Financial Reporting and Analysis Great Lakes Institute of Management Dr.

Sudhakar Balachandran

TRENDS AND PATTERNS IN FINANCIAL STATEMENTS

FOR HOMEWORK ASSIGNMENT SET 6

Zoom Video Communications, Inc. (ZM: NASDAQ).

This assignment explores the extensive amount and type of information included in a
company’s Annual Report. In the US this document is also known as Form 10-K, filed with the
Securities and Exchange Commission (SEC), by the company.

The Zoom Video Communications, Inc. (“Zoom”) Annual Report can be online at the following
link: https://investors.zoom.us/static-files/9a9d91bf-5c62-45fd-9573-fb03159c8a93

You are asked to answer the following questions about Zoom Video Communications, Inc. Be
sure to address all parts of each question for full credit.

You should submit your assignment online as part of Homework Submission 6. Depending on
How CAMU accepts submission you might need to submit this document as a separate
submission but it will be counted as part of assignment 6.

This file is designed for you to type or write (very clearly!) your answers in the space provided
and upload this document into CAMU At the Link that will be provided.

Honor Code Statement:

I pledge my honor that I have not violated the Honor Code during this assignment. I recognize
that this is an individual assignment and that I have turned in my own effort even if I have
discussed the assignment or worked in a group setting in preparing this assignment.

Signature: RUPIKA R G
Print name: RUPIKA R G (FT232076)

Part 1: The Annual Report

General questions

1. What type of business does Zoom conduct? What are its major products?
Zoom is a teleconferencing software used by businesses & Individual to conduct
conference calls. It is an easy-to-use, cloud-based software that lets users connect with
others in real-time for free.
Zoom major products includes
o Zoom Meeting
o Zoom chat
o Zoom Hardware-as-a-service
o Zoom conference room connector
o Zoom events,
o Zoom webinar
o Zoom developer platform
o Zoom App marketplace
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Financial Reporting and Analysis Great Lakes Institute of Management Dr. Sudhakar Balachandran

o Zoom contact center

Part 1: The Annual Report - continued

2. List at least 3 potential types of users of the Zoom financial statements. Discuss what
type of information each of these users might be interested in finding in the financial
reports and what kinds of decisions they might make based on the financial reports.
As an example, creditors (or potential creditors) are a common financial statement user;
they are interested in understanding cash flows and getting insights about future cash
flows so that they can assess Zoom’s ability to pay them back in the expected time frame.
Potential users of financial statements of Zoom are Shareholder, Business
Customer & Zoom’s Competitor.
Shareholder: Shareholder will be interested to look Dividends per share & net
income of the company from Statement of earnings. Based on company profitability they
will decide to purchase more common share of Zoom or sell it. They possess high risk as
common stock may be volatile and they could lose all of their investment.
Business Customer: They are interested on Operating profit, margin & Net
income of the company generating so that they can take decision of being customer of
Zoom or look for other company if Zoom is not performing well for few years.
Zoom’s Competitor: Zoom’s competitors are also common financial statement
user. They try to understand how Zoom is performing in terms of sales & profit. They try
to understand Zoom’s market share to stay relevant in competitive market.

Financial statements and footnotes

For the questions in this part, refer to the section of the Zoom Annual Report called Item 8
Financial Statements and Supplementary Data (the financial statements begin on page 62 with
a balance sheet and continue through notes to the financials for the next several pages).
Kindly Note Page 62of the document is page 67 of the PDF file.
Balance Sheet
3. What are Zoom’s major assets? Calculate the proportions of current and long-term
assets to total assets at January 31, 2022. Do these proportions seem appropriate for a
company such as Zoom? Discuss why or why not.
Sol: Zoom’s major assets are Cash and cash equivalents, Marketable securities and account
receivable.
Proportion of Current asset/Total asset on Jan 31, 2022 = 6,183,807/7,551,318 = 0.818
= 81.8%
Proportion of Long-term asset/Total asset on Jan 31, 2022 = 1,367,511/7,551,318 = 0.181
= 18.2%
Yes, these proportion seem appropriate for company like Zoom, as it is an software based
company, which will not have much on Property, plant & equipment. Zoom’s mainly have
Marketable securities and Cash & cash equivalent.

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Financial Reporting and Analysis Great Lakes Institute of Management Dr. Sudhakar Balachandran

Part 1: The Annual Report - continued

4. Zoom’s largest liability is deferred revenue (which has both current and noncurrent
classifications). Based on your understanding of Zoom’s business, what is likely the
nature of the deferred revenue (i.e., what type of transaction resulted in the need to defer
the recognition of revenue)?
Sol: As per my understanding of Zoom’s business, it’s mainly earned revenue on subscription
basis. They received the subscription charges in advance for any particular period of time
like one year or more, which has not yet been earned as per accrual accounting system.

