Novell was acquired by Attachmate Corporation in November 2010. The company developed, sold and installed enterprise software.
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.
On June 24, 1994 Novell completed a merger with WordPerfect, a developer of application software for personal computers, whereby WordPerfect was merged directly into Novell. Novell issued common stock in exchange for all of the outstanding common stock of WordPerfect. In addition, outstanding employee stock options to purchase WordPerfect common stock were converted into options to purchase approximately 7.8 million shares of Novell common stock. The transaction was accounted for as pooling of interests and therefore, the consolidated unaudited financial statements for all periods presented herein have been restated to reflect the combination of Novell and WordPerfect. WordPerfect had a calendar year end and, accordingly the WordPerfect statement of income for the year ended December 31, 1993 has been combined with the Novell statement of operations for the fiscal year ended October 30, 1993. In order to conform WordPerfect's year end to Novell's fiscal year end, the consolidated unaudited condensed statement of operations for the nine months ended July 30, 1994 includes two months (November and December 1993) for WordPerfect, which are also included in the consolidated statement of operations for the year ended October 30, 1993. Accordingly, an adjustment has been made in the nine months ended July 30, 1994 to retained earnings for the duplication of net income of $39.9 million for such two month period. Other results for such two month period of WordPerfect include net sales of $136.6 million, income before taxes of $34.6 million and an income tax benefit of $5.3 million. The consolidated financial statements for the nine months ended July 31, 1993 combine Novell's financial statements for the nine months ended July 31, 1993 with the WordPerfect's financial statements for the nine months ended September 30, 1993.
On July 10, 2001, the shareholders of Cambridge Technology Partners (Massachusetts), Inc. ("Cambridge") approved the acquisition of Cambridge by Novell. The Company issued 0.668 shares of its common stock for each share of Cambridge common stock outstanding on July 10, 2001. The transaction was valued at approximately $260.6 million, of which $250.6 million related to the number of shares exchanged at a per share value of $5.907 (an average closing price of a share of Novell common stock for the seven trading day period beginning three days before the announcement date of the acquisition), and $10.0 million related to direct transaction costs. The acquisition was accounted for as a purchase.
Based on the present value of expected future cash flows and other analysis, the Company determined that the IT Consulting unit had a fair value that was less than its carrying amount. Step 2 was then performed for this unit to determine the impairment amount, resulting in a transitional goodwill impairment loss of $143.7 million as of November 1, 2001, which was recorded as the cumulative effect of an accounting change in the Company's consolidated Statements of Operations. The decline in fair value of the IT consulting unit was primarily due to a softening in the consulting and technology markets as well as the global economy causing a sharp decline in revenue and profitability.
On January 12, 2004, we purchased substantially all of the outstanding stock of SUSE LINUX AG, a privately-held company and a leading provider of Linux-based products, for approximately $210 million in cash, plus estimated merger and transaction costs of $7 million. The acquisition of SUSE enables us to offer a full range of enterprise solutions on the Linux platform, from the server to the desktop. This transaction was accounted for as a purchase. SUSE's results of operations have been incorporated into ours beginning on the acquisition date of January 12, 2004.
On September 22, 2005, our board of directors approved a share repurchase program for up to $200.0 million of our common stock through September 21, 2006. On April 4, 2006, our board of directors approved an amendment to the share repurchase program increasing the limit on repurchase from $200.0 million to $400.0 million and extending the program through April 3, 2007. As of April 30, 2006, 35.2 million shares of common stock had been repurchased and retired under this program at an average price of $7.59 per share. The total amount paid for the repurchase of our common stock was $267.5 million. Subsequent to April 30, 2006, we completed the share repurchase program by purchasing 16.3 million additional shares at a total cost of $132.5 million.
On March 26, 2008, we acquired all of the outstanding shares of PlateSpin Ltd., a leader in support solutions for complete workload lifecycle management and optimization for Windows, UNIX and Linux operating systems in the physical and virtual data center. The purchase price, consisting of $205.0 million in cash, plus merger and transaction costs of $4.0 million.
The September 30, 2009 carrying value of the Systems and Resource Management reporting units goodwill was $326.0 million, which, when compared to the implied goodwill value of $56.0 million resulted in the impairment charge of $270.0 million.
Novell announced that it has entered into a definitive merger agreement under which Attachmate Corporation would acquire Novell for $6.10 per share in cash in a transaction valued at approximately $2.2 billion.