscal year 2013. Moreover, the profit margin from entire revenue stood at $ 2.885 billion simultaneously, which is comparatively higher than the Dish Network Company. The company has employed up to 27,200 employees during the year 2013.
Financial Statement would be analyzed with the help of different tools and methods and the methods which have been used here is the ratio analysis .
Net Profit Margin (NPM)
It is an important method to analyze the financial structure of an organization and the comparative NPM of the companies are mentioned below
Gross Profit Margin
Gross Profit Margin is yet another important measure use to assess the financial competitiveness of a company . The GPM of the companies are mentioned below
The gross profit margin (GPM) of Dish Network is lower than that of Direct TV in almost all of the analytical years. From the above mentioned analysis, this particular thing is found that the GPM of Direct TV is in the congestion band from 45% to 50% (Money, 2014). The average GPM of Direct TV Company is 48.71%, while it is of 40.55% for Dish Network. Though, both of the companies are in a commanding position, but Direct TV is more in the dominating position in particular as compared to Dish Network.
Return on Assets (ROA)
Return on Assets (ROA) is one of the most important ratios which used by the organizations to analyze the effectiveness of assets for an organization. It is an important provision from the viewpoint of an organization . The return on assets of the chosen companies are mentioned below
Current Ratio
Current Ratio is an important ratio which used to assess how effective an organization is as far as meeting with its short term promises and financial obligations. This particular ratio is known as Liquidity Ratio and it is used for motley purposes.
This particular analysis is showing that the Dish Network is more effective and worthwhile as compared to Direct TV in terms of meeting with its short term financial promises. The average CR of Dish Network is 1:50 while it is 0:95 for Direct TV, which is showing the strength of Dish Network as far as meeting with its short term financial obligation is concerned.
Financial Statement Cash Flow Analysis
Cash Flow analysis is an important thing from the viewpoint of a financial statement. There is yet another ratio which used to assess the level of cash flow of a company and among them; the name of cash flow operations to sales ratio is an important one.
Cash Flow to Sales
Cash Flow operation to sales is an important ratio used to assess the effectiveness of a company in terms of generating the sales
Part-2
Valuation and Capital Budgeting
In terms of valuation of stocks and bonds, Direct TV is more worthwhile as compared to Dish Network as the company have enough financial power from which they can influence over the decisions in particular. Capital Budgeting is the method through which enables the company to observe either the long term investment strategy for instance buying machinery, substitute machinery, produce goods are competitive enough that value the cash invested from the company’s capital arrangement. Most specifically, it is the process of assigning funds to prescribed investment or any other crucial capital . The reason behind to apply the capital budgeting framework is to elevate the image of the company in front of their investors from diverse aspects. The capital budgeting process mainly encompasses with a number of techniques such as payback interval, profitability index, accounting rate of profit and many others. All the methods pertain in this regard directed the surplus cash flows generated from future individual project or investment A Discounting Cash Flow technique which also known as Net Present Value (NPV) technique would be used for the same purpose
Discounted Cash Flow Technique
It is a significant financial model that is acquired to valuing the attractiveness of certain investment prospects. It is usually denoted by (DCF) that is widely exploited by financial professionals to analyze the potential free cash flow anticipations and apply discounts by using the weighted average cost of capital (WACC) method in order to get the present value so that the future investment opportunity can be easily analyzed in an efficient manner. If the value reaches higher in relation with present cost of investment through Discounted Cash Flow (DCF) analysis, then it directs that the opportunity for investment is supportive to reflect synergic effects over the company. The total future cash flows, either incoming or outgoing, is the NPV that is taken into consideration like value or cost of the cash flows . The present value of the future can also be indicated with respect to the list of years’ purchase of potential yearly undiscounted cash flows that projected to grow. Weighted Average Cost of Capital which has been chosen for the same analysis is 12% and the initial outlay is 10,000 $. The NPV is mentioned below
The investment decision to invest in Direct TV would be more worthwhile as compared to Dish Network. The stocks and Bonds of the company are in effective stance in particular.
Part-III
Capital Structure and Dividend Policy
Capital structure refers to the combination of the company’s long and short term liabilities, and preferred equity. The fundamental aim of the capital structure is to determine the ways that a company finances its entire line of operations and growth through the use of numerous sources of capital. The fraction of both long term and short term liabilities have been taken into account in analyzing the capital budgeting. The long term debt may consist of bond issues or note payable while, the short term debt mainly involves working capital. When the people mention capital structure, then it is certainly indicated to the company's debt-equity ratio that displays the insight in term of the risk level of the company . In general, a heavier debt financing by the greater risk, because it is relatively highly leveraged companies. On the other hand, the dividend policy is shaped by the companies in order to specify the amount disbursed to the shareholder as a cash dividend. These are the guiding principles that embark the part of the earnings shell out to the dividend holders in different timely manners such as reimbursement of cash dividend at very moment or at later intervals by raising the payouts. Whether it is related to payment of dividends or specifies the amount, depending on the inappropriate profitability (excess cash) of the company and is greatly persuaded by the strength of the company’s income structure in terms of the long term period. It is a financial theory that as and when the cash has been exceeded from defined target and it is not an obligation for the company, then the management is liable to disburse such surplus amount by issuing cash dividends to the stakeholders. Conversely to it, the management can repurchase the company’s stocks by utilizing stock purchase back plan.
Capital Structure plays an important role from the viewpoint of an organization and it is equally beneficial for Dish Network and Direct TV as well. Both of the companies are quite effective and active in the primary market operations, which is a good sign from their own viewpoint. Capital Structure of the companies could be found with the help of Debt to Equity
Debt to Equity of Direct TV = 28,449 / 6,544 = 4.34
It means that the proportion of Debt in the company is 81%, while the equity proportion is only 19%
Debt to Equity of Dish Network = 19,379 / 997
Dividend Payout of Direct TV = 0.9 / 5.22 = 17.2%
Dividend Payout of Dish Network = 0.8 / 5.67 = 14.12%
It could be said that the dividend payout ratio of Direct TV is more worthwhile than that of Dish Network.
Conclusion & Recommendation
The main perspective of this assignment is to analyze the financial power of two different companies operating in a same line of business. The companies which have been selected for the same analysis are, Dish Network and Direct TV. From the entire analysis, it is found that the financial position of Direct TV is comparatively more powerful than that of Dish Network, in almost every aspect. Mentioned below are some of the major recommendations for Dish Network
- The company has to decrease its operational cost in order to increase its bottom line
- The company has to increase the level of current assets in order to increase its Current Ratio
- The companies increase the cash flow from operations to become competitive
- The company has to increase its dividend payout to compete with Direct TV and attract shareholders
References
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Brigham, E. F. (2007). Fundamentals of Financial Management. Chicago: Cengage Learning.
Correia, C. (2012). Financial Management. Paris: Juta and Company Ltd.
Ehrhardt, M. (2013). Financial Management: Theory & Practice. London: Cengage Learning.
Fabozzi, F. J. (2009). Finance: Capital Markets, Financial Management, and Investment Management. Perth: John Wiley & Sons.
Kretlow, W. (2011). Contemporary Financial Management. Olympia: Cengage Learning.
Shapiro, A. C. (2009). Multinational Financial Management. New York: John Wiley & Sons.
Businessweek. (2014). Businessweek.com. Retrieved 17 April 2014, from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=DISH&dataset=balanceSheet&period=A¤cy=native
Money, M. (2014). Income Statement - MSN Money. Investing.money.msn.com. Retrieved 17 April 2014, from http://investing.money.msn.com/investments/stock-income-statement/?symbol=DTV
