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I. Requirement Part I

Historical Summary

Dow Company was formed by Canadian-born Chemist Herbert Henry Dow in 1897. After undergoing a series of diversification, the company reached a niche of being the major chemical company primarily involved in the world market as the major player and also being involved during the military-industrial era during World War I and World War II. Dow Chemical Company is the successor of the Michigan Corporation and was incorporated in 1947 of the similar name which was organized in 1897. It is commonly referred to as Dow. It is a multinational chemical corporation that deals with agricultural products, plastics, chemicals and services to the consumer market. The services may include transportation, food, medicine and health, construction and personal care. It operates in 180 countries all over the world. The principal executive offices of the company are located at Midland, 2030 Dow Center in Michigan 48674.

The major lines of Dow include consumer solutions, agricultural science, performance plastic, performance chemical and materials and infrastructure solutions. The company has about 53 thousand employees. In 2014, the total sales of Dow amounted to $58.2 billion. The company is referred to as chemical company since most of their sales are related to industries rather than being the end user, although the company sells to the users directly in animal and human health, consumer and agricultural product market

Competitors

The producers of agricultural biotechnology and crop protection chemical are the main competitors of agricultural science in the United States and abroad. Dow Company competes with trait leadership and technology, cost, quality and price competitiveness. The major competitors are Bayer, BASF, Monsanto, Syngenta, DuPont de Nemours and E.I as well as regional and generic seed companies.

Dow’s Position in the Industry

The company combines the power of technology and science to innovate what is necessary to the progress of human beings. Their innovation extracts value from the intersection of biological, physical and chemical sciences to assist the world in dealing with the general issues such as clean energy conservation and generation, clean water and increasing productivity in agriculture.

The company has integrated industry, industry leading and market-driven portfolio of specialty in advanced materials, chemicals, plastic and agro-science business that delivers a diverse range of technology based solution and products to customers. Consequently, in 2014, the company made annual sales of $58 billion with 53,000 employees. The company has not less than 6,000 products at 201 sites in 35 countries. Their products operate through global business in five segments; Consumer Solutions, Agricultural Science, Performance Chemicals & Material, Infrastructural Solution and Performance Plastics.

Dow was ranked 3rd in production of Chemicals in 2014 after Sinopec and BASF. As at 2015, the company was position three regarding revenues after BASF and Sinopec. In the same regard, Dow Chemical Company was the largest producer of chlorine with about 5.7 billion tons annual production before the formation of Olin association. It was also ranked the largest manufacturer of plastics in the world in 2008. In 2013, it was the largest in the manufacturing of polyethylene glycol.

Recent Developments

The company sold its catalyst business and Polypropylene Licensing on Dec 2, 2013, to W.R Grace & Co. Consequently, reports were made in Performance Plastic Segments through divestiture date. In the same regard, the company made an announcement of four production facilities in Performance Plastic to be built on the Gulf Coast of the United States. The four facilities include (LDPE) Low-Density Polyethylene in Plaquemine, Louisiana, an ELITETM production of polymer in Freeport Texas, (HMI) AFFINITY™- High Melt Index in Freeport, Texas and a Metallocene EPDM NORDEL™ facility at Plaquemine, Louisiana. In the same regard, the company has leveraged low-cost supply of ethylene supply from benefited feedstock position from Shale Gas in the US. The production facility is expected to support profit growth of high-value performance plastic franchise of the company

Future Direction

Dow Chemical Company has announced various investments in the Gulf Cost of United States to take advantage of derived NGLs from shale gas and increasing supplies of low-cost natural gas. Consequently, from these investments, the exposure of the company to purchased propylene and ethylene is expected to reduce. This is offset by the increasing exposure to propane and ethane-based feedstocks.

The company is planning to have a new production facility for propylene starting by mid-2015. A new world-scale facility production for ethylene is expected to begin by the first half of 2017. The two facilities are located in Texas Freeport. The production capabilities of Ethylene are expected to increase by more than 20 percent as a result of investing in US Gulf coast.

