BUS: Final Project Document
Your final project for this course is to prepare a financial analysis. This final project takes a close look at two corporations, Bayer and Monsanto. Bayer is considering a bid for United States seed company Monsanto (Snider, 2016). For purposes of this project, you will act as the Chief Financial Officer of Monsanto Corporation, analyzing financial documents and determining whether Monsanto should indeed go forward with acceptance of the purchase.
The project is divided into three milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. Preliminary milestones will be submitted in Modules Four and Six. The final submission will occur in Module Eight.
Milestones
| Milestone 1: | Evaluation of the Proposal | Due in Module 4 |
| Milestone 2: | Evaluation of an Alternative Opportunity | Due in Module 6 |
| Milestone 3: | Final Project Submission | Due in Module 8 |
In this assignment you will demonstrate your mastery of the following course outcomes:
| [CO1] | Analyze financial reports to determine a firm’s performance. |
| [CO2] | Apply the strategic planning processes necessary to manage the long- and short-term financial activities of the firm. |
| [CO3] | Perform valuation of financial instruments. |
| [CO4] | Evaluate the appropriateness of an investment using applicable economic, industry, and competitive analysis. |
Milestone 1: Evaluation of the Proposal
Before completing this assignment, review the Final Project Document. Background information found in the Final Project Document applies to Milestones One through Three. In the final project, you will assume the role of Chief Financial Officer of Monsanto Corporation. Bayer is considering a bid for United States seed company Monsanto. Assume that relevant tax rate is 35%. EBIT, depreciation, capital spending, and the change in net working capital will grow at the same rate as sales, which is expected to grow at a rate of 3% across the current year, while capital investment will remain stable. Assume that operational results quoted outside of Tables 4, 5 and 6 (income statement, balance sheet, and statement of cash flows, below), are interim measures to be used for purposes of your calculations.
Based on the proposal’s likely effect on shareholder value, determine whether to accept or reject this proposal for $62B, using evidence provided here in Tables 1 through 6, to support your analyses. Evaluate each of the following:
- Whether to accept or reject this proposal, using evidence drawn from ratio analysis, and time and trend analysis and other evidence from assigned readings covered in Modules One through Three to support your determinations. Compute and include two ratios per each of the four main areas of ratio analysis, including short-term solvency, asset utilization, long-term solvency, and profitability.
- Evaluate limitations that may exist in using these varieties of analysis to make this determination.
Compose your work in a .doc or .docx file type using a word processor (such as Microsoft Word, etc.) and save it frequently to your computer. For those assignments that are not written essays and require uploading images or PowerPoint slides, please follow uploading guidelines provided by your instructor.
Check your work and correct any spelling or grammatical errors. When you are ready to submit your work, click “Submit Assignment” in the upper right corner. Click on “Browse,” browse your computer, and select your file. Click “Open” and verify the correct file name has appeared next to the Browse button. Enter your comments, if any, in the Comments area. Click on “Submit Assignment.”
Evaluation
This assignment will be graded using the rubric displayed below. Please review this rubric prior to beginning your work. You can also access the rubric on the Course Rubrics page within the Start Here module. This assignment is worth 10% of your final course grade.
