financial distress of goodyear corporation

7/30/2019 Financial Distress of Goodyear Corporation

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Company Goodyear

First Calendar Year of Data 1980

Information Metric 1980 1981 1982

Income Statement

Sales 8,444 9,153 8,689

Cost of Goods Sold 6,637 7,160 6,756

Gross Profit 1,807 1,993 1,933

Operating Expenses

S, G & A Expenses 1264 1295.4 1300.3

R & D Expenses 0 0 0

Lease Expenses 0 0 0

Depreciation and Amortization 0 0 0

Other Operating Expenses 0 0 0

Operating Profit 543 698 633

Non-Operating Items

Other Non-operating Income (Expense) 36 11 19

Interest Income

Earnings Before Interest and Taxes (EBIT) 578 709 651

Interest Expense 227 230 191

Earnings Before Taxes (EBT) 352 480 460

Income Taxes 145 236 213

Income Before Extraordinary Items 207 244 248

Income from Extraordinary Items 24 16 17

Net Income 231 260 265

Preferred Dividends

Net Income available to Common Equityholders 231 260 265

Balance Sheet

Assets

Current Assets

Inventories 1,582 1,514 1,270

Accounts Receivable 1,144 1,204 1,312

Advance, Deposits, and Prepayments

Marketable Securities

Cash and Equivalents 68 72 83

Other Current Assets 62 67 85


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Total Current Assets 2,856 2,857 2,750

Fixed Assets (PPE)

Gross Fixed Assets 2,278 2,264 2,230

Accumulated Depreciation

Net Fixed Assets 2,278 2,264 2,230

Gross Intangible Assets 0 0 0

Accumulated Amortization 0 0 0

Net Intangible Assets

Preliminary Expenses

Investments 215 217 203

Others 19 16 11

Other Non-Current Assets 234 233 213

Total Assets 5,368 5,354 5,194

Liabilities and Stockholders' Equity

Current Liabilities

Accounts Payable 524 481 437

Notes Payable 147 112 5

Short-term Loan 36 14

Accrued Expenses 234 257 257

Taxes Payable 284 298 312

Provision for Taxes

Proposed Dividend

Current Portion of Long-Term Loan

Other Current Liabilities 156 169 164

Total Current Liabilities 1,380 1,330 1,174

Long-Term Liabilities

Term Loan 1,241 1,158 1,037

Capital Leases

Deferred Taxes 203 204 203

Other Long-term Liabilities 177 221 256

Total Long-Term Liabilities 1,620 1,583 1,496

Preferred Stockholders' Equity

Preferred Stock and Others 0 0 0

Total Non-Current Liabilities 1,620 1,583 1,496

Commons Stockholders' Equity

Share Capital 2,303 2,375 2,457

Share Premium

Reserve and Surplus


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Retained Earnings

Share Money Deposit

Directors' Loan

Others 66 66 66

Total Common Stockholders' Equity 2,369 2,441 2,523

Total Liabilities and Stockholders' Equity 5,369 5,354 5,193

Difference -0.60 0.00 0.50

Indicators and Adjustments

Number of Common Shares 73 73 74

MV/BV

Year-end Stock Price 16.00 19.00 35.00

Market Value of Equity 1,160 1,378 2,583

Market Value of Debt

Market Value of Preferred Stock

Enterprise Value 4,092 4,219 5,170

Common Stockholders' Equity 2,369 2,441 2,523

Adjusted Common Stockholders' Equity 2,369 2,441 2,523

NWC 1,476 1,527 1,576

NWC 51 49

Adjusted NWC 1,591 1,581 1,498

Adjusted NWC -11 -83

Long-Term Debt 1,620 1,583 1,496

Short-Term Interest Bearing Debt 183 126 5

Current Portion of Long-Term Debt 0 0 0

Total Debt/Borrowed Fund 1,803 1,709 1,501

Capital Expenditure 249 303 302

Average Daily Expenditure 22 23 22

Ratio AnalysisActivity Ratios

Receivables Turnover (Times) 7.38 7.60 6.62

Inventory Turnover (Times) 4.19 4.73 5.32

Accounts Payable Turnover (Times) 12.67 14.89 15.46

Days Sales Outstanding 49 48 55


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Days of Inventory on Hand 87 77 69

