and Lincoln Electric Holdings Inc LECO comparison for Management Buy ITW or LECO Group Project by Sarah Finnell Laura Hill Linda Karr amp Kady Lawler Presentation 12112017 at Madison College Cost Management course ID: 809514
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Slide1
Illinois Tool Works (ITW) and Lincoln Electric Holdings, Inc. (LECO) comparison for Management: Buy ITW or LECO?
Group Project by Sarah Finnell, Laura Hill, Linda Karr, & Kady LawlerPresentation 12/11/2017 at Madison College Cost Management course
Slide2Linda Karr-ROIC and Operating Margin % for ITW v. LECO
Slide3Illinois Tool Works Inc. (ITW)
Lincoln Electric Holdings, Inc. (LECO)
IIncome
Statement
Income Statement
All numbers in thousands
All numbers in thousands
Revenue
12/31/2016
12/31/2015
12/31/2014
U or F
Revenue
12/31/2016
12/31/2015
12/31/2014
U or F
Total Revenue
0.94
0.93
1.00
Total Revenue
0.81
0.90
1.00
Cost of Revenue
0.91
0.91
1.00
Cost of Revenue
0.80
0.91
1.00
Gross Profit
0.98
0.95
1.00
Gross Profit
0.83
0.89
1.00
Selling General and Administrative
0.90
0.90
1.00
Selling General and Administrative
0.86
1.17
1.00
F,U
LECO had an increase in Administrative Expenses in 2015.
Non Recurring
0.00
0.00
0.00
Non Recurring
0.00
0.66
1.00
Others
0.91
0.95
1.00
Others
0.00
0.00
0.00
Operating Income or Loss
1.06
0.99
1.00
Operating Income or Loss
0.77
0.49
1.00
Total Other Income/Expenses Net
1.33
1.28
1.00
F
ITW obtained significant $ 81 M other income in 2016.
Total Other Income/Expenses Net
-4.10
0.97
1.00
U
LECO incurred a large $29 M other expense in 2016
Earnings Before Interest and Taxes
1.07
1.00
1.00
Earnings Before Interest and Taxes
0.77
0.50
1.00
Interest Expense
0.95
0.90
1.00
Interest Expense
1.83
2.09
1.00
U
Interest expense has gone up for LECO in the last two years
Income Before Tax
1.08
1.01
1.00
Income Before Tax
0.74
0.45
1.00
Income Tax Expense
1.08
1.01
1.00
Income Tax Expense
0.65
0.35
1.00
Minority Interest
1.00
0.80
1.00
Minority Interest
0.23
0.27
1.00
Net Income From Continuing Ops
1.08
1.00
1.00
Net Income From Continuing Ops
0.77
0.50
1.00
Discontinued Operations
0.00
0.00
1.00
F,U
ITW has not discontinued operations in the last 2 years, but did in 2014.
