Applied Business Project 1 – Financial Analysis

Name: Ross, Chelsea chelseaross@email.arizona.edu

Project: ABP-1 – Financial Analysis

Task 1: Current Company Profile

1.1. Company Governance

Task 1.1 Corporate Governance

Company’s legal company name Barnes Group Inc.
Company’s trading exchange and ticker symbol NYSE: B
Company’s primary website URL https://www.barnesgroupinc.com/
Corporate Headquarters Location 123 Main Street, Bristol, CT 06010-6376
President and Chief
Executive Officer
Most key executive & title Patrick J. Dempsey
Company fiscal year end 01-Dec-20
Company’s full-time employees 5,749
Industry sector Industrials
Industry classification Electrical Equipments

Table 1 – Barnes Group Inc. Corporate governance

(Sources https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch Referenced 9/9/2020)

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 Applied Business Project 1 – Financial Analysis

1.2. Financial profile

Task 1.2 Financial Profile

The date of Financial Profile 14-09-2020
Current Share Price (price at the previous close) $ 34.44
Volume 1,99,477
Average volume 2,12,826
52 week range (high and low) $68.60 - $30.22
1 Year Target Estimate $ 41.50
Forward Dividend and Yield 0.64 (1.86%)
Overall Analyst Recommendation Rating 5 - Strong Sell
Current Market Capitalization 1.724B
Company PE Ratio 14.96
Company Earnings per Share (EPS) $ 2.28
Company’s “Beta” 1
Percentage of shares owned by insiders 8.56%
Percentage of shares owned by institutions 91.44%

Table 2 – Barnes Group Inc.

(Source https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch Referenced 9/9/2020)

1.3. Investment Assessment

The Barnes Company has been in trouble with impressing investors and its stock process
has been on a downfall for a long now. The pandemic of COVID-19 has done worse for the
company and it has lost almost 41.8% of its market capitalization industry standard of 7.8%.

The market for the company has been dull for the last 6 months, which includes aircraft
carriers, OEMs, and other heavy industries, have faced reduced demand and production decline
due to the pandemic. Furthermore, the costs, selling, general and administrative, have been
constantly increasing at a higher pace than the rise in sales, leading to lower profits over the
years for the company. But, foreign exchange fluctuations have partially hurt the company due
to its expanded international operations.

Owing to these factors the estimated financials of the company do not look very strong
and are expected to go down further as the customer industries for the company have still not
revived from the pandemic. Analysts, have put a strong sell recommendation on Barnes
common stock at NYSE.

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(Sources https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch and

https://www.businesswire.com/news/home/20200728005083/en/Barnes-Group-Reports-
Quarter-2020-Financial-Results Referenced 9/9/2020)

Task 2: Historical Stock Analysis and Fundamentals

2.1. Financial Metrics

Task 2.1 Historical Stock Analysis and Fundamentals
(in millions except per share items)
Closing Date 30-12-2019 30-12-2018 30-12-2017
Balance Sheet Fundamentals
Cash and Cash Equivalents 93.805 100.719 145.29
Inventory 232.706 265.99 241.962
Total Current Assets 764.39 806.146 768.721
Total Non-Current Assets 1973.945 2002.824 1596.995
Total Assets 2738.335 2808.97 2365.716
Accounts Payable 118.509 143.419 127.521
Total Current Liabilities 342.875 357.86 315.761
Total Non-Current Liabilities 1124.932 1248.054 789.634
Total Liabilities 1467.807 1605.914 1105.395
Total Stockholder Equity 1270.528 1203.056 1260.321
Net Tangible Assets 356.603 370.531 359.298
Income Statement Fundamentals
Total Revenue 1491.118 1495.889 1436.499
Gross Profit 492.454 546.964 532.365
Selling General and Administrative 304.184 310.516 295.181
Total Operating Expenses 304.184 310.516 295.181
Operating Income or Loss 188.27 236.448 237.184
Net Income 117.042 158.35 166.186
EBIT 161.82 206.844 207.495
Normalized EBITDA 236.448 231.764 206.451
Cash Flow Statement Fundamentals
Cash flows from operating activities 263.223 248.301 237.199
Cash at Beginning of period 94.87 100.719 145.29
Cash at end of period 76.993 93.805 100.719
Free Cash Flow 215.571 195.015 174.126
Historical Stock Price Data
Adj. Closing price on Closing Date 62.46 63.66 46.12
Stock Volume on Closing Date 2903800 4139900 3507400