Operating Cycle 136 125 124

Payment Deferral Period 29 25 24

Cash Conversion Cycle 108 101 100

Working Capital Turnover 5.72 6.09 5.60

Fixed Assets Turnover 3.71 4.03 3.87

Total Assets Turnover 1.57 1.71 1.65

Liquidity Ratios

Current Ratio 2.07 2.15 2.34

Quick Ratio 0.88 0.96 1.19

Cash Ratio 0.05 0.05 0.07

Defensive Interval Ratio (Days) 56 55 63

Solvency (Debt) Ratios

Debt-to-assets Ratio 0.34 0.32 0.29

Debt-to-capital Ratio 0.43 0.41 0.37

Debt-to-equity Ratio 0.76 0.70 0.59

Financial Leverage 2.27 2.19 2.06

Solvency (Coverage) Ratios

Interest Coverage Ratio 2.55 3.09 3.42

Debt Service Coverage Ratio 2.55 3.09 3.42

Profitability Ratios (Return on Sales)

Gross Profit Margin 21.4% 21.8% 22.2%

EBITDA Margin 6.8% 7.7% 7.5%

Operating Profit Margin 6.8% 7.7% 7.5%

Pre-tax Margin 4.2% 5.2% 5.3%

Net Profit Margin 2.7% 2.8% 3.0%

Profitability Ratios (Return on Investments)

Operating ROA 10.8% 13.2% 12.3%

ROA 4.3% 4.9% 5.0%

ROFA 10.1% 11.5% 11.8%

ROIntA #DIV/0! #DIV/0! #DIV/0!

ROE 9.7% 10.8% 10.7%

ROComE 9.7% 10.8% 10.7%

ROIC #VALUE! 17.0% 15.9%

MultiplesEV/EBITDA 7.07 5.95 7.94

Price/Earnings 5.03 5.29 9.75

EV/Sales 0.48 0.46 0.59

Price/Sales 0.14 0.15 0.30

Price/EV 0.28 0.33 0.50

Price/BVPS 0.49 0.56 1.02

Widely Monitored Ratios


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Current Ratio 2.07 2.15 2.34

Quick Ratio 0.88 0.96 1.19

Inventory Turnover 4.19 4.73 5.32

Average Collection Period 49 48 55

Fixed Asset Turnover 3.71 4.03 3.87

Total Asset Turnover 1.57 1.71 1.65

Debt Ratio 0.34 0.32 0.29

Debt-to-Equity 0.76 0.70 0.59

Times Interest Earned 2.55 3.09 3.42

Gross Profit Margin 21.4% 21.8% 22.2%

Operating Profit Margin 6.8% 7.7% 7.5%


Return on Total Assets (ROA) 4.3% 4.9% 5.0%

Return on Equity (ROE) 9.7% 10.8% 10.7%

EPS 3.18 3.59 3.59

P/E 5.03 5.29 9.75

EV/EBITDA 7.07 5.95 7.94

DuPont Sensitivity AnalysisROE Decomposition (7-Factor)

Base Case



Return on Assets (ROA) 4.3% 4.9% 5.0%

Total Assets Turnover 1.57 1.71 1.65Net Profit Margin 2.7% 2.8% 3.0%

Tax Burden 0.66 0.54 0.58

Interest Burden 0.61 0.68 0.71

Operating Profit Margin 0.06 0.08 0.07

Effect of Non-operating Items 1.07 1.02 1.03

Effect of Operating Items 0.30 0.35 0.33

Gross Profit Margin 0.21 0.22 0.22

Sensitivity to Profit Margin


Total Assets Turnover 1.71 1.71 1.71Return on Assets (ROA) 4.7% 4.9% 5.2%



% Return on Equity (ROE) 4.1% 7.2%

Mean 9.77%

Dispersion 9.11%

Sensitivity to Asset Turnover



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% Return on Equity (ROE) 8.5% -3.5%

