please due financial Statement

Running head: ANALYZING THE ANNUAL REPORT 0

Analyzing the Annual Report: Tableau Software, Inc.

Princess Smith

OMM622: Financial Decision-Making

Instructor: Michael Powers

July 6, 2016

Analyzing the Annual Report: Tableau Software, Inc.

Tableau Software, Inc. is a small American computer software company founded by Chris Stolte and Pat Hanrahan in January of 2003. The company was started in Mountain View, California aimed at commercializing research being conducted at the Computer Science department at Stanford University as a Department of Defense project in order to increase individual’s ability to analyze different types of information. They wanted to produce a product that could potentially change the world. Pat Harahan knew much about how much hard work would have to be put into the project as was a founding member of the company Pixar, soon after, becoming Pixar’s chief architect for RenderMan. Pat was the brains behind the world changing technology of animated film which helped make it possible for characters such as Buzz from Toy Story. “Rather than analyzing data in text form and then creating visualizations of those findings, Chris and Pat invented a technology called VizQL™ by which visualization is part of the journey and not just the destination, putting into realization both fast analytics and visualization” (Tableau Software, 2016). 

After much work at the university between 1999 and 2002, the company Tableau was created and the company was relocated to Seattle, Washington where the company is still headquartered today. The company offers five main products that include Tableau Reader, Tableau Online, Tableau Desktop, Tableau Public and Tableau Server. Within the company’s range of product offerings are relational databases, cloud databases, spreadsheets, and cubes. Although small, Tableau is considered by Forbes, to be one of the top 20 small public companies in America. As for Tableau’s future outlook, their market seems to be growing as much as day by day and compared to other visualization tools, Tableau’s software seems to be the best and easiest to use by many of its consumers. Tableau is one of the fastest growing within the market generating investor demand substantially.

As for the company’s future, it is believed by many shareholders that the company must have some of the best marketing employees responsible for its success integration within different databases. In comparison to other small software companies, Tableau’s market cap seems to be greater than its competition. In addition, the company’s lifetime revenue is fairly well to be a small software company with over $900 million since its birth. The small company managed to increase their revenues by over 58% in 2015 from its prior year, generating most of their lifetime revenue in 2014 alone. The company’s revenue for 2015 was $653.6 million. There is a high probability that the company’s financial future will be successful when we take into account their revenue increase from fiscal year 2012, making a tremendous jump that doubled their revenues from $127.7 million in 2012, to $234.4 million for 2013. Tableau has “been growing rapidly and expect to continue to invest in our growth for the foreseeable future” (Tableau Software, Inc., 2015). By analyzing the company’s annual 10-K report, particularly from fiscal year ending December 31, 2015, we will be able to get an insight on how this small company manages to stay afloat in competition with some of the larger companies within its industry. The main purpose of this paper is to take a closer look at Tableau Software, Inc.’s 10-K Annual Report for fiscal year 2015 in order to analyze the company’s short-term liquidity, operating efficiency, capital structure, and profitability, then providing any recommendations for a future analysis (trend analysis) of the company.

An annual report comprises information about the company and the primary source of information about the company’s activities, strategies, and its financial performance. “Outside investors are seeking information as to the long run viability of a business and its prospects for providing an adequate return in consideration of the risks being taken” (Isberg, n.d.). The primary purpose of the annual report is accountability, particularly to shareholders. However, it is only useful to those who can understand and interpret the messages in which it conveys. A typical annual report will include a company’s general corporate information, accounting “policies, the balance sheet, cash flow statement, contents of non-audited information, profits and loss account, notes to its financial statements, a director’s report, operating and financial reviews, an auditor’s report” () and many other general features. Any information that may be pertinent to stakeholders may also be included within the annual report. This information includes reports on operations for manufacturing companies and social responsibility reports. Social responsibility reports are generally used on annual reports for companies that have social or environmental sensitive operations such as waste and construction companies. Whatever the company, it is required by the U.S. Securities and Exchange Commission that registration statements, periodic reports, and any other forms be filed on an annual basis.

