About the company
The Goodyear Tire & Rubber Company is a public entity that operates in the manufacturing segment. Frank Seiberling founded the company in 1898 and it was incorporated in the same year. The company has grown tremendously since its formation and currently it has substantial presence all over the world. For reporting purposes, the company is structured into four units, these are, North American Tire, Asia Pacific region, Europe, Middle East & Africa Business, and Latin American region. Over the years, a significant proportion of revenue for the company is generated from the North American Tire followed by Latin America. Goodyear operates fifty-two plants in twenty-two countries. Further, recent statistics show that the company has employed about 69,000 people worldwide. The company manufactures and sells a variety of rubber tires for automobiles, aircraft, motorcycles, farm implements, mining equipment, and industrial equipment among others. The company has a number of subsidiaries.
It produces and sells through its subsidiaries such as Dunlop, Fulda, Debica, and Lee among others. The main product that is manufactured by the company is tire. An iconic product that was invented by the company in 1925 is the Goodyear Blimp. This product makes has improved the competitive edge of the company over the years. Goodyear Blimp is commonly used for advertising and as a camera platform (Goodyear 1). The management team of the company is grouped into three categories, these are, the executive leadership, strategic business unit leadership, and corporate leadership. The team is led by Richard J. Kramer as the President, Chairman and the Chief Executive Officer. The strategic unit leadership is made up of a president and a vice president for each of the four units. Finally, the corporate leadership is made of eleven members who are assigned various roles such as Chief Financial Officer, Global Communications, Global Human Resources, and Global Operations among others.
The table presented below shows a summary of balances for assets and capital structure of the company.
|Total current assets||9,812||8,498||8,644|
|Total stockholders’ equity||749||370||1,606|
Source of data – EDGAR Online, Inc. 56 – 63.
The values of current assets and total assets decreased between 2011 and 2012 and later improved in 2013. The current assets are made up of cash and cash equivalents, accounts receivables, inventories, and prepaid expenses. Cash and cash equivalents, accounts receivables, and inventories contribute an approximate equal share to the current assets. The non-current assets are made up of goodwill, intangible assets, deferred income taxes, and property, plant and equipment. Property, plant and equipment accounts for over 40% of the total assets.
A comparison of the shareholder’s equity and total debt shows that there is a significant proportion of debt in the capital structure, that is, more than 85%. This shows that the company is highly levered.
The table presented below show the profitability ratios.
|Gross profit margin %||17.33||18.24||21.07|
|Net profit margin %||1.41||0.87||3.07|
|Return on assets %||1.93||1.06||3.48|
|Return on equity %||71.89||307.56||122.95|
Source of data – Morningstar, Inc. 1.
The gross profit margin rose from 17.33% in 2011 to 21.07% in 2013. In as much as the net sales declined from $22,767 million in 2011 to 19,540 million in 2013, the cost of sales also declined significantly, that is, from $18,821 million in 2011 to $15,422 million in 2013. The increase in gross profit margin shows that the management is efficient in managing pricing and cost of sales. The net profit margin declined from 1.41% in 2011 to 0.87% in 2012. The ratio rose to 3.07% in 2013. Further, return on assets decreased from 1.93% in 2011 to 1.06% in 2012. The ratio increased to 3.48% in 2013. The ratio gives information on the effectiveness of the management in generating revenue from the total assets of the company. A high ratio is suitable because it shows that the assets are being used effectively. Return on equity provides information on the earnings generated from the funds provided by the shareholders. The value of the ratio increased from 71.89% in 2011 to 307.56% in 2012. The ratio declined to 122.95% in 2013. The trend in the value of the ratio can be explained by the changes in the value of shareholder’s equity. The total shareholders’ equity decreased between 2011 and 2012. The value increased in 2013. The overall profitability of the company declined between 2011 and 2012. Profitability slightly improved in 2013. The improvement in profitability can be explained by a decline in non-operating expenses such as rationalizations, interest expense and other expenses.
Comparison of net income and free cash flow
The table presented below shows the value of net income and free cash flow.
|Free cash flow||(270)||(89)||(230)|
Source of data – EDGAR Online, Inc. 56; Morningstar, Inc. 1.
The net income of a company gives information on the profitability after taking into account both the operating and non-operating activities of the company. It also provides information on how the company manages the expenses and sales. The net income declined from $343 million in 2011 to $212 million in 2012. The value rose to $629 million in 2013. A decline in net income shows that the overall profitability and the efficiency in handling costs deteriorated. Free cash flow represents the cash flow that can be used by the company to invest. It is arrived at after deducting the amount spent on capital items from cash flow generated from operating activities. The free cash flow increased from ($270 million) in 2011 to ($89 million) in 2012. The value declined to ($230 million) in 2013. The company reported negative free cash flow during the three years. It indicates that Goodyear made massive capital investments. This can also be observed in the negative value of cash flow used in investing activities. The negative free cash flow also shows that the company has a potential of generating positive cash flow and profit in the future. The free cash flow is a better way to access the ability of a company to generate profit and cash as compared to net income (Brigham and Ehrhardt 87).
In summary, the financial position of the company was volatile during the three year period as shown by the balances discussed above. Sales and overall profitability deteriorated. The decline in sales and profitability was caused by global competition from other well established companies. This resulted in a decline of market share of Goodyear.
Brigham, Eugene, and Micheal Ehrhardt. Financial Management: Theory & Practice, USA: Cengage Learning, 2013. Print.
EDGAR Online, Inc. 2014, Goodyear Tire & Rubber Co/OH/ Form 10-k (Annual Report). Web.
Goodyear 2014, Our Company. Web.
Morningstar, Inc. 2014, Goodyear Tire & Rubber Co GT. Web.