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Management and Financial Analysis of Xerox Corporation
Prepared for
Mrs. Ursula BurnsChief Executive Officer
AndThe Executive Officers of
Xerox Corporation
Prepared by
Cong ChuTim Hollowell
Eric KleberMatt Nead
Jarrod StewartJohn Stiglitz
5 Star Consulting, Inc.Muncie, IN
December 2009
5 StarConsulting, Inc. 200 N. McKinley Ave. - Muncie, IN 47303 – (765)-285-5476
December 9, 2009
Mrs. Ursula BurnsXerox Corporation800 Long Ridge Rd.Stamford, CT 06904
Dear Mrs. Burns:
5 Star Consulting, Inc. has completed our management, e-commerce, competition, marketing, and financial analysis of Xerox. With the proposals and implementations we have provided, your company will be able to reach its full profit potential by focusing on research and development and increasing sales.
Over the past few weeks, our company has been evaluating your company’s financial records from 2006-2008. We have also taken a look at your company’s management and marketing style, press releases, as well external documents to familiarize ourselves with your company’s operations. We have collected Xerox’s strengths, weaknesses, opportunities, and threats to provide recommendations for areas that need improvement and to capitalize on strengths and improve weaknesses. By taking advantage of these recommendations, we believe that your company will grow and thrive and today’s struggling economy.
We at 5 Star Consulting would like to give thanks to Xerox for allowing us to review your company, and the many aspects of the corporation. If there are any questions that you might have, please feel free to contact our office during business hours at (765) 285-5476.
Sincerely,
Cong Chu Tim Hollowell Eric Kleber
Matt Nead Jarrod Stewart John Stiglitz
TABLE OF CONTENTS
TRANSMITAL LETTER TO CEO
INTRODUCTION
Research Questions
Procedures
ANALYSIS AND EVALUATION
Analysis of Management Strategies
Analysis of Internet Strategies
Table 1: Information Systems Analysis
Analysis of Industry Competition
Analysis of Market Share
Analysis of Products
Table 2: Product Portfolio Matrix
Analysis of Financial Ratios
Table 3: Comparability Ratios
S.W.O.T. Analysis
Strengths/ Opportunities
Strengths/ Threats
Weaknesses/ Opportunities
Weaknesses/ Threats
Table 4: S.W.O.T. Matrix
Alternative Solutions
RECOMMENDATIONS
IMPLEMENTATIONS
SUMMARY
BIBLIOGRAPHY
APPENDIX
MANAGEMENT AND FINANCIAL ANALYSIS OF XEROX CORPORATIONINTRODUCTION
After reviewing Xerox Corporation’s 10-K reports for the past three years, our team has found
areas where improvements can be made. Although Xerox Corporation has suffered some financial woes
over the past two years, it is making efforts to make itself financially sound in the future. Xerox
Corporation is currently in the process of acquiring Affiliated Computer Services and is developing
printable electronics.
Our goal is to analyze Xerox Corporation and recognize strengths and find areas for
improvement. We also plan to figure out the financial effects of their future plans. By doing this, we will
provide useful information that will help Xerox Corporation enhance its financial potential
Research Questions
5 Star Consulting comprised the following questions to further analyze Xerox Corporation:
What is Xerox doing now to improve their future financial growth?
How have Xerox’s financial ratios changed over the past three years?
What is Xerox’s marketing strategy and what impact will it have on the company’s market share?
How will government bills affect the future cash flows of Xerox?
What are the strengths, weaknesses, opportunities, and threats of Xerox Corporation?
What is Xerox’s probability of going bankrupt?
Procedures
Information in this report was retrieved from the company’s 10-K reports from the past three
years, magazine articles, and Internet resources. The financial information used to evaluate Xerox
Corporation comes from fiscal years 2006-2008. The following ratios were used in the analysis of
Xerox’s performance:
Profitability:
Return on Sales (profit margin)
Return on assets
Return on net worth (return on equity)
Liquidity (Solvency):
Quick ratio
Current ratio
Current liabilities to net worth
Current liabilities to inventory
Total liabilities to net worth
Fixed assets to net worth
Efficiency:
Collection period
Sales to inventory
Assets to sales
Sales to net working capital
Accounts payable to sales
Z- Score
After a thorough analysis of Xerox Corporation, we prepared a S.W.O.T. analysis to better
understand the changing business environment.
ANALYSIS AND EVALUATION
The 5 Star Consulting firm acquired Xerox Corporation’s annual financial statements from 2006-
2008. To gain a better understanding of Xerox runs and operates, we have analyzed 10-K reports, annual
reports, news articles, and internet resources. In the past couple of years Xerox has run into some
financial problems and we believe that we can help the company address and overcome these problems.
Xerox needs to expand its product line in order to stay competitive and succeed in today’s market.
