ACC 3010: Financial Statement Analysis Project

Analysts Name
Name of Company
Period of Analysis
Type of Analysis

Ian Walters
E. I. du Pont de Nemours and Company (DuPont)
December 2009 to December 2013
Five Year Financial Statement Analysis and
Financial Trends

Contents:
1. Company Background
2. Stock Performance: Five Year Trends
3. Income Statement Analysis: Five Year Trends
4. Balance Sheet Analysis: Five Year Trends
5. Ratio Analysis: Four Year Trends
6. Overall Conclusion
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Part 1: Company Background [One page]

Industry
Major Competitors
Headquarters
Date Established
Brief History

Chemistry Diversified
BASF SE, The Dow Chemical Company, ExxonMobil Chemical Company,
Bayer AG, TOTAL S.A.
1007 Market Street, Wilmington, DE 19898, United States
July 19, 1802
DuPont was founded by leuthre Irne du Pont on July 19, 1802 at the

Eleutherian Mills on Brandywine Creek near Wilmington, Delaware . It

began as a gunpowder manufacturing company, as du Pont noticed that
compared to his native land of France, the industry in North America was
far behind. The company succeeded quickly and by the middle of the
1800s was the United States militarys largest gunpowder supplier . As time
passed, DuPont continued to grow and expand, eventually manufacturing
smokeless powder and dynamite in the later 1800s. The company
continued to grow into the early 1900s by purchasing smaller chemical
companies, which would lead to scrutiny under the Sherman Antitrust Act .
The courts determined they held a monopoly on the explosives industry and
must divest into smaller companies in order to stay in business . After this,
DuPont established the first two industrial laboratories in United States
history where they worked on nonexplosive, chemistry based products . In
1914, Pierre S. du Pont assisted in the failing automotive industry by
purchasing General Motors stock. He would eventually be named president
of General Motors and would lead it to become the top automobile company
in the world. DuPont was the manufacturer and inventor of nylon, which
made it a major contributor to the production of parachutes, powder bags,
and tires during World War II while also playing a major role in the
Manhattan Project in 1943. After the war, DuPont continued to diversify by
focusing on new materials such as mylar and lycra . They played an integral
part in the success of the Apollo Project of the United States space
program. They continued to grow with their invention of Kevlar in the 1960s
which is the main component of bullet-proof vests used all around the world
to this day. In 1981, DuPont bought out Conoco Inc., which was a major gas
and oil producing company, in order to have use of their petroleum that was
needed for the plastic and fiber products it manufactured . Eventually, they
would sell all of their shares of Conoco in 1999 . DuPont is still a major
company that is widely recognized all throughout the world at this point in
time. They are recognized as a leading science and research company that
offers a wide variety of services and products for a numerous amount of
markets. Some of these markets include agriculture, electronics, nutrition,
safety and protection, communication, transportation, home and

construction, and apparel. They have over 10,000 engineers and scientists
working across over 150 Research and Development centers around the
world.

Part 2: Stock Performance: Five Year Trends

Five Year
Stock Chart

Discuss the
stock
The stock of DuPont has consistently increased over this five year span, with the low obviously
performance coming in 2009 and the high at the end of 2013 . The stock was at the lowest in recent history
and compare in 2009 due to a declining economic state here in the United States . The majority of Duponts
to S&P 500
sales every year come from organizations within the United States . Since very few companies
were thriving and most were simply trying to survive the slide of the economy, many cut as
much spending as possible which resulted in a decline to the entire stock market . The stock
price according to the New York Stock Exchange was $31 .70 at the end of 2009. The company
is one of the worlds leaders in science and research and was able to weather the storm due to
the size of the company and the variety of the products and services it provides . The stock
consistently increased in price with little fluctuation due to the international nature of the
business. The economic state of the United States slowly but surely strengthened as time
passed, but DuPont was doing business all over the world and was able to consistently bring in
revenue. The price of stock was $49.10 at the end of 2010 and continued this increasing