Items of Significance to the Corporation

The agricultural science technology is significant in the growth of crop protection and biotechnology traits that utilize formulations of proprietary. Consequently, the company has been using trademarks, patents, registrations and licenses to protect their germplasm investment, propriety and features formulation and chemistry. Dow also engages in collaboration of research with academia, global industry and government and license plant traits in biotechnology. Dow also does not consider the agricultural science sector as being secondary material on a group of related licenses, trademarks, patents or registrations.

II. Requirement Part II: Common Size Statement Analysis

Condition of Dow Chemical Company

Before making any investment on DOW chemical, one should be familiar with the stock analysis of the company. From the financial information in appendix A and B, we can look at the top line and the bottom line. From the top line, it is a growing one as seen from the revenue chart. Therefore, this indicates a growing business. One needs to check on YoY and QoQ growth of Dow stock with its main competitors such as DD stock and BASFY to see whether the growth compares well with the expectation in the industry (See appendix A).

For the bottom line, it avails since it is the last line of the income statement. It refers to the actual profits; after all, the expenses have been deducted from the revenue. Dow stock had a strong bottom line growth. The income statement is the statement of expenditure and income, and the financials alongside Dow Company stock prices history presents major details about the firm (see appendix B).

III. Requirement Part 3: Financial Statement Ratios

A. Solvency Ratios

Ratio	2014	2013	2012
Working capital	12,674,000	13,006,000	12,191,000
Current ratio	2.093	2.086	2.061
Acid test Ratio	1.30	1.30	1.22
Accounts receivable turnover	12.42	11.57	11.19
Inventory turnover	5.86	5.73	5.64
Day’s sales in receivable	275.4	304.3	315.7
Days sales inventory	66.67	70.21	71.16
Debt to equity ratio	2.059	1.578	1.806
Times Interest earned	6.36	7.18	2.31

Financial Condition of Dow Chemical regarding short and long-term solvency (See Appendix C) .

The Dow Chemical debt to equity ratio improved from 2012 to 2013 but reduced from 2013 to 2014. This indicates the debt that the company is using to finance the assets based on the value represented by the equity of the shareholders. The extent to which Dow is taking debts to fund various projects has been reducing. This means that risks are decreasing with less volatile earnings as a result of the added interest expenses. Dow chemical time interest earned decreased between 2013 and 2014.

It shows the proportionate of the income that is used to cover the interest expenses. It demonstrates the ability of Dow to make debt service and interest payments. Dow makes enough income to more than six times for the year ended 2014. Day sales inventory reduced between 2012 and 2014. It shows how long the company turns inventory to sales. The day sales in receivable indicate significant pressure on cash flows. The Dow Chemical inventory turnover improved in the last three years. This shows that the inventory is managed well. In essence, the ratio is imperative since the total turnover is dependent on stock purchasing and sales.

Dow is efficiently controlled thus it does not overspend by having too much inventory and waste resources. The current ratio improved in the last three years. The current ratio shows the proportion of the current assets to the current liabilities which shows liquidity position of Dow. Dow ratio is better. The acid test ratio improved between 2012 and 2013 but remained constant in 2014. This ratio shows the prerequisite of Dow to pay its current liabilities. These are the current assets that can be converted in the short term basis. The company has enough assets to cover the current liabilities with the assets, and thus the company can pay off its obligations without selling the capital assets

B. Performance Ratios

Performance Ratio	2014	2013	2012
Asset turnover	0.845	0.82	0.82
Return on Sales	0.199	0.244	0.057
Gross Margin Ratio	18.4	16.6	15.8
Return on assets	6.20%	5.65%	5.77%
Returns on equity	11.89%	10.00%	11.09%
Average rate of interest	0.0213	0.0259	0.0261
Book value per share	0.02	0.022	0.017
Price-earnings ratio	16.68	12.77	46.00
Earnings per share	2.96	3.66	0.70
Dividend yields	0.53	0.35	1.7
Dividend payout	0.53	0.34	1.7

Financial condition on performance (See Appendix C).

The asset turnover for the company remained constant between 2012 and 2013 and improved in 2014. This shows how the company uses the assets efficiently. The company is not using its assets efficiently and thus; there may be production and management problems. The returns on sale for the company improved between 2012 and 2013 but decreased between 2013 and 2014. It shows that the company is producing its core services and products well and has an efficient management. The company is profitable enough to venture in. The gross margin ratio improved between 2012 and 2014.

