Compaq , case study finanial analysis

Essay by miss_loveA, September 2004

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Compaq

A. Based on the spreadsheet ratios, evaluate whether the company is strong or weak in the four areas.

Strong/Weak? Reason (standards indicated)

Liquidity Strong (Current Ratio = 1.5 ) Liquidity was decreased from 2.3 in 1997 to 1.4 in 1998 below the industry average but its still very near the industry average and this declined was due to several factors; the main factor that in 1998 the Compaq completed its acquisition of digital equipment corporation which mean it will carry due to this merger its assets and its liabilities. As a result the current liabilities increased by 106% in 1998 in compare to the current assets which increased by 26% due to the major increase in other current liabilities and to the accrued expenses due to restructuring acquired companies and to the increase in account receivables by 142% and the other current assets by 161% in 1998. however, the increase in current liabilities > increase in current assets that's why the current ratio decreased this dramatically decrease.

Leverage Strong (Total Debt to Equity = 1- 2 ) Leverage is increasing and it was within industry average in 1998. It reached 1.52 in year 98 in compare to 0.59 in 1997. Overall, due to the merger with DEC the company has carried the long-term liability for postretirement benefits in 1998-amounted SR967. In addition, and as a result of the merger the shareholders equity has increased by 20%.

Turnover Strong (Net Operating Cycle = 60-90) Gross Operating cycle for year 99 is 112 days (within the industry average 90- 150) in compare to 75 in 1997, and it was increasing due to the days inventory has improved to 31 in 1998 better than the industry which mean its good. Days payable is longer the industry which is good but the Days...