Whirlpool’s Financial Analysis

Posted in Finance Articles, Total Reads: 1164 , Published on 29 February 2016
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Whirlpool entered India in the late 1980s. Later in 1996, Kelvinator and TVS acquisitions were merged to create, Whirlpool of India Limited. This expanded the company's portfolio in the Indian subcontinent to washing machines, refrigerator, microwave ovens and air conditioners.



Image: company logo


RISK ANALYSIS

WHIRLPOOL

The variability of EBIT and EPS distinguish between two types of risk – (a) Operating Risk and (b) Financial Risk.

• Degree of operating leverage depends upon variability of sales and variability of expenses. Sales have shown steady growth in last years except in the year 2012 when sales dropped slightly. But degree of operating leverage has been fluctuating very often. Increase in operating leverage from the year 2014 to 2015 indicates higher proportion of fixed expenses like rent, salaries etc. relative to variable expenses. Sales are showing an increasing trend. Hence, high DOL in 2015 has resulted in faster increase of EBIT (As seen in figure 4). Input prices have also changed over the years. There is small amount of business risk in 2015. Negative DOL suggests that positive changes in revenue will have minimal effect on reducing operating losses.


• Change in EPS and change in EBIT is nearly same in 2015 which is reflected by unity DFL value. The firm was debt- free in 2015. The firm has always followed a near debt-free model. A positive DFL reflects the fact that the firm is above its financial breakeven. It also indicates that when operating profits increase, net profits are also increasing; when operating profits decrease, net profits are decreasing. A low value of DFL here means that net profit is relatively large, (relative to operating profit), and that the variability in net profit (i.e., risk) is relatively small. In 2013, interest exceeds operating profit, the firm is showing a net loss and DFL is negative.


• Combined risk, can be measured by its degree of combined leverage (DCL). DCL has remained positive in last five years (i.e. revenue generated > total costs) except in 2013 and 2014. Small negative value of DCL in 2014 could have proved a threat to solvency of the company. But it improved well in march, 2015. Small DCL value in 2015 as compared to previous years indicate relatively low combined risk since fixed costs and interest would be relatively low when compared to revenue.


Year Net Sales(in crores) EBDIT(in crores) Depreciation(in crores) EBIT(in crores) EPS %Change in Sales % Change in EBIT %Change in EPS DFL DOL DCL
March'15 3293.79 369.32 68.13 301.19 16.59 16.2 71.49 71.21 1 4.41 4.4
March'14 2834.64 239.46 63.83 175.63 9.69 2.23 -3.58 -3.77 1.05 -1.61 -1.69
March'13 2772.73 242.48 60.32 182.16 10.07 4.32 -1.9 4.46 -2.35 -0.44 1.03
March'12 2657.94 235.39 49.7 185.69 9.64 -1.66 -24.17 -21.63 0.89 14.56 13.03
March'11 2702.8 289.4 44.51 244.89 12.3 6.37 11.24 114.29 10.17 1.77 17.95
March'10 2541.04 259.83 39.68 220.15 5.74            




CAPITAL STRUCTURE ANALYSIS

WHIRLPOOL

• Whirlpool is a zero-debt company since last four years which is indicated by zero Total debt-equity and long term debt equity ratio. It had a very small D/E ratio of 0.15 in 2011.

• Being a zero debt company, whirlpool does not get any tax shield. But considering its huge retained earnings and 75% promoter’s funds in overall shareholder’s fund, not leveraging its assets is more profitable option for the company.

• Net sales and assets of the company have increased a lot in recent years.

• Although there no long term debts, but it has taken some loans for operational expenditures which are very very less as compared to the EBIT of the company which is indicated by the huge interest coverage ratio in table 2.

• Financial charges coverage ratio indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It has also strengthened to 573.7 in March, 2015 and it has shown huge increasing trend over the last 5 years (Figure 2).

From Year

To Year

Class Of Share

Authorized Capital (Crores)

Issued Capital (Crores)

Paid Up Shares (Nos)

Paid Up Face Value

Paid Up Capital (Crores)

2014

2015

Equity Share

150

126.87

1268,71,830

10

126.87

2013

2014

Equity Share

150

126.87

1268,71,830

10

126.87

2012

2013

Equity Share

150

126.87

1268,71,830

10

126.87

2011

2012

Equity Share

150

126.87

1268,71,830

10

126.87

2010

2011

Equity Share

150

126.87

1268,71,830

10

126.87

 

 

 

 

 

 

 

 


Year

D/E Ratio

Long Term D/E Ratio

Interest Coverage

Financial Charges coverage Ratio

Financial Charges coverage Ratio post tax

Closing Share Price

March'15

0

0

467.87

573.7

433.87

735.35

March'14

0

0

123.52

168.41

132.34

231.1

March'13

0

0

60.7

80.79

63.66

220.25

March'12

0

0

42.42

53.77

40.62

198.85

March'11

0.15

0.15

43.35

51.23

38.27

265.3


Category of Shareholders

No. of Shareholders

Total No. of Shares

Total Shareholding as a % of total no. of shares

(A) Shareholding of Promoter and Promoter Group

Bodies Corporate

1

951,53,872

75

Total shareholding of Promoter and Promoter Group

1

951,53,872

75

(B) Public Shareholding

(1) Institutions

 

Mutual Funds / UTI

70

99,86,704

7.87

Financial Institutions / Banks

25

13,307

0.01

Central Government / State Government(s)

3

633

-

Foreign Institutional Investors

72

72,88,926

5.75

Any Others (Specify)

