Deere & Co.

Profile Fall 2011

Timothy Webster Megan Willis

Maura Hernandez Nicklas Johansson

Table Of Contents: Table Of Contents:  .................................................................................................................................  2  Company Background and Strategic Overview  .....................................................................................  3  

Brief History and General Information  ..............................................................................................  3  Locations and staff  .............................................................................................................................  3  Ownership  ..........................................................................................................................................  3  Mission Statement  .............................................................................................................................  4  Strategy and Objectives  .....................................................................................................................  4  

Marketing  ...............................................................................................................................................  8  MGMT Team &BOARD  ...................................................................................................................  5  Recent Structural Changes  .................................................................................................................  5  

Performance  ...........................................................................................................................................  6  Finance  ...............................................................................................................................................  6  

Products  .................................................................................................................................................  7  Product Range Overview  ...................................................................................................................  7  

Skid Steers  .....................................................................................................................................  7  Pricing  ....................................................................................................................................................  7  Marketing  .................................................................................................  Error!  Bookmark  not  defined.  Manufacturing  ........................................................................................................................................  9  

Locations  ...........................................................................................................................................  9  Mergers, Acquisitions, and Joint Ventures  ..........................................................................................  10  

Mergers & Acquisitions  ...................................................................................................................  10  Joint Ventures  ..................................................................................................................................  10  Dealers  .............................................................................................................................................  10  

Analysis  ...............................................................................................................................................  12  Comparative SWOT Analysis  ..............................................................................................................  12  Financial Analysis  ...............................................................................................................................  17  

Liquidity Analysis  ...........................................................................................................................  18  Profitability Analysis  .......................................................................................................................  18  Activity Analysis  .............................................................................................................................  18  Capital Structure Analysis  ...............................................................................................................  19  Margin Analysis  ...............................................................................................................................  19  Financial Analysis Conclusion  ........................................................................................................  20  

Conclusion  ...........................................................................................................................................  20  

Company Background and Strategic Overview

Brief History and General Information John Deere founded Deere & Company in 1837. It began by manufacturing steel polished plows, these plows made it possible for the pioneer farmers to cut through the furrows in the Midwest prairie soil. Before these new and improved plows, the plows were fashioned out of wood or iron, which tended to stick in the soil. Soon after, the plows grew very popular. Deere & Company is one of today’s world leading manufacturers of agricultural machinery, which range from turf-, farm-, forestry-, and construction equipment. A small selection of their product portfolio consists of tractors, planters, lawn mowers, diesel engines and balers. Along with providing agricultural machinery, Deere & Company also provides financial services to support their core business. http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/history/timeline/timeline.page?  http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/history/past_leaders/john_deere_founder_biography.page?  

Locations and staff For Deer & Company in order to serve their clients better they believe that “To understand and respond to our many customers’ needs and requirements worldwide, we must live where they live. Work where they work.” Deere & Company’s world-headquarter in Moline, Illinois and their European headquarters is located in Mannheim, Germany. They also have manufacturing plants, offices and other facilities in over 30 countries. In October 31, 2010, the company averaged approximately 55,700 full time employees worldwide.

http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/worldwide_locations/worldwidelocations.page?  

Ownership Deere & Company is publicly owns and trades on the New York Stock exchange. The Chairman and CEO is Samuel R. Allen. Deere & Company categorizes its subsidiaries into three major business segments: agriculture and turf, construction and forestry and finally the credit segment, which all have different presidents.

http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/leadership/executives/landing.page?  

Mission Statement Deere & Company always demonstrates their founder’s core values when managing the company. Integrity, quality, commitment and innovation are the key values in the company. These values are a vital part of the company because they serve as its ethical foundation.

http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/core_values/core_values.page?  

