Corporate Finance Company Profile Ebay - Essay Example

Corporate Finance Company Profile Ebay Financial Summary & Analytics on eBay A. Past 3 years total assets & liabilities data, trend and discussion. YEAR 2008 2007 2006 Total Assets 15,592,439 15,366,037 13,494,011 Total Liabilities 4,508,581 3,661,435 2,589,379 Total current assets have decreased in the years 2008 as compared with the previous years. The best year for the company in terms of current asset is 2006. The main reason behind the decrease in 2008 is the short term investment made that year. eBay’s total assets have not increased significantly on 2008. The most significant increase is recorded in 2005 where 49 % of total assets have increased. High tendency has been recorded in the non-current liabilities section, where in 2006 the company acquired 45% more debt, which is very high in comparison to previous years because eBay's volume of business is high and has been soaring since 2005 and 2006 and the trend is increasing so there is a high need to finance increase in operations with debt. B. Past 3 years net income and cash flow data, trend and discussion. YEAR 2008 2007 2006 Net Income 11,779,474 348,251 1,125,639 In the year 2008, 7% increase in the gross profit in comparison with the year 2007. The sole reason is the management’s initiative towards cost reduction. A significant boost is recorded in the year 2008 mainly due to the control on revenue expenditures and also on the fixed charges which are in the form of interest expense. The credit mainly goes to the management who has taken corrective measures like controlling fixed and operating expenses which has made a significant impression on eBay’s net income. Slight increment in cash and cash equivalent in the year 2008 with 20% as compared to the year 2007, may be a result of the fact that the company has invested in securities, paying-off liabilities, etc. It is quite obvious that management has been able to implement effective cash management techniques. The cash flow of eBay from 2006 to 2008 suggests that its operating activities are slightly high in the year 2008, amounting to $2,881,995m in comparison with the rest of the years, due to its massive business volume and operations; there has been an increase in the operating activities of the company. EBay’s management has, however, made huge investments in property plant and equipment, because of which its investing activities are higher in the year 2008, primarily, due to the principal loans receivable, in comparison with the years 2006 and 2007. eBay’s financing activities mainly consist of repurchases of common stock. The sole reason behind treasury stock is to regain the market position by increasing the value of its stock. C. Dividend Policy – Dividend amount, dividend yield and dividend growth rate. eBay’s management has never paid cash dividends on their stocks and also there is no clear indication of it happening in the near future. And hence it is impossible to observe the dividend yield and dividend growth pattern of eBay (Annual Reports, 2008). D. Capital Structure – Debt to Equity ratio and amount, fixed assets Vs. current assets, last reported liquidity position. YEAR 2008 2007 2006 Debt to Equity Ratio 0.41 0.31 0.24 Debt 4,508,581 3,661,435 2,589,379 Equity 11,083,858 11,704,602 10,904,632 Current Ratio 1.70 2.30 1.97 Due to the expansion in the business company require some fixed asset for maximum use of the resources for uplifting the business operation and meets the customer demand so there is a slight variation in the year 2008 with respect to other years. It is quite evident that eBay has been able to keep Debt to Equity Ratio almost increasing year by year in the last 3 year. It is very much prominent fact that eBay has basically eyeing on debt financing and its balance sheet reveals the fact that as the business expands year by year the need of short and intermediary term finance is also well grown up. It is very much evident that from the year 2006 to 2008 eBay’s balance sheet is densely populated with the debt financing which makes a signal to the debt holders that the creditor shows a confidence on the company’s debt management policy. eBay utilizes its reserve or liquid cash in a profitable manner because this investment is making an interest income heavily in the year 2008 which is quoted in the Profit & Loss statement. The use of cash into short term investments also makes an impression on the current and quick ratio which is a good sign for the company's future. On the whole it is evident that 76% decrease in the year 2008 is due to less investment in US held securities. Expansion in the business not only in the US market but also on the international market, effective business running policy, and quality service are the factors that can be held responsible for the growth in 2008’s current asset with respect to other years. In the year 2008, eBay’s current asset is at its all time high and it also evidence that the management of eBay is working upon efficient working management policies and it is also expected that the management of eBay continue the same practice in the future. Due to the prevailing liquidity position in the year 2008, the company’s liquidity position is slightly tentative with respect to the other years but overall the eBay’s management has an ability to overcome its liquidity problem as they do in the previous years. On the whole it is the reality that the company has expanded its business into newer dimensions, it is quite evident that no drastic change has occurred in the company’s financial policies but all in all we suggest that liquidity position of the eBay has been in a state of stability in terms of paying off its current debts. E. Other Statistics – Book value per share, market price per share, stock price trends, analyst opinion, P/E ratio, earnings expectations, etc. YEAR 2008 2007 2006 Book Value per Share 8 9 8 Market Price per Share $30.56 $33.42 $27.15 Book value per share is also constant throughout the three years, the sole reason behind which is relatively lesser dependency of eBay on Equity financing, because of which eBay pays relatively less to the investors than the accounting book values. Market price per share is slightly volatile year by year because of the tough economic conditions that have had a toll on the industry’s earning power growth and market price (Myers, Brealey and Marcus, 2001). The prevailing price of eBay’s stock dated June 22, 2009 is valued at $16.62. eBay’s share price is strengthening day by day due to their business operation and also due to the diversification in their product line. Moreover moves like reduction in insertion fees for sellers makes a significant impression on their stock prices. Most of the brokers and stock analysts have estimated a bright future to eBay’s stock in the market. All the analysts have suggested the existing stock holders to hold the current stock as eBay is expected to report its highest net income in the coming year which is why its value in the short and long run will probably rise. Reference Brealey, Richard A., Stewart C. Myers, Alan J. Marcus, (2001). Fundamentals of Corporate Finance. New York. McGraw Hill eBay Inc. (2008). Annual Report. eBay Inc. (2007). Annual Report. eBay Inc. (2006). Annual Report. Read More