Research Paper on "Financial Analysis of Brocade Communications Systems, Inc"

Research Paper 6 pages (1885 words) Sources: 6

[EXCERPT] . . . .

Financial Analysis of Brocade Communications Systems, Inc.

Financial analysis of Brocade

Brocade Overview

Brocade Communications Systems, Inc. (Brocade) is a multinational corporation in the United States of America (Hamblen, 2003). It is a technology company which specializes in data as well as storage networking products. The company supplies networking equipments, not only in the United States but all over the world. Such equipments include end to end internet protocol (IP) (BCS, 2009). The company also provides Ethernet networking solutions as well as a storage area networking solutions to organizations and businesses of all sizes and types (Hamblen, 2003). These include global enterprises, cable operators, mobile carriers and service providers including telecommunication firms. The company offers a variety of software and hardware products and services for networking.

Brocade markets, sells and supports its products and service globally through the help of distribution partners (Hamblen, 2003). These include the original manufacturers of equipments, system integrators and the product end user. Brocade operates in four segments. These are Global Services, Data Storage, IP Layer4-7/ADP and IP Layer 2-3. In 2012, Brocade expanded its business to the Asian Pacific region (BCS, 2009).

In Data Storage, it is true that Brocade designs its storage networking products as well as services for the purpose of helping customers reduce the complexity in managing business information. Moreover, the products and services of the company helps customers to develop and deliver storage as well as sever consolidation, recovery of disaster and data security. Customers use the products of the company to create storage area networks (SANs) known as fabrics (Hamblen, 2003). The company offers a wide range of fabric extension, routing and switching solutions, designed to connect more data centers over a long distance. The fabric extensions solutions of the company provide support to San extension, fiber connectivity and other routing and switching technologies. These include IP networks, Asynchronous transfer mode and optical.

When it comes to Ethernet Products-IP Layer 2-3, Brocade designs these switches and routers in order to connect the users in enterprise networks (Hamblen, 2003). This is because they enable network connectivity including access to the internet, communications based on the network, and also collaboration through messaging applications as well as productivity through mobility. The company offers a wide range of platforms in order to allow customers to design networks for the purpose of meeting their requirements. Examples of these platforms include Brocade Biglron, Edgelron, Fastlron and Turbolron product families. The company's Layer 2 and Layer 3 switches usually provide intelligence delivery and speed. In addition, they also provide speed as well as manageability in order to support the use of Internet based applications and bandwidth intensive.

On Ethernet Products-IP Layer 4-7/ADP, Brocade designs these products for use in server loading balancing and traffic. Some of these products include Serverlron ADX products and Brocade Severlron. Performance data center traffic systems of management together with network capabilities helps in allowing service providers and enterprises to create network infrastructures, which manage traffic flow over long distances, known as wide area networks (WANs) and metro area network (MANs) (BCS, 2009).

On global services, Brocade provides a wide range of supporting and consulting services, which significantly help customers to design, implement, deploy and manage advanced network solutions, post contract customer support, and separately priced extended warranties (BCS, 2009). These services usually address various priorities of customers, managed during the life cycle of data center infrastructure and storage networks (Hamblen, 2003). The company delivers its services either directly to the end user customers through its partners who are components of the wider service and support offering.

Brocade Financial analysis

Financial analysis of a company involves an assessment of stability, viability and profitability of the company (Financials, 2012). During analysis, professionals prepare reports by the help of ratios, which make use of information from financial statements, as well as other reports (Hamblen, 2003). Presentations of these reports to the top managements is crucial at they act as the basis for making decisions within the organization. During analysis, the financial analyst access several elements in the organization. These include profitability, solvency, liquidity and stability of the organization. In addition, the financial analysts compare financial reports through past performance, future performance and comparative performance.

Concerning Brocade, it is true that the company is successful putting all the above elements into consideration. The fiscal year for Brocade is 52 or 53 weeks this ending on the last Saturday of October. The fiscal year for the last three years is 52 weeks (Brocade financial results, 2012). The consolidated financial statements of Brocade include the company's accounts as well as its wholly owned subsidiaries. The consolidated financial accounts of the company do not include intercompany accounts as well as transactions (Brocade financial results, 2012). The preparation of financial statements and related disclosures of the company requires its management to make judgment and estimates, which affect the total reported amount in the financial statements as well as accompanying notes.

Considering the income statement of Brocade over the last three years, it is evident that the total revenue is increasing at a significant rate. The total revenue in 2010 was 2091153 thousand U.S. dollars. In 2011, it rose to 2147442 thousand U.S. dollars (Brocade financial results, 2012). In 2012, it again rose to 2237770 thousand U.S. dollars. This is clear that there is an upward trend over the last three years. From the income statements of the company, it clear that there is an upward trend in operating income over the past three years. In 2010, the income operating cost was 207831 thousand U.S. dollars. In 2011, this figure rose to 117520 thousand U.S. dollars. Again, the figure rose to 277729 in 2012 (Brocade financial results, 2012). This trend indicates that there is an increase in business activities across the three years. The overall net income of the company was 116523 thousand U.S. dollar, 50610 thousand U.S. dollar and 195181 thousand U.S. dollars in year 2010, 2011 and 2012 respectively.

From the balance sheets derived from the company's consolidated financial accounts, it is evident that the company is moving in the right pace. The total assets in thousands U.S. dollars was 3646012, 3474308 and 3581261 in year 2010, 2011 and 2012 respectively (Brocade financial results, 2012). This is an upward trend indicating expansion of the company over the past three. The total liabilities are 1610607, 1460170 and 1345441 in year 2010, 2011, and 2012 respectively (Brocade financial results, 2012). All these figures are in thousands. This is also clear that the company minimized on borrowing over those three-year indicating an increase in the company's stability. Lastly, total stockholder equity was 2035405, 2014138 and 1135820 in year 2010, 2011 and 2012 respectively (Brocade financial results, 2012).

Brocade Vulnerability to Current Financial Threats

Financial threats usually affect many organizations all over the world (Financials, 2012). This is because they make the business fail to realize that profits as planned. Some of the common financial threats include recession, higher interests rates and global competition. Just like any other company, Brocade is vulnerable to these financial threats.

Recession is a general slowdown in the economic activities. The results of recession are fall in the employment rate, capacity utilization, investment spending, business profits, household income and inflation. In addition, it also leads to rise in bankruptcies. With regards with Brocade, it is true that the U.S. economy is stable now, and hence it is not vulnerable to recession in the near future. This is clear from its consolidated financial statements.

When it comes to higher interests rates, it is clear from the company's financial statements that the company is not vulnerable to higher interests rates. This is because there is a reduction in its liability. This trend in reduction in company's liability, it is possible that the company will not have problems because of higher interest rates (Financials, 2012). In case there are higher interest rates in the global market, its effect on the company may be insignificant.

Brocade faces a stiff global competition from other firms in the industry. One of the major rivals of the company is CISCO Company, which offers the same products and services as Brocade. This is a major financial threat, and there is a likelihood that this threat will prevail in the near future if all the factors remain constant (Financials, 2012). Nevertheless, the good reputation of Brocade is helping in creating customer loyalty while attracting new ones.

Recommendations

Through proper financial management, Brocade will be able to overcome its financial threats. By this, the company should develop various basic skills in management. These skills in financial management should start from the crucial areas of book keeping as well as cash management. This will ensure that there is effective financial control leading to integrity in the process of bookkeeping. Financial managers should learn how to generate financial statements to avoid depending on external financial analyst who may provide unreliable results, leading to wrong decisions in the business.

In order to overcome financial threat of global competition, Brocade should… READ MORE

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