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Finance of the AGCO CORP Term Paper

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Table of Contents

Introduction
The company
Ratios
Liquidity Trend
Asset Utilization Trend
Debt Utilization Trend
Strategic Intent / Financing Plan
Profitability Trend
Works Cited

Introduction

Farming has a great history. This can be traced from the earliest man’s endeavor in farming in what is referred to as the land between. There, man stopped relying on hunting sorely for consumption but also planted crops. This was done with the most naïve means. There was no equipment that is common in the current agricultural businesses. Moreover, man did not keep a record of what he farmed. This characterized the early farming and can be traced to as late as the twenty first century. Even with the modernization of farming activities, there are still some people who look at farming only for subsistence. Others are still using the tools that are not up to date. This is due to various reasons. One of the main reasons is poverty and other ignorance.

This not withstanding, there have come up many companies that have taken the advantage of the rise in technology in various fields and have brought it to the farming industry. These companies have brought a major transition to the industry making it as enjoyable as any other industry. The farming industry was one of the least popular to people in the rise of technology. The persons here mentioned have placed their inputs in the area of; physical farming, management, research, production of farming facilities like machinery, fertilizers and seeds, also there are those who have been earning a living from the brokerage of the farm products (Books LLC, 12).

As man continued to advance in his farming, the need to have a record of his stocks arose. The first to be in record were flocks. A man could easily count his flocks be they cattle, sheep, camels, and others. Land which was cultivated was marked by physical; features like mountains, rivers, and such. In most cases, land was earlier owned communally. As the technology came in place, the need to improve the recording came to being. Thus man kept a record manually of his stocks in a way he could be able to calculate his profits. This has later been phased out by the introduction of computers in the wake of the information technology. This field has continued to grow by the day. Currently, companies in the magnitude of AGCO CORP employ their own system developers who carry out a research and later come up with programs that are specifically suited to operate the functions that are carried out by the companies. These systems are commonly referred as the tailor made systems. The other option available is the off-the-shelves systems. These are systems that are made so that they can operate ion different fields. Such systems are available both locally and also in the internet (Books LLC, 12).

Due to the rise in need to create wealth, both national and international authorities have set some standards which have to be followed by any company. These standards are the ones that govern the industries in question. In the finance department, it is mandatory for every company to publish their financial records annually. This helps any investor and other interested parties to make informed decisions in their investments. The publishing of financial records started manually, and then by the twenty first century the companies post their financial statements both on print media as well as in their websites. The records that are contained in this report are from the records of AGCO CORP website. The analysis that is done covers the time between 2008 and 2010. Forecasts for the year 2011 are also made.

The company

The history of AGCO CORP is dated as back as 1990. The American company came from investors who were the previous owners of yet another farm equipment company known as Duetz-Allis. This was a subsidiary of KDH a bigger farm equipment manufacturer. Prior to this, the KHD had made a major investment by acquiring farm equipment from Allis- Charmers. This was five years before. The AGCO CORP Company has since grown to be an international company that has branches in all the continents. However, the company is run from its headquarters that are located in New York City in America. In its history of operations, the company has gained customer portfolio in over one hundred and twenty countries. In each of these countries, the company has established offices and in some areas the company has countries operated form one regional office. However, that is only the managerial part of it. Due to the demand in the competitive market, the company has been able to sustain its position as the leading marketer in the farm inputs because of various factors. One, the company has been involving directly and indirectly the customers in their production and improvement of the equipment. This has made the customer to feel that they own part of that company. This is done through interactive process in their researches. The regional and national offices use their personnel to help the customers fill the questionnaire about their products. The questionnaires help the company to know the changes that the customers want done in their products (Hanrahan, Ramsay, Stapleton, 21).

