Return on Total Assets; Sherwin Williams Co. (SHW)

Ratio

Company 2011

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Company 2010

Company 2009

Return on Total Assets

(NI/Assets)

8.45 %

8.95%

10.08 %

Workings 1

2011 = NI/ Assets, (441,860/5,229,252) * 100, = 8.45 %

2010= (462,485/ 5,169,235)* 100 = 8.95 %

2009 = (435,848/ 4,323,855)*100 = 10.08 %

Return on Total Assets; Valspar Corp (VAL);

Ratio

Company 2011

Company 2010

Company 2009

Return on Assets (NI/ Assets)

Workings 1b;

2011= NI/Assets, (138,601)/ 3,500,151= – 3.96 %

2010 = 319,197/ 3,867,936 = 8.25 %

2009 = 238,328/ 3,511,024 = 6.79 %

Evaluation:

The Return on Assets for both of the companies depicts an insignificant growth. There are numerous reasons for this downward trend;

First, it is safe to assume that the assets accounts assumed an upward growth for a higher rate as compared to the resultant net income. Assets assumed an upward trend because the accounts receivables increased given the fact that these companies allowed for more sales on credit in subsequent financial periods. Also, there was perceived higher levels of inventory which is caused by surplus purchase. It is also possible that the two companies had the values of their fixed assets increase at an alarming rate.

Return on Equity; Sherwin Williams Co. (SHW);

Ratio

2011

2010

2009

Return on Equity(NI/Equity)

29.13 %

28.74 %

29.23 %

Workings 2a,

2011= NI/ Equity, (441,860/1,516,919) * 100 % = 29.13 %

2010= (462,485/ 1,609,440)* 100 % = 28. 74 %

2009 = (435,848/1,490,950) * 100 % = 29.23 %

Return on Equity; Valspar Corp (VAL);

Ratio

2011

2010

2009

Return on Equity

Workings 2b;

2011= NI/ Equity, [(138,601)/ 1,212,550]* 100 % = – 11. 43 %

2010 = (319,197/1,630,365) * 100 % = 19. 58 %

2009 = (238,328/1,504,507) * 100 % = 15. 84 %

Analysis:

It is assumedly clear to postulate to the assumption that the ratio for the two companies are unpredictable. They keep on shifting but to the negative side. By comparing the two companies it is safe to assume that Sherwin William’s Co depicts a slightly favorable ratio when compared to the current recommended industry ratio of 130 %.

The unpredictability of the ratios is assumed to be caused by either of the following facets;

First, unpredictable low sales as sales are perceived to decrease as the financial years progresses. Low sales is directly linked to significantly lower prices, absence of advertising in order to attract more customers and more competitors in the market upon which the businesses operates.

Second, the low ratio might be linked to higher cost of goods as in reflected in the income statement. These significant changes might be as a result of changing of the supplier, lower goods discounts as well increased shipping costs.

There could be a significant increase in the amount of interest on total liabilities which is depicted by subsequent increase in liabilities in the preceding financial years.

Fixed Assets Turnover; Sherwin Williams Co. (SHW)

Ratio

2011

2010

2009

Fixed Assets Turnover(Sales/Fixed Assets)

3.5 X

3.2 X

3.19 X

Workings 3a;

2011 = Fixed Assets Turnover, Sales/ Fixed Assets = 8,765,699/ 2,472,950 = 3.5 X

2010 = 7,776,424/ 2,426,175 = 3.2 X

2009 = 7,094,249/ 2,221,157 = 3.19 X

Fixed Assets Turnover; Valspar Corp (VAL);

Ratio

2011

2010

2009

Fixed Assets Turnover Ratio, Sales/ Fixed Assets

7.21 X

5.68 X

6.11X

Workings 3b,

2011 = S/ FA = 3,952,954/548,253 = 7. 21 X

2010 = 3,226,687/ 567,630 = 5.68 X

2009 = 2,879,042/ 471,088 = 6.11 X

Evaluation:

For Sherwin Williams Co. the ratio seems to increase a steady rate. The significant increase in the ratio is assumed to be connected with higher levels of sales which are significant in the performance of the Company; there was higher sales volume due to the fact that the company performed extensive forms of advertising, an enormous level of demand for the Company as well as affordable pricing strategies were used to lure consumers into purchasing more.

For, Valspar Corp, it is evidently clear to assume that the Company is undergoing downward trend in the sales performance. This is depicted by an in-significant decrease in the ratio over proceeding financial years. The decrease can be attributed with the engagement in more fixed assets for which the Company did not need thus making them idle. The lower ratios can also be attributed with lower-levels of sales due to insufficient pricing, advertising and lower demand for the company’s products.

