Essays on Financial Statement Analysis Case Study

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April 17, 2012.The CompanyFounded in 1979, Oracle Systems Corporation operates in Application Software industry. Its main objective is to industrialize an inventive Database as well as Middleware Software comprising of softwares like Database Management, Content Management, Application Server, Data Integration, and Development Tools among others. Its products are categorized into various lines of business; applications, tools, databases, middleware, Server and Storage Systems which are portable across personal computers and all main computing platforms Oracle, 2012). They also offer services like consulting, financing, premier support, cloud services, training and customer support (Bruner and Micaelian, 2008: Finance. yahoo. com, 2012).

Under leadership of Ellison, the co-founder, the firm’s sales from the year 1980 to 1989 were not less than double the amount of previous sales. In year 1990 the firm made $971 million as sales, during this period it was the fastest developing software firm internationally and dominant in its area of specialty (Bruner and Micaelian, 2008). Currently, the firm sales have been increasing year after year from $23,252 million in 2009 to $35,622 million in 2011 (Finance. yahoo. com, 2012). In 1985 to 1990 the firm was aggressive and used four main business strategies.

(1) Aggressive sale of its products; the firm distributed products through sales force, which allowed it to have close administrations and control over the sales force. Sales force representatives were allocated ambitious goals every three months. (2) Maintaining product and technology leadership; technology leadership brought benefits to the firm as they started to use SQL2 Language, which was later adopted by IBM. (3) Diversification; the firm expanded to other fields like system integration, and consulting services and as its products expanded these services also expanded.

(4) Expanding globally through subsidiaries and exclusive distributions to more nations (Bruner and Micaelian, 2008). Currently, the firm has achieved its strategy of cloud computing, IT simplification, storage strategies and business analytics (Oracle, 2012). These strategies have enabled the firm to increase sales in year 2011 and they will enable it to have sustainable profits in the future. The firm’s Return on Equity (ROE) will only revert back to cost of capital if Oracle holds more cash. This holding affects ROE since the denominator will take in cash balance while the numerator will take in income earned from such cash.

Because cash normally generates around riskless rates, ROE will thus drop as a result of cash presence. The industry The industry has grown at a very high rate with many software developers coming up. This has been brought about by increasing production of the personal computers as well as competition amongst the hardware vendors. However, software vendors have become important players in computing sector. Customers normally buy hardware based on availability of software, which makes many hardware vendors integrate forward to software development, thus reducing costs of productions.

Competitors in this industry include; hardware vendors who integrated forward DEC and IBM, and database vendors like Oracle, Infomix, Ingres, and Gupta Technologies among others Finance. yahoo. com, 2012). Oracle’s direct competitors include Microsoft Corporation, IBM and SAP AG (Bruner and Micaelian, 2008). Accounting On March 20, 1990, the firm presented quarterly earnings basically unchanged from similar quarter previous year. The firm attributed zero growth earnings to disallowable by the auditors of around $15 million in the sales. The firm sold many software contracts on trial basis raising questions on when revenue should be recognized.

The auditors judged that a number of such sales would for no reason be realized. The action triggered rumours on decreasing product quality, rising accounts receivable and sales representatives exiting the firm. As a result, the firm’s stock price fell by 31% from $28.38 per share.

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