FNCE100 Corporate Finance

1. Do you agree with the comparable firms chosen for the Agriculture Division in Exhibit 4? Would you delete any of the given comparable firms from your analysis? If so, why?

2. Use SEC Filings or Capital IQ1 to gather information of comparable companies to begin a valuation of DuPont and its parts (Detailed instructions appear below in the Information Gathering section). Enter the most recent data as of December 20142 for Shares Outstanding, Cash, Short Term Investments, Short Term Debt (include current portion of Long Term Debt), Long Term Debt (include capital leases), and Shareholder’s Equity in the blank spaces within Exhibit 4. Use these data to calculate Market Capitalization, Adjusted Cash, Total Debt, and Enterprise Value for these divisions in Exhibit 4.

 

3. Use the company information provided and gathered for question 2, combined with consensus estimates provided in Exhibits 5 and 6, to calculate Price/Earnings, Enterprise Value/EBITDA, Enterprise Value/Sales, Price/Book Value ratios, and EBITDA margins for all companies for the years 2013-2017. Enter these calculations into Exhibits 7 and 8.

 

4. For each of the following entities (DuPont Corporate, Agriculture, Electronics & Communications, Industrial Biosciences, Nutrition & Health, Performance Chemicals, Performance Materials, and Safety and Protection), calculate mean and median values for all ratios in all years considered in question 3. Record these calculations in Exhibits 7 and 8.

 

5. Use DuPont’s 2014 10-K report (some of the needed data can be found through Capital IQ, but to get all the needed information, use the 10-K) to gather information on the revenue, operating profit, and assets attributable to each division to facilitate a sum of the parts valuation and enter these data into Exhibit 9.

 

6.Use the template in Exhibit 10 to create “common-size” measures for all of the data gathered in Exhibit 9. This should allow you to determine what percentage of revenue, operating profit, etc. each division contributes to the whole.

 

7. Value DuPont Corporate and each of its divisions. Use the 2015 EV/EBITDA Ratio to value all of the divisions and DuPont Corporate using the template laid out in Exhibit 11.

 

8. Sum the values of each of the divisions to impute a “sum of the parts” value of DuPont, and compare this to your estimate of DuPont’s calculated share price to determine whether DuPont is worth more “Dead or Alive”.

 

9. Using your analysis in question 8 and other assumptions, which division(s) if any would you recommend that DuPont attempt to divest? Given your view, what do you think of the DowDuPont plan to break the combined Dow+DuPont into three separate companies (you have to find information about DowDuPont on your own)? Explain your strategic thinking.

1. The Du Pont agriculture is engaged into the weed and seeds. The Du Pont agriculture contribute around quarter of the parent company’s revenue. The Du Pont agriculture mainly consist of Pioneer Hi Bred International (Pioneer) company and the Du Pont division for the crop protection. The main aim of the pioneer brand seed products are the increasing of productivity and the yield of the crop. The Pioneer Company is engaged in the production of the hybrid corn and verities of soybeans. The company is also engaged in the selling of products like sunflower, wheat, rice and canola. The division of Du Pont Crop protection is established in the production of fungicides, herbicides and insecticides (Streitferdt et al. 2017). The sales of the company is in the initial part of the year due to the weather patterns and the seasonal cropping. The comparable companies that have been selected for evaluation are also engaged in the agricultural sector. Therefore, it can be said that they are relevant.

2. The EV (Enterprise Value) refers to a gauging of the company’s overall worth as these are frequently utilized as more complete substitution to the capitalization of equity market. A company’s market capitalization is just this cost of the shares gets multiplied by quantity of shares a business is outstanding (Robiou et al. 2017). The Enterprise Value of DuPont is $ 71,825 Million that is the worth of this enterprise is good and is in healthy position than all the other company’s like Ashland, Dow Chemical Company, Axiall Corporation, Mosanto, etc. Bayer is the company that has an Enterprise Value is $ 1, 13,491 Million that is the highest among all the company’s in this field. However, the EV of DuPont is good as this is the second highest among the all the companies.

3. The Price/Earnings of DuPont in 2013 was 24.3x and in 2017 is 18.4x. This means that the ratio of P/E of DuPont is accurately valued because the P/E ratio is decreasing from 2013 to 2017. The companies with high Price/Earnings are known as stock that has a great growth prospects. This done to ascertain the price of stock is under or overvalued (Kristoufek 2015).

The Enterprise Value/EBITDA is metric that specify the formula utilized in this calculation. In present situation, the company DuPont has 9.8x in 2017 that is as per the normal rules of an Average EV/EBITDA worth is below 10 is usually construed as healthy and positive significance. In the year of 2013 was 12.2x is much higher than the normal levels that was not healthy at that time but at present it is in a good position as EV/EBIDTA is below 10 that signifies that it is in healthy condition (Noy and DuPont 2016).

EV/Sales refer to structure of measuring that compares the EV (Enterprise Value) of a business to businesses sales. The company DuPont has a Enterprise Value/Sales of 2.5x in present year of 2017 and in 2013 was 2.0. Enterprise Value/Sales valuation may be to some extent be illusory. The High Enterprise Value/Sales may be an indication that the investors trust the sales in future will increase in great manner.