Analysis of Management Strategies
According to Xerox, “we are a $17.6 billion technology and services enterprise and a leader in the
global document market. We develop, manufacture, market, service and finance a complete range of
document equipment, software, solutions and services” (10-K report, 2009). Xerox is a global company
that provides many ways to help its customers get information and print documents worldwide. Document
management from Xerox includes color printers, copiers, business consulting services, and copier and
printer supplies. To make the company’s operations more efficient, Xerox has come up with strategies to
improve the company. The management strategies of Xerox can be classified into four parts: execution of
growth initiatives, distribution expansion, future technology leadership securitization, and optimization of
productivity and infrastructure (10-K report, 2009).
Xerox has decided to improve the “execution of growth initiatives” (10k report, 2009) in several
aspects, such as building on service leadership (outsourcing), driving the New Business of printing (new
market opportunities with digital printing as a complement to traditional offset printing through a market
transition). Most of the traditional office equipment is in black and white. The traditional office
equipment no longer satisfies today’s market. More and more individuals and companies favor digital and
colorful office equipment. Xerox needs to adapt to this demand in order to meet the needs of the
customers and catch up with the main trend in today’s market. By doing this, Xerox can occupy an
advantageous position in the market. For example, Xerox improved its position in the electronic market
from 11th place in 2007 to 10th place in 2008. According to Gartner Research Vice President Dane
Anderson, “It’s unclear what Xerox will do with ACS's IT outsourcing business. It will take time for
(Xerox) to decide what to do with it". As for the Xerox executives’ opinion on ACS, they have said “the
IT outsourcing portion of the ACS buy is integral to expanding the company's BPO offerings.”(Overby,
2009)
In the distribution expansion (10-K report, 2009) part of Xerox’s management strategies, Xerox
has decided to expand its presence in the small- and mid-sized business market. The company also plans
to maintain its investments in developing markets as well. Another thing that Xerox is doing is expanding
its documenting technology (10-K report, 2009) though its Silver Ink and Reusable Paper projects.
Many global companies appreciate China as a country of rapid economic development, and in it
exists countless opportunities. Xerox's long-term commitment to sell its advanced digital equipment to the
Chinese electronic consumer market has yielded desired results. Currently in the Chinese electronic
consumer market for medium and large printers, over 50% of products purchased are that of Xerox.
Another thing that Xerox is attempting to do is secure its position as a future leader in technology
(10-K report, 2009). Xerox is hoping to accomplish this by yielding a broad technology portfolio,
capitalizing on breakthroughs in ink technologies, and expanding document technology (10-K report,
2009). Xerox is using RFID technology (Silver Ink) to help promote the security of documents. Some
profiles or documents warrant special security measures, for these cases Xerox has developed a special
kind of ink that only shows up under certain conditions. This is just one of the new kinds of ink
technology being developed by Xerox. Some industry insiders think that the ACS acquisition was a step
taken to secure Xerox’s place as a future leader in technology. Xerox is intending on using ACS’s
business process outsourcing (BPO) offerings to generate capital (Overby, 2009). This will allow Xerox
to create new products that will be backed by its in-house provider (ACS) of product solutions.
Finally, Xerox will need to “optimize productivity and infrastructure” (10-K report, 2009). To do
those two things, Xerox will need to improve the efficiency and effectiveness of its resources, both
tangible and intangible. Also included in the process is the improvement of marketing, distribution, and
management of human resources.
In conclusion, Xerox needs to commit to the aforementioned strategies and market-oriented
standards in management to increase its market position in today’s fierce market competition.
Chart 1: Management & Organization Analysis
Analysis of Internet Strategies
Xerox has a very attractive and inviting website that provides a lot of information about
the products and the company itself. The Xerox company website also includes a search bar so
any information can be easily accessed through a quick search. There is also a link to contacts
that allow a person to have a live chat with someone at the company and have their questions
answered. The site offers information on business to business, business to consumers, business
to government, business to the public, business to employees, and potential investor’s
relationships. The website also provides quotes for products and even allows customers to
purchase them online through Xerox or a number of other companies (Xerox.com).
At the top of the homepage there are three main links that provide information on Office
Products, Production Equipment, and Document Outsourcing. The links below the picture on the
main page breakdown the search, buy, and setup process into four main steps. With both the
“upper” and “lower” links on the page there are multiple ways to find the information you need,
to answer the questions you may have, or to purchase products. There is also a link on the page
where potential employees of Xerox can find information on jobs that may be open within the
company. The navigation of Xerox’s website, all in all, is quite simple compared to the websites
of some of its competitors.
There is a link about two-thirds of the way down on the right side of the page to access
the information provided on investor relations. The link contains information to draw investors
with things such as a financial profile and annual reports, as well as other financial breakdowns.
The link also provides information about the company itself with things like acquisitions,
company history, information about the executives, and a profile of the ownership of the
company (Xerox.com).
As good as the Xerox website is, there is one major item that needs some improvement.