nature into 2011. DuPont had a less than satisfactory second and third quarter of revenue in
2012, which it blames on lack of spending from Chinese companies, that resulted in a
decrease in the stock price from January, 2012 to January, 2013 . Management of DuPont
found the performance of the company in 2012 to be unacceptable and issued a restructuring
program that began in the fourth quarter of the 2012 fiscal year . This resulted in savings of
roughly $500 million over that short period of time . The significant of expenditures cut along
with the acquisition of 1,041 new patents and the commercialization of 1,753 new products just
in 2013 caused the stock price to skyrocket in a short amount of time ending at $64 .28 at the
end of 2013. Throughout the five year graph of the stock price, it only fell below the S&P 500
twice, both in 2009. After it fell below the S&P 500 for the second time, it has been a
considerable amount higher overall and shows a 63 .92% difference at the end of this five year
period.

Part 3: Income Statement: Five Year Trends [One page]

Common Size

While calculating and reviewing the Common Size Income State of

DuPont, there are a numerous amount of figures and percentages that
immediately stand out. One of the first notable figures that comes to
attention is the fact that Net Income is consistently below 15% of the
companys total sales for every year being analyzed . In 2009, the
company only reported Net Income from 6.42% of Sales. Eventually
they would rise to 13.41% in 2013, however the growth was not
consistent on a per year basis. The most significant of these
fluctuations was from 2012 to 2013. In 2012, they reported Net Income
of $2,788 (millions), which was 7.90% of Sales, while they reported
$4,848 (millions) in 2013, which was 13.41% of Sales that year. It is
reported on http://nyjobsource.com/DuPont.html that this increase is
attributable to 1,041 patents granted and 1,753 new products that were
commercialized in 2013. Even with the new products being introduced,
they were also able to cut their Cost of Goods Sold expenses by
$3,056 (millions) from 2012 to 2013. Cost of Goods Sold accounted for
72.51% of Sales in 2012 and 62.38% of Sales in 2013, respectively.
The 62.38% of Sales in 2013 was the lowest percentage of Cost of
Goods Sold for the five year analyzing period by 8.33% with the other
percentages falling between the range of 70%-72 .51%. The 1,041 new
patents granted in 2013 clearly explains the spike from 15 .96% of
Sales for 2012 to 26.41% for 2013 in Selling and Administrative and

Percentage Changes

Depreciation and Amortization expense.

The Percentage Change Income Statement is a roller coaster ride in
itself. DuPont starts out very strong with solid growth across the board
in 2010 which resulted in a 72.71% increase in Net Income from 2009.
It continued this growth and success in 2011 once again basically in
every aspect of the Income Statement which yet again led to a less
significant but still respectable 14.62% increase in Net Income for
2011. However, when you get to 2012 the percentage changes are all
negative. They managed to cut expenses which is about the only
positive that can be pulled from this data . A -19.75% change in Net
Income for 2012 resulted in a restructuring program that began after
the end of third quarter of 2012 that was aimed to improve productivity,
growth, and competitiveness, while savings of $450 million were
estimated to be realized. $100 million of which would come in the
remainder of the 2012 fiscal year and the rest would be recognized in
2013. The end of 2013 proved to be a much more efficient year for
DuPont. Sales only increased 2.36%, however they were also able to

decrease their Cost of Goods Sold by 11.94% which played an integral

role in the company reporting their largest Net Income of the five
years, which was a 73.89% increase from 2012.
Part 4: Balance Sheet: Five Year Trends [One page]
Common Size

There are not as many figures and percentages that stand out on the
Balance Sheet as much as there are on the Income Statement . There
are still some pretty major irregularities and fluctuations on the
Balance Sheet over this five year period. A major one I noticed is the
increase in Cash and Equivalents from 8.29% of total assets in 2011
and 8.86% in 2012, to 17.64% of total assets in 2013. When reviewing
the Income Statement for 2011 and 2012, those are the two years with
the highest dollar amount of sales of the five years which shows
DuPont makes a considerable amount of sales on credit transactions .
This shows why the Receivables for DuPont are consistently around

