Financial and Economic Analysis of Acer

Introduction

This financial analysis report examines Acer within the computer/technology industry in order to evaluate company performance and financial health. Overall company strategies were reviewed and considered along with the financial analysis to come to a conclusion for recommendation of investment. The reports introduction gives an overview to the computer/technology industry and expands on the strategies executed by Acer .

Acer Incorporated is a Taiwan-based company principally engaged in the research, development, design, manufacture and distribution of personal computers (PCs) and notebook computers. The Company provides its products under the brands named Acer, Gateway, Packard Bell and eMachines, including desktop PCs, notebook computers, as well as computer peripheral products and other products. The Company distributes its products within domestic market and to overseas markets.

Objectives

The main objectives of this report are to a major player in the electronics field Acer. The analysis will be made based on the company’s common-size income statement, common-size balance sheet and financial statement ratios from year 2009 to year 2013.

Horizontal analysis ( Comparative analysis)

Comparative Statement of Income analysis Acer

% 2009 2010 2011 2012 2013 5-year avg

Net revenue 13.38 2.93 6.47 0.05 13.42 1.86

Cost of net revenue 14.20 4.37 3.25 1.38 12.97 2.05

Gross profit 9.72 3.79 22.65 6.12 15.48 1.4

Selling 17.52 17.76 26.73 5.78 8.97 9.45

In-process R&D 0 0 0 97.59 100 39.52

Research, development and engineering 1.08 8.73 22.49 8.69 5.88 6.59

Total operating expenses 15.71 17.01 27.69 5.64 8.73 9.21

Operating income 3.01 29.94 12.05 7.27 31.91 10.81

Investment 18.32 21.68 40.73 65.37 210.45 39.02

Income before income taxes 3.67 27.41 14.41 13.14 39.11 12.32

Income tax provisions 28.25 24.25 15.49 3.86 30.14 14.20

Net income 18.37 28.29 14.09 15.91 42.17 10.78

Comparative Income Statement Analysis

Acer’s net revenue sharply declined from 2011 to 2013, going from 6.47% to (13.42%), as a result of the economic downturn, as individual customers put off luxury purchases such as computers and commercial customers put off bulk computer orders for a later to be determined date. On average, the net revenue growth was 1.86% while cost of goods sold was 2.05%. Cost of goods sold increased faster than sales, lowering its potential gross profit. Even though selling, general, and administrative was reduced substantially from 2011 level of 26.73% down to (8.97%) in 2013, its growth rate averaged 9.45%, which outpaced net revenue on average. The drop in selling general and administrative was due to decreases in compensation, advertising expenses and improved controls during the downturn. The growth rate of cost of goods coupled with the economic downturn, found Acer with a (31.91%) operating income for year 2013. A large decrease in the market yield of over 200 basis points from 2012 was the cause for the (210.45%) for investments and other income n 2013. Net income average was (10.78%) over years 2009 to 2013, with major causes for this being lower sales due to economic downturn, decreases in investments, increases in tax liabilities and higher cost of a hedging program.