Paraphrasing, Finance and Accounting - Example

Paraphrasing, Finance and Accounting Introduction Formerly known as Monsanto Ag Company, Monsanto Company was founded in 2000 and has its headquarters in St. Louis (Missouri). Monsanto is a major player in the global agricultural industry, primarily providin technology-based solutions and agricultural products for growers as well as downstream customers, including grain processors, across the world. The company has its operations in all continents: North and South America (i.e. the United States, Argentina, Brazil and Mexico), Canada, Europe, Africa and the Asia-Pacific. The company does not keep all its operations in-house. For example, it has a collaborative agreement with Novozymes A/S, which discovers, develops and produces microbial solutions. Along with its subsidiaries, Monsanto aims is to provide growers with integrated solutions to efficient and cost-effective production of higher crop yields through its seeds- with their genetic traits- and herbicides for weed, insect and disease control. In this regard, Monsanto utilizes Roundup as well as the latest tools in biotechnology, genomics and molecular breeding. Towards achieving its main goals, the Monsanto Company- along with its subsidiaries and through its operations across the world- provides various products for farmers globally. The company focuses on both the planting materials (such as seeds) and productivity. In other words, the company does not only focus on the types of planting materials used, but also the care of farms throughout the crop life cycle for high productivity. Accordingly, the company operates in two major segments, there is the Seeds and genomics segment and, secondly, the Agricultural Productivity segment. The seeds and genomics segment focuses on the production of row crop seeds, such as canola, cotton, com and soybean seeds, among others, which are under the company’s Asgrow, Channel, Deltapine and DEKALP brands; and vegetable seeds, such as beans, broccoli, cucumber, melon, tomato, pepper, onions, squash and lettuce, among others, under De Ruiter and Seminis brands. This segment also develops and produces biotechnology traits in the seeds that would help control weeds and insects. These traits are developed under various brands, including SmartStax, YieldGard VT Triple, YieldGard, VT Triple PRO, and VT Double PRO, as well as Bollgard and Bollgard II, Intacta RR2 PRO, Genuity, Roundup Ready and Roundup Ready 2 Yield. On its part, the Agricultural Productivity segment both manufactures and sells herbicides used for agricultural, turf, industrial, ornamental, residential lawn and garden applications, but also for the control of small-seeded broadleaf weeds and preemergent annual grass. Monsanto Company sells its products through various channels, including distributors, agricultural cooperatives, independent retailers and dealers, plant raisers and agent. They also sell directly to farmers. Focusing on these two segments, Monsanto Company has placed itself in a position to reap major benefits from the industry, with a Research and Marketing report indicating the pesticides make up the largest category inside the crop protection chemicals market. On the other hand, bio pesticides make up just a minute share of that market. Moreover, bio pesticides may suffer in the face of growing environmental concerns over the use of synthetic pesticides that are primarily produced using inorganic raw and/or petrochemical materials. Monsanto may however be well-placed to produce eco-friendly Bio pesticides- for which demand is growing. Indeed, Monsanto Company seems to be enjoying good benefits. For instance, the company shares trading in the New York Stock Exchange traded between the range of $117.90 and $119.62. Analysis Generally, the financial analysis of Monsanto’s statements shows a lack of pattern, with the bad being complemented by the good. Below is a review of its balance sheet, goodwill, total liabilities, gross profits, current ratio and inventory turnover ratio, among others. Current Assets and Goodwill The analysis of Monsanto’s balance sheet reveals that its current assets decreased between 2013 and 2014, when it was 4.80 percent. In the same period, the company’s cash and cash equivalents decreased at a rate of 7 percent of the total assets and its Goodwill increased to 2.6 percent in 2014 compared to 2013, but this has remained constant in 2015. Liabilities Furthermore, in the same period, the company’s current liabilities have been increasing steadily over the years, adding to the company’s Total Liabilities and Stockholder Equity. This means the company has been under increasing pressure to pay off its current debts. Ultimately, total liabilities have increased by 25 percent compared to the Total Liabilities and Stockholder Equity of the previous years. This has been attributed to the vast increase of the Long Term Debt in 2014 unlike in 2013. Income Statement The income statement shows that Monsanto’s gross profits (before tax and as a percentage of total revenue) have increased steadily every year. However, its working capital fell by $1,178 million between 2013 and 2014 (from $5,741 million in 2013 to $4,563 million in 2014). Working capital is expected to always be a positive number and lenders use it to evaluate the