A Brief Financial Analysis Of Essay Research

A Brief Financial Analysis Of Essay, Research Paper

Arrow Electronics Inc. started as a small electronics distribution company that has recently claimed the number one position as leader in the electronics distribution industry. Headquartered in Melville, New York, Arrow Electronics Inc. currently has 225 sales facilities and 19 distribution centers in 37 countries worldwide. The bulk of products that Arrow sells can be condensed into two categories: electronics components and computer products. Arrow has reached the top half of the Fortune 500 company ranking and plans to stay there. Their distribution network spans across three major electronics markets: North America, Europe, and Asia/Pacific region.

Several factors have influenced Arrow s industry leadership. Through strategic acquisitions and steady growth, Arrow has climbed to the top of the market.

The philosophy that has enabled Arrow to become the worldwide leader in electronics distribution is teamwork. The teamwork philosophy can be summed up in five objectives:

1. Maintain our strategic vision and the courage to preserve

2. Offer the most comprehensive selection of world-class quality product lines

3. Create the most innovative distribution techniques and value added capabilities

4. Provide easy, worldwide access to our products and services

5. Develop the most knowledgeable, motivated, and well-trained employees

Arrow feels that, more than anything, the electronics business is a service industry.

Arrow s latest acquisition was of MOCA, a leading reseller of Sun Microsystems in North America. This acquisition became complete on Oct. 30, 2000. MOCA, with 1999 revenue of nearly $1 billion, is focused mainly on selling Sun enterprise software, storage area networks, operating systems, and professional services. Arrow s most substantial competitor is Mitsubishi Electric and Electronics USA, Inc. Mitsubishi Electronics is ranked in Forbes International 800 as number 50, with revenues in excess of $35 billion. Mitsubishi Electronics is an American division of the parent company Mitsubishi Co. that owns a substantial amount of subsidiaries in a wide range of industries.

Short-term liquidity is an organization s ability to meet current payments as they become due. Liquidity is also a measure of how quickly an item can be converted into cash. The Current Ratio is the most widely used and renowned liquidity ratio. It s simply the currents assets divided by the current liabilities. The Cash Ratio consists of cash divided by current liabilities. The Interval Measure is a useful ratio that can break down current assets into a daily projection of liquidity. Interval Measure is comprised of current assets divided by average daily operating costs. The Current Ratio shows that Arrow is a fairly healthy company. For the three years in question, Arrow s current ratio has been greater than 1. This indicates that the company has positive net working capital. The Cash Ratio illustrates that Arrow has a very low amount of cash on hand. Arrow has greater liabilities than it does cash or cash equivalencies. If Arrow needed to know how many days its current assets would last during a financially dry period, the Interval Measure would be beneficial. The ratio would illustrate to the analysts whether or not Arrow had enough current cash to cover any future debts. Arrow s Current Ratio for 1999 was 2.4. Arrow has had over twice as many current assets as current liabilities. The Cash Ratio for 1997 and 1998 were .12 and .14 respectively, indicating that Arrow didn t have a very large amount of cash. The Cash Ratio fell dramatically from .14 in 1998 to .034 in 1999. The cash on hand decreased in 1999 by nearly 30%. This is due to the large use of cash towards investing activities in amount of $543.3 million. This includes the acquisitions of the Panamericana Comercial Importadora Co., the Spoerle Electronic and Support Net, Inc., the Scientific and Business Minicomputers, Inc., as well as various Internet investments and capital expenditures. Arrow has had a fair amount of operating income associated with mergers and acquisitions. The Interval Measure indicates that Arrow s assets would last 1,329 days in an economic downturn. In analyzing Arrow s benchmark corporation- Mitsubishi Electronics, the findings were slightly different.

Their Current ratios for 1997, 1998, and 1999 were closer to 1 than Arrow s. Perhaps Mitsubishi is more conservative in purchasing assets than Arrow, or perhaps Mitsubishi is more liberal in accumulating debt. The Cash Ratio for Mitsubishi was noticeably larger than Arrow s. Mitsubishi has had much more cash to deal with than Arrow. In the eyes of a short-term creditor, Mitsubishi would be a bit more appealing than Arrow. Mitsubishi has a higher average daily operating cost, and therefore a lower Interval Measure even though it has far greater current assets. Long-term solvency represents a corporation s ability to generate enough cash to pay off long-term debts as they mature. There are several equations that comprise long-term solvency or what is also called financial leverage. The most important debt that a company has is payment to its investors, or in other words payment of equity. For 1999 Arrow Electronics had $0.61 of total debt to investors for every $1.00 in total assets or 61% debt. The total debt ratio has