Simpsons Manufacturing - Financial Statements Analysis

8/8/2019 Simpsons Manufacturing - Financial Statements Analysis

1/14

Simpson Manufacturing Co, Inc

A Research Project

Presented to the

Finance Department

De La Salle University

In partial fulfillment

Of the course requirements

In FINMAN1 K34

SUBMITTED TO:

Professor Alfredo Santoyo

SUBMITTED BY:

Ricio, Daniel Edward L.

Brinas, Jiara

Martinez, Alexis

Racines, Jule Lian

Lim, Lizbeth Marie

December 15, 2010


2/14

Introduction:

Simpson Manufacturing Co., Inc. entered the connector business in 1956. Today, it is a growing

international company that is very much known in the manufacture and marketing of building

products.

Through its subsidiary, Simpson Strong-Tie Company, Inc., the firm designs, engineers, and

manufactures structural connectors, anchors, and other products for new construction, retrofitting,

and do-it-yourself (DIY) markets. Today, Simpson Strong-Tie is the leading structural connector

manufacturer in the United States and Europe.

The company stands by its promise to help people build safer structures in an economical way.

They have been doing this for years by designing, engineering and manufacturing "No Equal"

structural connectors and other related products that meet or exceed our customers' needs and

expectations. Seeing how quality has always been their goal, Simpson is committed to ensuring

that their product standards are met.

These facts about the organization stirred the group's interest in analyzing its financial

performance, in the objective of applying the principles and concepts learned from FINMAN1, a

course that is being taught in the De La Salle University-Manila. The study is supported by research

on the company's statement of financial positions and income statements (see appendix) from year

2005 to 2009, a five-year term from where the analysis is to be drawn. The information which will be

presented in the following pages shall be evaluated in terms of Simpson Manufacturing Company's

liquidity, profitability, stability position and overall financial performance.

It is in this lieu that the group will be rendering recommendations that will help improve the firm's

working capital management, in response to the course's Affective/Value aims.

Financial Analysis for Liquidity: (In Millions)


3/14

Current Ratio

Computation for Current Ratio 2009 2008 2007 2006 2005

Current Assets 530.08 527.6 522.88 479.34 434.46

Divide by: Current Liabilities 71.47 71.89 84.34 80.26 91.96

Current Ratio 7.416818245 7.338990124 6.19966801 5.972339895 4.724445411

For the past 5 years, the current ratio of the company is increasing rapidly. Itmeans to say the company is more and more capable of paying its short-termobligations during that 5 years period of time. The company can be concluded that it isbecoming more liquid due to its increasing current assets. We can also deduce and thecompany is depending less on current liabilities for financing for the past 5 years. Withthe given data, we can predict that the company will have a further increase in theircurrent assets as to pay-off their short-term obligations for the succeeding years.

Acid Test Ratio

Computation for Acid Test Ratio 2009 2008 2007 2006 2005

Current Assets 530.08 527.6 522.88 479.34 434.46

Less: Inventories 163.75 251.88 218.34 217.61 181.49

Divide by: Current Liabilities 71.47 71.89 84.34 80.26 91.96

Acid Test Ratio 5.125647125 3.835303937 3.610860802 3.261026663 2.750869943

Since the acid test ratio for the company for 5 years is increasing, we canconclude that the company can pay-off its short tem obligations very well without relyingon selling its inventories during that 5 years period of time. The company can also be

concluded that it is becoming more liquid due to the increasing of its current assetsaccounts other than its inventories at the same time. We can see that the companyscurrent assets significantly increase more than the fluctuations in inventories, hence stillgaining a large numerator for the ratio. The company is now depending on cash andother current assets other than its inventories for financing their current liabilities for thepast 5 years. With the given data, we can predict that the company will have a furtherincrease in their acid test ratio as their current assets can be predicted to furtherincrease while maintaining the fluctuations in their inventories and current liabilities.

Average Collection Period


4/14

Computation for ACP 2009 2008 2007 2006 2005

Accounts Receivables 77.32 76.01 88.34 95.99 101.62

Divide by: Daily Credit Sales/365 1.602931507 2.07260274 2.238328767 2.364876712 2.318520548

Average Collection Period 48.23662126 36.67369465 39.46694574 40.5898538 43.8296741

The company has fluctuating average collection period which shows that thecompany collects credit in no determined time. From 2005 to 2008, we can see that thecompany has decreasing average collection period; hence, it means that the companyis collecting its cash from receivables sooner than in preceding years. But if we are tocompare the average collection period from 2008 to 2009, the average collection periodhas increased. It means that the period for collecting their credit from their clients hasbeen delayed by a longer period. With the given data, we can predict that the companywill continue to collect cash from its receivables at a sooner period for the succeedingyears.