1

85

-

Others

1

85

-

Sub Total

171

172,89,655

13.63

(2) Non-Institutions

 

Bodies Corporate

688

26,95,744

2.12

Individuals

 

-

-

Individual shareholders holding nominal share capital up to Rs. 1 lakh

36,477

63,14,568

4.98

Individual shareholders holding nominal share capital in excess of Rs. 1 lakh

85

37,79,681

2.98

Any Others (Specify)

893

16,38,310

1.29

Trusts

8

3,640

-

Non Resident Indians

357

5,70,074

0.45

Clearing Members

77

47,582

0.04

Hindu Undivided Families

435

2,19,250

0.17

Overseas Corporate Bodies

16

7,97,764

0.63

Sub Total

38,143

144,28,303

11.37

Total Public shareholding (B)

38,314

317,17,958

25

Total (A)+(B)

38,315

1268,71,830

100





DIVIDEND POLICY ANALYSIS


WHIRLPOOL

Whirlpool of India has not paid dividends to its shareholders for many years. Only 25% of whirlpool’s shares are hold by Public. Remaining shares are hold by promoters. Whirlpool has not paid any dividend in the last decade as it had a lot of good project/investment opportunities in its hands. Their main focus has been on wealth maximization of the shareholders.


Figure 1 shows Adjusted EPS and Adjusted DPS data for last five years. Adjusted EPS has grown by 71.21% in March 2015 as compared to march 2014. In March, 2011, Adjusted EPS was more than average adjusted EPS. It decreased in March, 2012 and remained almost constant till March, 2014. DPS is the blue line which has coincided with X-axis as no dividend is zero in all years. Hence, payout ratio is also zero throughout. Market value has always been many times of the book value. MV/BV has shown a lot of fluctuations over the years. ROE and earning yield have also shown fluctuating behaviour. EY% has reduced in March, 2015 as compared to March, 2014 as Market value increased many fold more as compared to increase in adjusting EPS.


Year

Adjusted EPS

Adjusted DPS

BV

MV

MV/BV

ROE %

Payout%

EY%

DY%

March'15

16.59

0

71.15

735.35

10.335

23.31

0

2.256

0

March'14

9.69

0

57.3

231.1

4.033

16.9

0

4.193

0

March'13

10.07

0

47.61

220.25

4.626

20.68

0

4.572

0

March'12

9.64

0

37.54

198.85

5.297

25.67

0

4.848

0

March'11

12.3

0

27.92

265.3

9.502

44.05

0

4.636

0

Average

11.658

0

48.3

330.17

6.759

26.122

0

4.101

0




WORKING CAPITAL MANAGEMENT ANALYSIS


WHIRLPOOL

For Whirlpool also, inventory accounts for most of the assets proportion causing a significant difference in current and quick ratio. Average collection period of Whirlpool is very low, i.e. 19 days. 85% of current liabilities consist of trades payable which further result in high payment deferral periods of 474 days. Suppliers, thus, trust the company to pay its debts and hence allow purchase on credit for longer durations. Gross operating cycle comes to be 175 days which is really high causing a huge lag between the purchase of material and money collection from market. Furthermore, due to huge payment deferral period, the net operating cycle is -299 days. This means that the company virtually requires no working capital for its day-to-day operations. Due to such conditions, company can go for investment opportunities through which it can use funds in a more appropriate way.


WHIRLPOOL

In Rs Crores


March, 2015


March,2014


Current liabilities





Trade payables

63,423.99


58,086.40


Other current liabilities

6,314.82


5,750.49


Short-term provisions

4,180.25


3,992.45


Total

73,919.06


67,829.34







Current assets





Inventories

57,666.50


52,228.03


Trade receivables

16,987.47


17,090.97


Cash and bank balances

29,183.02


15,503.35


Short-term loans and advances

4,371.91


4,781.22


Other current assets

211.51


73.78


Total

1,08,420.41


89,677.35












Income





Revenue from operations (Gross)

3,10,596.04


3,03,649.87







Expenses





Cost of raw materials and components consumed

1,35,262.28


1,42,836.39


Purchase of traded goods

48,746.11


38,309.41




March, 2015

March,2014

Current Ratio

1.466744978

1.32210265

Quick Ratio

0.683753284

0.5510232

Average Collection Period

19.96299293

20.5440696

Inventory Conversion Period

155.6108066

133.462005

Payment Deferral Period

474.9046919

553.428936




Gross Operating Cycle

175.5737996

154.006074

Net Operating Cycle

-299.3308923

-399.42286


This article has been authored by Suvayan Roy from IMI New Delhi


REFERENCES

1) www.moneycontrol.com

2) www.ibef.org


Year

Net Sales(in crores)

EBDIT(in crores)

Depriciation(in crores)

EBIT(in crores)

EPS

%Change in Sales

% Change in EBIT

%Change in EPS

DFL

DOL

DCL

March'15

3293.79

369.32

68.13

301.19

16.59

16.20

71.49

71.21

1.00

4.41

4.40

March'14

2834.64

239.46

63.83

175.63

9.69

2.23

-3.58

-3.77

1.05

-1.61

-1.69

March'13

2772.73

242.48

60.32

182.16

10.07

4.32

-1.90

4.46

-2.35

-0.44

1.03

March'12

2657.94

235.39

49.7

185.69

9.64

-1.66

-24.17

-21.63

0.89

14.56

13.03

March'11

2702.8

289.4

44.51

244.89

12.3

6.37

11.24

114.29

10.17

1.77

17.95

March'10

2541.04

259.83

39.68

220.15

5.74








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