Erika Blanco

Fall 2010

ACG2021.001

Executive SummaryExecutive Summary Monsanto is a multinational agricultural company, that Monsanto is a multinational agricultural company, that

takes pride in it’s innovative biotechnology expertise, takes pride in it’s innovative biotechnology expertise, research, global marketing, and consumer relations. research, global marketing, and consumer relations. Monsanto brought to the market the first herbicide, Monsanto brought to the market the first herbicide, Roundup, that would effectively eliminate weeds from Roundup, that would effectively eliminate weeds from farmers’ fields, and from there they developed the only farmers’ fields, and from there they developed the only Roundup resistant soy bean. Because of the economic Roundup resistant soy bean. Because of the economic downturn, along with the public organic food downturn, along with the public organic food movement, and bad publicity from media, Monsanto movement, and bad publicity from media, Monsanto began to take a loss. They have responded to this loss began to take a loss. They have responded to this loss by using assets to lower liabilities, and keep more by using assets to lower liabilities, and keep more retained earnings, to put back into the company. retained earnings, to put back into the company. Monsanto has a ten year plan to bring several new Monsanto has a ten year plan to bring several new products to the market, adjust their public image, and products to the market, adjust their public image, and return value to shareholder’s. return value to shareholder’s.

http://www.monsanto.com/investors/Pages/2009-annual-report.aspxhttp://www.monsanto.com/investors/Pages/2009-annual-report.aspx http://finance.yahoo.com/q/is?s=MON+Income+Statement&annualhttp://finance.yahoo.com/q/is?s=MON+Income+Statement&annual http://finance.yahoo.com/q/bs?s=MON+Balance+Sheet&annualhttp://finance.yahoo.com/q/bs?s=MON+Balance+Sheet&annual http://finance.yahoo.com/q/cf?s=MON+Cash+Flow&annualhttp://finance.yahoo.com/q/cf?s=MON+Cash+Flow&annual

Part A. IntroductionPart A. Introduction Mr. Hugh Grant,Mr. Hugh Grant, 52, is the 52, is the

Chairman, President, and Chief Chairman, President, and Chief Executive Officer of Monsanto.Executive Officer of Monsanto.

Monsanto CompanyMonsanto Company800 N. Lindbergh Blvd. 800 N. Lindbergh Blvd. St. Louis, MO 63167 St. Louis, MO 63167

Ending date of last fiscal year, Ending date of last fiscal year, August 31, 2009.August 31, 2009.

Monsanto offers farmers a wide Monsanto offers farmers a wide range of corn, soybean, cotton, range of corn, soybean, cotton, wheat, canola, sorghum and wheat, canola, sorghum and sugar cane seeds. sugar cane seeds.

Monsanto’s geographic area of Monsanto’s geographic area of activity is very diverse, including activity is very diverse, including the continents North America, the continents North America, Asia, Central and South America, Asia, Central and South America, Europe, Middle East, and Africa.Europe, Middle East, and Africa.

Part A. Audit ReportPart A. Audit Report Deloitte & Touche LLPDeloitte & Touche LLP, independent , independent

registered public accounting firm.registered public accounting firm. The opinion of the auditing firm was that The opinion of the auditing firm was that

the company maintained adequate the company maintained adequate management over financial reporting as of management over financial reporting as of August 31, 2009. However, the statements August 31, 2009. However, the statements of consolidated financial position and of consolidated financial position and related statements of consolidated related statements of consolidated operations, cash flows, shareholder’s operations, cash flows, shareholder’s equity, and comprehensive income for equity, and comprehensive income for year ended August 31, 2009, expressed an year ended August 31, 2009, expressed an unqualified opinion regarding those unqualified opinion regarding those financial statements.financial statements.

Part A. Stock Market InformationPart A. Stock Market Information

The close price for The close price for September 29, 2010 is September 29, 2010 is 48.00.48.00.

The dividend per The dividend per share is 2.33% per share is 2.33% per share.share.

Information accessed Information accessed on September 29, on September 29, 2010 .2010 .

Twelve month trade Twelve month trade range: $77.23 – range: $77.23 – $48.75.$48.75.

Based on my Based on my analysis, I would analysis, I would not purchase stock not purchase stock from Monsanto. from Monsanto. After evaluating After evaluating the activity over the activity over the past year, their the past year, their stock has steadily stock has steadily decreased since decreased since January 2010.January 2010.