The purpose of the Form10K is to provide comprehensive details of thecompany's business and financial condition” (Epstein, 2014). The processes that companies follow in order to generate their annual 10-K reports is called financial reporting. “Firm managers convey information to current and potential investors and creditors via both mandatory financial reports and voluntary disclosures and significant amount of information in these reports and disclosures is based on estimates about the future” (Capp & Koonce, 2016). Financial reporting includes important processes such as preparing the annual financial report, coordinating and preparing quarterly financial statements for analyzation, researching and resolving accounting and financial reporting issues, coordinating cash activity, capital project accounting, and monitoring control. “Financial reporting (balance sheets, profit and loss statements, financial notes, and disclosures) is the language we use to communicate information about the financial condition of a company, a not-for-profit, or a state or local government” (Financial Accounting Foundation, 2016). In addition, there are certain guidelines and standards known as Generally Accepted Accounting Principles (GAAP) that has been established by the Financial Accounting Foundation’s (FAF), the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) which greatly determines how companies’ financial statements are prepared. “GAAP is based on established concepts, objectives, standards and conventions that have evolved over time to guide how financial statements are prepared and presented and is set with the objective of providing information that is useful to investors, lenders, or others that provide or may potentially provide resources to a company or not-for-profit organization” (Financial Accounting Foundation, 2016). Financial reports of a company contains an abundance of important information that is critical to the decisions a company’s stakeholders which includes the investors, creditors, employees and customers. Let’s take a closer look at Tableau Software, Inc.’s 10-K Annual Report for fiscal year 2015 to analyze the company’s short-term liquidity, operating efficiency, capital structure, and profitability.

Tableau’s Financial Ratios

First we will analyze Tableau’s short-term liquidity. Short-term liquidity is a financial ratio that includes the company’s current ratio and the acid test ratio. It measures how easily the company can meet their short-term financial obligations such as the payment of the company’s bills and provides a measurement for the relationship between the company’s current liabilities and its current assets. Such short-term obligations are the company’s current liabilities, typically its trade creditors, bank overdrafts PAYE and VAT. These are the obligations that companies must pay within the next twelve months. Current assets are stocks, debtors, cash, and any work-in-progress normally re-circulated in order to pay the company’s current liabilities. In order to find the company’s current ratio the formula below must be used.

Current Ratio =

In order to find the company’s Acid Test Ratio, the formula:

Acid Test Ratio =

Tableau’s 2015 Quarterly Ratios

When a company has a current ratio of one, this indicates that their current assets’ book value is equal to their current liabilities’ book value. Shareholders, investor in particular, will generally want to invest in a company whose current ratio is 2:1. This means that the company’s current assets are twice as large as the company’s current liabilities. Current ratios that are less than one is an indication that the company may have financial troubles in paying short-term obligations. Too high of a ratio may indicate that the company probably isn’t using their current assets effectively, or their short-term financing facilities.

In the case of Tableau, in reference to their first two quarters, the company’s quick ratio is higher than one indicating that Tableau is capable of meeting their financial obligations in time. The company’s short-term liquidity in reference to their acidity ratio, is quite promising. For their third and fourth quarters, there was a decrease in the ratio, which indicates their position in liquidity declined. “Low values, however, are not always fatal because if an organization has good long-term prospects, it may be able to en­ter the capital market and borrow against those prospects to meet current obligations” (Financial Ratio Analysis, n.d., para 8). In addition, the company’s first two quarters indicates that their current ratio were constant in reference to their short-term financial strength and their market liquidity. However, their last two quarters declined a bit, weakening their short term liquidity. This is due to Tableau’s liabilities increasing, when considering the company’s current assets. Even with the ratio’s low numbers, the company may not be in a bad place.

