Financial Analysis Report
Each student is required to perform a comparative financial ratio analysis for the most
recent year available on a publicly traded company and its primary competitor using the
financial ratios covered in class in Chapter 4.
Target vs CVS
GETTING STARTED:
First Step: Pick a publicly traded company listed on the NYSE or NASDAQ.
This cannot be a financial company. It should be a manufacturer or a
nonfinancial service company. I already pick the two company Target vs CVS
How do I do that?
Go to Yahoo.Finance
Select “Symbol Lookup”
Enter a company name
Second Step: Pick a primary competitor for that company.
How do I do that?
Go to Rueters.com
Use search icon at top right and type in company name
and hit return
Select “Companies” tab
Select a company from the list
Then look at the right under
“competitors” (Ensure you select a
company and competitor whose
prices are quoted in $.)
Source of Information: You need the last available year of financial statements
to perform your analysis. While there are several good sources on the Web, an
easy source to use is: http://www.finance.yahoo.com (Note: The last available
year on your two competitors does not have to be the same year. That is, if the
last available year on one company is 2016, and the last available year on its
competitor is 2017, that is OK.)
REPORT FORMAT:
A HEAVY PORTION OF THE GRADING OF YOUR REPORT WILL BE BASED ON
FOLLOWING THE FORMAT GIVEN BELOW.
1st page – Your cover page should list your names, the course name, the semester, and
the title “Comparative Financial Analysis of ___ and ___” (the blanks are the company
names)
Next 2-to-3 pages – This should be your executive summary in which you discuss your
findings, along with your assessments and the reasoning for your findings. It should
contain the sections listed below:
I.
Introduction – What is the primary line of business for each company? How do
they differ in this regard?
II.
Liquidity Analysis – Which company has the stronger liquidity ratios? Which
company appears to be a safer candidate for a short-term loan?
III.
Asset Management Analysis – Which company appears to be more efficient in the
management of its assets? What are the major differences in this area?
• Note that “Cost of Revenues” may be used as “Cost of Goods Sold” (they are
the same measure).
• The item labeled “Net Tangible Assets” may be ignored.
IV.
Debt Management Analysis – Which company appears to be the safer company to
a long-term bond investor or stock investor?
V.
Profitability Analysis – Which company appears to be performing better in terms
of profitability?
VI.
Market Value Analysis – Which company is trading at a higher price/EPS ratio or
a higher price/BVPS ratio? What do you think that one of the companies is
trading at higher price multiples than the other?
VII. Summary – Briefly discuss the one or two most dramatic differences observed
between the two companies in terms all of the ratios examined above. Offer your
opinion of which company is being better operated and financial stronger overall.
Explain your reasoning.
Next one or two pages – These should include your ratio calculations and table of ratio
values.
Last four pages – These should include the balance sheets and income statements for
each of the two companies.
How can you lose points due to formatting mistakes?
-
Fail to include one of the primary sections above.
Fail to use subheadings in the executive summary.
Refer to numbers instead of comparisons in your discussions in the executive
summary:
Incorrect format: “Company A’s current ratio of 2.3 is greater than the
Company B current ratio of 2.1.”
Correct format: “Company A shows higher current and quick ratio values
than those of Company B (refer to Ratio Findings – Table B).”
-
Fail to include table of ratio calculations.
Fail to include table of ratio value findings.
Fail to include financial statements.
Fail to provide label and title for each table or attached financial statement:
Incorrect format: “Ratio Calculations”
Incorrect format: “Table B”
Correct format: “Table B – Ratio Calculations”
-
-
Have financial statements that spill over to more than one page each.
Have financial statements presented in very small font. (Suggestion: Copy the
financial statements into a spreadsheet. Then delete the rows or columns that contain
no values.)
Have messy financial statements that are not clean (i.e., include web garbage in the
margins).
Have any portion of the report hand-written.
Student: Robert Cudd
FIN341 Business Finance
Spring 2017
Comparative Financial Analysis of
Stanley Black & Decker Corporation
And
Danaher Corporation
Executive Summary
Introduction
The following is a basic financial analysis of Stanley Black & Decker Corporation and
Danaher Corporation. For the sake of brevity, Stanley Black & Decker Corporation is
hereafter referred to simply as Stanley. Likewise, Danaher Corporation is hereafter
referred to simply as Danaher.
