Business Finance - Company Comparison Analysis

July 19th, 2014Mrs. Upperman, Business Finance ProfessorAccounting DepartmentStark State College of Technology6200 Frank Ave N.W.North Canton, Ohio 44270

Dear Mrs. Upperman,

Our group submits the following “Goodyear Tire and Rubber Company v.s. Cooper Tire & Rubber” report in the requirements set forth in our syllabus for Business Finance.

This report is to show the strengths and weakness of the two companies compared to the industry in which they compete. This report will outline the companies’ history, ratio analysis, current and future outlook, accounting policies, and considerations based on this information. In order to complete this we used five years of financial reports, each of the company’s investor websites, Market Watch, and our text books.

We hope this report is as interesting to you as it was for us to research. Thank you for your time, help, and guidelines to complete this report.

Yours Truly,

Darren Kerr

Mariah Terry

Sara Kelley

Dorothy Johnson-Christian

Heather Johnson

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Goodyear Tire & Rubber Company

V.S.

Cooper Tire & Rubber Company

Prepared for:

Mrs. Upperman

Business Finance

Stark State College of Technology

North Canton, Ohio 44720

Prepared by:

Sara Kelley

Darren Kerr

Dorothy Johnson-Christian

Heather Johnson

Mariah Terry

July 19th, 2014

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TABLE OF CONTENTS

TABLE OF CONTENTS ……………………………………………………………..…………iiiTABLE OF ILLUSTRATIONS …………………………………………………………………v

Logos …………………………………...…………………………………………………vFigures …………………………………………………………………………………….vTables ……………………………………………………………………………………..v

INFORMATIVE SUMMARY …………………………………………………………………..viIntroduction ………………………………………………………………………………viHistory of the Industry …………………………………………………………………...viHistory of Goodyear Tire & Rubber …………………………………………………….viiHistory of Cooper Tire & Rubber ……………………………………………………….viiRatio Analysis …………………………………………………………………………...viiConclusion ……………………………………………………………………………...viiiRecommendation ……………………………………………………………………….viii

INTRODUCTION ………………………………………………………………………………..1Background ……………………………………………………………………………….1Purpose ……………………………………………………………………………………1Scope ……………………………………………………………………………………...1

HISTORY OF THE INDUSTRY ………………………………………………………………...2HISTORY OF GOODYEAR TIRE & RUBBER ………………………………………………...5HISTORY OF COOPER TIRE & RUBBER …………………………………………………….8RATIO ANALYSIS ……………………………………………………………………………..10

Liquidity Ratios …………………………………………………………………………11Current Ratio …………………………………………………………………….11Quick Ratio ……………………………………………………………………...13

Activity Ratios …………………………………………………………………………..14Inventory Turnover Ratio ……………………………………………………….15Total Asset Turnover Ratio ……………………………………………………...17Average Collection Period Ratio ………………………………………………..18

Debt Ratios ………………………………………………………………………………20Debt Ratio ……………………………………………………………………….21

Profitability Ratios ………………………………………………………………………22Gross Profit Margin Ratio ……………………………………………………….23Operating Profit Margin Ratio …………………………………………………..24Pre-Tax Net Profit Margin Ratio ………………………………………………..25Return on Total Assets Ratio ……………………………………………………26Return on Common Equity Ratio ……………………………………………….27

Market Ratios ……………………………………………………………………………28Price to Earnings Ratio ………………………………………………………….29

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PRESENT AND FUTURE OUTLOOK………………………………………………………... 31Cooper Tire & Rubber …………………………………………………………………..31Goodyear Tire & Rubber ………………………………………………………………..33

ACCOUNTING POLICIES …………………………………………………………………….35Goodyear Tire & Rubber ………………………………………………………………..35Cooper Tire & Rubber …………………………………………………………………..36

CONCLUSION ………………………………………………………………………….………37RECOMMENDATIONS ………………………………………………………………………..39WORKS CITED ………………………………………………………………………………...43APPENDIX A: FINANCIAL STATEMENTS

Goodyear Tire & Rubber Income Statement ……………………………………………44Goodyear Tire & Rubber Cash Flow Statement ………………………………………...44Goodyear Tire & Rubber Balance Sheet ………………………………………………..45Cooper Tire & Rubber Income Statement ………………………………………………46Cooper Tire & Rubber Cash Flow Statement …………………………………………...46Cooper Tire & Rubber Income Statement ………………………………………………47

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LIST OF ILLUSTRATIONS

LogosLogo 1: Goodyear Tire & Rubber Logo ………………………………………………………….5Logo 2: Cooper Tire & Rubber Logo …………………………………………………………….8

FiguresFigure 1: Current Ratio Graph …………………………………………………………………..12Figure 2: Quick Ratio Graph …………………………………………………………………….14Figure 3: Inventory Turnover Graph …………………………………………………………….17Figure 4: Total Asset Turnover Graph …………………………………………………………..18Figure 5: Average Collections Period Graph ……………………………………………………20Figure 6: Debt Ratio Graph ……………………………………………………………………...22Figure 7: Gross Profit Margin Ratio Graph ……………………………………………………..24Figure 8: Operating Profit Margin ………………………………………………………………25Figure 9: Price to Earnings ……………………………………………………………………...30

TablesTable 1: Current Ratio Data ……………………………………………………………………..11Table 2: Quick Ratio Data ………………………………………………………………………13Table 3: Period End Turnover Ratio Data ………………………………………………………15Table 3.5: Average Age of Inventory Data ……………………………………………………...16Table 4: Total Asset Turnover Ratio Data ………………………………………………………17Table 5: Average Collection Period Data ……………………………………………………….19Table 6: Debt Ratio Data ………………………………………………………………………..21Table 7: Gross Profit Margin Ratio Data ………………………………………………………..23Table 8: Operating Profit Margin Data ………………………………………………………….24Table 9: Pre-Tax Net Profit Margin Data ……………………………………………………….26Table 10: Return on Total Assets Data ………………………………………………………….27Table 11: Return on Common Equity Data ……………………………………………………..28Table 12: Price to Earnings Ratio Data ………………………………………………………….29Table 12.5 Earnings per Share Data …………………………………………………………….29

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INFORMATIVE SUMMARY

Introduction

The rubber industry has been around for over a century now and has revolutionized

civilization as we know it. While the content of actual rubber products has changed relatively

little, it has come with the introduction of an extreme range of products: shoes, sports equipment,

chairs, even the buttons on your car keys. We first will give some background history on each

company, giving you an idea of where the company came from and how it grew up. Within our

comparisons of the tire industry, Cooper Tires & Rubber, and Goodyear Tires & Rubber, we will

discuss financial information from each company and the industry to analyze and compare. With

this information, we will be able to discuss each company in great financial detail and be able to

then pick one company to give an overall recommendation about.

History of the Industry

Rubber was discovered and recorded first in the early 1500’s by both Mexico and

England. Made popular by Priestley Co. in England, rubber started being used as a consumer

product. From that stemmed new products; as one idea led to another about the use of the rubber

material, out spawned the tire industry. Even after the introduction of the rubber tire,

advancements continued one after the other. The ease of working with the product, texture,

durability, way it was manufactured, and a wider use of patterned impressions in the rubber

(tread) are just a few examples. Rubber plantations, farms, and groves were just about

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everywhere approaching 1910. Rubber trees began to grow in many varieties and variations on

newly-found rubber tree farms.

History of Goodyear Tire & Rubber

The Goodyear Tire & Rubber Company was established in 1898 by founder Frank A

Seiberling in Akron, Ohio in an old factory building on the Cuyahoga River. Just a few years

after the first sale for the company, they were already expanding into different countries. The

Goodyear blimp, notoriously marked with the wingfoot logo, captured the attention of many and

proved to be a huge success for marketing. 1951 marked the 500 millionth tire produced by

Goodyear Tire & Rubber Company, while one billion in sales allowed for yet another first for

them. Only twelve years would follow before it produced its billionth tire in 1963. Now, the

Goodyear brand is recognizable almost anywhere in the world, from sports to commercial

airliners.

