Cyril Wilcke, Maximilian Englert,

Julius Gerhard, Tobias Friedrich and Julian Born

Financial Statement Analysis

A comparison of SAP SE and Oracle Corp.
Case Study 2016

1
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Table of Content

What are the sources SAP SE & Oracle Corp.’s competitive advantage?
01 • Market Overview
• Analysis of the competitive advantage
3
• Enterprise analysis

How have the companies’ profitability changed relatively to its respective

competitors in recent years?
02 • Companies’ financial performance analysis
10
• Peer group comparison

What risks do these companies face that might affect their future operations?
03 • Short-/Long term financing risk analysis
• SWOT-Analysis
14
• PESTEL-Analysis

Do you recommend to buy shares from this company?

04 •
•
Stock performance analysis
KPI’s
20
• Enterprise Value to Free Cash Flow

If you were a bank credit manager, will you give loans to this company?
05 • Credit ratings 25
• Long term credit risk indicators

2
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Question 1: What are the sources SAP SE & Oracle Corp.’s competitive
advantage?
Strategy
Giving a market overview, in order to get a general understanding of the branch and connected chances and
risks
Market Overview

Analysis of the competitive advantage based on the fundamental questions: What is the firms relative position
Analysis of the within the market (Five-Forces by Porter)
competitive
advantage

Enterprise analysis to evaluate how firms try to gain a competitive advantage among rivals

Enterprise Analysis

3

Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp
Mission & Vision of SAP and Oracle + Market Overview
ORACLE
• “Deliver the best information with the
highest quality of service with the lowest
costs”
• “Oracle wants to transform a tech
company into a service organization”
• “Simplify, standardize, automate”
SAP
• ”Our vision is to help the world move
better”
• ”Our mission is to help customers run at
their best”
• “Companies must make their digital
strategy a concept of their business
strategy” àSAP wants to support and
improve that process as convenient as
possible
Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Tobias Friedrich und Julian Born
General market overview
• Wikipedia’s definition: “The software industry includes businesses for development,
maintenance and publication of software that are using different business models,
[…] either license/maintenance based (on-premises) or cloud based (Saas, PaaS,
IaaS).”
• SAP & Oracle are top competitors in software market
• Driven through constant new Research&Development and huge investments
• Highly competitive market even though big players as Oracle and SAP benefit from
their name and sheer size
• 10 biggest software and programming companies (2015):
Ø #1 Microsoft ($340.8bn), #2 Oracle (166bn), #3 SAP (95,9bn), #4 Vmware
(35,7bn) #5 Symantec (16,3bn), #6 HCL Technologies (21,1bn), #7 Fiserv
(19bn), #8 Intuit (27,1bn), #9 Amadeus IT Group (19,8bn (2013)), #10 CA
Technologies (14,3bn)
• The market is one of the fastest growing marketsà one of the key drivers are
emerging markets as their need for soft-/and hardware is constantly growing
• Estimated steady growth rate of 4-6% in 2016/17 à cloud computing market will be a
major driver
• Highly innovation driven market
• Several trends will shape future market as there are: (hybrid) cloud computing, in-
memory computing and a new implementation test period of ERP-software
4
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp Tobias Friedrich und Julian Born

Key facts
ORACLE SAP SE
Summary
Founded in 1977 1972 Oracle as well as SAP are
one of the biggest players
Headquarter Redwood Shores, California, Walldorf, Germany
in the market of cloud &
USA
software services. With
Key revenue factors Cloud & software services & cloud & software services & equivalent huge Investments in R&D
equivalent support support both are main drivers for
innovations.
Total revenue (2015) $37,047 mio. 20,793 mio. € Both have many
subsidiaries as a result of
Net profit (2015) $8,9 mio. 3,06 mio. € their huge acquisition
program over the last years
and gained further a broad
Earnings/share $2,21 2,56€
range of different
Market share America: 55,24%, EMEA: Germany: 13,33%, Rest of EMEA: 30,82%, applications and services
(geographically) 29,37%, Asian Pacific: 15,39% USA: 32,46%, rest of America: 8,07%,
throughout many different
APJ: 15,32%
markets. Due to that they
Subsidiaries No exact numbers given (list of 255 in more than 180 countries were able to strengthen
(directly/indirectly acquisitions in the last years in their competitive position in
controlled) additional material)
the market.
Market capitalization $166bn 95,9bn€

