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COMPANY ANALYSIS PROJECT. AGCO.
By: Ximena Albisu
TABLE OF CONTENTS
1.0 Introduction 1.1.1 Overview of AGCO Activities 1.2 Sector Analysis 1.3 Industry Analysis 2.1 Qualitative analysis of AGCO 3.1 Quantitative Analysis of AGCO 4.0 Conclusion and Recommendation
0 Introduction. This is so because success is based on an organisation’s ability to create. Within the context of today’s global competition.1. it is vital that a firm can do something better than its competitors ( Wonglimpiyarat 2004:1). or for those fixing the past. The conventional vertical integrated company based business model is gradually being replaced by collaborative relationship between many fragmented. chaotic and challenging than ever before and to survive. According to Kanter (1995) such an action will not constitute an adequate response. businesses and firms no-longer compete as individual companies but try to corporate with other businesses in their activities (Wu & Chien 2007:2). Today’s business environment is increasingly becoming more turbulent. Globalisation has not only altered the nature and the intensity of competition but has had to dictate and shape organisations in terms of what consumers wants. but complementary and specialized value stars and constellation (Wu & Chien:1). These researchers went further to argue that. Kanter on his work of “Mastering Change” argues that success in the present day business is not for those companies that re-engineer the way they do things. 3 . how and when they want it and what they are willing to pay for it (Hagan 1996:1). this strategy has become quite common in many businesses including the retail clothing chain stores. rather than predict the future by developing those products that will literally transform the way the world thinks and view it self and the needs (Kanter 1995:71).
utility tractors. Prahalad & Hamel1990.and four-wheeled vehicles.1 PREFACE AGCO Corporation was founded in 1990 and is headquartered in Duluth. and high horsepower tractors used in farms and in specialty agricultural industries. and related equipment for use in the 4 . It also offers combines.g. to be successful and satisfy customers. and vineyards. Georgia. “customers don’t always know what they need or even that there is a problem to be solved. residential areas. orchards. Madhok 1998. livestock. it is often necessary to lead customers into recognizing these needs (Higgins 1998:2-3). Hamel & Prahalad1994 ).” Success awaits those companies that recognize the fact that. It manufactures and distributes agricultural equipment and related replacement parts worldwide.An alternative approach towards organisational success.1. landscaping. three. 1. In today’s global business environment it is no longer sufficient simply to meet customers demand as time quality and cost have become increasingly important in the phase of increasing competition (Petts 1997:551). such as dairies. capabilities and resources (e. one which is becoming increasing prominent and has attracted the sustained attention of both domestic and international business scholars are core competences. According to Higgins (1998:2). selfpropelled. The company provides compact tractors.
and front loaders. and horse industries. dairy. tractor-pulled implements. through its finance joint ventures with Cooperatieve Centrale RaiffeisenBoerenleenbank B. other implements comprising disc harrows. 5 . Valtra. The company distributes its products through a network of independent dealers and distributors.application of liquid and dry fertilizers. Spra-Coupe. it offers precision farming technologies that enable farmers to gather information. AGCO Corporation's hay and forage equipment includes round and rectangular balers. including: AGCO. such as yield data by utilizing satellite global positioning systems. corn headers. and crop protection chemicals. planters. and diesel engines. The company. RoGator. Hesston. gears. and other equipment. Sunflower.. including vehicles used for waste application that are specifically designed for subsurface liquid injection and surface spreading of bio solids. and generating sets. a range of implements. field cultivators. Challenger.A. Massey Ferguson. Terra-Gator. such as sewage sludge and other farm or industrial waste. Gleaner. In addition. also provides retail financing. heavy tillage. spreaders. and Whitetm Planters. tractor-pulled planters. self-propelled windrowers. chemical sprayer equipment. disc mowers. and mower conditioners for harvesting and packaging vegetative feeds used in the beef cattle. and related equipment. Fendt. It sells its products under various brand names.
2 SECTOR Analysis The following factors will be considered under this section. Minnesota Mining & Manufacturing 6 . We will consider the global economy as a whole. the global economy remains on track for continued robust growth in 2007. Having said this. The 2007 outlook also reports that downside risk to the outlook seems less threatening that at the time of the September 2006 outlook. the price competition it faces from competitors. General Electric Co. or the profits it makes on investments abroad. 2002). Bodie et al (2002) states that the international economic environment might affect a firm’s export prospects. According to the IMF World Economic Outlook (2007). government policy and business cycles. It is therefore necessary for an investment or security analyst to consider these differences before providing investment advice. AGCO Corporation is classified to be in the Industrial Goods sector. (Bodie et al.. the domestic macro economy. and 2007 although only at a moderate rate than in 2006. the study will now consider each of these factors more closely with respect to Singapore. (IMF World Economic Outlook. In this sector. Although economies are linked to each other in a global macro economy. 2007) According to S+P 500 index. demand and supply shocks. This is because oil price declines since last august and generally benign global financial conditions have helped to limit spillovers from the corrections in the US housing market and to contain inflation pressures.1. there exist considerable differences in the economic performance across countries.