Financial Analysis for Operating Efficiency: (In Millions)

Operating Income Return on Investment

Computation for OIROI 2009 2008 2007 2006 2005

Operating Income 28.61 87.54 110.85 161.41 153.73

Divide by: Total Assets 843.81 830.2 817.68 735.33 659.72

Operating Income Return on Investment 0.033905737 0.105444471 0.135566481 0.219506888 0.233023101

The operating income that the company has earned relative to the companysinvestment has decreased significantly for the past 5 years. The only year that thecompany got a large operating income as well as a large gain in assets is on the year2006. That shows that it is only in 2006 that the company efficiently managed well theirassets to gain more income. During the periods of 2007 to 2009, the data shows thatthe company is not using its assets more efficiently to earn a large amount of incomeduring those periods. In short, the company has poor operations from 2007 to 2009.With the given data, we can predict that the company will have a further increase in theirtotal assets while still having a decreasing operating income for the succeeding years.

Operating Profit Margin


5/14

Computation for OPM 2009 2008 2007 2006 2005


Divide by: Sales 585.07 756.5 816.99 863.18 846.26

Operating Profit Margin 0.048900132 0.115717118 0.135680975 0.186994601 0.181658119

The operating income that the company had generated for the past 5 years hasdecreasing values relative to the gross sales that the company had earned every year.It means to say that during the 5 years period, the company keeps on losing in theirsales per dollar. This is a bad indication for the company. This can also show that thecompany has very large expenses and at the same time, the expenses were not utilizedwell to earn bigger sales every year. With the given data, we can predict that thecompany will have a further decrease in their operating income as well as their sales forthe succeeding years. In short, the company will keep on losing its profit more and morein the following years.

Total Asset Turnover

Computation for TAT 2009 2008 2007 2006 2005

Sales 585.07 756.5 816.99 863.18 846.26


Total Asset Turnover 0.69336699 0.911226211 0.999156149 1.173867515 1.282756321

The company has increasing assets for the past 5 years but their sales havesignificantly been decreased for the past 5 years. This shows that the company hasinvested on assets that did not help on increasing their sales. In short, the company isnot efficient at using its own assets to gain income for the company. With the given

data, we can predict that the company will have a further increase in their total assetswhile still having decreasing amount in their sales due to poor management in thesucceeding years.

Accounts Receivable Turnover


6/14

Computation for ART 2009 2008 2007 2006 2005

Sales 585.07 756.5 816.99 863.18 846.26

Divide by: Accounts Receivable 77.32 76.01 88.34 95.99 101.62

Accounts Receivable Turnover 7.566864977 9.952637811 9.248245415 8.992395041 8.327691399

The company has an increasing accounts receivable turnover from 2005 to 2008.This shows that the company is not extending the receivables they are about to collectduring those 4 years time. While on they year 2008 to 2009, the company seems tohave a lower accounts receivable turnover which means that the company held theirreceivables longer. The company should re-assess its credit policies in order to ensurethe timely collection of imparted credit that is not earning interest for the firm.With thegiven data, we can predict that the company will still have a further decrease in theirsales as well as in their accounts receivable for the succeeding years. The company willalso have a much lower accounts receivable turnover for the succeeding years.

Inventory Turnover

Computation for IT 2009 2008 2007 2006 2005

Cost of Goods Sold 391.5 474.19 511.5 517.89 515.42

Divide by: Inventories 163.75 251.88 218.34 217.61 181.49

Inventories Turnover 2.390839695 1.882602827 2.342676559 2.379899821 2.839936085

The company has decreasing inventories turnover from 2005 to 2008. It showsthat the company has poor sales during those periods and, therefore, has excessamount of inventory. If we are to compare the year 2008 and 2009, we can see that thecompany have increased their inventories turnover. It means to say that the company

has either have a strong sale or ineffective buying during the year 2009. With the givendata, we can predict that the company will still have a further decrease in their cost ofgoods sold as well as in their inventories for the succeeding years. We also predict thatthe company will start having a high inventory turnover ratio in the succeeding years.