After the formation, the company went on to acquire many plants from different organizations. The first purchase was that of a hay and forage equipment form Hesston corporation. The seller had a control of half of the shares in Case international. This meant that by a acquiring their equipment, the AGCO corp. had already a ready market form the popularity of the Case International. The asset acquisition went on and in 1993 the company acquired yet another plant. This time it was the distribution rights of the Massey Fergusson in the northern part of America. The brand was already popular to the farmers in that part. The next year saw the company acquire a tractor- McConnell Tractors (Hanrahan, Ramsay, Stapleton, 23). The same year, the company proceeded to buy a line of equipment called the black line. This is just a summary of the success story. To attain this, AGCO CORP has gone through various financial handles. There have been high as well as low seasons for the company. The profits have seen the company save so as to have something to use in times of the losses. An analysis of the financial records between the year 2008 and 2010 is a clear evidence of the un-uniformity tat the company has had to do with in its history of operations.

Table 1, AGCO CORP Balance Sheet, December 31 ($ in thousands)

Vertical Analysis (Common Size Factors)
	Actual						Forecast
	2008		2009		2010		2011
	Amount	%	Amount	%	Amount	%	Amount	%
Assets
Cash	$512	10.34%	$651	13.03%	$720	13.24%	$740	17.17%
Accounts Receivable	816	16.46%	725	14.51%	909	16.71%	950	22.04%
Inventory	1,390	28.05%	1,157	23.14%	1,234	22.69%	270	6.26%
Other Current Assets	288	5.80%	215	4.30%	259	4.77%	0	0.00%
Current Assets	3,005	60.65%	2,749	54.98%	3,121	57.40%	1,960	45.48%
Land, Buildings, Plant, & Equipment (Gross)	811	16.37%	910	18.20%	925	17.01%	950	22.04%
Accumulated Depreciation	0	0.00%	0	0.00%	0	0.00%	0	0.00%
Net Fixed Assets	811	16.37%	910	18.20%	925	17.01%	950	22.04%
Other Non-Current Assets	1,139	22.98%	1,340	26.81%	1,391	25.59%	1,400	32.48%
Total Assets	$4,955	100.00%	$4,999	100.00%	$5,437	100.00%	$4,310	100.00%
Liabilities
Short-term Bank Loans	$0	0.00%	$0	0.00%	$0	0.00%	$0	0.00%
Accounts Payable	1,027	20.73%	622	12.43%	683	12.55%	700	16.24%
Accruals	800	16.14%	809	16.18%	883	16.24%	890	20.65%
Other Current Liabilities	152	3.06%	239	4.77%	347	6.39%	360	8.35%
Current Liabilities	1,979	39.93%	1,669	33.39%	1,913	35.18%	1,950	45.24%
Long-term Bank Loans	625	12.61%	454	9.08%	443	8.15%	460	10.67%
Mortgages	0	0.00%	0	0.00%	0	0.00%	0	0.00%
Long-term Debt	625	12.61%	454	9.08%	443	8.15%	460	10.67%
Other Non-Current Liabilities	331	6.69%	474	9.47%	422	7.76%	2,600	60.32%
Total Liabilities	$2,935	59.23%	$2,597	51.94%	$2,778	51.09%	$5,010	116.24%
Owner’s Equity
Common Stock (1.55 billion shares)	$1	0.02%	$1	0.02%	$1	0.02%	$1	0.02%
Retained Earnings	1,382	27.89%	1,518	30.36%	1,738	31.97%	1,786	41.44%
Owner’s Equity	1,067	21.54%	1,051	21.03%	1,062	19.53%	1,120	25.99%
Total Liabilities & Owner’s Equity	$4,002	80.77%	$3,648	72.97%	$3,840	70.62%	$6,130	142.23%

