Performance of International Gaming Technology and Marcus Corp - Example

Introduction Financial Analysis is one of the most effective techniques to evaluate the financial performance of a company. It not only offers toolsto evaluate the historical performance of a company but can also serve as one of the effective tools to compare the performance of firms across the industry. Through financial analysis techniques i.e. ratios, two types of analysis can be performed i.e. trend analysis and comparison. In trend analysis, a firm’s performance is assessed over the period of time to evaluate the changes in different financial indicators of the firm. In comparative analysis, firm’s performance can be compared with the performance of another firm and investors as well as management of the firm can evaluate the relative performance of the firm as compared to the industry and the particular firm. Purpose The purpose of this study is to compare the performance of two companies’ i.e.  International Gaming technology and Marcus Corp. 1International Gaming Technology (IGT) is a Nevada based company engaged in the design, development and manufacturing, sales and distribution of gaming machines at international level. It also produces mobile and online games for several of its markets. IGT was first established as a private limited company in 1950s however, it went public during 1980s. Marcus Corporation owns and operates movie theaters, hotels and resorts in Wisconsin and other areas. It has evolved as one of the multiple screens and theater organization operating them throughout US. All operations are limited to the local operations within United States. Liquidity Ratios Liquidity of the firm defines the overall ability of the firm to pay off its debts falling within 1 year. Liquidity also outlines as to how quickly the assets of the firm can actually be converted into cash. A better liquidity position of the firm not only outlines the ability of the firm to meet its current obligations but also to meet its current expenses. (Peterson and Fabozzi,156) IGT Liquidity Ratios Current Ratio 1.98 2.06 2.64 Quick Ratio 1.72 1.67 2.38 Marcus Corporation’s Liquidity Ratios Current Ratio 0.35 0.39 0.20 Quick Ratio 0.35 0.39 0.20 The above ratios indicate that current ratio of IGT has consistently increased over the period of time. In 2009, it was 1.98:1 and in 2011 it is 2.64. Current ratio suggests the ability of the firm to pay off its current liabilities. It shows that for each $1 of current debt, how much firm has in current assets to pay the debt. As compared to IGT, Marcus Corporation’s current ratio is low and has declined over the period of time also. Since Marcus Corporation (MC) does not have any inventories therefore its current and quick ratio are same. Quick ratio is a more conservative measure of liquidity of the firm and is calculated after deducting inventories from the total current assets. Quick ratio of IGT has increased too suggesting that firm’s liquidity position has improved over the period of time. MC however has not been able to improve its liquidity position during the period. Activity Ratios Activity ratios actually measure the ability of the firm’s management to convert its balance sheet items into revenue. It outlines as to how quickly a firm can actually generate its revenue in cash and sales from its assets and liabilities. It also outlines as to whether the management of the firm is efficient in generating sales and are effectively generating sales. Inventory Turnover 5.74 3.58 5.96 Average Collection Period 101.98 104.91 107.48 Fixed Asset Turnover 0.65 0.68 0.71 Total Asset Turnover 0.47 0.48 0.47 Inventory Turnover 0.00 0.00 0.00 Average Collection Period 17.90 12.63 12.36 Fixed Asset Turnover 0.57 0.57 0.59 Total Asset Turnover 0.54 0.54 0.56 First table shows the activity ratios of IGT and second table outlines activity ratios of MC. Since MC is not having any inventories therefore its inventory turnover is zero. Higher turnover ratios signify better management ability to generate sales and use the assets of the firm effectively. IGT’s inventory turnover declined from 5.74 to 3.58 in 2010 however it went up to 5.96 times suggesting that the firm has taken efforts to utilize the assets effectively. Average collection period of IGT is on the higher side whereas collection period for MC is low suggesting that MC’s management is more efficient in collecting its receivables. Fixed Asset Turnover and Total Asset Turnover of both the firms are relatively in same range however IGT has been able to