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Introduction
This paper provides financial ratios and trend analysis in compare to industrial
performance, current conditions in the financial markets, investment advice based on a financial
analysis of two chemical manufacturing companies, Dow Chemical and BASF SE. Both
companies will be evaluated by key financial performance, profitability, operating efficiency,
financial stability and the shares as an investment. Horizontal trends are examined across the
years 2009 and 2013, both within each company and head-to-head. Then conclusions are drawn
and an investment recommendation is offered based on the conducted analysis.

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Financial Analysis
1. Dow Chemical financial ratios and trend analysis
Table 1: Apple Inc financial information
APPLE INC (AAPL) CashFlowFlag INCOME STATEMENT
Fiscal year ends in September. USD in millions except per share data.
Key Financial Performance
2010-09 2011-09
2012-09

2013-09

Revenue

65,225

108,249

156,508

170,910

Cost of revenue

39,541

64,431

87,846

106,606

Gross profit

25,684

43,818

68,662

64,304

Total operating expenses

7,299

10,028

13,421

15,305

Operating income

18,385

33,790

55,241

48,999

EBITDA

19,412

35,604

58,518

57,048

Net income
Key Ratio
Gross Margin %
Operating Margin %
Tax Rate %
Net Margin %
Asset Turnover (Average)
Return on Assets %
Return on Equity %
Return on Invested Capital %
Earnings Per Share USD

14,013

25,922

41,733

37,037

39.40
28.20
24.42
21.48
1.06
22.84
35.28
35.28
2.16

40.50
31.20
24.22
23.95
1.13
27.07
41.67
41.67
3.95

43.90
35.30
25.16
26.67
1.07
28.54
42.84
42.84
6.31

37.60
28.70
26.15
21.67
0.89
19.34
30.64
26.94
5.68

Dividends
0.38

1.63

Operating Cash Flow

18,595

37,529

50,856

53,666

20,956

17,018

19,111

29,628

Working Capital

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*** Industrial data in 2013

Apple Incs 5 years stock trending

Dow Chemical's Annual Revenue for the fiscal year ended Dec.30.2013, increased by
0.52% to $57,080.00 million, from $56,786.00 million achieved a year ago. Dow Chemical's
growth rate for Sales improved from -5.33 % declines in the fiscal year Dec.30. 2012. Overall 5
years growth rate of Dow is 27.2% from fiscal 2009 2013. Gross Profit grew by 5.47 % in (FY
2013) to 9,486 $ millions, while Revenue increased by 0.52 %, this led to improvement in
Company's Annual Gross Margin to 16.62 %. Dows bottom-line growth dramatically in the past
five years from 676M to 4,816M, although there is step back in fiscal Dec.30.2012 as declining
from 2,784M to 1,100M. Net margin percentage also achieved steady growth from 0.75% to
7.79% in five consecutive fiscal year and increase 6.31% in latest year, which is very good sight of
growing profitability. Operating cash flow and working capital also increased tremendously in
five-year fiscal period show the stability of the company. Return on equity percentage improved
ten times at 2013 from 2009 show goods use of company equity, also leap a big step in the most
recent year from 4.79% to 22.36%. Finally, Annual EPS Net for the fiscal year ended

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Dec.30.2013, more than doubled to $3.68 from $0.70 achieved a year ago. Compared to where it
was 12 months ago, Dows stock has enjoyed a nice rise of 28.01%, which was in line with the
performance of the S&P 500 Index. Inclusion, although fiscal year 2012 saw a bit step back in
financial performance, Dow has been recover with a good result in 2013 in every ratio analysis. If
Dow could keep the pace up in 2014, the company could ensure high profitability

2. BASF ( competitor) financial ratios and trend analysis

Table 2: BASF financial information
2009-12
Key Financial Performance
Revenue
50,693
Cost of revenue
36,682
Gross profit
14,011
Total operating expense 11,523
Operating income
2,488
EBITDA
8,447
Net income
1,410
Key Ratio
Gross Margin %
27.6
Operating Margin %
7.3
Tax Rate %
46.25
Net Margin %
2.78
Asset Turnover
0.99
(Average)
Return on Assets %
2.76
Return on Equity %
8.05
Return on Invested
8.68
Capital %
Earnings Per Share
1.54
Dividends
1.43
Operating Cash Flow
6,270
Working Capital
7,907
*Fiscal year ends in December