Income Vertical

Table 2, AGCO CORP Income Statement

Vertical Analysis (Common Size Factors)
	Actual						Fcst
	2008		2009		2010		2011
Net Sales	$8,273	100.00%	$6,516	100.00%	$6,897	100.00%	$0
Cost of Goods Sold	6,775	81.89%	5,445	83.55%	5,638	81.75%	0
Gross Margin	1,498	18.11%	1,072	16.45%	1,259	18.25%	0
General & Administrative Expenses	721	8.71%	630	9.67%	692	10.04%	0
Depreciation	0	0.00%	0	0.00%	0	0.00%	0
Miscellaneous Expenses	214	2.58%	223	3.42%	242	3.51%	0
Total Operating Expenses	935	11.30%	853	13.09%	934	13.55%	0
Total Operating Inc/(Loss)	564	6.81%	219	3.36%	324	4.70%	0
Non Operating (Inc)/Expense, net	52	0.63%	64	0.99%	49	0.71%	0
Income Before Interest & Taxes	512	6.18%	154	2.37%	275	3.99%	0
Interest (Inc)/Expense, net	0	0.00%	0	0.00%	0	0.00%	0
Net Income before Taxes	512	6.18%	154	2.37%	275	3.99%	0
Taxes	164	1.99%	58	0.89%	104	1.51%	0
Net Income after Taxes	347	4.20%	97	1.48%	171	2.48%	0
Dividends on Common Stock	(39)	-0.47%	(39)	-0.59%	(50)	-0.72%	0
Other Adjustments	0	0.00%	0	0.00%	0	0.00%	0
Net Income	$386	4.66%	$135	2.08%	$220	3.20%	$0
(1) If adjustment is an addition to Net Income, insert as a negative number.
(2) Must agree with Net Income appearing on your sourced financials.

Balance Horizontal

Table 3, AGCO CORP Balance Sheet, December 31 ($ in thousands)

Horizontal Analysis
		Net Change in 2009			Net Change in 2010			Net Change in 2011
	2008	2009	$	%	2010	$	%	2011	$	%
	Actual	Actual	Amount	Incr/(Decr)	Actual	Amount	Incr/(Decr)	Fcst	Amount	Incr/(Decr)
Assets
Cash	$546	$651	$105	0.19	$720	0.00	$740	$20	0.03
Accounts Receivable	816	725	-90	(0.11)	909	183	0.25	950	42	0.05
Inventory	1,390	1,157	-233	(0.17)	259	-898	(0.78)	270	11	0.04
Other Current Assets	254	215	-39	(0.15)	0	-215	(1.00)	0	0
Current Assets	3,005	2,749	-257	(0.09)	1,888	-930	(0.34)	1,960	73	0.04
Land, Buildings, Plant, & Equipment (Gross)	811	910	99	0.12	925	15	0.02	950	25	0.03
Accumulated Depreciation	0	0	0		0	0		0	0
Net Fixed Assets	0	910	910		925			950	25	0.03
Other Non-Current Assets	1,139	1,340	202	0.18	13,914	12,574	9.38	1,400	(12,514)	(0.90)
Total Assets	$4,144	$4,999	$855	0.21	$16,726			$4,310	($12,416)	(0.74)
Liabilities
Short-term Bank Loans	$0	$0	$0		$0	$0		$0	$0
Accounts Payable	1,027	644	(383)	(0.37)	683	38	0.06	700	17	0.03
Accruals	800	622	(178)	(0.22)	883	262	0.42	890	7	0.01
Other Current Liabilities	152	1,047	896	5.91	347	(700)	(0.67)	360	13	0.04
Current Liabiities	1,979	2,313	335	0.17	1,913	(401)	(0.17)	1,950	37	0.02
Long-term Bank Loans	0	454	454		443	(11)	(0.02)	460	17	0.04
Mortgages	0	0	0		0	0		0	0
Long-term Debt	625	454	(171)	(0.27)	443	(11)	(0.02)	460	17	0.04
Other Non-Current Liabilities	331	473	142	0.43	2,335	1,861	3.93	2,600	265	0.11
Total Liabilities	$2,935	$3,241	$306	0.10	$4,690	$1,450	0.45	$5,010	$320	0.07
Owner’s Equity
Common Stock (1.55 billion shares)	$1	$1	$0		$1	$0	0.00	$0	($1)	(1.00)
Retained Earnings	1,382	1,518	136	0.10	1,738	221	0.15	1,786	48	0.03
Owner’s Equity	1,067	1,062	136	0.13	1,051	221	0.21	1,120	47	0.04
Total Liabilities & Owner’s Equity	$4,002	$4,302	$441	0.11	$5,742	$1,670	0.39	$6,130	$367	0.06