utilize its fixed assets more efficiently to generate more sales out of them. Debt Ratios Debt ratios outline the composition of debt into overall capital structure of the firm as well as how much debt is being used to finance the assets. Debt ratios are important in the sense that it provides an insight into the overall riskiness of the firm. Firms having higher use of debt are considered as riskier as compared to the firms which use low level of debt. Debt Ratio 0.75 0.69 0.65 Debt-to-Equity 3.08 2.25 1.88 Times Interest Earned 2.09 2.63 3.86 Debt Ratio 0.52 0.51 0.53 Debt-to-Equity 1.10 1.05 1.13 Times Interest Earned 3.22 3.23 5.02 Debt ratio outlines as to how much debt has been used to buy the assets of the firm. Table 1 shows the debt ratio of IGT at 0.75, 0.69 & 0.65 respectively. It suggests that the firm has been able to reduce its debt and is financing more and more assets through its own equity. As compared to IGT, MC’s debt ratio is low however; it has increased in current year i.e. 2011. Debt to equity ratio outlines the comparison of debt with relation to total equity of the firm. IGT’s debt to equity has decreased from 3.08 times to 1.88 times however; MC’s ratio has increased from 1.10 to 1.13. Though MCs ratio is low however, it is on the rise whereas IGT has been able to consistently reduce its debt to equity ratio. Times interest earned indicates how much firm has earned before paying its interest and also suggests the ability of the firm to services its interest. Times interest earned for both the firms have increased during the period however, MC has been able to increase its times interest earned higher than IGT. Higher level of times interest earned therefore suggests that operations of MC are generating enough profitability to serve its interest. For example, interest earned ratio of MC in 2012 is 5.02 times indicating that the firm has been able to earn at least 5 times more than its annual interest expense. Whereas for IGT, times interest earned ratio in 2011 is 3.86 suggesting that the operating profit i.e. income before interest and tax is 3.86 times higher than total annual interest expense of the firm. Profitability & Market Ratios Profitability ratios of the firm provide an insight into how much the firm has remained profitable. These ratios are particularly important as they clearly suggest whether the management of the firm has actually been able to earn profit for the shareholders or not. Gross Profit Margin 55.16% 56.71% 58.17% Operating Profit Margin 16.47% 22.16% 25.80% Net Profit Margin 6.28% 9.70% 14.49%         Return on Total Assets (ROA) 2.93% 4.64% 6.83% Return on Equity (ROE) 11.94% 15.07% 19.66% Gross Profit Margin 45.87% 46.83% 48.21% Operating Profit Margin 9.55% 8.89% 11.24% Net Profit Margin 4.25% 3.60% 5.49%         Return on Total Assets (ROA) 2.29% 1.95% 3.10% Return on Equity (ROE) 4.80% 3.99% 6.61% Profitability ratios of both the firms indicate that IGT is more profitable as its gross margin, operating profit margin as well as net profit margins are higher. Gross profit margin of IGT has consistently increased during all three years whereas MC’s gross profit margin has increased too. Gross profit margin of IGT however is on the higher side whereas both the operating profit margin as well as net profit margins is higher too for IGT. Return on assets as well as return on equity for IGT is better than MCs as IGT has been able to consistently increase its ROE and ROA and it is higher than MCs. Earnings per share of IGT is $0.852 whereas for MC it is 0.723 indicating that IGT has been able to return higher for its shareholders as compared to MC. Similarly, Price to Earnings ratio for IGT is 15.03 whereas for MC it is 14.66. Summary The above discussed financial ratios indicate that IGT has been a better managed company and has consistently performed better than MC. Except for its debt ratios, all other financial ratios are better and more favorable as compared to Marcus Corporation. Conclusion Considering the above analysis, it is suggested that investors should buy the shares of International Gaming Technology as the firm is not only well established in the market but also has international presence. It has been able to perform better financially as compared to Marcus Corporation and it is suggested that the investors shall buy the shares of IGT based upon the above discussed financial performance of the company from 2009 to 2011. Works Cited Peterson, Pamela P. and Frank J Fabozzi. Analysis of Financial Statements. New York: John Wiley & Sons, 2012. Read More