We previously posted NVIDIA's (NASDAQ: NVDA) preliminary Financial Gauge scores for the July 2009 quarter. Data from NVIDIA's latest earnings announcement were used to calculate the scores, but NVIDIA later filed a more complete 10-Q report. For our purposes, Balance Sheet details and a Cash Flow statement, which was not included in the original report, were the most important additions.
We have now updated the financial metrics that determine our scores to take advantage of the new information.
The latest data added one point each to the Profitability gauge (raising it from 5 to 6, of 25) and the Overall gauge (from 19 to 20, of 100). These changes are immaterial:
- Cash Management: 7 of 25 (unchanged from April)
- Growth: 0 of 25 (down from 1)
- Profitability: 6 of 25 (up from 4)
- Value: 5 of 25 (down from 7)
- Overall: 20 of 100 (up from 21)
For the record, the updated financial metrics are listed below, with changes shown in red text.
| Cash Management | Jul 2009 | Apr 2009 | Jul 2008 | 5-Yr Avg |
| Current Ratio | 2.4 | 2.9 | 2.5 | 3.1 |
| LTD/Equity | 1.1% | 1.1% | 0.0% | 0.1% |
| Debt/CFO (years) | 0.1 | 0.1 | 0.0 | 0.0 |
| Inventory/CGS (days) | 70.9 | 72.6 | 53.0 | 69.1 |
| Finished Goods/Inventory | 57.2% | 63.2% | 52.9% | 55.6% |
| Days of Sales Outstanding (days) | 66.8 | 59.4 | 49.7 | 50.2 |
| Working Capital/Invested Capital | 158.3% | 131.1% | 167.0% | 176.4% |
| Cash Conversion Cycle Time (days) | 59.9 | 65.2 | 49.1 | 61.1 |
| Gauge Score (0 to 25) | 7 | 7 | 16 | 13 |
Relative to the April quarter, NVIDIA made some progress trimming its total Inventory, as measured by Cost of Goods Sold, and the proportion of Finished Goods in the Inventory. However, more progress is needed.
There is one thing about Inventory we don't understand. We could not find any explanation in the 10-Q for the following dramatic restatement for the Inventory composition as of 25 January 2009.
| Inventory on 25 January 2009 | Originally reported | Restated in 10-Q |
| Raw materials | $27,804 | $122,024 |
| Work in-process | $132,960 | $38,747 |
| Finished goods | $377,070 | $377,063 |
| Total | $537,834 | $537,834 |
| Growth | Jul 2009 | Apr 2009 | Jul 2008 | 5-Yr Avg |
| Revenue growth | -35.4% | -33.4% | 25.5% | 10.7% |
| Revenue/Assets | 77.7% | 84.0% | 124.8% | 121.5% |
| Operating Profit growth | 4.8% | 13.3% | 63.8% | 26.1% |
| CFO growth | -65.8% | -78.0% | -21.6% | N/A |
| Net Income growth | N/A | N/A | -4.6% | 26.5% |
| Gauge Score (0 to 25) | 0 | 1 | 4 | 13 |
Although Cash Flow from Operations did not fall at the 70 percent rate we estimated, the actual result was still ugly. Special charges certainly haven't helped.
| Profitability | Jul 2009 | Apr 2009 | Jul 2008 | 5-Yr Avg |
| Operating Expenses/Revenue | 106.1% | 104.8% | 82.7% | 89.2% |
| ROIC | -16.9% | -11.3% | 79.6% | 44.0% |
| Free Cash Flow/Invested Capital | 12.1% | 1.9% | 57.0% | 52.8% |
| Accrual Ratio | -15.0% | -12.9% | 11.4% | 0.9% |
| Gauge Score (0 to 25) | 6 | 4 | 14 | 14 |
Free Cash Flow as a percentage of Invested Capital was significantly better than our 7.7 percent estimate.
The Accrual Ratio has been thrown out of kilter because of special charges and should not be relied upon.
| Value | Jul 2009 | Apr 2009 | Jul 2008 | 5-Yr Avg |
| P/E | N/A | N/A | 11.6 | 26.3 |
| P/E vs. S&P 500 P/E | N/A | N/A | 0.6 | 1.6 |
| PEG | N/A | N/A | 0.2 | 11.4 |
| Price/Revenue | 2.5 | 2.1 | 1.5 | 3.0 |
| Enterprise Value/Cash Flow (EV/CFO) | 18.7 | 20.0 | 5.3 | 19.9 |
| Gauge Score (0 to 25) | 5 | 7 | 25 | 11 |
The EV/CFO ratio was not as high as the initial estimate of 21.4.
At the end of January, NVIDIA shares sold for $7.95. The price rose to $12.93 by the end of July. Given the lack of profits, it was inevitable that the share price increase would cause the contrarian Value gauge to fall.
| Overall | Jul 2009 | Apr 2009 | Jul 2008 | 5-Yr Avg |
| Gauge Score (0 to 100) | 20 | 21 | 72 | 50 |
None of the category gauges were impressed by the results from the July quarter. We should note that Cash Flow from Operations and, therefore, Free Cash Flow were significantly better than we first estimated. The trailing-year decline in Cash Flow should not look too bad next quarter, and positive growth is possible by January. (An extra week in the fiscal year should also help!)
Full disclosure: Long NVDA at time of writing.
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