Background of the company
Deere & Company was established in 1837. The company has experienced a significant amount of growth, development, and expansion since its formation. Deere & Company is currently a public company that is based in America. It trades on the New York Stock Exchange with the ticker symbol DE. Further, it operates in the heavy equipment industry. The company offers a wide range of equipment and machinery that are used in the construction, forestry, and agriculture industry. It also offers financial services to its clients. For reporting purposes, the operations of the company are divided into three segments these are financial services, agriculture and turf, and construction and forestry. This paper seeks to carry out a financial analysis of Deere & Company.
Competition and position in the industry
The company faces stiff competition in each category of products it sells. Some of the competitors for the agriculture and turf segment are AGCO Corporation, the Toro Company, and CNH Global NV, among others. Under the construction and forestry segment, the competitors are Caterpillar Inc., Volvo Construction Equipment, Ponsse Plc., and Komatsu Ltd., among others. The table presented below shows a summary of statistics of various companies in the industry and the position of Deere & Company in the industry.
|Market capitalization |
|Net income |
|United Technologies Corporation||105.42||6.43|
|Deere & Company||30.43||2.87|
|Illinois Tool Works Inc.||35.47||1.92|
Analysis of the results
The table presented below shows a summary of ratios for the company.
|October 2013||October 2014|
|Net Margin %||9.36||8.77|
|Return on Assets %||6.11||5.23|
|Return on Equity %||41.35||32.72|
The liquidity level for the company improved during the period. The values of the current and quick ratio increased. Besides, the values were high. They show that the company has the ability to pay for the current obligations using both current and liquid assets. The increase can be attributed to the growth of current assets and a decline of current liabilities (Wainwright, 2012).
The profitability ratios for the company deteriorated during the period. The values for the five ratios declined. The margin ratios measure the ability of the company to effectively manage prices, cost of sales, and cost of operations. On the other hand, return on assets and equity measure the ability of the company to generate positive returns using the assets available and shareholders’ funds, respectively. The decline in the value of the ratios shows that the performance of the company dropped. This can be attributed to a decline in the value of sales and net income (Gibson, 2011).
Solvency ratios give information on the long-term health of the company and its ability to service debt. The value of the debt to equity ratio grew during the period. This shows that the amount of debt increased. Besides, the amount of debt exceeded equity by more than two times. The high level of debt can be attributed to the massive capital requirement in the industry. The interest coverage ratio dropped during the period. The ratio measures the ability of the company to pay interest expenses. The decline can be attributed to growth in the debt balance and a decline in operating profit (Barnes, 2006). Therefore, the solvency of the company deteriorated.
The use of non-financial factors to measure the performance of a company has grown over the years. This can be attributed to the fact that they contribute to the overall growth of an entity. These factors are discussed below.
The area focuses on emissions, waste management, and usage of water in the company. The company is committed to reducing water usage and recycling wastes. Besides, it is committed to manufacturing products that increase fuel efficiency. The total emissions for the company are relatively high as compared to the industry average. This can be attributed to the fact that the company is a large producer. The total GHG Emissions for the company was 1578.56, while the industry average was 672.47. This indicates that the company is not efficient in the use of renewable energy.
The company has a number of corporate social responsibilities across the world. The amount spent by the company on corporate social responsibility was $24.4million. The value is higher than the industry average of $5.59million.
The corporate governance will be measured by the percentage of independent directors on the board. A higher percentage is preferred. 92% of directors were independent as compared to the 62% in the industry. This indicates that the board is constituted well. This can boost investor confidence.
The analysis above shows that the overall performance of the company deteriorated. Besides, the company is not a top performer in the industry. The overall environmental, social, and governance (ESG) rating for the company stands at 27, while the industry average is 29. The value is below the industry average, and it shows that the company is not operating efficiently. Therefore, an investor should not consider the company for investment.