Blackberry Company: Financial Statement Analysis

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Introduction

This essay contains an overview of Blackberry Company, horizontal analysis, ratio analysis, recommendation, and conclusion. Income statements and Balance sheets for three years (2010, 2011 & 2012) have been used to file the analysis. Discussion of the importance and meaning of horizontal analysis together with the negative or positive trends of the company are outlined. In ratio analysis, the current ratio, quick ratio and cash to current liability ratio for two years (2011 &2012) are provided. The ratio figures are interpreted together with any noticeable liquidity issues of the company. Lastly, there is investor advice provided on whether it would be wise to invest in the company.

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Company overview

During the company’s inception, Steve Jobs of Apple launched the first Apple Operating system (Macintosh). The company was started in Waterloo, Ontario Canada. Blackberry is a public limited company, which is listed in major stock markets including NASDAQ. It is, therefore, before the law, a legal person is expected to comply with all the rules and regulations as provided by the law. Between 1980 and 1998, research in motion formed partners with other experts like Rogers and Ericsson and started building radio transmitters and modems, which facilitated data and message transfer over mobile networks. During the same period, RIM developed the world’s first two-way pager. The company majorly deals in smartphones, like the Blackberry handset, and offers wireless communication devices such as servers and online communication platforms (blackberry e-mail services). According to Tubbs & Gillett (2011), the company has wide market coverage across the world. It has subsidiaries in the U.S., North America, Asia, and Europe. New York, Toronto, London, Paris, Dubai, Johannesburg, Jakarta, and New Delhi are some of the major towns in which the company has its branches. The market coverage has majorly concentrated on developed countries. This implies that the company is well established and possesses the necessary resources required to meet customers’ needs. This reflects the vast capability of the company in terms of resources (financial, human resource, expertise, and know-how). The company is worth billions of dollars in terms of assets and equity. These, therefore, reflect the company’s size. Within the last decade, the company has been able to install its devices in every department of the U.S. government and throughout the U.S senate and the house representative (Tubbs & Gillett, 2011). The company successfully managed to provide some of the world’s largest corporations with efficient effective and secure e-mail accounts. In 2003, the company’s phone- Blackberry- was developed from just a mere device to an efficient Smartphone. In 2007, the company in an attempt to regain the lost market share introduced a new product in the market, the Blackberry 10. The launching of this product is part of the company’s strategy to maintain its market share and competitive strength (Tubbs & Gillett, 2011). In 2008, the launching of Blackberry storm- a full-touch device- stormed the market. The brand was a major threat to Blackberry’s competitors like Nokia. During the year 2012, the company formulated a competitive strategy to introduce a new brand, Blackberry 10. The event never took place instead; the company’s history was marked by a shocking resignation of the co- CEO. The event was unfavorable to the company’s performance financially and management-wise (Tubbs & Gillett, 2011).

Horizontal analysis

The horizontal analysis involves the performance of analysis on items of financial statements of a company. The analysis is to ascertain the percentage change in the items. From the analysis conducted on the income statement of Blackberry Company for the financial period between 2010 and 2012, the following were the major noticeable occurrence: between 2010 and 2011, the company’s revenue levels rose by 40.01% as indicated by 140.01% to mean an increase over and above 100% baseline. The increase in revenue could be due to an increase in sales or price levels in the year 2011. For this same item, there is a negative trend marked by a reduction in revenue between 2011 and 2012, the level in 2012 is 94.08% below the 100% benchmark. This reduction could be due to low sales or price levels in the year 2012 as compared to 2011. The analysis reveals a positive trend indicated by a reduction in the cost of sales. The trend is considered positive because costs of sales are inversely related to gross profit. The cost of sales can be low due to fewer purchases and/or fewer purchase-related costs. Between 2010 and 2011, the gross margin increased to 142.88% from the 100% benchmark. This increase is attributed to an increase in revenue or decrease in the cost of sales or both. The analyses show an increase in total expense from 2010 to 2011 by 43.8% as indicated by 143.8% above the 100% benchmark. The trend shows a decrease in the total expense. That is, in the year 2012, the percentage was 95.02 down from 100%. This trend is considered favorable for the company because high expenditure values reduce net earnings. Unfortunately, the company reports a negative trend in its net income. In the year 2012, the values dropped to 29.09% from 100% of the previous year. Less revenue that the company managed to collect contributes to this sharp drop in net income (Walther, 2012).

