Equity Valuation and Analysis - Mark Moore

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themselves buying products from their competitors instead of producing the same products themselves. It is for this reason that research and development is mandatory in the chemical industry. Flexible Delivery Due to the globalization of the chemical industry, flexible delivery is an important strategy that can separate one company from another. For example, if you need products in the United States and the two firms that produce it are in Europe and the U.S. it would be more practical to buy your product locally. The nature of the chemical industry is the process of moving raw materials from one firm to another. Therefore, the more flexible a supplier can be with a buyer, the greater the chance they have for continued business. In addition, companies are taking the initiative to hire transportation services to improve their delivery system. This further illustrates the industries recognition of the importance of flexible delivery to improve customer satisfaction. Superior Product Variety Since the firms that compete in the chemical industry produce completely homogeneous products, it becomes imperative that a firm differentiates from its competitors. In order to achieve a specialty product, a firm can make variations within the production process to add value to that particular product. It is apparent that firms who invest heavily in research and development of new and innovative chemicals’ have consistently shown higher returns. Companies customize their products made-to-order to meet customer preferences and demands. An example of superior product differentiation would be the growing sector of performance chemicals and plastics. In this industry, many firms produce basic chemicals and plastics; however, the companies that can add variations in the production process can distinguish themselves and add value to the product. These variations can increase quality, product life, address environmental concerns, and enhance performance effectiveness. While all firms Dow Chemical Analysis Page 30
cannot compete on a large scale of product inventory, firms that excel in product specialization can capture a considerable portion of overall market share. Firm Competitive Advantage Analysis With the recent internal analysis of Dow Chemical, management has restructured priorities that will allow Dow to keep an advantage over its competitors. Moving its primary focus to their niche and market segment, Dow has improved its quality and services by centralizing their visions. Dow has implemented strategies such as: streamlining employment, lowering high energy costs, globalization and investing more into research and development. In addition to these strategies, Dow has also employed professional companies to maintain such things as global transportation and plant productivity. While competing with a strategic mix between cost leadership and product differentiation, Dow has widened its customer base. By doing this, Dow has gained an advantage over the competition by improving strategies in: economies of scale and scope, efficient production, lower input costs, superior product variety, more flexible delivery and investment in research and development. Economies of Scale and Scope Another important factor to consider when evaluating a company is examining the scale of its operations and the scope of the consumer demand. Since the Dow Corporation competes in a low to moderate level of competition amongst rival firms who produce completely homogeneous products, it is imperative that Dow maintains a “cost leadership” approach to its business. Therefore, in order to decrease the average cost of production, the Dow Company has emphasized a managerial specialization of production. By making the production process more efficient by eliminating wasted time and products, Dow can lower its long-run average cost (i.e. lowering variable cost per unit), and therefore increase profits. The economies of scope for the chemical industry are very beneficial to Dow. Since most of Dow’s production is in producing by-products for other companies, Dow essentially doesn’t have to bother with advertising or any Dow Chemical Analysis Page 31
Page 1 and 2: Equity Valuation and Analysis Frank
Page 3 and 4: Executive Summary Investment Recomm
Page 5 and 6: Accounting Analysis When analyzing
Page 7 and 8: Valuations In determining Dow’s c
Page 9 and 10: in July of 2006. Comparing Dow’s
Page 11 and 12: Dow provides consumers with special
Page 13 and 14: States as well as some smaller area
Page 15 and 16: ample amount of excess capacity. Gi
Page 17 and 18: Market Share within United States 5
Page 19 and 20: It is also important to note that t
Page 21 and 22: First we must consider scale of eco
Page 23 and 24: The bargaining power of buyers can
Page 25 and 26: Price sensitivity of suppliers in t
Page 27 and 28: cases, firms will choose to impleme
Page 29: strategy to gain or maintain market
Page 33 and 34: approximately $600-800M/yr. It is t
Page 35 and 36: company with the most innovative, c
Page 37 and 38: identification of accounting polici
Page 39 and 40: Post-Retirement Benefit Plans The c
Page 41 and 42: As seen in previous figures, firms
Page 43 and 44: policies. These variations can acco
Page 45 and 46: certain numbers effecting key succe
Page 47 and 48: Operating leasing is considered a r
Page 49 and 50: transparent view of how a company o
Page 51 and 52: cards. In a perfect sales environme
Page 53 and 54: The inventory turnover is key indic
Page 55 and 56: The Asset Turnover ratio is one way
Page 57 and 58: This ratio is an indication of how
Page 59 and 60: determined that they were easily wi
Page 61 and 62: shown growth approaching just under
Page 63 and 64: inventories within a year; therefor
Page 65 and 66: how efficient a company is in exten
Page 67 and 68: inventory sit on the shelves, the l
Page 69 and 70: Liquidity Overview In the overall s
Page 71 and 72: OPERATING PROFIT MARGIN 2002 2003 2
Page 73 and 74: Net Profit Margin 2002 2003 2004 20
Page 75 and 76: Return on Assets 15% 10% 5% 0% -5%
Page 77 and 78: interest requirements on debt” (R
Page 79 and 80: to fall into debt financing and pos
Page 81 and 82:
endeavors and cash flows. In 2006,
Page 83 and 84:
Financial Statement Forecasting Ana
Page 85 and 86:
Income Statement When forecasting t
Page 87 and 88:
Balance Sheet To start on the balan
Page 89 and 90:
To find the forecast for total liab
Page 91 and 92:
Statement of Cash Flows Seeing as c
Page 93 and 94:
Cost of Debt Liabilities Source Int
Page 95 and 96:
acquired at a rate of Ke. These 2 s
Page 97 and 98:
Trailing method divides the given p
Page 99 and 100:
DIVIDEND PPS D/P HUN N/A DD 1.48 48
Page 101 and 102:
EBITDA PPS P/EBITDA HUN 0.7365 18.9
Page 103 and 104:
EBITDA EV EV/EBITDA HUN 0.7365 7.23
Page 105 and 106:
financial statement, and a calculat
Page 107 and 108:
Out of all of the intrinsic valuati
Page 109 and 110:
This sensitivity analysis was used
Page 111 and 112:
fairly valued would be to have a RO
Page 113 and 114:
Net Sales/Cash from sales 2002 2003
Page 115 and 116:
Altman Z-score 2002 2003 2004 2005
Page 117 and 118:
SUMMARY OUTPUT 36 Month Regression
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
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Equity Valuation and Analysis - Mark Moore

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