The company is profitable enough to venture in since they are selling inventory at a higher profit. This higher margin means that Dow has more capital to pay operational expenses. The returns on the asset for the company improved from 2012 to 2014 which shows that the company can get returns from the assets by converting money into asset purchase into profits. This higher ratio is favorable for the investors since Dow Company can manage its assets effectively. There is an upward profit trend for the company. The returns on invest decreased from 2012 to 2013 but then Improved in 2014.

The average rate of interest decreased from the year 2012 to 2014. The book value slightly improved between 2012 and 2013 but dropped slightly in 2014. It compares the shares outstanding and stockholders equity this shows that the company's stock has been decreasing. The price earnings per ratio reduced by a great margin between 2012 and 2013 but increased in 2014. This shows that the market value per share raises with earnings per share. Dow earning per share presented a brighter performance and investors were willing to pay for the shares of the company in 2012. The dividend yields and dividend payouts reduced between 2012 and 2013 but increased slightly between 2013 and 2014.

IV. Requirement Part IV: Competitor

A. BASFY Ratios A; Synthetic Resins, Plastic Materials, and Non-vulcanized Elastomer Solvency Ratio

Solvency Ratio	2014	2012
Working Capital	11,527,000	11,339,000
Current ratio	1.73	1.81
Acid Test Ratio	1.11	1.3
Accounts receivable turnover	5.89	5.24
Inventory turnover	5.0	4.5
Days sales in receivable	76.84	69.67
Days sale inventory	73.5	66.5
Debt to equity ratio	1.29	0.98
Time interest earned	7,652,000	7,037,000

Financial Condition of BASFY (See Appendix D)

BASFY time interest earned decreased from 2012 to 2014. It shows the proportionate of the income that is used to cover the interest expenses. It shows the ability of BASFY to make debt service and interest payments. BASFY made less income for the year ended 2014. Day sales inventory increased between 2013 and 2014. It shows how long the company turns inventory to sales. The day sales in receivable indicate significant pressure on cash flows. The BASFY inventory turnover improved in the last two years. This shows that the inventory is managed well. In essence, the ratio is imperative since the total turnover is dependent on stock purchasing and sales.

BASFY is efficiently controlled thus it does not overspend by having too much inventory and waste resources. The current ratio reduced between 2013 and 2014. The current ratio shows the proportion of the current assets to the current liabilities which shows that the liquidity position of BASFY is weak. The acid test ratio or the quick ratio reduced between 2013 and 2014. This ratio shows the ability of the company to pay its current liabilities is reducing. These are the current assets that can be converted in the short term basis. The company has doesn’t have enough assets to cover the current liabilities with the assets and thus the company cannot pay off its obligations without selling the capital assets.

BASFY debt to equity ratio improved from 2013 and 2014. This indicates the debt that the company is using to finance the assets based on the value represented by the equity of the shareholders. The extent to which it is taking debts to fund various projects has been reducing. This means that risks are reducing with less volatile earnings as a result of the added interest expenses.

B. Performance Ratios

Performance Ratio	2014	2013
Asset turnover	0.86	0.84
Returns on sale	0.16	0.15
Gross Margin	24.9	25.0
Returns on assets	7.60	7.5
Returns on equity	18.84	18.73
Average on interest	12.05	11.20
Book Value per share	35.64	39.18
Earnings per share	5.61	5.22
Price-earnings ratio	12.5	14.8
Dividend yields	4.01	3.48
Dividend payout	-	-

Financial condition of BASFY on Performance (See Appendix F)

The asset turnover for BASFY improved between 2013 and 2014. This shows how the BASFY used the assets efficiently. The company is using its assets efficiently and thus; there are no production and management problems. The returns on sale for the company improved between 2013 and 2014. It shows that the company is producing its core services and products well and has an efficient management. The company is profitable enough to venture in. The gross margin ratio reduces between 2012 and 2014.

The company is profitable enough to venture in since they are selling inventory at a higher profit. This higher margin means that BASFY has more capital to pay operational expenses. The returns on the asset for the company improved from 2013 to 2014 which shows that the company can get returns from the assets by converting money into asset purchase into profits. This higher ratio is favorable for the investors since BASFY can manage its assets effectively. There is an upward profit trend for the company. The returns on invest improved from 2013 to 2014.