Income Horizontal

Table 4, AGCO CORP Income Statement

Horizontal Analysis
	Actual							Forecast
	2008	2009	2008 vs 2009		2010	2009 vs 2010		2011	2010 vs 2011
			Change			Change			Change
			$ +/(-)	% +/(-)		$ +/(-)	% +/(-)		$ +/(-)	% +/(-)
Net Sales	$8,273	$6,516	($1,757)	(0.21)	$6,897	$380	0.06	$0	($6,897)	(1.00)
Costs of Goods Sold	6,775	5,445	(1,330)	(0.20)	5,638	193	0.04	0	(5,638)	(1.00)
Gross Profit	1,498	1,072	(427)	(0.28)	1,259	187	0.17	0	(1,259)	(1.00)
General & Administrative Expenses	721	630	(91)	(0.13)	692	62	0.10	0	(692)	(1.00)
Depreciation	0	0	0		0	0		0	0
Miscellaneous Expenses	214	233	19	0.09	242	9	0.04	0	(242)	(1.00)
Total Operating Expenses	935	863	(72)	(0.08)	935	71	0.08	0	(935)	(1.00)
Total Operating Inc/(Loss)	564	209	(355)	(0.63)	324	116	0.55	0	(324)	(1.00)
Non Operating (Inc)/Expense, net	52	54	2	0.04	23	(32)	(0.58)	0	(23)	(1.00)
Income Before Interest & Taxes	511	154	(357)	(0.70)	301	147	0.95	0	(301)	(1.00)
Interest (Inc)/Expense, net	0	0	0		0	0		0	0
Net Income before Taxes	511	154	(357)	(0.70)	301	147	0.95	0	(301)	(1.00)
Taxes	164	58	(107)	(0.65)	104	47	0.81	0	(104)	(1.00)
Net Income after Taxes	347	97	(250)	(0.72)	197	100	1.04	0	(197)	(1.00)
Dividends on Common Stock	4	1	(3)	(0.65)	2	1	0.62	0	(2)	(1.00)
Other Adjustments	92	92	1	0.01	93	1	0.01	0	(93)	(1.00)
Net Income	$251	$95	(156)	(0.62)	$195	99	1.04	$0	(99)	(0.51)
(1) If adjustment is an addition to Net Income, insert as a negative number.
(2) Must agree with Net Income appearing on your sourced financials.