The website and company as a whole need some diversification. One way to do this would be to
offer some more home-based products, like home-use printers that competitors like Canon,
Lexmark, and Hewlett-Packard offer.
Table 1: Information Systems Analysis
Xerox Corporation Dell Corporation Canon Corporationwww.xerox.com www.dellcom www.canon.com
B2B 4 3 3B2C 3 4 3B2E 3 3 3B2G 4 3 2B2P/I 2 4 3Appea
l3 4 3
Total 19 21 17Scale: 4 = best, 3 = above average, 2 = below average, and 1 = worst.
Analysis of Industry Competition
While Xerox has long been known as a leader within the global document market, it has faced the
same financial pressures as its competitors (10-K Report, 2008). Like Ricoh, Canon, NEC, Fujitsu, and
Hewlett-Packard, Xerox was impacted by the economic recession. Although its revenues increased, this
was only done through innovative techniques
and in fact understates what the company
could have done.
Xerox is not a Global 500 leader in the
industry of Computers and Office Equipment,
but this industry is in fact quite a broad one
and does not represent Xerox in its entirety
(Fortune Magazine). Xerox defines itself as a
leader in the global document market, and in
fact it is (10-K Report, 2008). This includes manufacturing, developing, marketing, servicing, and
financing a full range of document
software, equipment, solutions and services
(10-K Report, 2008). Even though it is a
leader in this market, it faces competition
from many companies in its Global 500
industry.
The main threat for Xerox comes
from emerging technologies and home
consumer office solutions. Xerox faces
constant pressure for other companies in
the industry to come up with new
innovations and products. In addition, Hewlett-Packard and Canon both have established product lines for
the home consumer, but Xerox has not marketed their low-end printers effectively for home consumers.
Xerox also faces the pressure of the current economic condition and an uncertain economic future
(10-K Report, 2008). In a volatile market,
the demand for supplies, services, and
equipment is affected. In a long period of
economic decline, this could have a
negative effect the company’s financial
and operational well-being (10-K Report,
2008).
Analysis of Market Share
Xerox is a Global 500 ranked
company and a top-10 competitor in the 411.9 billion dollar Computers and Office Equipment Industry
(Fortune Magazine). Xerox obtained
revenues of 17.2 billion dollars or 9.8%
of the industry (Fortune Magazine). The
industry leader is Hewlett-Packard which
controls over 25% of the industry
(Fortune Magazine). All of the other
companies in the Computer and Office
Equipment industry specialize in either
computers or office equipment, but not
both. Hewlett-Packard sells both
computers and office equipment and a
full line of accessories.
Xerox saw only a slight increase in revenue from 2006 to 2007. In 2008, Xerox’s market share
and revenue increased (Fortune Magazine). Despite these increases, the companies’ profits decreased
(Fortune Magazine). In 2006, Xerox obtained revenues of 15.7 billion dollars and controlled 3.8% of the
market (Fortune Magazine). In 2007,
revenues increased slightly to 15.9
billion dollars, a 1.2% increase, and
market share decreased from 3.8% to
3.6% as a result of Asustek
Computer entering the market
(Fortune Magazine). 2008 marked
the largest increase in the past three
years. Revenues increased 8.1%
from 2007 for a total of 17.2 billion
dollars and market share increased to
4.2% (Fortune Magazine). As stated
before, even though these two indicators
increased, Xerox’s total profit decreased
from 2007’s total of 552 million dollars
to 394 million dollars (10-K Reports).
This was due to unfavorable economic
conditions which decreased sales and
revenue, as well as a rapid shift in the
currency exchange rate (10-K Report,
2008).
From 2006 to 2008, Xerox has
seen small increases in revenue and market share (9.3% and .4% respectively). Although this is positive
in an economic downturn, many of the other corporations in the Computers and Office Equipment
industry have also been able to increase revenues as well. Apple Computer, for example, has increased
revenue by 73.4% from 2006 to 2008 and gained 2.4% market share (Fortune Magazine). Hewlett-
Packard has also extended its market share lead and now holds over 25% of the market (Fortune
Magazine). Both of these companies have managed high revenue increases, especially Apple Computer.
Xerox needs to follow the lead of Apple and Hewlett-Packard if it is to keep increasing its overall market
share.
Analysis of Products
Xerox’s products have been broken down into 4 categories. These consist of: digital presses,
printers and copiers, workflow and software, and supplies (Xerox.com). All of the product categories
except for workflow and software and a small portion of supplies as well as printers and copiers are in the
maturity stage. Workflow and software products are in the growth stage.
Introduction Stage
Xerox currently has no product categories in the introduction stage, which is one of Xerox’s
biggest problems. Xerox has quite a few great ideas which are in the pre-intoduction stage. Xerox created
a form of printable electronics which uses silver ink that conducts electricity and can be used to place
electronic circuits on plastics, textiles, and films (DigitalBeat, October 2009). Another example is a
recent innovation where Xerox developed reusable paper (Xerox.com). Xerox has found a way to print
ink onto paper that will disappear in about 16 to 24 hours so that the paper can be used again
(Xerox.com). This technology could be used for short term documents which usually get discarded at the
end of the day (Xerox.com). Both of these examples are innovations that need to be put into action to help
the company continue growing.