Table 3 – Barnes Group Inc. Financial Profile

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(Source https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch

Referenced 9/9/2020)

2.2. Media Perspectives

The press release is an FY2020 second-quarter financial statements release from the
company. It notifies it’s shareholders, the business conducted by the company, and the
business disruptions faced by the pandemic. The sales of the company have been decreased by
37% from the previous year and the operating income has fallen by 52%. The leverage of the
company was maintained at 2.5x of EBITDA.

The major emphasis of the press release is the effect of the pandemic on operations and
sales of the company. Their business has been severely affected due to worldwide lockdown
and halt of airplanes. The company has a major portion of its sales in the aerospace industry
and the stoppage of its activities lead to a large decline in sales. The company has taken actions
to restructure cost heads and preserve cash, to save against reduced capacity. The automotive
industry, another customer industry to the company, has been dull for activities and sales,
though the company expects some bright spots of medical equipment to continue supply
orders.

The expectations for the remaining year of 2020 and further are not up to expectations and
any outlook for the future has been suspended until the economic activities in industries come
back to some normalization.

The sentiments of shareholders do not seem positive, effected by poor quarterly results and
uncertain future outcomes. Following the press release, the share prices did not seem to
change much as there has already been a decline in prices since February, that is when the
COVID-19 was taking a form of the pandemic and the supply chain from East Asia countries
started getting hampered. The share prices of the company have declined much farther than
the fall seen by its industry.

(Sources https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch and

https://in.finance.yahoo.com/news/heres-why-avoid-betting-barnes-150603909.html
Referenced 9/9/2020)

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Task 3: Stock Graphical Analysis

3.1. Stock Price Analysis Table

Task 3.1 Historical Stock Price Analysis Table - adj. closing prices (in $)
Ticker B CMI HEI
Closing Date Barens Group Inc Cummins Inc HEICO Corporation
December 31, 2018 52.4 126.8 77.26
January 31, 2019 57.73 139.58 84.33
Feburary 28, 2019 56.9 147.28 93.54
March 29, 2019 50.37 150.9 94.68
April 30, 2019 54.5 158.94 105.32
May 31, 2019 50.82 145.11 121.35
June 28, 2019 55.36 164.92 133.62
July 31, 2019 51.14 157.86 136.55
August 30, 2019 44.23 144.95 144.46
September 30, 2019 50.82 157.97 124.7
October 31, 2019 57.64 167.49 123.16
November 29, 2019 58.53 178.84 129.7
December 31, 2019 61.26 175.23 114.01

Table 3 – Industry Stock Price Closing Price Table

(Source https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch Referenced 9/10/2020)

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3.2. Industry Stock Price Graph

Figure 1 – Industry Stock Price Analysis Chart

(Source https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch 9/10/2020)

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Task 4: Assessing your stock

4.1. Fundamental numbers needed for Financial Ratios

Task 4.1 Fundamental numbers needed for Financial Ratios

Market Capitalization 1,70,40,00,000
Book Value of Equity 1,27,05,28,000
Total Current Assets 76,43,90,000
Total Current Liabilities 1,46,78,07,000
Cash and Cash Equivalents [Cash] 9,38,05,000
Short Term Investments [Securities] 0
Shares of common stock [Stock] 6,38,73,000
Net Receivables [A/R] 34,89,74,000
Long Term Debt 82,50,17,000
Total Stockholders’ Equity 1,27,05,28,000
Table 4 – Fundamental numbers needed for Financial Ratios

(Source https://finance.yhoo.com/ Referenced 9/10/2020

4.2. Acid Test

Acid Test= (Cash + Securities + A/R) / Current Liabilities

Acid Test = (9,38,05,000+34,89,74,000)/ 1,46,78,07,000 = 0.302

T he acid test ratio is an indicator of whether the firm is competent enough to pay for its
short-term liabilities through its liquidity cash and equivalents. It does not take into account
those current assets which cannot be liquidated quickly. In an ideal company, this ratio is
expected to be 1, meaning that the most liquid current assets can cover for all its short-term
liabilities if the need arises.

