Stanley Black & Decker Inc.’s Financial Statements Analysis

The company overview

Basically, Stanley Works got instituted by Stanley Fredrick in fiscal 1843 and was integrated the financial year 1852. Stanley Works completed its merger with Black and Decker Corporation in March 2010. Black and Decker are universally recognized for their dominant product appellations and their higher repute for scheme, revolution and eminence as well as worth (Stanley Black & Decker Inc., 2011).

In fact, the Stanley Works administration alleged that the amalgamation with Black and Decker epitomized a makeover bonding two utmost respectable and highly corresponding corporations with opulent trade accounts, iconic trademarks, and collective supply networks as well as condensed merchandise intersection.

The union amid the two corporations similarly allowed wide-reaching assistances in power and hand-tools alongside the hardware. This contributed to the enhancement of the company’s customer value propositions (Stanley Black & Decker Inc., 2011). With respect to the union, the corporation altered its business label to Stanley Black and Decker Inc.

The corporation is a universal source of differentiated power and hand tools, microelectronic, security and checking systems, machine-driven entrance resolutions such as the programmed accesses as well as both salable and suburban padlocking structures, products, and services for various industrialized uses (Teaff et al., 2008).

In the 2011 financial year, the company recorded consolidated annual revenues of $10.4 billion. The company’s main strategy is diversification which it continues to pursue through acquisitions. The diversification strategy involves geographic, industry, and customer diversifications that are expected to foster sustainable growth in revenue, earnings and cash flow (Stanley Black & Decker Inc., 2011).

The company’s four growth platforms include security both in mechanical and electronic, infrastructures, healthcare and engineering fastening. Approximately 51% of the total company revenues are being generated in the United States while the rest are spread largely in Europe, Latin America and Canada respectively (Teaff et al., 2008).

The corporation operations are clustered into three reportable corporate divisions which consist of industrial, Do-It-Yourself and Construction as well as security. All these segments have significant international operations in developed countries; however, they lack huge investments in developing countries due to expropriation risks inherent in developing countries markets (Stanley Black & Decker Inc., 2011).

Financial statements analysis

The financial analysis will include an investigation of the consolidated financial statements of Stanley Black & Decker’s results of operations from 13th March 2010. With the aid of financial ratios that industry analysts used, it is possible to be more intensely scrutinizing the company financial statements that comprise of the income statements, balance sheet and the operations of cash flows and compare them with that of the company competitors in the industry.

The ratios will be utilized in assessing the firm’s profitability, liquidity, capital structure as well as in forecasting the firm’s future financial position. The regression models are then used to calculate the firms Beta which is very essential in determining the cost of equity and debt, the firms weighted average cost of capital, all of which are essential in the evaluation process (Sinha, 2009).

Liquidity analysis indicates that Stanley Black & Decker is a liquid firm. Quick asset ratio, The current ratio, inventory turnover, accounts receivable turnover, days’ supply of inventory as well as the working capital turnover indicate that the firm is leading the competitors and above the industry average in liquidity. The quick and current ratios were above average indicating that the firm is capable of meeting its short term obligations (Robinson et al., 2004). That is, the firm has cushioned itself against its short term debtors. It is a good sign that the firm is healthier as compared to its competitors.

The profitability ratios namely the operation profit margin, returns-on-assets, return on capital, net-profit-margin as well as gross-profit-margin are used in showing that the corporation has outclassed other competitors in the industry. Following the merger, the company has shown an excellence performance in profitability during the financial year as a result of high sales growth as well as increasing economies of scale through acquisitions (Stanley Black & Decker Inc., 2011). The company has continued to show its strong ability in maintaining the generation of profits.

Through the financial statement analysis, the company show future growth prospects (Teaff et al., 2008). The income pattern as compared to the industry average assumes a growth rate of approximately 7%. Sales, assets, inventory turnover as well as accounts receivable are used in analyzing and forecasting all the items in the balance sheet. Finally, the cash flow statement was analyzed and forecasted through the comparisons with the net income. The trend in the cash flows is found to be concurrent with that of CFFO/sales. Comparing with the past three years CFFO/sales the cash flow from operating activities would average 11.5% in the net financial years.

Bond valuation

Bond valuation is the process through which bond prices are determined. It is essential for the prospective bond investors to understand the process of determining the bond prices since it indicates the yield of the bond when purchased (Penman, 2010). Determining the price of the bond means calculating the optimal price that the investor would pay given the coupon rate and the prevailing average interest rate in the bond market.

