ASSESSMENT OF HP INC.’S FINANCIALS
Assessment of HP Inc.’s financials
HP Inc., commonly known as HP, is an American-based companyheadquartered in Palo Alto, California. The Hewlett Packard Companysplit in November 2015, giving birth to HP Inc. and Hewlett PackardEnterprise. HP Inc. has a manufacturing plant in Palo Alto where itdevelops and manufactures computer hardware such as scanners,desktop, printers and laptops. The company is among the top brands inthe world. The total revenue and gross profit of the company byOctober 31, 2015, were $103, 500 million and $24,759 millionrespectively. The manufacturing plant has been experiencing a declinein their total revenue from the last four annual financial reports.HP Inc.’s liquidity ratios, current ratio, quick ratio and cashratio, in the 2015 fiscal year were 1.23, 1.07 and 0.47 respectively.The profitability ratios of the company were as follows: gross margin22.24, operating margin 6.72, return on assets 4.34 and return onequity 16.71 (HP Inc. Financial metrics).
Sinha, G. (2012)argues that declining revenue and profit of a company is a threat toits sustainability and management. Decline in the net profit of HPInc. reduces the company’s cash available to manage the risks andemergencies that are experienced throughout the business operations.The decline represents financial unhealthy business that ischaracterized by operational inefficiency. Furthermore, if the trendcontinues unchanged, the job security of the employees is also atrisk due to looming bankruptcy of the plant. Liquidity ratiosrepresent the strength of a firm’s financial position and itscapability to address its short term obligations. When the currentratio was more than 1, an organization was able to settle its shortterm with its current assets. The HP Inc. plan in Palo Alto can meetits short term obligations and therefore, can get financial supportfrom creditors. However, the liquidity ratios of HP Inc. plant havebeen generally decreasing indicating that its ability to clear itsshort-term liabilities is reducing. The profitability ratios show howefficient the plant is in utilizing its operations and assets togenerate profit. High gross margin is an indication that the plant isunder an effective management. The return on asset of the plant ishigh indicating that it is efficient in utilizing its assets togenerate revenue. The return on equity (ROE) is attractive toinvestors since the high ROE shows that investors can benefit whenthey invest in the plant (Khan, M. Y., & Jain, P. K. 2009).
The core units, sources of revenue of HP Inc., are Personal SystemsGroup, Services, Imaging and Printing Group, and Enterprise Servers,Storage and Networking (ESSN). These core units generateapproximately 97% net revenue of the plant. However, the Software andFinancial Services units are the fastest growing business units, butthe budget allocation allocated to these units is relatively lower.The software unit is the most profitable unit. When compared with theindustry, HP Inc. plant in Palo Alto is poorly performing. Theprice/sale ratio and price earning ratio of the company in 2015 were0.49 and 8.76 while that of the industry were 1.92 and 17.12respectively, indicating that investors prefer its competitors suchas IBM and Dell to it. Generally, the management strategies used atthe HP Inc. plant in Palo Alto is not efficient in generating revenueand value to the company. The low performance of the company whencompare to the industry may also as result of undervalue by investors(Mayo, H. B. 2013). HP Inc. may be relatively less focused on theirofferings than its competitors.
HP Inc. Financial metrics, retrieved fromhttp://h30261.www3.hp.com/financial/financial-metrics/ratio.aspxon June 18, 2016
Khan, M. Y., & Jain, P. K. (2009). Financial management.New Delhi: Tata McGraw-Hill.
Mayo, H. B. (2013). Investments: An introduction. Mason,OH: South-Western, Cengage Learning.
Sinha, G. (2012). Financial statement analysis. Place ofpublication not identified: Prentice-Hall Of India.