Jifan Wu

COMPANY ANALYSIS 6

JifanWu

BACC2103 AB

Prof.Gelb

9/29/14

CompanyDescription

MonsantoCompany is an agricultural inputs industry organization that mainlydeals in the production and distribution of various food productionrelated materials and chemicals. The company produces seeds,herbicides and biotechnology related products for enhanced productionfor both crops and livestock (Monsanto, 2014). As a result of itsdiversification, the company is divided into two main businesssegments that include the agricultural productivity segment and theseeds and genomics segment. The seeds and genomics division has beenknown to produce plantation crop seeds like cotton, corn and otheroil seeds like soybeans. To help farmers enhance their productivity,the company has also invested a lot in research and development.

Asa result, the company has a variety of biotechnology related productsthat have faster maturity as well as higher yields. However, thecompany values the seeds and genomics segment due to its growthpotential in the global market (Monsanto, 2014). There are many waysin which the company has competitively positioned itself in themarket. First, to ensure a global reach, the company has a welldeveloped distribution network. The company involves agriculturalcooperatives, agents and independent distributors or dealers to helpin the marketing and supply of its products. As a production companyinvolved in the field of biotechnology, Monsanto has a variety ofpatents, licenses and trademarks. Even with a highly performingportfolio of agricultural based inputs, Monsanto Company has facedstiff competition in the industry as discussed in the followingsection.

Industry

Forany given industry, competition is usually a significant factor inthe determination of trends and performance. Monsanto Company happensto operate in a highly globalised industry. As a result, it has toremain highly competitive (Howard,2009).It is also important to note that the agricultural inputs sector isone of the most important industries for world’s economy. Manydeveloping nations depend on agricultural production to boost theirincome and feed populations. This fact therefore makes the industryone of the most important globally. Today, there are numerous seedand implement marketers as well producers of agrochemical productsglobally. Product differentiation and quality is therefore a keyingredient for success in the industry.

Inaddition, there are issues like climate change and increasedurbanization that have led to the encroachment of fertile lands. As aresult, the land size for agricultural production has beendiminishing. However, with improved technology and farming practices,opportunities exist for agribusiness related organizations likeMonsanto Company. As such, the company must be ready to invest inresearch and development to ensure that it provides customized inputsand continues to assure quality to all its customers.

Sourcesof Income and Profitability

Thecompany generates a large chunk of income from the sales of itsproducts in the two segments already mentioned. Sale of seeds andother agrochemicals produced by the company are the main revenueearners for the company. The following table summarizes the revenueoutlook for the company in the last three years.

Table 1: Revenue summary

2013

2012

2011

14,861.00

13,504.00

11,822.00

Interms of profitability, the company’s net income continues to risewith the financial year 2013 recording a 2.4 billion USD net incomeup from 1.6 in the year 2011. The following table indicates thecomparative ratio analysis for the company.

Table 2: Profitability analysis

Profitability Ratios

&nbsp

&nbsp

&nbsp

&nbsp

&nbsp

Return on sales (ROS)

&nbsp

2.17

Stronger

0.1670

0.1514

Return on assets (ROA)

&nbsp

7.93

&nbsp

0.7238

0.6844

Return on equity (ROE)

&nbsp

18.62

&nbsp

0.1976

0.1728

(MSN,2014).

Liquidityand Solvency

Interms of liquidity, the company has also shown a stronger position interms of its current assets’ value. The quick ratio has been valuedat 2.3 in 2013 up from 2012’s 2.2. Taking year 2013 as year 1, thefollowing pie chart indicates the growth in equity indicating thecompany’s strong show in solvency.

Chart1: Solvency

ManagementEfficiency

Thecompany’s management efficiency is illustrated as indicated in thefollowing table. Generally, there is a marked increase in the accountreceivables turnover. Inventory has also increased slightlyindicating decreased efficiency in production.

Table 3: Efficiency

Ratio

Industry

Yr1

Yr2

Accounts receivable turnover

3.94

6.0

5.4

Inventory turnover

3.18

2.4

2.3

Asset turnover

0.68

0.7

0.7

(MSN,2014).

Risks

Thecompany faces both internal and external risks. First, its internalrisks are concerned with management of inventory, which may result inlosses. However, the risk associated with competition and climaticconditions in the globe are the most important for the company (Shi,2009).

OverallAssessment

Generally,the company has shown marked improvement in the last three yearsreviewed. Given that it serves an important industry, it is worthinvesting in. This is also supported by the company’s ratioanalysis that illustrates the company’s strong show compared toindustry values. The company’s profitability scale has been risingsteadily for the past three years this is an indication of growthand development which most investors would prefer. For instance, in2012 the company’s profit rose by $1682.00, while in 2013 theprofit margin was at $1357.00. If a comparison is done on thedifference between the rise in 2012 and 2013, it will be found thatthe company had a small deviation of $325 which does not impair itsprofitability.

Thecompany’s current ratio depicts that the company is gets moreliquid in the three year period. This is a very important componentin regard to the company’s performance in the market. Highliquidity ratio depicts that the company is able to offset itsliabilities at all times. It also supports the idea that at no pointwills the company be pushed to bankruptcy or insolvency. By improvingits financial stand in the market the company is able to guaranteesecurity of investments. The company’s debt ratio is decreasingwith time at a rate of 3% per annum. This is an important sign thatthe company is moving towards full stability and brushing off theidea of reliance on debts. The financial leverage of the company isalso increasing from 2.53 to 2.63. it depicts that the company isable to maintain its obligations as far as shareholders areconcerned. At no point will shareholders go without propercompensation.

Managementefficiency of the company weighs it down due to its degrading naturein the three year period. However, of all the components under thiscategory the account receivable turnover is deteriorating. On theother hand inventory turnover and asset turnover exhibit a givenlevel of stability. This shows that the overall impact of managementefficiency is expected to improve as the two components project andmaintain stability. Hence the overall impact is deemed to be positivein the long run. In conclusion it can be termed that the companyqualifies as an important investment platform for all willing andable investors in the market.

References

Howard,P. H. (2009). Visualizing consolidation in the global seed industry:1996–2008. Sustainability,1(4),1266-1287.

Shi,G. (2009). Bundling and licensing of genes in agriculturalbiotechnology. AmericanJournal of Agricultural Economics,91(1),264-274.

Monsanto,(2014). Corporateprofile.Retrieved 28 Sept, 2014 fromhttp://www.monsanto.com/investors/pages/corporate-profile.aspx

MSN,(2014). MonsantoCompany.Retrieved 28 Sept, 2014 fromhttp://investing.money.msn.com/investments/keyratios?symbol=US%3aMON&amppage=PriceRatios