Discontinued Operations
0.00
0.00
0.00
Net Income
0.69
0.64
1.00
Net Income
0.78
0.50
1.00
Net Income Applicable To Common Shares
0.69
0.64
1.00
Net Income Applicable To Common Shares
0.78
0.50
1.00
Slide4ITW Balance Sheet
LECO Balance Sheet
All numbers in thousands
All numbers in thousands
Period Ending
12/31/2016
12/31/2015
12/31/2014
F or U
Period Ending
12/31/2016
12/31/2015
12/31/2014
F or U
Cash And Cash Equivalents
0.62
0.77
1.00
U
Cash was down 38%
Cash And Cash Equivalents
1.36
1.09
1.00
F
Cash was up 36%
Net Receivables
1.03
0.96
1.00
U
Net receivables was up 3%
Net Receivables
0.79
0.76
1.00
F
Net receivables was down 21%
Inventory
0.91
0.92
1.00
F
Inventory was down 9%
Inventory
0.75
0.81
1.00
F
Inventory was down 25%
Other Current Assets
0.54
0.85
1.00
U
Other current assets was down 46%
Other Current Assets
1.04
0.70
1.00
F
Other current assets was up 4%
Total Current Assets
0.78
0.85
1.00
U
Total current assets were down 22%
Total Current Assets
0.95
0.85
1.00
U
Total current assets were down only 5%
Long Term Investments
0.00
0.00
0.00
Long Term Investments
0.00
0.00
1.00
U
LT investments went down 100%
Property Plant and Equipment
0.98
0.94
1.00
U
PPE was down 2%
Property Plant and Equipment
0.85
0.94
1.00
U
PPE was down 15%
Goodwill
0.98
0.95
1.00
U
Goodwill was down only 2%
Goodwill
1.29
1.04
1.00
F
Goodwill was up 29%
Intangible Assets
0.81
0.87
1.00
U
Intangible assets was down 19%
Intangible Assets
0.98
0.91
1.00
U
Intangible assets was down only 2%
Other Assets
0.86
0.98
1.00
U
Other assets was down 14%
Other Assets
5.25
4.01
1.00
F
Other assets was up 525%
Deferred Long Term Asset Charges
1.33
1.02
1.00
F
Def. LT Assets Charges was up 33%
Deferred Long Term Asset Charges
2.87
2.95
1.00
F
Def. LT Asset Charges was up 287%
Total Assets
0.87
0.90
1.00
U
Total Assets was down 13%
Total Assets
1.00
0.92
1.00
Slide5Accounts Payable
1.03
0.90
1.00
F
AP was up 3%
Accounts Payable
0.71
0.63
1.00
U
AP was down 29%
Short/Current Long Term Debt
0.44
0.36
1.00
F
ST Debt was down 66%
Short/Current Long Term Debt
0.03
0.06
1.00
F
ST Debt was down 97%
Other Current Liabilities
0.00
0.00
0.00
Other Current Liabilities
5.76
6.42
1.00
U
Other current
liabiities
were up 576%
Total Current Liabilities
0.78
0.67
1.00
F
Total Current
Liabs
. was down 22%
Total Current Liabilities
0.79
0.75
1.00
F
Total Current
Liabs
. Was down 21%
Long Term Debt
1.21
1.16
1.00
U
LT debt was up 21%
Long Term Debt
282.84
140.81
1.00
U
LT Debt was up 282%
Other Liabilities
0.87
0.98
1.00
F
Other liabilities was down 13%
Other Liabilities
0.83
0.72
1.00
F
Other liabilities was down 17%
Deferred Long Term Liability Charges
0.78
1.50
1.00
U
Def. LT Liab. Charges was down 22%
Deferred Long Term Liability Charges
0.00
0.00
0.00
Minority Interest
1.00
0.80
1.00
Minority Interest
0.00
0.00
0.00
Total Liabilities
1.03
0.99
1.00
U
Total liabilities was up 3%
Total Liabilities
1.89
1.30
1.00
U
Total liabilities was up 89%
Common Stock
1.00
1.00
1.00
Common Stock
1.00
1.00
1.00
Retained Earnings
1.14
1.07
1.00
F
Retained earnings was up 14%
Retained Earnings
1.07
1.02
1.00
F
Retained earnings was up 7%
Treasury Stock
1.36
1.18
1.00
U
Treasury stock was up 36%
Treasury Stock
1.93
1.51
1.00
U
Treasury stock was up 93%
Capital Surplus
1.08
1.04
1.00
U
Capital Surplus was up 8%
Capital Surplus
1.20
1.05
1.00
U
Capital Surplus was up 20%
Other Stockholder Equity
2.75
2.29
1.00
F
Other stockholder equity was up 275%
Other Stockholder Equity
1.14
1.03
1.00
F
Other stockholder equity was up 14%
Total Stockholder Equity
0.62
0.77
1.00
U
Total stockholder equity was down 38%
Total Stockholder Equity
0.55
0.73
1.00
U
Total Stockholder Equity was down 44%
Net Tangible Assets
