ManageRIAL ACCOUNTING - Dow Chemical Financial Report -- Need help fixing the report and calculating Financial rates

Nova Southeastern University  H. Wayne Huizenga College  of Business & Entrepreneurship

 

Assignment for Course:	Accounting for Decision Makers – ACT 5240
Submitted to:	Dr. Deborah Pendarvis
Submitted by:	Patricia A Moreira
	N01320266

Date of Submission:

Title of Assignment: Financial Reporting Project: Dow Chemical Company

CERTIFICATION OF AUTHORSHIP: I certify that I am the author of this paper and that any assistance I received in its preparation is fully acknowledged and disclosed in the paper. I have also cited any sources from which I used data, ideas or words, either quoted directly or paraphrased. I also certify that this paper was prepared by me specifically for this course.

Student's Signature: Patricia Moreira .

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Financial Reporting: Dow Chemical Company

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 investment 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.

Other 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

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 its 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 III

The purpose of the second part of the comprehensive project is to compute financial statement ratios. Show all information in an easy-to-read tabular form.

A. Compute the 9 solvency ratios from page 487 for the past three years. Display your answers in a tabular format. Indicate on your worksheet whether each ratio is: stronger / weaker ; quicker /slower ; more / less liquid ; or more / less risk. Below your table, comment on the financial condition of the company with respect to short term solvency and long term solvency. Your comments should be at least 300 words. On a separate page, show how your answers were calculated (APPENDIX)

B. Compute the 11 performance ratios from page 487 for the past three years. Display your answers in a tabular format. Indicate on your worksheet whether each ratio is: stronger / weaker; quicker /slower ; more / less liquid ; or more / less risk. Below your table, comment on the financial condition of the company with respect to performance. Your comments should be at least 300 words. On a separate page, show how your answers were calculated (APPENDIX).

IV. Requirement Part IV

The purpose of the fourth part of the comprehensive project is to compare Dow Chemical Company ratio results to ratios of one of its top competitors. Show all information in an easy-to-read tabular form.

A. Obtain the four-digit primary SIC (Standard Industrial Classification) Code and industry title for your company. Record the primary SIC code and industry title at the top of your Ratio Analysis Table/Spreadsheet.

B. For a competitor company with the same SIC, calculate the following ratios for the two most recent years.

1. Compute the 9 solvency ratios from page 487 for the past three years. Display your answers in a tabular format. Indicate on your worksheet whether each ratio is: stronger / weaker ; quicker /slower ; more / less liquid ; or more / less risk. Below your table, comment on the financial condition of the company with respect to short term solvency and long term solvency. Your comments should be at least 300 words. On a separate page at the end of your paper (the Appendix), show how your answers were calculated.

2. Compute the 11 performance ratios from page 487 for the past three years. Display your answers in a tabular format. Indicate on your worksheet whether each ratio is: stronger / weaker; quicker /slower ; more / less liquid ; or more / less risk. Below your table, comment on the financial condition of the company with respect to performance. Your comments should be at least 300 words. On a separate page at the end of your paper (the Appendix), show how your answers were calculated.

C. Submit a report. Write a 2-4 page report comparing Dow Chemical’s ratios to its competitor’s ratios for the two most recent years. Discuss whether Dow Chemical’s profitability, liquidity, and solvency are better than, or worse than, its competitor.

V. Requirement Part V:

A. Prepare a well-written titled “Would You Advise a Friend to Invest in This Company?” based upon your research and analysis of this company's financial information. Identify 3-5 significant points that justify your conclusion. Support your points with a comprehensive explanation incorporating sound reasoning.

B. Submit a report that is 3-4 pages long. The report should be well written with introductory and concluding paragraphs. References must be appropriately cited.

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

Appendix

Appendix A – Common Size Income Statements

Dow Chemical Co., Common-Size Income Statements
	Dec 31, 2014	Dec 31, 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%
Loss on early extinguishment of debt	–	-0.58%
Gain on sale of a 7.5 percent ownership interest in Freeport LNG Development, L.P.	–	0.15%
Gain on sale of ownership interest in Dow Kokam LLC	–	0.05%
Reclassification of cumulative translation adjustments	-0.02%	0.04%
Gain (loss) on sale of a contract manufacturing business	–	–
Gain on consolidation of a joint venture	–	–
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 for The Dow Chemical Company common stockholders	5.90%	7.79%
Source: www.stock-analysis-on.net
Appendix B – Common Size Balance Sheets
Dow Chemical Co., Common-Size Balance Sheets
	Dec 31, 2014	Dec 31, 2013
Assets
Current Assets
Cash And Cash Equivalents	5,654,000	5,940,000
Short Term Investments	-	-
Net Receivables	10,184,000	10,390,000
Inventory	8,101,000	8,303,000
Other Current Assets	328,000	344,000
Total Current Assets	24,267,000	24,977,000
Long Term Investments	7,322,000	7,493,000
Property Plant and Equipment	18,051,000	17,454,000
Goodwill	12,632,000	12,798,000
Intangible Assets	3,768,000	4,314,000
Accumulated Amortization	-	-
Other Assets	-	-
Deferred Long Term Asset Charges	2,756,000	2,465,000
Total Assets	68,796,000	69,501,000
Liabilities
Current Liabilities
Accounts Payable	10,648,000	10,831,000
Short/Current Long Term Debt	945,000	1,140,000
Other Current Liabilities	-	-
Total Current Liabilities	11,593,000	11,971,000
Long Term Debt	18,838,000	16,820,000
Other Liabilities	14,187,000	11,912,000
Deferred Long Term Liability Charges	622,000	718,000
Minority Interest	931,000	1,026,000
Negative Goodwill	-	-
Total Liabilities	46,171,000	42,447,000
Stockholders' Equity
Misc Stocks Options Warrants	202,000	156,000
Redeemable Preferred Stock	-	-
Preferred Stock	4,000,000	4,000,000
Common Stock	3,107,000	3,054,000
Retained Earnings	23,045,000	21,407,000
Treasury Stock	-4,233,000	-307,000
Capital Surplus	4,846,000	3,928,000
Other Stockholder Equity	-8,342,000	-5,184,000
Total Stockholder Equity	22,423,000	26,898,000
Net Tangible Assets	6,023,000	9,786,000
Source: https://finance.yahoo.com/q/bs?s=DOW+Balance+Sheet&annual