Financial Statement Analysis of Whirlpool Corporation

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Introduction

Whirlpool Corporation is a multinational company that is based in the United States. The Company’s headquarters is located in Michigan, United States. Whirlpool Corporation is a public entity that trades on the New York Stock Exchange with the ticker symbol WHR. Further, it is a component of S&P 500 index and a Fortune 500 company (Whirlpool Corporation, 2015). The corporation operates in the household appliance industry and it focuses on the production of home appliances (Whirlpool Corporation, 2015). Some of the key brand names of the company are Maytag, Jenn-Air, Bauknecht, Brastemp, and Whilrpool among others. The main strategies that are being used by the company are Product & Brand Leadership and Operating & People Excellence. The manufacturing plants of the company are located in eight regions. The corporation has a presence in one hundred and seventy countries. Some of the regions are North America, Asia, Latin America, and EMEA (Whirlpool Corporation, 2015). The three main competitors of the corporation are BSH Bosch und Siemens Hausgerate GmbH, Electrolux AB, and GE Appliances & Lighting. Electrolux AB is publicly held while the other two are private companies. Whirlpool Corporation is the leader in the industry. The success of the company can be attributed to the strategies employed and several business combinations that have taken place since it was established in 1911 (Whirlpool Corporation, 2015).

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Horizontal Analysis

Horizontal analysis provides information on the trend of performance of a company over a period of time. Thus, under horizontal analysis, the past financial records of a company are compared over a period of time. Further, ratios are computed from the financial information available to show the trend of performance. The horizontal analysis gives information on numbers that are extremely low or high (Wainwright, 2012). This aids in carrying out financial investigations. When carrying out horizontal analysis, it is important to have a baseline year. All the numbers in the baseline are itemized as 100%. The numbers in the subsequent years are recorded as a percentage of the amount in the baseline year. In the case of the Whirlpool Corporation, the horizontal analysis will cover a period between the years 2011 and 2013. The base year will be the year 2011.

Whirlpool Corporation

Horizontal Analysis of Income Statement

Increase or decrease
(US million except per share data)
Percentage change
2011 2012 2013 2011 2012 2013
Revenue 300 -523 626 1.63% -2.80% 3.45%
Cost of revenue 437 -839 221 2.79% -5.21% 1.45%
Gross profit -137 316 405 -5.05% 12.26% 14.00%
Operating expenses
Sales, General and administrative 17 136 71 1.06% 8.39% 4.04%
Restructuring, merger and acquisition 62 101 -41 83.78% 74.26% -17.30%
Other operating expenses 0 2 -5 0.00% 7.14% -16.67%
Total operating expenses 79 239 25 4.63% 13.39% 1.24%
Operating income -216 77 380 -21.43% 9.72% 43.73%
Interest Expense -12 98 -134 -5.33% 46.01% -43.09%
Other income (expense) -410 607 -155 208.12% -100.00%
Income before taxes -614 586 359 -104.78% -2092.86% 64.34%
Provision for income taxes -372 569 -65 581.25% -130.50% -48.87%
Other income
Net income from continuing operations -242 17 424 -37.23% 4.17% 99.76%
Other 13 -6 2 -41.94% 33.33% -8.33%
Net income -229 11 426 -37.00% 2.82% 106.23%
Net income available to common shareholders -229 11 426 -37.00% 2.82% 106.23%
Earnings per share
Basic -3.05 0.07 5.28 -37.56% 1.38% 102.72%
Diluted -2.98 0.07 5.18 -37.39% 1.40% 102.37%
Weighted average shares outstanding
Basic 1 1 1 1.32% 1.30% 1.28%
Diluted 0 1 2 0.00% 1.28% 2.53%
EBITDA -623 677 214 -45.61% 91.12% 15.07%

In 2011, the performance of the company declined. This can be seen in the negative values. The operating income declined while income before taxes rose. This implies that the profitability position of the company was influenced by income generated from non-operating activities. In 2012, there was a slight improvement in the profitability position. The income before taxes rose by more than 2000%. It can also be noted that the provision for income taxes declined. Further, the value of sales revenue also declined. In 2013, the company reported a significant increase in the value of net income from continuing operations. There was a significant decline in the value of interest expense. This can be attributed to the decline in debt.