Strategy and Objectives Deere & Company defines their success factors through exceptional operating performance and disciplined SVA growth; thus being able to attain the power of high- performance teamwork. To maintain their success they want to become more competitive by adding four additional abilities to strengthen their business. They are:

1) Deeper customer understanding 2) Delivering customer value 3) World-class distribution system 4) Growing extraordinary global talent

How, is a critical part for the company’s future. Combining their four core values into “How” they do things and “How” they proceed with their strategies is important for the company’s success. The company’s main goal is to maintain a sustainable SVA (shareholder value added) growth, worldwide. Shareholder value added is the firm’s worth for the shareholders, or their ability to enrich their stockholders. It is projected that the demand for food, fuel and fiber will increase due to the worldwide population increase, which is projected that by 2050 it will reach nine billion people. This will call for a higher output in agriculture. For emerging countries like China and India, this growth will be significant. By 2050, experts estimate that 70% of the world’s inhabitants will live in cities. This increase in urbanization will lead to an increase in the demand of mechanized farming, since the work pool in the countryside is decreasing. A better infrastructure is needed for the increasing urban population.

http://www.deere.com/wps/dcom/en_US/corporate/our_company/investor_relations/why_invest/why_invest.page?  

MGMT Team &BOARD

 

http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/leadership/executives/landing.page?  

 http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/leadership/board_of_directors/landing.page?  

   

Recent Structural Changes Deere & Company has recently acquired LESCO, Inc, which is a leading supplier of lawn care, landscape, golf course and pest control products. They also entered joint ventures with manufacturers in China and India. In 2008, the company also acquired two irrigation products manufacturers, T- System International and Plastro Irrigation Systems.

http://www.deere.com/wps/dcom/en_US/corporate/our_company/about_us/history/timeline/timeline.page?

Performance

Finance In 2010, it was considered a financially good year for Deere & Company, despite the overall instable economic climate in the world. Deere & Company showed a net income of $1,865 million in 2010, compared to $ 873 million in 2009. Net sales and revenues showed an increase of 13% to $26,005 million in 2010, compared to $ 23,112 in 2009. Both figures were the second highest in the company’s history. Net sales both in USA and Canada and outside US and Canada increased with 14 %. The operating profit went up from $ 1,607 million in 2009, to $ 3,408 million in 2010. Their solid financial performance generated a strong cash flow, which resulted in funding a healthy level of capital projects, resume share repurchases and pay out a record amount of dividends to shareholders. As mentioned before, Deere & Company’s profit and asset model aims to earn their cost of capital and withhold a sustainable SVA, which in 2010 reached its record of $ 1,714 billion. This year, 2011, the net income for the third quarter was $712,3 million compared with $617 million in 2010. The world wide net sales and revenues yield an increase of 22 percent for the third quarter of 2011, from $6,837 million in 2010 to $ 8,372 million in 2011. Deere & Company anticipates that the net income will be approximately $ 2,700 million for the full year of 2011. Due to the earthquake and tsunami in Japan earlier this year, the company estimates that the negative impact will be approximately $70 million in sales and $10 million in operating profit. Deere & Company Financials (USD Million)

2010 2009 2008 Net Sales & Revenues 26004,6 23112,4 28437,6 Net Income 1865 873,5 2052,8

Net Sales and Revenues per segment Agriculture and Turf 19868 18122 20985

Construction and Forestry 3705 2634 4818 Credit 1977 1930 2190 Other Revenues 455 426 445 Total 26004,6 23112,4 28437,6

Sales by Region U.S and Canada 16611 14823 17065

Outside U.S and Canada 9036 7961 11008 Other Revenues 358 328 365 Total 26004,6 23112,4 28437,6

http://www.deere.com/en_US/docs/Corporate/investor_relations/pdf/financialdata/reports/2011/2010annualreport.pdf  

Products The products available are a wide variety that can be used for personal use to commercial use. Products are available on a custom design basis as well as purchasing the product at a local dealer.

Product Range Overview

Skid Steers The Skid Steers offer a heavy weight carrying as well as easy agility. These products are their more popular construction based consumers. These are products are similar for both NAACO and John Deere that both offer for their construction consumers. The differences are shown within the series shown below.