12% of the total assets for each of the five years . Current assets have
ranged from 37.24%-47.35% of total assets while current liabilities
have ranged from 28.37%-37.96% of total liabilities. DuPont
consistently has long-term debt that accounts for roughly 30% of its
total liabilities. An interesting figure is the decrease of intangibles from
2012 to 2013 even though the company was granted 1,041 patents in
2013. According to the companys 2013 report, there was a
restructuring project in 2013 that resulted in roughly $500 million of
employee releasing costs that could have had an effect on their
intangibles.
Percentage Changes

The Percentage Change Balance Sheet shows a considerable amount

more fluctuation over the five year period than the Common Size
Balance Sheet. It also gives very misleading figures that, at first
glance, seem to be major problems, but after scanning the original
Balance Sheet can be differentiated as small changes for a company
as big as DuPont. For example, the Cash and Equivalents show
10.82% increase in 2010 but 40.91% decrease in 2011. Accounts
Receivable or credit transactions make up roughly 15% of DuPonts
assets every year so this appears to be a major fluctuation at first
glance, but since their credit transactions increased 12 .03% and
6.87% in both years, this is very deceiving. A promising figure for
DuPont over these five years is that the company did increase their
total assets every year. They also had a major spike of 28.57% in total
liabilities in 2011 which mostly came as a result of a 770 .43% increase
in deferred taxes. The Stockholders Equity section is full of consistent

increases for this period of time. DuPont clearly found their overall poor
performance in 2012 completely unacceptable and made some major
changes to the infrastructure of the company which resulted in a 60%
increase in Total Stockholders Equity and a 61 .43% increase in Total
Common Equity.

Part 5: Ratio Analysis: Four Year Trends [One and a half to two pages]

Liquidity Ratios

The current ratio of a company, which is also recognized as the working

capital ratio, represents the proportionality of a companys current assets in
relation to the current liabilities. Throughout this five year analysis of
DuPonts current ratio there was a pretty significant fluctuation in a positive
manner from 2011, which had a ratio of 1.22, to 2013 that had a ratio of
1.46. This is explained on the Balance Sheet which shows the company was
able to significantly increase their current assets by $63,260 (millions) while
only increasing their current liabilities by $2,182 (millions) .
The quick ratio, also known as the acid test ratio, is used to represent the
liquidity of the company by showing the ratio of cash, short-term
investments, and receivables to current liabilities . Once again there was a
significant increase in DuPonts quick ratio from 2011, which was .97, to
2013, which was 1.22. The balance sheet shows a major increase in cash
and equivalents of $5,067 (millions) while again only increasing current
liabilities by $2,182 (millions) in this two year span .
The current cash debt coverage ratio measures the relationship between net
cash provided by operating activities and the average current liabilities of the
company. This ratio shows a major decrease from 2012, which was .39, to
2013 which was .24. The Cash Flows Statement shows a major loss of
$2,140 (millions) compared to a $338 (millions) profit in 2012 from Other
Operating Activities which caused a $1,715 (millions) decrease in Net Cash

Activity Ratios

from Operating Activities.

Accounts receivable turnover measures the companys ability to extend
credit as well as collect receivables. DuPonts financial reports only show
Sales instead of the subcategories of the sales, which affects their ratio .
There was a major decrease between 2012, which was 7 .01, and 2013
which was 6.15. The Balance Sheet shows a 10.45% decrease in
receivables while the Income Statement reflects a 9 .65% decrease in sales
which explains this change in the ratio.
Inventory turnover shows how effectively inventory is managed by
comparing cost of goods sold with average inventory. There is a major spike
in this ratio from 2010, which was 1.20, to 2011 which was 4.23. There is a
$1,228 (millions) increase in Inventories which has an effect on the average
inventory which explains the major increase in the ratio .

