Acquired by Western Digital in 2015, SanDisk was a supplier of NAND flash storage card products.
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.
During 1997, cash provided by financing activities of $83.7 million was primarily from the sale of common stock in the Company's November 1997 follow on public offering. Financing activities provided $0.8 million in 1996 primarily from the sale of common stock through the SanDisk stock option and employee stock purchase plans and $39.1 million in 1995 primarily from the sale of common stock in the Company's initial public offering and the sale of preferred stock.
In 1999, financing activities provided $328.2 million of cash including $320.3 million from the net proceeds of the sale of common stock in our November 1999 follow-on stock offering and $7.9 million from the sale of common stock through the SanDisk stock option and employee stock purchase plans.
On September 30, 2003, we closed the sale and issuance of 15,992,000 shares of our common stock at a price to the public of $32.63 per share, yielding net proceeds to us of approximately $504.8 million. In addition, on October 8, 2003, we closed the issuance and sale of 532,162 shares of our common stock pursuant to the underwriters' partial exercise of their over-allotment option related to the offering, yielding net proceeds to us of approximately $16.8 million.
On December 24, 2001, the Company completed a private placement of $125.0 million of 41/2% Convertible Subordinated Notes due 2006 (the Notes), and on January 10, 2002 the Company sold an additional $25.0 million of Notes. The Notes provided for semi-annual interest payments of $3.4 million each on May 15 and November 15. The Notes were converted into approximately 16.3 million shares of the Company's common stock on November 17, 2004.
On November 19, 2006, the Company completed the acquisition of msystems in an all stock transaction. As a result of the acquisition, the Company issued approximately 29.4 million shares of SanDisk common stock based on an exchange ratio of 0.76368 shares of the Company's common stock for each outstanding share of msystems common stock as of November 19, 2006. The average market price per share of SanDisk common stock of $46.48 was based on the average of the closing prices for a range of trading days around the announcement date (July 30, 2006) of the proposed transaction.
In the fourth quarter of fiscal year 2008, we concluded that there were sufficient indicators based on a combination of factors, including the economic environment, current and forecasted operating results, NAND-industry pricing conditions and a sustained decline in our market capitalization, to require an interim goodwill impairment analysis. As a result of the interim goodwill impairment analysis, we recognized an impairment charge of $846 million. As of December 28, 2008, we have no goodwill remaining on our Consolidated Balance Sheet.
Of the aggregate $3.75 billion authorized for share repurchases by our Board of Directors since the fourth quarter of fiscal year 2011 through December 28, 2014, approximately $627 million remained available for share repurchases as of December 28, 2014. In January 2015, our Board of Directors increased the existing stock repurchase program by an additional $2.5 billion for share repurchases. Since the fourth quarter of fiscal year 2011 through December 28, 2014, we have spent an aggregate $3.12 billion to repurchase 45.3 million shares. Included in the aggregate repurchase activity are 14 million shares that were repurchased for an aggregate amount of $1.3 billion during the fiscal year ended December 28, 2014. In addition to repurchases under our repurchase program, during the fiscal year ended December 28, 2014, we spent $41 million to settle employee tax withholding obligations due upon the vesting of restricted stock units and withheld an equivalent value of shares from the shares provided to the employees upon vesting.
Western Digital Corporation and SanDisk Corporation announced that they have entered into a definitive agreement under which Western Digital will acquire all of the outstanding shares of SanDisk for a combination of cash and stock. The offer values SanDisk common stock at $86.50 per share or a total equity value of approximately $19 billion, using a five-day volume weighted average price ending on October 20, 2015 of $79.60 per share of Western Digital common stock.