Assignment 1: Financial Analysis of John Deere
David Schwendinger
Strayer University
Financial Accounting for Managers
Acc 556
Dr. James Turkvant
May 11, 2015 Assignment 1: Financial Analysis of John Deere
In this paper I will provide analysis of the annual report provided by the company. I will specifically looking at this report from an investor’s prospective, attempting to ascertain whether John Deere is managing its finances in manner that will draw investors. Other, non-financial, aspects of John Deere will also be considered that could be used as decision points for potential backers. This will also be considered in the larger context of the construction and farm machinery industry and some of John Deere’s competitors.
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This shows a different picture as the total assets increase over current assets by about $15 Billion dollars and the total liabilities increase over current liabilities by $31 Billion. (Deere & Company, 2014, p. 32) This shows a debt to assets ratio of 85%. This level of debt could make a prospective investor very leery. This is countered the John Deere’s times interest earned at 5.4. While this number is not great, it is not terrible either. If it were lower, that combined with the debt to asset ratio would be a very large warning flag.
Determining whether to invest in John Deere or not is not a simple decision as the numbers do not point to a clear answer. They also are only one point of analysis when looking at the industry or the stock market as a whole. John Deere is ranked second in its industry, behind Caterpillar. (Fortune, 2014) This may to seem to indicate that investing in Caterpillar would be a better decision but while John Deere’s sales were only up 4.5%, Caterpillar’s were down 15.5% from the previous year. (Fortune, 2014) Navistar International Corp is another competitor that has been struggling with the current state of the Industrial Equipment industry. They have seen their stock price drop by about a third in the last year. ("Navistar International Corp (NAV:New York)," 2015) Now does this mean that an investment in John Deere is a wise one? Considering the reduction in
The problem that Deere faces is how they can successfully move to the middle of the perceptual map to be respected as a manufacturer of both small tractors and large tractors. There are several observations that can be made regarding the positioning of the competitors. The first observation is both International Harvester and Case are competing in both the large and small tractor market. It is evident that International Harvester experience financial difficulties perhaps as a result of not having a singular focus. Another observation is that Caterpillar’s decision to “reposition” itself from a small manufacturer to a large manufacturer could easily be explained by Paretti’s 80/20 rule. Caterpillar enjoyed an extensive dealer network, and their dealer sales ranged from $12 million to $70 million, versus Deere’s $1 million to $16 million in sales per dealer. By tapping into Paretti’s 80/20 principle, Deere could enjoy increased margins from the sale of parts alone.
I attest that this document is an original creation submitted in accordance with the requirement for the Comprehensive Written Project (CWP) in Seminar in Business Strategy (GB-5388) during the Fall 2015 academic term.
Massey’s competitors were International Harvester and Deere&Company. In 1976, Massey’s market share was 34%, while the other two were 27.7% and 38% respectively. International Harvester had the highest sales and it was also the most efficient in making use of its assets, with a sales/asset ratio of 1.54. Massey was in the middle, doing better than Deere&Company. With regard to financing, in 1976, Massey and International Harvester both had a less than 50% debt/total capital. While till 1980, International Harvester managed to keep the ratio around 50%, Massey had the total debt/capital ratio out of control, with more than 80% debt financing. Neither of the two competitors relied on short term debt such as STD, while Massey relied heavily on STD.
The report provides the analysis of the Harrison Company. The company financial conditions reveal that the company profitability has declined in the last three years making the company to face challenges in settling its short-term obligation. For example, Harrison Company has not been able to settle suppliers' payment on time as being stipulated in the contract agreement. The company deteriorating financial conditions has also made the company todecline the costs of marketing campaign in the last three years. With the implementation of various strategies to improve the company financial conditions, the report forecasts that the company will generate sales totaled $295 Million in the next five years compared to the company sales of $48 Million in the last year.
First of which, is the current ratio. It has been rapidly declining since 2000. To me this indicates that there is a liquidity issue. Each year their trade debt increase exceeds the increase of net income for the company. As a result, the working capital has taken a nosedive from $58,650 in 2002 to only $5,466 in 2003.
Return on Total Assets was 4.43% which is below five percent. That indicates that the company is not accurately converting its assets into profit. The total for Return on Stockholders’ Equity was 8.89%, however financial analysts prefer ROE to range between 15-20 %. The company’s low ROE indicates that the company is not generating profit with new investments. Lastly, Debt-to-Equity ratio for the company was 1.01 which indicates that investors and creditors are equally sharing assets. In the view of creditors, they see a high ratio as a risk factor because it can indicate that investors are not investing due to the company’s overall performance. The totals of these three ratios demonstrate that the company’s financial state is not as healthy as it should be.
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