History
NVIDIA Firm is a multinational company specializing in the design and development of graphics processors, mobile technology, and personal computers. Jen-Hsun Huang, Curtis Priem, and Christopher Malachowsky, three American software engineers, created the firm in 1993. NVIDIA is well-known for its embedded system development, used in various products, from automated game consoles to home desktops (PCs). The firm is a market leader in high-performance graphics processing systems (GPUs). The headquarters of NVIDIA is located in Santa Clara, California.
Since 1999, the business has created graphics cards, retaining a leadership position in the external GPU industry, with an annual average of 70% or more. It has recently established itself as a market leader in artificial intelligence (AI) technology. The company’s primary offerings are the graphic processing unit (GPU) and Tegra Processor, which are single-chip solutions for mobile devices. 51% of sales are for entertainment, 27% are for network infrastructure, 11% are for industrial design, 6% are for vehicles, and 5% are for others. NVIDIA was named Forbes publication’s 2007 Business of the Year for its tremendous development and achievement.
Types of Products and Services
NVIDIA Corporation is the dominant player in graphics processors, entertainment and networking equipment, and embedded systems. NVIDIA’s unrivaled product breadth includes:
- Three-dimensional platforms (3D)
- Two-dimensional (2D) systems
- Video, stereo, connectivity, broadband services, and high-definition video streaming and broadcasting for every demographic and environment.
- Personal computers, video game systems, desktops
- Internet-enabled utilities, Macintosh, and smartphone PCs.
Threats or Challenges: Intense Competition
Due to the predictability of revenues, the market attracts many applications. As a result, the market is more competitive, while maintaining and growing a business is becoming increasingly tough. For example, Texas Instruments, Qualcomm, and Samsung Ltd all operate in the mobile chip market. Additionally, commerce from the current consumer, Samsung, is projected to be subdued as the company has evolved into a rival. Tegra is used in a few mobile phones and tablets, although it is nowhere near as powerful as Qualcomm. However, one of the most significant frustrations for NVIDIA has been the lackluster reception of Windows Surface RT Tablets. Qualcomm also took the position of NVIDIA in the Nexus tablet as the second generation. Qualcomm consistently hammered NVIDIA because Tegra lacked an LTE modem, but now that it does, it may be an asset for the organization. Since Qualcomm has already strengthened its dominance in this sector, it is possible that Qualcomm may eventually supplant NVIDIA.
Constant Technological Innovations
Since client preferences change over time, the corporation is under constant pressure to bring new ideas and manufacture new items as rapidly as feasible to avoid forcing consumers to switch to rivals’ commodities. Prices are low for the ultimate user of most consumables that integrate NVIDIA’s inventions, such as PCs and tablets, science and design implementation expenses, and performance and reliability risks. However, these costs may be substantial for NVIDIA’s buyers, OEM enterprises that utilize NVIDIA’s innovations in their merchandise. Due to the fact that the majority of adversaries engage substantially in research and development, a significant risk of alternatives may arise from growing technological developments generated by rivals and safeguarded by copyrights.
Opportunities for Growth: GPU has some fuel left
While personal computers are declining in popularity, they continue to find buyers in developing countries like China, the world’s largest PC market, and India. There are enormous opportunities for development in these areas, as consumers continue to be obsessed with adding a more sophisticated graphics card to their workstations. Furthermore, the organization provides data center technologies, such as supercomputers, to various sectors. Thus, this is another area in which NVIDIA is a market leader.
Growing Social Media Platforms
Globally, the number of social media users has increased. As a result, NVIDIA has the potential to grow its digital following by interacting with its clients via the internet. Facebook, Twitter, and Instagram all saw the biggest improvement in daily active users. NVIDIA can take advantage of social media to market its brand, engage with buyers, and get feedback. As one of the industry’s best gaming processor manufacturers, NVIDIA could leverage the fast-increasing computer transformation age to develop a stronger interaction with its clientele online via online advertising strategies. Establishing a solid internet presence leaves a lasting impression and attracts new clients.
