Financial Analysis of Tyler Technologies, Inc (Term Paper Sample)

Financial Analysis of Tyler Technologies, Inc Student’s Name Course Name and Number Instructor’s Name Date Submitted Abstract A financial analysis also known as financial statement analysis is a process of identifying a company’s strengths and weaknesses through a comprehensive analysis of its reported financial information. This information includes quarterly and annual reports such as balance sheets, income statements, and statement of cash flows. Financial analysis shows whether a business enterprise has sufficient cash to meet the set goals, enough capital structure, a noteworthy account receivable collection period, sufficient plant/equipment, and, if the company has an effective inventory management system. Knowledge of all this items is essential in the process of maximizing profits, as well as, achieving the set objectives. This paper aims at analyzing financial statements of Tyler Technologies Inc, using horizontal analysis, and the ratio analysis approach. Table of Contents  TOC \o "1-3" \h \z \u HYPERLINK \l "_Toc406363024"Company Overview  PAGEREF _Toc406363024 \h
4 Definition of HYPERLINK \l "_Toc406363025"horizontal Analysis  PAGEREF _Toc406363025 \h
4 HYPERLINK \l "_Toc406363026"Importance of Horizontal Analysis  PAGEREF _Toc406363026 \h
5 HYPERLINK \l "_Toc406363027"Horizontal analysis of Taylor’s Income Statement  PAGEREF _Toc406363027 \h
5 HYPERLINK \l "_Toc406363028"Horizontal Analysis of Tyler’s Balance Sheet  PAGEREF _Toc406363028 \h
6 HYPERLINK \l "_Toc406363029"Tyler’s Ratio Analysis  PAGEREF _Toc406363029 \h
7 HYPERLINK \l "_Toc406363030"Recommendation  PAGEREF _Toc406363030 \h
9 HYPERLINK \l "_Toc406363030"Conclusion  PAGEREF _Toc406363030 \h
9 HYPERLINK \l "_Toc406363031"References 10  Company Overview Tyler Technologies is one of the largest companies in the technology sector in the United States, and it provides information technology services, and integrated software for the public sector. The company operates in two segments, which include the Appraisal and Tax Software Solutions (ATSS), and Enterprise Software Solutions (ESS). ESS offers Schools, and Municipal/County governments with software systems designed to meet their information technology needs, while ATSS provides software/systems that automate appraisal/assessment of real and personal property, and property appraisal outsourcing services for taxing authorities, as well as, local governments. Tyler’s competitors include Microsoft Corporation, Oracle Corporation, SAP SE, IBM Software, and CA Technologies. The company was founded in 1966, and it has its headquarters in Plano Texas (Tylertech.com, 2014). Definition of Horizontal Analysis Horizontal analysis also known as trend-analysis is a financial statement analysis technique, which evaluates a series of financial statements over a given period. The main aim of this approach is to determine the change (increase or decrease) that has occurred in various financial statement items over the selected period. This change is expressed either in dollar amounts or as a percentage of the base amount. Base amount is the amount corresponding to the base year, which is mostly the first year in the selected set of data (Weygandt, Kieso & Kimmel, 2010). Percentage change = (Amount of change/Base year amount) X 100 Importance of Horizontal Analysis The main purpose of Horizontal analysis is attention directing. This is because it quickly and efficiently draws attention on the financial statement items that require comprehensive investigation. Consequently, the company’s management is able to direct resources to the most appropriate areas in the company. Furthermore, horizontal analysis assists a company in controlling costs. It is evident that companies that have remarkable sales growth do not often control their costs. Consequently, fixed expenses, which include overhead and various indirect expenses may increase because of the lax management approach. However, adoption