Financial ratios & growth analysis

SAMPLE REPORT FOR MP1

Financial Analysis Report On: company name & logo

Submitted to: Class, professor

By: student name

On: date

FINC 6352 – Financial Management Sample MP1

1. Company Profile Source: https://finance.yahoo.com/

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives for construction, resource, and energy and transportation industries. halt pavers, backhoe loaders, compactors, cold planers, compact truck and multi-terrain loaders, forestry excavators, feller bunchers, harvesters, knuckleboom loaders, motorgraders, pipelayers, road reclaimers, site prep tractors, skidders, skid steer loaders, telehandlers, track-type loaders, wheel excavators, and track-type tractors.

The company was formerly known as Caterpillar Tractor Co. and changed its name to Caterpillar Inc. in 1986. The company was founded in 1925 and is headquartered in Deerfield, Illinois.

Sector: Industrials Industry: Farm & Construction Equipment

Ticker: CAT

Market Cap 75.888B

Revenue (ttm) 53.8 B

Net Income Avi to Common (ttm) 6.1 B

Full Time Employees 104,000

Caterpillar’s competitors in the construction equipment manufacturing industry

Company Ticker Based on Market Cap Revenue Net income

Deere & Co. DE US 91.877B 35.259B 2.75B

Volvo AB VOLVF Sweden 29.22B 431 B 35.8 B

FINC 6352 – Financial Management Sample MP1

2. Financial ratios for the company and main competitors: Source: D&B Hoovers and Mergent Online ratios

Market Value Ratios MCD JACK WEN Industry P/E Ratio 32.76 24.17 47.65 57.14 Price/Revenue 8.47 2.11 2.98 3.97 Price/Book - - 9.42 0 Price to Cash Flow per Share 26.16 15.05 19.52 31.25 Price to Free Cash Flow per Share 37.91 17.41 28.07 56.18

P/Sales, P/CF and P/FCF clearly suggest that among these three companies, investors like MCD the most. P/E ratio suggests WEN is better regarded by investors, but it is likely due to lower level of profits. Comparing against the industry, it appears that MCD valuation could go further up, as P/E, P/CF and P/FCF ratios are lower for MCD than for the industry.

Profitability Ratios JACK MCD WEN Average ROA % (Net) 6.28 15.00 2.96 8.08 ROE % (Net) AvgEqty<0 AvgEqty<0 23.58 23.58 ROI % (Operating) 38.89 34.61 7.80 27.10 EBITDA Margin % 18.51 49.24 21.57 29.77 Calculated Tax Rate % 26.80 25.34 20.14 24.09 Revenue per Employee 196983 102812 128849 142881

Among the competitors and the industry, MCD is the most profitable company in relation to its total asset and investment and also when measured by EBITDA margin. Due to the negative equity ROE comparisons can’t be made. JACK appears to generate higher revenue per employee

Asset Management JACK MCD WEN Average Total Asset Turnover 0.72 0.52 0.37 0.54 Receivables Turnover 16.81 9.03 15.08 13.64 Inventory Turnover 372.23 153.22 190.41 238.62 Accounts Payable Turnover 30.05 19.19 77.12 42.12 Accrued Expenses Turnover 8.21 37.11 24.77 23.36 Property Plant & Equip Turnover 2.81 0.90 1.56 1.76 Cash & Equivalents Turnover 6.30 23.89 4.68 11.62

MCD has the lowest turnover ratios for receivables, inventory, payables and PPE. It has the highest cash and accrued expenses turnover and it is between its competitors for total assets.

Debt Management JACK MCD WEN Average LT Debt to Equity Equity<0 Equity<0 5.3 5.30 Total Debt to Equity Equity<0 Equity<0 5.37 5.37 Interest Coverage 3.26 7.83 2.25 4.45

FINC 6352 – Financial Management Sample MP1

Both MCD and JACK are using a lot of leverage. For both of this companies, book value of equity is negative. Despite the high levels of debt of MCD, the coverage ratio indicates that MCD is better prepared to service their debt when compared to JACK and WEN.

Liquidity Ratios JACK MCD WEN Average Quick Ratio 0.79 0.86 1.17 0.94 Current Ratio 0.99 0.98 1.58 1.18 Net Current Assets % TA -0.25 -0.13 4.09 1.24

MCD has lower quick ratio and current ratio than the industry. WEN has the highest quick and current ratios among the 3 competitors and carries more working capital than competitors

Some interesting trends observed in the ratios

Revenue per employee changed drastically after they started reducing the # of employees

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FINC 6352 – Financial Management Sample MP1

Drop in TATO and PPE turnover is bad for MCD. More assets are being used to produce the same level of revenue. When we see that inventory and other current asset turnover measures go up, it indicates that the problem is with the fixed assets.