• Skid Steer under 50 HP (Horsepower) o 313 Series

§ Operating weight maximum of 5, 150 lbs § Tipping load of 2,525 lbs § Engine power of 45 hp/ 2,400 rpm § Bucket breakout force of 2,178 to 3,300 lbs

o 315 Series § Operating weight maximum of 5,200 lbs § Tipping load of 3,000 lbs § Engine power of 45 hp/2,400 rpm § Bucket breakout force of 3,300 lbs

• Skid Steer 50-75 HP o 318D series

§ Two-Speed Option § Tipping load of 3,600 lbs § Engine Power of 58 hp/2,300 rpm § Operating Capacity of 1,800 lbs. § Bucket breakout force of 5,125 lbs

o 320D series § Two-Speed Option § Tipping load of 4,000 lbs § Operating Capacity of 2,000 lbs § Engine Power of 69 hp/2,300 rpm § Bucket Breakout Force of 5,125 lbs

Pricing

John Deere is a made to order company through their website as well as through local dealers. There are many ways to pay for each of their products through financing on a credit card, making payments online, making payments over the phone, as well as paying in full. The prices vary depending on the size of the equipment as well as the type of equipment. John Deere has various sales and offers that are presented throughout the year, as well as other local dealers have their own sales offer, for example Sear’s. John Deere products and services make it easy to afford, as well as easy to make payments over time to make the products affordable. Their prices are on an order-to-order basis because of the variety and availability of their products. The attachments that each product has can be added to each order at an additional cost. For a less expensive approach, it is possible to buy used products, or to rent the products from a local dealer.

Marketing Deer & Co. is involved in a variety of markets, which include agriculture, residential, golf and sports, commercial and construction, forestry, engines and drivetrain, government and military industry and the rental industry. They have innovative ways to market their products. Each department has their own form of individual advertising outlet ranging from magazines to newsfeeds for their customers and prospective customers. Deere & Co. prides itself in product innovation. They custom make their products for each division. Customers go online and order their products where they can customize the product to better suit their needs. Pricing goes in hand with custom making the product; it varies with how much the customers customize the product. Deere & Co. has many distribution centers where either the customer can go pick up their product or they have the option of having their product delivered. Along with having, the option of delivery, the customer can go to a dealer and buy the product that they need. They strive in dependability and giving their customers some options they are showing how dependable they can be. The company has recently opened up a new Sales and Marketing Center in Olath, Kansas. It is a key location close to the capital city of Kansas and close to an international airport. This facility has state of the art technology that helps them communicate with ease with Deere & Co.’s local and international departments. This is a large step for the company in their marketing strategy. Deere & Co. strategy to advance in the manufacturing market is by keeping a close eye on world trends on the macro level. They are looking on how the world population is growing; by doing this, they are restructuring their division to meet the world’s needs. However, Deere & Co. does a good job at keeping up with the technological changes that are happening daily. This strategy will aid them in attracting new customers worldwide.

http://www.deere.com/wps/dcom/en_US/corporate/our_company/investor_relations/why_invest/why_invest.page? http://www.deere.com/en_US/docs/Corporate/investor_relations/pdf/presentationswebcasts/2011/2011sep_presentation.pdf

Manufacturing When looking at world trends, Deer & Co. can predict the demand for their construction equipment. The population growth will call for the construction of more roads, power grids, water containment, and distribution systems. Opening up new locations around the world will contribute in the end to the world’s needs as the population grows.

