Financial Statement Analysis Project On Uber
You are to act as a financial advisor to a client interested in investing in Uber. You will research Uber and provide a recommendation to your client whether he/she should invest.
PART A: Obtain Financial Statements
Obtain 3 years of financial statements (just the Balance Sheet and Income Statement) Uber from SEC.GOV. 3 BALANCE SHEETS AND 3 INCOME STATEMENTS will be submitted.
PART B: Enter data into FSAP (Financial Statement Analysis Package)
(Google – “Financial Statement Template.xls, click on “Excel Template for Income Statement – Accounting Simplified”).
Enter the Balance Sheet and Income Statement amounts for 3 years into the Financial Statement Analysis Package Excel file (just the Balance Sheet and Income Statement information, not the Statement of Cash Flows). Make sure your balance sheet BALANCES!!!! Make sure your Net Income matches your Net Income on the Income Statement.
PART C: Company Analysis
Focus more on their position within the industry, recent developments, fluctuation in stock prices relative to the market/industry, and other items of significance that would impact your investment decision. Legal issues facing the company. New markets and new products. DO NOT WRITE ABOUT THE HISTORY OF THE COMPANY.
PART D: Industry Analysis
Summarize the economic outlook for your industry. Look at recent market activity, recent indicators impacting your industry. Address recent change in stock prices. Obtain industry averages for your ratio and common size analysis. Identify laws/regulations impacting your industry. Identify market trends and geo/political events impacting your industry. Identify Micro/Macro economic conditions impacting your industry.
Data sources: Standard and Poor’s Stock Reports or other Industry Surveys, Mergent’s Industry Review. Finance.yahoo.com, moneycentral,msn.com, hoovers.com, and other financial websites. Examine recommendations of other investment websites (buy/sell/hold).
PART E: FINAL PAPER (APA Format)
A. Include Company Analysis
B. Include Industry Analysis
C. Include Financial Statement Analysis Package
D. Write a summary of the significant findings from the financial statement analysis. Address significant Ratios, Horizontal Analysis, and Common Sized Analysis from the FSAP. Do not address all the ratios and every line of vertical and horizontal analysis, just what you feel is important to support your decision whether to invest in your company.
E. Based on your findings would you invest? Include specific support for your decision based on your findings in the analysis. Also include support (for or against) investing in the industry you chose.
Financial Statement Analysis Project
Author’s Name
Institutional Affiliation
Table of Content
TOC \o "1-3" \h \z \u 1. Introduction PAGEREF _Toc16707012 \h 32. Company Analysis PAGEREF _Toc16707013 \h 33. Industry Analysis PAGEREF _Toc16707014 \h 54. Financial Statement Analysis PAGEREF _Toc16707015 \h 75. Conclusion and Recommendation PAGEREF _Toc16707016 \h 96. References PAGEREF _Toc16707017 \h 117. Appendices PAGEREF _Toc16707018 \h 15Appendix A: Financial Ratio Analysis PAGEREF _Toc16707019 \h 15Appendix B: Horizontal Analysis for Income Statement PAGEREF _Toc16707020 \h 15Appendix C: Horizontal Analysis for Balance Sheet PAGEREF _Toc16707021 \h 16Appendix D: Vertical Analysis / Common Sized Analysis for Income Statement PAGEREF _Toc16707022 \h 18Appendix E: Vertical Analysis / Common Sized Analysis for Balance Sheet PAGEREF _Toc16707023 \h 18
Financial Statement Analysis Project
1. Introduction
Investors require effective strategies for achieving a high rate of return on investments. As a financial advisor, the recommendation is presented in a report related to the stock of Uber Technologies Inc. in the transportation industry. The investor has planned to diversify its portfolio by investing in financial capital in Uber Technologies. It is important to mention that the investment portfolio of investor contains different types of high-risk stocks. In order to minimize the unsystematic risk, low-risk stocks should be included in the investor portfolio. Report present company, industry and financial statement analyses, and recommendation related to investment are given based on the facts identified.
2. Company Analysis
Uber is a multinational transportation network company, offering different types of services. The company seeks a valuation of up to $91.5 billion in the second quarter of the year 2019 and it makes company IPO (Initial Public Offerings) the largest in the USA since Alibaba debuted in 2014 (Griswold, 2019). Company is planning to sell 180 million shares for raising up to $9 billion (Griswold, 2019). Market share of Uber in the USA is about 69%, revenue increased by 43% to $11.3 billion and gross bookings increased by 45% to $50 billion in the year 2018 (Iqbal, 2019). Uber has diversified its services in recent years, introduced UberPop for peer to peer rides, UberPool for ride-sharing and luxury options like UberChopper. Important competitor Lyft revenue also increased from $1 billion in 2017 to $2.2 billion in 2018, and it's market share is continuously increasing (Iqbal, 2019). Company has faced different types of legal issues and fines are paid for settling the issues. In March 2018, the company paid $20 million for settling a long-running fight with drivers in Massachusetts and California over the issue of independent contractors (Bond, 2019). Uber also paid fine of $2.6 million over the issue of offering unlicensed taxi service in Netherlands (Bond, 2019). Company performance has improved in recent years but it is expected that different kinds of more legal issues will arise in upcoming years.