The rate of return or the yield to maturity is the rate that the bond has to provide in order to attract buyers. More often, the yield to maturity, abbreviated YTM is more or equivalent to the rate of interest which is presently prevalent in the market for securities.

Therefore the formula for calculating the price of the bond is

PV = PMT × [{1 – (1+i)-n}/i] where

  • PV is the Present Value,
  • PMT is the coupon payment,
  • i is the interest rate and
  • n is the number of periods.

The YTM of a Stanley Black & Decker Incorporation’s bond whose maturity is ten years, $10,000 face value with a rate of coupon equivalent to ten percent and a semi-annual coupon payment with prerequisite yield of twelve percent is calculated as follows:

Bond price = 5000[{1 – (1/(1 + 0.06)20 }/0.06] + {100000/(1 + 0.06)20 }

= 500(11.47) + 3118.05 = 8853.05

Therefore the Stanley Black & Decker Inc sells at a discount since the bond price is less than its par value. To attract investors the company bond must sell at a discount.

Stock valuation

Constant growth model

This is the model that is used to establish the stock intrinsic value. The model is founded on the constant growth rate of dividends. Given the per share dividend that is payable annually, with an assumption that there is constant perpetual growth of dividends, the present value of stock is calculated as follows

Present Stock value = D/k – G where

  • D = the anticipated dividend for each share in a year’s time
  • K = needed equity investor rate of return
  • G = dividend rate of growth (perpetuity)

Therefore the current stock value using the dividend growth model will calculated as follows

Stock value = [current dividend (1 + dividend growth)]/[required return – dividend growth]. In this case, the dividend growth rate of Stanley Black & Decker Inc. is 8%, the required return is 20% and the current dividend split per quarter in the 2011/2012 FY is $0.41. Therefore the dividend growth would be

Value = [1.64(1 + 0.08)]/(0.2 – 0.08) = $14.76.

Based on the result and the current dividend growth rate of 8%, the indication is that Stanley Black & Decker would be worth $14.76 premium above its current share prices.

In case the company would have outstanding preferred stock, the following formula would have been applied to determine the value of the preferred stock

Pp = Dp/r where

  • Pp = value/price of the preferred stock
  • Dp = is the preferred dividend
  • R = rate required on the stock

Risk measurement to find out the company portfolio stability

Year by year stock returns

Annual stock returns are calculated as follows

(Value of the stock at year end (S) + dividends (D))/initial value of stock at the beginning of the year (V). Therefore the formula is S + D/V.

The firms average weight of capital

WACC is the process through which the firms each capital contribution is proportionally weighted. The sources of the firm’s capital include debt and equity. Increases on beta and return on the firm’s equity also causes an increase in WACC. Higher WACC indicates increased risks and reduced company valuation. Stanley Black & Decker Inc. utilizes WACC in measuring the aggregate requisite returns and as such it drawn on in determining the corporation’s fiscal feasibilities. Expansionary strategies that include mergers and acquisitions

Conclusion

Investors normally rely on financial statement analysis to determine the company future growth prospects. The company average patterns are then compared to the industry average to determine the company performance with its competitors. For Stanley Black & Decker Inc., all rations as well as valuations indicate that the company faired above average within the industry. This indicates that the company has future prospects for growth hence viable for investments.

References

Penman, S. (2010). Financial statement analysis and security valuation. New York, NY: McGraw-Hill/Irwin.

Robinson, T., Munter, P. & Grant, J. (2004). Financial statement analysis: A global perspective. Upper Saddle River, NJ: Pearson/Prentice Hall.

Sinha, L. (2009). Financial statement analysis. Patparganj, Delhi: PHI Learning Pvt. Ltd.

Stanley Black & Decker Inc. (2011). 2011 annual report. Web.

Teaff, R., Hohlier, J., Booras, C., Ziegler, J., Willis, T., & Scheurer, P. (2008). Stanley Works, Inc. equity, valuation and analysis. Web.

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BusinessEssay. (2022) 'Stanley Black & Decker Inc.'s Financial Statements Analysis'. 17 December.

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BusinessEssay. 2022. "Stanley Black & Decker Inc.'s Financial Statements Analysis." December 17, 2022. https://business-essay.com/stanley-black-and-amp-decker-inc-s-financial-statements-analysis/.

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BusinessEssay. "Stanley Black & Decker Inc.'s Financial Statements Analysis." December 17, 2022. https://business-essay.com/stanley-black-and-amp-decker-inc-s-financial-statements-analysis/.