availability of essential machineries. electrical equipment. The agricultural industry is characterised by flat supplier prices. commercial services and supplies. Demand in this sector continues to increase. Just as it is difficult for a firm to do well in a poor macroeconomic environment. air freight and logistics. Industries in the Index include aerospace and defense.3 Industry Analysis Like macroeconomic analysis the analysis of the industry is important because it enables the analysts to make abnormal profits arising from information asymmetry between the proper analyst and competitors who fail to carry out a proper analysis. In this industry. In this industry. road and rail. market leaders such as AGCO can compete with other small manufacturers as will be seen through an analysis of the industry using Porters competitive framework. 1. (Bodie et al. conglomerates. marine. and Boeing Co. building products. so too is it difficult for a firm to perform well in a troubled industry. AGCO is a company in the farm and construction industry. customer supports etc.. and transportation infrastructure companies. In recent years. so too does it varies across industries. 7 .Co. 2002). construction and engineering. airlines. are among the largest components by market capitalization in this sector. new competition in this industry has come from some chain stores and diversification of the activities in the industry into different sectors. Similarly. However. as performance can vary across countries. machinery. 2002). Profitability depends heavily on technical expertise. (Bodie et al.
Though there are numerous companies within the industry buyers switching cost turns to be high because of low bargaining power. More and more companies are moving into this industry with niche players getting increasingly competitive. At the same time. government. chemical companies . Incentives. Companies like AGCO has taken the lead towards addressing environmental issues.local authorities farmers and other.According to the company’s website. iron and steel manufacturers. the agricultural farm sector is undergoing change. participants Low switching cost due to numerous options available to buyers.location (Bargaining power) Suppliers Substitutes Propensity to substitute (Unrelated) Porters Five Forces Approach Relationship with suppliers Bargaining power of buyers Application to the Farm and Construction Industry The suppliers constitute independent contractors. Potential Entrance (Low Threat) High capital requirement Goodwill Buyers Brand identity. the number of niche players aimed at well-identified target groups continue to increase at an increasing rate. 8 . (Higher loyalty) Competitive Rivalry Price war. Many companies manufacturing agricultural machineries are today increasingly worried about climate change.
” (1985: 4) and through their own strategy a firm can take hold of these five forces. Porter (1985) contends that firms create competitive advantage by perceiving and discovering new and better ways to compete in an industry which is ultimately an act of innovation. companies like Granite construction. with continuous innovation and design of new products. though their present activities might be seen as Rivalry firms amongst insignificant are gradually growing into key players established Fierce competition with flat cost.Threats of new entrants Low threats of new entrants because of the human. competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness. Deere & Company have taken the lead. or services Who. Figure: 2 Porter (1985:4) contends that the Five Forces define the rules of competition in any industry and at the same time marks the bases for understanding a company’s success. a new entrant from these areas constitutes a big threat. Porter (1985) goes further and argues that. “The ultimate aim of competitive strategy is to cope with and. Threats of substitutes products The industry is characterized with many niche players. However. In this regard Porter assumes that innovations 9 . However. with China and India today growing into the world factory. AGCO. The researcher further claims that. to change those rules in the firm’s behaviour. No major player able to dominate the market. Most farm and construction companies are struggling to make a name through product differentiation and integration with their customers and suppliers At the most fundamental level. time. ideally. material and financial resources necessary to set up a farm and construction machinery company.
In an industry with high profit.1 Threat of Potential Entrants Porter in the five forces framework argue that. In such an industry. many niche players continue to develop other farm machines. competition turn to be intense because both switching cost for customers and suppliers turn to be low. buyers and suppliers have a high bargaining power.3. however.2 Availability of Close Substitutes In an industry where close substitute abound. Porter contends that competitive advantage could only be developed through cost leadership strategy. in the farm and construction industry where huge capital and technical expertise are needed. so it will be difficult to believe that in the short run another company could enter into the line of business and as such the threat of potential entrants turn to be low 1. In the farm and construction industry. But this is the opposite case. 10 . This is the situation of AGCO Corporation for example in which the company has shifted in to product differentiation and integration of suppliers and position through understanding of Porter’s five forces.shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. In this kind of market.3. because their activities are not significant this constitute a low threat. 1. and little capital for set up the threat of a new entrants turn to be high.