History of Cooper Tire & Rubber

Cooper Tire & Rubber Company began as M and M Manufacturing Company in Akron

Ohio by Claude E. Hart and his brother-in-law in 1914. After purchasing tire companies in

Akron, Ohio, they moved their location to Findlay, Ohio. Cooper dedicated itself during World

War II, and as such proved to be a successful company through difficult times. In 1946, M and

M Manufacturing Company officially became what we know today as Cooper Tire & Rubber.

The company competed in specialty high-performance products but strive its basis on customer

service.

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Ratio Analysis

Each company’s ratios tell a little bit about the financial performance that they are in and

will show a measure of what is going on. By themselves, the ratios can be very misleading, but

when put together and analyzed concisely, is a very powerful tool about a company’s overall

financial “health,” especially when compared to industry norms.

Conclusions

When looking at each company, they each have their strengths and weakness. Cooper

comes out as being the safest, almost boring, company who would be great for a conservative

investor. Goodyear however may entice a prospective employee from its long standing history.

Recommendations

As with anything, nothing is perfect and neither are companies. Recommendations to

Cooper would include being more risky. On the complete opposite end, however, Goodyear

could stand to play it a little safer to pay off debts and decrease expenses. During that time

Goodyear does that, they could generate sales from their name alone.

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INTRODUCTION

This report will compare introduce us to the tire industry and ratio analysis. We decided

to focus our report on Goodyear Tire & Rubber Company, and Cooper Tire & Rubber Company.

We will introduce you to these companies backgrounds, show you the ratios analysis compared

to the industries, present you with current and future outlook, discuss accounting policies, and

make recommendations based on the information presented in this report.

Background

While Goodyear Tire & Rubber has been a historically recognized name when it comes

to tires, Cooper Tire & Rubber has not had its same share of the limelight. However, both of

these companies have impacted our entire economy due to the important nature of tires and the

automotive industry.

Purpose

The goal of our paper is to give the audience an informative background of the two

selected companies and the industry that they are in. Our purpose is to first give historical

background information of the tire industry, Goodyear Tire & Rubber, and Cooper Tire &

Rubber. Analyzing each company’s financial records, we will be able to provide pros and cons to

the present and future outlook, and discuss accounting policies for each company’s finances.

Scope

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The scope of our project used financial reports and ratio analysis of Goodyear Tire &

Rubber Company and Cooper Tire & Rubber Company. We focused this search to 2009-2014.

We used liquidity, activity, profitability, debt and market ratios to complete our analysis.

HISTORY OF THE INDUSTRY

Rubber in its natural state is a solid material that is extracted from trees and plants. Most

of this latex substance comes from a rubber tree in Brazil. A tap is put on the tree to pull the

secretion from it. Tree farms known as rubber groves became a notable business in the Amazon.

This new industry eventually brought about the “rubber Boom”. People from all over the world

would find their way to Brazil to capitalize of this discovery.

Rubber was discovered and recorded first in the early 1500’s: both with Mexico and in

England. The Mexicans where reportedly seen using an elastic ball made of a rubbery material,

while the English used rubber to make erasers. Erasers were the first rubber product. The French

engineer Charles de la Condamine was one of the first to conduct scientific studies of rubber in

1735. He concluded that the substance was simply a condensed resinous oil of sorts. Magellan, a

relative of the famous Portuguese navigator, thought of the bright idea to create erasers with this.

The substance became known as India Rubber once it was made popular by Priestley Co. in

England.

Rubber was also used for jar making, wine shipping, and leather borrachas. Borracha is

the Portuguese word for rubber. It was also used for tubing and flexibility by craftsmen,

goldsmiths, herbalists, and more. As it is very useful today, it changed life as they knew it then.

Rubber treads were produced in 1820 Britain for clothing. England was grateful for snow

boots, while America was getting use to waterproof. This Era was referred to as Rubber Fever.

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Sawyer Hancock created the water proof “rain coat” that is still very much so a part of our lives

today. He was a top manufacturer in 1815. Rolling, cutting, and pressing rubber was his

innovation. He invented the machine to do this on an industrial level and introduced the very

crucial heat level needed for pressing this way.

In 1840, The Goodyear Tire & Rubber Company successfully mastered the vulcanization

of rubber, sadly after the Rosburg Factory failed to succeed; due to the lack thereof. Rosburg

products such as Mackintosh’s coat would become brittle, and gum together in the sun due to the

natural state of the substance.

Benzene was discovered by Mackintosh and used as a solvent. As new and innovative

knowledge grew chipping and heating was added. Elastic balls were beginning to be

manufactured.

Two years after The Goodyear Tire and Rubber Company pumped the industry with its

discovery, Hancock came across the vulcanized rubber. His discovery of the Goodyear secret

was his map to success and wealth. This finding made the rubber industry extremely competitive.

The pneumatic tire was created in 1845 by R.W Thompson. It had an inner tube and textured

tread that was even.

Solid rubber was created in 1869, and then hollow rubber. After this growth of innovation

the tire as it was physically, was totally recreated. Polymer was introduced. Tires were

polymerize isoprene around 1881. Bicycle tires were adapted to the new tire standards. In 1895

Michelin was responsible for this new product.

The raw composition of rubber was synthesized soon after this in Russia, and by

Germans, but raw rubber performed much better.

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During the realization of growth from the industry, many were more than excited to

become a part of what these companies were tapped into. Rubber was exported around the world

to supply the new age. Like with anything striking gold, this too would attract notable ambition.

The British smuggled rubber tree seeds from the Amazon to satisfy their growing desire to be a

part of. The London Botanical Gardens would be the fine recipient of these fruits in 1876.

Rubber plantations, farms, and groves where just about everywhere approaching 1910.

Rubber trees began to grow in many varieties and variations. The industry, like its source

continued to follow as it continued to experience growth in abundant measures. As erasers

became tubes, tubes became boots, boots became coats, coats became tires, and tires became

Goodyear, and Cooper Tire companies. Tire companies would become an industry that changed

the world forever, the rubber industry.

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HISTORY OF GOODYEAR TIRE & RUBBER

The Goodyear Tire & Rubber Company was established in 1898 by founder Frank A

Seiberling. Its home was an old strawboard factory building on the Cuyahoga River in Akron

Ohio. Seiberling took a loan from a family member to purchase the building before he even

knew what product he would sell. He eventually settled on rubber products such as horseshoe

pads, tires for carriages and bicycles, sealing rings for canning, poker chips, and fire hoses.

Goodyear would soon make its first month’s sales, its first payroll, and begin its history of being

the first at many things within the industry. His original land down payment of 3,500 dollars

would soon pay off once he incorporated with a capital stock of 100,000 dollars.

Goodyear Tire & Rubber Company made sales of 8,246 dollars in its very first month of

operation. It was off to a great start making its very first payroll at 217.86 dollars. Seiberling

made a wise agreement of repayment for his loan for the building expense so he was already

profiting in business.

Only twelve years after making its first sale, the company embarked on its first expansion

beyond the United States of America. Goodyear opened a plant in Bowmansville, Canada. After

the 1910 growth from expansion was obvious. One of the major contributors of capital to this

extreme gaining was the introduction of the first Goodyear Blimp. In 1912, The Goodyear

Wingfoot Tire and Rubber Company presented the Goodyear blimp to the world. The blimp is an

aircraft that Goodyear used in large part to advertise its name. As the Name Goodyear floated

about the skis people took notice to the Wingfoot logo that accompanied it. This logo was

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Logo 1: Goodyear Tire & Rubber Logo

simply a foot with wing attached. The Goodyear blimp is still today using the sky as an

advertising medium to the many companies known by sight under the Goodyear name. The tire

and rubber company became the world’s largest in the industry in 1926 when its sales exceeded

230,000. Goodyear set a trend of innovation, investing, acquisition, and therefore growth. The

company consistently acquired new ground by developing the latest technology on the market,

and collaborating with the most relevant companies existing in the industry.

