20 May 2009

ADP: Financial Analysis through March 2009 (Update)

Automatic Data Processing, Inc. (NASDAQ: ADP) provides payroll and other personnel-related information technology services to well over 500,000 employers worldwide.  It competes with firms such as Paychex, Inc. (NASDAQ: PAYX).  The company is also known for the monthly ADP National Employment Report on non-farm private employment. 

We have already posted an analysis of ADP's financial results for the three months that ended 31 March 2009.  This period was the third quarter of the company's fiscal 2009, which will end in June. 

Our earlier evaluation of the March quarter was incomplete because ADP's press release did not include a Cash Flow Statement, and the published Balance Sheet had been significantly condensed.  Since we didn't yet have all the data required to compute exact GCFR gauge scores, the scores we posted were based on a mix of actual and estimated data.

ADP subsequently filed a 10-Q quarterly report with a complete set of financial statements.  We used the data in the 10-Q to update our evaluation.  Changes to the analysis results are described below.

The 10-Q did not change our examination of the March quarter's Income Statement, including the comparison with our previously communicated expectations.

The additional data in the 10-Q merely reduced the Value and Overall gauges by one point each, relative to the preliminary analysis.  The following are the updated gauge scores:
  • Overall: 59 of 100 (down from 63)

A handful of the financial metrics we estimated earlier did need to be adjusted to reflect the data in the 10-Q.  For completeness, we repeat the tables below with revised figures highlighted in red text.  An unrelated update to S&P 500 market data affected one ratio.

Cash ManagementMarch 20093 months prior12 months prior
Current Ratio (1)
LTD/Equity 0.9%1.1%1.0%
Debt/CFO  0.0 years0.0 years0.0 years
Inventory/CGS N/AN/AN/A
Finished Goods/Inventory N/AN/AN/A
Days of Sales Outstanding (DSO)45.2 days45.2 days44.6 days
Working Capital/Invested Capital 37.8%35.3%39.8%
Cash Conversion Cycle Time (CCCT)
36.4 days36.6 days34.7 days
Gauge Score (0 to 25)
1. Excludes Funds held for clients and Client funds obligations.

GrowthMarch 20093 months prior12 months prior
Revenue growth (1)4.6%8.5%13.3%
Revenue/Assets (2)106%110%97%
CFO growth (1)8.4%32.8%2.4%
Net Income growth (1)6.9%11.2%16.6%
Gauge Score (0 to 25)14
1. Growth rates are trailing four quarters compared to four previous quarters.
2. Assets excludes Funds held for clients

ProfitabilityMarch 20093 months prior12 months prior
Operating Expenses/Revenue 79.8%80.1%80.1%
ROIC 31.6%32.3%28.1%
Free Cash Flow/Invested Capital 39.6%47.8%33.7%
Accrual Ratio -0.3%-3.4%-3.0%
Gauge Score (0 to 25)15

ValueMarch 20093 months prior12 months prior
P/E 14.616.318.5
P/E vs. S&P 500 P/E 93%86%106%
Enterprise Value/Cash Flow (EV/CFO)
Gauge Score (0 to 25)18

OverallMarch 20093 months prior12 months prior
Gauge Score (0 to 100)59

Full disclosure: Long ADP at time of writing.

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