Financial Analysis: Trends and Concerns

1. Net Income

The net income is rising from 2015 to 2017, which is good. However, net income as a percent of sales rises from 2015-2016, but falls from 2016-2017. Why?

2. Total Revenue

Total revenue is increasing each year from 2015 to 2017, which is good. On a percentage basis revenue increased by 27% from 2015-2016 and accelerated to 31% in 2016-2017, which is very good.

3. Cost of Revenue

Cost of revenue is going up from 2015 to 2017, which is to be expected because revenue is going up. On a percent of sales basis, cost of revenue is going down each year from 67% to 62%, which is very good.

4. Gross Profit

Gross profit is rising over time from 2015 to 2017 which is good. As a percent of sales it is getting better over time, which we expected because both revenue and cost of revenue improved over time.

5. SG&E

SG&E is rising over time which is expected because revenue and gross profit are rising. However, this number is rising faster than sales as shown by the percent of sales rising from 31% to 35% over time.

6. Operating Income

Operating income is getting better from 2015 to 2016 and worse from 2016 to 2017. It got worse because of an increase in SG&E.

7. Total Other Income/Expense

Total other income/expense went from negative in 2015 which is bad, to positive in 2016 and 2017 which is good. However, we would like to know what is in this other income.

8. EBIT

EBIT is rising consistently over time as they reversed the negative operating income from 2016 to 2017 by adding in a large other income in 2017. Did they sell investments to reverse the operating income trend?

9. Interest Expense

Interest expense is rising over time which is expected as revenue rises. However is rises faster than sales and takes a big jump from 2016 to 2017. Looking at the balance sheet we see they did get a lot more debt from 2016 to 2017 and it looks like they invested the money in PP&E, which is good.

10. Income Before Tax

Income before tax is following the same trend as net income as a percent of sales: up and then down.

11. Income Tax Expense

Income tax expense was up and then down which is good from 2016-2017. But why did taxes go down so much? Did they change account policies to make net income trend positive?

12. Cash

Cash is going up over time, but as a percent of total assets it goes up and then down? Because total rose because company is investing heavily in PP&E and made an acquisition.

13. Short Term Investments

Short term investments are rising over time as the company invests cash in government securities in order to earn interest (other income).

14. Accounts Receivable

Accounts receivable is going up which is expected as sales are going up. However, as a percent of sales the number rises from 5% to 7% over time. Collection issues?

15. Inventory

Inventory rises over time which normal as we need to buy more inventory as we sell more. As a % of cost of revenue it is a consistent 13-14%.