Sika Ag Company Overview
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Company overview
Sika AG, founded in 1910 by Kaspar Winkler and headquartered in Baar, Switzerland, is a diversified specialty chemicals company geared towards construction (80% of sales) and transportation (20% of sales). It is a leader in processing materials used in sealing, bonding, damping, reinforcing and protecting load-bearing structures. Furthermore, their range also includes concrete admixtures, concrete repair & protection systems, steel corrosion protection systems as well as fire protection systems. Sika AG has presence on five continents in 76 countries with more than 120 plants, over 15,000 employees and an annual sales revenue in 2011 of CHF 4.556 billon (Sika AG annual report 2012).
The top competitors within the specialty chemical manufacturing and chemical manufacturing industries are (source Bloomberg):
BASF SE Ludwigshafen, Germany
RPM International Inc. Medina OH, USA
Carlisle Cos Inc. Charlotte NC, USA
CRH PLC Dublin, Ireland
HB Fuller Co St. Paul MN, USA
Masco Corp Taylor MI, USA
Valspar Corp Minneapolis, MN
An in-depth analysis of key ratios can be found in chapter 9.3.
1.1 Key figures
The table below gives a brief overview of the company as of the end of 2011. The overview is consolidated to the key data. The following chapters will analyse the numbers in detail.
Table 1: Key Figures (source Sika AG Report 2011)
in CHF mn2011as % of net salesNet sales4556.4Fross result2304.650.6Operating profit before depreciation (EBITDA)477.410.5Operating profit (EBIT)347.17.6Net profit after taxes214.84.7Operating free cash flow186.14.1Capital expenditures117.12.6Balance sheet total3830.4Shareholders equity1839.1Equity ratio in %48.0ROCE in %15.6Earnings per share in CHF85.06Number of employees15254Energy consumption in MJ per ton sold1505CO₂ emissions in 1 000 tons31000Water consumption in 1 000 m³2
Assignment Accounting for Managers Page 3
Graph 1: Cash Ratio
1.2 Ratio Analysis
This business analysis report contains detailed ratio analysis of the financial statements of Sika AG. The methods used in this report are horizontal and competitor analysis. The includ-ed ratios have been calculated based on the companys financial statements from 2007 until 2011 (all key ratios of Sika AG can be found in chapter 9.1), and are compared against a number of their most direct competitors. This approach makes it possible to see the trends over the past five years and help better understand the companys financial health. Benchmark comparison provides an idea of what can be considered as an industry standard.
2 Liquidity
The analysis of the liquidity of Sika AG will show in detail that the company has minimized their operational risks by having a solid liquidity, which allows Sika AG to run its operations even when creditors would start to demand repayments. In general Sika AG has excellent li-quidity, but in 2009 their liquidity was far above industry benchmarks, which resulted in an inefficient use of assets. In 2010, the company reacted and brought the liquidity over the next two years back to its previous level. However, opportunities for optimization do remain.
2.1 Cash Ratio
The cash ratio shows how much of the current liabilities can be covered by cash and cash equivalents (Investopedia Formulas 2012).The benchmark for the cash ratio is around 50% (Stick-ney et al. 2010, p. 266). It is neither necessary nor wished that cash should cover 100% of the current liabilities, as other assets can be used to cover these costs. In the case of Sika AG, the cash ratio has been over the benchmark for the last five years, indicating that the company has always had enough funds to cover their most urgent liabilities until other assets can be cashed in. During the period of 2008 to 2009, Sika AG had built up a cash ratio of more than 100% which meant that all current liabilities could have been covered by cash and cash equivalents alone (Sika AG 2012, p.135). However, at this time, the liquidity had not been used. This was corrected over the next two years and the ratio was brought back to the benchmark level.
2.2 Quick Ratio
The quick ratio compares current assets, minus inventory, with current liabilities. Ideally this would be close to 100% (Investopedia Formulas 2012). The target value should be between 100% and 120% (Controllingportal Kennzahlen 2007). In case of Sika AG, their quick ratio deviates largely from the benchmark level. With a ratio around 200%, Sika AG has a high liquidity. In relation to the cash ratio it can be said that Sika AG has a high volume of open receivables, which may be a result of high demand for the offered products. With a quick ratio this high, it is very unlikely that Sika AG will have any trouble paying their debts. On the other hand, it could be argued that their assets are not being used efficiently and should be invested (Seiler 1963, p. 505).
Graph 2: Quick Ratio
Assignment Accounting for Managers Page 4
Graph 5: Gearing
Graph 6: Equity Ratio
Graph 4: Intensity of Invest.
2.3 Current Ratio
The current ratio compares current assets with current liabilities (Investopedia Formulas 2012). Analysts prefer this ratio to be over 100%, according to Stickney (2010, p. 266). Otherwise the company would no longer be able to pay its debts. Sika AGs current ratio has always been between 200% and 300%. There-fore, the company is said to have solid liquidity. In considera-tion of the findings of the quick ratio, it can be assumed that the inventory on hand is within the appropriate range for the common operations of the company.
2.4 Intensity on Investment
The investment intensity shows how much capital is bound within investments (Controllingportal Kennzahlen 2007). A high number means that the company will not be able to react quickly enough to the new situations resulting from changes in the market. Sika AG has a low intensity ratio of 60.27% and therefore is not considered to be at risk. There is enough liquid-ity within the company to react to market