Equity Valuation and Analysis - Mark Moore

they may stand against their competition. The last financial ratio tool we used in
valuing Dow Chemical Co, was regression analysis which allowed us to understand what
costs were being put into the company.
In referring to Dow’s liquidity ratios, they show the ability to covert their assets
into readily available cash in a timely manner. Although Dow extends the opportunity
for purchasers to buy on credit, their ratios show that they are able to collect on their
receivables quickly. This is shown in Dow’s day’s supply of receivables ratio where they
collect on their receivables in a substantially lower number of days compared to their
competition and industry as a whole. Their profitability ratios illustrate how Dow has
become much more profitable in their earnings as well as expanding their growth
strategy. With this expansion in the past couple of years, Dow has been able to
balance out their overload of liabilities. Dow has shown progress of improvement in
each of the 8 liquidity ratios throughout the five year span, with the exception of
Working Capital, which still averages out higher than the industry average of 7.01.
The profitability ratios were also a great tool in showing that Dow’s structure and
commitment to profitability are strong. Dow has consistently shown to outperform its
competitors in operating efficiency and productivity. These ratios were extremely
helpful in that efficiency and productivity are both key success factors of Dow. With
these consistencies, Dow has begun to emerge as the primary holder of this industry
market share.
After computing these financial ratios, we used them to forecast our financial
statements out to 10 years in the future. By doing so, we were able to identify Dow’s
growth trends and possible room for improvement. Our growth rate showed to be
consistent with historical prices, which can look positive in the eyes of investors.
Dow Chemical Analysis Page 6