Locations Deere & Co.’s construction equipment department is one of their division of that is internationally established. They have operations in many regions of the world: U.S. & Canada, European Union, Brazil, Russia, India, and China. About 50 years ago, Deere & Co. entered a partnership in Saran, France. This partnership deals with the agricultural market in France, which in turn allowed them to expand throughout the European Union. They successfully became an important machinery supplier in the agricultural business. A large step forward to going global was entering France. Now, Deere & Co. is an internationally renowned company in the construction and agricultural business. The operations in Saran, France and Mannheim, Germany are two of the major engine manufacturing companies. The company is looking at expanding to every continent in the world, in turn doubling the company’s size and tripling their profits by the year 2018. In the past year, Deere & Co. opened operations in Russia for a manufacturing and parts complex. In addition to opening in Russia, Deere & Co. is planning to open a new factory in China. This new manufacturing company will build construction equipment, i.e. excavators and loaders. This will be, according to the CEO, the first owned manufacturing facility for construction equipment built outside the U.S. in many years. The company has also recently opened a new technology center in Germany and soon after, developed its engineering operations in India. Going international is only one of their strategies, but they plan to stay strong in their home market. The company realizes that their success comes from the business done in North America. In the business aspect all over the world from Asia to Europe, Deere & Co, is revolutionizing the industry and changing its dynamics when implementing its strategies of worldwide expansion. Slowly they are becoming a worldwide player in the construction and forestry and the agricultural market. http://www.deere.com/wps/dcom/en_US/corporate/our_company/investor_relations/investor_relations.page http://www.deere.com/wps/dcom/en_US/corporate/our_company/news_and_media/speeches/sam_allen_speech-oct-8.page

http://www.deere.com/en_US/docs/Corporate/investor_relations/pdf/presentationswebcasts/2011/2011sep_presentation.pdf

Mergers, Acquisitions, and Joint Ventures

Mergers & Acquisitions 1994: Deere & Co. acquires Homelite. 1998: Deere & Co. acquires Cameco Industries. 2000: Deere & Co. acquires Timberjack. 2001: Deere & Co. acquires McGinnis Farms and Century Rain Aid and forms John Deere Landscapes 2007: Deere & Co. acquires LESCO, Inc. 2008: Deere & Co. acquires irrigation manufacturers T-Systems International and Plastro Irrigation Systems. 2010: Deere & Co. acquires the remaining 64 percent interest in A&I products, Inc.

Joint Ventures

1988: Deere & Co. enters into joint venture with Hitachi Construction Machinery Co. for the manufacture of hydraulic excavators and track log loaders in the United States and Canada. 1993: Enters marketing agreement with Zetor s.p. (Czech Tractor Manufacturer) to produce lower priced tractors to sell in emerging markets in Latin America and Asia 1997: Establishes joint venture with Jiamusi Combine Harvester Company Ltd. to produce smaller combines for export in the Asia-Pacific region. 1999: Strategic Alliance formed with Bell Equipment of Richards Bay, South Africa; alliance for exclusive marketing rights to Bell manufactured articulating dump trucks in North, Central and South America. 2009: Enters into joint venture in India with Ashok Leyland Limited to manufacture backhoes and four-wheel-drive loaders. 2011: Deere & Co. announces public-private partnership with Gujarat government in India to aid farmers with obtaining agriculture machinery.

Dealers

Deere & Co. licenses authorized dealers Deere & Co. owns Nortrax Inc. and Nortrax Canada Inc.; Nortrax is an authorized dealer of Deere’s construction, earthmoving, material handling, and forestry equipment in a variety of markets in the United Sates and Canada

Analysis

Comparative SWOT Analysis DEERE STRENGTHS • Diversified product portfolio: Deere & Co. manufactures and sells equipment in many industry

segments including agriculture, forestry, construction, and landscaping. This diversification makes the company less susceptible to potential negative market conditions in one industry that could adversely affect the company.

• Good brand recognition: Brand recognized across operating markets. Brand recognition helps to

garner new customers and increases the goodwill of the company. In addition, good brand recognition helps to ease the transition into new markets in which the company is attempting to enter.

• Customer loyalty: High rate of customer retention and growing new customer base. A high rate

of customer retention reduces marketing costs and increases the goodwill of the company. A growing new customer base results in increased sales and market cap. The two combined result in real company growth and increased capital available to pursue economies of scope and scale in all markets that are operated in.

• Length in business: Deere & Co. has been in business since the late 19th century. This length in

business indicates expertise in navigating the markets in which they operate through many positive and negative events. Goodwill is positively affected by the length of time in business.

NACCO STRENGTHS • Strong Market Position: NACCO holds a large portion of the markets in which it operates. This

market position gives rise to economies of scale and scope. In addition, a strong market position makes NACCO more favorable to new customers and potential creditors and investors.