The average rate of interest grew between 2013 and 2014. The book value slightly improved between 2012 and 2013 but decreased slightly in 2014. It compares the shares outstanding and stockholders equity this shows that the company’s stock has been decreasing. The price earnings per ratio improved between 2013 and 2014. This shows that the market value per share rose with earnings per share. BASFY earning per share presented a brighter performance and investors were willing to pay for the shares of the company in the last three years. The dividend yields improved in 2012 and 2013 while the dividend payouts remained constant. This presents the cash from stock investment. This means that the investors can get compensated.

C. Comparison between Dow Chemical and that of BASFY for the Year 2013 and 2014 (See Appendix)

Dow Chemical P/E improved from 12 to 16 while that of its competitor decreased. The willingness of the investors to pay dollars for the profits invested is much higher for Dow Chemical since it has strong growth prospects. The asset turnover for Dow increased from 0.82 to 0.845 while that of BASFY increased from 0.84 to 0.86. The returns on sale for Dow increased by a greater margin than that of the competitor while the Gross margin ratio increased for Dow Company while for BASFY decreased. ROA for DOW increased in the last 2 years increased by the almost equal margin. The average rate of interest is more for Dow Chemical than its competitors. Earnings ratio is more for Dow Chemical and has grown at a greater value. Earnings per share are has increased for BASFY in the last two years while that of Dow has reduced.

The dividends yields have increased for the two companies. BASFY has more yields. The working capital for Dow Chemical reduced in 2014 while that of BASFY increased while the current ratio for Dow Chemical increased with a reduction for its competitor in 2014. The inventory turnover for both companies are increased coupled with a greater margin for Dow. The debt to equity ratio increased for both companies while the time interest earned reduced for Dow Chemical and increased for BASFY. The day sales inventory increased for BASFY and reduced for Dow.

The ratios relate to the stock prices of the firms to its cash flow, earnings and book value per share. This indicates that past performance and the prospects. The profitability and solvency ratio for Dow Chemical all look good meaning they are high. Higher debt to equity ratio means there are more expected returns in a normal economy, but there is a risk of exposure during the recession.

Total return

Returns on equity

V. Requirement Part V

Investing in the Company

Financial Performance. First, the business is profitable enough, and it has performed very well in the recent past. Through examining the balance sheets, income statement, performance ratios, profits, cash flow projection, it is clear that the current net worth of the business, expected trends and sales are viable enough.

Investment Amount. One of the factors that make business to fail is a lack of startup capital. In addition, to the business sale price, the credit needs and operating capital is viable enough.

Market Analysis. Through a market analysis, critical assessment should be considered. It is important to understand what may make the current customers to buy no longer from Dow Chemical. Through this, one will be able to determine the competition whether it is gaining a market share. It is also important to look at the competitive edge of the top competitors.

Report

I would advise the friend to invest in the company since their P/E shows that they have more stock and that the market is valuing them. When we look at the historical P/E of the company is favorable enough for one to invest. The P/E ratio for Dow Company is more stable which shows that the company is more mature to earn profits. The price to book value ratio resembles the market price of the company to the book value.

The amount that will remain after the company liquidates the assets and pay the liabilities shows that the stock is undervalued. This indicates that the company is valuable enough. When compared to other businesses in the same industry, we can see that the performance of the company has been improving. The debt-equity ratio of the company is small which means that the company is better. There is more scope for expansion due to the fundraising options of the enterprise. There is less risk of credit default but shows that the company has invested so much in NPV projects. A higher ratio asserts that the corporation may be overpriced. However, the company has a lower P/E, which shows that the company has a greater possibility of rising. The profit margin of the company shows the pricing power and operational efficiency. The margin for the company is high enough and has been increasing. This indicates that the company is efficient in procuring raw materials and turning them into finished products. For the investors, the margin shows the part of revenue left after meeting the cost of wages and raw material wastes. The higher margin indicates that the company is better. The price earnings growth ratio demonstrates the relationship between EPS, the price of the stock and the growth of the company. Dows' P/E is increasing at a rate of 4 in the last two years meaning that it is growing fast. The ROE of the company shows the ultimate returns that the shareholder derives from the business. Dow's ROE helps in comparing it with other businesses in the same industry. However, the Dow's value of ROE is lower.