Fixed Assets Turnover


7/14

Computation for FAT 2009 2008 2007 2006 2005

Sales 585.07 756.5 816.99 863.18 846.26

Divide by: Fixed Assets 187.81 193.32 198.12 197.18 166.48

Fixed Assets Turnover 3.115222832 3.91320091 4.123712901 4.377624506 5.083253244

The company has a decreasing fixed assets turnover for the past 5 years. It onlyshows that the company is not effective on utilizing its fixed assets to generaterevenues for the business. With the given data, we can predict that the company willhave a further decrease in their sales while having increasing values for their fixedassets in the succeeding years.

Financial Analysis for Leverage: (In Millions)

Debt Ratio

Computation for Debt Ratio 2009 2008 2007 2006 2005

Total Debt 80.02 81.17 94.28 82.46 101.59


Debt Ratio 0.094831775 0.097771621 0.11530183 0.112140128 0.153989571

The company has decreasing debt ratio for the past five years. It only means thatthe company is investing more on assets, thus lowering their risk in potential debt-loads. Having all the debt ratios in the table that is less than 1 only means that thecompany has more assets than its debts. With the given data, we can predict that thecompany will have a further increase in their total assets while having a lower debt inthe succeeding years.

Times Interest Earned Ratio

Computation for TIER 2009 2008 2007 2006 2005


Divide by: Interest Expense 0 0 0 0 0

Times Interest Earned Ratio 0 0 0 0 0

The company did not have any interest expense for the past 5 years. With thisfact, the times interest earned ratio for the company cannot be computed and beanalyzed.

Financial Analysis for Return on Equity: (In Millions)


8/14

Return on Equity

Computation for ROE 2009 2008 2007 2006 2005

Net Income 12.22 53.93 68.74 102.5 98.39

Divide by: Common Equity 763.78 749.03 723.4 652.88 558.13

Return on Equity 0.015999372 0.071999786 0.0950235 0.156996692 0.176285095

The company has a significantly decreasing return on the stockholdersinvestment, wherein common equity is relative to net income. Over the 5 years, thecompany has decreasing return on equity, thus, it only implies that the efficiency oninvestments of the company is not that good. With the given data, we can predict thatthe company will still have a lower return on equity in succeeding years due to poormanagement of the company.

Analysis on Net Working Capital and Profit vs. Risk

The company is depending significantly on current assets for financing ratherthan current liabilities due to the increasing net working capital for the past 5 years. Riskis relatively very low as the company doesnt rely on their liabilities so much. We cansee that the company is less aggressive in terms of how they run their business, thuslowering the chance of having higher returns.

Analysis for the Companys Cash Conversion Cycle:


9/14

Computation for CCC 2009 2008 2007 2006 2005

Average Age of Inventory 47.58 36.17 38.93 40.03 43.23

Add: Average Collection Period 150.63 191.49 153.85 151.26 126.76

Operating Cycle 198.21 227.66 192.78 191.29 169.99

Less: Average Payment Period 26.17 16.46 19.16 15.93 20.60

Cash Conversion Cycle 172.04 211.20 173.62 175.36 149.39

Notes:

Computation for ACP 2009 2008 2007 2006 2005

Days ofOperation 360 360 360 360 360

Divide by: Inventory turnover 2.39 1.88 2.34 2.38 2.84

Average Collection Period 150.63 191.49 153.85 151.26 126.76

Computation for AAI 2009 2008 2007 2006 2005

Accounts Receivable 77.32 76.01 88.34 95.99 101.62

Divide by: Daily Credit Sales 1.602931507 2.07260274 2.238328767 2.364876712 2.318520548

Average Age of Inventory 48.24 36.67 39.47 40.59 43.83

Computation for APP 2009 2008 2007 2006 2005

Accounts Payable 28.46 21.68 27.23 22.91 29.49

Divide by: CoGS/365 1.07260274 1.299150685 1.401369863 1.418876712 1.412109589

Average Payment Period 26.53 16.69 19.43 16.15 20.88

The CCC on 2005 is the lowest in 5 years. It gives us the impression that in2005, the company can turn to cash much better than in 2006. During that period, itseems that Simpson Manufacturing Co, Inc is being paid upfront by their clients. Theeconomics of some business model makes it advantageous for the firm. It also showsthat in 2005, the company is most financially flexible as compared to the other years, ascash from their sales flows in the business more rapidly.

If we are to compare the period 2006 and 2007, we can see that in the year2007, the company is more financially flexible than in 2006. Cash comes in more quicklyduring the year 2007.

