Financial Analysis of Hewlett Packard Research Papers
In a financial analysis of the Hewlett Packard Company, the research paper will discuss the company's financial history and projection. A research paper from Paper Masters will center on a case study of Hewlett Packard. It is the company to analyze. Paper Masters suggests you go about the project as follows:
- Use the Annual Report in your essay from HP (investor relations) as a reference, examine certain points.
- Be sure to discuss the interest rate and how the new debt influence affects the financial leverage?
- In the research paper discuss operating leverage, contribution margin, financial leverage.
- Also look at costs such as fixed, variable, direct, indirect and sunk.
- Apply all readings from your college courses to the financials and write on how it applies to HP.
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Many in the financial world regard Hewlett-Packard as being a company that is in a process of transformation. It was long notable as a company that operated in select niches, attempting to flourish in the high-end of those niches. When, for example, pocket calculators made their appearance in the early 70’s, Hewlett-Packard’s were the most advanced and capable (and the most expensive) ones on the market. Packard, in his The HP Way, notes that when he and Hewlett were running the company, they eschewed a “growth for growth’s sake” way of doing business, preferring, as Bolland and Hofer note, a mode of doing business where “growth could be planned when quality and customer support were part of the vector”.
That philosophy is now changing. Hewlett and Packard became less active in the company in the late 80’s, but returned to full involvement to accomplish an overhaul of the company in 1990. Both then went back to inactive status and David Packard died in 1996. Since their passing from the scene, and particularly during the last two years, the company has adopted an aggressive growth through acquisition stance. Mergent’s Inc.’s Handbook of Common Stocks, Spring 2001 notes that in January of this year the company acquired Bluestone Software. Williams and Hallinan note that Hewlett-Packard announced in July of this year that it was buying Comdisco Technology Services. And, of course, the big news was its announcement of its intention, several weeks ago, to acquire its rival, Compaq. The current CEO, C.S. Fiorina, seems to be committed to a business philosophy vis a vis acquisitions and mergers that is diametrically opposed to the philosophy of the company’s founders.
THE ECONOMIC ENVIRONMENT: Hewlett-Packard is not, at this juncture, doing very well. According to the Web site, Yahoo Finance, its stock closed at 17.89 the last time the market was open. The trend line is downward; Hewlett-Packard is below its 52 week high of 53.71 and quite near its low of 17.89. According to Standard and Poor’s Corporation Record its yearly consolidated earnings as of July of this years was $0.26 per diluted share; this compares with $1.34 per diluted share at the same time in the year 2000. Revenues are also down, from $35.5 billion in 2000 to $33.7 billion in 2001.
There are some fundamental psychological and economic reasons that account for the down-turn in Hewlett-Packard’s stock price and for the down-turn in revenue as well.
- First, the nation went through a brief period of being enamored with all things high-tech. This resulted in the inflation of high-tech stock prices and, when a reaction set in, the fall was precipitous.
- Second, as the dot.com bubble underwent implosion, demand for Hewlett-Packard products, particularly PC’s, diminished.
- Third, the growth rate for the economy as a whole ceased to be as robust as had hitherto been the case; it would be reasonable to assume that this global economic phenomenon would have some effect on a large, multi-niched company like Hewlett-Packard.
- A fourth factor may also be working against Hewlett-Packard at this point in time.
The growth through acquisition model is linked to how people pursue their investment strategies. In the days of the dot.com bubble the “fundamentals”, most notably the price-earnings ratio, came to be regarded as irrelevant. Dividends, determined largely by operating profits, took a back seat in people’s minds as compared to the probable future sale price of a given stock. This fit well with the notion of growing a company by acquiring the stock of other companies. There has been, since the dot.com bust, a return to a fundamentals based investment philosophy. Clements notes that this has caused buyers to flock to high-yield stocks and they have noted that there is a new/old investment psychology in which people seek out high-yield stocks because high dividends are a more tangible evidence of earnings than are earnings that, absent dividends, could well be based on accounting tricks. As of right now, with a yield of 1.80% and a P/E ratio of 25.81, there is no reason to consider Hewlett-Packard a high yield stock. A focus on acquisitions rather than income generated by operations is viewed with suspicion by many on Wall Street today, and this may be one reason why the announced acquisition of Compaq actually caused Hewlett-Packard’s stock to fall.
There are other problems looming that may have an effect on the value of this stock. It is highly probable that, if the country is not already in recession, it soon will be. The recent terrorist activity in the United States, and the nature of the response, which will no doubt be expensive, will undoubtedly drain some liquidity out of the economy. It would appear that we are no longer in a virtuous economic cycle and any recession would, if the past is anything to go by, probably mean a fall in the price of equities. It is too early to tell how the tragedy and its aftermath will effect consumer psychology, but it certainly could be the case that people will hold off on spending until they get a better sense of the new geopolitical and economic realities.
Hewlett Packard is a global company with over 150,000 employees. The company is headquartered in the technology capital of the United States, Palo Alto, California. The company was originally founded in 1939 in a garage. Throughout the years, the company has focused its efforts on a variety of products. Originally, the company was involved in the research and production of microwave signal devices. In the 1980’s and 1990’s, the company made the transition to the personal computer and printer market. In 1999, Hewlett Packard entered the e-commerce industry by providing a web site for purchases of equipment directly by consumers.
While the profits of Hewlett Packard are certainly based on computer and internet use in the United States, the rules determining product exports to other countries is also a major part of the company’s profits. Thanks to relaxed trade regulations, this is one less thing to get in the way of the company’s performance.
In 1997, 40 counties around the world agreed upon rules from the World Trade Organization to eliminate trade tariffs on information and technology products. The new rules for relaxes trade tariffs covers about $600 billion worth of products every year. It is believed that the deregulation of tariffs will mean lower prices for consumers, and greater access to the technology.
In the end, the macroeconomics that affects the performance of Hewlett Packard is varied in many respects. Part of the company’s performance comes sales online directly to consumers, which has been affected by the dot com bust over the past few years. In addition, the company relies on sales to consumers around the world, which has been greatly helped with relaxed tariffs on technology sales in at least 40 nations around the globe.