Technological Advancements
Several industries benefit from technology as automating procedures can help businesses save money. Innovation enables the collection of more accurate data about clients and enhances marketing activities. Lately, in response to the growing need for mobile-based computing, NVIDIA moved its concentration to the smartphone marketplace, which encompasses amusement and mapping applications for automobiles. As a result, this demonstrates that NVIDIA is increasing its competitiveness and diversifying its product offerings. Additionally, technology provides more detailed insight into the needs of its subscribers.
Sustainability
Since 2014, NVIDIA has decreased footprints by 15% per worker and established a goal of obtaining 65% of its worldwide energy from renewable sources by 2025. NVIDIA CEO Jensen Huang said in November last year that the business would employ many of its technologies to predict and reduce ecological disasters by modeling the consequences of climate alterations. Thus, this will be accomplished by creating a digital replica of Earth. The computerized Earth will be realized by launching an innovative supercomputer called E2 (Earth 2) under the corporation’s Omniverse.
According to Huang, NVIDIA’s Earth’s hologram, which is formulated to simulate the Earth’s environment, will be able to reliably forecast regional impacts of global warming up to 30 years in the future. Additionally, NVIDIA has teamed with Lockheed Martin’s AI Center to assist in mitigating the impact of climate change, such as floods, famine, and wildfires. They will collaborate to develop an AI-powered effort that will also employ machine learning algorithms to improve the precision and turnaround time of wildfire projections, assisting operators in containing the spread of flames more swiftly.
Financial Statement Analysis Ratios: January 31st, 2022
Liquidity Ratios
Current Ratio (current assets / current liabilities) = 6.65
The current ratio is a liquidity metric that indicates an institution’s capacity to pay short-term or one-year commitments. It explains to stakeholders and analysts how a business might optimize its current assets to pay down debt commitments. NVIDIA’s current ratio of 6.65 indicates that while the firm can meet its current liabilities six times over, it is not appropriately utilizing its current assets, acquiring finance, or managing its working capital.
Quick Ratio (cash + short-term marketable investments + receivables) / current liabilities) = 6.05
The quick ratio determines a business’s short-term liquidity, indicating its capacity to satisfy short-term demands using just its most liquid assets. Liquid assets are current assets that can be swiftly changed to cash with little effect on the value created in the open market. In contrast, current liabilities are an institution’s debts or commitments owing to lenders within one year. NVIDIA’s quick ratio of 6.05 implies that the business possesses precisely enough holdings to pay off its current liabilities instantaneously.
Cash Ratio (cash + short-term marketable investments) / current liabilities) = 4.89
The cash ratio is a liquidity ratio that indicates an entity’s liquidity, more precisely, the ratio of total cash and cash equivalents to current liabilities. Creditors can use this knowledge to determine how much finances they are willing to lend a business. The cash ratio of NVIDIA is 4.89, implying that the corporation has more cash and cash equivalents than current liabilities. In this case, the business can pay off all short-term debt while still having cash on hand.
Efficiency Ratios
Accounts Receivable Turnover Ratio (net credit sales / average accounts receivable) = 5.78
The term receivables turnover ratio alludes to a financial metric that assesses a business’s capacity to gather accounts receivable. The high turnover of receivables indicates that NVIDIA’s accounts receivable collection are effective and that the corporation has a large number of high-quality buyers who meet their obligations on time. A large receivables turnover may also imply that NVIDIA functions on cash terms.
Asset Turnover Ratio (net sales / average total assets) = 0.43
The asset turnover ratio quantifies a business’s revenue or sales in relation to the worth of its assets. The asset turnover ratio can determine how efficiently a venture uses its assets to produce income. NVIDIA’s low asset turnover ratio of 0.43 suggests that the corporation is inefficient in generating revenue from its assets. On the other hand, a greater asset turnover ratio indicates that a business is more proficient at earning income from its resources.
