Financial analysis.

Prepare a financial analysis. This final project takes a close look at two corporations, Bayer and Monsanto. Bayer is considering a bid for United States seed company Monsanto (Snider, 2016). For purposes of this project, you will act as the Chief Financial Officer of Monsanto Corporation, analyzing financial documents and determining whether Monsanto should indeed go forward with acceptance of the purchase. The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. Preliminary milestones will be submitted in Modules Four and Six. The final submission will occur in Module Eight. Milestones Milestone 1: Evaluation of the Proposal Due in Module 4 Milestone 2: Evaluation of an Alternative Opportunity Due in Module 6 Milestone 3: Final Project Submission Due in Module 8 In this assignment you will demonstrate your mastery of the following course outcomes: [CO1] Analyze financial reports to determine a firm’s performance. [CO2] Apply the strategic planning processes necessary to manage the long- and short-term financial activities of the firm. [CO3] Perform valuation of financial instruments. [CO4] Evaluate the appropriateness of an investment using applicable economic, industry, and competitive analysis. Milestone 1: Evaluation of the Proposal Before completing this assignment, review the Final Project Document. Background information found in the Final Project Document applies to Milestones One through Three. In the final project, you will assume the role of Chief Financial Officer of Monsanto Corporation. Bayer is considering a bid for United States seed company Monsanto. Assume that relevant tax rate is 35%. EBIT, depreciation, capital spending, and the change in net working capital will grow at the same rate as sales, which is expected to grow at a rate of 3% across the current year, while capital investment will remain stable. Assume that operational results quoted outside of Tables 4, 5 and 6 (income statement, balance sheet, and statement of cash flows, below), are interim measures to be used for purposes of your calculations. Based on the proposal’s likely effect on shareholder value, determine whether to accept or reject this proposal for $62B, using evidence provided here in Tables 1 through 6, to support your analyses. Evaluate each of the following: Whether to accept or reject this proposal, using evidence drawn from ratio analysis, and time and trend analysis and other evidence from assigned readings covered in Modules One through Three to support your determinations. Compute and include two ratios per each of the four main areas of ratio analysis, including short-term solvency, asset utilization, long-term solvency, and profitability. Evaluate limitations that may exist in using these varieties of analysis to make this determination. Compose your work in a .doc or .docx file type using a word processor (such as Microsoft Word, etc.) and save it frequently to your computer. For those assignments that are not written essays and require uploading images or PowerPoint slides, please follow uploading guidelines provided by your instructor. Check your work and correct any spelling or grammatical errors. When you are ready to submit your work, click “Submit Assignment” in the upper right corner. Click on “Browse,” browse your computer, and select your file. Click “Open” and verify the correct file name has appeared next to the Browse button. Enter your comments, if any, in the Comments area. Click on “Submit Assignment.” Evaluation This assignment will be graded using the rubric displayed below. Please review this rubric prior to beginning your work. You can also access the rubric on the Course Rubrics page within the Start Here module. This assignment is worth 10% of your final course grade. Immediate Results from the Bayer Announcement in 2015 Monsanto (MON) Share Price Increased 8.7% Bayer Crop Science Division Sales increase 9% to $11.8 billion Bayer Healthcare Division Sales Increased 19% to $26 billion Bayer Pharmaceutical Sales Increased 12%, to $52.8 billion Monsanto Sales Decreased 5% to $15 billion Table 1. Immediate Results from the Bayer Announcement in 2015 ValuPro Net Online Valuation of MONSANTO CORPORATION - 2015 Return on Assets 8.56 Return on Equity 14.93 Sales ($mil) 14,757 Investment Rate (% of Rev) 4.78 Growth Rate (%) 13.5 Working Capital (% of Rev) 29.19 Net Oper. Profit Margin (%) 21.3 Short-Term Assets ($mil) 11141 Tax Rate (%) 30.584 Short-Term Liab. ($mil) 4055 Stock Price ($) 86.74 Equity Risk Premium (%) 3 Shares Outstanding (mil) 533.8 Company Beta 1.05 10-Yr Treasury Yield (%) 500% Value Debt