Immediate Results from the Bayer Announcement in 2015
| Monsanto (MON) Share Price | Increased 8.7% |
| Bayer Crop Science Division | Sales increase 9% to $11.8 billion |
| Bayer Healthcare Division Sales | Increased 19% to $26 billion |
| Bayer Pharmaceutical Sales | Increased 12%, to $52.8 billion |
| Monsanto Sales | Decreased 5% to $15 billion |
Table 1. Immediate Results from the Bayer Announcement in 2015
ValuPro Net Online Valuation of MONSANTO CORPORATION – 2015
| Return on Assets | 8.56 | Return on Equity | 14.93 | |
| Sales ($mil) | 14,757 | Investment Rate (% of Rev) | 4.78 | |
| Growth Rate (%) | 13.5 | Working Capital (% of Rev) | 29.19 | |
| Net Oper. Profit Margin (%) | 21.3 | Short-Term Assets ($mil) | 11141 | |
| Tax Rate (%) | 30.584 | Short-Term Liab. ($mil) | 4055 | |
| Stock Price ($) | 86.74 | Equity Risk Premium (%) | 3 | |
| Shares Outstanding (mil) | 533.8 | Company Beta | 1.05 | |
| 10-Yr Treasury Yield (%) | 500% | Value Debt Out. ($mil) | 2.054 | |
| Bond Spread Treasury (%) | 1.5 | Value Pref. Stock Out. ($mil) | 0 | |
| Preferred Stock Yield (%) | 7.5 | Company WACC (%) | 8% |
Table 2. ValuePro Net Online Valuation
Monsanto Co. 2015 (Bloomberg Market Rates)
| MON:US | |
| Current Price | 106.00 (USD) |
| Open | 106.80 |
| Day Range | 109.69-109.54 |
| Volume | 18,049,774 |
| Previous Close | 106 |
| 52 Week Range | 81.22-120 |
| 1 Year Return | -7.06% |
| YTD Return | 10.94% |
| Current P/E Ratio (TTM) | 23.67 |
| Earnings Per Share (USD) (TTM) | 4.62 |
| Market Cap (B USD) | 47.747 |
| Shares Outstanding | 436.845 |
| Price/Sales (TTM) | 3.65 |
| Dividend Indicated Gross Yield | 1.98% |
| Sector | Materials |
| Industry | Chemicals |
| Sub-Industry | Agricultural Chemicals |
Table 3. Monsanto Co. Rates
Income Statement – Monsanto Corp.
| Period Ending | 31-Aug-15 | 31-Aug-14 | 31-Aug-13 | ||
| Total Sales | 15,001,000 | 15,855,000 | 14,861,000 | ||
| Cost of Sales | 6,819,000 | 7,281,000 | 7,208,000 | ||
| Gross Profit | 8,182,000 | 8,574,000 | 7,653,000 | ||
| Operating Expenses | |||||
| Research Development | 1,580,000 | 1,725,000 | 1,533,000 | ||
| Selling General and Administrative | 2,686,000 | 2,774,000 | 2,550,000 | ||
| Non Recurring | 393,000 | – | – | ||
| Others | – | – | – | ||
| Total Operating Expenses | – | – | – | ||
| Operating Income or Loss | 3,523,000 | 4,075,000 | 3,570,000 | ||
| Income from Continuing Operations | |||||
| Total Other Income/Expenses Net | 71,000 | – | 31,000 | ||
| Earnings Before Interest and Taxes | 3,594,000 | 4,075,000 | 3,601,000 | ||
| Interest Expense | 433,000 | 248,000 | 172,000 | ||
| Income Before Tax | 3,161,000 | 3,827,000 | 3,429,000 | ||
| Income Tax Expense | 864,000 | 1,078,000 | 915,000 | ||
| Minority Interest | -11,000 | -22,000 | -43,000 | ||
| Net Income from Continuing Ops | 2,286,000 | 2,727,000 | 2,471,000 | ||
| Non-recurring Events | |||||
| Discontinued Operations | 28,000 | 13,000 | 11,000 | ||
| Extraordinary Items | – | – | – | ||
| Effect of Accounting Changes | – | – | – | ||
| Other Items | – | – | – | ||
| Net Income | 2,314,000 | 2,740,000 | 2,482,000 | ||
| Preferred Stock and Other Adjustments | – | – | – | ||
| Net Income Applicable to Common Shares | 2,314,000 | 2,740,000 | 2,482,000 | ||
Table 4. Monsanto Income Statement
Balance Sheet – Monsanto Corp.
