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Good Year Tire Company

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Financial Statement Analysis Project Goodyear Tire& Rubber (GT)

*Official Logo copied from (Goodyear Tire & Rubber Company official website, 2013) Corporate Name The Goodyear Tire & Rubber Company
Exchange Traded In National Association of Securities Dealers Automated Quotations (NASDAQ)
Ticker Symbol GT
Description The Goodyear Tire & Rubber Company has a long journey of success of more than a century. Frank A. Seiberling, the founder bought first plant of the company, when the bicycle boom was spreading out around the world. The Goodyear Tire & Rubber Company was initially incorporated with a capital stock of $ 100,000, on August 29, 1928. (Goodyear Tire & Rubber Company official website, 2013)
"More people ride on Goodyear tires than on any other kind" was adopted, as the slogan of the company in 1916 and 10 years later in 1926, The Goodyear Tire & Rubber Company became the largest rubber company in the world. (Goodyear Tire & Rubber Company official website, 2013)
Goodyear Tire & Rubber Company took a long 53 years to reach the milestone of billion-dollar-year. At present, sales of Goodyear Tire & Rubber Company has a figure in $20 billion. (Goodyear Tire & Rubber Company official website, 2013)

*Official Logo copied from (Cooper Tire & Rubber Company official website, 2013) Corporate Name Cooper Tire & Rubber Co
Exchange Traded In New York Stock Exchange (NYSE)
Ticker Symbol CTB
Description The history of Cooper Tire Company actually dates back to 1914, when two brother-in-laws John F. Schaefer and Claude E. Hart jointly purchased an Akron based tire parts making M and M Manufacturing Company. After a subsequent growth in 1946 company took the name, Cooper Tire and by 1960 the company became a publically held corporation listing on NYSE. (Cooper Tire & Rubber Company official website, 2013)
As of today Cooper Tire Company operates in 65 locations around the globe with a family of companies acquired on the way towards success. As the focus of company on customer delighting and shareholder value maximization, Cooper Tire Company holds a tremendous reputation in North America, China and European Countries. (Cooper Tire & Rubber Company official website, 2013).

Methodology Used For Peer Company Selection
1. Industry Matching
Industry means the type of economic goods or services provided by a company or group of companies, whether manufacturing by processing raw materials, purchase and sale etc.
2. Product Matching
Products are the processed raw materials or manufactured good offered by any of the companies.
3. Company Size Matching
Company size is the factor determining proportion of the particular company with other companies in terms of assets, operating units, number of employee, stocks issued, sales units, etc.
4. Company Base country
The base country is the country where a company is initially formed and the place where the headquarters is located; it will be the whole controlling unit of the entire manufacturing and sales unit.
5. History of Operations
History of operations considers the total history of the company or its journey throughout from the formation till date.

Applying Methodology For Peer Company Selection
1. Industry Matching
The prior most consideration of selecting a peer company was the type of industry to which our company belongs. Goodyear Company is a manufacturing goods industry, which produces Tires and Rubber products. Cooper Tires is also a manufacturing company with products much similar as the Goodyear Company.

2. Product Matching
Main products manufactured by both the companies are same, which is, tires for automobile industry. Both the company concentrates on manufacturing various rubber products used in the automobiles.

3. Company Size Matching
The size of both Goodyear and Cooper Tires are really big and both companies own several subsidiary companies, runs business whole around the globe and maintains several manufacturing units in different parts of the world.

4. Company Base country
Goodyear Company and Cooper Tire Company, both have successful stories dating back more than a century were formed in United States and holds their shares in NASDAQ and NYSE, respectively.

5. History of Operations
Goodyear Company was incorporated as The Goodyear Tire and Rubber Company, in the same year of its formation (1898). M and M manufacturing company formed in 1914 and purchased The Giant tire and Rubber Company one year after. In 1946 they changed their name to The Cooper Tire and Rubber Company and incorporated in the year of 1960 with holding its shares on NYSE.

Profitability Goodyear Tire & Rubber Co. Inc. Cooper Tire & Rubber Co Fiscal year ending Fiscal year ending 2012/12/31 2011/12/31 2010/12/31 12/31/2012 12/31/2011 12/31/2010
ROE 14.43% 43.03% -17.20% 3.30% 48.82% 35.48%
ROA 3.43% 4.49% 1.01% 9.41% 12.05% 8.04%
Profit Margin 1.13% 1.83% -0.87% 5.25% 6.46% 4.18%

ROE

Return on equity (ROE) is calculated by dividing profit by average shareholder’s equity. It measures how much the firm earned for each dollar of shareholder’s investment.
Comparing both companies ROE rates, for the last three years the rates keep fluctuating. But, in 2010 Goodyear was on loss with negative (-17 %) ROE, while Cooper made a pretty good profit with ROE 35.48%. In 2011 both the companies performed well by increasing their ROEs. Once after 2011 fiscal year both the companies faced huge fall in their ROEs.

