Eastman Kodak Financial Analysis 4. Eastman Kodak Company is a company that operates in the photographic equipment and supplies industry, providing imaging and technology products and services in the global market. The company mainly operates in three segments, though this performance discussion will focus on the financial statements for the whole company as an entity. The main objective of this discussion is to compare the financial performance of the company to the industry and determine whether its financial performance is sufficient. This will be done by discussing the performance and quality of the firm in relation to the industry and economic climate, and a discussion of the financial statements analyzed.
The financial statement discussion will focus on the key financial ratios, financial statements, and the major areas of the firm’s operation. 5. The financial statements presented by Eastman Kodak indicate that the company made a net loss of $687,000 and $210,000 in 2010 and 2009 respectively. a. A review of the industry reveals that the competing companies all reported profits, which indicates that the company’s financial management is not good. As can be seen from the financial statements, the net loss made by the company increased by $477,000 between 2009 and 2010, which indicates a lack of quality in the financial management of the company.
b. From the common-size financial statements, this decrease in net earnings represents nearly 7% fall in income, which is accompanied by 4.3% decrease in operating profits. This is also supplemented by the fact that the cash flows from operating activities have also been negative for the last two years of operation. 6. From a preliminary analysis, it would seem that the forecast for the company is not favorable for subsequent years.
A comparison with the industry leaders also indicates that the company is probably failing, since the other companies in the industry reported profits for the last two years of operations. The common size balance sheet also indicates that the companies liabilities increased by a substantial figure, a fact that is explained by the ratio discussion below. a. The key financial ratios for a company indicate many facts about the company, for example, the determination of liquidity, operating efficiency, solvency, capital structure and profitability.
These key financial ratios are easy to calculate for Eastman Kodak Company since the company presents good quality financial statements. The operating profit margin for Eastman Kodak has been negative for the last two years of operations, standing at -4.68% and -0.37% for 2010 and 2009 respectively. This indicates that the company’s operations are not enough to sustain the earnings, a fact supported by the fall in return on assets from -2.73% to -11.01% in the two years. The cash return on assets also decreased from -1.77% to -3.51% in 2009 and 2010 respectively.
Despite the negative profitability ratios, Eastman Kodak displays positive liquidity ratios, with the current ratio reducing from 1.49 to 1.34 in 2009 and 2010 respectively. The quick ratio also decreased from 1.25 times to 1.1 times in the two years of comparison. However, the leverage ratios calculated from the financial statements are mostly negative, for example, the debt to equity and financial leverage ratios are -6.79 and -5.79 times respectively. b. From the above analysis, the facts that can be inferred about Eastman Kodak Company include the failing financial performance, as indicated by the losses incurred by the company in the last years of operation.
This failing financial performance reflects a failing management for the company, and for an investor, the company would not make a good investment choice. One of the main objectives is a company comparison to the industry, and from an analysis of the financial statements, it is evident that the company is a bad industry performer. This indicates that the company’s financial performance is not sufficient to compete in the industry; therefore, the management should be revamped.