Evaluate the Current Financial Standing of the German Multinational Sap Se

KOZMINSKI UNIVERSITY

Financial Statement Analysis

Group Assignment

Financial Report
Sergiy Shlapak, 30639

Yahor Piatnitsky, 30615

Sergio Ravé Rúa, 30625

23-11-2015

Academic Year 2015/2016

Semester: III

I hereby certify that this paper is the result of my own work and that all sources I used have been reported.

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Signature

© Kozminski University 2014

1. Executive Summary

The aim of this analysis is to evaluate the current financial standing of the German multinational SAP SE, which offers Software products to several businesses worldwide. Since 2012 the company has tried change its focus to the new service of cloud-based products which would give them a better position compared to other software service providers. It has also made a considerable number of acquisitions in the last 5 years, being the purchase of Concur Technologies in the third quarter of 2014 the largest one of its history. SAP SE shows to be one of the fastest growing software companies of the moment and offers a high pay-out ratio to the shareholders in order to attract more investors and be able to continue their investments in the different products and services offered by them.

2. The Company

SAP SE (Systems, Applications & Products in Data Processing) is a German multinational software corporation that makes enterprise software to manage business operations and customer relations. SAP is headquartered in Walldorf, Baden-Württemberg, Germany, with regional offices in 130 countries. The company has over 293,500 customers in 190 countries and a market capital of 95,000 million dollars. The company is a component of the Euro Stoxx 50 stock market index. SAP is the world leader in enterprise applications in terms of software and software-related service revenue. Based on market capitalization, we are the world’s third largest independent software manufacturer. It has more than 75,000 employees and presence in 130 countries. SAP presents revenue (IFRS) of € 17.56 billion. Since 2012 the company has based most of its efforts by acquiring several companies that sell cloud-based products to increase the competitiveness towards Oracle.

3. The market

SAP SE belongs to the software industry. In the book Accounting and Finance Software from Hoovers (2015) is quoted that in this industry demand is driven by corporate spending. The profitability of individual companies depends on technical expertise and effective marketing. Large companies have advantages in being able to fund new product development or acquisitions. Small software companies can compete by targeting niche markets or developing new technology. In the case of SAP SE, the competitors are mainly based in the enterprise resource planning field of this industry and its main competitor from this field is Oracle Corporation. SAP also competes in the customer relationship management, marketing & sales software, manufacturing, warehousing & industrial software, and supply chain management & logistics software sectors. Although the market capital of SAP SE is 95,921 million dollars, less than Oracle Corporation (166,000 million dollars), the last annual growth of SAP SE was 28, 4% whereas Oracle had a contraction of -13, 2%. This demonstrates that SAP SE is gaining ground in this highly competitive industry.

In the software industry sector, most companies specialize in one capability which allows them to prosper in their niche sector. However this makes harder for them the diversification of products and in fact few companies have been able to successfully move to other sectors.

Oracle Corporation filed a lawsuit against SAP for malpractice and unfair competition in the California courts in 2007. SAP lost the case in 2010 and was ordered to pay a US $1.3 billion, which was cited as the largest copyright infringement judgment in history. The verdict was overturned in 2011 and the lawsuit was finally settled in 2014 for $356.7 million.

One local competitor of SAP SE is the French multinational software Dassault Systemes which develops product lifecycle management products (PLM) solutions and 3D product. Also many other small and medium software companies which can easily compete in terms of quality with bigger companies such as SAP SE with the right technical expertise.

Since 2011 SAP has been looking to expand in emerging market economies such as Brazil, India, Russia, and especially China, and it intends to invest some EUR 2 billion in the mid-market sector alone. It also has growth plans for its business in the booming cloud-computing market. Just before the end of the year, SAP announces its EUR 2.5 billion acquisition of SuccessFactors, the leading provider of cloud applications. Additionally, SAP has acquired a considerable amount of companies in the last 5 years, from this; the most important one was the purchase of Concur Technologies in the last quarter of 2014 for $8, 3 billion.

4. Financial Standing

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- Balance Sheet

From the assets, the first thing that should be noted is that due to the fact that SAP SE is a software company, the biggest part of its assets is Goodwill and Intangibles and it has no inventories.

From the Liabilities we can note that the Total Financial Debt is one quarter of Total Liability and Equity. One reason of this could be that SAP has acquired a big amount of companies especially since 2012. In third quarter of 2014 their debt increased because they acquired Concur Technologies for $8,3b. It is the largest acquisition of SAP history.

-P&L Statement

The P&L Statement shows that the company’s profit has increased each year. The most remarkable fact is that between 2009, 2010 and 2011 there were high changes in the Selling and Administrative Costs. One reason of this could be the beginning of their investments in emerging market economies. Also, SAP experienced a considerable growth in the market between 2009 and 2010 with considerable increase of sales and it has continued until 2015.

-Cash Flow

From the Cash Flow it can be noted that the amount of cash that SAP uses for investing and financing activities is not consistent and it greatly changes every year. The reason of this is the high number of acquisitions that SAP has made through the time.