Automatic Data Processing, Inc.: Financial Statement Analysis

Table of Contents

Company Brief3

Analysis of Financial Statements4

Interpretation of profitability and liquidity ratios4

Trend Analysis5

Business Segment Analysis7

Important information about the Assets8

Management response about the changes8

Industry Comparison9

Conclusion10

Differences in ROA and Return on Equity10

Quality of Assets and efficient use of assets to generate profit for the company11

References12

Company Brief

ADP (Automatic Data Processing, Inc.) is incorporated in Delaware in 1961. ADP and its subsidiaries is one of the largest providers of business outsourcing solutions in the industry. The company is in the industry for about 60 years. ADP offers wide variety of solutions for payroll, tax and benefits administrative solutions from a single source. ADP also provides integrated solutions to automobile sector which includes auto trucks motorcycle marines, recreational methods and heavy equipment dealers (ADP (2), 2012).

Segments of the ADP include Employer Services which offer a complete range of HR information pay roll processing, time and labor management and traditional web based solutions which provide assistance to employers in US, Canada, Europe, South America, Africa and Asia pacific. The Professional Employer Organization services (PEO) segment provides employers with comprehensive staff management outsourcing solutions. ADP and the client maintains a co employment relationship in which client co employ the employees at the worksite and ADP is completely responsible for the management of staff from compensation coverage to the retirement plans and other employee benefits. Dealer Solution segment provide retail and marketing solutions to the automobile and heavy equipment manufacturer across the globe (ADP (2), 2012).

ADP services 570,000 clients and employees 51,000 people across the globe (ADP (2), 2012). ADP is exposed to market risk because significant portion of the income is derived from non-US dollar currency. Therefore changes in international markets affect the performance of ADP (ADP (2), 2012).

Management continuously invested in product innovation, sales force and client service, which resulted in a positive impact and supported the five point growth strategic program:

Strengthening the core business

Growing the differentiated HR BPO

Focusing on international expansion

Increasing the pre-tax margin

Penetrating and entering those markets which leverage the core.

ADPs direct competitors are TriNet Group, Inc., Insperity, Inc. and Paychex, Inc. The company is ranked at #269 in Fortune 500 companies (May 2012), #312 in FT Global 500 and #269 in Fortune 1000 (Hoovers, 2012). ADP's office is situated in New Jersey United states.

Analysis of Financial Statements

Interpretation of profitability and liquidity ratios

The net profit margin is 12.69% and the gross profit margin is 41.98%. The company is having more operating expenses as compared to cost of revenues due to which GP margin is greater than NP margin.

$2.54 is earned per share. The current ratio and quick ratio both suffice in terms of paying back to the current creditors because both are greater than 1. The current ratio is 1.06 times and the quick ratio is 1.04 times. The company receives payments almost 8 times during the year from its debtors and a total of 46 days for debtors settle their liabilities with ADP. The ratio is poor showing debtors pay very less times as ...