Growth Stage
Workflow and software products are a somewhat growing category for Xerox. Automated tools
and applications are becoming more popular. These workflow and software products are helping Xerox-
supported businesses to improve productivity by automating business processes (Xerox.com). This also
helps businesses connect to customers and reduce costs (Xerox.com). Color printing and scanning is also
in higher demand (10-K Report, 2008). This has forced Xerox to create new innovative and cost-efficient
products for this market (10-K Report, 2008).
Maturity Stage
Most of Xerox’s products are in the maturity stage. General printing and copying has been a cash
cow for Xerox for quite some time. It continues to steadily create revenue for Xerox and will remain
doing so as long as Xerox updates its product line to changing technologies (10-K Report, 2008). Digital
presses and supplies are the two other categories that are in the maturity stage. Both of these categories
are steady cash generators.
Decline Stage
One small section of supplies is in the decline stage. These supplies are paper. Many of Xerox’s
clients are switching to a more digital workplace and this has decreased some of the demand for paper
(10-K Report, 2008). Paper is still an important supply and is heavily used, but it questions the need for
paper in the future.
Analysis of Financial Ratios
When looking at the financial position of Xerox Corporation, there are three areas of ratios to
consider—solvency, efficiency, and profitability. The ratios in the solvency area have been extremely
low in the last three years. In fact, only the ratio of current liabilities to net worth in 2007 was not in the
lower quartile of the industry (Industry Norms, 2007). Although the rest are in the lower quartile, some
of the ratios are far worse than others. Looking closer at the ratios comparing current liabilities, total
liabilities, and fixed assets to net worth, it is easy to see that all three ratios follow the same pattern. All
of the ratios are well below the industry average in 2006 and increase during 2007. Then they all
drastically decrease again in 2008 (10K report, 2006, 2007, 2008). Upon closer review of the financial
statements, we see that it is giant fluctuations in net worth that is affecting these ratios. Net worth
increases over $1.5 billion from 2006 to 2007, but then drops over $2 billion from 2007 to 2008 (10K
report, 2006, 2007, 2008). Xerox needs to work on increasing its net worth. By doing this, it will
decrease these ratios closer to the industry norms.
Chart 8: Total Liabilities to Net Worth
2,006.00 2,007.00 2,008.00 0
50
100
150
200
250
300
UQMEDLQXerox
Years
Valu
es (%
)
The next area of financial ratios is the efficiency area. Xerox is doing a lot better in this area of
ratios compared to the solvency area. In the efficiency area, most of the ratios are in the medium to upper
quartiles compared to the industry (Industry Norms, 2006, 2007, 2008). Only in the ratio of assets to
sales is Xerox continually in the lower quartile. These higher ratios mean that Xerox is pretty efficient.
One category that Xerox is exceeding in is the sales to inventory ratio. For the past three years Xerox has
been in the upper quartile of the industry. This shows that the company is doing a great job in managing
its inventory. Another category that Xerox is doing well in is collection period. This means that Xerox is
collecting on its accounts receivable in a timely fashion. In the efficiency area the one ratio that Xerox
needs to work on is the assets to sales ratio. Over the past three years Xerox has consistently been in the
lower quartile. This means that for the amount of assets that Xerox has, it should have higher sales
numbers.
Chart 9: Assets to Sales (%)
2006 2007 20080
20
40
60
80
100
120
140
160
UQMEDLQXerox
Year
Valu
es (%
)
The last ratio area is the profitability area. Xerox is doing extremely well in this area with all of
its ratios in the middle and upper quartiles (Industry Norms, 2006, 2007, 2008). The high performance in
the return on sales ratio shows that Xerox is earning a pretty good profit per dollar of sales. The ratio has
been decreasing steadily over the past three years, which is something that Xerox should keep an eye on.
Being in the upper and middle quartiles in the return on assets and return on net worth show that the
company is using both its assets and capital invested by owners efficiently. Looking at the profitability
ratios, it seems that Xerox is doing well.
Chart 10 Return on Sales (%)
2006 2007 2008
-8
-6
-4
-2
0
2
4
6
8
10
UQMEDLQXerox
Years
Valu
es (%
)
The following pages contain a table showing the comparison of all the key ratios between Xerox
and its industry.
