Financial analysis of Autonomy Corporation Essay

Financial analysis of Autonomy Corporation - Essay Example The present study would focus on the Autonomy Corporation is a global enterprise that has dual corporate headquarters in Cambridge, United Kingdom and San Francisco, USA. The company has a presence in four continents: North America, South America, Europe, and Asia Pacific. The firm has more than 400 major clients including Oracle, IBM, HP, and Novell which are users and supporters of the firm’s technological products. This paper will analyze the financial standing of the company based on the use of financial and ratio analysis. In fiscal year 2010 Autonomy Corporation generated $870.36 million in sales (Morningstar, 2010). The sales total of the company increased by 17.66% in comparison with the previous fiscal year. The average selling price of the company was $790,000 which is a stable metric in this industry. The firm achieved a net profit of $296.21 million in 2010. The profitability of the company in 2010 is outstanding due to the fact the net margin of the company was 34 %. The net margin of the company was very impressive considering the fact that the industry net margin in the software industry is a very low 1.7%. The net margin is a financial ratio that measures the absolute profitability of the business. The net margin of Autonomy Corporation in 2010 was 32.3% higher than the industry average. The gross margin of the company was an outstanding 87%. The gross margin is a broad measure of profitability. The stockholders of the company benefited from the great earnings of the company. The earnings per share of the firm in 2010 was $1.11. Earnings per share tend to have an effect on the market price per share, as reflected in the price earnings ratio (Garrison & Noreen, 2011). The common stocks of Autonomy Corporation are traded in the London Stock Exchange. The firm’s website claims that the stock symbol of the firm is AU.L. Upon further research at various financial websites it appears that Autonomy Corporation’s stock are being trad ed in the London Stock Exchange under the symbol 5053.L; the current stock price of Autonomy Corporation is $2,549 per share (Yahoo, 2011). The revenue per employee of the company in 2010 was $463,000 which is 5% better than in 2009. During 2010 one of the highest expense accounts of the company was its research and development expense. The company spent $114.75 million in R&D. During the last five years the company has more than double its R&D expenses. This is a good sign because investing in research and development allows companies to develop new products and technologies. Patents are born out of the efforts of the R&D team. Two additional financial ratios are the return on assets (ROA) and return on equity (ROE). Return on assets measures how well assets have been employed by management, while return on equity when compared to return on assets measures the extent to which financial leverage is working for or against common stockholders (Garrison, et. al, 2003). The return on as sets of Autonomy Corporation in 2010 was 9.02%. The ROA of the company is better than the industry average of 6.9% (Dun & Bradstreet, 2011). The return on equity of Autonomy Corporation in 2010 was 14.33%. The ROE of the firm is 6.17% below the norm in the software industry. The current ratio measures a company’s ability to pay off its short term debt. The current ratio