• Efficient Use of Resources: NACCO efficiently utilizes its resources including its fixed assets.

Efficiently utilizing resources is one step toward economies of scale and scope. In addition, efficient resource utilization increases profits and frees up capital that can be devoted to acquiring new customers and investing in market expansion.

• Strong Growth Prospects: NACCO has strong market growth prospects. NACCO has the potential to increase its market cap in both developed and developing markets. This growth potential is beneficial to NACCO because most of its competitors are nearing their market cap. These competitors must spend more to increase sales and retain customers. These competitors must also decrease prices to contend with incoming competitors. This lowers NACCO’s competitors’ profit margins and adversely affects operating cash flows.

DEERE WEAKNESSES • Fluctuating Cash from Operations: Fluctuating cash flows negatively affect operating and

research and development capital. This reduction in capital reduces Deere’s capability to dedicate capital to market expansion plans.

• International Expansion: Low market cap on international construction industry. This puts

Deere in the offensive position in trying to gain new customers. Gaining new customers is up to three times more expensive than retaining old customers. In addition, the low market cap requires more capital to be devoted toward this industry to obtain economies of scale and scope.

• Distribution Network: Some improvements have been made to international distribution. But

more improvements need to be made in order to increase market cap on construction segment. Increased ease of distribution leads to more efficiently and effectively expanding to geographic areas.

NACCO WEAKNESSES • Declining Market Share in Sector: Low market cap on international construction industry. This

is due to increased competition from international companies in both developed and developing markets. NACCO must adjust their pricing strategy to compete in an over saturated market. This adversely affects profit margins and operating cash flows. This also adversely affects the amount of capital that can be used to invest in research and development and expansion into new markets.

• Limited Operating Margin: The operating margin of NACCO is relatively low. This does not

allow for much flexibility to deal with extraneous circumstances. A sharp increase in prices or undercutting from competition could result in loss of profitability.

DEERE OPPORTUNITIES • Increase Brand Recognition: Increase brand recognition and market share in the US, China,

Eastern Europe, and Central and South America. Although brand recognition is one of Deere’s strengths, it is also one of its opportunities. Deere’s brand recognition is mainly in the agricultural sector. This could lead to a potential buyer overlooking Deere when researching the products that they need for the construction industry. Deere could greatly benefit from increasing brand recognition in the growing construction and mining industry.

• International Expansion: Deere could benefit from increasing their international footprint. The

effects of “westernization”, “industrialization”, and urbanization in the developing world mean more demand for materials handling equipment. In addition, the mining industry is a globally growing industry. Deere should capitalize on increased demand for rare earths and fossil fuels by investing more capital into expanding their product line into geographic regions where these mining operations are taking place.

• Product Development: Deere could benefit from tailoring their product lines for the construction

and mining industry. The construction and mining industries require specialized heavy equipment for the mining, removing, building and distributing materials. Development of more efficient and durable machinery would greatly aid this industry and result in a product advantage for Deere, which would make Deere less vulnerable to new entrants, competitors.

• Construction and forestry operations. Deere could benefit from devoting more capital to

development of this industry segment. This industry would be a great way for Deere to diversify its operations. An increase in devoted capital would result in a market cap increase for Deere. This would allow Deere to achieve economies of scale and scope; and would ultimately lead to increased profits.

NACCO OPPORTUNITIES • Significant Role of Coal: Fossil fuel mining is an increasing market and with that comes the need

for equipment specialized to the industry. NACCO could benefit from significantly tailoring their product line for the coal market. NACCO could also benefit from aggressively marketing their existing products to mining operations. This would lead to increased revenues and stockholder’s wealth.

• Expansion into Emerging Markets: NACCO could benefit from increasing their presence in

emerging markets. These markets are more risky but offer a higher payoff. Expansion into these markets early could lead to a competitive advantage over rival companies. In addition, beating rivals into emerging markets gives the opportunity to meet economies of scope and scale before the price is significantly driven down by aggressive pricing competition.