Asset turnover ratio measures a company's ability to generate sales from its
assets by comparing net sales with average total assets . There is a
significant decrease from 2011 which was .87, to 2013 which was .72. There
is an $8,082 (millions) increase in total assets which has an effect on the
average total assets.

Profitability Ratios

Profit margin on sales ratio measures how much out of every dollar of sales
a company actually keeps in earnings. There is a 5.51% increase from 2012
to 2013. The net income of DuPont increases by $2,060 (millions) from 2012
to 2013 while the net sales only increased $834 (millions) in that time frame .
Return on assets ratio shows how efficient the company is at using its assets
to generate net income. There was once again a 3.9% increase from 2012
to 2013 which can be explained by the $2,060 (millions) increase in net
income during that time.
Return on common stock equity ratio measures the success of a company in
generating income for the benefit of common stockholders . There is a 8.13%
decrease from 2011 to 2012, and then a 8.29% increase from 2012 to 2013.
The Income Statement reflects a $686 (millions) decrease in net income
from 2011 to 2012 and a $2,060 (millions) increase from 2012 to 2013 . The
Balance Sheet also shows a major increase in $6,107 (millions) increase in
common stockholders equity which has a major effect on the average .
Earnings per share is the monetary value of earnings per each outstanding
share of a company's common stock. The Excel template asked for diluted
EPS however this was indeterminable, and normal EPS was given . Once
again the major change took place from 2012 to 2013, showing a $2 .23 per
share increase. This is again attributable to the $2,060 (millions) increase in
net income while the preferred dividends remained stagnant and the number
of shares outstanding decreased.
Payout ratio is the fraction of net income a firm pays to its stockholders in
dividends. This ratio decreased from 57.17% in 2012 to 34.26% in 2013.
The company issued only $67 (millions) more in 2013 and had a $2,060
(millions) increase in net income which explains this drastic decrease .

Coverage Ratios

Debt to assets ratio defines the total amount of debt relative to assets . This
ratio shows major variation from 2012 to 2013 with an 11.15% decrease.

The Balance Sheet shows a $4,434 (millions) decrease in total liabilities

while total assets reflects a $1,763 (millions) increase which coincides with
the percentages major decrease.
Times interest earned ratio indicates how many times a company can cover
its interest charges on a pretax basis. DuPonts ratio decreases from 10.58 in
2011 to 7.71 in 2012 which was a major fluctuation compared to the other
years. Their pretax income decreased $1,167 (millions) while their interest
expense increased $17 (millions) in that time frame .
Cash debt coverage ratio accounts for the average total liabilities and net
cash flows from operating activities that a company experiences . This
percentage decreases from 12.28% in 2012 to 8.50% in 2013 which is a
significant fluctuation. The Cash Flows Statement shows a significant
decrease of $1,670 (millions) in net cash from operating activities in 2013 as
well as a $4,344 (millions) decrease in total liabilities from 2012 to 2013 .
Book value per share indicates the book value of each share of stock . Once
again there is a large incremental increase for DuPont from 2012 to 2013.
This $6.64 per share increase is due to the $6,107 (millions) increase in
common stockholders equity as well as the $4.7 (millions) decrease in
outstanding shares.

Part 6: Conclusions [Half page]

Overall Performance

DuPont is one of the oldest and most diverse companies in United States
and around the world. The past five years have been a series of highs and
lows financially for DuPont. The stock price was at a low at the end of 2009,
but due to the companys diverse product and service line and it was able
to continue to succeed and grow despite the economic state of the United
States. They consistently reported net income over $2.5 billion for each of
the past five years. The company ended a two year streak of increased net
income in 2012, however they bounced back in 2013 with their greatest
amount of net income of the five years totaling $4 .848 billion, a 73.89%
increase from 2012. DuPont has shown overall growth of $3.093 billion
over these five years and is on track to continue to grow over time which

makes their overall performance superior to the vast majority of other

companies.