The current ratio for Dow is about two which show the liquidity position of the company in meeting the short-term obligation with the short term assets. The company has a higher ratio compared to that of the competitors which means that that the day to day operations of the company will not be affected by the issues of the working capital

It is evident that the firm has been growing for the last 118 years by generating a lasting value. This is a company that can be trusted since it has passed the test of time in delivering increasing shareholders returns and building a competitive edge. From the liquidity, performance and solvency ratios, the company has been leveraging their strengths to improve their growth across an integrated portfolio. They collaborate with customers to address global trends.

This is a company that is industry leading regarding market. The position in the market presents a competitive edge. For instance, in 2014, Dow focused capital to growing the business. The company is consistent with this focus. In the same year, the company recorded $6 billion to the shareholders through share repurchases and declared dividends. This shows that it is a combination of different actions. Also, the strategy and vision of the company to maximize the long term value per share which serves as the principal source of their strength.

The company enhances the return on capital as they try to drive the growth of earning per share by an average of 10%. Thus, I would advise my friend to invest in the company since the company maintains financial flexibility to fund organic growth, advance the corporate strategy and reward the shareholders through a competitive dividend, share buyback and solid investment. Dow venture capital is focused on strategic investment that accelerates and enables the business growth while adding value to the investors. The investors benefit from Dow's reputation as one of the most respected, most profitable company and advanced regarding plastic business and chemicals.

Appendices

Appendix A - Common-Sized Consolidated Income Statement

Dow Chemical Company Common Size Income Statement For the year ended 31st December 2013 and 2014
2014 2013
Net sales	100.00%	100.00%
Cost of sales	-81.60%	-83.38%
Gross margin	18.40%	16.62%
Research and development expenses	-2.83%	-3.06%
Selling, general and administrative expenses	-5.34%	-5.30%
Amortization of intangibles	-0.75%	-0.81%
Goodwill and other intangible asset impairment losses	-0.09%	–
Restructuring (charges) credits	0.01%	0.04%
Asbestos-related (charge) credits	-0.13%	–
Operating income	9.26%	7.49%
Equity in earnings of nonconsolidated affiliates	1.44%	1.81%
Gain on sales of other assets and investments	0.07%	0.17%
Foreign exchange loss	-0.10%	-0.05%
Gain on termination of ethylene off-take agreement	0.09%	–
Chlorine value chain separation costs	-0.08%	–
K-Dow settlement	–	3.79%
Gain on sale of Polypropylene Licensing and Catalysts business	0.01%	0.79%
Extinguishment of debt loss	–	-0.58%
Gain on sale of a 7.5 percent ownership interest in Freeport LNG Development	–	0.15%
sale of ownership interest in Dow Kokam LLC gains	–	0.05%
Reclassification of translation adjustments	-0.02%	0.04%
Gain (loss) on sale of a contract manufacturing business	–	–
Gain on joint venture consolidation	–	–
Gain on sale of Styron	–	–
Obligation related to past divestiture	–	–
Other, net	-0.01%	0.12%
Sundry income (expense), net	-0.05%	4.47%
Interest income	0.09%	0.07%
Interest expense and amortization of debt discount	-1.69%	-1.93%
Income before income taxes	9.05%	11.92%
Provision for income taxes	-2.45%	-3.48%
Net income	6.60%	8.44%
Net (income) loss attributable to noncontrolling interests	-0.12%	-0.05%
Net income attributable to The Dow Chemical Company	6.48%	8.39%
Preferred stock dividends	-0.58%	-0.60%
Net income available	5.90%	7.79%

Source: www.stock-analysis-on.net

Appendix B - Common Size Balance Sheet

Dow Chemical Company Common Size Balance Sheet For the year ended 31st December 2013 and 2014