2010-12

2011-12

2012-12

2013-12

63,873
45,310
18,563
11,942
6,621
12,469
4,557

73,497
53,986
19,511
12,933
6,578
14,087
6,188

78,729
58,022
20,707
13,453
7,254
12,749
4,879

73,973
55,483
18,490
12,896
5,594
10,597
4,842

29.1
12.2
31.18
7.13

26.5
11.7
26.39
8.42

26.3
11.4
38.10
6.20

25.0
9.8
22.94
6.55

1.15

1.22

1.25

1.15

8.24
23.44

10.26
27.17

7.78
19.54

7.52
18.07

16.62

20.14

15.70

14.55

4.96
1.22
6,460
9,293

6.73
1.55
7,105
10,611

5.31
1.82
6,733
11,457

5.27
1.88
7,870
12,455

** USD in Million except per share data

*** Industrial data in 2013
BASFs 5 years stock trending

Industry

26.65
5.97
32.49
3.73
0.89
2.08
17.47
15.15

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BASF's Annual Revenue for the fiscal year ended 2013, decreased by 6% to $73,973
million, from $78,729 million achieved a year ago. However, they achieved an average growth at
16% from fiscal 2009 to year ended 2012. The same tendency saw in Gross Profit, withdraw by
10 % in (FY 2013) to $18,499 million, which finalize the Company's Annual Gross Margin at 25
% in comparing to the average 27.37% in fours year past, a bit decline. Similarly, the net income
decreased by 0.6% when compared to the year prior, going from $4,879 million to $4,842 million.
However, the previous fiscal year of 2012 showed the dramatically decline in net income at 21.2%
from $6,188 million to $4,879 million, which explain as low in other income. Although both
gross margin percentage and operating margin % declined in FY2013, net margin percentage also
achieved a bit growth from 6.2% to 6.55% owing to lower tax rate percentage (22.94% vs 38.1%
(FY2012)). Net margin percentage in five-year data showed overall increasing from 2.78% to
6.55%. While operating cash flow trend showed up and down tendency and achieve a total
growth at $1,600 million, working capital increased steadily every year from $7,907 to $12,455
million. Return on equity percentage improved more than double at 2013 from 2009, improving
from 8.05% to 18.07%, but declining in two recent years from 27.17 (FY2011) to 19.54% and

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18.07%. The same trend went for return on assets, which is a sight of decreasing in property
usage efficiency. Annual EPS Net for the fiscal year ended Dec.30.2013, saw minor decline to
$5.27, from $5.31 achieved a year ago. Compared to where it was 12 months ago, BASFs stock
has enjoyed a rise of 9%, which was a bit below with the performance of the S&P 500 Index.
Moreover, 2014 saw a decline in stock price of BASF in quarter 2. Inclusion, BASF financial
ration and trend showed tremendous growth in 2011, then step back a bit in 2012 and 2013.
However, the company already did it best to keep the stock price at increasing trend as well as
kept EPS at reasonable level, especially improved Dividends steadily every year.
3. Industrial Benchmarking
According to Reuters information, Dow financial strength showed both quick ratio and
current ratio better than industry as a whole but lower in their specific sector (basic materials).
High quick ratio is mean that the company in better liquidity position than the industry. Higher
current ratio than the industry showed the company is more capable of paying its obligations and
more efficiency in their operating cycle or its ability to turn its product into cash. Furthermore,
from previous data, we could also saw that Dows operating margin and net margin are more
superior to the industry (OM% at 7.5% vs 5.97% and NM 7.79% vs 3.73%). More recently,
Dow Chemical beat analysts expectations in its second-quarter 2014 earnings report regarding its
EPS and falling short of analysts expectations for its revenue. DOWs stock is also ranked
fourth among all S&P 500 stocks yielding more than 2.5% and has risen 53.4% since the
beginning of 2013, according to Yahoo Finance ranking system. All this information yield a
conclusion that Dows financial future look bright and successful
Table 3: Dows financial strength

Quick Ratio (MRQ)

Current Ratio (MRQ)