Table 3:Comparative Analysis of Xerox Corporation with Photograph Equipment Industry in
2006--2008 2008 2007 2006 Industry Xerox Industry Xerox Industry XeroxSolvency Quick Ratio (times) UQ 3.7 2.40 4.4 MED 1.7 1.30 1.9 LQ 1.0 0.626 1.10 0.872 0.9 0.766Current Ratio (times) UQ 9.0 6.80 5.6 MED 3.3 2.40 2.8 LQ 1.7 1.495 1.90 2.095 1.8 1.83Curr Liab to NW (%) UQ 8.0 14.80 13.2 MED 29.0 28.10 47.5 34.0 LQ 101.3 87.4 72.80 71.0 66.4Curr Liab to Inv (%) UQ 57.0 77.30 126.1 MED 109.6 152.70 140.6 LQ 246.5 442.4 210.40 312.4 263.4 404Total Liab to NW (%) UQ 9.2 14.80 19.5 MED 30.3 30.60 66.3 LQ 101.3 259.8 106.70 174.1 117.8 206.6Fixed Assets to NW (%) UQ 7.8 3.60 10.8 MED 13.7 11.40 18.6 LQ 34.4 79.1 20.30 59.3 48.9 77.8
Efficiency Coll Period (days) UQ 34.0 37.20 44.2 MED 45.6 45.273 49.30 58.5 51.8 50.496 LQ 58.0 68.60 73.7 Sales to Inv (times) UQ 11.5 14.292 10.20 13.2 15.4 13.667 MED 7.7 7.00 10.2 LQ 4.5 4.40 6.2 Assets to Sales (%) UQ 42.3 46.20 38.5 MED 81.1 85.50 57.4 LQ 106.7 127.5 133.50 136.7 107.0 136.6Sales to NWC (times) UQ 6.1 6.521 4.80 6.9 MED 4.5 3.20 3.86 4.2 3.919 LQ 1.6 1.80 2.8 Acct Pay to Sales (%) UQ 2.5 2.80 3.7 MED 4.3 6.30 7.8 5.9 7.1 LQ 10.3 8.2 12.80 9.5 Profitability Return on Sales (%) UQ 8.7 8.10 6.6 7.5 7.6
MED 0.3 1.3 3.70 3.2 LQ (5.5) (1.60) (4.5) Return on Assets (%) UQ 6.2 11.40 13.3 MED 0.2 1 3.90 4.8 6.1 5.6 LQ (7.7) (1.90) (4.2) Return on NW (%) UQ 7.1 16.20 13.2 25.7 MED 0.3 3.7 9.60 9.4 17.1 LQ (40.2) (0.80) (9.6)
(Industry Norms, 2006, 2007, 2008)
S.W.O.T. Analysis
Our consulting team developed a S.W.O.T. analysis for Xerox Corporation. First we examined
financial ratios, 10-K reports, and other resources significant to the evaluation of the company. Next, we
examined the products and services offered by the company, as well as management strategies, Internet
strategies, and marketing strategies. We then proceeded by identifying Xerox’s strengths, weaknesses,
opportunities, and threats. Finally, we created alternative solutions and devised ways to implement these
solutions to help make Xerox more profitable.
Strengths/Opportunities
By combining Xerox’s strengths of the ACS acquisition, mortgage technology innovation, and its
global name brand with its opportunities in the silver ink creation, outsourcing capabilities, and reusable
paper development, it can be concluded that Xerox’s strengths will make its opportunities viable.
ACS acquisition would further the outsourcing of labor to other companies, while
increasing data prevalence in marketing and management departments (Fortt, 2009).
Xerox’s current position as a power player in electronic loan processing (Wire, 2009)—
as the field grows—will provide more cash flow to finance opportunities.
Being a universally known brand in a global market provides a platform for anticipation
and reputability for the silver ink and reusable paper project.
Strengths/Threats
The threats to Xerox’s strengths are not as dark as the opportunities are bright.
The passing of the current health bill will increase insurance costs and liabilities for the
company due to imposed requirements that will force the company to follow the same
procedures as an actual insurance company (Davis, 2009).
Can’t discriminate due to health position or outlook.
Must cover all costs, cannot be selective about extent of coverage provided.
As always, competition is a threat, but given Xerox’s current position as a leader in
printable electronics (silver ink), and outsourcing, it will be unrivaled.
While more companies around the world are going digital, it would seem to pose a major
threat to Xerox. The digital increase is not too much to worry about because Xerox is
expanding into more digital services, and will get a boost from outsourcing to cover lost
revenue.
Weaknesses/Opportunities
Xerox’s weaknesses include the rising costs of sales and expenses, and a lack of presence in the
consumer home electronic market. These weaknesses could create an issue in the company, especially
costs of sales and expenses.
Rising costs of sales and expenses could slow the development of the silver ink and
reusable paper projects.
Though the lack of a market share in consumer home electronics is a weakness, it has no
effect on the opportunities for Xerox.
Weaknesses/Threats
Combining Xerox’s weaknesses and threats show some things that Xerox needs to be aware of so
that it can protect itself from them.
As mentioned earlier, the passing of the current health bill will increase expenses within
the company. Combine that with the rising costs of sales and expenses, and that is a huge
potential problem that Xerox must face.
