Running head: ORACLE CORPORATION 1

Oracle Corporation

A. A. Dickson
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Oracle Corporation

Oracle Corporation was founded in 1977 by Larry Ellison, Bob Miner, and Ed Oates. It is

a computer technology corporation headquartered in Austin, Texas. Since its inception, the

company has experienced stable growth, and it is among the leading Enterprise Resource

Planning (ERP) software providers. Since its inception, the company has expanded to become

a competitive technology company with a global footprint. As the company grows, it requires

investors to finance its activities and serve its customer base. Oracle Corporation’s capital

structure allows the company to trade in the NYSE market. Therefore, the stock exchange

market offers investors a chance to invest in Oracle. When more investors purchase the Oracle

Corporation’s stock, the company stock value increases, and the company is perceived as a

profitable venture. Hence, this paper analyses the financial status of Oracle Corporation to

recommend investors to purchase the company’s stock.

Selection of the Company

Oracle

Oracle Corporation is the focus company of this study. The company was initially

headquartered in Redwood Shores, California. However, due to high tax rates, the firm

relocated to Austin, Texas. Now unburdened by the high taxes levied on them before, Oracle

now has extra cash to expand or improve the suite of their product offerings to a stable market

filled with employers with critical needs for the system they provide.

In recent years, Oracle has made strategic investments to build its brand portfolio. For

instance, between 2005 and 2016, Oracle embarked on a rigorous acquisition model to capture

a larger market share. It currently rivals other major ERP software and Cloud Computing brands

such as SAP and Microsoft. Thus the company is evolving into a dependable technology giant

that drives a significant proportion of government and business operations. Additionally, the
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rapid development of its cloud-based platform is a significant signal that the company has a high

profitability potential in the future.

Tesla

Tesla is the current industry leader in the electric automotive industry. Under Elon Musk,

the firm has grown to epic levels through it its rapid manufacturing model. Tesla Inc.’s strategic

management enables it to rival other competitive brands such as Volkswagen and BMW.

However, Tesla Inc. is not yet in the stable phase. It is a young company that is yet to undergo

the full market cycle. Nonetheless, the future of electric cars and trucks is promising.

Kore Power

Kore Power is a local company that I know personally. This company is essentially an

off-shoot of a larger Chinese-based company that has developed off-peak energy storage

systems for several countries and large geographic regions. They are now planning to build a

major production facility in one of the three states to boost productivity and improve their

customer base.

Financial statements

The financial statements of Oracle Corporation depict that the company has a consistent

flow of revenue from its business portfolio. Proper analysis of the financial statements is

essential for investors. For example, evaluating the financial information leads to the decision-

making process on whether a stock is a buy or a sell.

Analysis of Income Statements

The income statements of Oracle show the company's revenues and expenses during a

specific period. Data from Yahoo Finance provides an elaborate source of the income statistics

of the Oracle Corporation. According to Yahoo Finance (2021), the total revenue of Oracle
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Corporation is increasing steadily from its diverse business portfolio. For instance, Oracle

Corporation generated gross profits of $30.2B, $31.7B, $31.5B, and $31.1B in the financial

years 2017, 2018, 2019, and 2020, respectively. The trend of the gross profits shows that they

are steady and predictable.

Additionally, there are other crucial metrics in the income statements of Oracle

Corporation. The total expenses of Oracle Corporation are high due to its numerous operations.

For instance, Oracle Corporation incurred total expenses of $24.4B, $25.5B, $25.4B, and

$24.6B in the financial years 2017, 2018, 2019, and 2020, respectively (Yahoo Finance, 2021).

The high total expenses are indicators that Oracle Corporation's business model is capital

intensive. However, the total expenses are steady and predictable. Hence, the profitability

margin of the company remains high.

Another key metric from the income statement is the net income from continuing and

discontinued operations. Oracle Corporation’s net income relies on the success of its database

management systems and market demand. The company generated net incomes of $9.3B,

$3.8B, $11B, and $10.1B in the financial years 2017, 2018, 2019, and 2020, respectively.

Notably, in 2018, the net income dropped by a margin of 59%. Nonetheless, the net income

normalized back to $11B in 2019, signifying a 144% increase. Thus, the consistent net income

enables the company to grow in the long term.

