Financial Analysis

1 Financial Leverage (total liabilities by its stockholders' equity)

2 it is most often used to gauge the extent to which a company is taking on debts as a means of leveragin
3 A high debt/equity ratio generally means that a company has been aggressive in financing its growth w
4 Aggressive leveraging practices are often associated with high levels of risk.
5 If the cost of debt becomes too much for the company to handle, it can even lead to bankruptcy, which
6 Like with most ratios, when using the debt/equity ratio it is very important to consider the industry in w

Current liabilities

Long-term debt

Stockholders' equity

Total assets

Total Liabilities

Stockholders' equity

D/E Ratio
Financial Analysis
Return on equity measures a corporation's profitability by revealing how much profit a company generates with the
It provides investors with insight into how efficiently a company (or more specifically, its management team) is mana
Revenues

Clayton N. America (USA/Canada/Mexico)

Clayton SA (Belgium/France/Netherlands)
Clayton SpA (Italy/Germany/Switzerland)
Clayton SA (Spain/Portugal/N. Africa)
Clayton Ltd (UK/Scandinavia)
Total

Net income (loss)

Clayton N. America (USA/Canada/Mexico)
Clayton SA (Belgium/France/Netherlands)
Clayton SpA (Italy/Germany/Switzerland)
Clayton SA (Spain/Portugal/N. Africa)
Clayton Ltd (UK/Scandinavia)

ROE
Clayton SpA (Italy/Germany/Switzerland)
Other EU

Financial Analysis
1 EBITDA is one indicator of a company's financial performance and is used as a proxy for the ea
2 evaluate a company's performance without having to factor in financing decisions, accounting d
3 EBIDTA allows analysts to focus on the outcome of operating decisions while excluding the im
4 By minimizing the non-operating effects that are unique to each company, EBITDA allows inve
5 EBITDA margin measures a company's earnings before interest, taxes, depreciation, and amorti
6 Because EBITDA is a measure of how much cash came in the door, EBITDA margin is a measu
EBITDA
Clayton N. America (USA/Canada/Mexico)
% Margin
Clayton SA (Belgium/France/Netherlands)
% Margin
Clayton SpA (Italy/Germany/Switzerland)
% Margin
Clayton SA (Spain/Portugal/N. Africa)
% Margin
Clayton Ltd (UK/Scandinavia)
 % Margin
EBITDA
Clayton SpA (Italy/Germany/Switzerland)
Other EU
Clayton SA (Spain/Portugal/N. Africa)

EBIDTA Margin
Clayton SpA (Italy/Germany/Switzerland)
Other EU
Clayton SA (Spain/Portugal/N. Africa)

Current Ratio
1 The current ratio is a liquidity ratio that measures a company's ability to
2 The higher the current ratio, the more capable the company is of paying its o

Current liabilities

Current assets

CURRENT Ratio

1 The ratio is a good indicator of the liquidity concerns of the company. Higher valu
2 We find a continuous decline in the current ratio of the company.
3 This can be mainly attributed to the shrinking EBIDTA which is reducing then asse
4

Asset Turn Over Ratio

1 Generally speaking, the higher the asset turnover ratio, the better the company is p
2 The asset turnover ratio has moved in line with the industry benchmark, but since t
3 Changing over to absorption chillers seems to be an obvious option.

Revenues
 Total assets

Asset Turn Over Ratio

Situation
1 The Italian company was a manufacturer of compression chillers for large commercial, public,
2 Initial sales were going to be very sluggish
National brand preferences
non compliance of design to European homes
competition from Asian producers
the recalcitrant behavior of the average European consumer meant
3 For the period commencing from 2000 to 2009 Clayton Europe became a major contributory fa

Background
1 The market for air conditioners is well developed as consumers view Air conditioners as a symb
2 Simonne Buis took over the reins of Clayton in 2001 and immediately adopted a two pronged a
3 The company due to its uncompetitive product profile found itself struggling in markets outside
4 The poor sales and rising input costs hurt both the bottom line as well as the top line of the com
5 The company faced labour union problems, and it was very difficult to fire anyone owing to the
6 To top it the company also has a high wage bill and a very limited customer base in Italy.