| Period Ending | 31-Aug-15 | 31-Aug-14 | 31-Aug-13 | |
| Assets | ||||
| Current Assets | ||||
| Cash and Cash Equivalents | 3,701,000 | 2,367,000 | 3,668,000 | |
| Short Term Investments | 47,000 | 40,000 | 254,000 | |
| Net Receivables | 3,182,000 | 3,466,000 | 3,042,000 | |
| Inventory | 3,496,000 | 3,597,000 | 2,947,000 | |
| Other Current Assets | 199,000 | 205,000 | 166,000 | |
| Total Current Assets | 10,625,000 | 9,675,000 | 10,077,000 | |
| Long Term Investments | 42,000 | 92,000 | 237,000 | |
| Property Plant and Equipment | 4,973,000 | 5,082,000 | 4,654,000 | |
| Goodwill | 4,061,000 | 4,319,000 | 3,520,000 | |
| Intangible Assets | 1,332,000 | 1,554,000 | 1,226,000 | |
| Accumulated Amortization | – | – | – | |
| Other Assets | 610,000 | 746,000 | 496,000 | |
| Deferred Long Term Asset Charges | 277,000 | 450,000 | 454,000 | |
| Total Assets | 21,920,000 | 21,918,000 | 20,664,000 | |
| Liabilities | ||||
| Current Liabilities | ||||
| Accounts Payable | 3,950,000 | 4,359,000 | 3,756,000 | |
| Short/Current Long Term Debt | 687,000 | 315,000 | 63,000 | |
| Other Current Liabilities | 540,000 | 438,000 | 517,000 | |
| Total Liabilities | 14,930,000 | 14,043,000 | 8,105,000 | |
| Stockholders’ Equity | ||||
| Misc. Stocks Options Warrants | – | – | – | |
| Redeemable Preferred Stock | – | – | – | |
| Preferred Stock | – | – | – | |
| Common Stock | 6,000 | 6,000 | 6,000 | |
| Retained Earnings | 10,374,000 | 9,012,000 | 7,188,000 | |
| Treasury Stock | -12,053,000 | -10,032,000 | -4,140,000 | |
| Capital Surplus | 11,464,000 | 10,003,000 | 10,783,000 | |
| Other Stockholder Equity | -2,801,000 | -1,114,000 | -1,278,000 | |
| Total Stockholder Equity | 6,990,000 | 7,875,000 | 12,559,000 | |
| Net Tangible Assets | 1,597,000 | 2,002,000 | 7,813,000 | |
Table 5. Monsanto Balance Sheet
Cash Flow – Monsanto Corp.
| Period Ending | 31-Aug-15 | 31-Aug-14 | 31-Aug-13 | |
| Net Income | 2,314,000 | 2,740,000 | 2,482,000 | |
| Operating Activities, Cash Flows Provided By or Used In | ||||
| Depreciation | 716,000 | 691,000 | 615,000 | |
| Adjustments to Net Income | 240,000 | 233,000 | 113,000 | |
| Changes in Accounts Receivables | 68,000 | -172,000 | 222,000 | |
| Changes in Liabilities | 457,000 | 482,000 | -129,000 | |
| Changes in Inventories | -425,000 | -650,000 | -192,000 | |
| Changes in Other Operating Activities | -273,000 | -292,000 | -414,000 | |
| Total Cash Flow from Operating Activities | 3,108,000 | 3,054,000 | 2,740,000 | |
| Investing Activities, Cash Flows Provided By or Used In | ||||
| Capital Expenditures | -967,000 | -1,005,000 | -741,000 | |
| Investments | 4,000 | 235,000 | 217,000 | |
| Other Cash Flows from Investing Activities | -56,000 | -1,235,000 | -253,000 | |
| Total Cash Flows from Investing Activities | -1,019,000 | -2,095,000 | -777,000 | |
| Financing Activities, Cash Flows Provided by or Used in | ||||
| Dividends Paid | -966,000 | -932,000 | -976,000 | |
| Sale Purchase of Stock | -698,000 | -6,834,000 | -705,000 | |
| Net Borrowings | 1,238,000 | -5,536,000 | 127,000 | |
| Other Cash Flows from Financing Activities | -36,000 | -48,000 | -10,000 | |
| Total Cash Flows from Financing Activities | -430,000 | -2,259,000 | -1,485,000 | |
| Effect of Exchange Rate Changes | -325,000 | -1,000 | -93,000 | |
| Change In Cash and Cash Equivalents | 1,334,000 | -1,301,000 | 385,000 | |
Table 6. Monsanto Statement of Cash Flows
Rubric
BUS 505 M4 Milestone1
BUS 505 M4 Milestone1
| Criteria | Ratings | Pts | |
| 30 pts | |||
| 30 pts | |||
| 30 pts | |||
| 10 pts | |||
| Total Points: 100 | |||
| 30 pts Level 4 Descriptor Analysis of the acceptability of the proposal is included and is relevant to the firm and shareholders, and is described appropriately and in detail. |