Xerox’s Z-Score of 1.178 means that the company has very high probability of going
bankrupt within the next couple years. Combine this high probability of bankruptcy with
increasing costs of sales and the possibility of increased health expenses, Xerox might soon
find itself in a liquidity crisis.
Table 4: S.W.O.T. Matrix
For Xerox Corporation
S.W.O.T MatrixFor
Xerox Corporation
Opportunities:
1. Silver Ink (RFID) technology
2. Outsourcing to reduce expenses
3. Reusable paper
Threats:
1. Democratic health bill will increase expenses
2. Market is going digital
3. Bankruptcy
Strengths:
1.ACS acquisition
2.Special printers that help mortgage companies
3.Work in global market
Strengths/ Opportunities
S1 + O2
S2 + O1 and O3
S3 + O1 and O3
Strengths/ Threats
S1 + T1
S2 + T2
S3 + T2
Weaknesses:
1.Cost of sales and expenses rising
2.No real presence in home printer market
Weaknesses/ Opportunities
W1 + O1 and O3
Weaknesses/ Threats
W1 + T1
W2 + T2
W1 + T3
Alternative Solutions
Based on the S.W.O.T. analysis, the following alternative solutions should be implemented as
part Xerox Corporation’s corporate strategy.
1. Prepare for growth in the small business and household markets.
2. Work to efficiently produce its Silver Ink and Reusable Paper developments.
3. Invest in Research and Development
o Printable Electronics
o Loan processing technology
Xerox has been a major player in the midsize to large printer and photo copier markets for
decades, but recently due to loss of market cap in the electronic industry and a decline in its stock price,
Xerox has needed to revamp itself. To reclaim its lost market value, Xerox has recently made power
moves by acquiring ACS, a major outsourcing solutions company, while also developing revolutionary
products like Silver Ink and Reusable Paper. The company should focus on making their innovations
come to life with a business plan that includes aggressive marketing campaigns coupled with entering into
new markets.
RECOMMENDATIONS
From the aforementioned solutions, recommendations are:
1) Laying plans to break into the small business and household consumer markets is critical for
Xerox if it is to grab a larger capitalization in the electronic market. While the current innovations at the
company are very promising, they have yet to be produced commercially due to their technical “never
been done” nature. Printers and photocopiers, Xerox’s major production strengths already, are a better
bet to be a long term success due to a few reasons. Xerox is taking a larger risk with new technologies,
such as silver ink, because of the probability that it will be imitated by companies like Google, Hewlett-
Packard and Apple, and maybe even improved upon. In the small-sized photocopy and printer market,
the company could find its niche by evaluating competitors and using its reputation in big business to
muscle up on others’ market capitalization. Growth in the electronic sector through small business and
household consumers could provide future success.
2) Position the company to be able to produce Silver Ink and Reusable Paper. While the adjustment
to small business and household consumer markets is seen as a safer bet, these two innovations could not
only help diversify the company’s sources of revenue, but also transcend the company in its sector.
Producing and Marketing should now be the major focus when it comes to these products. Production is
the most costly task involving the creation of a product. After its completion marketing is the second-
most important aspect of the product after product capabilities. Putting Silver Ink and Reusable Paper on
the market quickly is a must for Xerox.
3) Investing in Research and Development is important for companies to sustain longevity. If the
Silver Ink works out, Xerox will be in a position to produce printable electronics, like RFID and animated
posters, and successfully grow in the field of digitally processing mortgages and other processes that
involve loaning or collateral. The next “silver ink” must always be on the horizon to stay competitive and
fuel stock momentum, which will create investment due to expectations. Research and Development is
crucial.
IMPLEMENTATIONS
For Recommendation #1
1. Prepare for growth in the small business and household markets.
2. Look at the success and failures of competition, while also utilize the company’s own
technological advances in the big business market.
For Recommendation #2
1. Work to efficiently produce its Silver Ink and Reusable Paper developments.
2. Create a low cost production process and major marketing campaign.
For Recommendation #3
1. Invest in Research and Development
2. Keep creating innovative products that will allow the company to gain market capitalization.
SUMMARY
5 Star Consulting has extensively researched Xerox’s 10-K reports, news articles, and financial
ratios to bring forth our recommendations for the company. Our recommendations include:
Prepare for growth in the small business and household markets.
Work to efficiently produce its Silver Ink and Reusable Paper developments.
Invest in Research and Development
We have outlined specific guidelines for each recommendation, reinforced by procedures for
implementation.
5 Star Consulting is confident that Xerox Corporation can increase its financial state the strategies
that we have provided. As a result of our findings, Xerox Corporation can grow in the future along with
the continually changing consumer market. We look forward to continued work with Xerox well into the
future.
