SCHOOL OF ARCHITECTURE, BUILDING AND DESIGNFOUNDATION IN NATURAL AND BUILT ENVIRONMENT

FINANCIAL RATIO ANALYSIS REPORT ON

HTC CORPORATION

GROUP MEMBERS: CHUA WEI JIE 0316323 HONG SANG WON

SUBJECT: BASIC ACCOUNTING (FNBE 0145)

LECTURER: CHANG JAU HO

COMPANY BACKGROUND.

HTC was previously known as High-Tech Computer Corporation, and it was founded in the year 1997 and developed the world's first handheld personal data assistant (PDA).

LOCATION.

Headquarter of the HTC is located at Xinghua Road, Taoyuan City, Taiwan.

FOUNDER

Cher Wang (王雪紅), H. T. Cho (卓火土), and Peter Chou (周永明) founded HTC in 1997.

BRIEF HISTORY

Since HTC was founded in the year of 1997, they have been through three major transformations.

HTC started off as a Personal Data Assistant (PDA) producer, in cooperate with Microsoft.

The second major turning point took place in 1999. HTC got into the telecommunication arena.The current HTC CEO Peter Chou saw the increasingly important role of mobile telecommunication product in the daily lives of consumers. In 2002, HTC open a new field for them in the industry by launching two new mobile wireless devices, the O2 XDA and Orange SPV. The product were designed based of Microsoft latest operating system and facilitated the telecommunication service providers and received worldwide attention.

The third transformation was the launch of HTC brand globally in 2007. After the launching of HTC they then launch HTC Touch, putting HTC in the front and center of growing worldwide excitement over touch screen smartphone. In 2009, HTC released the whole-new user interface, HTC sense. HTC then introduced their competitive new lineup to the world through its worldwide “quietly brilliant” tagline and “YOU” advertising campaigns.

What makes HTC so unique is that HTC focuses on product design with performance, endurance, craftsmanship, and intuitive tools and interfaces, ensuring an elegant experience in a beautiful, minimalist package.

RATIO ANALYSISProfitability Ratio

2011 2012 Interpretation

Return on Equity(ROE)

During the year 2011~2012 period, ROE has decreased from 70.4% to 18.5%. This means the owner is getting lower return on his/her capital.

Net Profit Margin(NPM)

During the year 2011~2012 period, NPM has decreased from 13.6% to 6.2%. This means the business is getting worse at controlling its overall expenses.

Gross Profit Margin(GPM)

During the year 2011~2012 period, GPM has decreased from 26.4% to 21.2%. This means the business is getting worse at controlling Cost of Goods Sold.

Selling Exp. Ratio(SER)

During the year 2011~2012 period, SER has increased from 7.0% to 8.1%. This means the business is getting worse at controlling selling expenses.

General Exp. Ratio(GER)

During the year 2011~2012 period, GER has increased from 1.3% to 2.1%. This means the business is getting worse at controlling general expenses.

Financial Exp. Ratio(FER)

During the year 2011~2012 period, FER has increased from 9.2% to 13.7%. This means the business is getting worse at controlling financial expenses.

Net Profit(Avg. Owner's Equity)/2

X 100

61,975,796(101,426,596+74,714,494)/2

X 100

= 70.4%

Net ProfitNet Sales

X 100

61,975,796454,258,278

X 100 = 13.6%

Gross ProfitNet Sales X 100

119,754,046 454,258,278

X 100 = 26.4%

Total Selling Exp.Net Sales

X 100

31,971,943454,258,278

X 100 = 7.0%

Total General Exp.Net Sales

X 100

5,860,841454,258,278

X 100 = 1.3%

Total Financial Exp.Net Sales

X 100

41,913,076454,258,278

X 100 = 9.2%

Net Profit(Avg. Owner's Equity)/2

X 100

16,780,968 (80,369,215+101,426,596)/2

X 100

= 18.5%

Net ProfitNet Sales

X 100

16,780,968 269,079,239

X 100 = 6.2%

Gross ProfitNet Sales X 100

56,989,072269,079,239

X 100 = 21.2%

Total Selling Exp.Net Sales

X 100

21,721,715269,079,239

X 100 = 8.1%

Total General Exp.Net Sales

X 100

5,521,252269,079,239

X 100 = 2.1%

Total Financial Exp.Net Sales

X 100

36,950,059269,079,239

X 100 = 13.7%

StabilityRatio

2011 2012 Interpretation

Working Capital(WCR)

During the year 2011~2012 period, WCR has decreased from 1.2:1 to 1.03:1. This means the business ability to pay current liabilities with current assets is getting worse. In addition, it does not satisfy the minimum requirement of 2:1 ratio.