If we are to compare the period between 2007 and 2008, we can see that in theyear 2008, the company is less financially flexible than in 2007. The company is

probably having harder time collecting cash from its clients.If we are to compare the period between 2009 and 2008, we can see that in the

year 2009, the company regained back its financial flexibility. The company in thatperiod has collected more cash from its sales than last year.

Appendix:


10/14

Financial Statements of Simpson Manufacturing Co, Inc: (In Millions)

Income StatementSimpson Manufacturing Co, Inc

For the Year Ended

Year 2009 2008 2007 2006 2005

Period End Date 12/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005

Period Length 12 Months 12 Months 12 Months 12 Months 12 Months

Stmt Source 10-K 10-K 10-K 10-K 10-K

Stmt Source Date 2/26/2010 3/2/2009 2/29/2008 3/1/2007 3/1/2007

Stmt Update Type Updated Updated Updated Updated Reclassified

Revenue 585.07 756.5 816.99 863.18 846.26

Total Revenue 585.07 756.5 816.99 863.18 846.26

Cost of Revenue, Total 391.5 474.19 511.5 517.89 515.42

Gross Profit 193.57 282.31 305.49 345.3 330.84

Selling/General/Administrative Expenses, Total 144.17 170.6 164.57 164.17 164.58

Research & Development 19.99 21.33 20.12 19.25 14.57

Depreciation/Amortization 0 0 0 0 0

Interest Expense (Income), Net Operating 0 0 0 0 0

Unusual Expense (Income) 0.8 2.84 9.95 0.46 -2.04

Other Operating Expenses, Total 0 0 0 0 0


Interest Income (Expense), Net Non-Operating 0 0 0 0 0

Gain (Loss) on Sale of Assets 0 0 0 0 0

Other, Net 0 0 0 0 0

Income Before Tax 28.49 89.65 116.58 165.03 155.56

Minority Interest 0 0 0 -0.17 0

Equity In Affiliates 0 0 0 0 0

U.S. GAAP Adjustment 0 0 0 0 0

Net Income Before Extra. Items 12.22 53.93 68.74 102.5 98.39

Total Extraordinary Items 0 0 0 0 0

Net Income 12.22 53.93 68.74 102.5 98.39

Total Adjustments to Net Income 0 0 0 0 0


11/14

Basic Weighted Average Shares 49.14 48.64 48.47 48.3 48.08

Basic EPS Excluding Extraordinary Items 0.25 1.11 1.42 2.12 2.05

Basic EPS Including Extraordinary Items 0.25 1.11 1.42 2.12 2.05

Diluted Weighted Average Shares 49.26 48.97 48.93 48.89 48.61

Diluted EPS Excluding Extraordinary Items 0.25 1.1 1.4 2.1 2.02

Diluted EPS Including Extraordinary Items 0.25 1.1 1.4 2.1 2.02

Dividends per Share - Common Stock Primary Issue 0.4 0.4 0.4 0.32 0.23

Gross Dividends - Common Stock 19.67 19.48 19.4 15.45 11.07

Interest Expense, Supplemental 0.47 0.38 0.23 0.21 0.19

Depreciation, Supplemental 23.1 25 24.7 22.3 19.9

Normalized EBITDA 58.61 120.48 148.8 186.47 174.09

Normalized EBIT 29.41 90.38 120.8 161.87 151.69

Normalized Income Before Tax 29.29 92.49 126.53 165.49 153.52

Normalized Income After Taxes 12.56 55.64 74.61 102.95 97.1

Normalized Income Available to Common 12.56 55.64 74.61 102.95 97.1

Basic Normalized EPS 0.26 1.14 1.54 2.13 2.02

Diluted Normalized EPS 0.26 1.14 1.52 2.1 2

Amortization of Intangibles 6.1 5.1 3.3 2.3 2.5

Balance SheetSimpson Manufacturing Co, Inc


12/14

As of

Year 2009 2008 2007 2006 2005

Period End Date 12/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005


Stmt Source Date 2/26/2010 3/2/2009 2/29/2008 3/1/2007 3/3/2006

Stmt Update Type Updated Updated Updated Updated Updated

Assets

Cash and Short Term Investments 250.38 170.75 186.14 148.3 131.2