Company stock performance is below than the expectations. In August 2019, second-quarter results reflect revenue growth by 14% to $3.17 billion and it is lower as compared to analyst estimates (Bailey, 2019). Uber stock decreased by 6.2% in a few hours after the announcement of quarterly results (Bailey, 2019). First earning report of Uber as a public company reported a loss of $1 billion on revenue of $3.1 billion (Clark, 2019). Company has stopped hiring the tech talent and this policy can create a negative impact on stock prices (Sontakke, 2019). Company stock also decreased by 10% to $38 per share on the first day of trading after disappointing investors in highly anticipated public offerings (Fitzgerald, 2019). Stock prices of Uber are the last three months are mentioned below (Nasdaq, 2019).
Figure A1: Uber Stock Price in Last Three Months
021463000Source: (Nasdaq, 2019)
Company had priced the shares at the low end of a target range of $44 to $50 per share on its entrance and this range had given market capitalization of $75.46 billion below than the expected valuation of $120 billion (Fitzgerald, 2019). Uber raised $8.1 billion from IPO (Initial Public Offerings) and it is very low as compared to the expected valuation of $120 billion upon its IPO (Isaac, 2019). Company has a beta value of 2.23 and it indicates that stock price is more volatile than the market (MarketWatch, 2019). If the stock performance of the company does not improve in the upcoming months, then investors’ confidence in Uber stock will decrease.
3. Industry Analysis
Ride-sharing industry is continuously growing in recent years. The industry was valued at $42.23 billion in 2017. According to Adroit market research, the ride-sharing market is expected to grow at CAGR (Compound Annual Growth Rate) of 18.6% to reach the value of $169.82 billion by 2025 (Adroit Market Research, 2019). According to the Goldman Sachs study, the global ride-sharing industry will reach a value of $285 billion per year by 2030 (Wang, 2017). Uber and Lyft, two major companies in ride-sharing industry control 98% of the USA market in the year 2018. Uber market share was 69.2% in 2018 and Lyft share was 28.4% in the USA market (Molla, 2018). Lyft market share is continuously increasing and it can be judged from the fact that company revenue from USA and Canada doubled to $909 million in the first half of 2018 (Molla, 2018). Increase in monthly market shares of Uber and Lyft are reflected in figure mentioned below (Gessner, 2019).
Figure A2: Rideshare Monthly Share of Uber and Lyft from 2016 to 2019
5715034798000Source: (Gessner, 2019)
Companies in the ride-sharing industry have introduced different kinds of new market trends. Ridesharing is a powerful tool for dealing with the challenges of urbanization and the development of megacities. According to a study, it is forecasted that ridesharing can decrease the number of cars required on urban roads globally by over 2 million vehicles (Mordor intelligence, 2019). Most significantly, the emissions by vehicles can be reduced by over 16 megatons. Market growth is increasing due to advances in technology that aid in the adoption of ride-sharing and government policy support like toll-free waiver is also playing a significant role (Mordor intelligence, 2019). Companies need to integrate more technological advancements in organizational activities for achieving competitive advantage in ride-sharing industry.
Macro and micro environmental factors will also create a significant impact on companies operating in ride-sharing industry. Macro factors of technology and social are most important for companies. According to Frost & Sullivan, one of the most important sector for investment is transportation (Mars, 2018). Digital platform companies make a sharing economy of $100 billion (Laufer, Dalton & Nichols, 2015). Companies like Uber and Lyft are using platform-based business models for increasing productivity while minimizing capital expenditure. Environmental challenges are also increasing, such as; according to EPA (Environmental Protection Agency), motor vehicles collectively cause 75% of air pollution in the USA. These kinds of challenges can be overcome by ridesharing companies because they can reduce the total number of cars required on urban roads (Brinson, 2019). Companies can also face legal issues and extra financial capital will be required for modifying the existing systems and processes according to requirements of the given environment. In order to increase goodwill and customer satisfaction, ride-sharing companies require a large amount of financial capital for corporate social responsibility projects, especially related to the environment.
4. Financial Statement Analysis
Ratio analysis is one of the effective methods for evaluating financial performance over the years. The current ratio of Uber decreased from 5.33 in 2016 to 1.78 in 2017 and then increased to 2.03 (See Appendix A). The company had a high current ratio in past and it reflects that management invested high financial capital in current assets (Umurzakov, 2017). Invested financial capital should be allocated on other activities for generating a high rate of return. In recent years, company liquidity position is better and enough reso...