Now we will analyze the company’s receivable turnover and their inventory turnover. “Turnover ratios measures a company’s efficiency, activity, or changes in certain assets” (Deloitte & Touche, n.d.). Turnover ratios with poor numbers would generally be an indication that the company’s resources are invested in assets that are not producing any real income. The accounts receivables turnover ratio (A/R) is a clear indication of just how timely that a company can collect on sales. “For example, an A/R turnover ratio of 6 means receivables are paid every 2 months and a low A/R turnover ratio indicate a company has uncollected receivables” (Deloitte & Touche, n.d.). The inventory turnover ratio indicates how timely that a company’s inventory sells and is replaced on a yearly basis. For instance, “an inventory turnover of 12 means inventory is sold (turned over) once each month, while a low inventory turnover ratio could mean there is a lack of demand for a business’s products and/or inventories may be (become) overvalued” (Deloitte & Touche, n.d.).

As for Tableau’s receivable turnover ratio in their first two quarters, the numbers were quite low. These low numbers show that Tableau did not collect their receivables in a timely manner, but improving in the last two quarters. Maybe the company has changed their collection methods or policies in order to collect in a timely manner. When analyzing their inventory turnover ratio for the company’s first two quarters in comparison to their last two quarters, the numbers higher for the last two quarters. The lower rates in the first two quarters indicates that the company has too much stock accumulated. With the increase in their last two quarters, most likely, Tableau’s inventory may have been inadequate.

Operating Efficiency

Now we will analyze Tableau’s operating efficiency by comparing the numbers from all four quarters for 2015. We will be considering the company’s leverage ratio, assets turnover ratio, cash percentage of revenue, and their receivables percentage of revenue.

A company’s leverage ratio measures the extent to which the company is reliant on debt financing for its capital structure. Tableau’s ratio for the first quarter of 2015 is a clear indication that the company is less reliant on or uses less of a percentage of debt in financing their operations, but increased in its ratio for the next three quarters. Debt can be both beneficial and costly to companies, especially for small ones like Tableau. Adding debt creates a fixed payment that will require that the company pays the debt even when it’s not earning any operating profits. “The goal is to borrow finds at a low interest rate and invest in a business activity that produces a rate of return exceeding the target rate of return for investments” (Delloite & Touche, n.d.).

The efficiency in which a company uses its resources in generating sales is the assets turnover ratio. The company has a fairly low asset turnover in its first two quarters which is a good indication that Tableau use of their assets in order to generate sales for the company was at increase in its efficiency, creating a higher profit margin from having a lower ratio. For the second two quarters however, the increase is an indication of a reduction in Tableau’s profit margins. The software industry is very competitive however, I think Tableau will still be doing very well and have a promising future.

A company’s total contribution of cash sales in comparison to its total revenue is the cash percentage of revenue. Tableau’s cash percentage of revenue decreased throughout 2015, thus indicating a decrease of its cash sales throughout a particular time during 2015.

Last, but not least, is the company’s receivables percentage of revenue during the fiscal year of 2015 shows that within Tableau’s second quarter for the year, the company generated a greater number of receivables. There was a substantial decline in the third and fourth quarter.

Tableau’s Capital Structure

“A company’s capital structure is a mix of a company's long-term debt, specific short-term debt, common equity and preferred equity and how a firm financed its overall operations and growth by using different sources of funds” (Investopedia, LLC, 2016). We will now analyze Tableau’s long-term debt per share ratio, long-term debt versus equity ratio, and long-term debt percentage of invested capital.

A company’s long-term debt per share ratio is an indication of the ratio of share by the company’s investors in the long-term debts that have been generated by the company. Tableau’s first two quarters shows that the company’s investors share no part of Tableau’s debt. For the 3rd quarter, investors shared 4.89 percent of the company’s debt, with an increase of shared debt for the 4th quarter.

The extent to which long-term debt is used against the use of a company’s equity is called the long-term debt versus equity ratio. For Tableau, long term debt usage against their equity usage for 2015 shows that their long term debt rose in their first two quarters, took a slight dip in the third quarter and then increased considerably in the fourth quarter.

Long-term debt percentage of invested capital is a measure of a company’s extended use of debt in the financing of the company’s operations. There was a consecutive increase from the 1st quarter to the 4th quarter of Tableau’s long-term debt.

Tableau’s Profitability

Now we will finally analyze Tableau’s profitability for fiscal year 2015. We will focus on the company’s working capital per share, the return on equity, and the return on assets ratio.