Income Statement (called Statement of Operations by Zoom)

5. Was Zoom profitable during each of the three years reported in Zoom’s Statement of
Operations (i.e., the income statement)? Describe which income statement line item you
chose to use to assess profitably and why you think it is the best measure to gauge
profitability.
Sol: Yes, Zoom was profitable during each of the three years as per Zoom’s Statement of
Operation. I have considered Net Income, Revenue & Gross Profit to access the profitability of
company. By using Gross profit, Revenue and Net Income, I can calculate Gross profit ration &
Profit margin ratio to analysis profitability of the company.

6. How much did Zoom’s Revenue Grow From 2020 to 2021, and then from 2021 to 2022?
Find the section of the annual report called “Management’s Discussion and Analysis
(MDA).” In the MDA Zoom Management describes sources of this spectacular revenue
growth, it begins by discussion the impact of the Covid-19 Pandemic, but then it discusses
other aspects of how Zoom increases revenue. In the section called “Key Factors
Affecting our Performance,” Zoom discusses important sources of revenue growth.
a. Make a list of these sources:
Sol: Revenue of Zoom’s Grow from $622,658,000 to $2,651,368,000 i.e., $2,028,710,000 from
year 2020 to 2021.
From year 2021 to 2022, revenue Grow from $2,651,368,000 to $4,099,864,000 i.e.,
$1,448,496,000.
List of Key Source/Factors affecting Zoom’s Performance:
 Acquiring New Customers
 Expansion of Zoom Across Existing Customers
 Expansion of Zoom Across Existing Enterprise Customers
 Innovation and Expansion of Our Platform
 International Expansion

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Financial Reporting and Analysis Great Lakes Institute of Management Dr. Sudhakar Balachandran

b. Of the many they describe which 3 would you say are most critical and why?
Sol: From the above list Acquiring New Customers, Innovation and Expansion of Our Platform &
Expansion of Zoom Across Existing Customers, because during & post covid most organization
started working from home, students of educational institute started attending classes online,
which created huge demand for online teleconferencing software like Zoom. Most of their
existing customer have increased the size of their subscriptions as they expand their use of
Zoom platform across their operations. Additionally Zoom has expanded their services by
launching new product like Zoom Phone, Zoom Webinar ect.

Part 1: The Annual Report - continued

Other information in the Annual Report
For the questions in this part, refer to the sections of the Annual Report preceding the Financial
Statements (pages 1 - 58 of the Annual Report Document).
7. In addition to the financial statements, what are the major sections of the Annual Report
Document?

Sol: Major section other than financial statement are as follows:

 Business
 Risk factor
 Unresolved Staff Comments
 Properties
 Legal Proceedings
 Mine Safety Disclosures
 Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity securities.
 Management’s Discussion and Analysis of financial Condition and Results of
Operations
 Quantitative and Qualitative Disclosures about Market Risk

8. What of this additional information in the Annual Report do you think would be most
useful to investors or analysts if they are interested in making earnings forecasts about
Zoom? Why?

Sol: Risk Factor & Management’s Discussion and Analysis of financial Condition and Results of
Operations would be most useful to investor or analysts if they are interested in making
forecast about zoom. By studying the risk factor of the company investors could easily identify
variable which could cause fluctuation in the trading price of the company. Analysis of financial
condition and result of operation is another important information which will help investor to
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Financial Reporting and Analysis Great Lakes Institute of Management Dr. Sudhakar Balachandran

understand business of Zoom & predict about the future business of the company.
UNDERSTANDING A QUARTERLY EARNINGS REPORT

Zoom Video Communications, Inc. (ZM: NASDAQ).

This assignment explores the information found in Zoom’s Quarterly Report.

You are asked to answer the following questions about Zoom’s Quarterly Report. Be sure to
address all parts of each question for full credit.

You should submit your assignment at the CAMU LINK Provided by Dr. Umayal, This Link May
be separate from other used to submit Homework #6

This file is designed for you to type or write (very clearly!) your answers in the space provided
and upload this document into CAMU as Instructed.

Honor Code Statement:

I pledge my honor that I have not violated the Honor Code during this assignment. I recognize
that this is an individual assignment and that I have turned in my own effort even if I have
discussed the assignment or worked in a group setting in preparing this assignment.