1951 marked the 500 millionth tire produced by Goodyear Tire & Rubber Company,

while one billion in sales allowed for yet another first for them. Only twelve years would follow

before it produced its billionth tire in 1963.

One of Goodyear’s great innovations was the carbon composite disk brake rotors of 1971.

As innovation continued and partnerships grew, General Motors named Goodyear as their

exclusive supplier of poly-v serpentine automotive belts on their Chevrolet Corvette. Two years

later Goodyear increased its synthetic rubber capacity with a 64 million dollar investment. A new

specialty polymer facility was developed in Beaumont Texas.

As the World Wide Web changed business forever, Goodyear took this as another

opportunity to become a first in the industry. In 1994 the company is the first in its industry to

sell electronics on its website. This idea was part of a 20 million dollar joint venture with Indo

Gold Lion Hose Company. The next year it acquired TC Debica Tire Manufacturing Company

of Poland by majority interest. Soon after in 1999, Goodyear Tire & Rubber Company’s never

ending exploration of possibilities established it as the world’s largest tire company. During this

time the company built a 1 billion dollar alliance with the well-known Sumitomo Rubber

Industrial Tires LTD. A grand 50th anniversary was reached in 1994 for Goodyear and its

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longtime partner NASCAR Racing. NASCAR was one of the many industry leading brands that

the company has partnered with over its notable history.

Today Goodyear continues to establish itself by name and more, as one of the most

notable companies worldwide in the tire and rubber industry.

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HISTORY OF COOPER TIRE & RUBBER COMPANY

Logo 2: Cooper Tire & Rubber Co. Logo

Cooper Tire & Rubber Company began as M and M Manufacturing Company in Akron Ohio.

Claude E. Hart and his brother in law John F. Schaefer purchased the company around 1914

before purchasing a second company just one year after. The M and M company produced tire

cement, tire patches, and repair kits for tires. The tire repair company that they purchased after M

and M was Giant Tire & Rubber Company of Akron Ohio. This was a tire rebuilding company.

They moved the company to Findlay Ohio shortly after purchase.

As many other companies did during World War II, Cooper dedicated itself to producing

military goods for the American Government. Growth would come to the company the same as

others through acquisitions, investments, and expansion. Although the company does not make

claim to innovation, it proved it ability to compete through tough times.

The company officially changed its name in 1946, the M and M Manufacturing

Company, and Giant Tire & Rubber Company became The Cooper Tire & Rubber Company.

Cooper hit the New York stock exchange in July of 1960. In 1991 the company reached one

billion dollars in sales. Cooper Tire & Rubber Company reached nine countries by this time.

National expansion was critical to its success and ability to compete in the industry. Building its

product line was just as important.

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Like its counterparts, Cooper became a leading name in specialty parts such as ultra-high

performance tires. The company also entered ventures with other companies such as Kenda

Rubber Industrial Company LTD. The investment accounted for the development in Shanghai

China. There the company produced specialty tires. Soon after in 2004 Cooper sold its

automotive company for 1.2 billion dollars. This capital was used to invest into 11 percent of

Kumbo Tire, Oliver Rubber Company, and 51 percent of Cooper Chengshan Passenger Tire

Company LTD.

While other companies focused on innovation, Cooper focused on customer service, and

relationships. It claims a friendship as the number one brand in China. Cooper continues to seek

growth and maintain its longtime friends.

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RATIO ANALYSIS

We are now going to compare and analyze Goodyear Tire and Rubber Company to

Cooper Tire and Rubber Company. The information we will be using to compare them was

obtained from each companies’ Balance Sheet, Income Statement and Statement of Cash Flows,

prepared in accordance of the generally accepted accounting principles. The data acquired from

the companies’ financial statements will be compared to industry averages. Information on

industry averages was found from Market Watch and Venture Line, reputable investment and

finance websites. We will be comparing the companies’ and industry’s financial ratios at the end

of each of their fiscal periods, a five year range of 2009 to 2013.

We will be analyzing the financials to describe each company’s liquidity position,

profitability and evaluate positive and negative trends. Five groups of financial ratios will be

used to analyze the companies and industry. The first group of ratios we will be discussing are

liquidity ratios. Liquidity ratios are used to determine the ability of an entity to pay its current

debts as well as meeting future commitments. These ratios are used by investors and lenders to

determine if a company will survive.

Next, we will discuss activity ratios. Activity ratios measure how efficiently a company is

using its assets, like accounts receivable or inventory. It is important to know how quickly a

company can convert assets into cash in order to cover liabilities. Debt ratios measure a

companies’ financial risk, presented as a percentage of its assets that have been financed by debt.

In order to evaluate how well the companies operate, we will be using profitability ratios.

Profitability ratios are used to compare earnings to expenses and other costs the companies incur

during a fiscal period. Finally, we will use market ratios to discuss stock prices and the return

and value in investing in both companies. Creditors, managers and current and future investors

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rely on financial ratios to evaluate a company’s current condition. Ratios are an important tool

used in determining strengths and weaknesses within a company or even in a particular industry.

Liquidity Ratios

In accounting, liquidity is described as the ability of a company to satisfy its debts as and

when they come due. Simply stated, liquidity ratios measure a company’s ability to pay its

obligations. These are beneficial to lenders, investors and creditors in order to determine if and

for how long a company will survive. In detail, we will describe two liquidity ratios: the current

ratio and the quick ratio. We will be using these to measure and to analyze the liquidity of both

companies mentioned as compared to others in the tire and rubber industry.

Current Ratio

The current ratio can be calculated by dividing a company’s current assets by its current

liabilities. “The current ratio is one of the most commonly cited financial ratios, measuring the

firm’s ability to meet its short-term obligations” (Gitman, 65). A high current ratio normally

indicates a higher degree of liquidity.

Table 1: Current Ratio Data

2009 2010 2011 2012 2013

Goodyear 7,225/4,095

=1.76

8,045/5,307

=1.52

9,812/5,929

=1.65

8,498/5,322

=1.60

8,644/5,025

=1.72

Cooper 1,131.8/636.3

=1.78

1,340.2/694.3

=1.93

1,264/651

=1.94

1,449.7/655.1

=2.21

1,454.8/564.6

=2.58

Industry 1.10 1.40 1.30 1.30 1.50

(Dollar figures are in thousands)

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When we look at both Goodyear and Cooper Tire’s current ratios, we can see that they

both perform above the industry standard over the past five years. Both companies appear to be

in good short-term financial health. Cooper has been steadily increasing from 2009 to present. A

high current ratio like Cooper Tire in 2013 could possibly signify inefficiencies and

underutilized assets. On the other hand, Goodyear, although stable, has been decreasing since

2009 until a slight increase in 2013 but still remaining above the industry standard. This is due to

Goodyear having more current liabilities than assets.

Figure 1: Current Ratio Graphical Representation

2009 2010 2011 2012 2013 -

0.50

1.00

1.50

2.00

2.50

3.00

Current Ratio

Goodyear Cooper Industry

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Quick Ratio

The quick ratio, also called the acid-test ratio, is very similar to the current ratio. It can be

computed like the current ratio but excluding inventory from current assets. Inventory is not

included because it is considered the least liquid asset. This is because inventory is generally sold

on credit and transitions to accounts receivable before it can be converted to cash. The quick

ratio is a preferable method to evaluate liquidity in companies’ whose inventory is not liquid.

The quick ratio can also be interpreted like the current ratio. The higher the ratio, the greater the

financial position of the company. The rubber and tire industry relies heavily on inventory and

custom, special orders as their primary current assets. We believe the quick ratio will give a more

accurate portrayal of Goodyear and Cooper Tire’s liquidity.