of horizontal analysis enables a company to identify the specific fixed expenses that might be increasing as sales continue to grow. Knowledge of the various fixed expenses, which may be increasing over time, provides a means of increasing a company’s profitability by limiting them (IMA, 2012). Horizontal analysis of Tyler’s Income Statement 201120122013Revenue$309,391100%$363,304117%$416,643135%Cost of goods sold$167,479100%$195,602117%$223,440133%Gross profit$141,912100%$167,702118%$193,203136%Operating expenses$95,395100%$111,125116%$126,075132%Operating income$46,517100%$56,577122%$67,128144%Earnings before tax$44,113100%$53,868122%$65,819149%Income tax $16,556100%$20,874126%$26,718161%Net Income$27,557100%$32,994120%$39,101142% Interpretation From the above analysis, it is observed that the revenue has increased by 17% in 2012, and by 35% in 2013. The cost of goods sold has increased by 17% in 2012, and 33% in 2013. Operating expenses have increased by 16% and 32% in 2012 and 2013 respectively. Operating income has also increased by 22% and 44% in 2012 and 2013 respectively. This indicates that the overall profitability of the company, which is of key concern especially to the potential investors, is good. Horizontal Analysis of Tyler’s Balance Sheet (Amounts in thousand dollars) 201120122013AssetsCurrent Assets Cash and Cash Equivalents $1,326100%$6,406483%$78,8765948%Short Term Investments $25100%$0$0Net Receivables$95,107100%$105,573111%$124,050130%Other Current Assets$10,634100%$10,07495%$14,309135%Total Current Assets$107,092100%$122,053114%$217,235203%Long Term Investments$4,048100%$3,22480%$1,87646%Property Plant and Equipment$40,915100%$45,382111%$64,844158%Goodwill$106,094100%$121,011114%$121,011114%Intangible Assets$35,628100%$45,800129%$38,986109%Other Assets$1,614100%$1,19774%$53633%Total Fixed Assets$188,299100%$216,613115%$227,253121%Total Assets$295,391100%$338,666115%$444,488150%Liabilities Current LiabilitiesAccounts Payable$27,962100%$29,185104%$35,372127%Other Current Liabilities $123,678100%$140,550114%$156,738127%Total Current Liabilities $151,640100%$169,735112%$192,110127%Long Term Debt$60,700100%$18,00030%$0-100%Deferred Long Term Liability Charges$4,941100%5,632114%$6,059123%Total Liabilities$217,281100%$193,36789%$198,169 91%Stockholder’s Equity Common Stock $481100%$481100%$481100%Retained Earnings $130,115100%$163,109125%$202,210155%Treasury($204,990)100%($172,041)84%($138,502)68%Capital Surplus$152,859100%$154,018101%$182,176119%Other Stockholder Equity($355)100%($268)75%($46)13%Total Stockholder Equity $78,110100%$145,299186%$246,319315%Total Liabilities and Shareholder’s Equity$295,391100%$338,666115%$444,488150% Interpretation With respect to the base year (2011), the total current assets increased by 14% in 2012, and by 103% in 2013. The current liabilities have increased only by 12% in 2012 and by 27% in 2013. This shows that the company will have no challenges meeting its day-to-day expenses because of the remarkable increase in its current assets. The Fixed assets have increased by 15% in 2012 and by 21% in 2013. At the same time, Total Liabilities and Shareholder’s Equity have increased considerably by 15% in 2012 and by 50% in 2013. This clearly indicates that the company has taken up expansion plans in an outstanding way. Tyler’s Ratio Analysis Financial ratios for 2012 Current ratio = Current assets/Current liabilities = $122,053÷$169,735 = 0.75:1 Quick ratio = Quick assets/current liabilities = ($6,406+$105,573) ÷$169,735 = 0.66:1 Cash to current liabilities ratio (Cash ratio) = (Cash + Cash Equivalents + Invested Funds)/Current Liabilities =$6,406 ÷ $169,735 = 0.04:1 Financial ratios for 2013 Current ratio = Current assets/Current liabilities = $217,235÷$192,110 = 1.13:1 Quick ratio = Quick assets/current liabilities = ($78,876+$124,050) ÷ $192,110 = 1.06:1 Cash to current liabilities ratio (Cash ratio) = (Cash + Cash Equivalents + Invested Funds)/Current Liabilities = $78,876 ÷ $192,110 = 0.41:1 Interpretation Th...