Oracle Corporation Case Solution Â
Capital Structure permits experts to recognize the ideal estimation of the Cost of Capital of an organization, in terms of debt and equity issued. While, the Cost of Capital is the rate of return that financial specialists and bondholders of a specific organization expect for investment. The companyâ€™s capital structure is 45: 55 for debt and equity respectively. The ideal structure is the place where the weighted normal cost of capital is most minimal and that is any place between 100% debt and 100% equity.
NOPAT or EBIT:
Â It is useful for managers that help them to adjust the economic profit by consistency and comparability.
Oracle’s ROE is viewed as satisfactory that takes the 24% in 2013 as compared to 2012. More revenue and profits created by debt provides the advantage of capacity to transfer a sound ROE that helps to decrease the chaos in equity market.
This helps the mangers to identify that return on investment in assets measured through the profits and how efficiently utilizing its resources that measures the profitability during a certain time period. The Oracleâ€™s ROA results in 13%, the higher the ratio, more it is favorable to generate the income from assets.
The assets to equity ratio are termed as the equity multiplier that shows the how much assets has been financed through equity and debt. The equity multiplier result in 2x that shows that half of the companyâ€™s assets has been used financed by equity.
Sales Efficiency (Sales/Assets):
This ratio is indicator of asset turnover that measures the ability of the company to generate the sales by using the assets. Likewise, the higher ratio is more favorable that shows the company is efficiently utilizing assets that generate more sales and it results in 0.45 that means each dollar asset generates 45 cents of sales.
Operation Efficiency (NOPAT/sales):
It shows the net operating profit margin and it results in 31%, which is not as such satisfactory. Therefore the company needs to further improve the sales and also decrease the expenses that would increase the profit so as well improve the cash flows at the end time period.
Interest efficiency (Net Income/NOPAT):
Its shows the ability of the company to pay the interest expense on time and it results in 0.93x that shows that the company is generating enough income to pay the interest after paying taxes.
Free cash flows:
The company has invested in purchase of securities and dividend repurchase that results in negative net cash flow in 2013 of -342 but the cash in beginning was quite enough that saved the company from being solvent.
The company is using â€œStale dividend policyâ€ that is dividend yield of about 0.8% in 2013 and 2012 based on per share based announced in the meeting. The aim is to maintain the dividend policy even in the profit variation.
The long term debt that is senior notes has been issued in order to repurchase of stocks that increases the long terms debt and also it would impact on the credit rating of the company. The total of $ 11 billion investment is made to purchase 346.1 million shares and such activity is depending on the cash requirements and working capital needs that also improves the price per share and decreases the dilution……………….
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