Nature of the Business - Assignment Example

Finance and Accounting Module 4 Case Assignment Nature of the Business EBay is one of the largest online markets in the world which provides the opportunity to the customers to be connected via any device with the products and services they need and prefer. It enables electronic commerce by providing scalable and flexible solutions which boost the growth of merchants. It was founded in the year 1995and it connects a passionate and diverse community of buyers and sellers. It also helps the small business to compare and grow along with other reputed brands. EBay has 145 million buyers across the world and more than more than 650 million products are listed in the website of eBay (eBay Inc, 2014). Clorox is an international company with various popular brands for use in households with products for bleach and cleaning. Brands like Green Works provides various products of cleaning, Ayudin and Poett offer home care products, Kingsford’s charcoal, Hidden Valley and K C Masterpiece’s sauces and dressings, Brita provides water filtration products, dilutable cleaner from Pine-Sol, cat litter from Fresh Step, Glad Bags offers containers and wraps and personal care products are provided by Burt’s Bees. The company manufactures various products in more than 24 countries and products are sold in 100 countries (The Clorox Company, 2014). Alaska Air Group, Inc. is a holding company of Alaska Airlines and Horizon air. It is a Seattle based company which serves more than 90 places in the United States, Mexico and Canada. It was founded as Delaware company in 1985. It offers the customers to book flights, cars, vacation packages, hotels and to check route maps and schedule of flights. It also offers lucrative packages in destination like Hawaii, Las Vegas, Disneyland and Mexico (Alaska Airlines, 2014). Total Current assets and Long term assets of the company EBay- According to the balance sheet of the company the current assets of the company is $23284 million in the year 2013, and in 2012 it was $21398 million. The long term asset of the company is $18204 million in 2013, and in 2012 it was $15675 million (Bloomberg, 2014). Clorox- The total current asset of the company is $1420 million in 2013 and in the year 2012 it was $1376 million. The long term asset of the company is $2891 million in the year 2013 and in 2012 it was $2979 million (Bloomberg, 2014). Alaska Air Group- The total current asset of the company is $1762 million in the year 2013 and in the year 2012 it was $1737 million. The long term asset of the company is $4076 million in the year 2013 and in the year 2012 it was $3768 million (Bloomberg, 2014). Total current liabilities and long-term liabilities of the company EBay- According to the balance sheet of the company the current liabilities of the company is $12639 million in the year 2013, and in 2012 it was $10924 million. The long term liabilities of the company are $5202 million in 2013, and in 2012 it was $5285 million. Clorox- The total current liabilities of the company are $1134 million in 2013 and in the year 2012 it was $2061 million. The long term liabilities of the company are $3031 million in the year 2013 and in 2012 it was $2429 million. Alaska Air Group- The total current liabilities of the company are $1580 million in the year 2013 and in the year 2012 it was $1501 million. The long term liabilities of the company are $2229 million in the year 2013 and in the year 2012 it was $2583 million. Revenue of the companies EBay- Total revenue of the company is $16047 million in 2013 and in 2012 it was $14072 million. Clorox- Total revenue of the company is $5623 million in 2013 and in 2012 it was $5468 million. Alaska Air Group- Total revenue of the company is $4964 million in 2013 and in 2012 it was $4657 million. Total debt/equity ratios of the Company This ratio indicates the relative proportion of debt and equity financing in the assets of the company. Long term interest rate bearing debts are expressed on the owner’s equity. EBay- Particulars 2012 2013 Debt Equity Ratio 0.25 0.22 Clorox- Particulars 2012 2013 Debt Equity Ratio -17.99 20.76 Alaska- Particulars 2012 2013 Debt Equity Ratio 1.82 1.10 Other Ratios EBay- Particulars 2012 2013 Gross Profit Margin 42.14 42.90 Net Profit Margin 9.89 10.17 Current Ratio 1.96 1.84 Return on Equity 2.59 2.42 Return on Assets 0.02 0.01 In case of the company EBay, it can be seen that debt equity ratio of the company has decreased over the period of time. It indicates that the company is less using debt financing over equity financing. Gross profit margin and net profit of the company has increased over the years which indicate that profitability of the company has improved. But current ratio, ROE and ROA of the company have decreased over the years. It indicates that liquidity position of the company has decreased but still it is acceptable as it is more than 1.5. Decrease in ROE, ROA