1. What are the key business success factors and risks for DICOM and Captiva? DICOM is a Swiss company that has sales in Europe, Asia, and the United States. They provide services ranging from structured, semi-structured, and unstructured information capture products. DICOM also sells hardware, primarily scanners, through its group sales force. DICOM has differentiated their product offering for the different regions that it operates. And the products that are provided are developed through research and development and also acquisitions. This allows DICOM to provide a diverse set of products that can cover many markets and many different users.
DICOM operates in the U.S. under Kofax capture software that was bought in 2004 and primarily offers the information capture software’s to their consumers. There are risks in this industry. DICOM operates in many different markets and is subject to inflation, interest, and foreign currency risks. DICOM operates in three different geographic segments that are managed independently of each other. Each market has their own inherent risks and DICOM needs to be aware of every possible circumstance in order to remain prosperous. Captiva Corporation is a U.S. based company that provides similar services as DICOM. Captiva sells structure, semi-structured, and unstructured information capture products, but also sells hardware.
Captiva uses its own research and development, as well as strategic acquisitions to provide customers with the different types of information capture products. Captiva sells primarily in the United States, but is able to sell in the areas of insurance, financial services, technology, government, and manufacturing. Involvement in so many distinct markets allows Captiva to hedge their risks better against harsh economic times and different interest rate risks. Additionally, Captiva has a large chain of resellers, which accounts for nearly 39% of revenues.
Future profits will best be achieved by leveraging to existing customer base, increase reseller sales, moving into new markets, and broadening the product offering. But like DICOM, Captiva has business risks that they need to be aware of in their industry. Captiva has 80% of their sales in the United and States and cannot hedge their risks if a crisis develops in that country. Captiva has a large amount of revenues coming from resellers and a drop in this segment could lose the company millions.
2. Do the financial statements for the two firms enable you to compare their performance? If not, what changes need to be made to ensure comparability? The financial statements are for two different governmental requirements from two different countries. DICOM operates under the European system of IFRS and Captiva operates under GAAP. With this said, just looking at the financial statements makes it extremely difficult to determine performance. To be able to make a comparison between the two companies easier, their needs to be a reconciliation of the two different accounting systems. IFRS and GAAP need to be put together to form one individual accounting entity. What exactly need to be changed are the standards. When looking at the balance sheet, you are able to see just how different the systems operate. In GAAP, cash is the first line, but in IFRS Fixed assets are the first line. Changing to a consolidated system would allow for the best way to make an accurate comparison between two firms in different geographical regions.
3. What financial ratios would you use to judge performance of DICOM and Captiva? How do they compare on these dimensions? The financial ratio used to give us a better assessment of performance is return on equity. Return on equity is the amount of income earned from shareholder investments. And this gives us a look at how much money a company is able to generate from their shareholders. Return on equity is profit margin X asset turnover X financial leverage. The table below shows the ROE for the two companies in the periods of 2003 and 2004. As we can tell from the chart, Captiva earns more money per dollar of shareholder investment than DICOM.
To further get a better understanding of the companies, we can use financial, liquidity, and debt ratios to measure performance. DICOM has a better return on assets than Captiva, but not by much. So, we can determine that they both are similar in this area. Captiva has higher gross margins and lower debt than DICOM. So, it is predictable that Captiva has access to money faster and can leverage this pool of resources to invest in R&D and acquiring new companies.
4. Which company do you rate as the better investment? WHY? Both companies are in a fast paced, technology based industry. Before investing, you need to do the proper due diligence into all functions of the business before investing. In this case, it is decided that we would invest in Captiva. Captiva is a U.S. based company that is diversified into many different sectors. They sell to government, insurance, technology, and manufacturing. This would help them hedge against economic risks.
Captiva is also not as affected by inflation, currency, and interest rate risk as DICOM. Captiva also is currently providing a higher return on equity on their investments. This shows that the money that is provided is being used efficiently. Captiva seems to be doing well in the U.S. domestic market and has a secondary reseller section that provides stability and consistent revenues. Captiva seems to be the company that can provide the growth and sufficient returns on investments that we are currently look for.
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Topic: DICOM VS Captiva Case Study
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