-5.01
-2.20
1.00
U
Net tangible assets was down 500%
Net Tangible Assets
0.36
0.64
1.00
U
Net tangible assets was down 64%
total F
8
29%
total F
12
43%
total U
16
57%
total U
12
43%
no change
4
14%
no change
4
14%
total lines
28
total
28
Slide6Illinois Tool Works Inc. (ITW)
Lincoln Electric Holdings, Inc. (LECO)
Cash Flow
Cash Flow
All numbers in thousands
Vertical analysis
All numbers in thousands
Vertical analysis
Period Ending
12/31/2016
12/31/2015
12/31/2014
U or F
Period Ending
12/31/2016
12/31/2015
12/31/2014
U or F
Net Income
1.00
1.00
1.00
Net Income
1.00
1.00
1.00
Depreciation
0.23
0.25
0.17
F
Depreciation up 6%
Depreciation
0.33
0.50
0.27
F
Depreciation up 6%
Adjustments To Net Income
-0.12
0.02
-0.55
U
Adj. to Net Income up 43%
Adjustments To Net Income
0.11
0.53
0.19
F
Adj. to Net Income down 8%
Changes In Accounts Receivables
-0.06
-0.02
-0.02
F
Changes in AR down 4%
Changes In Accounts Receivables
-0.06
0.45
0.02
F
Changes in AR down 8%
Changes In Liabilities
0.11
-0.06
0.01
U
Changes in Liabilities up 10%
Changes In Liabilities
0.06
-0.37
-0.01
U
Changes in Liabilities up 7%
Changes In Inventories
0.00
0.01
0.00
Changes In Inventories
0.07
0.44
-0.02
U
Changes in inventories up 9%
Changes In Other Operating Activities
-0.03
0.01
-0.06
U
Changes in other operating activities up 3%
Changes In Other Operating Activities
0.02
-0.11
0.12
F
Changes in other operating activities down 10%
Total Cash Flow From Operating Activities
1.13
1.21
0.55
U
Total cash flow from operating activities up 58%
Total Cash Flow From Operating Activities
1.53
2.44
1.58
F
Total cash flow from operating activities down 5%
Slide7Capital Expenditures
-0.13
-0.15
-0.12
F
Capital expenditures down 1%
Capital Expenditures
-0.25
-0.40
-0.29
U
Capital expenditures up 4%
Investments
0.01
0.01
0.01
Investments
-0.20
-0.31
-0.15
F
Investments down 5%
Other Cash flows from Investing Activities
-0.14
0.03
1.08
F
Other cash flows from operating activities down 122%
Other Cash flows from Investing Activities
-0.36
-0.27
-0.02
F
Other cash flows from operating activities down 34%
Total Cash Flows From Investing Activities
-0.26
-0.11
0.96
F
Total cash flow from investing activities down 122%
Total Cash Flows From Investing Activities
-0.81
-0.67
-0.31
F
Total cash flow from investing activities down 119%
Slide8Dividends Paid
-0.40
-0.39
-0.24
F
Dividends paid down 16%
Dividends Paid
-0.44
-0.68
-0.29
F
Dividends paid down 15%
Sale Purchase of Stock
-0.94
-1.02
-1.42
U
Purchase of stock up 48%
Sale Purchase of Stock
-1.60
-3.09
-1.17
F
Purchase of stock down 43%
Net Borrowings
0.23
0.08
0.45
F
Net borrowing down 22%
Net Borrowings
1.77
2.48
0.21
U
Net borrowing up 177%
Other Cash Flows from Financing Activities
-0.01
-0.01
0.00
F
Other cash flows from financing activities down 1%
Other Cash Flows from Financing Activities
-0.10
-0.06
-0.01
F
Other cash flows from financing activities down 9%
Total Cash Flows From Financing Activities
-1.11
-1.33
-1.21
F
Total cash flows from financing activities down 10%
Total Cash Flows From Financing Activities
-0.32
-1.33
-1.23
U
Total cash flows from financing activities up 91%
Effect Of Exchange Rate Changes
-0.07
-0.24
-0.18
F
Effect of exchange rate changes down 11%
Effect Of Exchange Rate Changes
-0.03
-0.23
-0.12
U
Effect of exchange rate changes up 9%
Change In Cash and Cash Equivalents
-0.30
-0.47
0.13
U
Change in cash down 17%
Change In Cash and Cash Equivalents
0.38
0.20
-0.08
F
Change in cash up 46%
Slide9Linda Karr-Summary of Horizontal Analysis, comparing 2016 to 2014. Change in cash flows for operating activities is up 58% for ITW & down 5% for LECO. Change in net cash flows is down 17% for ITW & up 46% for LECO.