Assets 2014 2013 Current Assets Cash and cash equivalents…………………………. 8.2% 8.5% Short Term Investments……………………………. - - Net Receivables…………………………………….. 14.8% 14.9% Inventory……………………………………………. 11.8% 11.9% Other current assets………………………………… 0.5% 0.5% Total Current Assets……………………………………… 35.3% 35.9% Property Equipment and Plant……………………………… 26.2% 25.1% Long Term Investments……………………………………. 10.6% 10.8% Intangible Assets………………………………...…………. 5.5% 6.2% Goodwill…………………………………………………… 18.4% 18.4% Other Assets……………………………………………....... - - Accumulated Amortization…………………………………. - - Deferred Long Term Asset Charges……………..…………. 4% 3.5% Total Assets………………………………………………… 100 100 LIABILITIES Current Liabilities Accounts Payable…………………………………… 23.1%   25.5% Current/Short Long Term Debt…………………….. 2% 2.6% Other Current Liabilities…………………………….. - - Total Current Liabilities………………………………...... 25.1% 28.2% Long Term Debt…………………………………….. 4.1%% 4.1% Other Liabilities…………………………………...... 3.1% 2.8%   Minority Interest……………………………………. 2% 2.4% Deferred Long Term Liability Charges…………….. 1.3% 1.7% Negative goodwill…………………………………… - - Total Liabilities…………………………………………… 100% 100% Stockholder’s Equity Misc Stocks Options Warrants……………………… 0.9% 0.6% Preferred Stock………………………………………. 17.8% 14.9% Redeemable Preferred Stock…………………………. - - Common Stock………………………………………. 13.9% 11.4% Treasury Stock……………………………………..... (-18.9%) (-1.8%) Retained Earnings……………………………………. 102.8% 79.6% Capital Surplus………………………………………. 21.6% 14.6% Other Stockholder Equity……………………………. (-37.2% (-19.3%) Total Stockholders’ Equity………………………………… 100% 100%

Source: https://finance.yahoo.com/q/bs?s=DOW+Balance+Sheet&annual

Appendix C - Dow Chemical Financial Ratios

Solvency Ratio

a. Working Capital = Current assets – Current liabilities

2014 24,267,000 - 11,593,000 = 12,674,000

2013 24,977,000 - 11,971,000 = 13,006,000

2012 23,684,000 - 11,493,000 = 12,191,000

b. Current Ratio = Current assets/Current liabilities

2014 24,267,000/11,593,000 = 2.093

2013 24,977,000/11,971,000 = 2.086

2012 23,684,000/11,493,000 = 2.061

c. Acid Test Ratio = (Cash + Marketable Securities + Current receivables)/Current liabilities

2014 (4.6B + 0.025 + 5.2B)/11,593,000 = 2.093

2013 (3.03B + 0.23 + 5.08B)/11,971,000 = 2.086

2012 (4.32B + 0.22 + 4.8B)/11,493,000 = 2.061

d. Accounts Receivable Turnover = Net Sales/Average accounts receivables

2014 58,167/4,685 = 12.42

2013 57, 080/4,935 =11.57

2012 56,786/5,074 = 11.19

e. Inventory Turnover = Cost of goods sold/Average inventory

2014 47,464, 000/8,670,000 = 5.475

2013 47,594,000/9,157, 000 = 5.198

2012 47,792,000/9,318,000 = 5.129

f. Days Sales in Receivables = (Accounts receivable/credit sales) x 365

2014 (8,670,000/47,464, 000) * 365 = 66.67

2013 9,157, 000/ 47,594,000) * 365 = 70.21

2012 9,318,000 / 47,792,000) * 365 = 71.16

g. Days Sales Inventory = (Ending inventory/cost of good sold) x 365

2014 (8,670,000/47,464, 000) * 365 = 66.67

2013 (9,157, 000/47,594,000) * 365 = 70.21

2012 (9,318,000/47,792,000) * 365 = 71.16

h. Debt to Equity Ratio = Total liabilities/Total stockholders’ equity

2014 46,171,000/22,423,000 = 2.059

2013 42,447,000/26,898,000 = 1.578

2012 48,581,000/26,898,000 = 1.806

i. Times Interest Earned = (Net income + Interest expense + Income Taxes)/Interest expense