5

Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp
SAP’s core strategies
Product release strategy
• 2005 switched to updates every 6-12 months à continuous
innovation strategies
• New schedule of updates comes with no costs for consumer à
before that, updates came around all 5 years & customers had
to additionally buy those updates
4 key strategies
Platform & product strategy
• Build platform in order to connect possible
applications most efficiently (optional components possible)
• Diversity in terms of offered products: 1) supply chain
management 2) customer-relationship management 3) product
lifecycle management à in general lots of different products
with different combination possibilities and optional components
6
Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Tobias Friedrich und Julian Born
Growth strategy
• Developing products for not just one market àdiversification
• Need for expanding to new markets àexpanding product scope
and with that even moving to new (geographic) markets
• Customers inclined to single vendor strategy
Industry strategy
• Offering products to key vertical industries with unique
needs in terms of applications
• Offer of 25 different industry solutions
• Each industry specific platform/application is supported by
management teams and developers
• If lack of applications for one industry à purchase of further
developed companies to fill lack (e.g.: Ariba, Concur &
Successfactor)
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp Tobias Friedrich und Julian Born

Oracle’s strategy and business model

SYMPLIFY Speed information delivery with integrated systems and single database
Three
Tier STANDARDIZE Reduce cost and maintenance cycles with open, easy serviceable components
Approach
AUTOMATE Improve operational efficiency with technology and best practice

Core points of strategy & business model:

• Enterprise applications about 25% of businesses revenue à rest: database, infrastructure, hardware, business intelligence à
diversification
• focused on helping customers moving applications to the cloud
• Selective & active acquisition program in order to fill possible lack of applications à huge investments in 2014 (5,2bn), 2015 (5,5bn),
2016 (5,8bn)
• Acquisitions not just focused on companies but also on products, services and technologies
• Focus not on single applications but rather on whole market
• Customer support strategy: offers consulting, education and support services
• Strong distribution channels (domestically and internationally)
• Non-union employees à strong employer-employee relationship
• Marketing campaigns supporting key businesses

7
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp Tobias Friedrich und Julian Born

Analysis of their competitive advantage based on Porter’s Five Forces

Threat of substitutes Threat of established rivals Threat of new entrants Bargain power of suppliers Bargain power of customers

- Low to medium: - Medium to high: - low: - 0 – low - Low in regards to

- Even though there - Sustainable - Even though there are - In general software small customersàare
are a lot possible competitive advantage no to small regulations companies are not as often dependent on
substitutes in the through innovations à for entering the depended of applications and
software market easy takeover of whole software market new suppliers as software
switching costs are markets if new players are not able to producing companies - Low to medium in
huge (àone has to innovation is very compete with market are regards to big
change whole supportive àhard to leaders - Doing most of their customers as for
software, applications enter market for - Lack of (cash-) R&D on their own example large
and employees have ”followers” (buzz word: resources in order to financial institutions
to get used to new vendor lock in) have equally
software with training innovational R&D
programs)
departments

In general the software and application market is a very innovation-driven market. So companies like SAP and Oracle have a much
better initial position to push innovations as a result of their huge R&D divisions with accordingly better financial situation. Even though
there is quite a intense competing within the biggest players (Microsoft, SAP, Oracle, IBM and others).

