Garmin Financial Statements 2018
Financial Ratios Valuation
Financial ratio analysis is an essential process in assessing an organization’s profitability, liquidity, efficiency, and solvency level. The figure below summarizes Garmin’s financial ratios between the fiscal periods ending in 2017 and 2018. The profitability ratios outlined in the form of the gross profit margin and net profit margin indicate that Garmin is in a stable condition in-terms of the generation of revenue, covering its expenses, and opportunity for sustainability from its retained earnings. The liquidity ratios assessed using the current ratio and the acid test ratio attest that Garmin is in a very stable liquidity position. The firm is able to settle its current financial obligations as they fall due. The activity ratios analyzed using the debtor days, credit days, and asset turnover indicate that Garmin is utilizing its assets in the best possible manner to generate revenue, and manage its accounts receivable and payables. Finally, the solvency ratios, as assessed by the debt ratio, gearing ratio, and the interest coverage ratio, indicate a very healthy organization with less debt in its portfolio. Overall, Garmin’s financial analysis indicates a very healthy firm able to generate adequate revenues, cover its liquidity, pay minimal financial costs, and manage its assets in an efficient manner.
Figure 1: Garmin Financial Ratio Analysis
|Garmin Incorporation Ratio Analysis|
|No||Ratios||December 2017||December 2018|
|1||Gross Profit Margin||57.60%||59.14%|
|4||Acid test ratio||1.33||1.50|
|Efficiency/ Activity Ratios|
|8||Gearing ratio (Debt to equity ratio)||28.45%||29.30%|
Garmin is highly involved in the research and development of products. The financial report for the year ending 2018 indicates high research and developmental costs in outdoor, fitness, marine, auto and aviation sectors. The 2018 annual report suggested that the revenue generated on research and development units grew by 15% from the previous year. Garmin operates in an industry where innovation is key to growth and development and thus has to invest more in research to launch new products to the market.
Risk and Return
The risk and return characteristics define the level of exposure of an organization to the market. Garmin’s level of risk to the market is low, as depicted from the financial analysis report. The firm is exposed mainly to market risk comprising of market sensitivity, inflation, interest rate, and foreign exchange currency risk. The highest market risk is on the currency exchange due to its engagement and trading with its subsidiaries. The significant change of foreign exchange currencies could have a big effect on its operations in the future. The firm is looking to hedge currency risk in the future. Generally, the performance of Garmin is above the industry average. Seeking Alpha analysis indicates that Garmin’s annual return was at 42.73% in the last year. The company’s stock price outperformed the market and its industry of operation. The performance can be attributed to management in terms of management of debt and utilizing the organization’s equity in the generation of adequate cashflows. Yahoo financial analysis indicates a return on equity of 18.76% and a return on assets of 10.27%. Garmin is highly funded by equity, and there was no debt in the year 2018. Guru Focus financial analysis indicates a cost of equity, which is also its cost of capital of 5.66%. The lower cost of equity suggests an average return firm with a low-risk profile for its investors. The risk and return factors are, therefore, essential evaluation tools for the selection of investment.
The rise and fall of stock prices are influenced by an organization’s internal corporate events or market-driven factors. In the last one year, Garmin has had a very stable stock price movement. The biggest fall was experienced in August 2019, which was driven by market factors. There were rumors of the introduction of new Garmin products, including the Fenix and Vivo radar devices. The speculation on the introduction of new products limited the purchasing power of customers. The stock price is affected due to the expectations of disruption of the company activities, which may lead to lower revenues, earnings, or dividends to shareholders. Despite the slight fall, the stock price continued to rise and is in a stable position.
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