Acquired in 2016, Lexmark provided business printing and imaging products, managed print services, document workflow and business process and content management solutions.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
In July 2005, the company received authorization from the board of directors to repurchase an additional $500 million of its Class A common stock for a total repurchase authority of $2.9 billion. At December 31, 2005, there was approximately $0.3 billion of share repurchase authority remaining. This repurchase authority allows the company, at managements discretion, to selectively repurchase its stock from time to time in the open market or in privately negotiated transactions depending upon market price and other factors. During the fourth quarter of 2005, the company repurchased approximately 4.3 million shares at a cost of approximately $200 million. During the year ended December 31, 2005, the company repurchased approximately 17.0 million shares at a cost of approximately $1.1 billion. As of December 31, 2005, since the inception of the program in April 1996, the company had repurchased approximately 55.0 million shares for an aggregate cost of approximately $2.6 billion.
In January 2006, the Company received authorization from the board of directors to repurchase an additional $1.0 billion of its Class A Common Stock for a total repurchase authority of $3.9 billion. As of December 31, 2006, there was approximately $0.5 billion of share repurchase authority remaining. This repurchase authority allows the Company, at managements discretion, to selectively repurchase its stock from time to time in the open market or in privately negotiated transactions depending upon market price and other factors. During the fourth quarter of 2006, the Company repurchased approximately 2.1 million shares at a cost of approximately $141 million. During the year ended December 31, 2006, the Company repurchased approximately 16.5 million shares at a cost of approximately $0.9 billion. As of December 31, 2006, since the inception of the program in April 1996, the Company had repurchased approximately 71.4 million shares for an aggregate cost of approximately $3.4 billion. As of December 31, 2006, the Company had reissued approximately 0.5 million shares of previously repurchased shares in connection with certain of its employee benefit programs. As a result of these issuances as well as the retirement of 44.0 million and 16.0 million shares of treasury stock in 2005 and 2006, respectively, the net treasury shares outstanding at December 31, 2006, were 10.9 million.
For the three months ended September 30, 2008, the Company repurchased approximately 7.7 million shares at a cost of approximately $274 million. For the nine months ended September 30, 2008, the Company repurchased approximately 12.3 million shares at a cost of approximately $432 million. As of September 30, 2008, since the inception of the program in April 1996, the Company had repurchased approximately 86.4 million shares for an aggregate cost of approximately $4.0 billion.
On June 7, 2010, the Company acquired all issued and outstanding stock of Perceptive Software, Inc., a leading provider of ECM software and solutions, for $280 million in cash. The acquisition builds upon and strengthens Lexmarks current industry-focused document workflow solutions and managed print services and enables the Company to immediately participate in the adjacent, growing market segment of ECM software solutions.
On May 21, 2015 the Company completed its acquisition of Kofax pursuant to an Agreement and Plan of Merger dated March 24, 2015, whereby the Company acquired the issued and outstanding shares of Kofax for $11 per share for total cash consideration of approximately $1 billion. The Company funded the acquisition with its non-U.S. cash on hand and its existing credit facility programs. The addition of Kofax will enhance the Companys industry-leading enterprise content management and business process management offerings and strengthen the Companys portfolio of capture solutions in the market, ranging from Web portals and mobile devices to smart multifunction products.
Lexmark International announced the successful completion of the acquisition by a consortium of investors led by Apex Technology Co., Ltd. and PAG Asia Capital. Under the terms of the merger agreement, which was announced on April 19, 2016, Lexmark shareholders will receive $40.50 per share in cash.