8
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Conclusion

General overview Both firms are able to gain a competitive advantage towards their competitors granted through
the following factors:
1. Constant and steady pushing for new applications and software within their own R&D
departments
2. Pioneering role in terms of software, applications and cloud computing grants them
enormous advantage
Five Forces Analysis 3. Sheer size of both companies enable a more efficient research and development strategy
àlarge capital for R&D on hand
by Porter 4. Active acquisition program enables SAP & Oracle to quickly open (up) markets which they
have not been able to focus on as a result of a lack in needed software/applications
5. Broad range of different industry specific applications and besides that offering consulting
and support servicesà benefits from diversification effect
Mission, Vision and 6. Single vendor strategyà many customers (especially big companies) stick to one vendor
business models of once software and applications are established in company
SAP and Oracle

9
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Question 2: How have the companies’ profitability changed relatively to its

respective competitors in recent years?
Strategy

1. Companies‘ financial
performance
analysis à Analyzation of the three most recent years considering major financial indicators

à Comparison of Microsoft, having a 4.5 times higher market capitalization than SAP
2. Peer group comparison
à And IBM, which has almost the same market capitalization as Oracle

The long-term risk indicators have already been used and interpreted in questions 3 financing risks. Now they are being used with regard to make a decision whether a business
should receive a loan or not.

10
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Analysis: Development Of Key Financial Performance Indicators

• During the past years Oracle was working more

efficiently with its own assets than SAP considering
the ROA.
• As a way better ROE of ORACLE clearly indicates,
Development of Key Performance Indicators
it generated more revenue than SAP with the money
available from shareholders who have invested in
percentage terms. ROA ROE FAT PM EPS
• Since Oracle has a higher Fixed Asset 2013 SAP 12,27% 20,72% 9,24 19,77% 2,78€
Turnover(FAT)-Ratio it goes without saying that Oracle 13,35% 24,20% 12,18 28,62% 2,29
Oracle was outperforming SAP, particularly with 2014 SAP 8,51% 16,74% 8,35 18,68% 2,74€
regard to generating a revenue out of the fixed
Assets, owned by the company. Oracle 12,14% 23,09% 12,50 26,00% 2,42

• With a difference up to 9.33% in the PM-Ratio you 2015 SAP 7,38% 13,12% 9,49 14,70% 2,65€
can clearly see that Oracle has a higher net income Oracle 8,96% 20,24% 10,37 24,03% 2,26
for each dollar earned as revenue.
• Considering the higher EPS of SAP, SAP might be
more interesting for an investor since a share
returns more than an investment in Oracle.

11
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Analysis: Peer Group Comparison

• Compared to SAP and Oracle, Microsoft and IBM

were better performing with regard to Return on
Assets. Peer Group Comparison
• Considering the ROE, IBM outclassed the other
companies. However, from 2013 to 2014 there was
ROA ROE FAT PM
a little downturn, which did not last long, since IBM’s
ROE increased tremendously. Concerning the FAT, 2013 Microsoft 15,35% 27,69% 7,79 28,08%
all competitors were almost the same, none of the IBM 13,06% 72,31% 7,12 16,75%
companies were remarkably better, even though
Microsoft and IBM were slightly worse than Oracle 2014 Microsoft 12,80% 24,58% 6,67 25,42%
and SAP. IBM 10,25% 101,26% 8,62 12,95%
2015 Microsoft 6,99% 15,22% 6,35 13,03%
• Microsoft and Oracle have the highest PMs which
IBM 11,94% 92,50% 7,63 16,14%
are very much the same. This means for every
dollar in sales they have more revenue than SAP
and IBM. Only Oracle was able to keep it on a
nearly constant level.

12
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Conclusion

SAP SE

ORACLE CORP.

MICROSOFT
IBM
• Negative profitability development through
• Best development of financial indicators
the last years

• Overall SAP SE’s and Oracle Corp.’s profitability worsened as to be seen when having a look at the negative development of most financial performance
indicators in recent years; this might be explained by a more competitive market due to an increased number of, in particular, smaller competitors.
• A similar development can be observed when having a look at the market leader Microsoft. However, IBM shows that despite a more competitive market it is
still possible to keep the figures relatively constant.

