BUSINESS &. F I N A N C E The Chemical Industry's Earnings Statement and Balance Sheet, 1956 ( Earnings statement figures stated as °/o of sales; balance sheet items as % of total assets) (Dec.
Income Net sales Less cost of sales Profit from operations Other income Net profit before taxes Less Federal income taxes Net profit
100.0% 85.8 14.2 0.8 15.0
Annual rate of profit worth : Before taxes After taxes
on
7.0 8.0 net
25.8% 13.7%
Liabilities and Net Worth (Dec. 31, 1956)
31, 1956)
Cash Government securities Receivables Inventories Other current assets Total current assets ι Property, plant, and equipment Less reserve for depreciation Net property, plant, and equipment Other assets
7.8% 7.5 12.5 20.0 2.4 50.1 73.9 34.2 39.7 10.2 100.0%
State of the Industry Rising costs and competition last year only slightly dimmed chemical industry's bright financial picture X H E EFFECTS of rising business costs show u p plainly if last year's financial results for the chemical industry are broken down into ratio form. This is d o n e in the latest quarterly financial re port issued jointly by the Federal Trade Commission and the Securities and Ex change Commission. The government report pretty well sums up last year's operations (see tables above and be l o w ) , highlighting t h e picture already developed by results turned in by in dividual firms in the past 12 months. T h e cost squeeze is most apparent, as would b e expected, in the industry's income figures. Costs and expenses were up last year—from 1955's year-
over rate of 8 5 . 2 % of sales to 8 5 . 8 % . (Total sales last year in the F T C - S E C ' s sample of chemical firms were $22.2 billion.) As a result, profit margins, both before a n d after taxes, slipped be low the previous year's level. Increased costs ( a n d tight m o n e y ) are also a factor in the somewhat lower liquidity reflected hk the industry's bal ance sheet ratios. At year-end, for in stance, cash a n d government securities represented 15.2% of total assets (which a m o u n t e d to nearly $19 billion in the Government's 1956 s a m p l e ) , down from 1 7 . 4 % at the end of 1955. And even though both receivables and inventories a c c o u n t e d for a somewhat
Profit Margins in the Process Industries
Chemicals Petroleum refining Rubber products Paper and allied products Stone, clay, and glass products All nondurable goods industries All manufacturing industries 104
C&EN
MAY
2 0,
1957
Profits as % of Sales Before After income taxes income taxes 1956 1955 1956 1955 15.0 15.7 8.0 8.3 14.3 14.1 11.6 11.1 8.9 9,1 4.4 4.4 12.0 12.2 6.1 6.1 15.8 16.7 8.6 8.2 9.0 8.9 5.3 5.1 9.7 10.3 5.3 5.4
Short-term loans 1.6% O t h e r notes a n d ac 6.1 counts payable 7.3 A c c r u e d income taxes O t h e r current liabilities 3.3 T o t a l current liabilities 18.2 Long-term debt and other noncurrent liabilities 13.5 Reserves 1.1 C a p i t a l stock and 30.9 capital surplus 36.3 E a r n e d surplus Net worth 68.3 100.0% greater share of all assets, total cur rent assets were off slightly from 1955's 50.9%. But despite the slump in chemical industry profit margins last year, the industry's net of 15.0% of sales still stacks u p well against margins in most other fields. Only t w o industries had wider margins before taxes last year: primary nonferrous nietais ( 1 6 . 4 % ) and stone, clay, a n d glass products ( 1 5 . 8 % ) . Asset-to-liability ratios, too, show no cause for concern. T h e chemical in dustry's current assets were 2.75 times current liabilities at t h e end of 1956, just about t h e same ratio a s a t t h e end of the previous year and well above the 2.36 for all industries. And although the ratio of cash a n d govern m e n t securities had slipped to 0.84 from the 0.93 level at the close of 1955, it too was considerably higher than the 0.55 mark of all manufactur ing concerns lumped together. At the end of t h e year, chemical firms had $6.05 billion of n e t working capital in their tills, including $2.9 billion of cash and governments. At 1955's close, working capital was about $5.62 billion, including a b o u t $3.1 bil lion of cash and g o v e r n m e n t obliga tions. All of which underlines a point well accepted by both investors a n d econo mists: The chemical industry as a whole, although not i m m u n e to the pressures of competition and inflation ary costs, still is h a r d to b e a t when it comes to profit-making opportunities and rock-solid finances.
