http://seekingalpha.com/article/37536-a-comparative-analysis-of-two-steel-producers-gerdau-sa-and-nucor
Summary:
This article compares the financial positions of two steel producing companies called Gerdau SA and Nucor. Since they are from different countries with different currencies, it would be difficult to compare their progress just by looking at their dollar values, therefore William Trent (the author of the article) had to assess both companies by calculating and looking at their ratio values. The financial statements showed in this article revealed that Nucor is much more efficient at handling inventory and that their inventory on hand averaged 33.7 days, while Gerdau SA's was 84.1. As the article goes on, it starts to bring in more ratios to compare the two companies, like the accounts receivable turnover, days sales outstanding, asset turnover ratio, current/equity ratios, solvency ratio, and lastly, profitability ratios. It was determined that Nucor was far more superior to Gerdau in operating their company.
Connection:
There were a topics in this article that relates with chapter 15 in the accounting textbook. Since the two companies were using different currencies, a lot of new ratios were brought in and introduced to us. There were also a few ratios that were used and that we remember like the current ratio, equity ratio, and the inventory turnover ratio. Although the textbook says that not all lines of business have the same rate of turnover, it doesn't apply in this case because both Nucor and Gerdau SA produce steel. Some reasons for this significant difference in financial position could do with the demand in their countries. It was also brought to our attention that there are a lot more ratios out in the real business world that haven't been discussed in the textbook.
Reflections:
I think that this article brought up many interesting points. It showed us that there are many processes to go through when regarding a companies progress. Many ratios are needed to make a correct judgment, along with a company's financial records from at least 5 years ago. I think that Nucor was able to create more profit because there's a higher demand for steel in the U.S., where Nucor is situated, while the demand for steel is much lower in Brazil, which is where Gerdau SA is situated. Nucor had nearly dominated Gerdau SA in every financial aspect, resulting in a huge difference in profitability.
3 comments:
Samson, I believe that your comparison of these two steel producing companies is very interesting. The fact that Nucor had a better inventory on hand percentage of less than half Gerdau SA is intriguing. I formerly thought that at a recessional time like this, almost all of the steel, oil, etc. companies would be doing poor, and I am surprised to hear Nucor Inc. doing so well compared to this other company. I also like how you stated how other areas (such as the accounts receivable turnover, day’s sales outstanding, asset turnover ratio, current/equity ratios, etc.) were also superior in the favour or Nucor Inc.
-Shayne C.
Samson,
I agree with you, this article is very interesting and ratios sould always come along with the company's financial statements. I believe it is especailly important for those who are planning to invest into the companies to have easy to read ratios to help them understand the company's progress.
-Monica Yip
I also find it this article very interesting, but i don't find it surprising that Nucor is doing better than Gerdau SA because of their location. Nucor is situated in US which a industrialized country;therefore, the demand for steel will be higher. On the other hand Gerdau SA is situated in Brazil, which is a developing country; therefore, the demand for steel will be less.
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