Most measures of profitability have been going up for MCD with the exception of last year where ROA fell.

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FINC 6352 – Financial Management Sample MP1

3. Trend Analysis Source: Mergent Online

The declining number of employees shows a clear strategy of the firm, to reduce the number of owned restaurants and increase the number of franchises.

This company achieved their highest level of sales in 2013. After that, revenue has dropped four years in a row. Net Income also peaked in 2013. However, with the steady decline in the number of shares outstanding they managed to produce increasing EPS and Dividend per share.

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FINC 6352 – Financial Management Sample MP1

4. DuPont Analysis Source: http://www.mergentonline.com.

MCD is doing pretty well, showing increases in the three ratios over time. A big jump is

observed in 2017 for Operating profit margin.

Profit margin shows a healthy increase in the last 6 years. ROA has been quite stable and shows an increase in 3 of the last 4 years but has a drastic drop in 2019. TATO shows a drop in the last 4 years. The Equity multiplier had a drastic increase after 2013 when the company decided to issue debt and reduce equity. The company continued doing the repurchase and by 2017, they had negative equity, which impedes the calculation of ROE and EM.

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Profitability analysis

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Du Pont Analysis

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FINC 6352 – Financial Management Sample MP1

5. Growth analysis Source: http://www.mergentonline.com.

Recent growth Last year Last 2 years Last 3 years

Last 5 years

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Total assets 44.8% 18.6% 15.3% 4.6% 4.3% 4.6% Total shareholders' equity (deficit) Total revenues 0.2% -3.9% -5.1% -3.7% -3.8% -0.8% Operating income 5.0% -1.6% 5.9% 4.2% 0.8% 3.0% Net income 1.7% 7.7% 8.7% 5.9% 1.4% 2.8% Year-end shares outstanding -2.7% -3.1% -3.1% -3.8% -4.1% -3.6% Net income (loss) per share-diluted 4.5% 11.2% 13.1% 10.4% 5.7% 6.7% Dividends declared per common share 12.9% 11.1% 9.4% 6.6% 7.4% 8.7% Number of employees -2.4% -6.6% -18.2% -13.4% -10.3% -6.1% Net cash flows from operating activities 16.6% 21.0% 10.3% 4.4% 2.2% 3.5%

Growth in total revenue has always been lower than growth in total assets, which suggests some inefficiencies in the overall strategy of the company.

Though the growth rates of operating income are always higher than growth in revenue, which suggests operations are running efficiently, the actual net cash flow from operations is lower than revenue growth, indicating some problems in operations.

Growth in Net income is not stable, with some horizons showing negative growth. However, with stable decrease in number of shares outstanding in the last 10 years both net income per share and dividend per share have increased.

FINC 6352 – Financial Management Sample MP1

6. Growth Projections (sales and dividends)

Recent growth Last year Last 2 years Last 3 years

Last 5 years

Last 7 years

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Total revenues 0.2% -3.9% -5.1% -3.7% -3.8% -0.8% Net income 1.7% 7.7% 8.7% 5.9% 1.4% 2.8% Net income (loss) per share-diluted 4.5% 11.2% 13.1% 10.4% 5.7% 6.7% Dividends declared per common share 12.9% 11.1% 9.4% 6.6% 7.4% 8.7%

In the near future, my expectations for this company are tepid.

Given the strategy they are following to get rid of their own restaurants, the growth in revenue will probably remain negative in the near term, my estimate is -4%, which is the average for the last 2 years. For long-term growth in sales, I would expect this company to benefit from worldwide growth. I would estimate 2.5%

Regarding DPS, the company has maintained a growth rate of about 6.6% in the last 5 years. I would expect the same rate in the future.

Comment for a different firm (AMZN)

Recent growth Last year Last 2 years Last 3 years

Last 5 years

Last 7 years

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Total net sales 30.9% 30.9% 29.6% 21.2% 25.3% 28.4%

This company has kept an annual sales growth rate of about 30% for 10 years. It is hard to speculate how long they can sustain this level of growth. As the company is not paying dividends, we can’t use regular models to forecast long term growth.

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Growth Dividends declared per common share