Inventory Turnover Ratio (cost of goods sold / average inventory) = 1.02
Inventory turnover is a quantitative statistic that indicates how frequently a business sells and replaces stock over a specified time. For most industries, an optimum inventory turnover metric will be between 5 and 10, implying that inventory will be sold and replenished approximately every two months. NVIDIA’s poor turnover indicates sluggish sales and maybe surplus inventory, commonly referred to as overstocking.
Solvency
Debt to Equity Ratio (total liabilities / total equity) = 0.41
The debt-to-equity (D/E) indicator determines a firm’s debt financing. It is computed by obtaining the quotient between the total liabilities of the firm and the overall shareholder equity. If the debt to equity ratio is less than 1.0, the organization is considered less risky than firms with a bigger than 1.0 D/E ratio. NVIDIA’s D/E proportion of 0.41 indicates that it borrows 40 cents for every dollar invested in capital.
Debt to Capital Ratio (total debt / (total debt + shareholders’ equity) = 0.3
The debt-to-capital metric is an accounting leverage parameter that measures an enterprise’s financial position. The fact that NVIDIA’s debt-to-capital proportion is 0.4 indicates that the business is unstable. Thus, a higher ratio shows that the firm is more highly leveraged, implying a greater obligation to repay debt and a heightened likelihood of loan violation if the loan cannot be repaid on time.
Debt to Assets Ratio (total debt / total assets) = 0.38
Total-debt-to-total-assets is a leverage ratio that indicates a company’s total debt in relation to its total assets. Accountants can use this statistic to assess a business’s risk to that of other corporations in the same sector. NVIDIA’s minimal leverage makes it easier for the company to survive a recession than a company with a greater degree of leverage.
Financial Leverage Ratio (total assets / total shareholders’ equity) = 1.09
A financial leverage ratio measures how much commitment or debt a corporation has used or will use to finance its activities. The leverage ratio segment is significant because businesses fund their investments through stock and debt. Understanding the debt levels owed by a business helps determine whether it can repay its loans as they mature. Creditors and venture capitalists view NVIDIA’s leverage ratio of 1.09 as a hazardous investment.
Interest Coverage Ratio (EBIT / interest payments) = 42.5 times
The interest coverage indicator is a debt-to-profitability ratio used to measure a firm’s ability to service its existing loans. The greater ratio of 42.5 times for NVIDIA’s interest coverage indicator implies that the business is debt-free and has additional resources to invest.
Fixed Charge Coverage Ratio (earnings before fixed charges and tax / fixed charges) = 25.61
The fixed-charge coverage ratio (FCCR) is a parameter that indicates a company’s potential to sustain its fixed costs, such as loan repayments, interest costs, and machinery rental agreement expenses. NVIDIA’s high ratio frequently indicates a capacity to make fixed-charge payments, which lenders prefer to see because it reduces the risk of not being repaid.
Profitability Ratios
Gross Profit Margin (gross margin / net sales) = 64.92%
The gross profit margin is an accounting indicator that accountants use to determine a business’ profitability. It is calculated as the amount of money remaining after deducting the cost of items sold from direct sales. NVIDIA’s gross profit margin of 64.92% is robust, indicating that the company adequately transforms commodities, resources, and production overhead into profit.
Operating Profit Margin (operating income / revenue) = 37.30%
A higher operating margin indicates that the organization generates enough revenue from production to cover all additional costs. When a firm’s margin is significant, it can regulate its expenses and boost its earnings. A profit margin of 37.30% suggests that the corporation effectively manages its working expenditures.
Net Profit Margin Ratio (net income / revenue) = 36.23%
The net profit margin metric is a percentage of sales that indicates how much net revenue or profit is created. It is the proportion of a corporation’s or industrial sector’s profitability ratio. The firm’s greater net profit margin of 36.23% indicates that it is more proficient at turning revenues into actual income.