BIBLIOGRAPHY
Davis, J. (Oct. 21, 2009). The Influence Game: Firms Resist New Health Rules. Retrieved October 20, 2009, from http://finance.yahoo.com/news/THE-INFLUENCE-GAME-Firms-apf-2992521596.html?x=0&.v=5
Fortt, J. (September 29, 2009). Xerox CEO Defends ACS Deal. Retrieved October 17, 2009, from http://brainstormtech.blogs.fortune.cnn.com/2009/09/29/xerox-ceo-defends-acs-deal/
Industry Norms and Key Business Ratios 2005/2006, Dun & Bradstreet Credit Services, New York, 2006
Industry Norms and Key Business Ratios 2006/2007, Dun & Bradstreet Credit Services, New York, 2007
Industry Norms and Key Business Ratios 2007/2008, Dun & Bradstreet Credit Services, New York, 2009
Langlois, S. (October 22, 2009). Xerox Posts Steep Profit Drop But Raises Outlook. Retrieved October 17, 2009, from http://www.marketwatch.com/story/xerox-posts-steep-profit-drop-but-raises-outlook-2009-10-22
Overby, S. (October 7, 2009). ACS's IT Outsourcing Business Could Get Lost at Xerox. Retrieved October 17, 2009, from http://www.computerworld.com/s/article/9139097/ACS_s_IT_Outsourcing_Business_Could_Get_Lost_at_Xerox?taxonomyId=72
Stone, D. M. (October 27, 2009). Xerox Claims Printable Electronics Breakthrough. Retrieved October 30, 2009, from http://www.pcmag.com/article2/0,2817,2354848,00.asp
Takahashi, D. (October 26, 2009). Xerox Develops Silver Ink For Wearable or Throwaway Electronics. Retrieved October 30, 2009, from http://digital.venturebeat.com/2009/10/26/xerox-developers-a-silver-ink-that-can-be-used-to-wearable-or-throwaway-electronics
Wire, B. (October 12, 2009). Xerox Helps Mortgage Lenders Cut Costs, Adapt to Market Conditions, Stay Competitive. Retrieved October 17, 2009, from http://www.reuters.com/article/idUS75829+12-Oct-2009+BW20091012
Xerox. (January 29, 2009). 10-K Annual Report. Retrieved October 30, 2009, from http://a1851.g.akamaitech.net/f/1851/2996/24h/cacheA.xerox.com/downloads/usa/en/x/Xerox_2008_10K.pdf
Xerox Corporation. (2009). Xerox Document Management, Color Printers, Copiers, Business Consulting Services. Retrieved October 17, 2009, from http://www.xerox.com
Fortune Magazine. (July 20, 2009). Global 500. Retrieved October 18, 2009, from http://money.cnn.com/magazines/fortune/global500/2009/industries/
APPENDIX ACONSOLIDATED ANNUAL FINANCIAL STATEMENTS 2006-2008
FOR XEROX CORPORATION
INCOME STATEMENT 2008 2007 2006Period End Date 12/31/200 12/31/200 12/31/200
8 7 6Revenue 17,608.00 17,228.00 15,895.00
Total Revenue 17,608.00 17,228.00 15,895.00
Cost of Revenue, Total 10,753.00 10,277.00 9,436.00
Gross Profit 6,855.00 6,951.00 6,459.00
Selling/General/Administrative Expenses, Total 4,534.00 4,312.00 4,008.00
Research & Development 884 912 922
Depreciation/Amortization 54 42 41
Interest Expense (Income), Net Operating 0 0 0
Unusual Expense (Income) 1,189.00 -19 445
Other Operating Expenses, Total 47 20 4
Operating Income -114 1,438.00 808
Interest Income (Expense), Net Non-Operating 0 0 0
Gain (Loss) on Sale of Assets 0 0 0
Other, Net 0 0 0
Income Before Tax -114 1,438.00 808
Income Tax - Total -231 400 -288
Income After Tax 117 1,038.00 1,096.00
Minority Interest 0 0 0
Equity In Affiliates 113 97 114
U.S. GAAP Adjustment 0 0 0
Net Income Before Extra. Items 230 1,135.00 1,210.00
Total Extraordinary Items 0 0 0
Accounting Change 0 0 0
Discontinued Operations 0 0 0
Net Income 230 1,135.00 1,210.00
Total Adjustments to Net Income 0 0 -29
Preferred Dividends 0 0 -29
General Partners' Distributions 0 0 0
Basic Weighted Average Shares 885.47 934.9 943.85
Basic EPS Excluding Extraordinary Items 0.26 1.21 1.25
Basic EPS Including Extraordinary Items 0.26 1.21 1.25
Diluted Weighted Average Shares 895.54 952.94 996.52
Diluted EPS Excluding Extraordinary Items 0.26 1.19 1.22
Diluted EPS Including Extraordinary Items 0.26 1.19 1.22
