# Estimating the Intrinsic Value using Gordon's Dividend Growth Model

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VALUATION: THE SHERWIN-WILLIAMS COMPANY
Valuation: The Sherwin-Williams CompanyTable of ContentsProblem 1....................................................................................................................................................2Problem 2....................................................................................................................................................6Problem 3....................................................................................................................................................7Problem 4....................................................................................................................................................8Problem 5..................................................................................................................................................11Problem 6..................................................................................................................................................12Problem 7..................................................................................................................................................13Problem 8..................................................................................................................................................14Problem 9..................................................................................................................................................16Problem 10................................................................................................................................................17Problem 11................................................................................................................................................18Problem 12................................................................................................................................................19Problem 13................................................................................................................................................20Problem 14................................................................................................................................................21Problem 15................................................................................................................................................23References.................................................................................................................................................241
Valuation: The Sherwin-Williams CompanyProblem 1Particulars 201520142013 Current Assets (\$ 000) 26,58,87425,66,78031,58,717 Current Liabilities (\$ 000)21,41,85926,80,66625,28,557 Current Ratio 1.240.961.25Table 1: Current RatioThe current ratio of the Sherwin-Williams company is very low. The current assets do notsufficiently cover liabilities.Particulars 201520142013 Sales (\$ 000) 1,13,39,3041,11,29,5331,01,85,532 Accounts Receivables (\$ 000)11,14,27511,30,56510,97,751 Receivables Turnover 10.189.849.28Table 2: Receivable TurnoverThe receivable turnover ratio of the company is also low which shows that it is not efficient inmanaging the accounts receivables. The company takes large number of days to collect thereceivables.Particulars 201520142013 Cost of Goods Sold (\$ 000)57,80,07859,65,04955,68,966 Inventory (\$ 000) 10,18,53010,33,5279,70,815 Inventory Turnover 5.675.775.74Table 3: Inventory Turnover RatioThe inventory turnover ratio depicts how efficient a company is in selling its inventories. Thecompany’s ratio is very low which depicts that it takes many days to sell its inventories.2
Valuation: The Sherwin-Williams CompanyParticulars 201520142013 Sales (\$ 000) 1,13,39,3041,11,29,5331,01,85,532 Fixed Assets (\$ 000) 29,23,43128,35,26027,41,380 Fixed Assets Turnover 3.883.933.72Table 4: Fixed Assets Turnover RatioThe fixed assets turnover ratio gives an idea about a firm’s efficiency in using its fixed assets togenerate revenue. The company has considerable fixed asset turnover ratio which denotes that itis efficient in converting fixed assets into sales.Particulars 201520142013 Total Liabilities (\$ 000) 49,23,94547,09,58246,07,972 Shareholders' Equity (\$ 000) 8,67,9109,96,47017,74,535 Debt-Equity Ratio 5.674.732.60Table 5: Debt-Equity RatioThe debt to equity ratio of the company is very high. It shows that the firm relies heavily on debtrather than equity fund. The ratio is much higher than the ideal ratio of 0.30.Particulars 201520142013 Sales (\$ 000) 1,13,39,3041,11,29,5331,01,85,532 Operating Profit (\$ 000) 16,45,70813,41,51811,48,885 Operating Margin 14.51%12.05%11.28%Table 6: Operating MarginThe operating margin of the company is appreciable though not substantial. The margin hasincreased over time.Particulars 201520142013 Sales (\$ 000) 1,13,39,3041,11,29,5331,01,85,532 Net Profit (\$ 000) 10,53,8498,65,8877,52,561 Net Profit Margin 9.29%7.78%7.39%Table 7: Net Profit MarginThe net profit margin like the operating margin is average. The margin has improved over time.3
Valuation: The Sherwin-Williams CompanyParticulars 201520142013 Net Profit (\$ 000) 10,53,8498,65,8877,52,561 Total Assets (\$ 000) 57,91,85557,06,05263,82,507 Return on Assets 18.20%15.17%11.79%Table 8: Return on AssetsThe company has healthy return on assets ratio. It shows the efficiency of the company togenerate profits by using its assets.Particulars 201520142013 Operating Profit (\$ 000) 16,45,70813,41,51811,48,885 Total Assets (\$ 000) 57,91,85557,06,05263,82,507 Current Liabilities (\$ 000) 21,41,85926,80,66625,28,557 Capital Employed (\$ 000) 36,49,99630,25,38638,53,950 Return on Capital Employed 45.09%44.34%29.81%Table 9: Return on Capital EmployedThe company generates significant profit on capital which is evident from its high return oncapital employed ratio. Besides, it has improved over time.Particulars 201520142013 Prior Year Diluted EPS (\$) 8.787.266.02 Dividend (\$) 2.682.202.00 Dividend Payout Ratio 30.52%30.30%33.22% Plough Back Ratio 69.48%69.70%66.78% Market Value per Share (\$)255.67271.27183.26Table 10: Dividend Payout Ratio and Market ValuationNormally, the company ploughs back two third of its profits to expand the operations. One thirdof its profit are paid out as dividend. The company’s market price is very high compared to itsdiluted earnings per share which shows that the company is overvalued in the market.4
Valuation: The Sherwin-Williams CompanyProblem 2Moody’s investor services gives the rating of A3 to the company. It shows that the chances of thecompany defaulting on its debt is low. Though, the company is highly levered, it generatesenough profit to repay its debt along with its interest cost. However, Moody’s have downgradedtheir rating from A2 to A3 only recently because the company is in talks for making acquisitionsin 2016. It will decrease the ability of the company to pay its debt smoothly due to profits gettingdiverted for acquisition. The commercial paper rating of the company were also downgradedfrom Prime-1 to Prime-2.5

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