Total Debt(TDR)

During the year 2011~2012 period, TDR has increased from 58.9% to 59.7%. This means the business debt level has gone up. However, it is still over the maximum of 50%.

Stock Turnover(ITR)

During the year 2011~2012 period, ITR has increased from 25.7 days to 42 days. This means the business is selling their products at a slow speed

Debtor Turnover(DTR)

During the year 2011~2012 period, DTR has increased from 102.5 days to 140.4 days. This means the business is getting slower in collecting their debts from debtors.

Interest Coverage(ICR)

During the year 2011~2012 period, ICR has decreased dramatically from 6038.6 times to 52.4 times. This means the business ability to pay its interest expenses is getting worse. In addition, it satisfies the minimum requirement of 5 times.

Price Earning 27th May 2014 Interpretation

P/E Ratio

This is the P/E ratio on 27th May 2014. This means an investor who bought a share of HTC would have to wait 8.09 years to recoup his/her investment. Moreover, the share that the investor will normally pay is less than 15 years.

Total Current AssetTotal Current Liabilities180,772,179 145,478,862

= 1.2 : 1

Total LiabilitiesTotal Asset

X 100

145,479,490246,906,086

X 100 = 58.9%

Interest Exp. + Net ProfitInterest Exp.

10,265+61,975,79610,265

= 6038.6 times

Cost of Goods SoldAverage Inventory

365 /

335,325,140(25,389,320+21,920,492)/2

= 25.7 days

365 /

Total Current AssetTotal Current Liabilities122,271,142118,817,523

= 1.03 : 1

Total LiabilitiesTotal Asset

X 100

118,817,523199,186,738

X 100 = 59.7%

Interest Exp. + Net ProfitInterest Exp.

320+ 16,780,968320

= 52.4times

Cost of Goods SoldAverage Inventory

365 /

213,712,615(23,809,377 +25,389,320)/2

= 42 days

365 /

Credit Sales.Average Debtors

365 /

227,129,139 (64,261,595+63,365,429)/2

= 102.5 days

365 /

Credit Sales.Average Debtors

365 /

134,539,620 (39,211,893+64261595)/2

= 140.4 days

365 /

Current Share Price.Earnings per Share

163.0020.1596

= 8.09ttm

Investment RecommendationProfitability

As the gathered data shows, the net profit is getting lower from 2011 to 2012, the return on equity have dropped by 51.9% from 70.4% (2011) to 18.5% (2012). This show that the owner of the business is getting lower return on their capital this year. Next is that Net Profit Margin has decreased from 13.6% to 6.2%. This means the business is getting worse at controlling its overall expenses. Even if HTC is one of the leading company in Mobile Phone, but the information shown in this report shows that the company is getting worse compare to the past year, and investor are recommend to find a better company for investment.

Stability

HTC’s Working Capital Ratio has decreased from 1.2:1 to 1.03:1. This means the business ability to pay current liabilities with current assets is getting worse, and HTC is doing badly in controlling the business debt as the total debt has increased from 58.9% (2011) to 59.7% (2012). Next HTC’s Stock Turnover Ratio has also increased from 25.7 days to 42 days, this indicate that HTC is selling their product at a slow speed.

Price

- Based on the Price/Earning Ratio (8.08ttm), this shows that the company is still worth investing as it is not over 15, but it is still only in the average range. There is still other better company that is worth investing.

Conclusion

HTC is a company that is worth investing but there is still better choice for investment out there compared to HTC.

APPENDICES2011 P&L statement

Balance sheet

2012 P&L Statement

Balance sheet

REFERENCES1) http://media.corporate-ir.net/media_files/irol/14/148697/AnnualReports/0604%20HTC%20Annual%20Report(E)_rpnId29pHaYT.pdf

2) http://media.corporate-ir.net/media_files/IROL/14/148697/2012%20HTC_English(high%20resolution).pdf

3) http://www.bloomberg.com/quote/2498:TT