Tableau’s profitability numbers are quite interesting. A company’s working capital per share ratio clearly measures the ratio in which the company’s shareholders may have to contribute into its working capital. This is how the company’s ability to meet their current obligations are measured. For Tableau being a small company, I find it quite superb that they have managed to decrease the ration during a full three quarters, and did not have to rely on shareholders in order to meet its obligations.

“Return on equity ratio (ROE) is treated as an important measure of a company’s earnings performance and tells common shareholders how effectively their money is being employed” (Kijewska, 2016). Tableau’s return on equity to shareholders were 0.1 for the 1st quarter and for the 2nd quarter 0.3 at a slight increase. It remained constant however, from the 2nd quarter to the 4th quarter. This increased the company’s profitability from the 1st quarter to the 4th quarter.

The return on the use of a company’s assets in order to generate its sales is called the return on assets ratio. Tableau’s 1st quarter was 0, increasing in the 2nd, 3rd and 4th quarter. I find this to be good for a small company like Tableau as it has helped the company to increase its profitability.

Recommendations

“Tableau’s success was the result of strong customer growth, product adoption, international expansion, and operational excellence,” (Tableau Software Inc. Annual Report, 2015) but a small software company like Tableau does have some stiff competition, especially when competing with companies like Microsoft, Oracle and Symantec. However, the company has managed to make it for over 13 years since its birth in 2003. I would expect the company to continue to do well as the company plans to spend more on innovation the next two years than it did over the past decade according to an article from Fortune.com. Although the company is one of the fasted growing software companies that exists in the market, investors will still need to monitor its growth. I would recommend that the company remain innovative and not to take on too much debt because they are still considered to be the underdog.

References

Capps, G., Koonce, L., & Petroni, K. R. (2016). Natural Optimism in Financial Reporting: A State of Mind. Accounting Horizons, 30(1), 79-91. doi:10.2308/acch-51277. Retrieved from: http://eds.a.ebscohost.com.proxy-library.ashford.edu/eds/pdfviewer/pdfviewer?vid=4&sid=63c83d2f-09cb-4b9b-ad32-213f743d2ce8%40sessionmgr4005&hid=4105

Delloite, T. & Touche, T. (n.d). Financial ratios: what do they mean? Retrieved from: http://www.uni.edu/thompsona/Financial%20Ratios%20Their%20Meaning0001.pdf

Epstein, L. (2014). Financial decision-making: an introduction to financial reports. Bridgepoint Education. Retrieved from: https://ashford.thuze.com/books/AUOMM622.14.1/sections/sec1.3?search=10-k#w10173

Financial Accounting Foundation. (2016). The importance of generally accepted accounting principles (GAAP). Retrieved from: http://www.accountingfoundation.org/gaap

Financial Ratio Explanations. (n.d.). Retrieved July 05, 2016, from https://www3.nd.edu/~mgrecon/simulations/micromaticweb/financialratios.html

Isberg, S.C. (n.d.). Financial analysis with the DuPont Ratio: a useful compass. Retrieved from: http://home.ubalt.edu/ntsbisbe/fin640/financial_analysis_with_the_dupont_ratio.doc

Investopedia, LLC. (2016). Capital structure. Retrieved from: http://www.investopedia.com/terms/c/capitalstructure.asp

Kijewska, A. (2016). Determinants of the return on equity ratio (roe) on the example of companies from metallurgy and mining sector in Poland. Metalurgija, 55(2), 285-288. Retrieved from: http://eds.a.ebscohost.com.proxy-library.ashford.edu/eds/pdfviewer/pdfviewer?vid=1&sid=c6d605e8-1d6b-417d-99ad-f61c8c2d2b95%40sessionmgr4001&hid=4105

Tableau Software Inc. (2015, December 13). 2015 10-k Form. Retrieved from: http://s1.q4cdn.com/149179428/files/doc_financials/2015Annual/Tableau-2015-Annual-Report-and-Proxy-Statement.pdf

Tableau Software. (2016). History in the making. Retrieved from: https://careers.tableau.com/ourstory