Monsanto is an agricultural based company that applies innovation and technology to aid farmers across the globe. Monsanto helps farmers grow sustainably so that they can be successful and produce better animal feeds and produce healthier foods. Over the past few years, Monsanto has performed quite well in areas that such as improving its net sales. The company saw an increase in net sales of 8% between the year 2016 and 2017. Additionally, the net income was at its all-time high of $2,260 in 2017 and had increased by 69% from the previous year. The diluted earnings per share was also at its all-time high of $5.09 in 2017 and this had increased by 70% from the previous year. This showed that the company had experienced financial growth over the past two years.
Over the past few years, Monsanto has managed to reduce its long-term debt from to $8,429B in 2015, $7,453B in 2017, to $7,254B in 2017. Additionally, the company has managed to grow its working capital from $5,448B in 2015, $1,428Bin 2016 to $2,253B in 2017. While there was growth in the working capital between 2016 and 2017, this was still lower than its all-time high in 2017. This is disadvantages as the company should strive to improve its working capital to the level it was in the year 2015.
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Financial ratio
The profitability ratio calculated was that of the gross margin where Gross margin= gross profit/net sales
(2015) = 8,182/15001*100 = 55%
(2016) = 7,017/13502*100 = 52%
(2017) = 7,937/14640*100= 54%.
The industry average for the gross margin should be 11%. At the gross margin of 54%, the company is performing quite well. This shows that the company retains more on each dollar of sales compared to its other costs and debt obligations.
The liquidity ratio calculated is that of the current ratio. The current ratio was calculated by taking current assets/current liabilities.
(2015) = $8,801/$4,293 = 2.05
(2016) = $8,157/$6,729 = 1.21
(2017) = $8,651/$6,398 = 1.35
The industry average for such an agricultural company should be above 1.3. The company’s current ratio of 1.35 should be commendable. This shows that the company’s assets are higher than its current liabilities. However, this was still lower than the current ratio of 2.05 in 2015 which is considered ideal. The decrease in the current ratio is largely due to the company’s increase in liabilities over the years.
The leverage ratio was calculated by taking the company’s debt to capital ratio. The ratios were calculated as follows by taking total debt/ (total debt + equity).
(2015) = (830+7294)/ (830+7294+6392) *100= 56%
(2016) = (1587+4534)/ (1587+7453+4534) = 67%
(2017) = (870+7254)/ (870+7254+6438) *100= 56%
The company’s debt-to-capital ratio for a company should be less than 40%. The high debt ratio shows that that the company finances more of its operations through debt instead of equity. Such a high ratio shows that the company has a weak financial strength as those debts increase the default risk (Scarborough, 2016).
Explanation for the difference in cash flows and net incomes
The company’s net sales increased by 8% between the year 2017 and 2016. The company increased its sales of agricultural products such as soybean seed and traits. Such an increase was largely attributed to venturing into new markets and higher volumes in the already existent markets. The net income was at its all-time high of $2,260 in 2017 and had increased by 69% from the year 2016. The increase in net income was attributed to its merger with Bayer that made the company have efficiency in its operations (“Monsanto Annual Report -2017”, 2017).
References
Monsanto Annual Report -2017, (2017). Retrieved from https://monsanto.com/investors/reports/annual-reports/
Scarborough, N. M. (2016). Essentials of entrepreneurship and small business management . Pearson.