13
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Question 3: What risks do these companies face that might affect their
future operations?
Strategy
Displaying long- and short term financing risk indicators in order to illustrate both companies’ financial
Short-/Long Term development concerning risks they potentially face.
Financing Risk
Analysis

SWOT analysis (for strengths, weaknesses, opportunities and threats) is a structured planning method to
evaluate a business in its operating market segment regarding these four aspects.
SWOT Analysis

The PESTEL Analysis (for Political, Economical, Social, Technological, Environmental and Legal) is a concept
to analyse a businesses’ operating environment.
PESTEL Analysis

14
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp Tobias Friedrich und Julian Born

Financing Risks: Indicators Positive overall development

Negative overall development

Short-Term Financing Risk SAP SE Short-Term Financing Risk ORACLE

¡ Current Ratio: 1,05 to 1,24 ¡ Current Ratio: 4,11 to 3,74

¡ Quick Ratio: 1,049 to 1,237 ¡ Quick Ratio: 4,09 to 3,72

¡ Cash Flow to Current Liabilities: 0,41 to 0,46 ¡ Cash Flow to Current Liabilities: 0,94 to 0,79
¡ Working Capital Turnover: 41,31 to 11,11 ¡ Working Capital Turnover: 0,81 to 0,79

Long-Term Financing Risks SAP SE Long-Term Financing Risks ORACLE

¡ Debt to Equity: 0,78 to 0,75 ¡ Debt to Equity Ratio: 1,26 to 1,35

¡ Interest Coverage Ratio: 29,65 to 17,22 ¡ Interest Coverage Ratio: 15,99 to 12,23

¡ Cash Flow to Total Debt: 0,18 to 0,20 ¡ Cash Flow to Total Debt: 0,23 to 0,21

SAP SE: From 2014 to 2015 ORACLE: From 2015 to 2016

15
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp Tobias Friedrich und Julian Born

Financing Risks Analysis

SAP SE
¡ Short-Term Risk Indicators:
While SAP SE’s current assets increased within the last fiscal year, its
current liabilities decreased. Even though its WCT worsened significantly it
still indicates a very efficient management of using current assets and
liabilities for supporting sales. On the one hand, the company’s ability to
meet its obligations, in particular its short-term obligations, improved as it is
indicated by an increased current and quick ratio. On the other hand SAP
SE can only cover approximately ¼ of its current liabilities with its CFO.
¡ Long-Term Risk Indicators:
As figures show, SAP SE uses more equity than debt to generate growth in
the long term. Furthermore, SAP SE can pay back its current interest
payments approximately 17 times with its available earnings but does only
cover 1/5 of total debts with its CFO.
ORACLE
¡ Short-Term Risk Indicators:
ORACLE is in a healthy financial condition, particularly with regard to the
company’s ability to pay back short-term obligations with its most liquid
assets. Yet, despite ORACLE’s positive figures, the company is at stake to
increase its short-term financing risk since all indicators worsened in
comparison to the last fiscal year. While ORACLE’s CFO can still cover
almost 80% of its current liabilities, the WCT indicates a rather moderate use
of working capital and is hence to be improved.
¡ Long-Term Risk Indicators:
Considering ORACLE’s size the company could use multiple times more
debt financing than it currently does and yet it indicates a negative
development as ORACLE continues to use more debt than equity for the
company’s financing. Another negative aspect is the rather low and further
decreasing CF-TD ratio of only 20% as well as its worsened ICR which is, to
counteract the negative aspects mentioned above, still sufficient.

Both companies do only show little financing risks. Yet, it goes without saying that the overall development of SAP SE is better
than ORACLE’s. According to the risk measures neither one faces a distinct risk of default or uses capital in an inefficient way
to generate growth and sales. This means that both businesses are in a rather healthy financial condition.