Stanley is a global provider of tools and storage, commercial electronic security, and
engineered fastening systems worldwide. It also offers alarm monitoring, video
surveillance, and other home and other security systems. However, the primary source of
sales is the manufacture and sale of power and hand tools. The company was formerly
known as The Stanley Works and changed its name to Stanley Black & Decker
Corporation in 2010. The company was founded in 1843 and is headquartered in New
Britain, Connecticut.
Danaher designs, manufactures, and markets professional, medical, industrial, and
commercial products and services worldwide. The products include laser scanning,
compound, and surgical and other stereo microscopes, and other technologies to the
biopharmaceutical, food and beverage, medical, aerospace, microelectronics, and general
industrial sectors. The company was formerly known as Diversified Mortgage Investors,
Inc. and changed its name to Danaher Corporation in 1984. Danaher Corporation was
founded in 1969 and is headquartered in Washington, the District of Columbia.
While Reuters lists these two companies as primary competitors, there is a considerable
difference in the composition of their sales, which may cause ratio comparisons to be
considered with cautious discretion. Stanley provides a broad variety of products and
services, however, Danaher has a much greater portion of its products and services
concentrated in the medical services and products sector.
The following analysis is based on financial ratios for the 2016 fiscal year for each
company. Ratio results are presented in Exhibit A. Calculations of the financial ratios
are displayed in Exhibits B1 and B2. The balance sheets and income statements are
presented in Exhibits C1, C2, D1, and D2.
Liquidity Analysis
Comparison of the two liquidity ratios suggest that Danaher is much less liquid than
Stanley (refer to Liquidity Group in Exhibit A). The current ratio and quick ratio values
for Danaher are roughly half those of Stanley. If nature of the medical sector sales causes
the daily cash flow for Danaher to be much more stable than that for Stanley, the lower
liquidity ratio values for Danaher may be justified and not reflect greater risk in paying
short-term obligations.
Taking the liquidity ratios at face value, however, Danaher appears to be the less liquid of
the two companies. To the extent that the two companies are comparable in makeup, this
should cause the cost and availability of short-term loans to be less favorable for
Danaher.
Asset Management Analysis
The pattern of comparison of the turnover ratios suggests that Danaher is more efficient
in moving its inventory, but less efficient in generating sales relative to its size whether
measured by fixed assets or total assets (refer to Asset Management Group in Exhibit A).
While the fixed assets turnover ratio is only slightly lower for Danaher, the total assets
turnover ratio is much lower.
Part of the difference in total assets turnover could be reflected in the longer days sales
outstanding for Danaher, which would cause receivables to be higher and total assets
turnover to be lower. Many of these differences, however, could also be due to
differences in the composition of sales between the two companies, especially with a
large portion of Danaher’s sales occurring in the medical sector. More stable sales in the
medical sector would permit Danaher to carry less in inventory safety stocks.
At face value, Danaher appears to be less efficient in generating sales for its size than
Stanley, and also less efficient in managing its collections.
Debt Management Analysis
Contrasting the first two ratios, there appears to be mixed results (refer to Asset
Management Group in Exhibit A). Danaher has a lower debt-to-capital ratio, but a
slightly higher debt ratio. This could be due to a relatively greater use of non-capital
sources of funding for its size by Danaher (such as accounts payable). This could also
partially explain the much higher times-interest-earned ratio for Danaher, since a
relatively larger portion of its debt funding does not involve interest expense (such as
accounts payable).
Again, many of the differences in debt management between the two companies could be
due to differences between a broad array of products and services, and those unique to the
medical sector. However, taking the asset management ratios at face value, Danaher
appears to be considerably safer than Stanley. Danaher has a considerably lower debt-tocapital ratio and a considerably higher times-interest-earned ratio. Consequently,
Danaher should find additional debt funding to be more available and at a lower cost.
Profitability Analysis
A comparison of the profitability ratio values indicates that Danaher has comparable or
superior profitability compared to Stanley, especially in terms of its profit margins (refer
to Profitability Group in Exhibit A). However, Danaher’s return-on-invested-capital is
only roughly half that of Stanley, primarily because a much larger portion of Danaher’s
total assets funding is through capital (i.e., interest-bearing debt and equity).
Consequently, there is a mixed picture in terms of profitability with some profitability
measures (e.g., operating margin and profit margin) considerably higher for Danaher and
some measures (e.g., return on equity and return on invested capital) considerably higher
for Stanley.
