The reported financial statements of the company do not give an in depth view of the financial strengths and weaknesses of the company. Further, the reported statements may not allow users to compare the results of the company with those of other companies in the same industry. This calls for the need to carry out ratio analysis on the financial data of a company. Ratio analysis breaks down the financial data of a company into components for better understanding (Collier 2009). The paper will attempt to carry out ratio analysis of 3D Systems Corporation. The ratio analysis will focus on credit ratios, operating ratios and valuation ratios. Further, the ratio analysis will cover a period of three years, that is, between 2010 and 2012. The paper also will discuss the recent business performance and strategic decisions of the company.
The credit ratios will give information on the leverage, solvency, and liquidity of the company. The table presented below shows a summary of the credit ratios over a period of three years.
|Debt / equity||0.06||0.54||0.18|
A company can leverage the amount of equity in the capital structure by either borrowing money or purchasing additional fixed assets. A company with a high leverage is likely to incurring losses in the future. From the table presented above, the leverage level fluctuated over the period. The value ranged from 1.41 to 1.82. The values are high. This shows that the company is highly levered. It also indicates that the shareholders of the company are earning higher returns than the amount they invested. The debt / equity ratios were quite low. The values ranged from 0.06:1 to 0.54:1. The value shows that the company uses a high amount of shareholders’ equity to finance the assets of the company (Haber 2004; McLaney & Atrill 2008). However, low ratio reported in the year 2009 indicates that the management of the company was conservative and did not open up for aggressive investment. The interest coverage ratio gives information on the solvency of the company. The interest coverage ratios of the company were quite high over the three year period (McLaney & Atrill 2008). It shows that the earnings before interest and tax can adequately cover the interest expenses that arise from money borrowed. Finally, the liquidity ratios of the company were quite high. Current ratio ranged from 1.74:1 to 4.43:1 while the quick ratio ranged from 1.27:1 to 3.9:1. The ratios indicate that the company can easily pay the current liabilities. The increase in liquidity ratios was as a result of an increase in various components of current assets such as account receivables. The favorable liquidity ratios enabled the company to attain its growth and expansion strategies (Vance 2003).
The table presented below shows the operating ratios of the company.
|Net profit margin||12.24||15.37||11.01|
|Asset turnover ratio||0.89||0.69||0.62|
|Return on assets||10.89||10.55||6.83|
|Return on equity||16.45||18.26||10.59|
The net profit margin and return on equity had a similar trend over the three year period. There was an increase in the value of the ratios between 2010 and 2011. The ratios declined in 2012. The net profit margin ranged from 11.01% to 15.37%. The ratio shows an improvement in the efficiency in managing operating expenses of the company. Return on assets ranged from 6.83% and 10.89%. The ratio shows that there was a decline in operating efficiency and profitability over the period. Also, the return on equity ranged from 6.83% to 18.26%. It indicates that the company is efficient in using capital provided by equity investors. The decline in the value of the ratio in 2012 is not a good indication. The asset turnover ratio declined over the three year period (Siddiqui 2005; McLaney & Atrill 2008). The ratio ranged from 0.62 times to 0.89 times. It indicates that the company generates less than one dollar of sales revenue from every unit of assets. The ratios indicate that the efficiency of the company in using available resources is declining. There is a need for the company to increase the overall level of efficiency. Also, management of the company needs to ensure that the downward trend experienced in the year 2012 is reversed.
The table presented below shows the measures of valuation of the company.
The dividend yield in the year 2012 was -33.6%. Further, the company did not pay dividend in the previous years. The ratio shows that the return on the stock of the company is quite low. This can be due to the fact that the company is in the initial stages of operation. The price/earnings ratio of the company declined significantly. The ratio ranged from 20.6 to 49.8. The values indicate a high valuation. Further, the price/book ratio ranged from 2.9 to 6.6. The values of the price/book ratio also indicate that the shares of the company are overvalued. The EV/EBITDA ratio for the year 2012 was 53.1. The ratio is quite high and this implies that the value of the company (inclusive of total liabilities) in relation to the actual cash earnings (excluding expense that does not involve movement of cash) is quite high. The three valuation ratios give similar results on the value of the company, that is, the company is overvalued (Atrill 2009).
Report on the firm’s recent business performance and strategic decisions
The discussion on financial ratios above indicates that the company experienced an improvement in performance since its inception until 2011. In 2012, the company experiences a decline in the financial performance. This can be an indication that the company experienced difficulties in general operation of the company (McLaney & Atrill 2008). This trend can be observed in a number of ratios such as debt to equity ratio, interest coverage ratio, current ratios, quick ratio, net profit margin, and return on equity. This resulted in a decline in sales revenue and profitability. Further, the asset turnover ratio declined over the three year period. It shows that the efficiency of the company declined. Finally, the valuation ratios show that the company is overvalued. The financial statements of the company indicate that the management of the company is optimistic that the company will continue to report improved performance in spite of the current risks such as competition (McLaney & Atrill 2008). The company’s key strategy focuses on growth and expansion. To achieve this strategy, the company employs merger and acquisition. For instance, since 2009, the company has made 33 acquisitions and several mergers.
Atrill, P 2009, Financial management for decision makers, Financial Times Prentice Hall, New York.
Collier, P 2009, Accounting for managers, John Wiley & Sons Ltd, London.
Haber, R 2004, Accounting dimistified, American Management Association, New York.
McLaney, E & Atrill, P 2008, Financial accounting for decision makers, Financial Times Prentice Hall, New York.
Siddiqui, A 2005, Managerial economics and financial analysis, New Age International (P) Limited, New Delhi.
Vance, D 2003, Financial analysis and decision making: Tools and techniques to solve, McGraw-Hill books, United States.