Eastman Kodak Co

“Pictures tell a thousand words”

Eastman Kodak Co. was founded by George Eastman and offers imaging products for numerous purposes including entertainment and leisure. Kodak was traded on the New York Stock Exchange and the company reported $9 billion in revenue and the same in assets in FY08 Kodak was founded on innovation, but the company was slow to adapt to the digital revolution. In the upcoming analysis we will see that sales will not be enough to lead to profitability but a target gross margin of 27.5% will attain that goal.

Kodak is broken up into three segments the Graphic Communications Group (GCG), the Film, Photofinishing, Entertainment Group (FPEG), and the Consumer Digital Imaging Group (CDG).

Figure 1.1 shows the breakdown of revenue that Koddak recieves from the respective segmennts. Firstly the GCG providing thirty nine percent and represented by the blue, the red represents the thirty one percent provided by FPEG segment.

Negatives for FY08 vs. competitors

Revenues experienced a growth (pro forma) of -2.5% and -8.6% in FY07 and FY08 respectively, while competitors averaged 6.7% and -8.6 % respectively. Next the rapidly declining gross margins when Kodak introduced its digital plan in 2003, the gross margins plumetted sharply from a high of 36% to the current low of 20% (23% FY08 vs. competitor median of 36%). Lastly Kodak has seen its return on equity go from 24.5% in FY02 to 44.4% in FY05 to -36.4% in FY08. The most distinguishing factor is kodaks equity multiplier of 5.4x vs 2.7x from competitors. Figure 1.2 shows the trend of ROE and shows how Kodak suffered high financial leverage realtive to its competitors(3 yr average of .4x vs 2.7x for competitors) caused the rapid decline in profitability.

Kodak FY08 proved to have some positives in the Cash Conversion Cycle (CCC). By extending terms on Accounts