Table 2: Quick Ratio Data

2009 2010 2011 2012 2013

Goodyear (7,225-

2,443)/4,095

=1.17

(8,045-

2,977)/5,307

=0.95

(9,812-

3,856)/5,929

=1.00

(8,498-

3,250)/5,322

=0.99

(8,644-

2,816)/5,025

=1.16

Cooper (1,131.8-

298.4)/636.3

=1.31

(1,340.2-

386.8)/694.3

=1.37

(1,264-

465.4)/651

=1.23

(1,449.7-

561.9)/655.1

=1.36

(1,454.8-

517.2)/564.6

=1.66

Industry 0.7 0.9 0.9 0.9 1

(Dollar amounts measured in thousands)

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As shown in Table 2, both Goodyear and Cooper are performing above the industry average.

However, both companies have been declining from 2009 to 2012, increasing in 2013. A

decrease in inventory by 2013 by both companies’ appears to be the cause of the increase in their

quick ratio in 2013.

Figure 2: Quick Ratio Graphical Representation

2009 2010 2011 2012 2013 -

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Quick Ratio


Both the current and quick ratio implies that Goodyear and Cooper are in a good financial

position. This means that both companies should be able to easily convert their assets to cash in

order to fulfill their short-term obligations. Even though Goodyear experienced a decline over

four of the five years analyzed, this is not necessarily a bad sign. Both companies have

performed above the industry averages.

Activity Ratios

Activity ratios are a measure of how quickly accounts can be converted to cash, both

incoming and outgoing. “In a sense, activity ratios measure how efficiently a firm operates along

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a variety of dimensions such as inventory management, disbursements and collections” (Gitman,

68). These ratios normally represent a number of days. In our analysis, we will be discussing

three activity ratios: Inventory Turnover, Total Assets and Average Collection Period.

Inventory Turnover

The inventory turnover ratio can be defined as “a ratio showing how many times a

company’s inventory is sold and replaced over a period” (Investopedia). This ratio is computed

by dividing a firm’s cost of goods sold by its inventory and is only useful when comparing

values to companies in the same industry. This ratio can also be converted into the average age

of inventory by dividing it into 365. The inventory turnover ratio is important when evaluating a

company because it shows how quickly goods are being moved and how efficient operations.

Table 3: Period End Inventory Turnover Ratio Data

2009 2010 2011 2012 2013

Goodyear 13,676/2,443

=5.60

15,437/2,977

=5.19

18,771/3,856

=4.87

17,142/3,250

=5.27

15,399/2,816

=5.47

Cooper 2,360/298.4

=7.91

2,940.3/386.8

=7.60

3,562.8/465.4

=7.66

3,546.6/561.9

=6.31

2,923/517.2

=5.65

Industry 5.30 5.60 5.90 5.90 5.90


Table 3.5: Average Age of Inventory Data

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2009 2010 2011 2012 2013

Goodyear 365/5.60

=65.2

365/5.19

=70.3

365/4.87

=74.9

365/5.27

=69.3

365/5.47

=66.7

Cooper 365/7.91

=46.1

365/7.60

=48

365/7.66

=47.7

365/6.31

=57.8

365/5.65

=64.6

Industry 365/5.3

=68.9

365/5.60

=65.2

365/5.90

=61.2

365/5.90

=61.2

365/5.90

=61.2

(Ending values are measurements of days)

As shown in Table 3 and Table 3.5 a lower inventory turnover ratio results in a higher

average age of inventory. A high inventory ratio and low average age of inventory is desirable

because it shows that a company is moving inventory quickly. Although below average at times,

Goodyear’s inventory turnover has been more consistent with the industry average. While

Goodyear has remained stable over the past five years, Cooper Tire’s inventory turnover rate has

been decreasing significantly since 2011. The company ended 2009 performing well above

industry standards but has dipped below average during 2013. This is due largely to an increase

in their Cost of Goods Sold.

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Figure 3: Inventory Turnover Graphical Representation

2009 2010 2011 2012 2013 -

1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00

Inventory Turnover (Period End)Goodyear Cooper Industry

Total Asset Turnover

“The total asset turnover indicates the efficiency with which the firm uses its assets to

generate sales” (Gitman, 70). We calculate this ratio by dividing the companies’ sales in dollars

by its total assets in dollars. A high total asset turnover ratio is preferable because it illustrates

the financial efficiency of a company.

Table 4: Total Asset Turnover Ratio Data

2009 2010 2011 2012 2013

Goodyear 16,301/14,410

=1.13

18,832/15,630

=1.20

22,767/17,629

=1.29

20,992/16,973

=1.24

19,540/17,527

=1.11

Cooper 2,779/2,100.3

=1.32

3,361/2,305.5

=1.46

3,907.8/2,509.9

=1.56

4,200.8/2,801.2

=1.50

3,439.2/2,738.1

=1.26

Industry 1.00 1.10 1.20 1.20 1.10


xxv

As we display in Table 4, both companies performed above industry averages all five

years. Sales for Goodyear peaked in 2011, giving them a high total asset turnover ratio for the

end of that year, following a decline due to a decrease in sales. Cooper followed a similar trend,

with sales peaking in 2012 and gradual decline in the periods following. Regardless of the

decline, both companies continue to outperform others in the industry.

Figure 4: Total Asset Turnover Graphical Representation

2009 2010 2011 2012 2013 -

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

Total Asset Turnover


Average Collection Period

The average collection period ratio is used to measure the amount of time needed to

collect accounts receivable. We can find this value by dividing accounts receivable by sales and

then into 365. This ratio “is useful in evaluating credit and collection policies” (Gitman, 68) and

a higher ratio can indicate inefficiencies in a company’s collection methods. A lower ratio is

more acceptable but must be compared to other factors like the companies’ credit terms in order

to accurately measure efficiency.

xxvi

Table 5: Average Collection Period Data

2009 2010 2011 2012 2013

Goodyear 365*

(2,540/16,301

)

=56.87

365*

(2,736/18,832)

=53.03

365*

(2,849/22,767)

=45.68

365*

(2,563/20,992)

=44.56

365*

(2,435/19,540)

=45.68

Cooper 365*

(367/2,779)

=48.20

365*

(483.7/3,361)

=52.53

365*

(509.3/3,907.8)

=47.57

365*

(468.4/4,200.8)

=40.70

365*

(477/3,439.2)

=50.62

Industry 59.7 62.8 56.3 53.6 55.7


As illustrated in Table 5, we found that both companies’ have lower average collection

ratios than the industry over the five year range. In this situation, being below average is a good

sign for both companies because it means their collection time for receivables is quicker. This is

also a good indicator of how fast both companies can convert their assets into cash. Goodyear

continued to improve its average collection time until 2013 when it increased by about 1 day, an

insignificant increase. Cooper fluctuated throughout the years which may indicate the need to

reevaluate credit collection policies.

xxvii

Figure 5: Average Collection Period Graphical Representation

2009 2010 2011 2012 2013 -

10.00

20.00

30.00

40.00

50.00

60.00

70.00

Average Collection Period


After evaluating these three ratios, we are able to determine that both Goodyear and

Cooper are able to convert their assets and receivables into cash quickly and more efficiently

than others in the industry. Both companies experienced an inability to turnover inventory as

efficiently through the years, which may be due to increased prices for gasoline and automobiles.

DEBT RATIOS

Debt ratios measure the debt position of a company and illustrates the amount of others

money being used to make a profit. “With increased debt comes greater risk as well as higher

potential return…the greater the financial leverage, the greater the potential risk and return”

(Gitman, 71). This ratio is most important to current and future shareholders. Because a company

must pay its creditors first, shareholders need to know that a company can satisfy their debts

before investing. When making our analysis, we will be using only one debt ratio: the basic debt

ratio. Another common ratio used is the Times Interest Earned Ratio, which we will not be

xxviii

illustrating due to the fact that both companies reported zero interest paid in the years ending

2009 to 2013.

DEBT RATIO

“The debt ratio compares a company’s total debt to its total assets, which is used to gain a

general idea of the amount of leverage being used by a company” (Investopedia, Loth). We have

calculated the debt ratio by dividing each of the company’s total liabilities by their total assets. A

high percentage indicated that a greater amount of others’ money being used to turn a profit. This

ratio illustrates what percentage of the company’s assets are financed with debt.