AGCO CORP Financial ratios
		2008		2009		2010		2011 – Fcst Year
Liquidity Ratios
a)	Current ratio: (times)
	Current assets =	$3,005		$2,749		$3,121		$3,150
	Current liabilities =	$1,979		$1,718		$1,913		$2,000
	Result =	1.519		1.600		1.632		1.575
b)	Quick ratio: (times)
	Quick assets =	$3,005		$2,749		$3,121		$3,150
	Current liabilities =	$1,979		$1,718		$1,913		$2,000
	Result =	1.519		1.600		1.632		1.575
Leverage Ratios
c)	Debt-to-total assets ratio: (%)
	Total Debt =	$2,935		$2,596		$2,778		$2,960
	Total Assets =	$4,955		$5,062		$5,437		$5,520
	Result =	0.592		0.513		0.511		0.536
d)	Times-interest-earned ratio: (times)
	Profit before interest and taxes =	$564		$219		$324		$398
	Total interest charges =	$32		$42		$33		$37
	Result =	17.561		5.195		9.736		10.757
Asset Management Ratios
e)	Inventory turnover ratio: (times)
	(cost basis)
	Cost of Goods Sold =	$6,775		$5,445		$5,638		$6,001
	Inventory of Finished Goods =	$1,390		$1,157		$1,234		$1,283
	Result =	4.874		4.707		4.571		4.677
f)	Inventory turnover ratio: (times)
	(sales basis)
	Sales =	$8,273		$6,516		$6,897		$6,999
	Inventory of Finished Goods =	$1,390		$1,157		$1,234		$1,283
	Result =	5.952		5.634		5.591		5.455
g)	Fixed asset turnover ratio: (times)
	Sales =	$8,273		$6,516		$6,897		$6,999
	Fixed assets =	$1,950		$2,250		$2,316		$2,400
	Result =	4.243		2.896		2.978		2.916
h)	Total asset turnover ratio: (times)
	Sales =	$8,273		$6,516		$6,897		$7,300
	Total assets =	$4,955		$5,062		$5,437		$5,520
	Result =	1.670		1.287		1.268		1.322
i)	Average collection period: (days)
	Accounts Receivable =	$816	$8,273	$725	$6,516	$909	$6,897	$932	$6,999
	Average Daily Sales =	22.981	← 360 days	18.101	← 360 days	19.157	← 360 days	19.442	← 360 days
	Result =	35.490		40.064		47.423		47.938
Debt Management Ratios:
j)	Accounts Payable: (days)
	Accounts Payables =	1027.1		621.6		682.6		701
	Cost of Sales =	6774.7	← 365 days	5444.5	← 365 days	5637.9	← 365 days	5800	← 365 days
	Result =	55.33699		41.67215		44.19181		44.11466
Profitability Ratios
k)	Profit Margin: (%)
	Earnings after taxes =	$347		$97		$171		$198
	Sales =	$8,273		$6,516		$6,897		$7,300
	Result =	4.196%		1.484%		2.472%		2.712%
l)	Return on total assets: (%)
	Earnings after taxes =	$347		$97		$171		$198
	Assets =	$4,955		$5,062		$5,437		$5,520
	Result =	7.005%		1.910%		3.136%		3.587%
m)	Return on owner’s equity: (%)
	Earnings after taxes =	$347		$97		$171		$198
	Equity =	$2,014		$2,393		$2,658		$2,800
	Result =	17.232%		4.041%		6.414%		7.071%
n)	Gross Profit Margin: (%)
	Gross profit =	$512		$154		$275		$303
	Sales =	$8,273		$6,516		$6,897		$7,300
	Result =	6.183%		2.369%		3.986%		4.151%
o)	Dividend pay-out ratio: (%)
	Dividend =	$4		$1		$2		$3
	After tax earnings =	$347		$97		$171		$198
	Result =	1.213%		1.468%		1.396%		1.404%

Ratios

Table 5, AGCO CORP Ratios Analyses December 31 ($ in thousands)

	2008	2009	2010	2011 – Fcst	Industry	Competitor
Liquidity Ratios
Current Ratio	1.52	1.60	1.63	1.58	0	0
Quick Ratio	1.52	1.60	1.63	1.58	0	0
Leverage Ratios
Debt Ratio (%)	59.23	51.29	51.09	53.62	0.00	0.00
Times-interest-earned	17.56	5.19	9.74	10.76	0	0
Asset Management Ratios
Inventory Turnover (costs)	4.87	4.71	4.57	4.68	0	0
Inventory Turnover (selling)	5.95	5.63	5.59	5.46	0	0
Fixed Asset Turnover	4.24	2.90	2.98	2.92	0	0
Total Asset Turnover	1.67	1.29	1.27	1.32	0	0
Average Collection Period (days)	35.49	40.06	47.42	47.94	0	0
Debt Management Ratios
Accounts Payable (days)	55.34	41.67	44.19	44.11	0	0
Profitability Ratios
Profit margin (%)	4.20	1.48	2.47	2.71	0.00	0.00
Return on Total Assets (%)	7.01	1.91	3.14	3.59	0.00	0.00
Return on Owner’s Equity (%)	17.23	4.04	6.41	7.07	0.00	0.00
Gross Profit Margin (%)	6.18	2.37	3.99	4.15	0.00	0.00
Dividend Pay-Out Ratio (%)	1.21	1.47	1.40	1.40	0.00	0.00