Stock Market: 12 Month Stock Market: 12 Month MovementMovement

Part B. Industry Situation Part B. Industry Situation and Company Plansand Company Plans

MonsantoMonsanto is a U.S. based multinational agricultural company. is a U.S. based multinational agricultural company. Founded in St. Louis, MI , in 1901, they first began producing the Founded in St. Louis, MI , in 1901, they first began producing the herbicide, Round-Up, and then continued on to become one of herbicide, Round-Up, and then continued on to become one of the world’s producers of Genetically Modified Seeds. Monsanto the world’s producers of Genetically Modified Seeds. Monsanto produces the produces the RoundupRoundup Ready Ready soybean, which is resistant to the soybean, which is resistant to the signature pesticide. Monsanto was a producer of the artificial signature pesticide. Monsanto was a producer of the artificial sweetener Aspartame until 2000, and they currently produce the sweetener Aspartame until 2000, and they currently produce the bovine hormone, rBST. As of April 2010, The U.S. Justice bovine hormone, rBST. As of April 2010, The U.S. Justice Department is investigating the company’s marketing practices.Department is investigating the company’s marketing practices.

Monsanto has several new products coming to the market. Monsanto has several new products coming to the market. Stated in the Letter to Stockholder’s, years 2010, 2011, and Stated in the Letter to Stockholder’s, years 2010, 2011, and 2012, will be key years in seeing these new products deliver on 2012, will be key years in seeing these new products deliver on the farm. Monsanto pride’s itself on world-class biotechnology the farm. Monsanto pride’s itself on world-class biotechnology expertise, discovery research, genomics expertise, global expertise, discovery research, genomics expertise, global marketing expertise, and Global-scale production capabilities. marketing expertise, and Global-scale production capabilities.

Part B. Industry and Company Part B. Industry and Company PlansPlans

Monsanto states in their 2009 Annual Report, that 2009 was Monsanto states in their 2009 Annual Report, that 2009 was a difficult year for their Roundup business due to a greater a difficult year for their Roundup business due to a greater than anticipated global glyphosphate supply.than anticipated global glyphosphate supply.

Monsanto has implemented a company-wide restructuring Monsanto has implemented a company-wide restructuring and cost reduction initiative that netted significant savings.and cost reduction initiative that netted significant savings.

For 2010, they project total company gross profit of $6.1 For 2010, they project total company gross profit of $6.1 billion to $6.3 billion.billion to $6.3 billion.

Monsanto plans to actively reinvest their free cash flow to Monsanto plans to actively reinvest their free cash flow to increase seeds and traits business, and return value to increase seeds and traits business, and return value to shareholders through share repurchases, dividends, and shareholders through share repurchases, dividends, and acquisitions in new crop spaces- wheat and sugar cane.acquisitions in new crop spaces- wheat and sugar cane.

Part C. Income StatementPart C. Income Statement

The format of The format of Monsanto’s income Monsanto’s income statement is statement is multistep.multistep.

Comparing the Comparing the Gross Profit, Gross Profit, Income from Income from Operations, and Operations, and Net Income, from Net Income, from 2008 to 2009, it 2008 to 2009, it appears the appears the company has seen company has seen an overall increase an overall increase in profits.in profits.

August 31, 2009

August 31, 2008

Gross Profit 6,762,000 6,177,000

Income from Operations

3,103,000 2,721,000

Net Income 2,109,000 2,024,000

Part C. Balance SheetPart C. Balance Sheet Shown in the balance sheet, assets and liabilities Shown in the balance sheet, assets and liabilities

decreased, while stockholder’s equity increased. I believe decreased, while stockholder’s equity increased. I believe this shows the company is selling some of their assets to this shows the company is selling some of their assets to decrease their liabilities. Retained earnings increase by decrease their liabilities. Retained earnings increase by over $1 billion, from 2008 to 2009. They seem to be over $1 billion, from 2008 to 2009. They seem to be repurchasing shares, and dividends to put money back into repurchasing shares, and dividends to put money back into the company. There was an increase in property plant and the company. There was an increase in property plant and equipment, to support this.equipment, to support this.

(all numbers in thousands) Assets = Liabilities + Stockholders’ Equity

Aug. 31, 2009 17,877,000 7,821,000 10,056,000

Aug. 31, 2008 17,991,000 8,617,000 9,374,000

Part C. Statement of Cash Part C. Statement of Cash FlowsFlows

Cash flows from operations from the last two years, are Cash flows from operations from the last two years, are more then the net income of the previous two years.more then the net income of the previous two years.

The company made some notable changes in liabilities, by The company made some notable changes in liabilities, by paying down approximately $1.02 billion. The company is paying down approximately $1.02 billion. The company is growing significantly through investments, by $294 million.growing significantly through investments, by $294 million.

The company’s only other source of financing, is from other The company’s only other source of financing, is from other Cash Flows from Financing Activities. The dividends paid, Cash Flows from Financing Activities. The dividends paid, sales purchase of stock, and net borrowings, all decreased.sales purchase of stock, and net borrowings, all decreased.

Overall, cash has decreased from $747 million to $343 Overall, cash has decreased from $747 million to $343 million.million.

