Computer Sciences Corporation
Outlook of the Industry
Information technology (IT) is one of the most important and authentic fields in the world, therefore it could be said that the entire industry is in great financial condition (Carpenter, Durtschi & Gaynor, 2011). There are number of companies in the world, specifically comes under the ambit of this industry in total. Company’s lies in the industry are enjoying high net income profitability of the company as a whole.
According to revenue, this industry was on the peak some years before and currently it is also on a higher scale as well. United States and United Kingdom (UK) are some of the highly developed countries of the world, in which the effectiveness of this industry is on its peak, in fact the industry, are one of the largest and fastest growing industries of the world.
Microsoft, IBM and Intel are some of biggest industries of the world, operating in the Information technology sector and made this industry, one of the fastest growing industries of the world. By far and large, it could be said that this industry has a total proportion of around trillions of dollars in the overall economy of the world and soon, this industry will become the largest industry of the world, earn the highest amount of profit.
Background
Computer Sciences Corporation (CSC) is an American based Multinational corporation, which provides all sorts of information technology (IT) services and other professional services, relates to IT to its clients. The company has its central office in Virginia, United States (US). Different services of the company include outsourcing like systems analysis, development of the application, network based operations and user computing.
The company has valid license system software including the SaaS software, which is quite authentic, reliable and widely used software in different things. The company provides all sorts of computer based business process in which different cyber security management based things would be analyzed accordingly (Financial Highlights of CSC 2005-2012). The company is known as the 4th largest admired Information Technological (IT) service both in size and economical revenue. CSC has its listing on the Forbes Global 200 list.
The company earned net revenue of $ 15.877 billion the fiscal year2012, along with the net income of $ -4.242 billion for the same year, manifesting that the entity actually reported corporate loss in the year 2012, which is showing the irregularity of the company as a whole. There are around 96,000 employees of the company and the entity has different offices in number of countries of the world.
Stock Price Analysis
There are enormous ratios that usually come under the ambit of stock prices analysis. Some of the ratios that could be used here are, Dividend Discount Modeling (DDM) and Gearing Ratio (Carpenter, Durtschi & Gaynor, 2011).
Gearing Ratio Analysis
Investors are very much concerned with the riskiness of a company as a whole (Carpenter, Durtschi & Gaynor, 2011). Certain things, which the investors has to consider in order to analyze the things accordingly are pertains to investment. A ratio that compares some form of the owner’s equity with the borrowed funds is known as Gearing Ratio.
Analysis and computation above reveals that the concern of investment from the standpoint of the investor is on a lower level, because of low Gearing Ratio (GR). The GR of CSC the year 2008 was 1.524%, which increases consecutively and significantly by 0.021%, 0.099% and 0.227% for years (FYs) 2009, 2010 and 2011 respectively. The average GR of the company is 1.583%, which is lower than the industry average of 1.68%.
Dividend Discount Model (DDM) is yet another authentic and widely used analytical models used to analyze the effectiveness of the investment of a company (Carpenter, Durtschi & Gaynor, 2011).
The current price of the share of the company is $ 48, which is lower than the actual traded value of CSC’s share, which is a clear evidence that the share of the company is undervalue, hence it
Liquidity
Ratio that analyzes the liquidity stance of a company from different angles comes under the ambit of Liquidity ratios. Liquidity means the ability of the company to analyze the stance of meeting with financial obligations and promises (Carpenter, Durtschi & Gaynor, 2011). There are two different rations, which have been taken into account for this analysis and the ratios, used here are Current Ratio and Acid Test Ratio (ATR).
A ratio that used to analyze the effectiveness of an organization, to meet with its financial promises is concerned is known as Current Ratio (CR). It quite authentic ratios that could be used for the same purpose in total, and it is used entire by the corporate analysts. The computation of CR is mentioned below
Current Asset (CA) of CSC is in a good range as well. The CR of the company was 1.178 in the year 2008, which increased and decreased with some percentages but remain in the range of 1. The average CR of the company is 1:60, which is higher than industry average, which is 1. This analysis is apprising that the entity always comply with theshort-termcompliance and obligations and promises, with meeting with all the industry norms and regulations in total.
Likewise the Current Ratio, there is another important ratio that comes under the ambit of liquidity with the name of Acid Test Ratio (ATR) (Carpenter, Durtschi & Gaynor, 2011). A ratio, which is used to analyze the effectiveness of a company in meeting with short term financial obligations after subtracting inventories, is known as ATR. In the case of CSC, there is no inventory; hence the utilization of the ratio for this purpose would not be deemed positive and perfect from the standpoint of the company as a whole.
