RealD Inc vs. IMAX Corp.|
RealD Inc is a leading global licensor of 3D technologies while IMAX Corp specializes motion picture technologies and presentations. While the two markets may seem mutually exclusive, they are not, and with indications of both parties having intentions to foray into broader market segments, the competition between both parties could not be more intense than it is now. Even though it may seem that IMAX is performing better, a deeper look into the financial statements of both companies shows that each company has its own strengths and weaknesses. It is also reassuring to see that RealD is improving upon its financial position while IMAX seems to be slipping. RealD also appears to have its finger on the pulse of new trends in consumer electronics and has also developed and expanded a recycling plant that not only curtails costs but boosts its corporate image. Provided RealD positions itself in the right way, it is very likely that it will gain the upper hand in this bitter-sweet rivalry.
One of the main concerns with RealD vis-à-vis IMAX is that RealD has a much longer collection period. This affects its ability to pay bills faster and may also lead to large write-offs associated with bad debt. The company should look into minimizing this problem by perhaps offering its clients incentives to pay early or by introducing a late fee (if these measures are already not in place). RealD also may appear to not generate as much profit as IMAX but it is investing a large amount of money in R&D, advertising and personnel costs as it is seeking to expand into new segments and markets. It was also found that IMAX appears to be operating in a more risky environment. Given the seasonal nature of the business and varying consumer trends this may not be the best way in which to conduct operations.
1) IMAX’s Financial Performance Compared to RealD.
While IMAX may have the higher gross margin ratio, this value has reduced from 0.55 to 0.48 in 2010 while RealD’s gross margin ratio of 0.28 is a staggering improvement from last year’s value of 0.06. This indicates that RealD exercised more control on the purchase of equipment, which it did by lowering the cost of glasses due to improved recycling efforts and a decrease in expedited freight costs. It should be noted that the reduction in gross margin ratio for IMAX is mostly due to a 3000% rise in costs associated with customers unable to proceed with theatre system installation of the IMAX technology. The costs associated with this issue could be of concern to IMAX if this trend continues into the future. RealD return on sales indicates that the company needs to do a better job of controlling costs and expenses related to advertising, staff and R&D, however the increase in these costs is in anticipation of growth in consumer electronics. This would be beneficial considering the seasonality of the company’s primary source of revenue. These expenses are also in preparation for the company’s foray into Asia and Latin America. It may also be noted that interest expenses decreased mainly due to a loan repayment of 25.1 million dollars. While the company’s return on sales is nowhere near the 11% in operating profits that IMAX generates this may be warranted as RealD positions itself for the future. IMAX did however also incur a rise in R&D costs of 1.6 million dollars, mainly to develop its projection technology. While RealD’s profit margin is of concern as it is seen to lose 3% of on each dollar of revenue it earns, it has made a marked improvement upon last year’s profit margin of -0.34. This was achieved mainly due to a 656% gain in ‘other’ income over the past year which was associated with profits it started to make after investing a large amount of funds in the establishment and expansion of a recycling facility for its 3D glasses in 2009. This is opposed to IMAX...