Analysis of Balance Sheet

Oracle Corporation’s balance sheet is fundamental in determining the assets, liabilities,

and capital of the firm over a given period, usually one year. According to Yahoo Finance

(2021), Oracle Corporation’s total assets were $134B, $137B, $108B, and $115B in the financial

years 2017, 2018, 2019, and 2020, respectively (Yahoo Finance, 2021). Notably, the value of

the total assets falls steadily between 2017, 2018, and 2019. In 2020, the value of the total
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assets rose to $115B. Furthermore, Oracle’s current assets were $74B, $75B, $46B, and $52B

in the financial years 2017, 2018, 2019, and 2020, respectively. On the other hand, Oracle’s

current liabilities were $24B, $19B, $18B, and $17B in the financial years 2017, 2018, 2019, and

2020, respectively (Yahoo Finance, 2021). The company's current assets are higher than

current liabilities. Thus, the company is liquid, and it can pay all its debts in the short term.

Further analysis of the balance sheet of Oracle Corporation is crucial for investors and

shareholders. The Return on Assets for the company was 6% in 2017, 2% in 2018, 10% in

2019, and 2020 was 8%. The debt asset ratio for Oracle Corporation was 59% in 2017, 66% in

2018, 79% in 2019, and 88% in 2020 (Yahoo Finance, 2021). Oracle’s debt asset ratio is higher

than the recommended threshold. However, the increasing debt asset ratio is manageable for

the company since it has a diverse portfolio that provides robust support to Oracle’s business

model. For example, the company has other reliable intangible assets on the Balance sheet.

Goodwill maintains at $43B for the four financial years since 2017. Therefore, Oracle

Corporation has viable opportunities to invest in the future.

Analysis of Cash Flow statement

The cash flow statement highlights where a company receives its finances from and how

it spends the money. The income statement comprises three crucial sections: cash flow from

operations, cash flow from investing activities, and cash flow from finance activities. According

to Yahoo Finance (2020), Oracle Corporation generated cash flow from operating activities

summing to $14.1B, $15.3B, $14.5B, and $13.1B in 2017, 2018, 2019, and 2020, respectively.

The cash flow from operating averages $14B each year. This cash flow trend implies that the

company’s day-to-day operations can sustain and grow its operations without the need for

external funding.
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Another key indicator on Oracle’s cash flow statement is the cash flow from investing

activities. In 2017 and 2018, Oracle allocated $21.4B and $5.6B to investment activities. On the

other hand, in 2019 and 2020, Oracle generated cash flow from investing activities totaling

$26.5B and $9.8B, respectively (Yahoo, 2020). Thus, the company’s previous investments were

successful and yielded high short-term returns.

The cash flow from financing activities is a crucial parameter for investors. It represents

the company’s net cash flow that is used to finance its operations. According to Yahoo Finance

(2020), in 2017, Oracle generated $9B from financing cash flow. The positive cash flow from

financing activities implies that more money was flowing into the firm than flowing out,

increasing its assets. However, in 2018, 2019, and 2020, the cash flow from financing activities

was -$9.9B, -$42B, and -$6.1B, respectively. Hence, the figures signify that in the three

consecutive years, the company made external borrowing to finance its activities, resulting in a

negative cash flow from investing activities.

The last segment of the cash flow statement highlights the free cash flow. Free cash flow

is the remaining amount available for the company to repay creditors or pay dividends and

interest to investors. In2017, 2018, 2019, and 2019 Oracle had free cash flows summing to

$12.1B, $13.6B, $12.8B, and $11.5B, repectively (Yahoo Finance. 2020). The positive free cash

flow means that Oracle was able to make dividend payments and interest expenses.

Analysis of Statement of Shareholder

The statement of shareholder reports major categories and amounts of external claims

on assets and owners’ capital contributions, and other internally generated sources of capital.

Oracle’s finances its operations through shareholder’s equity and debt. According to Yahoo

Finance (2021), 38.91% of Oracle Corporation’s shares are held by insiders in the company. On

the other hand, 49.83% of the shares are held by institutions and private entities. The rest of the
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shares which is 11.26%, are owned by the general public and governmental organizations.

Also, 81.57% of the total shares are available for trading as the percentage of float held by

institutions (Simply Wall Street, 2021). Hence, the remainder consists of closely-held shares,

which are 18.43% of the total shareholding. The closely-held shares comprise those owned by

insiders, major shareholders, and employees.

Time value of Money, Opportunity Cost of capital, and Investment Rules

Oracle Corporation has a competitive advantage in resource management. The

company observes shrewd capital management activities to stay competitive. Oracle executes

its projects aggressively to retain top performance and high returns in the ERP software

industry. Under the time value of money, Oracle ensures it invests in profitable ventures early to

capture a significant market segment. For instance, Oracle Cloud launched in 2016 when the

company noted that most businesses are embracing online operation’s. Additionally, the

company enhanced its product suite early enough to meet the rising demand for Business

Intelligence Software.