Horizontal Analysis of Balance Sheet

Increase or decrease
USD million
Percentage change
2011 2012 2013 2011 2012 2013
Assets
Current assets
Cash
Cash and cash equivalents -259 59 212 -18.93% 5.32% 18.15%
Total cash -259 59 212 -18.93% 5.32% 18.15%
Receivables -173 -67 -33 -7.59% -3.18% -1.62%
Inventories -438 0 54 -15.69% 0.00% 2.29%
Deferred income taxes 44 310 -9 21.57% 125.00% -1.61%
Prepaid expenses -67 103 -29 -9.96% 17.00% -4.09%
Other current assets
Total current assets -893 405 195 -12.21% 6.31% 2.86%
Non-current assets
Property, plant and equipment
Gross property, plant and equipment -546 -144 215 -5.57% -1.56% 2.36%
Accumulated Depreciation 514 76 -208 -7.72% -1.24% 3.43%
Net property, plant and equipment -32 -68 7 -1.02% -2.19% 0.23%
Goodwill -4 0 -3 -0.23% 0.00% -0.17%
Intangible assets -32 -35 -20 -1.79% -1.99% -1.16%
Deferred income taxes 588 -61 -68 45.06% -3.22% -3.71%
Other long-term assets -30 -26 37 -9.68% -9.29% 14.57%
Total non-current assets 490 -190 -47 5.93% -2.17% -0.55%
Total assets -403 215 148 -2.59% 1.42% 0.96%
Liabilities and stockholders’ equity
Liabilities
Current liabilities
Short-term debt 48 155 100 15.29% 42.82% 19.34%
Accounts payable -148 186 167 -4.04% 5.30% 4.52%
Accrued liabilities 181 -114 -24 11.57% -6.53% -1.47%
Other current liabilities 67 -14 41 10.97% -2.06% 6.17%
Total current liabilities 148 213 284 2.41% 3.38% 4.36%
Non-current liabilities
Long-term debt -66 -185 -98 -3.01% -8.69% -5.04%
Pensions and other benefits -212 141 -670 -9.96% 7.36% -32.56%
Minority interest 5 8 3 5.32% 8.08% 2.80%
Other long-term liabilities -233 -41 -35 -29.46% -7.35% -6.77%
Total non-current liabilities -506 -77 -800 -9.71% -1.64% -17.29%
Total liabilities -358 136 -516 -3.15% 1.24% -4.63%
Stockholders’ equity
Common stock 0 2 1 0.00% 1.89% 0.93%
Additional paid-in capital 45 112 140 2.09% 5.09% 6.05%
Retained earnings 242 225 637 5.17% 4.57% 12.38%
Treasury stock 1 45 -347 -0.05% -2.47% 19.53%
Accumulated other comprehensive income -333 -305 233 37.29% 24.88% -15.22%
Total stockholders’ equity -45 79 664 -1.06% 1.89% 15.59%
Total liabilities and stockholders’ equity -403 215 148 -2.59% 1.42% 0.96%

In 2011, the financial position of the company declined as indicated by a decline in major balances such as total assets, liabilities, and equity. The company reported a significant increase in deferred income taxes and a decline in inventories. In 2012, the financial position of the company improved. The balance of total assets, liabilities and equity rose. The value of short term debt and deferred income tax liabilities rose by a large margin. In 2013, the company reported a further increase in the balances reported. The equity increased across the three year period while there was a decline in the liabilities recorded. The values of short term debt and cash rose by a large margin while the value of pension and other benefits payable declined significantly. Thus, it can be concluded that the financial position of the company improved over the three year period.

Ratio Analysis

Published financial statements provide the potential users with a narrow insight into the financial strengths and weaknesses of a business. Such a comprehensive view of a business is important because it influences users’ decisions on whether to continue their association with the business or not. Ratio analysis is an important tool for evaluating the financial position of a company (Barnes, 2006). The table presented below shows the calculations of liquidity ratios.

Ratio 2012 2013
Current ratio
Current assets/current liabilities
6,827 / 6,510
= 1.048 times
7,022 / 6,794
= 1.034 times
Quick ratio
(Current assets – inventories) / current liabilities
(6,827 – 2,354) / 6,510
= 0.6871 times
(7,022 – 2,408) / 6,794
= 0.6791 times
Cash to current liabilities ratio
Cash / current liabilities
1,168 / 6,510
= 0.1794 times
1,380 / 6,794
= 0.2031 times

The current ratio dropped from 1.048 in 2012 to 1.034 in 2013. The ratio estimated the aptitude of the corporation to fulfil its current debt using the current company assets. Thus, a decline in the value of the ratio implies that the liquidity position of the company has deteriorated. The values of quick ratio also deteriorated from 0.6871 in 2012 to 0.6791 in 2013. Since the ratios are less than one, it implies that the current liabilities cannot be repaid from the quick assets. The ratio also shows that the liquidity position of the company degenerated. The cash to current liabilities ratio for the company was extremely low. The value rose from 0.1794 in 2012 to 0.2031 in 2013. An evaluation of the ratios shows that the liquidity position deteriorated over the period. This implies that the company is facing difficulties in paying current obligations. This position is unfavorable to a potential debt provider (Gibson, 2011). The liquidity position of the company can be compared with that of Electrolux AB. The current ratio for Electrolux AB declined from 1.10 in 2012 to 1.07 in 2013. Further, the quick ratio was 0.65 during the period. Thus, there were no significant differences in the liquidity ratios for the two companies. However, the low liquidity ratios can be attributed to the industry in which the company operates (Liesz & Maranville, 2008).

Recommendation and Conclusion

In the analysis above, it can be observed that the company does not depict a clear trend in performance. This uncertainty increases the risk of investing in this company because the future performance cannot be predicted with certainty. Thus, a potential investor cannot predict whether or not they will receive returns from their investment. The liquidity position of the company is also quite low and unstable. The results also show that the company has difficulties in handling working capital. However, since the company is an industry leader, it promises investors favorable returns as compared to other companies operating in the same industry. Thus, an investor should monitor the performance over the next two to three years to ensure that it has improved before devoting resources into the company.

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References

Barnes, P. (2006). The analysis and use of financial ratios: A review article. Journal of Business Finance & Accounting, 4(4), 449-461.

Gibson, C.H. (2011). Financial Reporting and Analysis. USA: Cengage Learning Publishing Company.

Liesz, T., & Maranville, S. (2008). Ratio analysis featuring the DuPont method: An overlook topic in the finance module of small business management and entrepreneurship courses. Small Business Institute Journal, 2(1) 17-34.

Wainwright, S. (2012). Principles of accounting. San Diego, CA: Bridgepoint Education, Inc.

Whirlpool Corporation. (2015). Annual reports. Web.

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BusinessEssay. "Financial Statement Analysis of Whirlpool Corporation." March 30, 2022. https://business-essay.com/financial-statement-analysis-of-whirlpool-corporation/.