Mean -1.20%

Dispersion 8.65%

Sensitivity to Financial Leverage






% Return on Equity (ROE) -3.2% -6.2%

Mean -2.95%

Dispersion 3.19%

Most Sensitive Factor of ROE Net Profit Margin

Risk AnalysisSales, Operating Profit and Earnings Volatility

Standard Deviation of Sales 675.87

Mean of Sales 9307.88

Coefficient of Variation of Sales 7.3%

Level of Sales Volatility Very Low

Standard Deviation of Operating Income 92.97

Mean of Operating Income 622.52

Coefficient of Variation of Operating Income 14.9%

Level of Operating Income Volatility Low

Standard Deviation of Earnings 77.20

Mean of Earnings 312.65

Coefficient of Variation of Earnings 24.7%

Level of Earnings Volatility Moderate

Leverage

% Sales 8% -5%

% EBIT 23% -8%

% Net Income 13% 2%

Degree of Operating Leverage (DOL) 2.69 1.62

Degree of Financial Leverage (DFL) 0.57 -0.21

Degree of Total Leverage (DTL) 1.53 -0.34


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Average DOL 2.70

Average DFL -3.82

Average DTL -10.31

Altman Z-Score Model

Company Type

Publicly Traded Manufacturer

Current Assets/Total Assets 0.53 0.53 0.53

Retained Earnings/Total Assets 0.00 0.00 0.00

EBIT/Total Assets 0.11 0.13 0.13

Market Value of Equity/Book Value of Debt 0.64 0.81 1.72

Sales/Total Assets 1.57 1.71 1.67

Z-Score 2.95 3.27 3.75

Zone Grey Safe Safe

% Gap between Z-Score and Distress Zone 63.1% 80.6% 107.4%

Probability of Default (5% P 90%) 36.9% 19.4% 5.0%

DISTRESS ZONE Z< 1.81 1.81 1.81

GREY ZONE Z< 2.99 2.99 2.99

Strategic Indicators


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16%

1983 1984 1985 1980 1981 1982 1983 1984

Common-Size Income Statement

9,736 10,241 9,585 100.0% 100.0% 100.0% 100.0% 100.0%

7,684 8,099 7,635 78.6% 78.2% 77.8% 78.9% 79.1%

2,052 2,142 1,950 21.4% 21.8% 22.2% 21.1% 20.9%

1333 1478.5 1469.6 15.0% 14.2% 15.0% 13.7% 14.4%

0 0 0 0.0% 0.0% 0.0% 0.0% 0.0%

0 0 0 0.0% 0.0% 0.0% 0.0% 0.0%

0 0 0 0.0% 0.0% 0.0% 0.0% 0.0%

0 0 0 0.0% 0.0% 0.0% 0.0% 0.0%

719 663 480 6.4% 7.6% 7.3% 7.4% 6.5%

-73 137 81 0.4% 0.1% 0.2% -0.7% 1.3%

0.0% 0.0% 0.0% 0.0% 0.0%

646 800 561 6.8% 7.7% 7.5% 6.6% 7.8%

117 127 105 2.7% 2.5% 2.2% 1.2% 1.2%

529 672 456 4.2% 5.2% 5.3% 5.4% 6.6%

259 270 155 1.7% 2.6% 2.4% 2.7% 2.6%

270 403 301 2.4% 2.7% 2.8% 2.8% 3.9%

35 111 0.3% 0.2% 0.2% 0.4% 0.0%

305 403 412 2.7% 2.8% 3.0% 3.1% 3.9%

0.0% 0.0% 0.0% 0.0% 0.0%

305 403 412 2.7% 2.8% 3.0% 3.1% 3.9%

Common-Size Balance Sheet

1,219 1,333 1,379 29.5% 28.3% 24.5% 20.4% 21.5%

1,527 1,370 957 21.3% 22.5% 25.3% 25.5% 22.1%

0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%

111 143 139 1.3% 1.3% 1.6% 1.9% 2.3%

63 54 83 1.2% 1.2% 1.6% 1.1% 0.9%


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2,920 2,901 2,558 53.2% 53.4% 53.0% 48.8% 46.8%

