Oracle Case

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| Oracle Systems CorporationEXECUTIVE SUMMARYIntroductionOracle Systems Corporation, now Oracle Corporation was founded with a mission of discovering and developing new and powerful ways to manage and access information. The company's product focus is software and services for information management and Oracle has developed an international reputation in the field. However, in March of 1990, rumors spread among the investment community which triggered a considerable drop in the price of the company's stock. In September of 1990, because of mistakes made in the company's finance department and a poor quarterly earnings report, the stock quickly dropped to an all time low. This report seeks to identify by financial analysis of historical data, why the share price dropped as low and as quickly as it did.Income Statement and Balance Sheet DataData in a consolidated income statement clearly shows the company's priority on growth. Revenues from services showed proportionally large increases in overall revenue generation over the time period under study. Overall, income statement data showed signs of increasing profitability and growth followed by decreasing profitability and slower growth. A considerable reduction in company financial performance occurred during the time preceding and at the time of the share price reduction. Operating capital, which roughly measures the company's reservoir of cash, started a decline in 1988, and continued into the first quarter of 1991. Accounts payable showed a decrease during 1985-1990 as did accrued expenses, however, long-term debt showed strong increases preceding and at the time of share price reduction.Statement of Cash Flows and Financial Ratio DataWhile net income showed a gradual increase during 1985 to 1991, cash flow from operations started a general decline in 1988 which continued throughout the time period under study. Oracle was successful in generating cash immediately preceding the share price reduction by reducing the number of fixed and non-current assets, however, the company had to greatly increase financing to cover the decline of cash production from operations. The statement of cash flows clearly represents a deteriorating condition which must be corrected if the company is to remain in operation. Financial ratio data mirrored the trends in income and cash flows, with decaying indicators for Oracle beginning in 1987 to the first quarter of 1991. For example, all three solvency ratios followed similar trends, with higher debt during 1985-1986, followed by a period of decreasing debt (1987-1988), then a period of increasing debt (1889-1990). All financial ratio data indicated a deteriorating condition for the organization which had to be rectified if the company was to remain in operation.ConclusionThis case is an excellent example of the efficiency of analysis and evaluation of companies receiving funding through capital markets. The Oracle Corporation is now flourishing, but in order to make it through the difficult times in the late 1980's and early 1990's described in this report, the company had to layoff employees, refocus the company's major priorities from growth to profitability and product quality, as well as make changes in its policies on software revenue recognition. Proper financial analysis is most important in the continual valuation of corporations in free market economies.This case is an excellent example of the INTRODUCTIONOracle Systems Corporation, now named only Oracle Corporation, was founded in 1977 with a mission of discovering fast, easier, less expensive and more powerful ways to manage and access information. Since the company's founding, Oracle has been solving difficult and critical information management challenges for companies of all types and sizes. Indeed, Oracle is now the world's largest independent provider of software and services for managing information with over 20,000 dedicated software professionals, and operations in...
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