Table 6: Debt Ratio Data

2009 2010 2011 2012 2013

Goodyea

r

13,675/14,410

=94.90%

14,986/15,630

=95.88%

16,880/17,629

=95.75%

16,603/16,973

=97.82%

16,603/17,527

=94.73%

Cooper 1,769.5/2,100.

3

=84.25%

1,844.7/2,305.

5

=80.01%

1,932.1/2,509.

9

=76.98%

2,043.5/2,801.

2

=72.95%

2,043.5/2,738.

1

=74.63%

Industry 80% 70% 70% 70% 70%


Based on industry averages, companies in this industry finance almost ¾ of their assets

with debt. Neither Goodyear nor Cooper has performed below this average. Goodyear has

consistently financed almost all of their assets with debt. Although they have high percentages,

Cooper has maintained debt ratios closer to the industry average. Both companies should

xxix

http://www.investopedia.com/terms/a/asset.asp

http://www.investopedia.com/terms/d/debt.asp

http://www.investopedia.com/terms/d/debtratio.asp

consider decreasing their liabilities in order to achieve a lower debt ratio. With such a high

degree of debt, shareholders may see high returns with each company but must be aware of the

great risk in investing.

Figure 6: Debt Ratio Graphical Representation

2009 2010 2011 2012 20130.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Debt Ratio


PROFITABILITY RATIOS

“Without profits, a firm could attract outside capital. Owners, creditors, and management

pay close attention to boosting profits because of the great importance the market places on

earnings” (Gitman, 71). High profitability ratios are a good indicator that a company is

performing well. These ratios measure how a company can generate profits compared to its

expenses and costs. For our analysis, we will be using five profitability ratios: gross profit

margin, operating profit margin, pre-tax profit margin, return on total assets and return on

common equity.

xxx

Gross Profit Margin Ratio

The gross profit margin is expressed as a percentage of sales dollars that remain after

goods have been paid for. Gross profits are calculated by subtracting cost of goods sold from

sales. We have calculated the gross profit margin ratio by dividing gross profits by total sales.

Table 7: Gross Profit Margin Ratio Data

2009 2010 2011 2012 2013

Goodyear (16,301-

13,676)/

16,301

=16.1%

(18,832-

15,437)/

18,832

=18.03%

(22,767-

18,771)/22,767

=17.55%

(20,992-

17,142)/20,992

=18.34%

(19,540-

15,399)/

19,540

=21.19%

Cooper (2,779-

2,360)/2,779

=15.08%

(3,361-

2,940.3)/3,361

=12.52%

(3,907.8-

3,562.8)/

3,907.8

=8.83%

(4,200.8-

3,546.6)/

4,200.8

=15.57%

(3,439.2-

2,923)/3,439.2

=15.01%

Industry 23.7% 23.9% 23% 23.5% 25.8%


Based on the data in Table 7, both Goodyear and Cooper have low gross profit margins

and are operating below industry averages during the periods analyzed. Goodyear managed to

increase gross profit margins throughout the periods but Cooper sunk below 10% in 2011 and

gradually increased to 15% by 2013. These low ratios may be due to inflation and rising costs.

Finding ways to decrease expenses would be suggested to both companies. Also, an increase in

sales for both companies would decrease the gross profit margin ratio.

xxxi

Figure 7: Gross Profit Margin Ratio Graphical Representation

2009 2010 2011 2012 20130.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

Gross Profit Margin


Operating Profit Margin Ratio

The operating profit margin ratio is similar to the gross profit margin ratio with the

exception that the operating profit margin excludes interest, tax and preferred stock dividends.

This ratio is considered the percentage of “pure profits” earned on each sales dollar. We

calculated this ratio by dividing the operating profits by sales.

Table 8: Operating Profit Margin Ratio Data

2009 2010 2011 2012 2013

Goodyear -26/16,301

=-.16%

399/18,332

=2.12%

943/22,767

=4.14%

781/20,992

=3.72%

1,274/19,540

=6.52%

Cooper 115.5/2,779

=4.16%

159.8/3,361

=4.75%

163.3/3,907.8

=4.18%

396.9/4,200.8

=9.45%

240.7/3,439.2

=7%

Industry -0.4% 4.5% 6.5% 7.2% 8.7%


xxxii

Both companies have a low operating profit margin by industry standards. Goodyear was

continuously below industry average with the exception of 2009, which was still reported as a

negative operating profit margin. Cooper was more consistent with industry averages. A higher

operating profit margin is most attractive to investors. Both Cooper and Goodyear can improve

this ratio by an increase in sales dollars as well as a decrease in expenses. We think both

companies should reorganize operating procedures in order to achieve a higher percentage per

sales dollar on their profits.

Figure 8: Operating Profit Margin Graphical Representation

2009 2010 2011 2012 2013

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Operating Profit Margin


Pre-Tax Net Profit Margin

The net profit margin is the percentage of each sales dollar remaining after all expenses

and costs. Like the gross profit margin and operating profit margin ratios, the higher the

percentage, the better. Net profit margin is calculated by dividing pre-tax income by sales.

xxxiii

Table 9: Pre-Tax Net Profit Margin

2009 2010 2011 2012 2013

Goodyear -357/16,301

=-2.19%

8/18,832

=0.04%

618/22,767

=2.71%

440/20,992

=2.10%

813/19,540

=4.16%

Cooper 115.5/2,779

=4.16%

159.8/3,361

=4.75%

134.1/3,907.8

=3.43%

368.5/4,200.8

=8.77%

213/3,439.2

=6.19%

Industry -2.7% 2.6% 4.9% 6.1% 7.1%


Although Goodyear’s net profit margin continues to rise, the company failed to rate

above industry averages. This is due to low pre-tax income in relation to their sales. Using this

ratio, Cooper would be a more attractive investment for stockholders because they never reported

negative net profits. Even though they sometimes dipped below the average, Cooper’s earnings

available to stockholders consistently rated above Goodyear’s’.

Return on Total Assets

Also named as the return on investment, this ratio measures effectiveness. The ratio

illustrated how well management can turn profits with the assets available to them. This is

expressed as the percentage of money earned on each dollar of asset investment and can be

calculated by dividing the companies’ net income by their total net assets.

Table 10: Return on Total Assets Data

xxxiv

2009 2010 2011 2012 2013


=-2.60%

-216/15,630

=-1.38%

321/17,629

=1.82%

183/16,973

=1.08%

600/17,527

=3.42%

Cooper 61.7/2,100.3

=2.94%

140.5/2,305.5

6.09%

253.5/2,509.9

=10.10%

220.3/2,801.2

=7.86

111/2,738.1

=4.05%

Industry -3.3% 0.9% 3.9% 4.8% 5.8%


Never managing to raise above already low industry standards, Goodyear lost money on

its investments because of a net loss in 2009 and 2010. Even with an increase in 2013, the

company had an extremely low rate of return on investments. Cooper reported positive returns

for all periods shown, some periods were significantly higher than what the industry as a whole

was experiencing. Only recently has the company fell below the average return on total assets

because of a decrease in their net income.

Return on Common Equity

The higher the return, the happier the owners of a company are. The return on common

equity measures the percentage of money earned on each dollar invested. We found the return on

common equity by dividing net income by the shareholder’s equity. In order to attract more

investors, this ratio should be higher.

Table 11: Return on Common Equity Data

xxxv

2009 2010 2011 2012 2013

Goodyear -375/735

=-15.02%

-216/644

=-33.54%

321/249

=128.92%

183/-130

=-140.77%

660/1,106

=54.25%

Cooper 61.7/330.8

=18.65%

140.5/460.8

=30.49%

253.5/577.8

=43.87%

220.3/757.6

=29.08%

111/990.9

=11.20%

Industry -15.40% 3.6% 15.3% 17.9% 18%


The industry experienced growth in return on common equity during the periods

reported. Often significantly above the industry average, Cooper appears to be a safer

investment. Unlike Goodyear, Cooper never reported negative return on common equity. As

shown in Table 11, Goodyear has proven to be both a profitable and extremely risky investment

for stockholders due to a negative net income in 2009 and 2010, followed by a significant

increase in net income by 2013.