Signature: RUPIKA R G

Print name: RUPIKA R G(FT232076)

Part 2: Quarterly earnings information

Zoom Released first quarter of 2023 quarterly report on Monday May 23, 2022

You can find the Quarterly report at Zoom’s Investor Relations website, or on CAMU. To access
via Zoom Website Directly, use Link:
https://investors.zoom.us/news-releases/news-release-details/zoom-video-communications-
reports-financial-results-first

9. Describe Zoom’s earnings release, including what type of document was issued by Zoom
and a brief summary of the actual news that Zoom relayed about its third quarter
financial performance.
Sol: Zoom Earning’s Release:
First quarter total revenue of $1,073.8 million, up 12% year over year
First quarter GAAP operating margin of 17.4% and non-GAAP operating margin of 37.2%
First quarter net cash provided by operating activities of $526.2 million, a 49.0% margin
Number of customers contributing more than $100,000 in trailing 12 months revenue up 46%
year over year.
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Financial Reporting and Analysis Great Lakes Institute of Management Dr. Sudhakar Balachandran

Brief summary of actual news:

SAN JOSE, Calif., May 23, 2022 (GLOBE NEWSWIRE) -- Zoom Video Communications, Inc.
(NASDAQ: ZM), today announced financial results for
the first fiscal quarter ended April 30, 2022.
“In Q1, we launched Zoom Contact Center, Zoom Whiteboard and Zoom IQ for Sales,
demonstrating our continued focus on enhancing the customer
experience and promoting hybrid work. We believe these innovative solutions will further
expand our market opportunity for future growth and
expansion with customers,” said Zoom founder and CEO, Eric S. Yuan. “Additionally, in Q1, we
delivered revenue of over one billion dollars driven by
ongoing success in Enterprise, Zoom Rooms, and Zoom Phone, which reached 3 million seats
during the quarter. We also maintained strong
profitability and cash flow, including 17% in GAAP operating margin, approximately 37% non-
GAAP operating margin, approximately 49% operating
cash flow margin, and over 46% adjusted free cash flow margin.”

10. Would you view the information Zoom Released as “Good News” or “Bad News,” Why or
Why Not?

Sol: The information released by Zoom was “Good News”, as they have mention about
the milestone achieved in Q1 that they have delivered revenue of over one billion dollars
in Enterprise, Zoom Rooms, and Zoom Phone, which reached 3 million seats during the
quarter.
As per CEO they are also maintained strong profitability and cash flow, including 17% in
GAAP operating margin, approximately 37% non-GAAP operating margin, approximately
49% operating cash flow margin, and over 46% adjusted free cash flow margin.”

Part 2: Quarterly earnings information – continued

11. Using Yahoo! Finance or another website with stock market price information, obtain
historical Stock Price Data for Zoom’s (ZM: NASDAQ).

Use the Link below if you want to easily find stock data on Zoom at Yahoo finance:

https://finance.yahoo.com/quote/ZM/history?p=ZM

Find the closing stock price the day before (Friday May/20), the day of (Monday, May/23)
and the day after (Tuesday, May/23) the earnings information was released.

a) Describe the stock market reaction to the information by computing the percentage
change in price over this 2 day period (both from t-1 to t and from t to t+1 where t
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Financial Reporting and Analysis Great Lakes Institute of Management Dr. Sudhakar Balachandran

is the announcement day). In other words, if you purchased a share of Zoom at the
Closing price on that Friday and Sold it at the closing price on Tuesday, what precent
return would you have generated for yourself. Be sure to show the details of your
calculation.
Sol:
Closing stock price, the day before (Friday May/20) = $ 89.74
Closing stock price, the day of (Monday May/23) = $ 89.33
Closing stock price, the day after (Tuesday May/23) = $ 94.34

Percentage change in stock price between May 20 & May 22 = (89.33-89.74)/89.74 = -0.45%
So, it’s showing 0.45% decrease on the stock price between Friday closing & Monday closing.

Percentage change in stock price between May 22 & May 23 = (94.34-89.33)/89.33 = 5.6%
So, it’s showing 5.6% increase on the stock price between Monday closing & Tuesday closing.

Percentage change in stock price between May 20 & May 23 = (94.34-89.74)/89.74 = 5.12%
So, it’s showing 5.12% increase on the stock price between Friday closing & Tuesday closing.

b) Are you surprised by the size and direction of the market reaction based on the
earnings release? Discuss why or why not.

Sol: I am not surprised by the size and direction of the market reaction based on
earning release. The rise in the earning was expected because of high use of Zoom by
large organization and educational institute post covid.