Out. ($mil) 2.054 Bond Spread Treasury (%) 1.5 Value Pref. Stock Out. ($mil) 0 Preferred Stock Yield (%) 7.5 Company WACC (%) 8% Table 2. ValuePro Net Online Valuation Monsanto Co. 2015 (Bloomberg Market Rates) MON:US Current Price 106.00 (USD) Open 106.80 Day Range 109.69-109.54 Volume 18,049,774 Previous Close 106 52 Week Range 81.22-120 1 Year Return -7.06% YTD Return 10.94% Current P/E Ratio (TTM) 23.67 Earnings Per Share (USD) (TTM) 4.62 Market Cap (B USD) 47.747 Shares Outstanding 436.845 Price/Sales (TTM) 3.65 Dividend Indicated Gross Yield 1.98% Sector Materials Industry Chemicals Sub-Industry Agricultural Chemicals Table 3. Monsanto Co. Rates Income Statement - Monsanto Corp. Period Ending 31-Aug-15 31-Aug-14 31-Aug-13 Total Sales 15,001,000 15,855,000 14,861,000 Cost of Sales 6,819,000 7,281,000 7,208,000 Gross Profit 8,182,000 8,574,000 7,653,000 Operating Expenses Research Development 1,580,000 1,725,000 1,533,000 Selling General and Administrative 2,686,000 2,774,000 2,550,000 Non Recurring 393,000 - - Others - - - Total Operating Expenses - - - Operating Income or Loss 3,523,000 4,075,000 3,570,000 Income from Continuing Operations Total Other Income/Expenses Net 71,000 - 31,000 Earnings Before Interest and Taxes 3,594,000 4,075,000 3,601,000 Interest Expense 433,000 248,000 172,000 Income Before Tax 3,161,000 3,827,000 3,429,000 Income Tax Expense 864,000 1,078,000 915,000 Minority Interest -11,000 -22,000 -43,000 Net Income from Continuing Ops 2,286,000 2,727,000 2,471,000 Non-recurring Events Discontinued Operations 28,000 13,000 11,000 Extraordinary Items - - - Effect of Accounting Changes - - - Other Items - - - Net Income 2,314,000 2,740,000 2,482,000 Preferred Stock and Other Adjustments - - - Net Income Applicable to Common Shares 2,314,000 2,740,000 2,482,000 Table 4. Monsanto Income Statement Balance Sheet - Monsanto Corp. Period Ending 31-Aug-15 31-Aug-14 31-Aug-13 Assets Current Assets Cash and Cash Equivalents 3,701,000 2,367,000 3,668,000 Short Term Investments 47,000 40,000 254,000 Net Receivables 3,182,000 3,466,000 3,042,000 Inventory 3,496,000 3,597,000 2,947,000 Other Current Assets 199,000 205,000 166,000 Total Current Assets 10,625,000 9,675,000 10,077,000 Long Term Investments 42,000 92,000 237,000 Property Plant and Equipment 4,973,000 5,082,000 4,654,000 Goodwill 4,061,000 4,319,000 3,520,000 Intangible Assets 1,332,000 1,554,000 1,226,000 Accumulated Amortization - - - Other Assets 610,000 746,000 496,000 Deferred Long Term Asset Charges 277,000 450,000 454,000 Total Assets 21,920,000 21,918,000 20,664,000 Liabilities Current Liabilities Accounts Payable 3,950,000 4,359,000 3,756,000 Short/Current Long Term Debt 687,000 315,000 63,000 Other Current Liabilities 540,000 438,000 517,000 Total Liabilities 14,930,000 14,043,000 8,105,000 Stockholders’ Equity Misc. Stocks Options Warrants - - - Redeemable Preferred Stock - - - Preferred Stock - - - Common Stock 6,000 6,000 6,000 Retained Earnings 10,374,000 9,012,000 7,188,000 Treasury Stock -12,053,000 -10,032,000 -4,140,000 Capital Surplus 11,464,000 10,003,000 10,783,000 Other Stockholder Equity -2,801,000 -1,114,000 -1,278,000 Total Stockholder Equity 6,990,000 7,875,000 12,559,000 Net Tangible Assets 1,597,000 2,002,000 7,813,000 Table 5. Monsanto Balance Sheet Cash Flow - Monsanto Corp. Period Ending 31-Aug-15 31-Aug-14 31-Aug-13 Net Income 2,314,000 2,740,000 2,482,000 Operating Activities, Cash Flows Provided By or Used In Depreciation 716,000 691,000 615,000 Adjustments to Net Income 240,000 233,000 113,000 Changes in Accounts Receivables 68,000 -172,000 222,000 Changes in Liabilities 457,000 482,000 -129,000 Changes in Inventories -425,000 -650,000 -192,000 Changes in Other Operating Activities -273,000 -292,000 -414,000 Total Cash Flow from Operating Activities 3,108,000 3,054,000 2,740,000 Investing Activities, Cash Flows Provided By or Used In Capital Expenditures -967,000 -1,005,000 -741,000 Investments 4,000 235,000 217,000 Other Cash Flows from Investing Activities -56,000 -1,235,000 -253,000 Total Cash Flows from Investing Activities -1,019,000 -2,095,000 -777,000 Financing Activities, Cash Flows Provided by or Used in Dividends Paid -966,000 -932,000 -976,000 Sale Purchase of Stock -698,000 -6,834,000 -705,000 Net Borrowings 1,238,000 -5,536,000 127,000 Other Cash Flows from Financing Activities -36,000 -48,000 -10,000 Total Cash Flows from Financing Activities -430,000 -2,259,000 -1,485,000 Effect of Exchange Rate Changes -325,000 -1,000 -93,000 Change In Cash and Cash Equivalents 1,334,000 -1,301,000 385,000 Table 6. Monsanto Statement of Cash Flows