ACG Research’s 2Q Vendor Financial report indicates that Adtran, Cisco and Juniper have the lowest risk of 11 vendors analyzed.
Using publicly validated financial data as input, ACG Research calculated 11 sustainability and operation ratios and Altman Z-Score to determine 11 vendors’ financial risk. Based on the score, vendors were segmented as low risk, medium risk or high risk. Vendors falling into the low risk segment are Adtran, Cisco and Juniper.
What makes a company low risk? These companies have high operating margins, solid revenue, and high equity to debt ratio. They also have stable revenue sources and operating margins because of sales, solid gross margin, and expense discipline. These companies continue to increase momentum with new product offerings, acquisitions as well as refining their strategy of innovating in high-performance networking.
High risk vendors are characterized by low receivable efficiency, low operating margin and financing assets with more debt than equity. Their ratios indicate that their business practices, for example, in extending credits and collecting debts, are less efficient than their competitors. They also have low inventory turnover, indicating inefficient inventory management. Investments in research and development also tend to be low.
Why is assessing risk important to a provider? Technology, although important, should not be the only criteria by which to judge a vendor. Sustainability of a vendor is equally as important for making a business decision. Knowing a vendor’s sustainability gives providers one more piece of information to assess the risk of selecting the right vendor to meet their current and most importantly their future business requirements. It also allows providers to make decisions based on the stability of the vendor regardless of technology innovations.