Market Value Analysis
The two market value ratios present a mixed picture in terms of the market’s view of the
company performance (refer to Market Value Group in Exhibit A). The price-to-earnings
ratio is higher for Danaher, while the price-to-book value ratio is higher for Stanley.
However, two of the profitability ratios that are based on net income, the return on assets
and return on equity, suggest that Danaher’s profitability is slightly lower than Stanley’s,
and depressed profit can artificially inflate the price-to-earnings ratio.
The market-to-book ratio, however, is less influenced by depressed profit. Comparison
of the two market-to-book ratio values indicates that the market favors Stanley over
Danaher in terms of this multiplier.
Summary
The financial analysis suggests stark differences in the operations of the two companies.
Stanley appears to be the more liquid company, but Danaher appears to carry lower risk
in terms of its level of debt and ability to cover interest expense on debt. Danaher
appears to be considerably less efficient in terms of generating sales for its size (based on
total assets), and much less efficient in its collections. While the profit margins appear to
favor Danaher, returns on equity and invested capital clearly favor Stanley. Finally, the
market price multipliers appear to favor Stanley.
Reuters lists these two companies as primary competitors. However, caution should be
exercised in interpreting the ratio comparisons just performed. The heavy concentration
of Danaher’s business in the medical sector suggests that a significant portion of the
differences in ratio findings may be attributed to differences in the industries in which
these two companies operate.
Exhibit A - Financial Ratio Results
Danaher
Stanley
Black &
Decker
Current Ratio
0.97
1.71
Quick Ratio
0.72
1.18
Inventory Turnover
9.88
7.72
Fixed Assets Turnover
7.17
7.86
Total Assets Turnover
0.37
0.73
Days Sales Outstanding
68.9
41.7
Debt-To-Capital
26.4%
37.5%
Debt Ratio
27.1%
24.5%
15.2
7.3
Operating Margin
16.6%
12.5%
Profit Margin
15.1%
8.5%
Basic Earning Power
6.2%
5.9%
Return on Assets
5.6%
6.2%
Return on Equity
11.1%
15.2%
5.2%
9.1%
23.5
20.3
2.6
3.1
Liquidity Group
Asset Management Group
Debt Management Group
Times Interest Earned
Profitability Group
Return on Invested Capital
Market Value Group
Price-to-Earnings
Price-to-Book Value
Exhibit B1 - Danaher Ratio Calculations
Liquidity Group
Current Ratio
6,665,100/6,874,000
Quick Ratio
(6,665,100-1,709,400)/6,874,000
Asset Management Group
Inventory Turnover
16,882,400/1,709,400
Fixed Assets Turnover
16,882,400/2,354,000
Total Assets Turnover
16,882,400/45,295,300
Days Sales Outstanding
3,186,100*365/16,882,400
Debt Management Group
Debt-To-Capital
(2,594,800+9,674,200)/(2,594,800+9,674,200+23,002,800)
Debt Ratio
(2,594,800+9,674,200)/45,295,300
Times Interest Earned
2,795,700/184,400
Operating Margin
2,795,700/16,882,400
Profit Margin
2,553,700/16,882,400
Basic Earning Power
2,795,700/45,295,300
Return on Assets
2,553,700/45,295,300
Return on Equity
2,553,700/23,002,800
Return on Invested Capital
2,795,700*(1-.35)/(2,594,800+9,674,200+23,002,800)
Profitability Group
Market Value Group
Price-to-Earnings
86.62/(2,553,700/693,280)
Price-to-Book Value
86.62/(23,002,800/693,280)
Exhibit B2 - Stanley Black & Decker Ratio Calculations
Liquidity Group
Current Ratio
4,788,500/2,807,500
Quick Ratio
(4,788,500-1,478,000)/2,807,500
Asset Management Group
Inventory Turnover
11,406,900/1,478,000
Fixed Assets Turnover
11,406,900/1,451,200
Total Assets Turnover
11,406,900/15,634,900
Days Sales Outstanding
1,302,800*365/11,406,900
Debt Management Group
Debt-To-Capital
(12,100+3,815,300)/(12,100+3,815,300+6,367,000)
Debt Ratio
(12,100+3,815,300)/15,634,900