16
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp Tobias Friedrich und Julian Born

SWOT Analysis

Strengths Weaknesses

Strengths
SAP SE
§ Highly innovative product
§ High on R&D
§ Good Market Position
§ Positioned very well
Opportunities
Weaknesses
Oracle Corp. SAP SE Oracle Corp.
§ Best of the breed product § Only offers ERP when § Even after so many
suite through various compared to its biggest acquisitions, Oracle is still
acquisitions rival Oracle perceived as a “database
§ Strong talent pool and tools” company and
§ Monopoly in enterprise not as an Applications
databases company by many
§ Technological Innovation § Highly Leveraged from
acquisitions
Subject
Threats

Opportunities Threats
SAP SE Oracle Corp. SAP SE Oracle Corp.
§ Market is consolidating, § Full hardware market is § Oracle is the biggest § Integration issues due
SAP can acquire few there to be tapped for threat to SAP to aggressive
companies to expand the Oracle through their Sun § With Open Source acquisitions
portfolio and become Acquisition technologies and cloud § Too much dependency
more than just an ERP based ERP's becoming on acquisitions
company popular, SAP has serious
thinking to do

17

Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp.
PESTEL-Analysis
Political factors:
• Politics had to react to rising computerization
and had to put certain regulations on different
industries mainly regarding data security
• Software market has no special taxing
regulations (as finance industry e.g.)
à positive political initial position for software
market and companies as SAP and Oracle
Technological factors:
• As we are living in a technologically driven world
technological factors couldn’t be better
• Steady pushing for innovations in all kind of
markets and industries
• Increasing efficiency due to automatization and
computerization
à Very positive technological factors
Economic factors:
• Steady growing demand regarding software-
(applications) in all different kind of markets
• Spending in IT(-infrastructure) rising as
companies want to gain competitive advantage
through e.g.: ERM-models
à very positive economic factors regarding
software industry/SAP/Oracle
Environmental factors:
• Regarding cloud computing and storage of data:
especially in the last years awareness for own
data security and data protection has risenà
expectations towards securitization has risen
• Again: technologically driven world/society which
promote industries/companies as software
market (companies)
à Good environmental factors as (expected)
regulations are not hard to fulfil
18
Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Tobias Friedrich und Julian Born
Social factors:
• Rapid adaption to new trends and applications
(within industries but also on broader basis)
• Society/business “expects” innovations and new
applicationsà what drives R&D
à Good social factors
Legal factors:
• With rising awareness towards data security
certain software, applications and cloud
computing platforms as well as data storage
systems in general were facing several
regulations which vary from country to country
and even from industry to industry
à No bad legal factors: as regulations are easily to
fulfil for companies as SAP and Oracle
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Conclusion

Short-/Long Term
Financing risk • Both firms do only face little financing risk

analysis

• The SWOT Analysis shows that both firms face threats and weaknesses. However, both
SWOT Analysis can outperform these negative aspects with great opportunities and strengths and are
further able to stabilize their position in the market

• The PESTEL Analysis shows that the operating environment of SAP SE as well as of
PESTEL Analysis Oracle Corp. fits their businesses’ needs

19
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Question 4: Do you recommend to buy shares from this company?

Strategy
Compare historical stock performance and dividend payments

Stock Performance Assumption: Historical data leads to a forecast for future business performance
Analysis

Compare Key Performance Indicators

KPI’S Assumption: Today’s business performance as an indicator for future performance

Compare Enterprise Value to Free Cash Flow Ratio

Enterprise Value Assumption: EV/FCF ratio as an indicator how fast a business can pay back its acquisition’s cost and
to Free Cash Flow generate new cash flows to improve their business performance

20
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Stock Performance Analysis

Ø Both stocks outperformed equally throughout 2012 to 2014

Ø Better performance of the Oracle Corp. stock since 2014

Ø Constantly increasing dividend

payments of Oracle Corp.

Ø SAP’s dividend payment are moving

on a sideways trend

Dividends per share Oracle Corp. SAP SE S&P500

1,500
1,000
0,500 If your decision of buying either shares of “SAP SE“
0,000 or “Oracle Corp.“ is based on the analysis of
2012 2013 2014 2015 historical stock data, then your decision would lead
SAP in € Oracle in $ to an investment in Oracle Corp.