MARKET RATIOS

Market “ratios give insight into how investors in the marketplace feel the firm is doing in

terms of risk and return” (Gitman, 77). These ratios are used to determine how investors feel a

company is going to perform in the future. We are going to consider one market ratio in our

analysis, the price to earnings ratio. Another common market ratio is the market to book ratio.

Because industry averages are not generally available for this ratio, we will not be including it in

our comparison.

Price to Earnings

xxxvi

The price to earnings ratio is a commonly used measurement to value how much

investors will pay for each dollar of a company’s earnings. This ratio can be found by dividing

the market price per share of common stock by earnings per share. We found historical earnings

per share and stock price data on Market Watch and Morning Star investment websites.

Table 12: Price to Earnings Ratio Data

2009 2010 2011 2012 2013

Goodyear 14.1/-1.55

=-9.10

11.85/-0.89

=-13.31

14.17/1.32

=10.73

13.81/0.75

=18.41

23.85/2.44

=9.77

Cooper 20.05/0.87

=23.05

23.58/2.29

=10.30

14.01/4.08

=3.43

25.36/3.52

=7.20

24.04/1.75

=13.74

Industry -11.9 49.3 9.3 11 12.9

Table 12.5: Earnings per Share Data

2009 2010 2011 2012 2013

Goodyear -1.55 -0.89 1.32 0.75 2.44

Cooper 0.87 2.29 4.08 3.52 1.75

Both companies’ saw considerable growth in their price to earnings ratio, especially

Goodyear who saw negative dollars being paid per one dollar of earnings. This low P/E ratio is

due to a low stock price and the amount of money being paid out for their stocks. On average,

both companies had price to earnings ratios below industry standards. We do not think this is

xxxvii

primarily due to investor’s lack of confidence in these companies. Considering the decline of the

automobile industry in America during these periods, the increase in price to earnings ratio for

both companies illustrated that investors are still willing to take a risk with these firms.

Figure 9: Price to Earnings Graphical Representation

2009 2010 2011 2012 2013

(20.00)

(10.00)

-

10.00

20.00

30.00

40.00

50.00

60.00

Price to Earnings


PRESENT & FUTURE OUTLOOK

xxxviii

COOPER TIRE & RUBBER COMPANY

Cooper Tire & Rubber Company had one impressive 2013. They reported $241 million

dollars in operating profits last year. That was one of their second best records in the companies

one hundred years of producing tires. Coopers financials show that they held cash and cash

equivalents of $398 million dollars, and had substantial amounts of inventory to meet their

customers’ needs coming into the first quarter of 2014. Cooper Tire & Rubber Company is

always focused on improving their brand and making new and unique products to supply to

customers. In 2013, they tested over eighty-one millions miles on their products. This all comes

with a cost to the company. Cooper recorded $51.1 million dollars in research and capital

expenditures. All companies have their fair share of issues, and this company was no exception

to that. They announced in June that they were merging with Apollo Tyres, a company based in

India. Cooper Chengshan Tire (CCT) was not happy with this announcement and stopped

producing units, and withheld business and financial information. These issues caused Cooper

Tire to have issues with cash flows, their ability to report on time, and sometimes even their

financial position. Net sales for the company were recorded at $3.439 million dollars, which for

the company was a decrease from 2012 of $762 million dollars. Chengshan China Tire was

responsible for $226 million dollars of their decrease in net sales due to their labor strike, and a

decrease in the operating profits. Cooper Tire & Rubber Company announced, on December 31st,

that they were no longer merging with Apollo Tyres. They had 2,117 common stockholders

when they ended 2013 and have consecutively paid dividends since the year 1973.

Looking forward into 2014, Coopers’ main focus is to resolve issues with Cooper

Chengshan Tire. They reported that they had made a deal with them at the end of January, and

that they would stay focused on this global market. Their first quarterly reports show $81 million

xxxix

dollars of operating profit (a second best based on quarterly statements) and $796 million in net

sales so far. Cooper reports a strong balance sheet with $336 million in cash and cash

equivalents. As Cooper continues forward they are focusing their pursuits on globalization,

mostly focused on China. While Cooper Tire & Rubber Company continues to expand we can

only hope their profits will increase and they can maximize shareholders wealth.

xl

GOODYEAR TIRE & RUBBER COMPANY

For one of the leading tire manufacturers, the present outlook for Goodyear Tire &

Rubber look to be promising, although only slow and steadily improving. In 2013, the company

had shut down production in Amiens, France due to high costs and weakening markets in the

farm tire business. The shut-down is a result of the company’s cost lowering and savings strategy

that is set in place, planned on saving the company approximately $40 million in 2014. Also in

the fourth quarter of 2013, the reinstatement of quarterly dividends was placed into effect.

Although they faced lower business in Australia, who is a major contributor to the region, their

Asia-Pacific region delivered record earnings of $308 million. Their entry to the commercial

truck business in China has proven to be a great business venture, from 2012 to 2013, operating

income increased 18.9% from $259 million. The business in Latin America looks promising as

new branded products that were being sold were very popular with customers.

The cost lowering and savings strategy has completely restored business in North

America. In 2009, Goodyear lost $305 million. By diligent cost control, it has made a $1 billion

turnaround just within four years. Part of this came from a competitive edge the company had by

reaching a labor contract with the United Steelworkers which takes effect until 2017. The

company was able to reach a major milestone to help increase financial transparency and

decrease the need for outside debt financing when new hourly U.S. pension plans were fully

funded by the company. Also in North America, Goodyear finished with eighteen consecutive

quarters of year-over-year earnings improvements and seven straight quarters of at least 5

percent earnings-to-sales.

xli

Amazingly, operating income increased by 27% over the past year to achieve the highest

level in Goodyear’s 115 year history. They delivered at least $1.2 billion in segment operating

income, which was also another first for the company. Compared to 2012, 2013 had net income

of $629 million compared to $212 million.

Continuing with their cost reduction and growth plan, Goodyear Tire & Rubber’s future

outlook appears to be improving. In proof that they have been growing financially by reinstating

the quarterly dividends, company milestones met and records beat, goals set to increase segment

operating income 10 to 15 percent each year seem to be a good outlook. Also with the

manufacturing halt and the exit of the fading farm tire market in Amiens, France, the savings

should prove to be a good move on the company’s part. The company’s liquidity position should

prove adequate to fund the needs of the company, including new product lines, with an increase

sale volume.

xlii

ACCOUNTING POLICIES

The Goodyear Tire & Rubber Co. and Cooper Tire & Rubber Company are publicly traded

companies and must follow General Accepted Accounting Principles, known as GAAP. These

principles are required to be used when preparing financial reports. The goal of GAAP is to

assist companies in preparing useful reports for investors, creditors, and other users in making

well informed financial decisions.

These companies are also required by The Securities and Exchange Commission (SEC) to

complete a 10Q and a 10K. The 10K is an overview of the company’s business and financial

condition and also includes audited financial statements; this report must be filed with the SEC

within 90 days after the close of their fiscal year.

The Financial Accounting Standard Board (FASB) issued a standards update, 2013-02, in

February 2013. This update requires a new disclosure for items reclassified out of accumulated

other comprehensive income. The standard states that the disclosure should include the total

change in each component of other comprehensive income which would include items such as

unrealized gains or losses on available for sale securities. The disclosure must state the income

tax benefit or expense recognized to each component of other comprehensive income and

reclassification adjustments.

Goodyear Tire & Rubber

Goodyear announced in September 2013 the reinstatement of a $0.05 per share quarterly

stock dividend. The first dividend payment was declared on December 31, 2013. There are

currently 17,905 record holders of the 247 plus million shares of common stock.

xliii

Early in 2013 Goodyear hit a major milestone in their company’s history when they fully

funded their hourly U.S. pension plans. They reached this goal by using cash generated from

operations instead of using debt.