Profit Margin; Sherwin William Corp

Ratio

2011

2010

2009

Profit Margin, Net Income/Sales

5.04 %

5.94 %

6.14 %

Workings 4 a,

2011, NI/S = 441,860/8,765,699 = 5.04 %

2010= 462,485/7,776,424 = 5.94%

2009 = 435,848/7,094,249 = 6. 14 %

Profit Margin; Valspar Co

Ratio

2011

2010

2009

Profit Margin, Net Income/Sales

3.51 %

9.89 %

8.28 %

Workings 4 b,

2011, =Net Income /Sales, (138,601)/ 3,952,954 = 3.51 %

2010 = 319,197/3,226,687 = 9.89 %

2009 = 238,328/2,879,042 = 8.28 %

Evaluation:

For Sherwin William Corp, the profit margin ratio tends to increase steadily. This significant increase is caused by higher-levels of net income. Higher-levels of net income are as a result of significant increase in the amount of sales revenue. Increment in sales depicts favorable pricing strategies which have been deployed by the Company as well as fewer competitors who operate in the same market niche.

For Valspar Co, the there is a steady and unpredictable decline in the value of the ratio thus depicting a lower-level in the amount of sales posted by the company as a whole. This is due to lack of participation in the advertisements, more competition within the industry which the Company operates as well as higher costs of goods sold. Higher cost of goods indicates that the Company is spending more for purchasing goods on transit.

Inventory Turnover; Sherwin William Co

Ratio

2011

2010

2009

Inventory Turnover, Sales/ Inventory

9.5 X

8.5 X

9.6X

Workings 5 a

2011, Sales /Inventory = 8,765,699/926,809 = 9.5 X

2010 = 7,776,424/917,701 = 8.5 x

2009 = 7,094,249/738,488 = 9.6 X

Inventory Turnover; Valspar Co

Ratio

2011

2010

2009

Inventory Turnover, Sales/ Inventory

7.3 X

6.1X

7.1X

Working 5b

2011, 3,952,954/538,025 = 7.3 X

2010, 3,226,687/530,435 = 6.1 X

2009, 2,879,042/406,638 = 7.1 X

Evaluation:

For Sherwin William Corp, the ratio indicates a steady increase which is significant for growth. The steady increase in the ratio is as a result of the Company purchasing enough inventories which it can quickly translate to sales revenue in terms of sales. The products could have also accumulated enough demand from potential consumers which lead to high sales revenue.

For Valspar Co, the ratios are slightly lower which is indicates that the Company recorded lower sales revenue. Also, it is assumed that this Company has engaged itself in the purchasing of stock which it can longer sale within a reasonable period of time.

Times Interest Earned; Sherwin William Corp;

Ratio

2011

2010

2009

Times Interest, (EBIT/ Interest)

17.45 X

9.6 X

15.56 X

Working 6 a

2011, EBIT/Interest = 741,548/ 42,497 = 17.45 X

2010 = 677,784/ 70,595 = 9.6 X

2009 = 622,817/40,026 = 15.56 X

Times Interest Earned; Valspar Co;

Ratio

2011

2010

2009

Times Interest, (EBIT/ Interest)

-15.56X

6.45 X

5.77 X

Working 6 b

2011=(40,066)/ 61,511= -15.56 X

2010 = 376,077/ 58,267 = 6.45 X

2009 = 290,968/ 50,394 = 5.77 X

Evaluation:

For Sherwin William Corp, the ratio is significantly reflected thus, placing the Company at a fair position upon which it can utilize its own financial resources. The EBIT rose in value for the proceeding years which is a clear indication that the embraced affordable pricing strategies increasing sales revenue.

For Valspar Co, it is safe to assume that the Company has entered into immense levels of borrowings meaning that the current amount of capital in its possession has reduced immensely. The reduction has resulted to fewer asset resources which are needed in translating inventories into revenues.

Du Pont Analysis; Sherwin William Corp Valspar Co.

Operating Profit Margin ratio 5.04 3.51
Asset Turnover ratio 3.5 7.21
ROA(1*2) 17.64 25.31
Times interest earned 17.45 -15.56
Equity Multiplier 29.13 – 11. 43
ROE(3-4)5 5.53 – 111.44

Final Recommendations & Conclusions:

Price/ Book Value;

For Sherwin William, 157.44/5,229,252= 0.003

For Valspar = 64.50 / 1,212,550 = 0.005

Price/ Earnings per Share;

For Sherwin William, 157.44/6.35= 24.79

For Valspar Co 64.50/ 2.23 = 28.08

Price/EBITDA;

For Sherwin William Corp = 157.44/741,548 = 0.021

For Valspar Co = 64.50/ (40,066) = 0.001

As Compared with the Industry averages, Sherwin William stock ratios are far much favorable and healthier in that matter as compared with the ratios of Valspar Co. it is thus, safe to indicate that the firm will make a wiser choice by purchasing the stocks of the Company; Sherwin William Corp.

The favorable purchase value for the Company; Sherwin Williams Corp is about $ 5,229,252.