Business Valuation

Baltimore Resins Corporation are independent compounders of thermoplastic resins. Thermoplastic resins are materials that melt in high heat and harden once cool. These materials are easily structured and manipulated to successfully become applicable to many industries. Although the goods and services Baltimore Resins Corporation reaches many industry, the NAICS code for the corporation is 325991 – Custom Compounding of Purchases Resins (NAICS, 2018). According to NAICS, this U.S. industry comprises establishments primarily engaged in custom mixing and blending plastics resins made elsewhere or reformulating plastics resins from recycled plastics products (NAICS, 2018).

In order to successfully evaluate Baltimore Resins Corporations through an industry perspective, it is important to consider the shape of the economy. In 2013, the United States were still actively in recovery from the financial crisis of 2008-2009. The unemployment rate was at a historically high rate of 7.8% in the beginning of 2013 and only fell to 7.2% by year end. However, it is known that the fall in employment rate was due to the American workers leaving the labor force as a whole, as well as the generation of new jobs slowed significantly (Wood, 2017). Congress failed to agree on a budget and spending bill due to the standoff over the Affordable Care Act (Wood, 2017). Due to Congress inability to agree on a budget, the government was shut down for sixteen days causing an estimated loss of $24 million dollars from the economy and slow down 2% of recovery growth in the last quarter of 2013 (Wood, 2013).

The United States slowdown impact spread internationally and harmed the already slow growth developed countries. In 2012, Europe issued new policies, including the Outright Monetary Transactions (OMT) program and steps towards greater fiscal integration and coordinated financial supervision and regulation, which slowed down the growth of the economy. Germany’s economy slowed significantly and France’s economy stayed stagnate (UN, 2012). The continent as a whole only had four countries registering low unemployment rates, with Spain and Greece registering a record high unemployment rate with more than a quarter of the working population without a job and more than half of the youth unemployed (UN, 2012). In 2013, Europe was still in a recession for most of the year, but most countries were able to lower unemployment rate and improve living standards (McRae, 2013). Most developed countries continued to face slowdowns in growth, but the structural shift from the developed world towards the emerging world caused countries like Africa to grow by more than 5% (McRae, 2013). The United Kingdom was the fastest growing large developed economy (McRae, 2013). China and India were still in a slowdown, but at slower rates than the past. Overall, the global economy was improving.

With respect to the economy, specific United States industries were impacted. The fluctuation of economic recovery measures caused revenue volatility in the plastic materials industry. As industry wholesalers buy and resell plastics products, fluctuations in revenue depend largely on the market price of plastic. When plastic prices are higher, industry revenue generally increases, and vice versa when prices fall. Exhibit 1 shows the fluctuations in revenue on an eight year basis starting in 2010 to 2018 (Diehl, 2018). According to Exhibit 1, in 2013, the industry experienced a 13.1% increase in revenue as result of a surge in the value of construction in 2012 and 2013, which bolstered downstream demand for industry products (Diehl, 2018).

The demand for downstream markets boosted the price of plastic materials and had a huge impact on the drastic increase in revenue seen in Exhibit 1. Shifts in the cost structure and revenue of plastic materials have caused many plastic manufacturers and distributors to change their business strategies. Many manufacturers began developing their relationships with distributors to rely on singular distributor to sell their goods to downstream consumers (Diehl, 2018). Distributors were able to guarantee supplier contracts and gain a competitive advantage (Diehl, 2018).

The industry’s demand is affect by both price and availability of substitute goods. The cost of manufacturing plastics rises and falls in accordance with oil and natural gas prices and crude oil prices were increasing in the beginning of 2013 but eventually started to fall (Schwab, 2020). As oil prices climbed until 2013, industry players were forced to raise prices and reduce costs to maintain profitability (Kalyani, 2018). The demand for thermoplastics increase in 2013 directly effecting the revenue of the industry (Kalyani, 2018). Baltimore Resin Corporation provide thermoplastic resins that met the demand of customers and increased the revenue of the industry. The demand for thermoplastics and industrial production started growing in 2013 and will continue growth at an estimate of 1% through the next five years until 2018 (Kalyani, 2018). The demand for the industrial production using plastics is threated by alternative goods such as rubber or glass. The fluctuation in crude oil prices serve as a catalyst for distributors and wholesalers to find plastic alternatives as more favorable and reliable (Kalyani, 2018).

Because of the improvement in the economy recovery, the total value of the industry has been able to improve since 2013 due to the structural changes in economy, increase of demand in the industry, and exploit the significant percentage of industry revenue dependent on exports. Through an in depth analysis of the global economy and industry revenue and demand fluctuations, there is a clear distinguish of Baltimore Resin Corporation ability to operate in the compounding of plastic resins industry through reaching the industries needs for thermoplastic resins and construction products.

References

Diehl, H. (2018, August). Plastic paradise: Strong demand will ensure growth despite volatity in the price of inputs. Retrieved 2020, from https://ubonline.ubalt.edu/access/content/attachment/1204FIN-780WB1/Assignments/2c012415-8d22-4aca-9d41-dd6938a9b6b8/42461%20Plastics%20Wholesaling%20in%20the%20US%20Industry%20Report.pdf

Kalyani, D. (2018, December). Plastic makes perfect: Growing downstream markets are expected to support industry demand. Retrieved 2020, from https://ubonline.ubalt.edu/access/content/attachment/1204FIN-780WB1/Assignments/5a3b7464-e299-43d9-82cb-77372a78dd25/32521%20Plastic%20-%20Resin%20Manufacturing%20in%20the%20US%20Industry%20Report.pdf

McRae, H. (2013, December 27). 2013 - the year in review: Slowly, the world economy is turning a. Retrieved November 13, 2020, from https://www.independent.co.uk/news/business/news/2013-year-review-slowly-world-economy-turning-corner-9027088.html

NAICS, A. (2018). NAICS Code: 325991 Custom Compounding of Purchased Resins. Retrieved November 13, 2020, from https://www.naics.com/naics-code-description/?code=325991

Schwab, C. (2020). WTI Crude Oil Prices - 10 Year Daily Chart. Retrieved November 13, 2020, from https://www.macrotrends.net/2516/wti-crude-oil-prices-10-year-daily-chart

UN. (2012, December). Global economic outlook for 2013 revealed | UN DESA Department of Economic and Social Affairs. Retrieved November 13, 2020, from https://www.un.org/en/development/desa/news/policy/wesp2013.html

Wood, J. (2017, February). U.S. News: The U.S. Economy in 2013. Retrieved November 13, 2020, from https://www.infoplease.com/current-events/2013/us-news-us-economy-2013