Corporate Finance Paper

Avrohom Zucker
Professor Goldberg
December 28, 2014
Corporate Finance EBF 220 BQ

VSE Corp.
VSE Corp. is an American company that provides “services to create, sustain, and improve client systems, equipment, and processes”i. Its services include Supply Chain Management, Maintenance, Repair and Overhaul, Engineering Services, Training, IT Solutions, and Energy & Management Consulting. They provide these services to large companies, and governmental departments of many countries. Its biggest clients are the different sectors within the United States government, including the United States Postal Service, as well as many sectors within the military, including the United States Army, Navy, and Air force, among others. It helps these clients by implementing operations that will enhance the efficiency of the operations, such as supply chain management (SCM), engineering services, IT solutions, and training, among others.
VSE has government contracts with the Department of Defense to develop solutions for various issues the government is faced with. Logistics, cloud computing and maintaining engineering and technical support are just a few of the services it provides for the military. It also contracts with other governmental agencies, such as the Dept. of Health & Human Services, and Dept. of Homeland Security, for IT and consulting services.
Recently, the following financial statements provided the following information, which can tell a great deal about where the company is heading, and the financial strengths or weaknesses of the company.
Profitibility Ratios
VSE
Industry Averages
(in thousands)
Gross Profit Margin
8.22%%
25.5%
Operating Margin
9.72%
8.43%
Net Profit Margin
4.56%
4.48%
ROA
7.36%
6.49%
ROE
11.72%
8.82%
EPS
3.84
1.16
Liquidity Ratios

Current Ratio
1.31
2.64
Quick Ratio

2.21
Working Capital

19.99%
Leverage Ratios

Debt to Asset Ratio
22.5%
19%
Long Term Debt to Capital Ratio

25.18%
Market Cap
309.42M
$ 999,874
Enterprise Value
363.56M
$ 1,161,819
Debt to EV value
22.5%
17%
L-T Debt/EV
17.7%
16%
Times interest Earned
7.61
14.76
Other Ratios

Dividend Yield
0.63%
0.55%
Price Earnings Ratio
15.04
20.67
Earnings Yield
6.56%
3.76%
Market Cap/Internal Cash Flow
7.25
17.09
Ebitda
63.13M
$ 103,912
EV/Ebitda
5.76
17.83

Revenue wise, VSE is a relatively small company compared to the industry. The market cap is significantly smaller than the industry average, as is the Enterprise Value, and as such, the ebitda. Nonetheless, the relative ratios stack up quite nicely compared to the industry averages. They have a slightly higher profit margin, and use both their assets and equity quite effectively as the returns on each of them is higher than average, relative to the industry. VSE is carrying a relatively large amount of debt, which might contribute to the higher than average earnings per share, as the company is presently leveraged higher than its industry competitors. This also might explain the low Times Interest Earned ratio it has, as they have a lot of interest to be paid off with all that debt.
The P/E is quite lower than the industry average, insinuating the stock is lowly regarded despite the earnings it shows. This might be because VSE is not expected to be able to keep its profit rates as high as it has been until now. The earnings yield is significantly higher than its industry competitors. This indicates the same sentiment; despite high earnings per share, the stock is trading at a lower price than its earnings should dictate.
Despite an above average profit margin, VSE is not a great investment as it stands at the end of the 3rd quarter of 2014. It might not earn high profits like in the past, because the government is decreasing spending on military. The first 3 quarters brought in income of 39.6 million, compared to 45.4 million over the same period last year. In fact, all numbers, including revenues, operating income, and profits generated are lower for 2014 than they were in 2013 as VSE finds itself

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