Oracle Systems
Executive Summary
Oracle Systems Corporation is an established company that produces competent and innovative softwares. For recent years, the company has been experiencing a favorable financial position with high revenues and stock market price. However, in 1990, as it disclosed its first ever quarterly loss, the company’s stock price declined by 31%.
To better analyze the position of the company, its financial ratios must be computed and taken into consideration. The ratio of its the Accounts Receivable to Sales and Assets Ratios, 0.99 and 0.53 respectively, it could be inferred that a large part of its sales came from credit and almost half its assets are receivables. Its A/R to asset ratio is considerably lower than that of the industry which is 28.2. In addition to that, its receivable turnover of 2.16 is below the industry average of 6.26. Its Day Sales Outstanding on the average is 168. Comparing this to the industry which is 102, it can be seen that the collection policy of the company is ineffective and should be improved.
With this, the company can improve its situation by making its sales quota more flexible. This would ease the pressure upon the company’s salesmen. Also, credit sales due to desperate attempts to sell will be avoided and a better view of the company culture will be reflected. Thus, establishing a better reputation for the company. The company could also tighten credit policy so that accumulated bad debts will lessen and the company would be more liquid. The company should not recognize sales on trial basis so as not to overstate earnings. Moreover, the company should disclose its revised collection policies so that its financial statements would be more reliable and relevant. The company should also ensure good product quality to its customers so as to satisfy and gain their loyalty.
The aforementioned courses of action are recommended to be taken by the company that can serve as a long-term strategy that will lead to long term benefits.
Problem
How will the company emphasize profitability and product quality?
Point of view
The group assumes the point of view of Larry Ellison, CEO. We are presenting to the Board of Directors.
The Company: Current State
Decreased Market Value. In March 1990, the company’s stock price dropped by 31% from its peak of $28.375 per share: $2 billion in market value was lost between the February and September 1990.
Contingent Liabilities. 20 lawsuits were filed against Oracle, which alleged fraud and misrepresentation. These contingent liabilities are reflected on the company’s balance sheet.
Net Income Loss due to customer dissatisfaction.