Croda International Plc is a company that specializes in the production of chemicals and chemical-related products, e.g., industrial chemicals and oleochemicals. Its products used in pharmaceuticals, automotive, personal care, engineering, healthcare, food processing, nutrition to name a few industries (Croda international Plc, 2019). Being a global company and supplying a wide range of products to its customers, its current global market share expands every year; products used by other smaller but global businesses to manufacture other products as well as directly by customers (Croda international Plc, 2019).
Croda's strategies have always leaned towards improving its product quality and showing the value of all its stakeholders including customers, employees, investors, Board of Directors, etc. it involves ensuring consistent top and bottom line growth, increase the levels of protected innovation ideas, and improve and guide the customers' needs towards sustainable ingredients (Croda International, 2019). Its closest international competitors, i.e., those in the same industry, with headquarters in the same location and with close market capitalization levels, include Pidilite Industries Ltd, Covestro AG, The Valspar Corp to name a few. The comparison will be done between Croda International Plc and Covestro AG, the second closest competitor (Gurus Focus, 2019).
Croda does not have competitors based on its overall product specialization. Since it manufactures a wide range of products used for completely different purposes spanning from agricultural, personal care, automotive, engineering, healthcare to name a few (Croda international Plc, 2019). The failure to concentrate on a specific line of product has gained Croda more competitors than any other company in its position. This means that it experiences competition from companies that deal with every product line.
Profitability is a financial metric that is used to measure a business's profit level relative to its size. A profitability ratio, therefore, helps to determine a company's financial health of its efficiency in regard to its successes or failures. In the case of Croda, the use of major margins like operating profit margin and gross profit margin to examine its profitability levels.
Operating Profit Margin
This ratio calculates what portion of a company's total revenue is made from its operating income. It determines the amount of profit left after all operating expenses are paid. In the case of Croda, its operating margin declined from 23,74% in 2017 to 23.71% in 2018. This means that Croda's efficiency in its operations declined. By comparing Croda's operating margin with that of Covestro AG, Croda has higher values than Covestro which has 17.34% (Gurus Focus, 2019). Also, the consistent values of Croda make it stable in its finances and operations.
Gross Profit Margin
It is used to determine a company's left-over profit after the cost of goods expenses are deducted. It analyses the financial performance of a business by defining its profitability levels. Gross profit % is calculated as a businesses gross margin divided by its revenue. It is important to note that, the growth rate of Croda's gross margin was estimated at 2.90% for every year. Also, the graph below shows the values of Croda's fiscal year gross profit margins for the year 2017 and 2018 being 37.68 and 37.66 (competitive eroding margins) respectively. These values mean that its chances of making a net profit are high. The margins are also close with small variance, 0.02%, it means that Croda has consistency in its gross profit margins which is a major aspect of a company and investors to consider. When a comparison is done between Croda and Covestro AG 2018 fiscal gross margins, Croda has higher values making it more profitable. Also, the graph indicates the manner in which the values increase consistently making Croda a company worthy of investing in.
Trade Payables Days
To ascertain a business's efficiency levels, efficiency ratios are used. They help simply analyze a company's ability to utilize its assets and liabilities internally to the maximum. In regard to Croda, I will use the trade payables days ratio to determine its efficiency levels. For the quarter year that ended in December 2018, Croda's trade payables days was 28.54. The 2017 and 2018 fiscal year values for Croda's trade payables days was 29.77 and 28.79 respectively. This was a decline in the length of time that the company took a shorter time to pay its creditors or suppliers. In comparing Covestro AG, 60.24 with Croda for parables days in 2018, Croda is much better with lower values. Therefore, since there is a value decline and they are good for its industry, investors can consider Croda for investment.
The gearing ratios examine a company's capital or equity and its debt or borrowed funds through comparison. In the case of Croda International, the ratio to be used is the debt to equity ratio which evaluates its level of financial leverage. It is calculated by dividing its total liabilities by its total shareholders' equity. From the graph, Croda's fiscal year gearing ratio for 2017 and 2018 were 0.54 and 0.50 respectively. The values are decreasing meaning that Croda has decreased its use for debt to finance its growth and operations. When Croda's debt to equity ratio was 0.50 in 2018, for Covestro AG was 0.23. This means Croda uses more debt to fund its growth than Covestro; making it riskier to invest in Croda than in Covestro AG. However, Croda's values are very effective for its operations because its borrowing is able to generate income and enhance growth.
This refers to a business's ability to convert assets into cash easily and cheaply. For Croda, the ratio, earning per share (diluted) will be used to determine its liquidity levels. EPS ratio examines a business's power to earn any profit. This ratio assumes the use of all shares in the company are already in use and helps figure share price over a period of time. It is calculated by dividing the profit available to the shareholders by the total number of shares. Form the graph below, the fiscal EPS rate was 2.46 in 2017 but declined to 2.34 in 2018. This decline is not good for Croda because the fewer the EPS rates the less attractive the company is and the less profits it will make. According to Guru Focus, (2019), Covestro AG had an EPS of 9.44 by the end of 2018 fiscal year which is a way higher value than that of Croda. This value makes Croda less profitable and attractive to investors than Covestro AG. However, in general, Croda's EPS values show a consistent increase which makes it still profitable.
This is a process by which investors evaluate an investment option for profitability and risk purposes. Return on Shareholders' Funds ratio will be used for Croda International. It is also called return on equity which indicates the manner in which a company's management utilizes its assets to produce a profit. It shows how much money the investors receive in returns as a percentage of the funds retained in the company as an investment. It is calculated by dividing the net income by the shareholder's equity. From the graph below, Croda's ROE values fluctuate or change with every year. For instance, in 2018, Croda's Roe declined to 34.31% from 25.63% recorded in 2017. However, it is best to consider ROE on a long-term basis, which for Croda is estimated at 31.53% over a five-year range. The rate of ROE over the five-year range is a desirable rate for both the management and company stakeholders because it shows that the Croda efficiently uses its shareholders' equity to maximize its profit generation. Also, the values between 2017 and 2018 may show a declination but still considered as good rates because they are over 20%; which is the; least desirable value for most companies. With Covestro having 33.19% ROE, Croda is less efficient making it less desirable and attractive.
Conclusion and Recommendation
Form the values in the above tables and the comparisons made in comparison with its competitors, Croda is a company liable to invest in. its profitability, liquidity, efficiency and investing valuation values are all positive and attractive to any potential investor. Even by comparing Croda with its very close competitors in its industry, it has a popular reputation for ensuring shareholder benefits and value is recognized. Therefore, it will be advantageous for the investor to consider investing in Croda International Plc because the chances of earning returns are higher than those of getting a loss.
Croda International Plc. (2019, May). Making a difference: Croda Annual Report 2018. Retrieved from https://www.Croda.com/mediaassets/files/corporate/investors/annual-reports/chairs-statement.pdf
Croda International Plc. (2019, May). Our Strategy. Retrieved from HYPERLINK "https://www.croda.com/en-gb/investors/annual-report/our-strategy" https://www.Croda.com/en-gb/investors/annual-report/our-strategy
Croda International Plc. (2019, May). Croda: Products and Markets. Retrieved from HYPERLINK "https://www.croda.com/en-gb/products-and-markets" https://www.Croda.com/en-gb/products-and-markets
Guru focus. (2019, May). Screeners: Croda International Plc Gross Margin %. Retrieved from HYPERLINK "https://www.gurufocus.com/term/grossmargin/COIHF/Gross-Margin-Percentage/Croda%20International%20PLC" https://www.gurufocus.com/term/grossmargin/COIHF/Gross-Margin-Percentage/Croda%20International%20PLC
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