2,819 3,037 4,025 42.4% 42.3% 42.9% 47.1% 49.0%

0.0% 0.0% 0.0% 0.0% 0.0%

2,819 3,037 4,025 42.4% 42.3% 42.9% 47.1% 49.0%

0 0 0 0.0% 0.0% 0.0% 0.0% 0.0%

0 0 0 0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%

227 223 339 4.0% 4.0% 3.9% 3.8% 3.6%

20 34 32 0.4% 0.3% 0.2% 0.3% 0.5%

247 257 370 4.4% 4.3% 4.1% 4.1% 4.2%

5,986 6,194 6,954 100.0% 100.0% 100.0% 100.0% 100.0%

593 583 657 9.8% 9.0% 8.4% 9.9% 9.4%

155 157 116 2.7% 2.1% 0.1% 2.6% 2.5%

42 39 35 0.7% 0.3% 0.0% 0.7% 0.6%

281 298 347 4.4% 4.8% 4.9% 4.7% 4.8%

257 289 232 5.3% 5.6% 6.0% 4.3% 4.7%

0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%

204 192 219 2.9% 3.1% 3.2% 3.4% 3.1%

1,532 1,558 1,607 25.7% 24.8% 22.6% 25.6% 25.2%

0.0% 0.0% 0.0% 0.0% 0.0%

665 657 998 23.1% 21.6% 20.0% 11.1% 10.6%

0.0% 0.0% 0.0% 0.0% 0.0%

414 449 475 3.8% 3.8% 3.9% 6.9% 7.2%

297 294 302 3.3% 4.1% 4.9% 5.0% 4.7%

1,376 1,400 1,775 30.2% 29.6% 28.8% 23.0% 22.6%

0.0% 0.0% 0.0% 0.0% 0.0%

1,376 1,400 1,775 30.2% 29.6% 28.8% 23.0% 22.6%

3,016 3,171 3,507 42.9% 44.4% 47.3% 50.4% 51.2%

0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%


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0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0% 0.0%

62 65 64 1.2% 1.2% 1.3% 1.0% 1.0%

3,078 3,236 3,571 44.1% 45.6% 48.6% 51.4% 52.2%

5,986 6,194 6,953 100.0% 100.0% 100.0% 100.0% 100.0%

0.30 0.10 0.30

100 106 107

30.38 26.00 31.25

3,034 2,761 3,356

5,831 5,576 6,599

3,078 3,236 3,571

3,078 3,236 3,571

1,388 1,342 951

-188 -46 -391

1,473 1,395 963

-24 -79 -432

1,376 1,400 1,775

196 196 152

0 0 0

1,572 1,596 1,926

500 629 1,668

25 26 25

6.37 7.47 10.01

6.30 6.07 5.54

12.95 13.90 11.61

57 49 36


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58 60 66

115 109 102

28 26 31

87 83 71

6.57 7.50 8.36

3.86 3.50 2.71

1.74 1.68 1.46

1.91 1.86 1.59

1.07 0.97 0.68

0.07 0.09 0.09

66 58 44

0.26 0.26 0.28

0.34 0.33 0.35

0.51 0.49 0.54

1.94 1.91 1.95

5.51 6.28 5.34

5.51 6.28 5.34

21.1% 20.9% 20.3%

6.6% 7.8% 5.9%

6.6% 7.8% 5.9%

5.4% 6.6% 4.8%

3.1% 3.9% 4.3%

11.6% 13.1% 8.5%

5.5% 6.6% 6.3%

12.1% 13.8% 11.7%

#DIV/0! #DIV/0! #DIV/0!

