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The O.M. Scott & Sons Company - Financial analysis

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student
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General public
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finance
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sdsu

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documents in English
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case study
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12 pages
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  1. Rapid growth factors
  2. Company shares: selling, earnings and dividends
  3. Financial condition and forecasts
  4. Future projections
  5. Recommendations

From 1955 to 1961, the O.M. Scott and Sons Company experienced an exceptional growth in sales, stock price, and expansion. O.M. Scott and Sons (the company) increased sales by 231% from 1957 to 1961. The rapid growth can be explained by the company's management in expanding to new locations, geographical markets, new products, and advanced financial tactics in regards to trust receipts.

The company has a great Research and Development team that has created dozens of patents for their products in the lawn care industry. Products such as fertilizer, weed control, pest control, insect control, and basically the all-in-one products for agriculture. In 1959, sales increased over 130% with sales coming from new products that the company had created within the years. R&D is responsible for majority of the sales growth for the company.

[...] Sales employees were required to train dealers and increase marketing skills in order to effectively sell the new products. The company had one main issue, which was the seasonality of products. They needed to find a way to increase sales or maintain sales through the winter seasons. The solution was to develop a trust receipts plan. trust receipt is a notice of the release of merchandise to a buyer from a bank, with the bank retaining ownership of the assets? (Investopedia.com) this allows adequate funding for operations while the bank's interest in the assets are protected. [...]


[...] The P/E ratio can indicate if a company is overvalued or undervalued. We can see the company's P/E ratio grow every year from to and 44.82 in the years 1958-1961 respectively (shown in figure 2). According to yahoo finance, the industry average P/E for Agricultural Chemicals is we can see investors speculating the growth of the company will be greater. If the company were to begin underperforming and missing estimates, we can see an overvalued company's shares fall as fast as we saw in 1961 with a volatile 49% high-low range in share price. [...]


[...] Figure 3 Figure 4 This is where the company had slowed down, which is reflected in the share price growth of only 60% compared to the 308% and 437% previously. In 1961, the company reported $ 0.99 EPS which is down 18% from last year's EPS (Figure 3). The company reduced the stock dividend by and added a $ 0.10 dividend per share. Which decreased the average dividend from $ 4.50 a share to $ 2.35 which is a 48% decrease in shareholder dividends. This slowdown and decrease in dividends sent the shares falling 49% with a high of $ 58.75 to a low of $30. [...]


[...] There are many factors when considering taking on more debt. If we were to issue more shares to raise capital, the company shares would decrease in price. Which in the long run is not a problem because we can buy back shares to drive prices back up and gain more equity. This method is a good idea for a growing company that needs to meet financial obligations to fund projects to increase the growth of the company. If the company were to merge with a cash cow, their financial debt and need would be partly relieved and adequate funding would be provided by the larger company looking to assist the company to further their growth and reach their goals. [...]

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