Price/Book Value is a ratio of prices in the market of the shares of the company over its equity as per book value. The balance sheet shows the asset’s value of the company as per book worth of equity. Price/Book Value of DuPont is 5.1x.

EBITDA Margins is a gauging of the businesses profitability with respect to operations as a proportion of its total income. EBITDA Margin of DuPont in 2013 was 16.4 % and in 2107 is 25.8 %. This is very good sign as per the company DuPont.

4. The Mean refers to an average of all the numbers that means sum of all the numbers and diving it with the quantity of the numbers and get the central most number in the full number set. The Median is the middle most number in given set of numbers. To calculate this, it is essential to arrange all the numbers in ascending order. If there is a odd number of an integer then now it can found by locating the middle most number in the given list (Morris 2014).

As per Price/Earnings in 2017 of DuPont, corporate Mean is 15.1x, Median is 13.5x. As per Enterprise Value/EBITDA in 2017 of DuPont, corporate Mean is 8.7x and Median is 8.4x. As per Enterprise Value/Sales in 2017 of DuPont, corporate Mean is 2.0x and Median is 1.8x. As per Market Capitalization to Book Value of equity of DuPont, corporate the Mean is 3.7x and the Median is 2.5x. As per EBITDA Margin of DuPont, corporate Mean is 22.0% and Median is 21.1%.

5. All the data’s are collected from DuPont Company’s Annual Report and this information is nicely been displayed in the excel sheet in the appropriate manner.

6. Common Size Statement is an statement of income in that every account is articulated as a percentage of the worth of selling. This kind of statement of finance may be utilized to permit for simple study between time periods of a business or between company (Colby 2014). Common size statement is created for comparing and analysing them with greater efficiency.

7. The Value of DuPont is being calculated as EV/EBITDA that is in Exhibit 11. This is done for the DuPont as whole and parts combined.

8. In the year of 2015, Enterprise Value of DuPont is $ 71,379.62 Million and Parts combined Enterprise value is $ 67,380.84 Million. The share price of the DuPont is $ 73.5 and share price of DuPont parts combined is $ 69.1. As per the above figures, the value of the enterprise is more than DuPont’s parts combined (FU and ZHENG 2015). The share price of DuPont is more than DuPont’s parts combined. Therefore, DuPont is more alive than dead because DuPont is better in all aspects than DuPont’s parts combined.   

9. The DuPont Company should divest, as the DuPont as a whole is better than parts combined that is divesting is required in these case. The company can divest Nu Farm as because the enterprise valuation is very low and has lot of debt. Divesting this will reduce the burden on DuPont Company (Ibriyamova et al. 2017).

DuPont and Dow has merged and became a vital player or competitor in the market as if they merge with themselves this both firms became the top with regards to the market share to valuation of the enterprise.

Dow chemical’s and DuPont plans to break the combined DowDuPont to a split between three sections like material science, products of special nature and agriculture. The merger report has a valuation of an anticipated is $ 130 Billion. The split will still help in competing with other larger peers in globe. The merger of the both will make this world’s major company in the sector of chemicals in respect to the sales (Dupont et al. 2016).

Split can help them to concentrate on the one business specifically rather than one management looking after all the types of the businesses. This results into efficient management of the company and results to greater profits.

Reference

Colby, G., 2014. Du Pont Dynasty: Behind the Nylon Curtain. Open Road Media.

Dupont, R.L., Dupont, M.P. and Mancuso, L.C., 2016. Wage Inequality Between Occupational Groups. Business Journal for Entrepreneurs, (4).

FU, S.Q. and ZHENG, Y., 2015. Application Research on Financing Performance of Listed Companies Based on Du Pont System of Financial Analysis——Take Xi'an Minsheng Group Co. Ltd for Example. Journal of Huaihua University, 4, p.010.

Ibriyamova, F., Kogan, S., Salganik-Shoshan, G. and Stolin, D., 2017. Using semantic fingerprinting in finance. Applied Economics, 49(28), pp.2719-2735.

Kristoufek, L., 2015. Highlights for “Power-law correlations in finance-related Google searches, and their cross-correlations with volatility and traded volume: Evidence from the Dow Jones Industrial components”.

Mohideen, O.H. and Parveen, M., 2014. A Study on Predicting Financial Performance Using Duo Pont Analysis in Cipla Pharmaceutical Company. International Journal of Accounting and Financial Management Research (IJAFMR), ISSN (P), pp.2249-6882.

Morris, C.R., 2014. Everybody Ought to be Rich: The Life and Times of John J. Raskob, Capitalist by David Farber. American Catholic Studies, 125(1), pp.63-67.

Noy, I. and duPont IV, W., 2016. The long-term consequences of natural disasters—A summary of the literature.

Robiou Du Pont, Y., Jeffery, M.L., Gütschow, J., Rogelj, J., Christoff, P. and Meinshausen, M., 2017. Equitable mitigation to achieve the Paris Agreement goals. Nature Climate Change, 7, pp.38-43.

Streitferdt, V., Chirarattananon, S. and Du Pont, P., 2017. Lessons learned from studying public initiatives to support energy efficiency finance in Thailand from 1992 to 2014. Energy Efficiency, 10(4), pp.905-923.