1. iron and steel companies etc. In the farm and construction industry. it is believed that where the suppliers have higher bargaining power. For a company operating in a market where suppliers have a high bargaining power. suppliers are chemical companies. because of many key players within the industry suppliers switching cost turns to be low because they constitute a low bargaining power. suppliers and employees 11 . the proportion of the market controlled by a buyer and the availability of close substitutes determine buyers bargaining power. the above forces shape the competitiveness of an industry. The reverse is true in an opposite industry.5 Competitive Rivalry According to Porter. it will be difficult for a competitive advantage to be developed in the relationship.3. In an industry with few buyers and many substitute buyers bargaining power will be high and their switching cost low.4 Buyers Bargaining Power The number of buyers in the market.3. Here. This is so because in a market with so many rivals competition will be fierce as all market participants fight for common customers.3. their switching cost from one partner to the other turns to be low and the reverse is true where suppliers have a low bargaining power. because suppliers switching cost will be low as they move from one market to the other 1.1.3 Suppliers Bargaining Power Here. Porter in his five forces framework argues that.
pp. Massey Ferguson.2. Sunflower. brands are simply a collection of perceptions held in the minds of the consumers. 12 . Branding in consumer’s market has been widely argued to improve on a company’s financial performance and long term competitive position 1. the company provides retail financing in the United States.1 Qualitative Analysis of AGCO AGCO Corporation (AGCO) manufactures and distributes agricultural equipment and related replacement parts. Valtra and White Planters. The company has diversified it activities into other areas as noted by the company brand equity. Challenger. forage equipment and implements. and perceived quality with brand associations. Elaborating on this. Fendt. D.000 independent dealers and distributors in more than 140 countries.(1992) The value of brand equity. Spra-Coupe. brand equity is a combination of assets such as loyalty. awareness. According to Keller (1993). hay tools. For example. Aaker (1992) contends that. AGCO sells a wide range of agricultural equipment. Terra-Gator. AGCO distributes most of its products through a combination of approximately 3. powerful brands create meaningful images both in the minds of consumers and society as a whole. Its products include tractors. combines. Canada.com). 27–32.agco. According to Fournier (1998). A. Hesston. Journal of Business Strategy 13 (1992) (4). 1 Aaker . and a line of diesel engines (www. its products are marketed under a number of brand names. self-propelled sprayers. With AGCO. RoGator. including AGCO. Gleaner.
Major market share positions in key agricultural markets of the world have been achieved through the company strong focus on customer service.50 (64.07% 5435 (64.10 246. Germany.51% 2043 2006 927.44% 6828.20) x100=(0. (Rabobank).1Quantitative Analysis of AGCO In this section.30 x100 =6. the United Kingdom.A.19)% 5435 (19. 2007.1 AGCO Profitability Ratio Ratio Gross Profit % Net Profit % ROCE ROE Formula Gross profit ÷ Sales x100% Net profit ÷ Sales x100% EBIT ÷ (shareholders funds + debt) Profit after Interest and tax x100 Shareholders equity 2007 1191 x100%=17. leading edge technology and an independent dealer network of more than 3. liquidity.8 x100%=17.30 x100%=3. the calculation and table for the various ratios (profitability. and solvency) AGCO Inc will be presented. On September 10. This will be calculated with figures drawn from the 2007 annual report.60 246. Ireland and Austria through its finance joint ventures with Cooperatieve Centrale Raiffeisen-Boerenleenbank B.com).200 full service dealers – the largest distribution network in the industry (www.35)% 1493.AGCO.90) =(4. 3.90) x100%=(1. Australia.60 13 .1. France.Brazil. multiple brands and global distribution strength are the keys to AGCO’s growth strategy.47)% 4114.84% 4787.61% 6828.10 327.30 =9. the Company acquired Industria Agricola Fortaleza AGCO remains one of the world’s largest manufacturers and distributor of agricultural equipments. 3. The brands are sold in more than 140 countries in the world led by four of their global brands.
the business turns to be very sensitive to market cycles.61 0.70) 5435=1. According to Google finance. difficult to manage and vulnerable to bankruptcy. though AGCO made positive gross profit percentage for the two periods but the situation for 2007 when compared to 2006 is better. From our analysis.70) 91. That is 17.10=1. the market is largely affected by government economic and political policies such as taxes.4% in 2007 when compared to 17.05% in 2006. these characteristic makes the business risky.11 2. In other words. interest rate etc.10=4.90 The farm and construction industry is a backbone of any vibrant economy.32 4114.40 (64.Earnings per share Price Earning Ratio NetAssets turnover Fixed Assets turnover Net profit ÷number of shares Stock price per share Earnings per share Revenue Total Assets Revenue Fixed Assets 246.50 5435=4. In most situations.69 91. Gross profit percentage measures what remains from sales after the company must have paid out the cost of goods sold expressed as a percentage.50=0 (0. The ratio tells us that. Net profit measures the amount of revenue outstanding after all the company related expenses for the period must have been paid.90) =(0.30 =2.81 0. In addition.44 1223. despite a fall in total revenue received in the period of 2007 when compared to 2006. An increase in sales and a fall in the cost of goods sold will obviously increase gross profit percentage all things being equal.40 4870.30 =0. According to Artrill &Elliot (2005). Net profit percentage finds out if the average markup on goods covers the 14 .60 6828.69 6828. cost of goods sold also had a decrease.62 1476. The industry with it contracts nature has unique characteristics.