ITWIncome Statement: ITW discontinued operations in 2014, but hasn't in the last 2 years. Balance Sheet: 2016 total assets down 13% since 2014. Net tangible assets down 500% since 2014. Cash flows from operating activities up 58%. Cash flows from investing activities down around 120%.Purchase of stock up 48%.
Net borrowing down 22%.
Change in net cash flows down 17%.
LECO
Total cash flows from operating activities down 5%.
Cash flows from investing activities down around 120%.
Purchase of stock down 43%.
Net borrowing up 177%
Change in net cash flows up 46%.
Slide10Linda Karr- Income Statements 2016-Vertical Analysis (Revenue basis) Cost of Revenue is only 58% of Revenue for ITW, but is 65% of Revenue for LECO. General & Administrative costs are also lower for ITW. Net income is 15% of Revenue for ITW, but Net Income is only 9% of Revenue for LECO.
ITWLECO
Slide11Linda Karr- Balance Sheets 2016-Vertical Analysis-Total Assets basis Treasury stock is negative (repurchased) for both ITW and LECO. Total liabilities and Retained earnings are higher for ITW.
ITWLECO
Slide12Linda Karr- Cash Flow Statements 2016 Vertical Analysis (Net Income Basis) Total cash flows from operating activities is 1.5 x Net Income for LECO, but closer to 1.25 x Net Income for ITW. Total cash flows from investing activities is down and
repurchase of treasury stock is up (negative number) for both ITW & LECO. Net borrowing for LECO is 1.75 x Net Income. Total cash flows from financing activities is -1.25 x Net Income for ITW.ITWLECO
Slide13Laura Hill -Liquidity and Efficiency Current Ratio & Acid Test Ratio
Current RatioAcid Test Ratio
Slide14Laura Hill-Liquidity and Efficiency Accounts Receivable Turnover & Inventory Turnover
Accounts Receivable TurnoverInventory Turnover
Slide15Laura Hill-Liquidity & Efficiency Days’ Sales Uncollected & Days’ Sales in Inventory
Days’ Sales UncollectedDays’ Sales in Inventory
Slide16Laura Hill-Liquidity & EfficiencyTotal Asset Turnover
Total Asset Turnover
Slide17Sarah Finnell – Solvency (ITW=Blue,LECO=Red)
Debt Ratio & Equity RatioDebt Ratio
Equity Ratio
Slide18Sarah Finnell – Solvency (ITW=Blue,LECO=Red)
Debt to Equity Ratio & Times Interest EarnedDebt to Equity Ratio
Times Interest Earned
Slide19Kady Lawler-ProfitabilityProfit Margin Ratio & Gross Margin Ratio
Profit Margin RatioGross Margin Ratio
Slide20Kady Lawler-ProfitabilityReturn on Total Assets & Return on Common Stockholders’ Equity
Return on Total AssetsReturn on Common Stockholders’ Equity
Slide21Kady Lawler-ProfitabilityBook Value per Common Share & Basic Earnings per Share
Book Value per Common ShareFrom Annual Reports:
Basic Earnings per Share
Slide22Kady Lawler-ProfitabilityBasic Earnings per Share (our calculation, not from Annual Reports)
From our calculations:
Basic Earnings per Share
Slide23Sarah Finnell-Market ProspectsPrice Earnings Ratio & Dividend Yield
Price Earnings RatioDividend Yield
Slide24The End**This is followed by calculations of prices of ITW v. LECO
Slide25Linda Karr- Value (High Price) of 100% or 51% of Company Stock: ITW (& ITW Welding Segment) v.
