Corporate Finance project help

The Valspar Corporation – Cash flow analysis for the year 2013

Cash flow from operations

Cash flow from operations for the year 2013 was a net inflow of $390.475 million. Compared to an operations inflow of $306.21 million in 2012, net cash inflow increased 27.52%. In the following two sections, I will explain the causation of the change in cash flow.

Net Income

The net income for 2013 was $289.255 million, a slight decrease from $292.497 in 2012. Demand for Valspar’s products maintained growth in North America, and Latin America as well, although at a slower rate than in the past. Demand decreased in Europe, Asia, and Australia. Despite an underperforming general industrial product line and a weakening presence in the Chinese and Australian paint markers, net sales were $4.104 billion, an increase of 2.1% from $4.021 billion in 2012. As an important part of Valspar’s growth strategy, the finalized acquisitions of Inver Holdings S.r.l. and Ace Hardware Corp’s paint manufacturing business contributed to the increase in net sales. Slightly lower material and incentive compensation costs helped decrease cost of goods sold and the selling, general, and administration expenses. Exiting the gel coat products market late in 2012 led to a decrease of 7.3% in the other and admin sales business sector, but the loss was more than balanced by the increase of 4.2% in the paints sector and 1.6% in the coatings sector. Restructuring costs and cooperative marketing programs added to the cost of goods sold and the selling, general, and administration expenses.

Changes in current assets and current liabilities

Acquisitions and growth initiatives led to the increase of accounts receivable by 13.3% from 2012. In addition, inventory grew by 21.8% due to the same factors. Accounts payable inflow increased to $$115.82 million from $39.387 million due to the acquisitions and sizable improvements in days paid outstanding. Accrued expenses grew to $348.773 million after the acquisitions. OTHER LIABILITIES

Cash flow from investing

Total cash flow from investing jumped from an outflow of $62.082 million in 2012 to an outflow of $402.26 in 2013. Another factor of the negative cash flow was the 335% decrease in the goodwill and intangibles account compared to 2012. Poor performance in the coatings segment and the gel coat line resulted in an outflow of $146.885 million. The completed acquisitions and investments in capital expenditures caused a 255% increase in a negative plant, property, and equipment cash flow.

Cash flow from financing

The net cash outflow from financing for the year 2013 was $41.749 million, an increase from the $171.439 million outflow the past year. In August 2013, Valspar bought all outstanding shares of Inver Holding S.r.l. for $210,000,000. As a result, notes payable increased to $346.724 million from negative $75.075 million in 2012. Valspar did not have any long-term debt due in 2013, resulting in a minor cash inflow of $24.814 million in the account. Outflow in debt 1 yr decreased by 73% respectably from 2012. Valspar had a negative cash flow of $81.189 million in dividends, increasing their annual payments to $0.92/share. Cash on hand and funds from the treasury stock sale provided the dividends. Share repurchases caused a $335.532 million negative cash flow in treasury stock.

Summary

The net cash flow for 2013 was an outflow of $53.53 million, a 173.6% decrease from an inflow of $72.69 million in 2012. Large cash outflow from two acquisitions and research and development are to be expected from a corporation focused on growth.

The Valspar Corporation – Cash flow analysis for the year 2014

Cash flow from operations

Cash flow from operations for the year 2014 was a net inflow of $305.947 million. Compared to an operations inflow of $390.475 million in 2013, net cash flow decreased by 21.65%. In the following two sections, I will explain the causation of the change in cash flow.

Net income

The net income for 2014 was $345.401 million, a 19.4% increase from $289.225 million in 2013. New business in each of Valspar’s business segments and recently acquired Inver Holding S.r.l. led to an increase in net sales. Net sales for 2014 were $4.522 billion, an increase from $4.103 billion in 2013. Cost of goods sold increased as well, but only by 8.3%. Foreign currency had a negative 0.7% affect on net sales, and selling, general, and administrative expenses increased marginally because of higher incentive compensations and growth initiatives in the Paints segment. The interest expense increased slightly due to a higher average debt balance. Exiting the gel coat market in the year prior decreased depreciation costs in 2014 by 5.9%, versus a 15.6% increase in 2013.

Changes in current assets and current liabilities

Outflows of $69.051 million and $47.28 million in accounts receivable and inventories were led by growth initiatives. Revised payment timings led to an outflow of $17.912 million in accounts payable. The balance of accrued expenses was lower than 2013 by 83.31%, despite additional pension expenses and medical obligations. WHY LOWER

Cash flow from investing

The net cash flow from investing in 2014 was $1.04 million, drastically different from the outflow of $402.26 in 2013. Valspar managed to increase the intangibles by 124%, linked to goodwill inspired by the high performance of Valspar’s recent acquisitions and main business segments. Plant, property, and equipment had a positive cash flow of $888,000, a dramatic increase from last year’s acquisition-fueled $217.217 million outflow. $87.357 million in long-term debt was paid off, a 452% decrease from last year’s $24.814 million inflow.

Cash flow from financing

Valspar’s net cash outflow from financing in 2014 was $395.616 million, an 848% decrease from the $41.749 million outflow in 2013. Debt 1 yr. increased by 468%, a result of the large number of contractual obligations due in 2015. Valspar paid dividends of $1.04/share for a total of $87.427 million. Cash on hand and proceeds from stock options provided payment for dividends. The company repurchased 4,705,081 shares of outstanding stock, leading to a large cash outflow of $310.191 million in treasury stock.

Summary