21
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Key Performance Indicators

Ø Oracle Corp. is giving a higher return on equity to Key Business Performance Indicators of SAP SE and
their shareholders as well as having a higher profit Oracle Corp.
margin

Ø The Current ratio shows us that SAP SE is better

covering its liabilities than Oracle Corp. Key Ratios (2015) Oracle Corp. SAP SE

Ø The earning that a shareholder gets per share is Return on equity 18,8% 13,1%
slightly higher when you go with SAP SE
Earnings per share $2,21 2,56€
(diluted)
Ø The stock of Oracle Corp. reacts disproportionate to
the market and even more does the one of SAP SE Profit Margin 24,0% 14,7%

Current ratio 1,78 2,29

Ø A high CFO to Capex ratio is indicative of a company
with sufficient capital to fund operations. These
Beta (Source: ycharts, 2016) 1,19 1,356
operational acquisitions indicate a stock growth
CFO to Capex 10,31 5,72

22
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Enterprise Value to Unlevered Free Cash Flow

SAP SE Oracle Corporation

Enterprise Value/Unlevered Free Cash Flow Enterprise Value/Unlevered Free Cash Flow

= =
34,71 for December 2014 12,80 for May, 2014
34,57 for December 2015 14,26 for May, 2015

12,97 for May, 2016

Ø The high EV/U_FCF indicates that Oracle Corp. is less able Ø The lower EV/U_FCF indicates that Oracle Corp. is able to
to generate new cash flow to invest into the business which generate new cash flow to invest into the business which
forecasts a worse future business performance. forecasts a good future business performance.

Due to the lower ratio at Oracle Corporation, you

should rather invest into Oracle Corp. than into SAP SE.

23
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Conclusion

SAP SE

Oracle Corporation
¡ Worse historical stock outperformance

¡ Better historical stock outperformance ¡ Mostly worse KPI’s

¡ Mostly better KPI’s ¡ Higher EV/UnleveredFCF

¡ Better EV/UnleveredFCF

If you were to buy shares of only one of these businesses, you should rather buy Oracle Corp.‘s. In contrast to SAP SE, ORACLE Corps.‘ business performance has
been better over the past years, with particular regard to its superior position towards SAP SE concerning their KPI‘s. Yet, there are few KPI’s, such as the EPS of
SAP SE, which were, on the one hand, better than ORACLE Corps.’ but, on the other hand, outweighed by the remaining KPI’s of ORACLE Corp.
However, if possible, we would recommend to not only investing into ORACLE Corp but in to a mixed portfolio of Oracle Corp. and a bank account, which provides a
risk-free interest revenue at a constant level.

24
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Question 5: If you were a bank credit manager, will you give loans to this
company?
Strategy
As one of the Big Three credit rating agencies Standard and Poor’s issues credit ratings for the
debt of public and private companies. The company rates borrowers from AAA to D.
Credit Ratings
Standard & Poor’s à Which company is more creditworthy concerning long-term loans?

Long-Term Credit Risk
Indicators
Debt to Equity Ratio [DER]
Interest Coverage Ratio [ICR]
CFO to total debt [CFO-TD]
DER: The debt to equity ratio shows the percentage of company financing that comes from
creditors and investors. A higher debt to equity ratio indicates that more creditor financing (bank
loans) is used.
ICR: Measures a company’s ability to honor its debt payments. Essentially, it measures how
often a company can pay its current interest payments with its available earnings.
CFO-TD: Provides an indication of a company’s ability to cover total debt with its yearly cash
flows from operations. The higher the percentage the higher a company’s ability to pay its total
debt.

The long-term risk indicators have already been used and interpreted in questions 3 financing risks. Now they are being used with regard to make a decision whether a business
should receive a loan or not.

25
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Standard and Poor’s Credit Rating

SAP SE ORACLE

Rating A AA-
§ Upper Medium Rating ¡ High Rating

Credit Watch Positive Stable

¡ Rating is likely to improve ¡ No change in rating is expected

Meaning Strong capacity to meet financial commitments but Very strong capacity to meet financial commitments.
somewhat prone to unexpected economic events. Rated as high quality and very low credit risk.
Rated as upper-medium grade and low credit risk.

