Dow Chemical Business Analysis

Topics: Balance sheet, Chemical industry, Asset Pages: 7 (1798 words) Published: January 8, 2013
Dow Chemical - Business Analysis Part 2
Cherry Fugate-Lange
Management 521
June 7, 2012
Dr. Albert Smothers

Dow Chemical - Business Analysis Part 2
Historically, the chemical industry has operated in a competitive environment, which is not anticipated to change. Dow experiences significant competitions in each of its operating segments as well as in each of the geographic areas in which it operates. Dow competes globally on the foundation of quality, technology, price, and customer service and operates in an integrated manufacturing environment. Basic raw materials are processed through many stages to produce many products that are sold as finished goods at different points in the process. Dow has two major raw material streams that feed the production of the finished goods which are chlorine-based and hydrocarbon based raw materials. (Dow Chemical Company, n.d.) Business Environment

The business environment of Dow is one that has strategically positioned itself to withstand the ever-changing forces of economic, social, political and technological factors it faces daily. Dow consistently identifies opportunities and new technologies before its competition which stimulates their industry-leader position. (1) Financial Health

Dow has great financial strength. Their sensible financial discipline has proven beneficial in recent global economic challenges and has actually helped position it for future growth. The recent global economic challenges forced Dow to take steps towards strengthening and diversifying its portfolio. The company has come out on the other side of the challenges with a portfolio that is better equipped for economic uncertainties. (Dow Chemical Company, n.d.)

During 2011, Dow:
* had double-digit gains in revenue and earnings per share * posted record revenues at a Company level, as well as in emerging geographies * introduced “game-changing” investments and partnerships that will allow the Company to capture more demand in the world’s fastest growing regions * recognized a stronger than ever before R&D innovation pipeline Analyzing the data attained from Dow’s 2011 financial statements confirm the Company’s financial heath and sustainability. Dow’s Liquidity ratio is a follows:

Current Assets = 23,442 million
Current Liabilities = 13,634 million
Liquidity ratio = 23,422/13,634 = 1.72
Dow has $1.72 of current assets for every $1.00 of current liability. The current ratio should be at a 2 or greater to be considered a safe risk; however, Dow is a reputable global organization accepting the investment to be a safe risk. Dow’s Acid-test ratio is a follows:

Cash = 5,444 million
Accounts Receivable = 4,900 million
Measurable Securities = 7,057 million
Current Liabilities = 13,634 million
Acid-test ratio = 4,444+4,900+7,057/13,634 = 1.28
Dow has 1.28 acid-test ratio. The ratio needs to be between a 0.05 and 1.0 to be satisfactory. The acid-test ratio determines whether an organization has enough short-term assets to cover immediate liabilities without selling inventory. (Nickels, McHugh, & McHugh, 2010, p. 20-21) Dow’s ratio is just slightly above 1.0, allowing it to be considered satisfactory.

Dow’s Debt to owners’ ratio is as follows:
Total Liabilities = 27,476 million
Owners’ Equity = 22,281 million
Debt to owners’ ratio = 27,476/22,281 = 1.23 or 123%
The debt to owners’ ratio should be anything 100% or less. (Nickels, McHugh, & McHugh, 2010, p. 20-21) Dow is just over; however, other competitors in the industry have similar ratios signifying debt financing in the chemical industry is more acceptable and commonplace. Dow’s Return on sales is as follows:

Net Income = 3,200 million
Net Sales = 52,985 million
Return on sales = 3,200/52,985 = 0.06 or 6%
Return on sales for Dow is slightly lower than its researched competitors in producing income from sales. Competitors
As previously stated, the chemical industry is a highly...
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