2014 3,839,000 + 1,108,000 + 1,426,000 = 6,373,000

2013 4,816, 000 + 1,179,000 + 1,988,000 =7,983,000

2012 1,100,000 + 1,353,000 + 565,000 = 3,018,000

Performance Ratios

a. Asset Turnover = Net sale/Average total assets

2014 0.845 = 58,167, 000/68,796,000

2013 0.82= 57,080,000/69,501,000

2012 0.82 = 56,786,000/ 69,605,000

b. Return on Sales = Net income + Net-of-tax interest expense)/Sales

2014 0.199 = (5,265, 000 + 3,839,000)/ 47,464, 000

2013 0.244 = (6,804,000+4,816, 000)/ 47,594,000

2012 0.057 = (1,665,000+ 1,100,000)/ 47,792,000

c. Gross Margin Ratio = (Net Income - Cost of goods sold)/Net Sales

2014 (3,839,000 - 47,464, 000)/58,167,000 = -0.75

2013 (4,816, 000 - 47,594,000)/57,080,000 = -0.75

2012 (1,100,000 - 47,792,000)/56,786,000 = -0.82

d. Return on Assets = Net income + Net-of-tax interest expense)/Average total assests

2014 0.132 = (5,265, 000+ 3,839,000)/68,796,000

2013 0.167 = (6,804,000 + 4,816, 000)/69,501,000

2012 0.039 = (1,665,000+ 1,100,000)/69,605,000

e. Return on Equity = Net Income/Average stockholders’ equity

2014 3,839,000/ 22,423, 000 = 0.17

2013 4,816,000/ 26,898, 000 = 0.18

2012 1,100,000/20,877,000 = 0.0526

f. Average Interest Rate = Interest expense/Average total liabilities

2014 0.0213 = 983,000/46,171,000

2013 0.0259 = 1,101,000 /42,447,000

2012 0.0261 = 1,269,000/48,581,000

g. Book Value per Share = Shareholders’ equity of common shares/Number of common shares outstanding

2014 0.02 = 22,423,000/1,157,695,055

2013 0.022 = 26,898,000/1,215,829,233

2012 0.017 = 20,877,000/1,204,364,155

h. Earning per Share = Net income/Average number per common share outstanding

2014 3,432,000,000/1,157,695,055 = 2.96

2013 4,447,000,000/ 1,215,829,233 = 3.66

2012 842,000,000/1,204,364,155 = 0.70

i. Price Earning Ratio = Market price per common share/Earning per common share

2014 49.44 ÷ 2.96 = 16.68

2013 46.71/3.66 = 12.76

2012 32.16/0.7 = 45.94

j. Dividend Yield = Cash dividends per common share/Market price per common share

2014 0.53 = 26.20/49.44

2013 0.35 =16.35/46.71

2012 1.7 = 54.67/32.16

k. Dividend Payout = Cash dividends per common share/Earning per common share

2014 8.85 = 26.20/2.96

2013 4.48 =16.35/3.66

2012 77.14 = 54.67/0.7

Appendix D: BASF Financial Ratios

Solvency Ratio

a. Working Capital = Current assets – Current liabilities

2014 24,267,000 - 11,593,000 = 12,674,000

2013 24,977,000 - 11,971,000 = 13,006,000

2012 23,684,000 - 11,493,000 = 12,191,000

b. Current Ratio = Current assets/Current liabilities

2014 24,267,000/11,593,000 = 2.093

2013 24,977,000/11,971,000 = 2.086

2012 23,684,000/11,493,000 = 2.061

c. Acid Test Ratio = (Cash + Marketable Securities + Current receivables)/Current liabilities

2014 (2.28B + 0.02625 + 19.61B)/21.13B= 1.04

2013 (2.33B + 0.2186 + 16.73B)/19.04B = 1.01

2012 (2.29B + 0.2958 + 17.54B)/22.29B = 0.90

d. Accounts Receivable Turnover = Cash + Marketable Securities + Current receivables/Current liabilities