Although, this standard of the acid-test ratio can vary according to respective industries.
In a business structure of every industry is different and some models depend on more on
inventories while others more on cash. For The retail industry tends to have a low acid-test
ratio as they are highly inventory dependent businesses.

A very high or a very low acid-test ratio is a cautionary sign. Low ratios (if lower than the
current ratio) show that the company has a lot of inventory at hand and in the case of Barnes
Group inc. the ratio is indeed very low. It implies that the inventory is sitting idle and is not able
to find buyers.

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(Sources https://in.finance.yahoo.com/news/heres-why-avoid-betting-barnes-150603909.html
and https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch and
https://www.investopedia.com/terms/d/debtequityratio.asp Referenced 9/10/2020)

4.3. Working Capital Ratio

Working Capital Ratio = Total current assets / current liabilities

Working Capital Ratio = 76,43,90,000/1,46,78,07,000 = 0.521

This ratio is used to access the company’s financial performance. It indicates cash flow is
used up in conducting the operations of the company. It essentially measures the health of the
short-term financing of the company.

A very low working capital ratio, as in the case of Barnes Group, implies that the
company is running extremely low on its short term financing, and in case if the repayment to
creditors arises, it will become difficult for the company to do so. There can be many other
reasons too (mismanagement of inventory, non-payment from account receivables) but the
main reason for low working capital in Barnes Group seem to be continuous declining sales. If it
continues to have a low working capital ratio, the company may find it difficult to carry on day-
to-day activities and run low on cash.

(Sources https://in.finance.yahoo.com/news/heres-why-avoid-betting-barnes-150603909.html
and https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch Referenced 9/10/2020)

4.4. Price-to-Book Ratio

Price to Book Ratio = Market Capitalization / Book Value of Equity

Price-to-Book Ratio = 1,70,40,00,000/1,27,05,28,000 = 1.341

This ratio evaluates a firm’s market value against its book value. P/B ratio provides an
understanding of market value for the firm against its accounting value. This shows how much
value in the company will remain it the firm liquidated and paid off all its debts.

Since the book value is a historical measure of the costs for all assets and liabilities, it
provides a reasonable check of value when compared to market value. It shows what growth
can be expected from the current standing values of the assets, which will be employed for
continuing the business.

A P/B ratio close to one shows that the investors value the company on a very
reasonable basis as per the fundamental analysis. For Barnes Group, the ratio is close to one

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showing the investors value the assets of the company to be contributing to future growth
positively and at a reasonable rate.

(Sources https://in.finance.yahoo.com/news/heres-why-avoid-betting-barnes-150603909.html
and https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch Referenced 9/10/2020)

4.5. Debt-to-Equity Ratio

Debt to Equity Ratio = Total Liabilities / Total Stockholders’ Equity

Debt-to-Equity Ratio = 1,467,807,000/1,27,05,28,000 = 1.155

This is one of the most important ratios to know the financial leverage of the company.
It implies how much liabilities does the company has against its shareholders’ equity. It reflects
the ability of the equity to cover its outstanding debts in case of winding up of the business.

The ratio potentially shows the capital structure of the company and informs the
investor of the company’s riskiness. An ideal D/E ratio is 1, meaning that the firm finances
equally from debt and equity, but various industries tend to have a different standard of this
ratio.

Heavy industries, such as manufacturing, aerospace, etc., have a D/E ratio greater than
one as they are heavily leveraged companies. As in the case of Barnes Group Inc., the D/E ratio
is higher than 1, shows it is more financed from debt compared to equity, but since the industry
of the company is an industrial product manufacturing it is perfectly normal for the company to
have higher debt ratio.

(Sources https://in.finance.yahoo.com/news/heres-why-avoid-betting-barnes-150603909.html
and https://finance.yahoo.com/quote/B?p=B&.tsrc=fin-srch and
https://www.businesswire.com/news/home/20200728005083/en/Barnes-Group-Reports-
Quarter-2020-Financial-Results and
https://www.investopedia.com/terms/d/debtequityratio.asp Referenced 9/10/2020)

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