24 pts Level 3 Descriptor Analysis of the acceptability of the proposal is included and is relevant to the firm and shareholders, and is described appropriately, though minor details are missing. The analysis is clearly laid out, and is relevant and specific to the utilization of additional evidence drawn from ratio analysis and trend analysis, but may be inaccurate and/or missing details. |
18 pts Level 2 Descriptor Analysis of the acceptability of the proposal is included, but not described appropriately, with major details missing and evidence of misconceptions. |
0 pts Level 1 Descriptor Analysis of the acceptability of the proposal is not included or described. |
| This criterion is linked to a Learning Outcome Evidence |
| 30 pts Level 4 Descriptor The analysis is thoroughly laid out, and is relevant and specific to the utilization of additional evidence drawn from ratio analysis, and time and trend analysis. It is supported with clear, thorough, appropriate, and evidence-based explanations and justifications relevant to the conceptual underpinnings of ratio analysis, and time and trend analysis. |
24 pts Level 3 Descriptor The analysis is supported with appropriate and evidence-based explanations and justifications relevant to the targeted conceptual underpinnings of ratio analysis and time and trend analysis. |
18 pts Level 2 Descriptor The analysis is vaguely supported, with inaccurate justifications not necessarily relevant to the targeted conceptual underpinnings of ratio analysis and time and trend analysis. |
0 pts Level 1 Descriptor Evidence related to ratio analysis and time and trend analysis was not provided. |
| This criterion is linked to a Learning Outcome Evaluation of Limitations |
| 30 pts Level 4 Descriptor Evaluation of the limitations that exist from this type of analysis is appropriate and detailed. |
24 pts Level 3 Descriptor Evaluation of the limitations that exist from this type of analysis is appropriate, though minor details are missing. |
18 pts Level 2 Descriptor Evaluation of the limitations that exist from this type of analysis is identified, with major details missing and evidence of misconceptions. |
0 pts Level 1 Descriptor Evaluation of the limitations that exist from this type of analysis is not identified or described. |
| This criterion is linked to a Learning Outcome Control of Syntax, Mechanics, and Format |
| 10 pts Level 4 Descriptor Choice of words and sentences demonstrate expertise in the field, using relevant key terms appropriately to convey messages in a natural way, with details and language that connects with the audience. There are no problems with spelling, punctuation, and grammar. |
8 pts Level 3 Descriptor Choice of words and sentences demonstrate proficiency in the field, using relevant key terms appropriately to convey messages with language that connect with the audience. There are minimal problems with spelling, punctuation, and grammar that should have been fixed. Formatting is not completely correct. |
6 pts Level 2 Descriptor Choice of words and sentences demonstrate students’ competence in the field, referring to relevant terms to convey messages, though at times forcibly, or not appropriately. Little to no connection is felt between the writing and audience. There are problems with spelling, punctuation, and grammar, but not enough to interfere with the meaning. Formatting is incorrect. |
0 pts Level 1 Descriptor Although ideas are presented, there is minimal usage of terms relevant and important to the field. There are significant problems with spelling, punctuation, and grammar that make it difficult to read. Formatting instructions are not followed. |
