Review the three primary financial statements (pages 40, 41 & 42) in the accompa

Question

Review the three primary financial statements (pages 40, 41 & 42) in the accompanying packet. Provide an overall assessment of Sherwin-Williams financial performance and position. That is, briefly explain whether Sherwin-Williams is doing well financially or is in financial distress. In your discussion, identify three characteristics of financial success or financial distress that support your conclusion

Statements of Consolidated Income and Comprehensive Income (thousands of dollars except per common share data Year Ended December 31 2015 2016 2014 Net sales Cost of goods sold Gross profit $11,855,602 $11,339,304 $11,129,533 5,933,337 5,922,265 5,780,078 5,965,049 5,559,226 5,164,484 Percent to net sales 50.0% 49.0% 46.4% Selling, general and administrative expenses.······… 4,159,435 3,913,518 3,822,966 Percent to net sales 35.1 % 34.5% 34.3% Other general expense - net Impairment of goodwill and trademarks Interest expense ···· Interest and net investment income Other (income) expense - net Income before income taxes Income taxes . . Net income Net income per common share) 30,268 37,482 10,688 154,088 (4,960) . ·····.. . . . . . 61.791 (1,399) 6,082 1,548,966 495,117 64,205 (2,995) 15,400) 1,258,226 392,339 1,595,233 462,530 12.33 11.43 $11.99 11.15 $ Basic 9.00 Diluted 8.77 Presented under the treasury stock method. See Note 15 Year Ended December 31 2015 2016 2014 Net income Other comprehensive income (loss), net of tax: $1,132,703 $1,053,849 865,887 Foreign currency translation adjustments (18,648) (128,245) 103,441) Pension and other postretirement benefit adjustments: Amounts recognized in Other comprehensive loss) Amounts reclassified from Other comprehensive loss (28,385) 7,635 (20,750) (56,536) 8,980 (47,556) 5,847 13,821 .. Unrealized net gains (losses) on available-for-sale securities 1,046 89 1,135 Amounts recognized in Other comprehensive loss 366 Amounts reclassified from Other comprehensive losse.. 478 83 Unrealized net gains on cash flow hedges: Amounts recognized in Other comprehensive losse 85,007 (150,914) $ 714,973 46,744 Net of taxes of $17,200, $03,399) and $24,954, in 2016, 2015 and 2014, respectively. Net of taxes of $(4,691), $(1,647) and $(2,712), in 2016, 2015 and 2004, respectively. Net of taxes of $(643), $736 and $(228), in 2016, 2015 and 2014, respectively. Net of taxes of $(55), $(296) and $178 in 2016, 2015 and 2014, respectively. Net of taxes of $62,226) in 2016 2) See notes to consoidated financial statements 40

Explanation / Answer

Step 1 : Assessment of financial performance

The company's gross profit ratio has increased to 50% in 2016 from 46.4% in 2014. The net profit ratio has also increased from 34.3% in 2014 to 35.1% in 2016. Basic EPS of the company has increased from 9.00 in 2014 to 12.33 in 2016. Comprehensive income has also increased in 2016 from last years. Total assets has also increased from last years. Retained earnings has also increased in 2016 from last years. Net increase in cash and cash equivalents is $684,049 in 2016 as against $165,012 in 2015. Thus overall the company has performed well financially and doing well. We can also use various ratios to assess the financial performance of the company.

Curent Ratio(2016) = Total current Assets/Total Current Liabilities = $3,627,298/2,829,179 = 1.28

Current Ratio(2015) = Total current Assets/Total Current Liabilities = $2,657,180/2,141,859 = 1.24

As we can see, the current ratio has also increased to 1.28 in 2016 from 1.24 in 2015.

Therefore the company's financial performance has improved over the last years.

Step 2 : Characteristics of Financial success

i) Earnings Growth = The basic premise of earnings growth is that the current reported earnings should exceed the previous reported earnings. In this given case, the company's earning in 2016 is increased to $1,132,703 from $865,887 in 2014.

ii) Return on Equity = Return on equity measures the effectiveness of a company's management to turn a profit on the money that its shareholders have entrusted it with, ROE is calculated as follows:-

ROE (2016) = Net Income/Shareholders' Equity = $1,132,703/1,878,441 = 60.30%

Thus the Return on equity is also good for the company.

iii) Earnings Stability = It is a measure of how consistently those earnings have been generated. Stable earnings growth typically occurs in industries where growth has a more predictable pattern.

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