In the first quarter of 2014, Goodyear closed a manufacturing facility in Amiens, France.

They are estimating a cost savings of $75 million from closing this facility and exiting the farm

tire business in Europe, Middle East and Africa in 2014.

Cooper Tire & Rubber Company

Cooper takes great pride in the fact that they have paid common stock dividends on a

quarterly basis for more than forty years. On May 9, 2014, they declared their 169th consecutive

quarterly dividend. The dividend will pay 10.5 cent per share on June 2nd.

As previously mentioned, Cooper announced on June 12, 2013 the planned merger with

Apollo Tyres Ltd, an India based company, for an all-cash transaction at approximately $2.5

billion; however the company terminated the agreement on December 30, 2013.

Cooper uses Last in First out (LIFO) in North America inventory valuation, however, in

international tire operation segments they use First in First out (FIFO). Inventory balances are

at their highest during the first half of the year but decline in the second half as sales increase.

xliv

CONCLUSION

When looking at liquidity you want to see that a company has the ability to pay

their short-term obligations. Both Goodyear & Cooper are above industry standards when

looking at their current and quick ratio, meaning they are both good from investing stand points

because they are able to pay their short-term obligations.

Activity ratios measure how quickly accounts are turned into sales, or as we like to see it,

cash. When comparing the company’s inventory turnover average, over the past five years,

Cooper came in on top with an average of 52.8 days, 10.7 days over the industry average, 16.44

days quicker than Goodyear. When comparing Goodyear & Cooper Tire, asset turnover Cooper

was able to use assets efficiently to generate sales. Both companies had exceptional collection

periods above industry standards.

When we looked over their debt ratio we were astonished to see how overly high both

companies debt ratios were above industry average. From an investing stand point it is clear that

Goodyear is a lot more risky to invest in. While Cooper, again over the industry stand point, was

less risky to invest in.

Profitability is a key concern to those who work for these companies. Goodyear and

Cooper were both way below industry averages for gross profit margin. This from a management

stand point is frowned upon. Cooper was well above industry standards for their operating profit

margin. This from a management position means they were on target with the production of the

items they were producing because taxes, interest, and preferred stock dividends are not

included. Return on common equity showed us that Cooper had a higher ratio compared to the

industry and Goodyear.

xlv

Finally, taking a look at Market ratios shows us how investors feel a firm is doing in term

of risk and return. Goodyear and Cooper earnings per share ratios were not what an investor

would like to see in terms of comparison to the industry standards. Both companies were below

the standards, and had a huge decrease in 2011.

xlvi

RECOMMENDATIONS

We all know that most successful companies have a huge debt ratio number. It takes

money to make money. While we aren’t surprised to see that both Cooper and Goodyear are in

debt, we are very surprised at how far over the industry averages each company is. Looking at

these numbers from an investing stand point can help us define how risky each these companies

are.

xlvii

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAQQjRw&url=http://ausasustainingmembers.searchablelisting.com/viewDetails.php?id%3D548&ei=JArHU4r8CozjsATrgILAAw&bvm=bv.71126742,d.cWc&psig=AFQjCNFAQI1edyS5apYwNvWtPUo6H9vyjQ&ust=1405639588224465

Table 6: Debt Ratio Data

2009 2010 2011 2012 2013

13,675/14,410

=94.90%

14,986/15,630

=95.88%

Goodyear 16,880/17,629

=95.75%

16,603/16,973

=97.82%

16,603/17,527

=94.73%

1,769.5/2,100.3

=84.25%

1,844.7/2,305.

5

=80.01%

Cooper 1,932.1/2,509.9

=76.98%

2,043.5/2,801.

2

=72.95%

2,043.5/2,738.1

=74.63%

80% 70% Industry 70% 70% 70%


After looking at Table 6 you can see how substantially over the industry averages each

company is. Goodyear Tire & Rubber Company needs to focus on paying off some of their debt.

We can see that their debt numbers have not really changed much in the past five years, which to

us means they are also paying enormous amounts of interest. Cooper you can see has starting

paying off these debts, and should continue to do so.

When we analysis a company you want to see that they are keeping most of the sale

dollars that they sell. We want to know that the products we are selling are making us a profit.

When we look at Cooper Tire you can see that they are below the normal standard set by the

industry. Goodyear is also below, but for the most part is making better gross profit.

Table 7: Gross Profit Margin Ratio Data

2009 2010 2011 2012 2013

Goodyear (16,301-

13,676)/16,301

=16.1%

(18,832-

15,437)/18,832

=18.03%

(22,767-

18,771)/22,767

=17.55%

(20,992-

17,142)/20,992

=18.34%

(19,540-

15,399)/19,540

=21.19%

xlviii

Cooper (2,779-

2,360)/2,779

=15.08%

(3,361-

2,940.3)/3,361

=12.52%

(3,907.8-

3,562.8)/3,907.8

=8.83%

(4,200.8-

3,546.6)/4,200.8

=15.57%

(3,439.2-

2,923)/3,439.2

=15.01%

Industry 23.7% 23.9% 23% 23.5% 25.8%


Both Cooper and Goodyear should look into what is causing these numbers to be so low.

They need to look into what is costing them so much money when it comes to the cost of goods

they sell. They should look into their raw materials, labor cost, shipping cost, and the price to sell

theses good and reduce these costs somehow to bring their gross profit margin up.

The most valuable thing a company can have is their assets. These assets need to be able

to generate sales to make the company profitable. This is very important to those who are

looking to invest in the company. Goodyear has what appears to be the worst return on total

assets number.

Table 10: Return on Total Assets Data

2009 2010 2011 2012 2013


=-2.60%

-216/15,630

=-1.38%

321/17,629

=1.82%

183/16,973

=1.08%

600/17,527

=3.42%

Cooper 61.7/2,100.3

=2.94%

140.5/2,305.5

6.09%

253.5/2,509.9

=10.10%

220.3/2,801.2

=7.86

111/2,738.1

=4.05%

Industry -3.3% 0.9% 3.9% 4.8% 5.8%

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Above, in table 10, we can see that Goodyear is well below the industry standards.

Goodyear needs to increase their sales in some way maybe by selling off old inventory,

discounting items, and do promotional campaigns. Sell some assets that are not working to

generate sales. They could even look into have equipment produce more efficiently.

The operating profit is a measure of how much money is left over after you pay all your

bills essentially. The lower our outgoing bills the better, right? If we less outgoing payments to

more money the company is retaining, and the more money is being left in the company to

invest, payout in dividends, or pay for capital expenditures. Both companies number show a bad

trend.

Table 8: Operating Profit Margin Ratio Data

2009 2010 2011 2012 2013

Goodyear -26/16,301

= -.16%

399/18,332

=2.12%

943/22,767

=4.14%

781/20,992

=3.72%

1,274/19,540

=6.52%

Cooper 115.5/2,779

=4.16%

159.8/3,361

=4.75%

163.3/3,907.8

=4.18%

396.9/4,200.8

=9.45%

240.7/3,439.2

=7%

Industry -0.4% 4.5% 6.5% 7.2% 8.7%

l

Shown in table 8, we see that both companies are clearly paying too much in operating expenses.

Goodyear has consistently stayed below the average norm, and should look to reduces expenses where

ever they can. Which, they announced they would be doing throughout 2014. This recommendation also

goes for Cooper who dipped below the industry average after pulling themselves above it in 2012.

