Hewlett Packard Financial Analysis

Hewlett Packard's segment performance for 1997 - 2001

Based on the information provided in "Hewlett Packard's Segment Performance Chart" (Palepu & Healy, 2008, p. 198) it appears that HP was doing quite well from 1997 to 2000. The company's imaging and printing systems, computing systems, IT services, as well as HP's immaterial operating segments all showed positive growth, and contributed to the increased growth in the company's total net revenues.

Unfortunately, in 2001, the company's imaging and printing systems, and computing systems total net revenues dropped by 5.0% and by 15.8%. Despite HP's IT Services experiencing a positive growth of 6.6%, it was not enough to offset the revenue losses experienced by both the Imaging and Printing and Computing Systems, which was reflected in the 10.4% decline in the HP's total net revenues. As for HP's immaterial operating segments, it was either: not reported (NR), not applicable (NA), or not meaningful (NM).

Overall, HP's segment performance is relatively strong. On their own, the company has the potential to continue to grow, as well as continue to generate increased net income.

HP's financial ratios compare to Compaq, IBM and Dell

By reviewing the profitability and efficiency ratios of all four companies, one is able analyze how the financial performance of HP compares against three of the companies industry competitors. Based on the gross profit margin, HP (26.5%) trails behind IBM (37.0%); however, HP does exceed both Compaq (21.2%) and Dell (20.2%).

When it comes to net operating profit margin, HP (1.0%) trails behind both IBM (9.2%) and Dell (6.8%), but exceeds Compaq (-2.3%).

Another important financial ratio comparison would be the return on assets ratio. Once again, HP's (3.1%) return on assets ratio (ROA) trails behind both IBM (17.4%) and Dell (129.3%), but exceeds Compaq (-7.3%). Thus, HP is doing an okay job of converting its investment into profit by maintaining a relatively small, yet stable financial leverage. The same would hold true with the return on equity (ROE) ratio comparison, as the comparison is the same as that of the ROA ratio comparison.

When it comes to the payout ratio comparison, HP (152.2%) exceeds IBM (12.5%) and Compaq (-21.5%). Information regarding Dell's payout ratio was not available (N/A), so no comparison could be made.

The strategic fit between HP and Compaq

The strategic fit related to the merger between HP and Compaq are as follows, but not limited to: shareholders' interests, development of markets, propagated efficiencies, ability to use more resources, and management of risks. The first, shareholders' interest, shareholders would most certainly have a lot to gain from the merger because the combined company has the potential to generate a lot of future profits.

The second, development of markets, both companies wanted to expand their domestic and international markets. Thus, the merger would allow HP to put their logo on all Compaq products, which would speed up the brand recognition process for HP with regards to Compaq's commercial PC market. In addition, HP would also be able to attract all of Compaq's customers

The third, propagated efficiencies, one of the primary strategies for the merger was so that HP could add to its efficiencies by increasing their operations. In addition, HP will also eliminate redundant products, as well as decrease expenses, such as marketing, advertising and shipping, just to name a few. The decrease in expenses will help increase revenues.

Another strategy was the availability of more resources. By merging the two companies, the newly combined company would have access to more financial resources, intellectual capital, raw materials, as well as highly educated and qualified