Oracle maintains a reputable public image and employs best practices that enable the

company to execute projects successfully. The company retains strong bonds with government

organizations such as the CIA and CDC. Oracle has had a long history of perfect project

completion and data management (Oracle, 2021). Additionally, other private organizations

assign on-demand projects to Oracle. For instance, during the peak COVID-19 period, Oracle

Corporation, through Oracle Cloud, was tasked to manage US COVID-19 Vaccination Program

(Salazar, 2021). Salazar (2021) notes that the company executed the program diligently by

designing the National Electronic Health Records Cloud and the Public Health Management

System. The CDC was able to track the progress of the Vaccination Program and conduct

further research. Thus, Oracle Corporation is a reputable company.

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Capital budgeting

Capital budgeting is crucial in determining whether the company's long-term investments

are relevant to receiving funding from its current capitalization structure. Oracle Corporation

lays fundamental strategies to sustain its long-term revenue. The firm relies on its competitive

advantage of superior ERP software to set a target and enhance its revenue investments.

Revenue enhancement investments

The Oracle Corporation's management team comprises industry experts who provide

major recommendations on the company’s investments. In recent years, the firm has enhanced

its Cloud Computing department to essential digital services to businesses. According to

Salazar (2021), Oracle Corporation has established a reliable business solution by providing

cloud infrastructure for governments and companies. Oracle invested in the cloud computing

sector through its Oracle Cloud segment. The investment includes providing servers, storage,

network, applications, and services through a global Oracle Corporation-managed data center

network. This investment offers a high revenue enhancement strategy since more businesses

are adopting remote working strategies.

The investment in Oracle Cloud is vital for the company’s future revenues. Oracle

Corporation currently offers competitive cloud software compared to its rivals such as Microsoft

and Amazon. Salazar (2021), posts that Oracle’s cloud business revenues improved by 139%.

Therefore, the company now focuses on improving its cloud computing ventures by providing

reliable flexible budget plans for its clientele.

Cost Reduction Investments

Oracle Corporation’s business model offers the company crucial capabilities of cost

reduction. Large technology companies such as Oracle have significant resources to minimize

costs and improve profitability margins. Over the years, the stable progress of Oracle gives the
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company a competitive advantage to execute cost reduction strategies. Notably, cost reduction

investments aim at minimizing present and future costs. The major cost reduction investments

of Oracle Corporation include internet-based operations and strategic acquisitions

In the modern business world, companies with internet-based operations yield high

profitability margins. In 2000, Oracle began a strategic journey to reduce its operating costs by

integrating the internet in the company's daily operations (Niccolai, 2000). The early adoption of

internet-based operations helped the company establish a strong foundation for its cloud

business infrastructure. Over the years, Oracle continued to build on wireless operations to

enhance its IT framework. Currently, the company has efficient cloud-based products that

consume less operational costs. Additionally, Oracle Corporation invests in automation through

Artificial Intelligence and Machine Learning to minimize operating costs (Salazar, 2020). The

integration of AI helps Oracle offer custom-made systems that suit a business's specific needs

(Sabinin & Sheikina, 2017). For example, the Oracle Fusion Cloud ERP enables companies to

obtain accurate forecasts, minimize costs, and create better products and services.

The technology industry keeps evolving as the competition among tech companies

intensifies. Oracle identified that the ERP software industry is highly competitive. Rapid

innovation and distribution of software and hardware are vital to remain relevant in the

technology industry (Laxman, 2018). Hence, under Larry Ellison's leadership, the company

implemented aggressive measures to retain its market share and improve long-term profitability.

Oracle Corporation acquired several technology companies to reduce its long-term costs. Thus,

the strategic acquisitions help Oracle to invent more products at a cheaper cost.

Mandatory investments

The government mandates large corporations to conduct mandatory investments as part

of their annual operations. The government usually offers tax holidays, subsidies, and financial
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support for such investments. Oracle Corporation has strong bonds with governments due to its

efficient database management software. Notably, governments rely on Oracle’s software to

store, analyses, and report on essential data related to transactions and national resource

management. Therefore, each financial year, Oracle Corporation allocates a budget to

Research and Development. According to Macrotrends (2020), the Oracle Corporation invested

an average of $6B to Research and Development each year from 2017 to 2020. The R&D

investments are critical to accelerate innovation and provide funding for important annual

projects.

