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Fraud Examination Essay

2714 words - 11 pages

As Bayer approached its first quarter in April 2010, chief executive officer Dr. Marijin Dekkers explained that “Bayer operating performance was back on track, compared with the crisis year 2009”. Bayer Group had sales of $35.1 billion. Clearly, 2010 was a successful year for Bayer in terms of business expansion and growth.
The group examined Bayer financial statements to determine if the picture presented by Dekker is reflected in the financial performance of the firm by examining financial ratios using information from the Income statement and balance sheet. Financial ratios help to identify some of the financial strength and weakness of firms. The ratios give us two ways on ...view middle of the document...

The return on capital employed (ROCE) fell from 9.17% in 2008 to 7.15% in 2009 and to 6.71% in 2010. This is due to falls in operating profit of 15.2% and 9.2% in the periods 2008-2009 and 2009-2010 respectively, while capital employed increased by 8.8% in the first period and contracted only 3.3% in the same period. The return on total assets (ROTA) also fell but not to the same extent as the ROCE. It fell from 6.75% in 2008 to 5.89% in 2009 and to 5.3% in 2010. The reason why the decrease in ROTA is less than for ROCE is because, although operating profit fell, the total assets stayed relatively constant, decreasing from €52.5bn to €51bn from 2008 to 2009 and increasing only to €51.5bn in 2010.

The current ratio increased from 1.24 in 2008 to 1.89 in 2009 before falling slightly to 1.69 in 2010. The improvement from 2008 to 2009 is due to a 35.1% fall in current liabilities compared to a mere 1% fall in current assets. The reason the ratio fell slightly from 2009 to 2010 is because, although current assets increased by 7.8%, current liabilities increased by 20.8%. Having said that, the ratio in 2010 was still considerably above that in 2008. The Quick ratio also improved over the same period, increasing from 0.76 to 1.21 from 2008 to 2009 and then dropping only slightly to 1.13 in 2010.

Gearing ratio has remained stable over the last five years, dropping from 53.60% in 2006, 43.90 in 2007, 39.50 2008, 37.80% in 2009 to 34.60% in 2010. This is perfectly manageable for a company with relatively stable cash flows and which pays a low rate of interest on its debt (as result of its solid A- credit rating).

Ratio Analysis Report |
Publicly Traded Company Ratios |
Bayer AG (ADR) |
TERM | Qtr. End 30-Sep-11 | | Year End 31-Dec-10 | Year End 31-Dec-09 | Year End 31-Dec-08 | Year End 31-Dec-07 | Year End 31-Dec-06 |
Net Sales in $M | 11,311.70 | | 45,779.30 | 40,664.90 | 42,948.10 | 42,252.70 | 37,778.90 |
PREDICTOR RATIOS: | Qtr. End 30-Sep-11 | | Year End 31-Dec-10 | Year End 31-Dec-09 | Year End 31-Dec-08 | Year End 31-Dec-07 | Year End 31-Dec-06 |
Altman Z-Score | 1.1 | | 1.88 | 1.92 | 1.51 | 1.93 | 1.24 |
Sustainable Growth Rate | 3% | | 0% | 1% | 4% | 22% | 7% |
  | | 11,195.60 |
P/E Ratio | 62.1 | | 35.7 | 36.1 | 20.2 | 11.3 | 18.1 |
Gross Profit Margin on Sales | 50.70% | | 51.30% | 51.40% | 50.00% | 49.50% | 47.20% |
Net Profit Margin (Pre-tax) | 10.10% | | 4.90% | 6.00% | 7.20% | 6.90% | 6.80% |
Net Profit Margin (After-tax) | 7.40% | | 3.70% | 4.40% | 5.20% | 14.50% | 5.80% |
Operating Expense to Sales | 87.30% | | 92.30% | 90.40% | 89.30% | 90.30% | 90.50% |
Operating Profit to Sales | 12.70% | | 7.70% | 9.60% | 10.70% | 9.70% | 9.50% |
Basic Earning Power | 1.70% | | 3.30% | 3.70% | 4.50% | 4.30% | 3.50% |
Return on Assets (After-tax) | 1.20% | | 2.50% | 2.70% | 3.30% | 9.20% | 3.00%...

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