Black & Decker Corporation, incorporated in Maryland in 1910, is a leading manufacturer, of power tools and accessories, hardware and home improvement products, and technology-based fastening systems. Duncan Black and Alonzo Decker started the company, and in 1916 they developed the first handheld electric drill with pistol grip. That would be the foundation for the company's success for most of the 20th century. Black ; Decker has products and services located in over 100 countries. The corporation has received worldwide recognition for their strong brand names and a superior reputation for quality, design, and value.
The company operates in three reportable business segments: Power Tools and Accessories, which includes electric lawn and garden tools and electric cleaning and lighting products; Hardware and Home Improvement, including security and plumbing products; and Fastening and Assembly Systems. As of December 31, 2001, Black ; Decker Corporation employed approximately 22,700 persons worldwide. Nolan D Archibald has been Chairman, President, and Chief Executive Officer since January 1990. Black ; Decker's ticker symbol is BDK.
As of January 28, 2002, there were 15,923 holders of record of the Corporation's Common Stock. Financial calculations can be done to show interested parties how a specific company is doing. I will discuss four different categories of measures: profitability, liquidity, activity, and financial leverage. Profitability consists of ratios that measure the ability of the business to make a profit. An example of these ratios would be Return on Interest (ROI), Return on Equity (ROE), Price/Earnings Ratio, and Dividend Yield. I will only go over ROI and ROE.
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For Black ; Decker, ROI is 2. 7%. This describes the rate of return management was able to earn on the assets it had available to use during the year. ROE calculates out to 15%. ROE is important to stockholders and investors because it relates the company's earnings to the owner's investment. The next measure I would like to address is liquidity. Liquidity is the firm's ability to meet it current obligations, and consists of working capital, current ratio, and the acid-test ratio, also known as the quick ratio. Working capital for BDK is $821 million.
Current ratio is used to judge the current bill-paying ability. The current ratio for this company is 1. 76. The quick ratio also expresses liquidity and it specifically excludes inventory. BDK has an acid-test ratio of . 89. Activity measures reflect the efficiency with which assets have been used to generate sales revenue. To analyze activity measures, you must look at receivable turnover and inventory turnover. Receivable turnover measures the number of times, on average, receivables are collected during a given period. This ratio for Black & Decker is 5. 8.
This equals out to approximately every 2 months, or every 60 days. Inventory turnover, on the other hand, is an indicator of how well the company's products are succeeding in the marketplace. In general, the higher this number, the better. However, a high ratio can also mean there is a shortage of inventory. A low turnover may indicate overstocking, or obsolete inventory. BDK has an inventory turnover of 3. 65. This ratio needs to be compared to similar industries to see how the company rates. Financial leverage is the degree to which a company is utilizing its borrowed money.
Debt/Equity ratio and debt ratio are examples of measures of leverage. Debt/Equity shows the ratio between capital invested by the owners and the funds provided by the lenders. Black ; Decker has a debt to equity ratio of 4. 34. Debt ratio is a good indicator of the extent to which a business is leveraged. For this company, their debt ratio is 81%, which is very high. If this number is low, it usually means that the company is more conservative. If used judiciously, leverage can result in a higher return on assets, which means increased profitability.
Just like turnover, this ratio varies depending on the type of industry a company is. Black ; Decker, compared to other industries of the same type seems to be doing well. The corporation recently announced that they will be closing two power tools facilities and a plumbing products plant in the U. S. Additional restructuring actions taken by the Corporation will also result in the transfer of production fro the United States and England to low-cost facilities in Mexico and China. Company officials say the shifts to more overseas manufacturing will eventually save $100 million a year.
Restructuring actions will result in the elimination of approximately 2,400 positions; however, the Corporation will increase headcount in low-cost locations by 1,900 positions. The elimination of these positions relates to the Corporation's actions to reduce its manufacturing cost base and selling, general, and administrative expenses. Net earnings for the year ended December 31, 2001 included a restructuring charge of $99. 8 million. Total sales decreased by 5%. Total unit volume had a 1% negative impact on sales during 2001.
Unit volume was negatively affected by weak economic conditions and inventory reductions by retailers in the United States. Pricing actions taken in response to customer and competitive pressures had a 2% negative effect on sales. Looking at the past three years, I have come up with estimates of what I feel the company will produce in the next few years. For 2002, 2003, and 2004, I predict revenue to be $4. 6 billion, $4. 5 billion, and $4. 62 billion respectively. My estimates for cost of goods sold are $2,856, $2,863, and $2,855. Dollar amounts are in millions.
Lastly, net income, I believe, will be $106 million for 2002, $105 million in 2003, and $108 million the year ending 2004. All together, I think that Black & Decker has a very promising future. After restructuring actions are completed, the company will be even more competitive with other corporations. BDK has about average safety with well above average upside potential. It reflects a stock, which is likely to give well above average, relatively consistent returns over the long term. My recommendation would be to hold, with the possibilities of a moderate buy.
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