ability of a company to weather hard times. Accordingly, loan agreements often specify the level of working capital that the borrower (in this case Monsanto) should maintain to qualify for loans. The fall in Monsanto’s working capital level, therefore, impacts negatively on the lenders’ faith. Thankfully, despite the fall in the level of working capital, Monsanto seems to have maintained- at least in the 2013/2014 fiscal year- a satisfactory level. Moreover, the company’s current ratio was 2.32 in 2013 and 1.89 in 2014. In both cases the current ratio is more than 1, which means Monsanto has enough current assets to make the payment of the current liabilities. The same pattern repeats itself in the company’s Acid Test Ratio, which was 1.61 in 2013 and 1.15 in 2014, which was again more than 1. Generally, quick ratios between 0.5 and 1.00 are considered to be good. With quick ratios of more than 1, this means that the company could meet its obligations even in adverse conditions. Inventory Turnover Ratio Essentially, the inventory turnover ratio is used to measure the rate at which a company purchases raw materials and sells its finished goods to its customers. Unfortunately for Monsanto, the company’s inventory turnover ratio fell from 2.49 in 2013 to 2.23 in 2014. This lower inventory turnover ratio means that the company lacks the ability to utilize its inventory properly. Moreover, the holding period of the inventory is longer. In the same period, the company also recorded high debt/equity ratio, which means that its growth has mainly been financed by debts and can result in volatile earnings as a result of the additional interest expense. This can lead to other negative impacts. For instance, it can result in volatile earnings as a consequence of additional interest expense. The impact of debt/equity ratio also varies from one industry to another. Capital-intensive industries (like auto-manufacturing industry), for instance, have debt/equity ratios of over 2. On the other hand, less capital-intensive industries, such as personal computer industry have lower debt/equity ratios, i.e. 0.5. Monsanto operates in a less capital-intensive industry and, therefore, its high debt/equity ratio means that the company is in a good position. This is a good sign for the company. Asset (Total Asset) Turnover Essentially, the asset turnover ratio refers to a financial ratio by which to measure how efficiently a company uses its assets to product sales. Monsanto’s total asset turnover ratio has increased slightly in the last two years. In 2013, the company total asset turnover ratio was 0.73. This increased by 0.01 to 0.74 in 2014. In other words, the company is utilizing its assets in the proper way and the inventory’s holding period is less. P/E Ratio The P/E is generally a valuation multiple used as a guide to the company’s relative values. Monsanto’s P/E ratio has increased in the past two years. In 2013, it was 4.65 and in 2014 it increased to 5.20. Earnings per Share (EPS) and Return on Equity (ROE) The Earnings per Share (EPS) indicates the company’s profitability. It refers to the profit allocated to each common share or stock of the company and is the single most important indicator of the company’s share price. Related to this is the return on equity (ROE), which refers to the income available to shareholders for each dollar that they have invested in the company. Like the EPS, the ROE helps to measure the company’s profitability. But differently from the EPS, the ROE does this by measuring how much profit the company generates from the shareholders’ investments. The company’s Return on Equity (ROE) also increased in the last two years, from 20.35 percent in 2013 to 26.82 percent in 2014. This showed improved return on shareholders’ investment. However, these rates are still low and is might also mean that company is not investing its money efficiently. The company’s ROA also increased between 2013 and 2014. In 2014, it was 12.54 percent. This was about 10 percent increase compared to the preceding fiscal year. This was a sign of improvement. It is important to note that the industry ROA in the same period was 9.75 percent. Conclusion Indeed, balance sheets present the health of a company as of one point in time. Therefore, manager can get valuable information when they compare the progress and trends of business, which involves regularly evaluating and comparing balance sheets of past time periods. The information from such a comparison and analysis can make a big difference for companies. In this particular comparison, it becomes evident that, between 2013 and 2014, Monsanto made progress in some areas, but did worse in others. However, generally, the company preformed better in 2014 than 2013. Regardless, there is need to do better. For instance, the company should reduce its overreliance on debts for its growth, among others. Ultimately, companies should make good investment for its investors. After reviewing the strategies of Monsanto in recent years’ financial statements an ratios, this paper concludes that Monsanto can make good investment with its product and service diversification, brand name, lower operating expenses, larger net incomes and higher sales volumes. Most importantly, the figures indicate a potential for growth into the future. Read More