Target
1 To increase the market share of Clayton SpA from 7% to 15% within 4 years (Four in Four o
2 To reduce Days Receivables, Days Inventory by 10 days and Headcount by 10% (10/10/10 o
mpany is taking on debts as a means of leveraging
ny has been aggressive in financing its growth with debt.
th high levels of risk.
to handle, it can even lead to bankruptcy, which would leave shareholders with nothing.
it is very important to consider the industry in which the company operates

2004 2005 2006

204.3 224.3 238.6
Clayton SpA 28.5 32.9 36.7

Other Europe 46.7 51.3 54.6

North America 129.0 140.1 147.3
310.5 340.9 362.6
Clayton SpA 43.3 50.0 55.8

Other Europe 71.1 81.9 91.5

North America 196.1 209.0 215.3

267.9 245.5 212.3
Clayton SpA 37.4 32.2 23.1

Other Europe 61.3 61.5 57.9

North America 169.2 151.8 131.3
782.7 810.7 813.4
Clayton SpA 109.2 115.0 115.6

Other Europe 179.1 194.7 204.0

North America 494.4 501.0 493.9

Clayton SpA 71.8 82.8 92.5

Other Europe 117.8 133.2 146.1
North America 325.2 349.2 362.6

Clayton SpA 37.4 32.2 23.1

Other Europe 61.3 61.5 57.9
North America 169.2 151.8 131.3

Clayton SpA 1.9 2.6 4.0

Other Europe 1.9 2.2 2.5
North America 1.9 2.3 2.8
huge erosion in shareholders equity
attributed to poor financial performance of the company during recession
equity in the period of time has been compensated by increase in long-term debts and current liabilities of th
By implementing Alternative 1, initially the D/E ratio will be adversely affected but in the long run the prof
 This situation would result in high risk aversion of banks to finance the expansionary plans of the company.

how much profit a company generates with the money shareholders have invested.
more specifically, its management team) is managing the equity that shareholders have contributed to the company.

565.7 577.1 590.0 598.1

107.5 118.6 129.7 142.3
125.0 132.5 138.0 141.8
58.1 62.9 68.1 72.3
39.3 42.8 45.9 48.3
895.7 933.8 971.7 1,002.8

31.1 28.9 11.8 (6.0)

8.9 9.5 10.1 10.2
10.8 10.5 6.0 (1.1)
4.1 4.1 3.7 1.9
2.9 2.9 2.6 1.3

2004 2005 2006 2007

#VALUE! 28% 19% -5%
#VALUE! 27% 27% 23%

performance and is used as a proxy for the earning potential of a business

to factor in financing decisions, accounting decisions or tax environments.
f operating decisions while excluding the impacts of non-operating decisions like interest expenses (a financing decisi
nique to each company, EBITDA allows investors to focus on operating profitability as a singular measure of performa
efore interest, taxes, depreciation, and amortization as a percentage of its total revenue.
came in the door, EBITDA margin is a measure of how much cash profit a company made in a year relative to its total

70.72 69.25 53.10 47.85

13% 12% 9% 8%
20.16 21.35 17.51 17.08
19% 18% 14% 12%
25.08 24.47 18.06 5.19
20% 18% 13% 4%
9.99 10.37 8.43 6.87
17% 17% 12% 10%
7.02 7.34 5.91 4.77
 18% 17% 13% 10%
2004 2005 2006 2007
25.08 24.47 18.06 5.19
37.18 39.06 31.84 28.72
9.99 10.37 8.43 6.87

2004 2005 2006 2007

20% 18% 13% 4%
54% 52% 39% 31%
17% 17% 12% 10%

that measures a company's ability to pay short-term and long-term obligations

re capable the company is of paying its obligations, as it has a larger proportion of asset value relative to the v

204.3 224.3 238.6

Clayton SpA 28.5 32.9 36.7

Other Europe 46.7 51.3 54.6

North America 129.0 140.1 147.3

277.0 291.6 303.8
Clayton SpA 49.0 54.1 58.7
Other Europe 60.6 66.5 71.7

North America 167.4 171.0 173.5

Clayton SpA 1.72 1.65 1.60

Clayton 1.36 1.30 1.27
Other Europe 1.30 1.30 1.31
uidity concerns of the company. Higher values of the current ratios are favorable for the organization
rrent ratio of the company.
rinking EBIDTA which is reducing then assets.

et turnover ratio, the better the company is performing, since higher ratios imply that the company is generating more r
line with the industry benchmark, but since the company has not been able to transform a good asset turnover ratio into
eems to be an obvious option.

Clayton N. America (USA/Canada/Mexico) 565.75 577.06 589.99

Clayton SA (Belgium/France/Netherlands) 107.53 118.60 129.67
 Clayton SpA (Italy/Germany/Switzerland) 124.99 132.45 138.05
Clayton SA (Spain/Portugal/N. Africa) 58.12 62.85 68.10
Clayton Ltd (UK/Scandinavia) 39.30 42.80 45.90

783 811 813

Clayton SpA 112 125 125
Other Europe 220 224 228
North America 451 461 460

Clayton SpA (Italy/Germany/Switzerland) 1.120045991 1.055612937 1.102663764

Other Europe 0.93 1.00 1.07
Clayton 1.144364996 1.151804538 1.194633922

ession chillers for large commercial, public, and institutional installations.

uropean consumer meant

yton Europe became a major contributory factor for the growth of the company with revenues accounting for 45% of t

s consumers view Air conditioners as a symbol of American extravagance. However, the company did reasonably well
01 and immediately adopted a two pronged approach to gain competitive advantage. The focus was either to slash costs
ile found itself struggling in markets outside Italy.
bottom line as well as the top line of the company
was very difficult to fire anyone owing to the norms of Italy
a very limited customer base in Italy.

