Part of the Technology sector, Broad Soft Inc. (BSFT, Financial) is one of the biggest application software companies operating in the U.S. The company provides various services to its clientele in the Middle East, Asia Pacific, Americas Africa, and Europe. Founded in 1998, Broad Soft has its headquarters in Gaithersburg, Maryland. The company has, in a very short period, emerged as a very prominent company in the technology sector. Its major competitors are Alcatel-Lucent (ALU, Financial), Cisco Systems Inc. (CSCO, Financial), and Sonus Networks Inc. (SONS, Financial).
Broad Soft Inc. is financially a very healthy and sound company. The financial performance of the company has over the past three years remained neither too good nor too bad. During the period, its sales revenues have continuously increased. In 2012, 2013 and 2014, the sales revenues of the company were $132,842,000, $137,113,000, and $159,144,000 respectively. The total increase in sales revenues of the company in 2013 was 8% and in 2014 was 20%.
The corresponding increase in the cost of goods sold was 27% and 39%. The proportionate increase for cost of goods sold was greater than the proportionate increase in the sales revenue of the company. Although the sales revenues have increased, the effect on gross profit has been lesser than the increase in sales revenues.
Despite an increase for revenues, the net income of the company has been unable to follow the sales growth trend. From $12,076,000, the net income in 2013 decreased to -$8,874,000 and in 2014 increased to $1,012,000. Net Income decreased in 2013 by 173% and in 2014 it increased by 111%. The decreasing net income has raised serious questions as regards to the ability of Broad Soft Inc. to convert its revenues to sales. It is an area, which the company needs to focus on. No matter how high an amount of revenues the company earns, it cannot be of any avail so long as the company does not control its costs.
The most important factor that one needs to consider whilst analyzing the performance of a company is its ability to generate cash. It is from the cash that dividends are paid and not the incomes. Broad Soft Inc. cash flow from operations in the year 2012, 2013, and 2014, were $30,019,000, $1,934,000, and $54,759,000 respectively.
The company’s ability to generate cash from its core business operations have continuously increased. In 2012, they increased by 6% and in 2014 by 70%. It is a good sign that is reflecting that the company is moving in the right direction and needs only to improve its efficiency to capitalize upon every opportunity that it gets.
Broad Soft Inc.’s current stock price is $34.69, which is expected to increase to $36 by the end of this year. Price Earnings (PE) ratio of the company is 1,734.5 and earnings per share (EPS) are $0.02. The Beta value, which measures the level of a security’s volatility, is 1.21, which means that the company is highly exposed to systematic risks.
Broad Soft Inc. needs to get its basics right. Firstly, it must work on enhancing its profitability since its inability to convert its revenues to profit has been badly exposed. Secondly, its stocks are highly volatile as represented by its Beta value. The company needs to focus on multiple performance areas.
Only by improving its performance can Broad Soft Inc. earn the confidence of investors. The future of the company hinges up on its ability to achieve its goal or to earn its value that is worth in gold.