DEERE THREATS • Rise in price of raw materials: The commodities markets have been increasingly volatile in

recent times. This volatility is due in part to sovereign debt troubles in government bond markets. The cost of raw materials is also increasing because of market supply and demand issues. A sharp increase in the price these inputs could significantly impair Deere’s profit margin and operating cash flows.

• Compliance with Government Regulations: Increase in environmentally protective fuel consumption and emissions regulations would require costly research and development to bring equipment to standard. Product lines could become illegal or obsolete with legislation. Deere needs to comply to the strictest environmental regulatory measure in order to be able to sell globally.

• Economic Slowdown in the US and Abroad: The global markets have been increasingly volatile

with the recent sovereign debt crises. A sharp economic slowdown would result in less demand for the products that are provided by the industries that Deere provides equipment for.

• Increased Price Competition from Competitors: The construction and mining industry is

heavily saturated in developed markets. This leads to increased price competition amongst competitors. Increased price competition results in profit margin and operating cash flow decreases. In addition, less capital would be available for research and development or geographical expansion of product lines.

• Fluctuations in Transportation Costs: Transportation costs heavily affect the industry in which

Deere operates. Fuel prices are an increasing concern because of their volatility. This may affect where products can be sold and distributed. This may also lead to a need to invest significant capital into more subsidiaries in order to maintain a global product distribution system. An increased cost of transporting Deere’s products may result in lost sales because of the increased burden of these prices on customers.

NACCO THREATS • Rise in price of raw materials: The commodities markets have been increasingly volatile in

recent times. This volatility is due in part to sovereign debt troubles in government bond markets. The cost of raw materials is also increasing because of market supply and demand issues. A sharp increase in the price these inputs could significantly impair NACCO’s profit margin and operating cash flows.

• Compliance with Government Regulations: Increase in environmentally protective fuel

consumption and emissions regulations would require costly research and development to bring equipment to standard. Product lines could become illegal or obsolete with legislation. NACCO needs to comply to the strictest environmental regulatory measure in order to be able to sell globally.

• Economic Slowdown in the US and Abroad: The global markets have been increasingly volatile

with the recent sovereign debt crises. A sharp economic slowdown would result in less demand for the products that are provided by the industries that NACCO provides equipment for.

• Increased Price Competition from Competitors: The construction and mining industry is

heavily saturated in developed markets. This leads to increased price competition amongst competitors. Increased price competition results in profit margin and operating cash flow decreases. In addition, less capital would be available for research and development or geographical expansion of product lines.

• Fluctuations in Transportation Costs: Transportation costs heavily affect the industry in which

NACCO operates. Fuel prices are an increasing concern because of their volatility. This may affect where products can be sold and distributed. This may also lead to a need to invest significant capital into more subsidiaries in order to maintain a global product distribution system. An increased cost of transporting NACCO’s products may result in lost sales because of the increased burden of these prices on customers.

NACCO SWOT Analysis

Strengths: Weaknesses: Strong Market Position

Efficient Use of Resources Declining Market Share in Sector Strong Growth Prospects Limited Operation Margin

Opportunities: Threats:

Significant role of Coal Rise in price of Raw Materials Expansion into Emerging Markets Compliance with Government

Regulations Increase in Competition Fluctuations in Transportation Costs Economic slowdown in US and

Abroad

DEERE SWOT Analysis Strengths: Weaknesses:

Diversified Product Portfolio Fluctuating Cash from Operations Good Brand Recognition International Expansion

Customer Loyalty Distribution Network Length in business

Opportunities: Threats: Increase Brand Recognition Rise in price of Raw Materials

International Expansion Compliance with Government Regulations

Product Development Increase in Competition Construction and Forestry Operations Fluctuations in Transportation Costs

Economic slowdown in US and

Abroad http://ir.nacco.com/phoenix.zhtml?c=107545&p=irol-sec&seccat01.1_rs=21&seccat01.1_rc=10 http://www.deere.com/en_US/docs/Corporate/investor_relations/pdf/financialdata/reports/2011/10kreport2010.pdf http://www.deere.com/en_US/docs/Corporate/investor_relations/pdf/financialdata/reports/2011/2011_q3_10q.pdf