Analysis of the balance sheet shows a negative trend in cash availability. The trend is marked by a decrease of cash available to 78.23%. The change was caused by less collection from debtors or intensive conversion of more cash into inventory and other short-term investments. Another negative trend is the reduced total current assets in the period between 2011 and 2012. The reduction was supposedly caused by low short-term investment, low trade receivables, and low deferred tax income. Current assets are liquid compared to fixed assets that are illiquid. Therefore, their levels should be high enough to meet the short-term obligations of an enterprise. There is a positive trend marked by a decrease in the current liabilities in the year 2012 (94.09%) as compared to an increase in the year 2011 (141.5%). The trend is considered favorable because high levels of current liabilities reduce the total value of current assets. There was a remarkable improvement in the company’s retained earnings both in the year 2012 and 2011. Increased retained earnings mean that after meeting long-term obligations of a financial period, the company still has a portion of its earnings (Walther, 2012).

Importance of horizontal analysis

The outcome of horizontal analysis is important to various stakeholders including, shareholders, lenders, the government, suppliers, and a company’s management team. The shareholders are interested in a company’s performance as reflected by the levels of dividend payment. They, therefore, use horizontal analysis to evaluate a company’s performance between different financial periods and make future investment decisions. They also use the horizontal analysis to evaluate percentage change in a company’s performance and demand explanation, from the management, on measures put in place to improve performance in the future. Potential lenders to a company will use the information to ascertain whether its future cash flows, according to the reported trend, will enable the company to pay its debts as and when they fall due. The analysis is important to the management for strategy formation and decision-making (Walther, 2012).

Ratio analysis

Current ratio= current assets/current liabilities. It indicates the number of times current liabilities can be paid from current assets before they are exhausted. From the analysis, the company’s 2011 current ratio is $1.789 while in 2012 the ratio is $1.876. The quick ratio, on the other hand, indicates the ability of a company to pay its current liabilities from more liquid assets of the company. In the year 2011, Blackberry recorded a quick ratio of $1.415 and $1.404 in the year 2012. The company’s cash ratios for 2011 and 2012 are 0.3517 and 0.2924 respectively. In 2011, the company had $1.789 to cover for every $ 1 of liability. In 2012, it had $1.876 liquid assets to cover for every1$ current liability. According to the current ratio, the company’s liquidity increased in 2012. Whereas both quick and cash/ current liability show a reduction in the companies most liquid assets. Across the industry, Blackberry is better off in terms of liquidity compared to other companies like Samsung and Nokia (Walther, 2012).

Final recommendations

According to the analyses, it would be proper to invest in Blackberry because, though the company showed lower performance in most of its critical areas, it still has opportunities to improve. For instance, the increased retained earnings in 2012 are a sign of good performance and a source of capital. The company can use its retained earnings to make future improvements.

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Conclusion

Both horizontal and ratio analysis are important in ascertaining a company’s performance. The analyses also provide a platform for industry analysis. A company’s long-term performance can easily be analyzed based on periods. Therefore, both horizontal and ratio analyses provide good investor information.

References

Tubbs, G., & Gillett, T. (2011). Harvesting the Blackberry: An Insider’s Perspective. New York: Wheatmark Inc.

Walther, (2012). Principles of Accounting: Volume I (1st Ed.). San Diego, CA: Bridgepoint Education Inc.

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BusinessEssay. 2022. "Blackberry Company: Financial Statement Analysis." May 5, 2022. https://business-essay.com/blackberry-company-financial-statement-analysis/.

1. BusinessEssay. "Blackberry Company: Financial Statement Analysis." May 5, 2022. https://business-essay.com/blackberry-company-financial-statement-analysis/.


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BusinessEssay. "Blackberry Company: Financial Statement Analysis." May 5, 2022. https://business-essay.com/blackberry-company-financial-statement-analysis/.