26
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Long-Term Credit Risk Indicators

SAP SE ORACLE
2015 2014 2016 2015 2014

Debt to Equity 0.78 0.97 1.35 1.26 0.90

Ratio [DER]

Interest Coverage 17,22 29.65 8,80 12.23 15.99

Ratio [ICR]

CFO to total debt 0.20 0.18 0,21 0,23 0.35

[CF-TD]

SAP SE uses less debt than equity financing. Yet, its DER of almost 80% indicates that actually quite a lot of creditor financing is
used to generate growth. The ICR has worsened in comparison to the year before but is still satisfying and tells potential creditors
that SAP SE is able to pay its interest payments. Its CFO can only cover 1/5 of the total debt, which is better than one year ago
but leaves still room for improvements.
ORACLE uses an extensive amount of borrowed capital, which is higher than the amount of equity they use for the company’s
financing. While the ICR is sufficient and yet significantly lower than SAP SE’s, Oracle can also only cover approximately 1/5 of
their total debt with its CFO.

27
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Conclusion: ORACLE:
¡ Upsides:

¡ “AA-” - rating, stable credit watch

SAP SE:
à less default risk
¡ Upsides:
¡ Better CFO to total debt
¡ “A” - rating, positive credit watch
¡ Downsides:
à Higher interest payment for the
creditor, low risk of default ¡ Higher debt to equity ratio
¡ Lower debt to equity ratio ¡ Lower interest coverage ratio
¡ Higher interest coverage ratio ¡ Lower interest payment for the
creditor
¡ Downsides:
¡ Credit risk indicators have
¡ Insignificantly lower CFO to total
worsened
debt
¡ Slightly more credit risk

In conclusion, both companies are economically strong and creditworthy. Neither one does even slightly indicate a potential risk of default since
all risk indicators are positive and sufficient. In other words, if we were to decide we would give loans to both businesses. Yet, granting SAP SE
a credit is more benefiting than granting it ORACLE. Not only, do the upsides outweigh the downsides but it does also bring the benefit of a
higher interest payment for the creditor (us), while keeping the risk of default very low.

28
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Conclusion – Overview
What are the sources SAP SE & SAP SE & ORACLE’s sources of competitive advantage are mainly their strong D&R
Oracle Corp.’s competitive departments, which result significant innovations, as well as their healthy financial condition,
advantage? that initially simplifies many business processes.

How have the companies’ profitability Relatively to their respective competitors, in this case Microsoft and IBM, the profitability of
changed relatively to its respective SAP SE and ORACLE worsened according to their KPIs. While Microsoft underwent a
competitors in recent years? similar development, IBM managed to perform better than its fellow competitors.

What risks do these companies face Both companies do only face little financing risk. The SWOT Analysis displays that both firms
that might affect their future have great opportunities in the future. The PESTEL Analysis shows that the operating
operations? environment of SAP SE as well as of Oracle Corp. fits their businesses’ needs.

Do you recommend to buy shares Buying shares of either one is recommendable. However, in order to create a more efficient
from this company? portfolio we would recommend to investing into a portfolio of ORACLE and a bank account,
which provides a risk-free interest revenue at a constant level.

If you were a bank credit manager, will As a bank credit manager, we would generally give loans to both companies .Yet, if we were
you give loans to this company? to decide between either one we would give a loan to SAP SE, because we could charge a
higher interest payment, while keeping the risk of default very low.

29
 Cyril Wilcke, Maximilian Englert, Julius Gerhard,
Financial Statement Analysis: A Comparison of SAP SE und Oracle Corp. Tobias Friedrich und Julian Born

Contact person and information

Julian Born Julius Gerhard

1216 BIM 1 1216 BIM 1
Matriculation number: Matriculation number:
8324592 8317944
Cyril Wilcke
1216 BIM 1
Matriculation number:
8359214
Tobias Friedrich Maximilian Englert
1216 BIM 1 1216 BIM 1
Matriculation number: Matriculation number:
8328007 8340423

30