Portfolio Analysis, Investment, and Diversification

Portfolio Analysis

Oracle Corporation has a strong brand portfolio. The company has established its

portfolio based on previous stability and innovation. Since inception in 1977, Oracle has grown

to a leading computer software giant with a reliable reputation and customer base. It is ranked

as the world's largest database management company, with operations in 55 countries (Oracle,

2021). Notably, Oracle’s robust brand portfolio derives from its superior database management

software and strategic acquisitions.

Portfolio Diversification

Oracle’s portfolio is diverse as it comprises Oracle database software, Oracle Cloud,

Oracle security solutions, and Oracle application suites. The Oracle database software enables

a business to record, analyze, and report their data. Oracle cloud contains a comprehensive

cloud infrastructure such as Software as a Service (SaaS), Platform as a Service (PaaS),

Infrastructure as a Service (IaaS), and Data as a Service (DaaS). On the other hand, Oracle

security solutions provide safe storage and retrieval of data through encryption technology. The

Oracle application suite allows developers to access professional resources and platforms. For
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instance, Oracle provides modern technology such as Artificial Intelligence, the Internet of

Things, Blockchain, and machine learning.

Moreover, Oracle offers several Business Intelligence products to support decision

making and analysis of company products. According to Sabinin and Sheikina (2017), Oracle

Business Intelligence consists of Oracle BI Server, Oracle BI Publisher, Presentation Services,

Repository, Oracle BI Delivers, Oracle Enterprise Manager and Office Plug –in. Businesses use

the BI products to generate scheduled financial reports (Sabinin & Sheikina, 2017). Additionally,

Oracle Corporation continues to diverse its portfolio through Research and Development. Thus

the continued growth of Oracle's portfolio diversification signifies that the company has high

potential currently and in the future.

Portfolio Investment

Over the years Oracle has increased its imprint through acquisitions of other software

companies that provide business solutions. The company’s management visualized that Oracle

Corporation could quickly achieve its long-term goals by relying on a Merger and Acquisitions

Model. For instance, between 2005 and 2016, Oracle made eight crucial acquisitions that

included Sun Microsystems, Siebel Systems, PeopleSoft, NetSuite, MICROS Systems,

Hyperion Corporation, BEA Systems, and Acme Packet. The company ensured that the

acquisitions were in line with its long-term goal of dominating the ERP software industry. For

instance, Oracle Corporation acquired Sun Microsystems in April 20, 2009 to capitalize on the

Solaris software's unique features, get more talent, optimize Sun Microsystems hardware, and

increase its customer base. Benitez et al., (2018), observe that the tech companies achieve a

competitive advantage through mergers and acquisitions. Specifically, acquisitions increase the

portfolio investment of Oracle Corporation through rapid product development and enhanced

specialization. Furthermore, mergers and acquisitions and acquisitions establish an essential

support structure that yields cost-effective mechanisms in the daily operations of a business.
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The ongoing acquisitions by Oracle Corporation focus on the development of its cloud

and automation ecosystem. In 2020, Oracle acquired DataFox, an AI Startup company to

hasten key automations processes. According to Pal (2019), Oracle acquired DataFox to

enhance AI-powered capabilities and expand the available data sources for its cloud

infrastructure. Therefore, the company’s mergers and acquisitions strategy will increase its

Portfolio in the future due to the high demand of cloud computing services.

Shareholders’ Wealth Maximization

In modern publicly traded companies, shareholders’ wealth maximization is the primary

aim of the business. Shareholders’ wealth maximization is the concept that companies should

increase their performance and reward shareholders the maximum dividends possible.

Nonetheless, the slow progress of a business or high debt can limit the amount payable to

shareholders. Hence, public companies should strategize their operations and implement proper

measures to yield the maximum payment possible.

Financial Distress

The trend of Oracle Corporation’s financial statements reveals that it is almost in a

financial distress situation. Table 1 below shows the trend of the key financial parameters of

Oracle since 2017. Notably, the total debt of the company is on an upward trend. Also, the

company’s total liabilities are high and consistent. Thus the high debt means that the company

is till financing a large portion of its operation through debt. On the other hand, from the Table 1

below, Oracle’s tax provisions were high in the last 4 years. For example, in 2018, Oracle made

tax provision of $9B. Thus, shareholders’ dividends are minimal since most of the returns are

used to pay interest expenses and taxes.