Total Receivables, Net 77.32 76.01 88.34 95.99 101.62

Total Inventory 163.75 251.88 218.34 217.61 181.49

Prepaid Expenses 0 0 0 0 0

Other Current Assets, Total 38.62 28.96 30.05 17.44 20.14

Total Current Assets 530.08 527.6 522.88 479.34 434.46

Property/Plant/Equipment, Total - Net 187.81 193.32 198.12 197.18 166.48

Goodwill, Net 81.63 68.62 57.42 44.34 42.68

Intangibles,Net 28.85 23.45 23.24 8.74 11.01

Long Term Investments 0.75 0.21 0 0.03 0.24

Note Receivable - Long Term 0 0 0 0 0

Other Long Term Assets, Total 14.69 17 16.03 5.71 4.84

Other Assets, Total 0 0 0 0 0

Total Assets 843.81 830.2 817.68 735.33 659.72

Liabilities and Shareholders' Equity

Accounts Payable 28.46 21.68 27.23 22.91 29.49

Payable/Accrued 0 0 0 0 0

Accrued Expenses 38.07 45.3 51.23 53.15 56.42

Notes Payable/Short Term Debt 0 0 0 0 0

Current Port. of LT Debt/Capital Leases 0 0.03 1.03 0.33 2.19

Other Current Liabilities, Total 4.94 4.9 4.85 3.87 3.87

Total Current Liabilities 71.47 71.89 84.34 80.26 91.96

Total Long Term Debt 0 0 0 0.34 2.93

Deferred Income Tax 0 0 0 0 0

Minority Interest 0 0 0 0 5.34

Other Liabilities, Total 8.55 9.28 9.94 1.87 1.36

Total Liabilities 80.02 81.17 94.28 82.46 101.59

Redeemable Preferred Stock 0 0 0 0 0

Preferred Stock - Non Redeemable, Net 0 0 0 0 0


13/14

Common Stock 0.49 0.49 0.49 0.48 0.48

Additional Paid-In Capital 146.04 136.87 126.12 114.54 94.4

Retained Earnings (Accumulated Deficit) 598.49 605.95 571.5 526.36 456.47

Other Equity, Total 18.76 5.72 25.3 11.49 6.77

Total Equity 763.78 749.03 723.4 652.88 558.13

Total Liabilities & Shareholders Equity 843.81 830.2 817.68 735.33 659.72

Total Common Shares Outstanding 49.38 48.97 48.55 48.41 48.32

Total Preferred Shares Outstanding 0 0 0 0 0

Statement ofCash FlowSimpson Manufacturing Co, Inc


14/14

For the Year Ended

Year 2009 2008 2007 2006 2005

Period End Date 12/31/2009 12/31/2008 12/31/2007 12/31/2006 12/31/2005

Period Length 12 Months 12 Months 12 Months 12 Months 12 Months


Stmt Source Date 2/26/2010 3/2/2009 2/29/2008 3/1/2007 3/3/2006

Stmt Update Type Updated Updated Updated Updated Updated

Net Income/Starting Line 12.22 53.93 68.74 102.5 98.39

Depreciation/Depletion 29.39 30.21 27.98 24.54 22.37

Amortization 0 0 0 0 0

Deferred Taxes -2.2 -1.08 -3.75 -2.14 -4.59

Non-Cash Items 4.32 9.51 21.55 5.74 8.88

Changes in Working Capital 82.43 -36.44 12.31 -31.57 5.55

Cash from Operating Activities 126.16 56.13 126.85 99.07 130.6

Capital Expenditures -15.23 -15.98 -36.09 -51.54 -42.6

Other Investing Cash Flow Items, Total -24.25 -35.04 -39.11 -8.94 20.87

Cash from Investing Activities -39.47 -51.03 -75.2 -60.47 -21.73

Financing Cash Flow Items 0.36 0.52 0.06 3.06 0

Total Cash Dividends Paid -19.63 -19.44 -18.42 -15.44 -9.61

Issuance (Retirement) of Stock, Net 7.63 6.88 0.64 -8.22 4.1

Issuance (Retirement) of Debt, Net -0.03 -1 0.3 -0.87 -1.31

Cash from Financing Activities -11.67 -13.05 -17.42 -21.48 -6.82

Foreign Exchange Effects 4.62 -7.45 3.61 -0.02 -1.76

Net Change in Cash 79.63 -15.39 37.84 17.1 100.29

Net Cash - Beginning Balance 170.75 186.14 148.3 131.2 30.92

Net Cash - Ending Balance 250.38 170.75 186.14 148.3 131.2

Simpsons Manufacturing - Financial Statements Analysis

Documents

Transcript of Simpsons Manufacturing - Financial Statements Analysis