2014 58,167/4,685 = 12.42

2013 57, 080/4,935 =11.57

2012 56,786/5,074 = 11.19

e. Inventory Turnover = Cost of goods sold/Average inventory

2014 47,464, 000/8,670,000 = 5.475

2013 47,594,000/9,157, 000 = 5.198

2012 47,792,000/9,318,000 = 5.129

f. Days Sales in Receivables = (Accounts receivable/credit sales) x 365

2014 (10.39B/48.36B) * 365= 76.84

2013 (10.23B/53.61B) * 365 = 69.67

2012 (9.51B/50.67B) * 365 = 68.51

g. Days Sales Inventory = (Ending inventory/cost of good sold) x 365

2014 (8,670,000/47,464, 000) * 365 = 66.67

2013 (9,157, 000/ 47,594,000) * 365 = 70.21

2012 (9,318,000 / 47,792,000) * 365 = 71.16

h. Debt to Equity Ratio = Total liabilities/Total stockholders’ equity

2014 46,171,000/22,423,000 = 2.059

2013 42,447,000/26,898,000 = 1.578

2012 48,581,000/26,898,000 = 1.806

i. Times Interest Earned Earned = (Net income + Interest expense + Income Taxes)/Interest expense

2014 3,839,000 + 1,108,000 + 1,426,000 = 6,373,000

2013 4,816, 000 + 1,179,000 + 1,988,000 =7,983,000

2012 1,100,000 + 1,353,000 + 565,000 = 3,018,000

B. Performance Ratios

a. Asset Turnover = Net sale/Average total assets

2014 0.845 = 58,167, 000/68,796,000

2013 0.82= 57,080,000/69,501,000

2012 0.82 = 56,786,000/ 69,605,000

b. Return on Sales = Net income + Net-of-tax interest expense)/Sales

2014 0.199 = (5,265, 000 + 3,839,000)/ 47,464, 000

2013 0.244 = (6,804,000+4,816, 000)/ 47,594,000

2012 0.057 = (1,665,000+ 1,100,000)/ 47,792,000

c. Gross Margin Ratio = (Net Income - Cost of goods sold)/Net Sales

2014 (3,839,000 - 47,464, 000)/ 58,167,000 = -0.75

2013 (4,816, 000 - 47,594,000)/ 57,080,000 = -0.75

2012 (1,100,000 - 47,792,000)/ 56,786,000 = -0.82

d. Return on Assets = Net income + Net-of-tax interest expense)/Average total assets

2014 0.132 = (5,265, 000+ 3,839,000)/ 68,796,000

2013 0.167 = (6,804,000 + 4,816, 000)/69,501,000

2012 0.039 = (1,665,000+ 1,100,000)/ 69,605,000

e. Return on Equity = Net Income/Average stockholders’ equity

2014 3,839,000/ 22,423, 000 = 0.17

2013 4,816,000/ 26,898, 000 = 0.18

2012 1,100,000/20,877,000 = 0.0526

f. Average Interest Rate = Interest expense/Average total liabilities

2014 0.0213 = 983,000/46,171,000

2013 0.0259 = 1,101,000 /42,447,000

2012 0.0261 = 1,269,000/48,581,000

g. Book Value per Share = Shareholders’ equity of common shares/Number of common shares outstanding

2014 77.73 = 71,359/918

2013 67.76 = 62,204/918

2012 68.32 = 62,726/918

h. Earning per Share = Net income/Average number per common share outstanding

2014 4560/918 = 4.97

2013 6190/ 918 = 6.74

2012 4820/ 918 = 5.25

i. Price Earning Ratio = Market price per common share/Earning per common share

2014 918 /4.97 = 184.7

2013 918/6.74 = 136.2

2012 918/5.25 = 174.9

j. Dividend Yield = Cash dividends per common share/Market price per common share

2014 4.01 = 19.92/4.97

2013 3.48= 23.46/6.74

2012 4.68 = 24.57/5.25

k. Dividend Payout = Cash dividends per common share/Earning per common share

2014 4.01 = 19.92/4.97

2013 3.48= 23.46/6.74

2012 4.68 = 24.57/5.25

References

Dow Chemical Company Financial 2014 Report

Stock-analysis. (n.d.). Dow Chemical Co. Retrieved January 27, 2016, from Stock Analysis on Net: https://www.stock-analysis-on.net/NYSE/Company/Dow-Chemical-Co/Common-Size/Income-Statement

Yahoo, F. (n.d.). Dow Chemical Company. Retrieved January 27, 2016, from finance.yahoo.com: https://finance.yahoo.com/q/bs?s=DOW+Balance+Sheet&annual