Equity in Juniper Networks Inc - Case Study Example

EQUITY RESEARCH REPORT ON JUNIPER INC. By 0 Business analysis Juniper Networks Inc. traces back to 1995 when its founder, Pradeep Sindhu took leave of absence from Computer Science at the Xerox PARK in order to realign his business motives within the telecommunications and networks industry. In 1998, the company was launched which aimed at providing customers with new internet and data connectivity infrastructure which aimed at competing with other service providers. During this year the company launched in to the market the M40 core router which was competitively sustainable of the company’s business and financial goals. 1.1 Strategy Juniper’s strategy into the network’s industry as well as in the provision of data service aimed at connecting customers to a stable and reliable network infrastructure that would support both individual personal users as well as big data streaming. This approach was at par with the growing use of data within the social sphere as well as the business environment of various corporate entities. The aim of the network and data provision service was to challenge existing companies and business rivals into developing a competitive approach into business to ensure standards were improved while at the same time making use of innovation to provide customers with relevant and sustainable service. Additionally, the company is innovation oriented and through the adaption of technologies such as the framework of the M40, the company aims at constructing a competitive advantage for the survival of its business mission and operations sustainability within a competitive contemporary environment. 1.2 Operations While the strategies of most companies within the active global markets are analyzed with reference and respect to their financial capability, the operations of Juniper are considered in a timeline approach to showcase how time as a resource, innovation as a strategy, and competition as a motivation combine to strengthen and sustain the company over years of active business participation. With reference to the very first production that the company invented, the M40 router, the company aimed at providing North American region with network infrastructure that surpassed the then available technologies. In 2000 towards mid-September, Juniper provided the market with its first full-performance routers under the brand name MSeries Multiservice Edge routers. In 2001, the company was at it again improving its own business competitiveness by providing the market with routers integrated with XML instrumentation considering the technological solution, IPv6. While production of products that can access networks such as the above-mentioned routers, the company also entered the enterprise and security space in 2004 to address the concerns of many businesses and individuals regarding online security as well as the provision of Web 2.0 solutions. In July of the same year, 2004, the company’s performance met expectations of the market and was awarded the certification of TL 9000 which denotes quality excellence. In 2006, the company continued to expand its innovative strategies by launching the I-chip packet forwarding engine to provide customers with and corporations with Ethernet service at the internal business level. This move aimed to nurture an environment of business competitiveness enabling companies that were entering the contemporary business environment to be productive and at the same time to transition from traditional methods of business management to more innovative and reliable strategies. Throughout 2007 to 2014, the company continued to provide personal user consumers and corporations with products such as the 2007’s multi-terabit T1600 Core router. In 2008, the company increased its reach for a larger market share when it provided the airlines industry with a scaling control system named the JCS 1200. In 2009, based on an increased in demand for safer and faster network connects, the company launched the industry’s first Gigabit Ethernet interfaced making use of core routers. In 2012, as the corporate world was suffering from online attacks from hackers and loss of data through espionage, Juniper launched the WebApp Secure which was coupled with Intrusion Deception technology to secure big data as well as prevent corporations from losing sensitive date to hackers or through cyber warfare (competition to render secure systems unsafe for business transactions as well as corporate espionage in global markets). In April 2013, big data was a major grossing areas that Juniper aimed at targeting. This led to the introduction of a programmable core switch, EX9200 whose major duty or competitive advantage was to offer support for emerging applications as well as the increasing data processing needs of corporations. In 2014, the company took time into its business strategy as a factor and a resource that it could expand its business through. By considering that current corporations require fast information systems capable of processing millions of queries at a time, the company build the High-IQ network system that would accelerate service creation and deliver customizable service in real time. 1.3 Equity Financing As of 2000, a net worth of $10,841,000,000 in outstanding shares was registered to non-affiliation Registrant. In 2012, Juniper Networks’ Inc. had 526,371,000 shares of the company’s common stock outstanding. In addition, in December, provided that the above mentioned shares of the common stock were accounted for in February 17, there were 5,189,148 shares of the common stock after the consideration of 27 individuals with association to an acquisition of outstanding shares of Contrail. A year before this acquisition of the outstanding shares of Contrail, the company’s common stock was trading at $45.01, $42.27, $33.11, and $25 for the first to the last financial quarter of 2011. As of February 2012, the company had 1020 financiers or shareholders in record for the common stock (Zivney, 2000). 