Financial Analysis

http://www.deere.com/en_US/docs/Corporate/investor_relations/pdf/financialdata/reports/2011/10kreport2010.pdf

http://www.deere.com/en_US/docs/Corporate/investor_relations/pdf/financialdata/reports/2011/2011_q3_10q.pdf http://ir.nacco.com/phoenix.zhtml?c=107545&p=irol-fundRatios  

Liquidity Analysis Liquidity analysis shows how many assets are easily redeemed for cash and compares these assets with current liabilities. Liquidity analysis of NACCO and Deere reveals that Deere is more able to liquidate assets and pay current liabilities. A high score in this area shows that the company is immediately more able to pay off its current liabilities. A low score in this area is not necessarily bad. A low score may indicate that the company is investing in itself. The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations. In general, 1.5 is an acceptable current ratio. NACCO has an acceptable current ratio that is 1.6. Deere & Co. has a higher current ratio, which comes in at 2.0. The quick ratio is a measure of short-term liquidity that tells what assets can immediately be converted to cash. In our analysis of NACCO and Deere, we found that Deere has a higher quick ratio score of 1.8 versus NACCO’s quick ratio that is a .94. Although Deere has higher numbers in this analysis, this is not necessarily bad for NACCO. This analysis could indicate that NACCO is investing in its future operations. This could also indicate that NACCO has many assets that are not easily converted into cash.

Profitability Analysis Profitability analysis ratios measure how much profit a company generates relative to financing instruments or assets. In this case, we used the ratios return on assets and return on equity. Return on assets is the profitability of a company relative to its assets. NACCO has a great ROA of 8.66%, which is higher, than Deere’s 5.80%. This means that NACCO is more efficiently using its assets and is a sign of great management. The return on equity measures profit relative to shareholder equity. NACCO has a good score at 30.55%. Deere comes in at 37.98%. The profitability analysis shows that although Deere has a higher ROE score, NACCO is more effective at utilizing its assets.

Activity Analysis Activity analysis measures sales in relation to fixed and total assets. In addition, activity analysis also measures how many times inventory is sold and replaced over a period, and how quickly accounts receivables are paid off. In this analysis, we used asset turnover ratio, fixed asset turnover ratio, accounts receivable turnover ratio, and inventory turnover ratio. The asset turnover ratio indicates the amount of sales generated for every dollar worth of assets. A high score on this ratio indicates lower profit margin. Our analysis shows that NACCO generates more sales than Deere respective to quantifiable assets. The numbers were 1.92x and 0.7x respectively. This indicates NACCO has a lower profit margin on its products than Deere. This also indicates that NACCO’s pricing strategy probably calls for lower priced products.

The fixed asset turnover ratio is used to find out how efficiently a company is using its fixed assets (specifically property, plant and equipment net of depreciation). A higher score on this ratio indicates that fixed assets are being used effectively. A lower score indicates that fixed assets could be used more effectively. NACCO has a ratio of 12.2x and Deere has a ratio of 8.3x. This indicates that NACCO is more effectively using its fixed assets than Deere. The accounts receivable turnover ratio quantifies how effectively a firm extends credit and collects debts. A high ratio indicates that a company effectively extends credit and collects on accounts. Our analysis found that Deere and NACCO have virtually the same ratio. NACCO has a 7.3x while Deere has a 7.5x. Both companies efficiently extend credit and collect on accounts. The inventory turnover ratio is an indication of how quickly inventory is sold. A high score indicates a high turnover while a low score indicates that inventory is barely being turned over. Acceptable scores are based on the industry in which the company operates. Our analysis shows that NACCO and Deere have virtually the same turnover. NACCO has a ratio of 5.4x while Deere has a 5.3x. This indicates that both companies are average relative to the industry in which they operate.

