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Oracle (NYSE:ORCL) is set to report earnings after the market closes today. Here are 7 factors to consider ahead of their announcement.

The stock has underperformed over the last year: Oracle Corp 's stock has gained 15.61% over the last year, lagging the S&P 500 index.

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Oracle has a track record of beating expectations: Over the last 3 years, Oracle has reported better than expected earnings results in 8 out of 11 earnings reports. In the following graph, green markers represent better than expected earnings, while red markers indicate worse than expected results.

Oracle's Forward P/E Ratio: The stock's forward P/E is currently in the middle of its 3-year range.

Is Oracle's accounts receivables trend raising a flag? It's interesting to note that Oracle Corp 's account receivable grew by 28.86% during the most recent quarter, which is faster than the rate of revenue growth (17.44%). Is this a sign that Oracle Corp 's clients are struggling to pay their bills? Accounts receivables as a percentage of revenues increased from 55.47% to 60.87% during the most recent quarter, while accounts receivables as a percentage of current assets decreased from 19.37% to 16.26% for the 3 months ending 2010-02-28.

Profit margins deteriorated during the most recent quarter: Oracle Corp 's net profit margin declined during the most recent quarter, declining from 24.37% to 18.57% for the 3 months ending 2010-02-28. Gross margin decreased from 79.63% to 77.84%, while the company's operating margin weakened from 35.58% to 28.78%.

Oracle Corp 's operating costs are increasing: Oracle Corp 's cost of revenue, as a percentage of revenue, increased from 20.37% to 22.16% during the most recent quarter, while operating expenses, also expressed as a percentage of revenues, climbed from 64.42% to 71.22%.

DuPont Breakdown of Return on Equity (ROE) - A worrying trend during the most recent quarter, with ROE decreasing and leverage increasing: Oracle Corp 's Return on Equity decreased from 5.76% to 4.18% during the most recent quarter. When we break apart ROE by using the DuPont equation, we get the following:

  • Decreasing Net Income / Sales: 18.57% (mrq) vs. 24.37% y/y
  • Decreasing Sales / Assets: 0.1078 (mrq) vs. 0.1213 y/y
  • Increasing Assets / Equity (i.e. leverage): 2.085 (mrq) vs. 1.948 y/y

All data sourced from Kapitall.com. Free registration required to access these analytics.

Disclosure: No positions

Source: Oracle Earnings Preview: Seven Factors to Consider