Works Cited

Cooper Tire and Rubber Co. (2014, July 14). Retrieved July 3, 2014, from coopertire.com/investors:

http://coopertire.com/Investors.aspx

Gitman, L., & Zutter, C. (2012). Principles of Managerial Finance. Boston: Pearson .

goodyear.com. (2014, July 15). Retrieved July 4, 2014, from investor.goodyear.com:

http://investor.goodyear.com/

li

Investopedia. (2014, July). Retrieved July 14, 2014 , from Investopedia.com:

http://www.investopedia.com/

Market Watch. (2014, July). Retrieved July 11, 2014, from marketwatch.com:

http://www.marketwatch.com/investing?link=MW_Nav_INV

MorningStar. (2014, July). Retrieved July 14, 2014, from mornginstar.com: http://www.morningstar.com/

sec.gov. (2014, July). Retrieved July 7, 2014, from U.S. Securities and Exchange Commision:

http://www.sec.gov/answers/form10k.htm

VentureLine.com/ratio-analysis-accounting ratios. (2014, July). Retrieved July 11, 2014, from

VentureLine.com: https://www.ventureline.com/ratio-analysis-accounting-ratios/analysis/

publicly_traded_company_vs_publicly_traded_company/GT/

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Yahoo. (2014, July 17). Retrieved July 11, 2014, from Yahoo Finance: http://finance.yahoo.com/q?s=GT

APPENDIX

Financial StatementsThis online report is prepared by VentureLine

Goodyear Tire & Rubber Company

SIC Code 3011

TIRES AND INNER TUBES

Income Statement

Qtr. End Yr. End Yr. End Yr. End Yr. End Yr. End3/31/201

312/31/201

312/31/201

212/31/201

112/31/201

012/31/200

9Sales 4853 19540 20992 22767 18832 16301Cost of Goods Sold 3935 15399 17142 18771 15437 13676Gross Income 918 4141 3850 3996 3395 2625Depreciation and Amortization 177 722 687 715 652 636Research/Development NA NA NA NA NA NAInterest Expense 0 0 0 0 0 0Unusual Expenses/(Income) 11 96 204 174 266 228Total Operating Expenses 4598 18266 20211 21824 18433 16327Operating Income 255 1274 781 943 399 -26Interest Income - non-op. 85 431 379 361 342 325Other Expenses/(Income)Pretax Income 50 813 440 618 8 -357Income Taxes 19 138 203 201 172 7Income After Taxes 31 675 237 417 -164 -364

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http://finance.yahoo.com/q?s=GT

Adjustments to Income -6 -75 -54 -96 -52 -11Nonrecurring Items 0 0 0 0 0 0Net Income 25 600 183 321 -216 -375

Cash Flow Statement


312/31/201

312/31/201

212/31/201

112/31/201

012/31/200

9Total Cash from Operations -937 938 1038 773 924 1297Total Cash from Investing -283 -1136 -1123 -902 -859 -663Total Cash from Financing 1462 1082 -426 994 179 -654Net Change in Cash 105 715 -491 767 83 28Capital Expenditures 271 1168 1127 1043 944 746Exchange Rate Effects -137 -169 20 -98 -161 48Cash Flow per Share 0.38 2.58 -1.99 2.83 0.34 0.12Free Cash Flow -4.31 -0.87 -0.36 -1 -0.08 2.28

Balance Sheet - Assets


312/31/201

312/31/201

212/31/201

112/31/201

012/31/200

9Cash 2386 2996 2281 2772 2005 1922Short-Term Investments 0 0 0 0 0 0Accounts Receivable 3021 2435 2563 2849 2736 2540Inventory 3168 2816 3250 3856 2977 2443Other Current AssetsTotal Current Assets 9042 8644 8498 9812 8045 7225Net Property, Plant, Equip. 6901 7320 6956 6375 6165 5843Long-Term Investments 0 0 41 41 36 30Goodwill/Intangibles 786 806 804 811 844 870Other Long-Term AssetsTotal Assets 17458 17527 16973 17629 15630 14410

Balance Sheet - Liabilities


312/31/201

312/31/201

212/31/201

112/31/201

012/31/200

9Accounts Payable 3218 3097 3223 3668 3107 2278Short-Term Debt 274 87 198 412 426 338Other Current Liab.

liv

Total Current Liab. 5335 5025 5322 5929 5307 4095Long-Term Debt 6307 6162 4888 4789 4319 4182Other Long-Term Liab.Total Liabilites 16922 16603 16603 16880 14986 13675Preferred Stock 500 500 500 500 0 0Common Stock Equity 36 1106 -130 249 644 735Total Liabilities and Equity 17458 17527 16973 17629 15630 14410

Financial StatementsThis online report is prepared by VentureLine

Cooper Tire & Rubber Co

SIC Code 3011

TIRES AND INNER TUBES

Income Statement


312/31/201

312/31/201

212/31/201

112/31/201

012/31/200

9Sales 861.7 3439.2 4200.8 3907.8 3361 2779Cost of Goods Sold 703.8 2923 3546.6 3562.8 2940.3 2360Gross Income 157.9 516.2 654.2 345 420.7 419Depreciation and Amortization 32.1 134.8 128.9 122.9 123.7 123.5Research/Development NA NA NA NA NA NAInterest Expense 0 0 0 0 36.6 47.2Unusual Expenses/(Income) 0 0 0 0 20.6 55.8Total Operating Expenses 765 3198.5 3803.9 3744.5 3201.2 2663.5Operating Income 96.7 240.7 396.9 163.3 159.8 115.5

lv

Interest Income - non-op. 7.1 31 37.2 39.7 0 0Other Expenses/(Income)Pretax Income 90.5 213 368.5 134.1 159.8 115.5Income Taxes 27.6 79.4 116 -135.5 20.1 0.2Income After Taxes 62.8 133.6 252.4 269.6 139.8 115.3Adjustments to Income -6.8 -22.6 -32.1 -16.1 -23.4 -21.9Nonrecurring Items 0 0 0 0 24.1 -31.7Net Income 56 111 220.3 253.5 140.5 61.7

Cash Flow Statement


312/31/201

312/31/201

212/31/201

112/31/201

012/31/200

9Total Cash from Operations -34 272.4 454.2 125.5 174.7 444.6Total Cash from Investing -49.3 -179.7 -205.1 -169.3 -117.2 -78.5Total Cash from Financing 9.3 -46.5 -132.6 -138.1 -71 -182.6Net Change in Cash -79.6 45.9 118.1 -179.6 -13.6 179.3Capital Expenditures 49.3 180.4 205.9 155.4 119.7 79.3Exchange Rate Effects -5.6 -0.2 1.6 2.2 -0.1 -4.2Cash Flow per Share -1.24 0.71 1.87 -2.85 -0.22 2.95Free Cash Flow -1.4 1.02 3.51 -0.89 0.47 5.61

Balance Sheet - Assets


312/31/201

312/31/201

212/31/201

112/31/201

012/31/200

9Cash 272.2 397.7 351.8 233.7 413.4 427Short-Term Investments 0 0 0 0 0 0Accounts Receivable 519.2 477 468.4 509.3 483.7 367Inventory 658.9 517.2 561.9 465.4 386.8 298.4Other Current AssetsTotal Current Assets 1525.4 1454.8 1449.7 1264 1340.2 1131.8Net Property, Plant, Equip. 941.3 974.3 929.3 899 852.4 851Long-Term Investments 0 0 0 0 24.4 20.8Goodwill/Intangibles 175.1 179.2 168.9 117.3 28.2 29.6Other Long-Term AssetsTotal Assets 2884.3 2738.1 2801.2 2509.9 2305.5 2100.3

lvi

Balance Sheet - Liabilities


312/31/201

312/31/201

212/31/201

112/31/201

012/31/200

9Accounts Payable 353.5 302.4 379.9 339.2 384.5 300.4Short-Term Debt 51 40 35.2 152.9 152.8 172.2Other Current Liab.Total Current Liab. 683.3 564.6 655.1 651 694.3 636.3Long-Term Debt 334.8 321 336.1 329.5 320.7 331Other Long-Term Liab.Total Liabilites 2068.4 2043.5 2043.5 1932.1 1844.7 1769.5Preferred Stock 0 0 0 0 0 0Common Stock Equity 815.9 990.9 757.6 577.8 460.8 330.8Total Liabilities and Equity 2884.3 2738.1 2801.2 2509.9 2305.5 2100.3

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