indicates that the efficiency of the company have decreased in generating revenue out of total equity and total assets. Clorox- Particulars 2012 2013 Gross Profit Margin 28.09 28.69 Net Profit Margin 6.79 10.23 Current Ratio 0.67 1.25 Return on Equity -234.07 376.30 Return on Assets 0.07 0.12 In case of the company Clorox, it can be seen that debt equity ratio of the company has increased over the period of time. It indicates that the company is more using debt financing over equity financing. Gross profit margin and net profit of the company has increased over the years which indicate that profitability of the company has improved. Current ratio, ROE and ROA of the company have increased over the years. It indicates that liquidity position of the company has increased. Increase in ROE, ROA indicates that the efficiency of the company have increase in generating revenue out of total equity and total assets. Alaska- Particulars 2012 2013 Gross Profit Margin 28.09 28.69 Net Profit Margin 6.79 10.23 Current Ratio 1.16 1.12 Return on Equity 22.24 25.04 Return on Assets 0.06 0.09 In case of the company Alaska, it can be seen that debt equity ratio of the company has slightly decreased over the period of time. It indicates that the company is less using debt financing over equity financing. Gross profit margin and net profit of the company has increased over the years which indicate that profitability of the company has improved. But current ratio of the company has decreased over the years. It indicates that liquidity position of the company has decreased. Increase in ROE, ROA indicates that the efficiency of the company have increase in generating revenue out of total equity and total assets. Beta and riskiness of the company- EBay- The beta of the company is 0.82. Beta is less than 1 it means the stocks will be less volatile as compared to the market. The company is less risky. Clorox- The beta of the company is 0.47. Beta is less than 1 it means the stocks will be less volatile as compared to the market. The company is less risky. Alaska- The beta of the company is 1.1. Beta is more than 1 it means the stocks will be more volatile as compared to the market. The company is more risky. Thus is we compare these three companies then we can see that Alaska Air Group has the high risk among the three companies and Clorox has the least risk among the three companies. Advantages and disadvantages of debt over equity financing Advantages- The lender of debt financing doesn’t have right to claim the equity of the business. Thus debt financing does not dilute the ownership interest of the company. The lender will only get the principal and interest of the loan provided and cannot claim the profits of the business. If the company earns profit then the owners will get the benefit but they won’t the full benefit if they sell the shares to get equity financing. Disadvantages- Unlike equity financing, debt must be repaid at the maturity date. Interest on debt is fixed cost to the company and it raises the breakeven point of the company. Thus interest rates during recession period may increase the risk of bankruptcy of the company. Recommendation to the capital structure Thus from the above analysis we can recommend that EBay is using less debt financing over the equity financing. The company has average profitability position and liquidity position. The return on equity has decreased in 2013, thus the company can take debt financing for future needs. Clorox has used excessive debt financing in 2013. But as the profitability position and the liquidity position of the company is good thus it has not created any problem in the liquidity of the company. But the company should focus on equity financing and reduce the debt portion. Alaska has slightly reduced its debt financing in 2013. Profitability of the company has improved over the years but the liquidity position of the company has decreased. Thus the company should not use any more debt financing as it will increase the burden and the company may face liquidity crisis. References Bloomberg Businessweek. (2014). Ebay Inc (EBAY:NASDAQ GS). Retrieved from: http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=EBAY&dataset=balanceSheet&period=A¤cy=native. Bloomberg Businessweek. (2014). Alaska Air Group Inc (ALK:New York). Retrieved from: http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=ALK&dataset=balanceSheet&period=A¤cy=native. Bloomberg Businessweek. (2014). Clorox Company (CLX:New York). Retrieved from: http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=CLX&dataset=balanceSheet&period=A¤cy=native. Ebay inc. (2014). Who We Are. Retrieved from: http://www.ebayinc.com/who_we_are/one_company. The Clorox Company. (2014). Company. Retrieved from: http://www.thecloroxcompany.com/company/. Alaska Airlines. (2014). Corporate Profile . Retrieved from: http://phx.corporate-ir.net/phoenix.zhtml?c=109361&p=irol-IRHome. Read More