60 1078. The company has again done better than industry benchmark figures for both ROCE and ROE.42:1 1623. The year 2007 is better than 2006. This is a sign of prosperity.40=0.66:1 1623.60 Quick Ratio Cash Ratio 15 .31:1 2083. The profit margin for 2007 is 3. AGCO Inc again did better in 2007 when compared to 2006. the fact that 2007 is better when compared to 2006 shows sign of improving trends.3 1348.70 =1. What the management of AGCO Corporation Inc should do is try to reduce the costs associated with its other activities. However. However.3 582.10=0.28:1 2083. the figure of 2007 is in line with industry benchmark rating for this ratio.expenses.20=0. and therefore results in a profit From the ratio.2 AGCO Liquidity Ratio Ratio Current Ratio Formula 2007 2006 Current assets Current Liabilities Cash and short term Current liabilities Cash.19) % in 2006. 3. Capital will include all sources of funding.40=0. while Return on equity measures the dollar earn by each dollar of shareholders fund.60 401.equ and short term Investment Current Liabilities 2721.25:1 1623.3 2309 =1.1 . Return on capital employed measures the dollar earn by each dollar contributed by the capital of the organisation.61% as compared to (1.64:1 2083.
01 4. demonstrating the degree to which a firm's activities are funded by owner's funds versus creditor's funds. what I will recommend here is for the company to try and tie the debtor’s collection period and creditor’s payment period to fall within the same payment band. The current ratio and quick ratio and cash ratio show that AGCO Corporation hasn’t enough current assets to cover its short-term liabilities without facing business risk that is the risk that it might not meet its short-term commitments. From the perspective of investopedia. The best known examples of gearing ratios include equity ratio (equity / assets). the more the company is considered risky. The gearing ratio is higher when compared to the industry benchmark.The current ratios have also witnessed a reduction when compared with 2006.39 1.11 27. the company is doing better than the industry benchmark and consequently the competitors. An acceptable level is determined by its comparison to ratios of companies in the same industry.34 Price/Sales (ttm): 0. P/E Ratio (ttm) PEG Ratio (ttm. The cash ratio for example shows that AGCO Inc could only cover 28% of its short-term liabilities in 2007 using cash ratio while in 2006 the company was able to cover 25%. 5 yr expected) LNN GEHL 61.89 16 . However. the higher a company's degree of leverage. Management needs to negotiate good sales terms for the company According to Artrill and Elliot (2005). Gearing is a measure of financial leverage. gearing is a general term describing a financial ratio that compares some form of owner's equity (or capital) to borrowed funds.Here. and debt ratio (total debt / total assets).
Investors expect some growth from the firm but they do not expect a huge growth.0 Conclusion Section A One year chart with the stock’s 50 day and 200 day moving average and trading volume. which gives us the indicator that this is not a very risky investment.97 As we can see AGCO has a P/E ratio much lower than the one of the industry leader.Price/Book (mrq): 2. The PEG ratio tells us that AGCO Corporation is more undervalued than the industry leader. 17 . 5.
Section B This study was initiated to carry out a market and industry analysis of AGCO Corporation Inc. I think the company was found to be doing well in some ratios when compared to the industry competitors and the benchmark. the company has its own production unit and has diversify it activities. AGCO Inc analysis also shows that. We can also see that it has been doing better than Deer & Co in the past year. to minimize the risk often associated with the farm and construction industry. According to these two charts we can see that AGCO has been growing lately. and that it is above the 50 days and 200 days average.One year chart with the stock’s 50 day and 200 day moving average and trading volume and compared to Deere & CO. 18 .
more than the industry benchmark. This is due to efficient working capital management when compared to competitors. 19 . new product of the company is easily penetrated in to the market. and putting aside the possibility of a national recession. because this firm has been doing very good in the last year. there is no strong indicator of selling. I would also recommend investors to go ahead and buy shares from this company. the fact that this company has been doing better that Deere & Co which is a huge company. the company has the best credit policies when compared to industry benchmark and other close competitors. I would recommend for investors that already have shares to hold them. Also. After analyzing the company’s financial situation. I would recommend for people to buy stock from AGCO because during the game of Stock Trak I bought shares from them and I earned $13 in only two moths and a half. is a good indicator that the company is still growing and gaining power. By offering customers more flexibility in payment.For suppliers and customers. Creditors are paid within 18days instead of the industry recommended benchmark of 35days.
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