ROA

Return on Assets (ROA) is calculated by dividing the sum of profit and interest expense by average total assets. ROA explains how much the company earned from the use of its assets during the period. While looking into the figures Cooper Company had efficiently managed their asset utilization for the last three years by making a constant growth rate in the ROA.
On the other hand Goodyear was facing a volatile rate in ROA, as in 2011 it increased than 2010, but went down in 2012. We can see that the peer company (Cooper Tire and Rubber) had higher capital intensity than Goodyear Tire and Rubber Company with ROA above 5% that is generally considered as a good ratio.

Profit Margin

Profit Margin measures how much profit each sales dollar generated during the period. It is calculated by dividing profit with net sales. In the case of profit margin as of ROE, both company’s profit margin were volatile for the past three years with having highest margin rate in 2012. But Goodyear compared to Cooper, later maintained a good profit margin throughout the three years with far better profit margins of, 4.18%, 6.46%, 5.25% (than, -0.87%, 1.83%, 1.13%), in 2010,2011, 2012, respectively.

Liquidity Goodyear Tire & Rubber Co. Inc. Cooper Tire & Rubber Co Fiscal year ending Fiscal year ending 12/31/2012 12/31/2011 12/31/2010 12/31/2012 12/31/2011 12/31/2010
Current Ratio 1.60 1.65 1.52 2.21 1.94 1.93
Quick Ratio 0.91 0.95 0.89 1.17 1.02 1.19

Current Ratio

The current ratio measures the ability of the firm to pay back its debts. Current ratio is calculated by dividing current assets divided by current liabilities. Current ratio of Goodyear is fluctuating with high ratio of 1.6549 in 2011, where as in the case of Cooper, current ratio shows a constant growth with ratios, 1.9305,1.9415,2.218, in 2010,2011 and 2012 respectively. And we know that acceptable current ratios vary from industry to industry and are generally between 1.5 and 3 for healthy businesses, so it means that Good year tire & rubber company and its peers are all have a good short-term financial strength and they have enough ability to figure out their financial problems.

Quick Ratio

Quick ratio measures the companies’ ability to solve the debts using the most liquid assets. It is calculated by dividing the sum of cash and cash equivalents, marketable securities and accounts receivable with current liabilities. From the data analyzed of both companies Cooper Tire Company maintains a quick ratio above 1 for last three years (1.11919, 1.0161, 1.1712, years 2010, 2011, 2012 respectively) and is highly efficient to solve it debts.
On the other hand Goodyear maintains its quick ratios close to 1 but as similar as the Cooper ratios keep fluctuating throughout the three-year period. Where, in 2011 Cooper had lowest average of 1.0161, Goodyear was having its higher of its three years average with 0.9481 (almost 95 cents of cash or near cash assets per each dollar of debt).

Solvency Goodyear Tire & Rubber Co. Inc. Cooper Tire & Rubber Co Fiscal year ending Fiscal year ending 12/31/2012 12/31/2011 12/31/2010 12/31/2012 12/31/2011 12/31/2010
Times interest earned 2.23 2.87 1.03 13.44 4.51 5.14
Debt-to-equity 25.30 15.74 0.07 1.99 2.58 3.41

Times Interest Earned (TIE)

Times interest earned is the measurement of company’s ability to meet debt obligations. TIE is calculated by dividing firms earnings before interest and tax by total interest payable. The ratio indicates how many times firm can cover the interest charges by before tax earnings. Compared to Cooper Company, Goodyear Company maintains a low TIE ratio for the last three years.

Debt to Equity

Debt to Equity ratio measures the relationship between total liabilities and the shareholder’s capital. It is computed by dividing total liabilities by shareholder’s equity. Goodyear Company faces a constant growth in debt equity ratio, (0.0652, 15.7375, 25.3024 in 2010, 2011, 2012 respectively) where the growth rate is really high, whereas Cooper’s debt to equity ratio got reduced from3.4079 in 2010 to 1.9947 in 2012.

Auditor and Audit Opinion Goodyear Tire & Rubber Co. Inc. Cooper Tire & Rubber Co Fiscal year ending Fiscal year ending 12/31/2012 12/31/2011 12/31/2010 12/31/2012 12/31/2011 12/31/2010
Accounting Firm PRICEWATERHOUSECOOPERS LLP ERNST & YOUNG LLP
Auditor Opinion Unqualified Unqualified

Stock Market Information (As of 18 October 2013)

The Goodyear Tire and Rubber Company *Image obtained from (https://www.google.com/finance) on 18 October 2013

The Cooper Tire and Rubber Co. *Image obtained from (https://www.google.com/finance) on 18 October 2013

Comparison Of Stock Data Goodyear Tire & Rubber Company Cooper Tire & Rubber Co. As of 5 pm October 18, 2013
Closing Stock price 22.63 24.64
52 week price range 10.91 - 23.40 18.46 - 34.79
P/E Ratio 19.53 6.58

52 - Week price range and Stock

52 – week price range is the lowest and highest stock price where the particular firm’s stock is traded for the previous 52 weeks. The highest price of stock for Goodyear Company and Cooper Company are 23.40 and 34.79, and lowest stock price in last 52 weeks was 10.91 and 18.46 respectively.

