Assume that relevant tax rate is 35%. EBIT, depreciation, capital spending, and the change in net working capital will grow at the same rate as sales, which is expected to grow at a rate of 3% across the current year, while capital investment will remain stable. Assume that operational results quoted outside of Tables 4, 5 and 6 (income statement, balance sheet, and statement of cash flows, below), are interim measures to be used for purposes of your calculations.
Based on the proposal’s likely effect on shareholder value, determine whether to accept or reject this proposal for $62B, using evidence provided here in Tables 1 through 6, to support your analyses. Evaluate each of the following:
A. Whether to accept or reject this proposal, using evidence drawn from ratio analysis, and time and trend analysis and other evidence from assigned readings covered in Modules One through Three to support your determinations. Compute and include two ratios per each of the four main areas of ratio analysis, including short-term solvency, asset utilization, long-term solvency, and profitability.
B. Evaluate limitations that may exist in using these varieties of analysis to make this determination.
Immediate Results from the Bayer Announcement in 2015
Monsanto (MON) Share Price Increased 8.7%
Bayer Crop Science Division Sales increase 9% to $11.8 billion
Bayer Healthcare Division Sales Increased 19% to $26 billion
Bayer Pharmaceutical Sales Increased 12%, to $52.8 billion
Monsanto Sales Decreased 5% to $15 billion
Table 1. Immediate Results from the Bayer Announcement in 2015
ValuPro Net Online Valuation of MONSANTO CORPORATION – 2015
Return on Assets 8.56 Return on Equity 14.93
Sales ($mil) 14,757 Investment Rate (% of Rev) 4.78
Growth Rate (%) 13.5 Working Capital (% of Rev) 29.19
Net Oper. Profit Margin (%) 21.3 Short-Term Assets ($mil) 11141
Tax Rate (%) 30.584 Short-Term Liab. ($mil) 4055
Stock Price ($) 86.74 Equity Risk Premium (%) 3
Shares Outstanding (mil) 533.8 Company Beta 1.05
10-Yr Treasury Yield (%) 500% Value Debt Out. ($mil) 2.054
Bond Spread Treasury (%) 1.5 Value Pref. Stock Out. ($mil) 0
Preferred Stock Yield (%) 7.5 Company WACC (%) 8%
Table 2. ValuePro Net Online Valuation
Monsanto Co. 2015 (Bloomberg Market Rates)
MON:US
Current Price 106.00 (USD)
Open 106.80
Day Range 109.69-109.54
Volume 18,049,774
Previous Close 106
52 Week Range 81.22-120
1 Year Return -7.06%
YTD Return 10.94%
Current P/E Ratio (TTM) 23.67
Earnings Per Share (USD) (TTM) 4.62
Market Cap (B USD) 47.747
Shares Outstanding 436.845
Price/Sales (TTM) 3.65
Dividend Indicated Gross Yield 1.98%
Sector Materials
Industry Chemicals
Sub-Industry Agricultural Chemicals
Table 3. Monsanto Co. Rates
Income Statement – Monsanto Corp.
Period Ending 31-Aug-15 31-Aug-14 31-Aug-13
Total Sales 15,001,000 15,855,000 14,861,000
Cost of Sales 6,819,000 7,281,000 7,208,000
Gross Profit 8,182,000 8,574,000 7,653,000
Operating Expenses
Research Development 1,580,000 1,725,000 1,533,000
Selling General and Administrative 2,686,000 2,774,000 2,550,000
Non Recurring 393,000 – –
Others – – –
Total Operating Expenses – – –
Operating Income or Loss 3,523,000 4,075,000 3,570,000
Income from Continuing Operations
Total Other Income/Expenses Net 71,000 – 31,000
Earnings Before Interest and Taxes 3,594,000 4,075,000 3,601,000
Interest Expense 433,000 248,000 172,000
Income Before Tax 3,161,000 3,827,000 3,429,000
Income Tax Expense 864,000 1,078,000 915,000
Minority Interest -11,000 -22,000 -43,000
Net Income from Continuing Ops 2,286,000 2,727,000 2,471,000
Non-recurring Events
Discontinued Operations 28,000 13,000 11,000
Extraordinary Items – – –
Effect of Accounting Changes – – –
Other Items – – –
Net Income 2,314,000 2,740,000 2,482,000
Preferred Stock and Other Adjustments – – –
Net Income Applicable to Common Shares 2,314,000 2,740,000 2,482,000
Table 4. Monsanto Income Statement
Balance Sheet – Monsanto Corp.
