No. of Recommendations: 2
This is my first attempt at a Rule Maker analysis. I pit GE v. MMM since they are both conglomerates. The analysis is for the FY 2000 of both GE and MMM.
Please tell me if anything is incorrect, this is my first try :-)
Thanks!
The Motley Fool's Rule Maker Ranker
Version 3 -- Updated June 2000
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(Please read all three of these competitor comments.)
Financial AnalysiCompany Being Evaluated Competitor #1 Competitor #2 Competitor #3
General Electric 3M <Fill in Name> <Fill in Name>
Current Period Year-ago PeriodYear-over-Year Current Period Current Period Current Period
Dec. 2000 Dec. 1999 Growth Dec. 2000 <Date> <Date>
Income Statement
Sales 129,417 110,832 16.8% 16,724
Cost of Goods S 39,312 34,554 13.8% 8,787
Net Income 12,735 10,717 18.8% 1,782
Shares Outstand 9,932,006 9,854,528 0.8%
Balance Sheet
Cash & Equivale 8,195 8,554 -4.2% 302
Current Assets 295,663 273,187 8.2% 6,379
Short-term Debt 119,180 130,346 -8.6% 1,866
Current Liabili 156,112 161,216 -3.2% 4,754
Long-term Debt 82,132 71,427 15.0% 971
Cash Flow Statement
Operating Cash 22,690 24,593 -7.7% 2,326
Capital Expendi 13,967 15,502 -9.9% 1,115
1 0 0
Margins & Ratios . . . Competitors' Average
Gross Margins 69.6% 68.8% 0.8 47.5% 47.5%
Net Margins 9.8% 9.7% 0.2 10.7% 10.7%
Cash-to-Debt 0.04 0.04 -4.0% 0.11 0.11
Net Cash -193117.0 -193219.0 N/A -2535.0 -2535.0
Fool Flow Ratio 7.78 8.57 -9.2% 2.10 2.10
Cash King Margi 6.7% 8.2% -1.5 7.2% 7.2%
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Ranking Rule Makers
1) Brand Points (0-1) 3) Financial Dire Points (0-3)
Familiarity 1 Sales Growth 3
Openness 1 Gross Margins 3
Optimism 1 Net Margins 3
Legitimacy 1 Shares Outstandin 2
Inevitability 1 Cash-to-Debt 1
Solitariness 1 Fool Flow Ratio 2
Humor 1 Expansion Potenti 3
Subtotal 7 Subtotal 17
2) Financial Loca Points (0-2) 4) Monopoly Statu Points (0-4)
Mass Market Habit 2 Gross Margins 4
Gross Margins 2 Net Margins 0
Net Margins 1 Net Cash 0
Cash-to-Debt 0 Fool Flow Ratio 0
Fool Flow Ratio 0 Convenience 4
Your Interest 2 Subtotal 8
Subtotal 7
5) Your Enjoymen 1
Total Score 40 Second Tier
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No. of Recommendations: 1
Hi Tollkuehn,
"I did a ranker on GE, and my numbers track with yours except for COGS. You've got 39k and 35k, while I came up with 111k and 96k"
Your $111K is the sum of ALL costs and expenses, including things in the 10K called "insurance losses...", "Other costs and expenses", etc. Conceptually, the only costs that should be considered when computing gross margins are the costs directly attributable to providing the product. Thus it would include the material and direct labor of a manufactured product, but NOT the salary of the plant manager's secretary, or the cost of the tooling on the production line. (For example).
In the case of services, it would again include the costs directly attributable to providing the service. For instance if you own a janitorial service, it would be the cost of the cleaning supplies and the wages of the floor sweeper. It would NOT include the cost of the person in the office who schedules the work or orders more soap. Those costs eventually get reflected in Net Margin.
Since GE provides both Goods and Sevices, you need to consider both Cost of Goods and Cost of Services when computing Gross Margin, so the number for FY 2000 is arrived at as follows:
GE Cost of Goods 30,782
GE Cost of Service 12,765
GECS Cost of Goods 8,537
______
52,084
There is one other left curve, in that GECS has financing operations in which interest is a direct cost of service, as I understand it. (I confess I'm walking on thin ice here... I don't like analyzing financial institutions.)
GECS Interest and other financial charges = 11,111.
So finally, direct costs = 52,084 + 11,111 = 63,195.
So, Gross Margin = (Revenue-Cost of Revenue)/Revenue
or (129,417-63,195)/129,417=51.1%
I hate analyzing conglomerates, because they frequently are the summation of many smaller, very different businesses where things like Margins, growth rates, etc, are just "averages" of the many businesses under the umbrella. To double check my work, I sometimes use Market Guide. This page shows slightly different numbers for both revenue and cost of revenue, but they are in the same ballpark:
http://yahoo.marketguide.com/mgi/MG.asp?nss=yahoo&rt=aincomestd&rn=3737N
This page computes margins and ratios, and again is reasonably close:
(You will have to scroll down a ways to about half way down to see Gross Margin listed as 50.92%)
http://yahoo.marketguide.com/mgi/MG.asp?nss=yahoo&rt=ratio&rn=3737N
If someone has an explanation for the difference in numbers between Market Guide and the SEC filing, I'd like to hear it. They are usually pretty accurate.
Ralph
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