LECOITW: 2016 Dividends paid $821,000,000/ dividend per share $2.40 = 342,083,333 shares x high 4th quarter 2016 share price $127.99 = ($43.8 billion)
$43,783,245,833 for
100% of ITW shares.
$43,783,245,833 x 0.51 =
($22.3 billion)
$22 B for
51% of ITW shares.
$43.7 B x 0.10=
($4.4 Billion)
$4,511,647,500 for 10% of ITW shares
(100% of
Welding Segment
shares).
$4.4 B x 0.51
=
($2.2 billion
)
for 5.1% of ITW shares
(51% of
Welding Segment
shares).
LECO:
2016 Dividends paid $87,330,000 dividend per share $1.31 = 66,664,122 shares x high 4
th
quarter 2016 share price $80.57 =
($5.4 billion)
$5,371,128,321 for
100% of LECO shares.
$5.4 B x .
51 =
($2.7 billion)
$2,739,275,444 for
51% of LECO shares.
Slide26Linda Karr- Value (Low Price) of 100% or 51% of Company Stock: ITW (& ITW Welding Segment) v.
LECOITW: 2016 Dividends paid $821,000,000/ dividend per share $2.40 = 342,083,333 shares x Low 4th quarter 2016 share price $111.50 = ($38.1 billion)
$38,142,291,629 for
100% of ITW shares.
$38.1 B x 0.51 =
($19.5 billion)
for
51% of ITW shares.
$38.1 B x 0.10=
($3.8 Billion)
for 10% of ITW shares
(100% of
Welding Segment
shares).
$38.1 B x 0.10 x 0.51 =
($1.9 billion)
for 51% of ITW shares
(51% of
Welding Segment
shares).
LECO:
2016 Dividends paid $87,330,000/ dividend per share $1.31 = 66,664,122 shares x Low 4
th
quarter 2016 share price $61.04 =
($4.1 billion)
$
4,069,178,015 for
100% of LECO shares.
$4.1 B x .51 =
($2.1 billion)
$2,075,280,788 for
51% of LECO shares.
Slide27Linda Karr- Value (Average Price) of 100% or 51% of Company Stock:
ITW (& ITW Welding Segment) v. LECOITW: High Price Shares: $43.8 billion
for 100% of ITW shares.
$22.3 billion
for 51% of ITW shares.
$4.4 Billion)
for 100% of
Welding Segment
shares.
$2.2 billion
for 51% of
Welding Segment
shares.
Low
Price Shares:
$38.1
billion for 100% of ITW shares.
$19.5 billion
$20,044913 for 51% of ITW shares.
$3.8 Billion
for (100% of
Welding Segment
shares.
$1.9 billion
for 51% of
Welding Segment
shares.
Average
Price Shares :
$40.9 billion
for 100% of ITW shares.
$20.9 billion
$20,044913 for 51% of ITW shares.
$4.1 Billion
for 100% of
Welding Segment
shares.
$2.1 billion
for 51% of
Welding Segment
shares.
LECO:
High
Price Shares:
$5.4 billion
for 100% of LECO shares.
$2.7 billion
for 51% of LECO shares.
Low
Price: LECO:
$4.1 billion
for 100% of LECO shares.
$2.1 billion
for 51% of LECO shares.
Average
Price: LECO:
$4.7 billion
$4,720,153,168 for 100% of LECO shares.
$2.4 billion
$2,407,278,116 for 51% of LECO shares.
Average
ITW Value is 40.9 B is 8.68 times 4.7 B
LECO value (LECO is 11.5% of ITW)
Average
ITW Welding Segment 4.1 B is less than 4.7 B
LECO value