Fiscal Year(all numbers in thousands)

Net Income Cash Flows from Operations

2009 2,109,000 2,236,000

2008 2,024,000 2,799,000

Part D. Accounting PoliciesPart D. Accounting Policies

Estimation: Estimation: In order for Monsanto to apply their In order for Monsanto to apply their accounting policies, they often make estimates based on accounting policies, they often make estimates based on judgments about future events. They rely on historical judgments about future events. They rely on historical experience, market, other conditions, and on assumptions experience, market, other conditions, and on assumptions they believe to be reasonable. The estimation process is they believe to be reasonable. The estimation process is uncertain, and if the market changes the results of uncertain, and if the market changes the results of operations and financial condition, may be materially operations and financial condition, may be materially affected.affected.

Seasonality: Seasonality: The fiscal year end of August 31The fiscal year end of August 31stst, , synchronizes the quarterly and annual results with the synchronizes the quarterly and annual results with the natural flow of the agriculture cycle.natural flow of the agriculture cycle.

Basis of Consolidation: Basis of Consolidation: The financial statements are The financial statements are presented in accordance with accounting principles presented in accordance with accounting principles generally accepted in the U.S.generally accepted in the U.S.

Part D. Accounting PoliciesPart D. Accounting Policies Cash and Cash Equivalents: Cash and Cash Equivalents: All highly liquid investments All highly liquid investments

are considered cash equivalents. are considered cash equivalents. Accounts Receivable: Accounts Receivable: The company provides an allowance The company provides an allowance

for doubtful trade receivables equal to the estimated for doubtful trade receivables equal to the estimated uncollectible amounts. uncollectible amounts.

Long Term Investments:Long Term Investments: Monsanto has long-term Monsanto has long-term investments in equity securities, which are categorized as investments in equity securities, which are categorized as available-for-sale.available-for-sale.

Revenue Recognition: Revenue Recognition: The company derives most of its The company derives most of its revenue from three main sources, sales of branded, revenue from three main sources, sales of branded, conventional seed and traits, royalties and license revenue, conventional seed and traits, royalties and license revenue, and sales of agricultural chemical products.and sales of agricultural chemical products.

Part D. Accounting PoliciesPart D. Accounting Policies GoodwillGoodwill Intangible AssetsIntangible Assets Shipping and Handling Shipping and Handling

CostsCosts Marketing and AdvertisingMarketing and Advertising Research and Research and

developmental costsdevelopmental costs Foreign Currency Foreign Currency

translationtranslation Derivatives of other Derivatives of other

financial instrumentsfinancial instruments Pension and post Pension and post

retirement plansretirement plans Stock based compensationStock based compensation

Income taxesIncome taxes Fair values of assets and Fair values of assets and

liabilitiesliabilities Inventory evaluationInventory evaluation Plant, Property, and Plant, Property, and

EquipmentEquipment Environmental remediation Environmental remediation

liabilitiesliabilities Litigation and other Litigation and other

contingenciescontingencies GuaranteesGuarantees

Part E. Financial Analysis Part E. Financial Analysis Liquidity RatiosLiquidity Ratios

(2009) Working Capital= 7,883,000-3,756,000=4,127,000(2009) Working Capital= 7,883,000-3,756,000=4,127,000 (2008) Working Capital= 7,609,000-4,439,000= 3,170,000(2008) Working Capital= 7,609,000-4,439,000= 3,170,000 The positive result shows income that can be used for other The positive result shows income that can be used for other

investments.investments.

(2009) Current Ratio=7,883,000/3,756,000=2.10(2009) Current Ratio=7,883,000/3,756,000=2.10 (2008) Current Ratio=7,609,000/4,429,000=1.71(2008) Current Ratio=7,609,000/4,429,000=1.71 The current ratio has increased, meaning they have increased The current ratio has increased, meaning they have increased

their short-term debt-paying ability.their short-term debt-paying ability.

(2009) Receivable Turnover=11,724,000/((285,000+3,147,000)/2)=3.91(2009) Receivable Turnover=11,724,000/((285,000+3,147,000)/2)=3.91 (2008) Receivable (2008) Receivable

Turnover=11,365,000/((3,147,000+2,355,000)/2)=4.13Turnover=11,365,000/((3,147,000+2,355,000)/2)=4.13 The RT has decreased; the company is not turning as much The RT has decreased; the company is not turning as much

receivables into cash.receivables into cash.

Part E. Financial Analysis Part E. Financial Analysis Liquidity RatiosLiquidity Ratios

(2009)Invetory Turnover= (2009)Invetory Turnover= 4,962,000/((2,934,000+2,453,000)/2)=1.844,962,000/((2,934,000+2,453,000)/2)=1.84

(2008)Inventory (2008)Inventory Turnover=5,188,000/((2,453,000+1,719,000)/2)=2.49Turnover=5,188,000/((2,453,000+1,719,000)/2)=2.49

The company has decreased the amount of inventory being The company has decreased the amount of inventory being sold.sold.

