Running head: UNIT I ESSAY
MBA 6081
Unit I Essay: Financial Ratio Analysis
Columbia Southern University
MBA 6081 - Corporate Finance
GoPro: Financial Ratio Analysis
Nick Woodman was an avid outdoorsman who enjoyed surfing, skiing and motorsports,
but couldn’t find a camera that met his documentary needs. So, in 2002, he did what any
entrepreneurial American would do; he founded his own company. [ CITATION GoP20 \l
1033 ] His company, GoPro, manufactures action cameras and an ecosystem of mounting
hardware and wearable accessories. Products are available via retailers and the GoPro home
page. [ CITATION Mer21 \l 1033 ]
GoPro’s third quarter 2020 report documented expanding revenue from sales and
growth in cloud-based storage subscriptions . [ CITATION GoP201 \l 1033 ] While these
upturning sales trends are good, investors want to know if there is potential for sustained
growth and, if so, what is the plan? The following ratios document a company funding growth
with ever increasing debt, assets becoming less liquid and earnings per share steadily trending
downward. The full 2020 financial report has yet to be published, but the expanding post
COVID-19 lockdown boom must surely be around the corner.
Financial ratio information
The purpose of financial ratios are to extract pertinent data from corporate financial
statements and translate them into numerical values. Trendlines and documented results are
compared against industry standard, enabling investors and stakeholders to understand the
financial performance of a company.[ CITATION Mer21 \l 1033 ] This essay will use 7 ratios
to assess GoPro’s debt, liquidity, profitability and past earnings.
, Debt-to-equity
The debt-to-equity ratio is one way to determine if a company has borrowed too much.
In table 1, the data shows GoPro (since 2015) demonstrating an increasing reliance on debt to
fund its growth. An alarming jump occurred in 2018 and again in 2019; the debt-to-equity ratio
exceeded 2.0 indicating that two-thirds of its financing derived from debt, with the other third
from shareholder equity.
Current ratio
GoPro’s current ratio of 0.46 means that the company has nearly twice as much debt as
it does current assets. The bottom line is that if debtors call the debt, GoPro can’t readily pay.
If the ratio were 1.0 (or higher), they could break even. The closest they got was back in 2015,
with a
0.95. This trend is not a harbinger of prosperity.
Return on equity
Shareholders want to know if their investment is profitable. The return on equity ratio
is that performance measure. The higher the number, the better. GoPro’s downward trend
didn’t stop at zero; they ventured into the negatives.
Quick ratio
While the current ratio and quick ratio measure short-term liquidity, the quick ratio is
more pessimistic because it subtracts inventories from current assets. This may not be
beneficial for GoPro because of their potential to quickly move inventory. A critical
assumption is that common stock is a large portion of their current assets, and thus
minimizing the effect of fluctuating inventory levels.
Working capital ratio
The working capital ratio represents a company’s ability to pay its current liabilities
using its current assets.[ CITATION Bra20 \l 1033 ] The crux here is that current liabilities
MBA 6081
Unit I Essay: Financial Ratio Analysis
Columbia Southern University
MBA 6081 - Corporate Finance
GoPro: Financial Ratio Analysis
Nick Woodman was an avid outdoorsman who enjoyed surfing, skiing and motorsports,
but couldn’t find a camera that met his documentary needs. So, in 2002, he did what any
entrepreneurial American would do; he founded his own company. [ CITATION GoP20 \l
1033 ] His company, GoPro, manufactures action cameras and an ecosystem of mounting
hardware and wearable accessories. Products are available via retailers and the GoPro home
page. [ CITATION Mer21 \l 1033 ]
GoPro’s third quarter 2020 report documented expanding revenue from sales and
growth in cloud-based storage subscriptions . [ CITATION GoP201 \l 1033 ] While these
upturning sales trends are good, investors want to know if there is potential for sustained
growth and, if so, what is the plan? The following ratios document a company funding growth
with ever increasing debt, assets becoming less liquid and earnings per share steadily trending
downward. The full 2020 financial report has yet to be published, but the expanding post
COVID-19 lockdown boom must surely be around the corner.
Financial ratio information
The purpose of financial ratios are to extract pertinent data from corporate financial
statements and translate them into numerical values. Trendlines and documented results are
compared against industry standard, enabling investors and stakeholders to understand the
financial performance of a company.[ CITATION Mer21 \l 1033 ] This essay will use 7 ratios
to assess GoPro’s debt, liquidity, profitability and past earnings.
, Debt-to-equity
The debt-to-equity ratio is one way to determine if a company has borrowed too much.
In table 1, the data shows GoPro (since 2015) demonstrating an increasing reliance on debt to
fund its growth. An alarming jump occurred in 2018 and again in 2019; the debt-to-equity ratio
exceeded 2.0 indicating that two-thirds of its financing derived from debt, with the other third
from shareholder equity.
Current ratio
GoPro’s current ratio of 0.46 means that the company has nearly twice as much debt as
it does current assets. The bottom line is that if debtors call the debt, GoPro can’t readily pay.
If the ratio were 1.0 (or higher), they could break even. The closest they got was back in 2015,
with a
0.95. This trend is not a harbinger of prosperity.
Return on equity
Shareholders want to know if their investment is profitable. The return on equity ratio
is that performance measure. The higher the number, the better. GoPro’s downward trend
didn’t stop at zero; they ventured into the negatives.
Quick ratio
While the current ratio and quick ratio measure short-term liquidity, the quick ratio is
more pessimistic because it subtracts inventories from current assets. This may not be
beneficial for GoPro because of their potential to quickly move inventory. A critical
assumption is that common stock is a large portion of their current assets, and thus
minimizing the effect of fluctuating inventory levels.
Working capital ratio
The working capital ratio represents a company’s ability to pay its current liabilities
using its current assets.[ CITATION Bra20 \l 1033 ] The crux here is that current liabilities