Year
Item 2017 2018 2019 2020
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Total Debt 60.62 B 56.17 B 71.6 B 82.34 B

Total Liabilities 91.54 B 86.92 B 103.36 B 93.03 B

Current 19.2 B 18.63 B 17.2 B 15.48 B

Liabilities
Total Assets 137.26 B 108.71 B 115.44 B 103.89 B

Current Assets 75.96 B 46.39 B 52.14 B 46.93 B

Net Cash Flow 15.39 B 14.55 B 13.14 B 11.83 B

from Operations
Tax Provisions 2.1B 9B 1.1B 1.9B
Weighted 4.12 B 3.63 B 3.21 B 3.69 B
Average Shares
Weighted 4.24 B 3.73 B 3.29 B 3.79 B
Average Shares
Diluted
Table 1: The trend of Oracle Corporation’s key financials. Source: Yahoo Finance

(2021)

Managerial Incentives

Oracle has a competitive management team that comprises of industry experts. The

most notable figure in the company’s management is Larry Ellison, the Chairman of the Board

and Chief Technology Officer (Oracle, 2021). Larry Ellison lead the company as the CEO since

its inception in 1977 to 2014 when Safra Catz took over. Under Larry’s leadership, Oracle

Corporation expanded to become a giant software company that provides vital business

solutions. Other important figures individuals on the Oracle’s management team include Edward

Screven who is the Corporate Architect, and Dorian Daley whose role is Executive Vice

President and General Counsel (Oracle, 2021). Notably, Oracle’s Board of Management

consider shareholders’ while making company decisions. Oracle only invests in technologies

that yield the maximum returns to cater to the needs of shareholders. Hence, Oracle’s

managerial incentives adhere to shareholders’ wealth maximization.

Dividend Policy
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Dividends are the portion of earnings that a company pays to shareholders. Oracle

Corporation has an elaborate Dividend Distribution Policy that explains the several factors that

determine dividend payments (Oracle, 2021). According to Oracle’s Dividend Distribution Policy,

the company Board of Directors’ decision to pay dividends is pegged on Provisions of the Act

and the Companies Rules 2014, the current and future cash flow requirement of the Company,

Global economic and business conditions, Fund requirement for any contingencies, and any

other strategic priorities (Oracle, 2021). Hence, the Dividend Policy of the company does not

guarantee shareholders about payments. Additionally, from Table 1 above, the Weighted

Average Shares Diluted amount is reading over the years, which means the company pays low

Earnings Per Share. Thus, Oracle’s Dividend Policy fails to ensure Shareholders’ wealth

maximization since it is based on the Board’s decision.

Capital structure

Risk

The risk analysis of Oracle Corporation involves the evaluation of the relevant financial

ratios. The ratios used to assess the risk potential of a firm have varying interpretations based

on the industry standards. For instance, a technology company's risk analysis differs from that

of a banking institution since they operate in different industries.

In risk analysis, the Beta value represents the volatility of a stock relative to the stock

market. According to Yahoo Finance (2021), Oracle’s Beta value based on the last 5 years is

0.78. This Beta value denotes that Oracle’s stock is less volatile that the general stock market

since it fluctuates at a value of less than 1. The Beta value is lower than the average market

volatility rate of conventional indicators such as the Dow Johns Industrial Average. Hence,

Oracle Corporation faces less risk than the market as a whole

Return
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Oracle is a profitable organization that generates steady returns annually. The returns

represent the profits from investments and company operations. Notably, as investors bring

capital to a firm, its business operations generate revenue that should meet all the expenses

and yield profits. Oracle’s business model has high gross margins that support the company’s

operations.

Capital Structure

Oracle’s capital structure is simple and clear to an investor. The firm finances its

operations through owner’s equity and debt. This capital structure is less risky as it adopts the

pooling of funds for investment purposes. Oracle generates capital through the selling of

company shares in the NYSE market. The company’s share price fluctuates slightly higher or

lower than its stable amount of $64.51. The stock shares allow investors to claim fractional

ownership of the company and receive dividends during the quarter.

Summary

In conclusion, Oracle Corporation is a safe and profitable investment for investors. In this

information age, Oracle is a crucial company that offers a range of products for the business

industry. The company has a strong brand portfolio that continues to revolutionize the business

world. Oracle invest in technology such as cloud computing and Artificial Intelligence to offer

relevant business solutions. Since its inception in 1977, Oracle remains competitive and acts an

industry leader in the database management software sector. The company’s decision to

relocate to Austin, Texas, will boost its cash flow and increase its profitability. Hence, its stock is

a buy since its future profit margins will improve.

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