7% to 15% within 4 years (Four in Four objective).

days and Headcount by 10% (10/10/10 objective).
 2007 2008 2009
255.3 251.7 255.4
41.2 42.7 45.5

58.4 57.6 58.4

155.6 151.4 151.5
388.0 382.5 388.2
62.7 64.9 69.1

102.8 106.4 113.4

222.5 211.3 205.7 9

177.9 129.6 87.6 8
12.2 (0.9) (14.8) 7
54.1 50.1 59.9
6
111.6 80.4 42.5
5
821.2 763.8 731.2
4
116.1 106.7 99.8

215.3 214.1 231.7 3

489.8 443.0 399.6 2

0
103.9 107.6 114.6 1 2 3
161.2 164.0 171.8 Row 65 Row 66 Row 67
378.2 362.7 357.2

12.2 (0.9) (14.8)

54.1 50.1 59.9
111.6 80.4 42.5

8.5 (123.7) (7.7)

3.0 3.3 2.9
3.4 4.5 8.4

debts and current liabilities of the company

ected but in the long run the profitability of the company will improve resulting in improved D/E ratio.
ansionary plans of the company. Raising money from shareholders

ibuted to the company.

557.7 216.6
148.7 68.0
134.3 54.1
0.35
72.2 36.0
0.3
48.6 21.6
961.4 396.3 0.25
0.2
0.15
(22.3) (17.3) 0.1
5.9 0.7 0.05
(11.9) (6.7) 0
2004 2005 2006
0.2 0.0
-0.05
(0.3) (0.9)
-0.1
-0.15
Row 93 Row 94

rest expenses (a financing decision), tax rates (a governmental decision), or large non-cash items like depreciation and
s a singular measure of performance.

ade in a year relative to its total sales.

27.88 6.50
5% 3%
11.15 3.06
50.00
8% 5%
-12.77 -7.62 40.00
-10% -14%
30.00
6.60 3.20
9% 9% 20.00
2.91 0.73
10.00

0.00
2004 2005 2006 2007 2008 2009
 30.00

20.00

6% 3% 10.00

2008 2009 0.00

-12.77 -7.62 2004 2005 2006 2007 2008 2009

20.66 6.99 -10.00

6.60 3.20
-20.00

2008 2009
-10% -14%
23% 17%
9% 9%

of asset value relative to the value of its liabilities.

255.3 251.7 255.4

2
41.2 42.7 45.5
1.8
58.4 57.6 58.4
1.6
155.6 151.4 151.5
1.4
308.8 284.2 254.4
1.2
62.6 61.6 59.6
75.2 72.5 71.5 1

171.0 150.1 123.3 0.8

0.6
1.52 1.44 1.31 0.4
1.21 1.13 1.00 0.2
1.29 1.26 1.22 0
1 2 3 4 5
he organization
Row 193 Row 194 Row 195

he company is generating more revenue per dollar of assets

m a good asset turnover ratio into consistent profits, the company needs to change the product line it is operating in.

598.07 557.66 216.60

142.33 148.65 68.00 1.4

1.2

0.8
 1.4
141.78 134.32 54.10 1.2
72.30 72.20 36.00
1
48.30 48.60 21.60
0.8

821 764 731 0.6

127 120 117 0.4
231 220 226
0.2
463 424 389
0
1 2 3 4
Row 229 Row 230 R
1.114213046 1.121765584 0.463697529
1.14 1.22 0.56
1.221114855 1.258749127 0.541985777

evenues accounting for 45% of the global revenue

he company did reasonably well through local brands Corliss and Fontaire.
he focus was either to slash costs or build scales or both
 3 4
Row 66 Row 67

ved D/E ratio.

 2006 2007

w 93 Row 94

sh items like depreciation and amortization (an accounting decision).

0.6

0.5

0.4

0.3

0.2

0.1

2008 2009 0
2004 2005 2006 2007 2008 2009
 0.4

0.3

0.2

0.1

2008 2009 0
2004 2005 2006 2007 2008 2009
-0.1

-0.2

4 5 6
Row 194 Row 195

oduct line it is operating in.

 3 4 5 6
Row 229 Row 230 Row 231