Price – Earnings ratio (P/E)

Price – earnings ratio is the firm’s ratio of current sock price to the earnings per share. P/E ratio can be calculated by dividing the current stock price with earnings per share (EPS) of the company.
Companies with higher P/E ratio are expected to give higher returns in the future. Here Goodyear Tire Company is having a P/E ratio of 19.53, which is more than three times the P/E ratio of Cooper Tire Company (6.58). Goodyear Company is expected to give higher returns in the future.

Recommendation
After the analysis and careful consideration of the stock market of Goodyear Tire and Rubber Company we recommend to “BUY” shares of the company. The decision was made based on the analysis of past historic data, where the stock price of Goodyear company although faces some fluctuation in its stock prices, it follows a constant upward growth rate. Also the stock price is much above than the lowest value in the 52-week price range and the P/E ratio expected is relatively high and it is believed that company can offer higher dividends for the year.

Reference

1. Goodyear. (2010). History. Retrieved from http://www.goodyear.com/corporate/history/
2. Cooper tires. (2012). History. Retrieved from http://coopertire.com/About-Us/Our-Company.aspx
3. PRICEWATERHOUSECOOPERS LLP. (2011, 2 10). 2010 annual report. Retrieved from http://files.shareholder.com/downloads/AMDA-1IFBEB/2742487493x0x626575/3FC44677-C99E-41BB-A903-95DDDC1C1E30/2010ar.pdf
4. PRICEWATERHOUSECOOPERS LLP. (2012, 2 14). 2011 annual report. Retrieved from http://files.shareholder.com/downloads/AMDA-1IFBEB/2742487493x0x626576/F1D733C0-9AE5-45E4-9DD1-A8CF2199C195/2011ar.pdf
5. PRICEWATERHOUSECOOPERS LLP. (2013, 2 12). 2012 annual report. Retrieved from http://files.shareholder.com/downloads/AMDA-1IFBEB/2742487493x0x646386/93BA2727-7366-49CD-993F-3A6C69ADC061/GY12AR_WebReady.pdf
6. ERNST & YOUNG LLP. (2011, 2 25). 2010 annual report. Retrieved from http://files.shareholder.com/downloads/CTB/2742305251x0xS950123-11-18515/24491/filing.pdf
7. ERNST & YOUNG LLP. (2012, 2 27). 2011 annual report. Retrieved from http://investor.shareholder.com/CTB/secfiling.cfm?filingID=1193125-12-81292
8. ERNST & YOUNG LLP. (2013, 2 25). 2012 annual report. Retrieved from http://investor.shareholder.com/CTB/secfiling.cfm?filingID=1193125-13-73996
9. Google Finance. (2013, 10 18). Company summary. Retrieved from https://www.google.com/finance?q=NASDAQ:GT&ei=NDVjUsi7DsS8rQGd_AE
10. Google Finance. (2013, 10 18). Company summary. Retrieved from https://www.google.com/finance?q=NYSE:CTB&ei=QTVjUsDPJMW6qgGnPg

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...CANADIAN TIRE CORPORATION, LIMITED 2012 Annual Information Form February 21, 2013 ANNUAL INFORMATION FORM CANADIAN TIRE CORPORATION, LIMITED TABLE OF CONTENTS 1. 2. Corporate Structure Description of the Business 2.1 Retail Business 2.2 Financial Services Business 2.3 Seasonality of the Business 2.4 Intangible Properties 2.5 Economic Dependence 2.6 Lending 2.7 Financing of the Business 2.8 Risk Factors 2.9 Employees 2.10 Social and Environmental Policies General Development of the Business 3.1 Retail Business Developments 3.2 Financial Services Business Developments 3.3 Other Business Developments Capital Structure 4.1 Description of Capital Structure 4.2 Market for Securities Dividends Security Ratings Transfer Agents and Registrars Directors and Officers Interests of Experts 1 1 2 10 11 12 12 13 13 13 15 15 16 16 21 21 23 23 24 25 26 27 27 32 32 33 i 3. 4. 5. 6. 7. 8. 9. 10. Legal Proceedings and Regulatory Actions 11. Additional Information ANNEX A – Audit Committee Mandate and Charter Certain brands mentioned in this report are the trade-marks of Canadian Tire Corporation, Limited, Mark’s Work Wearhouse Ltd., FGL Sports Ltd. or used under license. Others are the property of their respective owners. CAUTIONARY NOTE REGARDING FORWARD LOOKING INFORMATION This Annual Information Form, and the documents incorporated by reference herein, contain forward-looking information that reflects management’s current expectations related to matters such as......

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