Garmin Analysis

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Garmin Analysis | Following the Business Decision | By.ENRIQUE KELSO.FINANCIAL Abstract Garmin is a producer of GPS technology, based in Taiwan, but with major offices in Switzerland and incorporation in the Cayman Islands (MSN Moneycentral, 2013). The company enjoyed strong growth for much of the 2000s, only to see that growth deteriorate when its core technology, GPS, was installed in smartphones. Prior to that point, Garmin sold its global positioning systems as separate units, sometimes for hundreds of dollars. The obsolescence of its core computer product had many observers questioning the long-term viability of the company (Seeking Alpha, 2009; Ganapati, 2008; Moritz, 2008). The company continues to operate today, having…show more content…
The choice of capital structure will vary from one company to another and from one industry to another, so this figure has to be understood in context. For Garmin, the current debt to equity ratio is 0.36, which means that the company has a fairly low level of leverage. This ratio is indicative of a generally conservative financial approach by Garmin's management, as five years ago the debt to equity ratio was 0.31. Garmin has never been highly-leveraged. While this means that the company's cost of capital is perhaps a bit higher than it needs to be, it also means that Garmin was well-insulated against a strong downturn in the company's fortunes as remains so today. With respect to profitability, Garmin's old GPS units were highly profitable items, so it is interest to see what has happened to the firm's profitability. The gross margin in 2012 was 53%, whereas in 2008 it was 44.4%. Thus, the company has actually seen its gross margin increase after the demise of the GPS market, and it has also been able to continue to enjoy healthy margins, by taking a conservative attitude towards costs. The current net margin is a healthy 20%, compared with 20.9%, so there has been little change to the bottom line. This means that again the stories of Garmin's demise were greatly exaggerated. Another set of metrics is the investment return metrics. With these, Garmin has a return on equity of 16.65%, and a five-year average ROE of
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