Xm Radio And Sirius Analysis
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Sirius vs. XM: Ratio Analysis and Statement of Cash Flows Paper
From the previous company selection paper, we are now familiar with the selected satellite radio broadcasting companies, Sirius and XM Satellite Radio. Our group will now take a further, in-depth look at the ratio analysis and statement of cash flows to get a better understanding of how the companies are doing financially and with in their market. First, we will be reviewing the cash flows for both companies and identifying how much cash was generated or used by each through everyday operations, and financing and investing activities. We will also address some of the significant events that have affected the overall cash flow for both organizations and describe the changes in revenue and net income over the last several years. Last, we will be calculating the current ratio, return on sales, earnings per share (EPS), debt ratio, and price earnings ratio to state the companies solvency, liquidity, and profitability and will compare the results within the industry.
Review of Cash Flow Statements
Sirius primary source of revenue comes from subscription fees, activation fees, sales of advertising on non-music channels and the direct sale of Sirius radios and accessories. Costs of services include satellite and transmission, programming and content, customer service and billing, and costs associated with the sale of equipment (Summary of Sirius Satellite Radio Inc). As of December 31, 2004, Sirius total cash flow from operating activities was a negative $334,463. Total cash flow in investing activities was a negative $92,852, and total cash flow from financing activities was a positive $660,227. As the data shows, Sirius had losses in operating and investing activities, but had a gain in financial activities due to sales of stock and net borrowing. XM Satellite Radio Holdings Inc.s total cash flow from operating activities was a positive $85,552. Total cash flow in investing activities was a positive $36,329, and total cash flow from financing activities was a positive $421,441 (U.S. Securities and Exchange Commission). XM had a positive year in regards to Operating, Financial and Investing activities.
Significant events
One of the significant events that impacted the cash position for Sirius satellite radio involved financing activities. The company accumulated money from the issuance of long-term debt and the issuance of common stock to help pay for the continuing operations of the organization. Net cash provided by the financing activities, came to $660,227. With operating activities and investing activities costing the company $427,315 combined, it is imperative that the company continue to finance its operations through whatever means possible. Internal events affecting the operating activities included equity granted to third parties and employees, costing Sirius $126,725, and accounts payable and accrued expenses costing $108,997. Total operating activities came to $334,463. Significant internal investment activities included additions to property and equipment and the purchase of restricted investments. The need to continue to update and stay ahead of the competition is significant. Financing – operating expenses – investments, the company had a net increase in cash and cash equivalents of $232,912 (U.S. Securities and Exchange Commission).
XM Satellite Radio Holdings Inc., the larger of the nations two satellite-radio broadcasters, posted a wider loss due to higher programming and marketing costs even as revenue rose and subscribers more than doubled from a year ago. One piece of news troubling investors was another decline in the “conversion” rate at XMs key promotional program with General Motors Corp., or the portion of customers who elected to sign up after an initial trial period. That rate fell to 56 percent in the quarter, from 58 percent in the previous quarter and 60 percent a year ago. Investors for XM may also have been concerned about an announcement in November from GM, which said it plans to build 1.55 million vehicles next year with factory-installed XM radios, up only 11 percent from the 1.4 million in 2005. This years figure represents growth of about 20 percent from the 1.17 million installed in GM cars 2004. XM, which is based in Washington, D.C., added 617,152 net subscribers in the latest period, doubling its customer base to 5 million from 2.5 million a year ago. Subscriber acquisition costs fell to $53 per user from $57 last year. XM said it still expects to have more than 6 million subscribers by the end of 2005 (Sutel, 2005).
Both companies have incurred heavy losses as they build up their businesses and sign-up on-air talent and programming deals. Sirius signed a $500 million, five-year contract with shock jock Howard Stern, who switches over in January 2006, and XM has an 11-year, $650 million deal with Major League Baseball.
Changes in Revenue and Net Income
As stated earlier, Sirius Satellite Radio and XM Satellite Radio Holdings Inc. have several sources of revenue. As the table below shows, total revenue has increased substantially on a year-to-year basis.
Revenue:
Subscriber revenue, including effects of mail-in rebates
$62,881
$12,615
Advertising Revenue, net agency fees
Equipment revenue
2,898
_______
Other revenue
Total revenue
66,854
12,872
This increase in revenue can be attributed to the continuing popularity and acceptance to satellite radio. Sirius and XM derive the bulk of their subscribers from having their radios pre-installed by automotive giants. Daimler Chrysler and Ford have licensing agreements with Sirius while General Motors and Honda are aligned with XM.
Sirius and XM reported healthy levels of subscriber growth last year and are expected to do so this year as well (Summary of XM). As of year-end, Sirius had about 261,000 subscribers, up from only 30,000 in 2002. XM had about 1.3 million subscribers, compared to about 350,000 in 2002. As the table below shows, net income for Sirius has bounced around over the last several years, whereas XM has had a steady increase.
Net Income applicable to Common shares
Period Ending
31-Dec-04
31-Dec-03
31-Dec-02
$651,170
$604,880
$515,871
$712,162
$226,215
$422,481
The adjustments