Capital Structure Analysis The capital structure analysis is used to determine how much debt and equity a company uses to finance its operations. In addition, capital structure analysis is also used to determine how easily a company can pay the interest on its debts. We will use the debt to equity ratio and the interest coverage ratio in our capital structure analysis. The debt to equity ratio is used to indicate how much debt a company uses to finance its operations relative to equity. A high score indicates more debt and a low score indicates more equity. The results are the total percentage of assets that have been financed with debt. For this analysis, we used the most recent quarter (MRQ) for our calculations. NACCO has a 61.56% and Deere has an astounding 347.8%. NACCO is in a much better position than Deere in this analysis. NACCO uses much less debt to finance its assets. The interest coverage ratio is an indication of how easily a company can pay off the interest on its debt. A low score, which is around a 1.5, indicates that the company may not be able to pay off the cost of financing on its debt. Our analysis shows that NACCO is better able to pay off its debt interest than Deere. The scores were NACCO 84 and Deere 68.8. Both of these companies will most likely be able to pay the interest on their debt.

Margin Analysis The margin analysis is used to compare the profitability of a company between industries and how much of that profit is retained after direct cost. For this analysis, we will use the ratios gross margin and EBITDA margin. The gross margin indicates the total revenue retained after direct costs. The higher this margin the more profit is retained. Our analysis indicates that NACCO is able to retain 17.85% of its profit after direct costs. Deere is able to retain 29.32% of their profit after direct

costs. Deere is better off according to this ratio because they are able to retain more of their profits.

The EBITDA margin (earnings before interest and taxes depreciation and amortization) compares profitability between companies and industries by eliminating the effects of financing and accounting decisions. A higher score indicates that operating expenses are not cutting into profits. A lower score indicates that the company’s operating expenses are cutting into profits. Our analysis concludes that Deere is better off than NACCO in this area. Deere has a score of 15.48% and NACCO has a score of 5.09%.

Financial Analysis Conclusion Deere has more liquid assets, which make it more attractive to potential lenders. However, NACCO is acceptable in this area. NACCO has a higher return on assets, which shows that management is effectively utilizing the company’s assets. Deere has a higher return on equity, which is more attractive to common stockholders. NACCO is stronger than Deere in regards to sales to total assets and fixed assets. Both NACCO and Deere are average in regards to managing credit and collections on accounts. NACCO and Deere are also average in relation to inventory turnover. NACCO uses less debt to finance its operations, which translates to savings gained from less interest expense. NACCO has opportunities in profit retention. NACCO should look into keeping operating expenses from cutting into profits.

Conclusion Deere & Co and NACCO handling group are both distributors for commercial and construction companies. Both are competing internationally with strong strengths and weaknesses on both sides. Through the financial analysis, the conclusion has come to Deere being a more profitable company, while NACCO has the opportunities and the resources to be more profitable if its expenses were not so high. Through the marginal analysis, the difference in earnings before interests and taxes depreciation amortization is 10.39% in Deere’s favor. Both accounts have their accounts receivable in common with a similar ratio of credit on accounts that are collected. Those credited accounts are through the difference payment processes and deals that both NACCO and Deere offer to their consumers. NACCO as a whole has a higher percentage in its return on assets, and utilizing its resources more efficiently than Deere. During the research process, it has been found that as a whole Deere has more opportunities than NACCO, but has the same threats within the industry. The threats can be counted as strengths for both companies because they are the same, so it does not give an advantage to one company over the other. However, Deere has more opportunities, which is a weakness for NACCO because they will slowly lose more market share. In order for NACCO to keep up as a competitor to Deere, they need to make financial changes as well as strategy changes. Financially, if their costs were cut down while still utilizing their resources they would be more marketable in their profits comparison. Having more profits would open their opportunities to buying new technology, expanding their company, as well as obtaining new resources. Deere has shown this to be beneficial through their mergers and acquisitions. Making these changes would allow NACCO to be more

competitive and a stronger company through the industry. Their strategic goals need to stay the same, which are: Deeper customer understanding, delivering customer value, world-class distribution system, and growing extraordinary global talent. In order to succeed in their strategies and goals they need to have the resources to expand with new technology, new designs, and new products, which can be done through their profit and cost analysis. With more profits, the more opportunities the company will have in creating a larger share of the market.