(2009) Average day’s sales uncollected=365/3.91=93.40(2009) Average day’s sales uncollected=365/3.91=93.40 (2008) Average days’ sales uncollected=365/4.13=88.38(2008) Average days’ sales uncollected=365/4.13=88.38 In 2009, it takes longer for the company to receive payment In 2009, it takes longer for the company to receive payment

on credit sales.on credit sales.

(2009) Average days’ inventory on hand=365/1.84=198.37(2009) Average days’ inventory on hand=365/1.84=198.37 (2008) Average days’ inventory on hand=365/2.49=146.59(2008) Average days’ inventory on hand=365/2.49=146.59 It takes more days in 2009, to sell inventory then 2008.It takes more days in 2009, to sell inventory then 2008.

Part E. Financial Analysis Part E. Financial Analysis Profitability RatiosProfitability Ratios

(2009) Profit Margin= 2,109,000/11,724,000=.170 (2008) Profit Margin= 2,024,000/11,365,000= .178 There was a decrease in the percentage of sales each dollar

contributes to net income. (2009) Asset Turnover=11,724,000/((7,883,000+7,609,000)/2)=1.51 (2008) Asset Turnover=11,365,000/((7,609,000+5,084,000)/2)=1.79 In 2009, the company was not as efficient in using assets to

produce sales. (2009) Return on Assets=2,109,000/(17,877,000+17,991,000)/2)=.118 (2008) Return on Assets=2,024,000/((17,991,000+12,983,000)/2)=.131 There is a decrease in how efficiently assets are produced into

income. (2009) Return on Equity=2,109,000/((10,056,000+9374,000)/2)=.217 (2008) Return on Equity=2,024,000/((9,374,000+7,503,000)/2)=.240 There is a decrease in the amount earned by the company to each

dollar stockholders invested in the business.

Part E. Financial Analysis Part E. Financial Analysis Solvency RatioSolvency Ratio

(2009) Debt to Equity= 7,821,000 / 10,056,000 = .778(2009) Debt to Equity= 7,821,000 / 10,056,000 = .778 (2008) Debt to Equity= 8,617,000 / 9,374,000 = .919(2008) Debt to Equity= 8,617,000 / 9,374,000 = .919

The debt to equity ratio shows the proportion of a The debt to equity ratio shows the proportion of a company’s assets financed by creditors and the company’s assets financed by creditors and the proportion financed by stockholders. According to proportion financed by stockholders. According to the values 78% for 2009, and 92% for 2008, there is the values 78% for 2009, and 92% for 2008, there is a notable decrease. This decrease indicates that the a notable decrease. This decrease indicates that the company has resolved some of the high risk, in company has resolved some of the high risk, in repaying creditors. In 2009, the company was repaying creditors. In 2009, the company was receiving more then half its financing from receiving more then half its financing from investors.investors.

Part E. Financial Analysis Part E. Financial Analysis Market Strength RatiosMarket Strength Ratios

2009 Price/earnings per share= 4.342009 Price/earnings per share= 4.34 2008 Price/earnings per share= 6.502008 Price/earnings per share= 6.50 The investors’ confidence in this company’s future The investors’ confidence in this company’s future

has decreased.has decreased.

2009 Dividend yield=3.56%2009 Dividend yield=3.56% 2008 Dividend yield=5.34%2008 Dividend yield=5.34%

The stock return to a investor or stockholder has The stock return to a investor or stockholder has decreased. decreased.

Sources CitedSources Cited

MonsantoMonsanto. Ed. Willie Voght. N.p., 2010. Web. 28 . Ed. Willie Voght. N.p., 2010. Web. 28 Sept. 2010. <www.Monsanto.com>. Sept. 2010. <www.Monsanto.com>.

Pringle, Peter. Pringle, Peter. Food IncFood Inc. New York: Public Affairs, . New York: Public Affairs, 2009. N. pag. Print. 2009. N. pag. Print.

Kasky, Jack. "Monsanto’s Roundup Ready 2 Soy Kasky, Jack. "Monsanto’s Roundup Ready 2 Soy Yields Meet Forecast, OTR Says." Yields Meet Forecast, OTR Says." BloombergBloomberg. Ed. . Ed. Simon Casey. Bloomberg, 30 Sept. 2010. Web. 30 Simon Casey. Bloomberg, 30 Sept. 2010. Web. 30 Sept. 2010. Sept. 2010. <http://www.bloomberg.com/news/2010-09-30/m<http://www.bloomberg.com/news/2010-09-30/monsanto-s-roundup-ready-2-soy-yields-meet-onsanto-s-roundup-ready-2-soy-yields-meet-

forecast-otr-says.htmlforecast-otr-says.html>. >.