Dow Chemical Business Analysis Essay

Historically, the chemical industry has operated in a competitive environment, which is not anticipated to change. Dow experiences significant competitions in each of its operating segments as well as in each of the geographic areas in which it operates. Dow competes globally on the foundation of quality, technology, price, and customer service and operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce many products that are sold as finished goods at different points in the process. Dow has two major raw material streams that feed the production of the finished goods which are chlorine-based and hydrocarbon based raw materials. (Dow Chemical Company, n.d.) Business Environment The business environment of Dow is one that has strategically positioned itself to withstand the ever-changing forces of economic, social, political and technological factors it faces daily. Dow consistently identifies opportunities and new technologies before its competition which stimulates their industry-leader position. (1) Financial Health Dow has great financial strength. Their sensible financial discipline has proven beneficial in recent global economic challenges and has actually helped position it for future growth. The recent global economic challenges forced Dow to take steps towards strengthening and diversifying its portfolio. The company has come out on the other side of the challenges with a portfolio that is better equipped for economic uncertainties. (Dow Chemical Company, n.d.) During 2011, Dow: * had double-digit gains in revenue and earnings per share * posted  record revenues at a Company level, as well as in emerging geographies * introduced â€Å"game-changing† investments and partnerships that will allow the Company to capture more demand in the world’s fastest growing regions * recognized a stronger than ever before R&D innovation pipeline Analyzing the data attained from Dow’s 2011 financial statements confirm the Company’s financial heath and sustainability. Dow’s Liquidity ratio is a follows: Current Assets = 23,442 million Current Liabilities = 13,634 million Liquidity ratio = 23,422/13,634 = 1.72 Dow has $1.72 of current assets for every $1.00 of current liability. The current ratio should be at a 2 or greater to be considered a safe risk; however, Dow is a reputable global organization accepting the investment to be a safe risk. Dow’s Acid-test ratio is a follows: Cash = 5,444 million Accounts Receivable = 4,900 million Measurable Securities = 7,057 million Current Liabilities = 13,634 million Acid-test ratio = 4,444+4,900+7,057/13,634 = 1.28 Dow has 1.28 acid-test ratio. The ratio needs to be between a 0.05 and 1.0 to be satisfactory. The acid-test ratio determines whether an organization has enough short-term assets to cover immediate liabilities without selling inventory. (Nickels, McHugh, & McHugh, 2010, p. 20-21) Dow’s ratio is just slightly above 1.0, allowing it to be considered satisfactory. Dow’s Debt to owners’ ratio is as follows: Total Liabilities = 27,476 million Owners’ Equity = 22,281 million Debt to owners’ ratio = 27,476/22,281 = 1.23 or 123% The debt to owners’ ratio should be anything 100% or less. (Nickels, McHugh, & McHugh, 2010, p. 20-21) Dow is just over; however, other competitors in the industry have similar ratios signifying debt financing in the chemical industry is more acceptable and commonplace. Dow’s Return on sales is as follows: Net Income = 3,200 million Net Sales = 52,985 million Return on sales = 3,200/52,985 = 0.06 or 6% Return on sales for Dow is slightly lower than its researched competitors in producing income from sales. Competitors As previously stated, the chemical industry is a highly competitive environment. Two of Dow’s leading competitors include BASF and DuPont. BASF is the world’s leading chemical company with about 111,000 employees and just under 370 production sites worldwide. BASF serve customers and partners in almost every country in the world. In 2011, BASF posted sales of $73.5 billion. (BASF web site) BASF’s Liquidity ratio is a follows: Current Assets = 27,088 million Current Liabilities = 16,447 million Liquidity ratio = 27,088/16,477 = 1.64 BASF has $1.64 of current assets for every $1.00 of current liability. The current ratio should be at a 2 or greater to be considered a safe risk; however, BASF is a reputable global organization considering the investment to be a safe risk. (Nickels, McHugh, & McHugh, 2010, p. 20-21) BASF’s Acid-test ratio is a follows: Cash = 2,048 million Accounts Receivable = 10,886 million Current Liabilities = 16,477 million Acid-test ratio = 2,048+10,886/16,477 =. 