Company Performance Analysis: Lam Research Corp. (Term Paper Sample)

Module Name: Financial Statement Analysis and Valuation
Module Code: ACFI810
Coursework Assignment 2020
Company performance Analysis: Lam Research Corp.
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Executive Summary
Following an article released by Market Watch on US stock performance (2019), Lam Research Corp (LRC) was placed among the best-performing stocks in the US stock market. This report contains an analysis of the company performance for the financial year 2019. The results of the analysis show that the company had a general reduction in its efficiency where the financial performance of the year 2018 was better than 2019. The analysis shows that there was a general reduction in sales revenue of -$1,423 million between 2018 and 2019 which has resulted in negative changes in the profitability and efficiency ratio analysis. However, further analysis shows that the performance of the company in the year 2019 was far way better than the industrial averages of the Technology Hardware & Equipment sector that the company belongs to. The ratio analysis also shows that the company performed better than some of its competitors such as CVD Equipment Corp, Amtech Systems Inc. and KLA Corp. hence being named a better performer in the stock ranking for 2018. Detailed analysis are contained in the body of the report.
Table of Contents TOC \o "1-3" \h \z \u Introduction. PAGEREF _Toc33557658 \h 4Financial Analysis PAGEREF _Toc33557659 \h 5Conclusion PAGEREF _Toc33557660 \h 9References PAGEREF _Toc33557661 \h 10
Introduction.
This report contains a performance analysis of Lam Research Corp for the latest annual report released 2019 as of June 24th, (Lam Research Corp, 2020). The analysis will try to explain why the company stock was ranked among the top performers in 2019. LRC operates in the Technology Hardware & Equipment sector where it designs and manufactures semiconductors used in the fabrication of integrated circuits. Its headquarters are in Fremont, California in the US and the company recorded a revenue of US$ 9.65 billion in 2019 where US$ 2.19 billion was net profit. The share price movement for the past year is as shown below,
Source: Bloomberg, 2020.
According to Bloomberg, (2020), Lam Research Corp trading as LRCX, has a market cap of US$ 43.731 billion and a total of 145.5 million shares out. The current stock price is 300.46USD wherein 2019, it closed at 292.40USD as of 31st December 2019, with a one year stretch of 163.60 - 344.32USD. Its latest dividend payout was $4.60 in 2019 and hand a dividend yield of 1.53% for the period. The body of the report contains a financial analysis of the key components that resulted in this performance basing on performance-based ratios. The report will then conclude with the key findings of the analysis.
Financial Analysis
Lam Research Corporation performance for the year 2019 is evaluated according to the following Profitability and investment ratios. These ratios have been selected because they will help in evaluating management activities and engagements for the period. It is the activities that the company engaged in that resulted in the performance of the company.
1 Gross profitability.
Dividing the company’s net sales revenue by the gross profit shows the gross profit margin for the period. According to Bloomberg,

2019

2018

Change

Gross Profit Margin

45.20%

46.11%

-0.91%

Comparing the two periods, there has been a -0.91% change in the GPM. According to the company’s annual report (2019), this has resulted from the decrease in the sales revenue of the company, which was $11,076 million in the financial year 2018 with a gross margin of $5,165 million. 2019 registered a decreased $ 9,653 million revenue and a gross profit of $4,358 million, (LRC Annual Report, 2019). Therefore, it resulted in the ratio decrease. However, comparing this with the industrial average, the sector had a gross profit margin of 37.19% (CISMarket, 2019). This shows that the company was far way above average with +8.01% showing a better performance in the financial year. Comparing this with a close competitor like CVD Equipment Corp which had a 39.76% margin showing a better performance by LRC. With this trend, the company performance will be positive and will attract more investors in future.
2 Operating Profit Margin
Dividing the operating profit for the company against the sales revenue, the ratio will show the percentage profit the company was able to make after deducting its operating expenses. The operating profit performance was as follows according to the annual report 2019,

2019

2018

Change

Operating Profit Margin

25.20%

28.19%

-2.99%

The -2.99% change is attributed to higher sales revenue in 2018 than in 2019 by +$1,423 million. This translated to $2,464 million in 2019 compared to 3,213 million in 2018. LRC was able to perform above the industrial average by +.1.64%, which was 23.56 % showing a better place in the market. The graph below shows that the company is currently performing at a stable operating profit margin which is key in stock performance,
Source: Bloomberg, 2020
The trend is good since it does not have high fluctuations which will lead to positive future growth.
3 Net Profitability