Times Interest Earned
1,420,600/194,500
Profitability Group
Operating Margin
1,420,600/11,406,900
Profit Margin
965,300/11,406,900
Basic Earning Power
1,420,600/15,634,900
Return on Assets
965,300/15,634,900
Return on Equity
965,300/6,367,000
Return on Invested Capital
1,420,600*(1 -.35)/(12,100+3,815,300+6,367,000)
Market Value Group
Price-to-Earnings
128.27/(965,300/152,580)
Price-to-Book Value
128.27/(6,367,000/152,580)
Exhibit C1 - Stanley Black & Decker Income Statement
Income Statement
All numbers in thousands
Revenue
12/31/2016
Total Revenue
Cost of Revenue
Gross Profit
11,406,900
7,139,700
4,267,200
Operating Expenses
Selling General and
Administrative
2,798,900
Non Recurring
Operating Income or Loss
70,900
1,397,400
Income from Continuing Operations
Total Other
Income/Expenses Net
Earnings Before Interest and
Taxes
Interest Expense
Income Before Tax
Income Tax Expense
Minority Interest
Net Income From
Continuing Ops
23,200
1,420,600
194,500
1,226,100
261,200
6,600
965,300
Net Income
Net Income
Net Income Applicable To
Common Shares
Stock Price Per Share (Close on March 8, 2017)
Number of Shares Outstanding (thousands)
965,300
965,300
$128.27
152,580
Exhibit C2 - Stanley Black & Decker Balance Sheet
Balance Sheet
All numbers in thousands
Period Ending
12/31/2016
Current Assets
Cash And Cash Equivalents
Net Receivables
Inventory
Other Current Assets
Total Current Assets
1,131,800
1,302,800
1,478,000
875,900
4,788,500
Property Plant and
Equipment
1,451,200
Goodwill
Intangible Assets
Other Assets
Total Assets
6,694,000
2,299,500
401,700
15,634,900
Current Liabilities
Accounts Payable
2,741,900
Short/Current Long Term
Debt
12,100
Other Current Liabilities
Total Current Liabilities
Long Term Debt
Other Liabilities
53,500
2,807,500
3,815,300
1,903,100
Deferred Long Term
Liability Charges
Minority Interest
Total Liabilities
735,400
6,600
9,267,900
Stockholders' Equity
Common Stock
Retained Earnings
Treasury Stock
Capital Surplus
Other Stockholder Equity
Total Stockholder Equity
Net Tangible Assets
442,300
5,127,300
-2,029,900
4,774,400
-1,947,100
6,367,000
-2,626,500
Exhibit D1 - Danaher Balance Income Statement
Income
Statement
All numbers in thousands
Revenue
12/31/2016
Total Revenue
Cost of Revenue
Gross Profit
16,882,400
7,547,800
9,334,600
Operating Expenses
Research Development
Selling General and
Administrative
Operating Income or Loss
975,100
5,608,600
2,750,900
Income from Continuing Operations
Total Other
Income/Expenses Net
Earnings Before Interest and
Taxes
Interest Expense
Income Before Tax
Income Tax Expense
Minority Interest
Net Income From
Continuing Ops
44,800
2,795,700
184,400
2,611,300
457,900
74,000
2,153,400
Non-recurring Events
Discontinued Operations
400,300
Net Income
Net Income
Net Income Applicable To
Common Shares
Stock Price Per Share (Close on March 8, 2017)
Number of Shares Outstanding (thousands)
2,553,700
2,553,700
$86.62
693,280
Exhibit D2 - Danaher Balance Sheet
Balance Sheet
All numbers in thousands
Period Ending
12/31/2016
Current Assets
Cash And Cash
Equivalents
963,700
Net Receivables
Inventory
Other Current Assets
Total Current Assets
3,186,100
1,709,400
805,900
6,665,100
Property Plant and
Equipment
2,354,000
Goodwill
Intangible Assets
Other Assets
Total Assets
23,826,900
11,818,000
631,300
45,295,300
Current Liabilities
Accounts Payable
4,279,200
Short/Current Long Term
Debt
2,594,800
Total Current Liabilities
Long Term Debt
Other Liabilities
Minority Interest
Total Liabilities
6,874,000
9,674,200
5,670,300
74,000
22,292,500
Stockholders' Equity
Common Stock
Retained Earnings
Capital Surplus
Other Stockholder Equity
Total Stockholder Equity
Net Tangible Assets
8,100
20,703,500
5,312,900
-3,021,700
23,002,800
-12,642,100
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