78 BASF has a .78 acid-test ratio. The ratio needs to be between a 0.05 and 1.0 to be satisfactory. The acid-test ratio determines whether an organization has enough short-term assets to cover immediate liabilities without selling inventory. (Nickels, McHugh, & McHugh, 2010, p. 20-21) BASF’s ratio is in line and right where it should be; furthermore, considered satisfactory in regards to this measure. BASF’s Debt to owners’ ratio is as follows: Total Liabilities = 35,790 million Owner’s Equity = 25,385 million Debt to owners’ ratio = 35,790/25,385 = 1.41 or 141% The Debt to owners’ ratio should be anything 100% or less. (Nickels, McHugh, & McHugh, 2010, p. 20-21) BASF is just over; however, other competitors in the industry have similar ratios signifying debt financing in the chemical industry is more acceptable. BASF’s Return on sales is as follows: Net Income = 6,188 million Net Sales = 73,497 million Return on sales = 6,188/73,497 = 0.08 or 8% Return on sales is higher than Dow’s and lower than DuPont. Another strong competitor is DuPont. DuPont is a world leader in market-driven innovation and science. DuPont brings science and engineering to the global marketplace through innovative products, materials and services which enable their customers in almost all industries to meet the current and future needs of society. (DuPont.com) DuPont’s Liquidity ratio is a follows: Current Assets = 18,058 million Current Liabilities = 11,185 million Liquidity ratio = 18,058/11,185 = 1.61 DuPont has $1.61 of current assets for every $1.00 of current liability. The current ratio should be at a 2 or greater to be considered a safe risk; however, DuPont is a reputable global organization permitting the investment as a safe risk. (Nickels, McHugh, & McHugh, 2010, p. 20-21) DuPont’s Acid-test ratio is a follows: Cash = 3,586 million Accounts Receivable = 4,598 million Measurable Securities = 433 million Current Liabilities = 11,185 million Acid-test ratio = 3,586+4,598+433/11,185 = .77 DuPont has a 0.77 acid-test ratio. The ratio needs to be between a 0.05 and 1.0 to be satisfactory. The acid-test ratio determines whether an organization has enough short-term assets to cover immediate liabilities without selling inventory. (Nickels, McHugh, & McHugh, 2010, p. 20-21) DuPont’s ratio is satisfactory. DuPont’s Debt to owners’ ratio is as follows: Total Liabilities = 39,899 million Owner’s Equity = 8,593 million Debt to owners’ ratio = 39,899/8,593 = 4.64 or 464% The Debt to owners’ ratio should be anything 100% or less. (Nickels, McHugh, & McHugh, 2010, p. 20-21) DuPont is significantly over this desired range at 464%, indicating that the significantly financed based on borrowed funds that must be paid back. In comparing this ratio to industry competitors, DuPont is still considerably over. DuPont’s Return on sales is as follows: Net Income = 3,474 million Net Sales = 37,961 million Return on sales = 3,474/37.961 = 0.09 or 9% DuPont’s return on sales is strong when comparing DuPont to Dow and BASF. Technological Advantages Dow’s innovation sets them apart from the competition on numerous levels. Dow is the world’s: * largest and most experienced ethylene and chlorine producer * largest producer of chlorine and caustic * leader in the production of purified ethylene oxide As of December 31, 2011, Dow owned a total of 18,120 patents world-wide. These patents protect the results of its research. The company had revenue related to patents and technology royalties of $437 million in 2011. Today, Dow’s innovation efforts further supports a new level world-wide growth, generates strong cash flows and enables them to commercialize or bring the technologies to the market. (Dow Chemical Company, n.d.) Dow’s innovations from 2011 include: * DOW POWERHOUSE Solar Shingle – a solar panel which aesthetically looks like a shingle for the housing industry. * PASCAL Technology – a new polyurethane insulating solution to boost energy efficiency in appliances. * EVOQUE Pre-Composite Polymer Technology – allows paint manufactures to maximize hiding efficiencies. Globalization In an effort to satisfy the demands of a growing world, Dow is putting their innovations to work on every continent. In 2011, 32% of sales were gained from emerging geographies. Dow’s increasing investment into developed and emerging regions of the globe is empowering them to take advantage and capitalize on growth where it is happening. (Dow Chemical Company, n.d.) Benchmarking Dow’s vast and well-balanced portfolio enables the company to face the complex realities of today and the future head-on. The company has united its businesses with geographies and end-markets for significant growth. Dow is commercializing game-changing technologies today that are delivering real value to the bottom line. In 2011 nearly one-third of its sales were from products launched in the last five years reinforcing their strategic goals. DuPont is an industry leader in safety. DuPont quickly realized that in order for the organization’s safety mindset to be successful, safety had to be embraced from the top down. The safety culture of the company has proven successful in many areas. In 2000, over 90% of DuPont’s sites world-wide, operated with zero injuries, an unheard of accomplishment. In addition, DuPont has leveraged its acclaimed safety program and had provided safety training to other companies including General Motors, GE and Alcoa, Inc. (Vinas, 2002) Conclusion Dow is the third largest chemical company in the world. The healthy business environment fosters sustainability for decades to come. Dow offers financial and technological strengths with a promising future in the world-wide market. References Nickels, W. G., McHugh, J. M., & McHugh, S. M. (2010). Understanding Business (9th ed.). : McGraw-Hill. Dow Chemical Company. (n.d.). Retrieved from http://www.dow.com BASF Chemical Company. (n.d.) Retrieved from http://www.basf.com DuPont. (n.d.) Retrieved from http://www.dupont.com Vinas, T. (2002, Summer). Best Practices DuPont safety starts at the top. Industry Week, (), Retrieved from http://hhtp:www.industryweek.com/articles/best_practices_—_dupont_safety_starts_at_the_top