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Custom Financial Analysis Essay

In the recent years, Qualcomm incorporated has been able to grow its revenues compared to assets to 10.42 billion; and most recently, the company has been able to reduce the percentage of sales devoted to income tax from 8.86% to 7.57 %. The profitability or return on assets for the company is at 9.18%; it is a good gesture that the assets are put into good use. However, the sales of the company have been growing at a slower rate compared to 2009.

Financial analysis

The return on assets for the company in 2010 is 10.65% compared to 5.80 % for 2009; this is gotten when the revenue is divided by the average total assets from the two most recent balance sheets. With this percentage; the company shows that it has a very high likeliness of converting its investments into profits. The receivables turnover is at 15.04 while the inventory turnover is at 6.25. Despite its asset management being lower than that of its competitors; it has really improved compared to the recent past. Qualcomm has seen continual increase in sales from year to year but has simultaneously increased its assets. The big inventory turnover could be an indication of overstocking; therefore, QCOM could really work on improving that. It therefore, beats Cisco in its return on assets; this indicates that although it may not turn over as many assets, it demonstrates a greater ability to make profits on assets.

Kieso 2007 notes that the company’s fixed asset turnover measures the overall efficiency of the firm in managing its total fixed assets and in generating a return to stock holders.Williams 2008 states that it is a primary measure of how well management is running the company. By relating these earnings generated to the shareholders equity; one can see that the existing assets have the potential to generate more cash without need for new asset acquisition. Graham 2001 states that it is therefore; clear that the higher the company’s return on fixed assets, the better the company.

Comparison between Qualcomm and Cisco

The accounts receivables turnover for the company is also quite low, that is, at 7.4 while the inventory turnover is at 9.6. The company is doing well in terms of selling the stocks but the profitability is low. This might be because it has high operating costs compared to Qualcomm that has both a high receivables and inventory turnover. The return on assets is at 10.3% which is higher than Qualcomm.

Qualcomm is at a position to utilize its assets better and realize more sales by changing its operational strategies without incurring any extra expense. When the two companies are compared; Qualcomm is at a better position to turn over its assets easily than Cisco. Both companies should be careful have large stocks of inventory; this may tie down capital that might be used in generating income in other ways. This method may be useful to bring in additional income; for inventory to contribute to a company’s profitability, it must be maintained at reasonable levels. Bordie 2004 states that the fixed assets turnover ratio indicates how a firm is utilizing its fixed resources such as plants; machinery and other equipments are utilized to generate sales. These companies therefore, need to put these assets into more use to increase their productivity.

Custom Financial Analysis Essay

Code: Sample20

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