Financial Ratios

Form the above table; it is clear that the fall experienced by the company in 2009 has affected its performance greatly. It is however notable that the company came up in 2010 and the ratios show that the performance of the company that year was greater than the results of 2008. (AGCO CORP). Different financial ratios are interpreted differently as we shall find in the sections below. The most important of all is the financial ratios. This is one of the determinants of the future of the company in the business. Rise and fall of any of the ratios is interpreted differently. For example, the rise in the liquidity ratio explains increase in strength of the business future while a rise in debt utilization ratio explains that the borrowed capital has been utilized in a better way.

Liquidity Trend

The liquidity trend explains how fast a company is able to transform its assets into profit. This is explained by the trend in liquidity ratio. This has been rising from 1.52 in 2008, to 1.60 in 2009 and 1.63 in 2010. The prevailing circumstances show that there might be a drop in 2011. This implies that the company has been able to trade in a good way in the last three years. The liquidity ratio determines the future of the company. The ratios suggest that the company will continue in operations in the next foreseeable future.

Asset Utilization Trend

The return on total asset of 7.01 in 2008 was also affected by the low season in 2009. This was reduced to 1.91 in 2009. The company improved on this and gained 3.14 in 2011. A rise is further expected in 2011 (AGCO CORP). the fixed assets are n9on consumables in the business. However, in that revenue was used to purchase them, it means that they have to be utilized to bring in more revenue. Thus a rise in this ratio shows that the fixed assets are able to pay them selves back. Unutilized fixed assets always lead to low ratios.

Debt Utilization Trend

It is always good for the strategic managers to have proper utilization of the debt so that the debt can be paid back in good time and having met the purpose for which it was acquired. This the company did in 2008 with the debt ratio been 59.23. The company has been working effectively to reduce this ratio with results of 51.29 and 51.09 being recorded in 2009 and 2010 respectively. The borrowed capital has to be paid in good time so that the company can be able to acquire another loan and also enjoy the benefits or the borrowed capital. Good management requires that within the stipulated payback time, the company will have already paid back the monies and have revenue from the same borrowed capital. This is regardless of whether the debt came in liquid or asset form. The debt that comes in asset form affects the asset utilization trend.

Strategic Intent / Financing Plan

The use of revenue is used to determine the financing plan. From the balance sheet, the allocation of revenue to payout dividend is one of the determinants of this performance. While the company paid 1.27 5 in 2008, this rose to 1.47 in 2009 and fell to 1.4 in 2010. The company is expected to have the same ratio in the year 2011. the strategic plan foresees te future of the business. It comes after a combination of different ratios. The strategic managers will always look forward to maintain the business in operation for as long as possible. This will always attract more investors and earn the company customer confidence. The return on total assets which we have seen fall in 2009 may have affected the prospect investors. This has however been rectified in the succeeding years and is expected to be rectified further in 2011.

Profitability Trend

The fall in 2009 affected greatly the profitability trend in the company. The 4.0 profit margin the company had in 2008 was dropped to a mere 1.48 in 2009. However, the company rose to 2.47 in 2010 and is expected to rise further and reach 2.71 in 2011. The profitability margin always shows the relationship between the sales and the gross profit. This is explains whether the turnover is a revolving revenue or it is earning the company the desired results. The re-bounce into profitable trend in 2010 explain improved profit within the turn over.

(AGCO CORP)

Works Cited

Agro corp. Finance. 2011, Web.

Books LLC. Agco: Massey Ferguson, Gleaner Manufacturing Company, Fendt, White Farm Equipment, Valtra, Gleaner A85. Author, 2010.

Hanrahan, Pamela, Ramsay Ian, Stapleton Geof. Commercial applications of company law 2011. New York: Amazon, 2011.

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