Return on Equity (ROE) (net income / shareholders’ equity) = 36.64%
NVIDIA’s twelve-month return on equity was 36.64 percent as of January 31st, 2022. For the last two years, the firm has seen a growing ROE, showing that it is expanding profits without requiring much capital. An increasing return on equity (ROE) shows how effectively a company’s management allocates shareholder capital. A return on equity (ROE) of greater than 15% is in excellent condition.
Return on Assets (ROA) (net income / total assets) = 22.06%
Return on assets (ROA) is a financial statistic that measures a business’s profitability concerning its total assets. NVIDIA’s ROA was 22.06% during the last twelve months, a considerable rise from last year’s 15.04%. The ROA metric indicates how well a business can make a ROA investment, with a positive ROA indicating an increasing profit trend.
Market Prospects
Earnings per Share (EPS) (net income – preferred dividends) / weighted average common shares outstanding) = $3.84
Earnings per share (EPS) is computed as profitability divided by the number of remaining shares of ordinary stock of an institution. It is customary for companies to publish EPS that has been corrected for unusual events and potential share dilution. To compute a business’s EPS, the financial statement determines the number of common shares remaining at the end of the quarter, any investment gains on preferred stock, and net profit. Since common shares might fluctuate over time, utilizing a weighted mean number of ordinary shares for the reporting period is more appropriate. NVIDIA’s decreased earnings per share of $3.84 imply that the company is less lucrative.
P/E Ratio (market value price per share / earnings per share) = 48.52x
The price-to-earnings ratio (P/E ratio) is a statistic used to determine the value of a business. It contrasts the current share price to the firm’s EPS. Occasionally, the P/E proportion is referred to as the cost multiple or revenue multiple. Due to future development forecasts, a higher price-to-earnings ratio of 48.52 indicates that entrepreneurs are prepared to pay a premium for NVIDIA shares today.
Dividend Yield (cash dividends per share / market value per share) = 0.08
Dividend yield, stated as a proportion, is an accounting measure (dividend/price) that indicates the number of payments a business pays out each year in relation to its stock price. A smaller dividend yield of 0.08 is always a positive indicator, as it indicates that NVIDIA is paying a smaller portion of its income to shareholders, hence developing the business. In combination with annualized profit, dividend yield can be a significant component, as dividends are frequently used to boost a portfolio’s total return. In other circumstances, the payout ratio may not reveal anything about the type of dividend paid by the corporation.
Since significant financial ratios of the company are performing well, this could be attributed to the practical and robust marketing and competitive strategies employed by its management. However, some metrics are poorly performing, affecting the well-operating indicators. The firm should reduce the rate at which it borrows funds from lenders as its financial leverage ratio makes investors shy away from investing in it.
Evaluation
Recently, NVIDIA extended its upward trajectory, and performance assessments of the NVIDIA GeForce 8800 GTX GPU for learning algorithms met expectations. The GeForce 8800 GPU is NVIDIA’s debut to include a consolidated design that processes photons and vertices in the same chip. Thus, this enables a more excellent range of modifiability than prior GPUs and makes it considerably more suitable for high-performance computing. NVIDIA has responded by releasing a multi-paradigm programming component called CUDA and packaging the same basic technology as a specialized co-processor for application in high efficient computing systems.
Additionally, NVIDIA’s Jetson TX1 board is the industry’s leading multicore+GPU offering for automated vehicles at the moment. The TX1 is assessed mainly through testing initiatives, black-box GPU performance analyses, and case studies encompassing machine learning applications influenced by automated driving use applications. Autonomous cars serve as a model for future-oriented safety-protection real-time processes that support large processing capacity while adhering to rigorous size, weight, and power (SWaP) constraints. A viable path ahead is to employ multicore processors enhanced with GPUs as multipliers. NVIDIA, whose Jetson TX1 board is now the premier multicore+GPU package advertised for intelligent devices, aggressively advocates for this strategy.