1.4 Summary Data   2013 2012 2011 2010 Revenue growth rate 6.96% -1.87% 8.68% Growth in CSE 22.00% 16.38% Growth in comprehensive income -100.00% 3.40% -258.84% Residual earnings (at cost of equity of 6.92%) -194772.53 -452924.24 -420805.50 178553.00 2.0 Reformulation of Financial Statement In order to analyze the business and financial stability as well as sustainability, the company’s financial statements were reformulated to show case how investor equity supported the company’s financial position as well as its leverage. Based on the financial statements, a reformulation of the statement is undertaken to show the company’s leverage position as well as how much of its operations and assets are financed by equity (Zimballst, 2010). 2.1 Reformulation of statement of shareholders’ equity The reformulation of the company’s financial statement aims at extracting data and financial information relevant to shareholder equity. The equity analysis aims at showing the leverage position of the company while at the same time showing how the sustainable the company’s operations are with reference to shareholder financing. Additionally, the reformulation aims at considering variables such as the company’s current position in the generation of profits by making use of current and long term assets. 2.2 Reformulation of balance sheet and income statement From the reformulated balance sheet and considering shareholder’s equity, it is shown that from the financial year ending December 31, 2009 was the base year for the current reformulation whose shareholder liability and equity amount to $8,751,800,000, $977,255,000, $8,736,842,000, and $7,826,903,000 for the FYE 2013, 2012, 2011, and 2010 respectively. On the other hand, the company’s Net financial obligation/assets (NOA/NFA) total to $776,109,800, $7,323,696,000, $3,902,226,000, and $7,345,904,000 respectively for the financial years ending December 31, 2013, 2012, 2011, and 2010 respectively according to the balance sheet of the company (Ward, 1987). 2.3 Reformulation of the Cash Flow Statements From the reformulated cash flow statement, it is observed that Juniper considers cash flow operating and financing activities from which restructuring, non-cash credits, changes in operating assets and liabilities, accounts payable, and accrued compensation were considered under the former while privately-held company’s investments, purchase of trading, available-for-sale, and from maturities of available-for sale investments were considered. However, it is considered that the company’s purchase of available-for-sale investments dominated the biggest expenditures within the cash flow statement. On the other hand, the financing activities involved the issuance of outstanding common stock and long-term debt repayment as the major grossing or spending areas from which a decreasing trend was observed from FYE 2011 to 2013. Under the variables considered under the reformulated cash flow statement include change in Net Operating Assets. The differences between the 2013’s NOA and 2012’s NOA provides a free cash flow of $1,066,389,900 as opposed to that between 2011 and 2010,’s NOA of $795,907,600. 3.0 Financial statement analysis 3.1 The Analysis of profitability The profitability margin of the company was tested through the consideration of ROE and RNOA which both denote the performance of a company through the evaluation of predictive qualities and complementation of the gaps that may appear in the company’s performance or ability to generate profits. According to the reformulated financial statement, a RNOA of 16.92%, 6.22%, and 9.58% show that the company has merges financial and operating decisions at the respective proportions for 2011, 2012, and 2013 respectively. However, the values for the RNOA are small, it is observed that these values aim at testing the effectiveness separating financial and operating decisions. Additionally, the profitability margin of the company as calculated through the consideration of net income divided by revenue (Net Income/Revenue) shows that the company registered 12.28%, 4.86% and 11.46% profit margin for the FYE 2011, 2012, and 2013 respectively. The use of the ratio is to show how a company fits within an industry and how it compares with other companies within the same industry. 3.2 The Analysis of Growth and Sustainable Earnings The growth of the Juniper Networks Inc. depends on factors such as the financial leverage, the relevance of ATO (assemble-to-order), and SPREAD of the company. The Assemble to order is a strategic approach that the company uses to ensure that it reduces inventory while at the same time making the company’s products customization for consumer preferences. However, based on the 2011 to 2013 performance of the ATO, it is shown that the company is poor at considering the ATO approach as it stands at 1.38%, 1.28%, and 0.84% for the financial years ending 2011, 2012, and 2013. 