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

Extract

[...] 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 10 We can see a change in net income from 1961 to 1962 as a growth. And 1962 to 1963 for a growth in net income. Future Projections To project future sales and conditions for 1962 and 1963, we developed a pro forma that includes normal growth, best scenario growth, and worst scenario growth. Shown below in figure 11, the white cells illustrate a normal scenario, the red cells illustrate the worst scenario, and the green cells illustrate the best scenario. All constant assumptions apply to PPE, CL, and LTD. [...]

[...] 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. [...]

[...] Due to the trust receipts, the AR is very large and growing. The debt is very large relative to their position. Figure 7 As mentioned before in the stock section, the Net Income significantly decreased in 1961 from 1.785 Million to 1.570 Million, showing a slowdown in income growth, which spooked investors. Figure 8 below shows the consolidated income statement that will illustrate in detail what numbers factored into a low net income. The reason behind why the company has slowed down after 1959 is that the company may have overreached and penetrated the market using discounts, rebates, and promotions to get their product out there to take out the competition and be the leading provider for lawn care. [...]