Period Ending 31-Aug-15 31-Aug-14 31-Aug-13
Assets
Current Assets
Cash and Cash Equivalents 3,701,000 2,367,000 3,668,000
Short Term Investments 47,000 40,000 254,000
Net Receivables 3,182,000 3,466,000 3,042,000
Inventory 3,496,000 3,597,000 2,947,000
Other Current Assets 199,000 205,000 166,000
Total Current Assets 10,625,000 9,675,000 10,077,000
Long Term Investments 42,000 92,000 237,000
Property Plant and Equipment 4,973,000 5,082,000 4,654,000
Goodwill 4,061,000 4,319,000 3,520,000
Intangible Assets 1,332,000 1,554,000 1,226,000
Accumulated Amortization – – –
Other Assets 610,000 746,000 496,000
Deferred Long Term Asset Charges 277,000 450,000 454,000
Total Assets 21,920,000 21,918,000 20,664,000
Liabilities
Current Liabilities
Accounts Payable 3,950,000 4,359,000 3,756,000
Short/Current Long Term Debt 687,000 315,000 63,000
Other Current Liabilities 540,000 438,000 517,000
Total Liabilities 14,930,000 14,043,000 8,105,000
Stockholders’ Equity
Misc. Stocks Options Warrants – – –
Redeemable Preferred Stock – – –
Preferred Stock – – –
Common Stock 6,000 6,000 6,000
Retained Earnings 10,374,000 9,012,000 7,188,000
Treasury Stock -12,053,000 -10,032,000 -4,140,000
Capital Surplus 11,464,000 10,003,000 10,783,000
Other Stockholder Equity -2,801,000 -1,114,000 -1,278,000
Total Stockholder Equity 6,990,000 7,875,000 12,559,000
Net Tangible Assets 1,597,000 2,002,000 7,813,000
Table 5. Monsanto Balance Sheet
Cash Flow – Monsanto Corp.
Period Ending 31-Aug-15 31-Aug-14 31-Aug-13
Net Income 2,314,000 2,740,000 2,482,000
Operating Activities, Cash Flows Provided By or Used In
Depreciation 716,000 691,000 615,000
Adjustments to Net Income 240,000 233,000 113,000
Changes in Accounts Receivables 68,000 -172,000 222,000
Changes in Liabilities 457,000 482,000 -129,000
Changes in Inventories -425,000 -650,000 -192,000
Changes in Other Operating Activities -273,000 -292,000 -414,000
Total Cash Flow from Operating Activities 3,108,000 3,054,000 2,740,000
Investing Activities, Cash Flows Provided By or Used In
Capital Expenditures -967,000 -1,005,000 -741,000
Investments 4,000 235,000 217,000
Other Cash Flows from Investing Activities -56,000 -1,235,000 -253,000
Total Cash Flows from Investing Activities -1,019,000 -2,095,000 -777,000
Financing Activities, Cash Flows Provided by or Used in
Dividends Paid -966,000 -932,000 -976,000
Sale Purchase of Stock -698,000 -6,834,000 -705,000
Net Borrowings 1,238,000 -5,536,000 127,000
Other Cash Flows from Financing Activities -36,000 -48,000 -10,000
Total Cash Flows from Financing Activities -430,000 -2,259,000 -1,485,000
Effect of Exchange Rate Changes -325,000 -1,000 -93,000
Change In Cash and Cash Equivalents 1,334,000 -1,301,000 385,000
Table 6. Monsanto Statement of Cash Flows