Profitability
The ratio that used specifically to judge the financial performance of a firm as a whole is known as Profitability Ratios. As mentioned above, organizations always keep its momentum in a queue for the economic prosperity; hence it is mot than important to analyze the financial effectiveness of the company as a whole from all of the angles. There are two ratios, which need to be used in this analysis, which predominantly are Net Profit Margin (NPM) and Gross Profit Margin (GPM).
In finance, net means anything that comes in the end of a thing in total. Net Profit Margin (NPM) is one of the widely used profitability ratios that use to assess the financial competitiveness of the company as a whole (Carpenter, Durtschi & Gaynor, 2011). The computation of NPM is mentioned below,
Financial Risk
Financial risk in an organization measures the variability of finances in an organization. The financial risk measures the going concern capability of an organization. It shows the extent of the financial performance of an organization. There are several measures of financial risk such as liquidity measures and leverage levels. Of most concern, the leverage level plays a crucial role in determining the extent to which the organizational activities are financed by internal or external funds.
Asset Management
Asset management ratio measures the extent to which the company assets are used in the realization of revenue. The assets in an organization, both current and noncurrent are fundamental in financial performance. This can be measured using ratios which are used to evaluate whether the assets are effectively and efficiently utilized. Sales to total assets ratio indicate the extent to which a unit sold is contributed by the asset utilization. The ratio is calculated by dividing annual sales with the total assets in an organization.
The corporation shows a decreasing trend in the utilization of its assets in the realization of revenue. This is evident from the trend exhibited by the graph. In the year 2010, the asset utilization value is higher than the value in the year 2012. The revenue realized in the year 2010 is 2.78 dollars per 1 dollar value of an asset which is higher than that of the year 2012. The revenue realized from the asset utilization is 0.98 dollars per dollar value of total assets. This shows that there is a unitary utilization of assets which should not be the case. The financial implication of the situation is that, the performance of the organization is declining. This will make the corporation not to meet its financial obligation when they fall due for payment. The management should devise ways and design effective strategies to improve the process of utilizing its assets to realize more revenues than in the current situation. This will make the organization meet performance its functions in accordance with the going concern principle and the shareholder expectations. In relation to the industry asset utilization, on average they both seem to have the same level of asset utilization. However, the industry seems to realize more of sales revenue per dollar value of its assets. Thus, the performance of the industry is higher than that of the corporation.
Valuation
Valuation ratio is a measure of the marketability of organization securities in the stock market. The analysis is used measure the extent to which the company shares are attractive to investors. The ratio shows the benefit of holding an organization's security. The Price earnings ratio is the most ratio used to evaluate the value of organization securities. It is used to compare the cost of the share to the profits realized by an organization.
The corporation valuation ratio is on a decreasing trend. This is the scenario provided from the graph. The implication of this is that the market performance of the corporation in terms of share price is declining. Despite the market price per share having an increasing performance, the price earnings ratio is declining. As indicated from the table, the share prices have increased by 2.56 percent from the year 2011 to the year 2012. This is a recommendable trend as it indicates that the corporation shares are becoming attractive in the market. This may be contributed by the increase in its financial performance. On the other hand, earning per share is on an increasing trend. This is as indicated by the movement of earnings per share value from 5.36 dollars to 23.37 dollars. In relation to industry performance, the industry is more performing than the corporation. This is evident from the price earning ratio of the industry and the corporate.
DuPont analysis
Conclusion
Organizational officials as well as the upper management always remain concerned with the long term productivity of the company and there are certain decisions and things, which a firm usually take during its operations and consider fact full and perfect decision for the entire firm in particular (Carpenter, Durtschi & Gaynor, 2011).
Among certain decisions, the decisions relate to leading the economic prosperity of the company is the most authentic ones and perfect ones as well. Strategies deems the most sophisticated and important ones from the aspect of the organization. There are numerous companies in the world that worked under extremely pressure merely to enhance the productivity and among those companies the name of Computer Sciences Corporation (CSC) is one of them. The main theme of this paper is to analyze the financial position of the chosen organization, in short it is found that it’s a financial analysis based project in which the financials of the company has been analyzed from different slants.
References
CSC Corporation. (2012). CSC ANNUAL REPORT 2012. 1-144.
CSC Corporation. (2010). CSC CRPORATION ANNUAL REPORT 2010. 1-156.