4.0 Accounting Quality The accounting quality of Juniper Network Inc. considered factors and ratios such as the floats, interest on stock, the total trading activity of the considered outstanding common stock as well as FLEV and ROCE. The applicability of the FLEV ration considers the formula ROCE= RNOA + FLEV*(RNOA-NBC) which aims at calculating how much a company used equity or debt to finance its operations (Learning Ace, 2015). In order to get the FLEV from the above formula, reconfiguration of the formula provided FLEV as a function of the following expression; FLEV= [ROCE/(RNOA-NBC)]-RNOA. Alternatively, FLEV = NFO/CSE, In this case, the FLEV values for the financial years ending 2011, 2012, and 2013 indicate that the company has a negative FLEV of -41.80%, 42.00%, and -48.68% for the financial years 2011, 2012, and 2013 respectively. The negative FLEV shows that the company’s financial leverage is not sustainable under the considered accounting entries. In this case, the FLEV confirms the balance sheet’s imbalance between shareholder equity and assets. This shows that the company uses more of its financing and generates less from the finances. This does not mean that the company is trading at a loss, but its investments are, within the considered period of time been higher than the profits generated. This situation is attributable to factors such as more investment on technologies as well as R&D. However, intangible assets such as patents and good will indicate that the company is involved in the securing of its future financial stability and sustainability. Based on the SPREAD of the company, the negative values for the FYE 2011, 2012, and 2013 show that the company’s borrowing to finance its operations outweighs its ability to generate returns from the assets. This situation and the negative FLEV confirms the reformulated balance sheet which indicates the company, under the considered areas, is likely to be trading at a total loss. However, provided the company is a technology company investing heavily on research and development, investment on intangible assets outweighs the yield from the investment. In addition, Table 1 confirms the company’s return on CSE, growth in comprehensive income, and growth rate in revenue generation (PROZ, 2015). 5.0 Conclusion In 1998, the company was launched which aimed at providing customers with new internet and data connectivity infrastructure which aimed at competing with other service providers. Juniper’s strategy into the network’s industry as well as in the provision of data service aims at connecting customers to a stable and reliable network infrastructure that would support both individual personal users as well as big data streaming. As of 2000, a net worth of $10,841,000,000 in outstanding shares was registered to non-affiliation Registrant. In 2012, Juniper Networks’ Inc. had 526,371,000 shares of the company’s common stock outstanding. From the reformulated balance sheet and considering shareholder’s equity, it is shown that from the financial year ending December 31, 2009 was the base year for the current reformulation whose shareholder liability and equity amount to $8,751,800,000, $977,255,000, $8,736,842,000, and $7,826,903,000 for the FYE 2013, 2012, 2011, and 2010 respectively. On the other hand, the financing activities involved the issuance of outstanding common stock and long-term debt repayment as the major grossing or spending areas from which a decreasing trend was observed from FYE 2011 to 2013. Under the variables considered under the reformulated cash flow statement include change in Net Operating Assets. The differences between the 2013’s NOA and 2012’s NOA provides a free cash flow of $1,066,389,900 as opposed to that between 2011 and 2010,’s NOA of $795,907,600. The FLEV values for the financial years ending 2011, 2012, and 2013 indicate that the company has a negative FLEV of -41.80%, 42.00%, and -48.68% for the financial years 2011, 2012, and 2013 respectively. The negative FLEV showed that the company’s financial leverage is not sustainable for sustainability purposes. The SPREAD of the company, the negative values for the FYE 2011, 2012, and 2013 show that the company’s borrowing to finance its operations outweighs its ability to generate returns from the assets. This situation confirms the reformulated balance sheet indicates the company, under the considered areas, is likely to be trading at a total loss and unlikely to generate positive equity returns for holders of common shares. References Ward, J. (1987). The financial analysis of governments. Journal of Education Finance, Vol. 13, No. 2. pp. 216-218 Zimballst, A. (2010). "Flawed Financial Analysis of NHL Skates on Thin Ice". Temple University Press, pp. 51-53. Zivney, T. (2000). Alternative Formulations of Degrees of Leverage. Journal of Financial Education, Vol. 26; pp. 77-81 PROZ. (2015). Negative spread business. Accessed online on May 21, 2015 from http://www.proz.com/kudoz/English/finance_general/1126843-negative_spread_business.html Learning Ace. (2015). RNOA. Accessed online on May 22, 2015 from http://www.learningace.com/doc/1666378/c1cd06cd4922bb8b75c5bf2ac82e9505/financial Read More