Dow
1.29
2.04

Industry
0.92
1.34

Sector
1.76
2.31

MICROSOFT Vs. APPLE FINANCIAL ANALYSIS

LT Debt to Equity (MRQ)
Total Debt to Equity (MRQ)

63.68
66.65

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67.05
107.07

14.37
22.35

In Chemicals industry, both Dow and BASF are market leader which their performance
usually exceed industrial standard. Specifically, Dow operated more efficiency in diversity and
specialty chemical, while BASF dominated the market of commodity and generous chemical.
There are only left du Pont de Nemours and Bayer AG as the direct competitor in chemical
industry. Globalization as well as merging and acquisition saw chemical industry became an
oligopoly market which dominated by big fours global companies. Their performance is the key
dictate to uphold the future of this industry. According to Yahoo Finance, the chemicals mayor
stock was growing steadily at low growth rate level. As a backbone of any economy compare
with data analysis, I believe the chemical industry will continue growth in the future at a
sustainable rate.

4. Cast Generation, ethical implications of financial reporting

If Dow chemical needs to raise a large amount of cash, I think the best way to sell new
share in capital market. Although Dows bonds credit rating at BBB, which is good credit quality,
Dow capital structure has already equaled as figure 2. Hence raising a large amount of debt could
break Dow cost structure. Moreover, large amount of cast will result in long-term bonds
maturity, against the principle of bonds, which usually use to raise quick money or quick inflow of
capital. Furthermore, the current trend of raising stock raise could aid more power to Dow in
their funding process.
Figure 1: Dow bonds credit

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Dow corporate governance has an independent audit committee to oversee financial

reporting process. The Audit Committee is appointed by the Board to assist the Board in
monitoring integrity of the financial statements, independent auditors' qualifications,
independence, and performance as well as assure the report align with company code of financial
ethics. The code most important element was honest and ethical conduct, including the ethical
handling of actual or apparent any conflicts of interest. Dow chemical has state clearly that
registered stockholders could reinvest cash dividends in additional Dow shares through a dividend
reinvestment plan. Stockholders would have the privilege to buy additional share if the company
assess the market for additional capital. However, recently activist pressure the company to cut
low-margin business unit in order to raise stock price. Because compare to its competitor
(BASF), Dow stock price still lag behind and underperformance (average of $55 vs $100)
5. Banker decision
In reality, Dow actually approached banker for a $13 billion loan to acquire Rohm & Haas
chemical. Before the loan, there are concerns that doing so in the current credit environment
would plunge Dow Chemical into default on its loan covenants and destroy both companies. On
January 30, 2009, Rohm and Haass market capitalization of $10.8 billion exceeded Dows market
capitalization of $10.7 billion. However, the combination of specialty chemical and advanced

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material businesses promised to reduce cyclicality, cut costs by combining technologies, and give
the combined company an ever greater global scale and scope with strong earnings growth
potential. The two firms have complementary geographic strengths and would have gain
significant economies of scale upon combining R&D, manufacturing and distribution. Based on
Dow financial strength and the benefit they would generate from the loan, which could lead to a
future business prospect, I would give them the loan.

References
BASF Stock information, retrieved from http://finance.yahoo.com/q/ks?s=BASFY
Dow Stock information, retrieved from http://csimarket.com/stocks/growthrates.php?code=DOW
Dow Stock information, retrieved from http://finance.yahoo.com/q?s=DOW
Dows Corporate Governance, retrieved from
http://www.dow.com/investors/corpgov/board/audit.htm
Jack Kaskey (2014), Third Point Takes Dow Stake, Calls to Spin Off Unit, retrieved from
http://www.bloomberg.com/news/2014-01-21/third-point-takes-dow-stake-calls-to-spinoff-unit.html?cmpid=yhoo
Focus financial analysis - Dow, retrieved from http://seekingalpha.com/symbol/DOW
Income statement Dow chemical, retrieved from http://financials.morningstar.com/incomestatement/is.html?t=DOW&region=usa&culture=en-US

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Ratio analysis BASF, retrieved from http://www.reuters.com/finance/stocks/overview?

symbol=BASFn.DE
Wild, J. J., & Shaw, K. W. (2012). Managerial accounting. New York, NY: McGraw-Hill/Irwin
http://www.gurufocus.com/term/Dividends+Per+Share/AAPL/Dividends%2BPer
%2BShare/