Dividends per Share - Common Stock Primary Issue 0.17 0.04 0
Gross Dividends - Common Stock 152 40 0
Interest Expense, Supplemental 567 579 544
Depreciation, Supplemental 611 614 591
Normalized EBITDA 2,005.00 2,325.00 2,120.00
Normalized EBIT 1,336.00 1,665.00 1,484.00
Normalized Income Before Tax 1,075.00 1,419.00 1,253.00
Normalized Income After Taxes 890 1,024.00 1,385.00
Normalized Income Available to Common 1,003.00 1,121.00 1,470.00
Basic Normalized EPS 1.13 1.2 1.56
Diluted Normalized EPS 1.12 1.18 1.51
Amortization of Intangibles 58 46 45
BALANCE SHEET 2008 2007 2006Period End Date 12/31/200
812/31/200
712/31/200
6Assets
Cash and Short Term Investments 1,229.00 1,099.00 1,536.00
Cash & Equivalents 1,229.00 1,099.00 1,399.00
Short Term Investments 0 0 137
Total Receivables, Net 4,899.00 5,454.00 5,121.00
Accounts Receivable - Trade, Net 4,899.00 5,454.00 5,121.00
Total Inventory 1,232.00 1,305.00 1,163.00
Prepaid Expenses 0 0 0
Other Current Assets, Total 790 682 934
Total Current Assets 8,150.00 8,540.00 8,754.00
Property/Plant/Equipment, Total - Net 2,013.00 2,174.00 2,008.00
Goodwill, Net 3,182.00 3,448.00 2,024.00
Intangibles, Net 610 621 286
Long Term Investments 1,080.00 932 874
Note Receivable - Long Term 4,563.00 5,051.00 4,922.00
Other Long Term Assets, Total 2,849.00 2,777.00 2,841.00
Other Assets, Total 0 0 0
Total Assets 22,447.00 23,543.00 21,709.00
Liabilities and Shareholders' Equity
Accounts Payable 1,446.00 1,367.00 1,133.00
Payable/Accrued 0 0 0
Accrued Expenses 625 673 663
Notes Payable/Short Term Debt 0 0 0
Current Port. of LT Debt/Capital Leases 1,610.00 525 1,485.00
Other Current Liabilities, Total 1,769.00 1,512.00 1,417.00
Total Current Liabilities 5,450.00 4,077.00 4,698.00
Total Long Term Debt 7,422.00 7,571.00 6,284.00
Long Term Debt 7,422.00 7,571.00 6,284.00
Deferred Income Tax 694 796 821
Minority Interest 0 0 0
Other Liabilities, Total 2,643.00 2,511.00 2,826.00
Total Liabilities 16,209.00 14,955.00 14,629.00
Redeemable Preferred Stock 0 0 0
Preferred Stock - Non Redeemable, Net 0 0 0
Common Stock 866 920 4,666.00
Additional Paid-In Capital 2,447.00 3,176.00 0
Retained Earnings (Accumulated Deficit) 5,341.00 5,288.00 4,202.00
Treasury Stock - Common 0 -31 -141
Other Equity, Total -2,416.00 -765 -1,647.00
Total Equity 6,238.00 8,588.00 7,080.00
Total Liabilities & Shareholders’ Equity 22,447.00 23,543.00 21,709.00
CASH FLOW 2008 2007 2006
Period end date12/31/200
812/31/200
712/31/200
6Net Income/Starting Line 230 1,135.00 1,210.00
Depreciation/Depletion 669 656 636
Amortization 0 0 0
Deferred Taxes -324 224 0
Non-Cash Items 651 -336 -95
Discontinued Operations 0 0 0
Unusual Items 673 -258 85
Equity in Net Earnings (Loss) -53 -60 -70
Other Non-Cash Items 31 -18 -110
Changes in Working Capital -287 192 -134
Accounts Receivable 221 40 162
Inventories -114 -43 11
Other Assets -513 -163 -277
Payable/Accrued 211 285 330
Taxes Payable -92 73 -360
Cash from Operating Activities 939 1,871.00 1,617.00
Capital Expenditures -335 -359 -294
Purchase of Fixed Assets -206 -236 -215
Software Development Costs -129 -123 -79
Other Investing Cash Flow Items, Total -106 -1,253.00 151
Acquisition of Business -155 -1,615.00 -229
Sale of Business 0 0 153
Sale of Fixed Assets 38 25 82
Sale/Maturity of Investment 0 155 269
Purchase of Investments 0 -18 -162
Other Investing Cash Flow 11 200 38
Cash from Investing Activities -441 -1,612.00 -143
Financing Cash Flow Items -50 3 -83
Other Financing Cash Flow -50 3 -83
Total Cash Dividends Paid -154 0 -43
Issuance (Retirement) of Stock, Net -806 -567 -987
Issuance (Retirement) of Debt, Net 699 -55 -315
Cash from Financing Activities -311 -619 -1,428.00
Foreign Exchange Effects -57 60 31
Net Change in Cash 130 -300 77
Net Cash - Beginning Balance 1,099.00 1,399.00 1,322.00
Net Cash - Ending Balance 1,229.00 1,099.00 1,399.00
