Financial Ratios and Monsanto 4.to Rationalize Essay Example

Financial Ratios and Monsanto 4.to Rationalize Essay Example Financial Ratios and Monsanto 4.to Rationalize Essay Financial Ratios and Monsanto 4.to Rationalize Essay EXECUTIVE SUMMARY Purpose statements: 1. To assess the strengths and weaknesses of Monsanto 2. To determine the courses of action to be taken 3. To find out the competitive advantage of Monsanto 4. To rationalize and analyze case of an existing company Objective of the case/ problem: To transform the company into a life sciences behemoth. Alternative courses of action: 1. To merge with companies having strong financial resources 2. To have interrelationships 3. Acquisitions Analytical tools employed: 1. SWOT (Strength, Weaknesses, Opportunities and Threats) Analysis 2. Porters Five Force Analysis Recommendation: Monsantos swelling new product pipelines is an expensive endeavor and so it has to merge with companies that can provide them the resources and at the same time maximize its potential pharmaceutical and agricultural biotechnology pipelines. Implementation: Implementing the said alternative courses of action needs careful analysis as this involves large amount of money. Monsanto must create linkage to companies that would complement its strengths and overcome its weaknesses. In acquiring, the company must make sure that it would add to the value of the organization. Conclusion: Monsanto has lots of potentials. Tying up with firms can push them more beyond their limits and eliminate unnecessary duplications and high activity costs. Establishing interrelationships is a capability driver and if it would be matched with opportunities, it would eventually lead to the achievement of their goal- worlds leading life sciences company. METHODS OF ANALYSIS 1. SWOT Analysis Strength The strength of Monsanto is its pharmaceutical and agricultural biotechnology pipelines Weaknesses Lack of financial resources, sales and marketing muscles and distribution network Opportunities : Interrelationships and acquisitions of companies will be the vehicles by which they can go forward and commercialize new product worldwide. Threats Expiration of the patents, growing oppositions to genetically engineered foodstuffs, failed merging with the American Home Products (AHP) 2. Porters Five Force Analysis New entrants Monsanto is new to pharmaceutical industry. Mercks competing COX-2 inhibitor is said to join the market. Zenecas new own brand of glyphosate-based herbicide, Touchdown is ready to penetrate the United States. Bargaining power of customers They charged their genetically- altered seed at market rate plus a technology fee but they dont control the retail price. On their pharmaceutical products, they tested 700 different pricing models before settling on a cost to customers which is significantly more than the generic drugs but less than most analysts had initially expected. Bargaining power of suppliers The Washington University in which Monsanto is affiliated to arranged terms and agreements apart from the payment tendered. With the use of technology o mass-produce animal growth hormones, Monsanto paid thousands of dollars and agreed to make several subsequent milestone payments and promised royalties on future sales. Nature of rivalry in the market When Monsanto started to search for COX-2 inhibitor,Merck was also racing to develop the same. There were several smaller agricultural biotechnology companies had also been developing genetically altered crops. Zeneca tests its own brand, Touchd own to match with Monsantos Roundup. Threat of substitutions Zeneca already sold Touchdown outside the United States and was preparing to market also in the said country. APPENDICES: Financial Ratios: (dollars in millions) Liquidity Ratios 1998 1997 Current Ratio 1. 53 1. 21 Quick Ratio 1. 40 1. 60 Working Capital Ratio 2. 07 2. 35 Leverage Ratios 1998 1997 Total Debt to Equity Ratio 1. 53 0. 7629 Long-Term Debt to Equity Ratio 1. 25 0. 4822 Total Debt to Asset Ratio 0. 701 0. 619 Activity Ratios 1998 1997 Inventory Turnover 4. 315 5. 469 Fixed Assets Turnover 2. 658 3. 130 Total Assets Turnover 0. 517 0. 697 Profitability Ratios 1998 1997 Gross Profit Margin 0. 585 0. 589 Operating Profit Margin 0. 013 0. 066 Net Profit Margin -0. 029 0. 062 Return on Assets (ROA) 0. 007 0. 062 Return on Equity (ROE) -0. 050 0. 044