10.9% 12.8% 12.1%

10.9% 12.8% 12.1%

14.9% 16.9% 10.9%

9.02 6.97 11.76

9.94 6.86 8.15

0.60 0.54 0.69

0.31 0.27 0.35

0.52 0.50 0.51

0.99 0.85 0.94


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1.91 1.86 1.59

1.07 0.97 0.68

6.30 6.07 5.54

57 49 36

3.86 3.50 2.71

1.74 1.68 1.46

0.26 0.26 0.28

0.51 0.49 0.54

5.51 6.28 5.34

21.1% 20.9% 20.3%

6.6% 7.8% 5.9%

3.1% 3.9% 4.3%

5.5% 6.6% 6.3%

10.9% 12.8% 12.1%

3.06 3.79 3.84

9.94 6.86 8.15

9.02 6.97 11.76

10.62% 12.66% 12.20%

1.94 1.91 1.95

5.5% 6.6% 6.3%

1.74 1.68 1.463.1% 3.9% 4.3%

0.58 0.60 0.90

0.82 0.84 0.81

0.07 0.06 0.05

0.90 1.21 1.17

0.35 0.31 0.25

0.21 0.21 0.20

3.1% 3.9% 4.3%

1.71 1.71 1.715.4% 6.7% 7.3%

2.19 2.19 2.19

11.7% 14.7% 16.1%

2.9% 25.4% 9.3%

2.8% 2.8% 2.8%


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1.74 1.68 1.46

5.0% 4.8% 4.1%

2.19 2.19 2.19

10.9% 10.5% 9.1%

5.7% -3.5% -13.3%

2.8% 2.8% 2.8%

1.71 1.71 1.71

4.9% 4.9% 4.9%

1.94 1.91 1.95

9.4% 9.3% 9.5%

-5.5% -1.6% 1.7%

12% 5% -6%

-1% 24% -30%

15% 32% 2%

-0.06 4.58 4.66

-20.74 1.34 -0.08

1.27 6.16 -0.36


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0.49 0.47 0.37

0.00 0.00 0.00

0.11 0.13 0.08

1.93 1.73 1.74

1.63 1.65 1.38

3.72 3.68 3.13

Safe Safe Safe

105.8% 103.2% 73.0%

5.0% 5.0% 27.0%

1.81 1.81 1.81

2.99 2.99 2.99


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1981 1982 1983 1984

Growth Rate

8.4% -5.1% 12.1% 5.2%

7.9% -5.6% 13.7% 5.4%

10.3% -3.0% 6.2% 4.4%

2.5% 0.4% 2.5% 10.9%

0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0%

28.6% -9.3% 13.6% -7.7%

-68.1% 62.3% -491.9% -288.4%

22.6% -8.2% -0.7% 23.8%

1.1% -16.9% -38.5% 8.5%

36.4% -4.0% 14.9% 27.1%

62.8% -9.7% 21.6% 4.2%

18.0% 1.5% 9.1% 49.1%

-31.7% 4.9% 104.1% -100.0%

12.8% 1.7% 15.3% 31.9%

12.8% 1.7% 15.3% 31.9%

-4.3% -16.1% -4.1% 9.4%

5.3% 8.9% 16.4% -10.3%

6.0% 15.9% 33.4% 29.1%

7.4% 27.0% -25.6% -14.9%


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0.0% -3.7% 6.2% -0.7%

-0.6% -1.5% 26.4% 7.7%

-0.6% -1.5% 26.4% 7.7%

0.0% 0.0% 0.0% 0.0%

0.0% 0.0% 0.0% 0.0%

0.8% -6.6% 12.1% -1.7%

-16.6% -34.2% 84.0% 73.3%

-0.6% -8.5% 15.7% 4.3%

-0.3% -3.0% 15.3% 3.5%

-8.2% -9.1% 35.8% -1.8%

-24.1% -95.7% 3120.8% 1.8%

-61.2% -100.0% -7.0%

9.9% 0.0% 9.4% 6.2%

5.1% 4.6% -17.4% 12.2%

8.4% -2.9% 24.7% -5.7%

-3.6% -11.7% 30.5% 1.7%

-6.7% -10.4% -35.9% -1.3%

0.5% -0.5% 103.9% 8.5%

25.4% 15.5% 15.9% -0.8%

-2.3% -5.5% -8.0% 1.8%

0.0% 0.0% 0.0%

-2.3% -5.5% -8.0% 1.8%

3.1% 3.5% 22.8% 5.1%


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0.0% 0.0% -6.1% 4.8%

3.0% 3.4% 22.0% 5.1%

-0.3% -3.0% 15.3% 3.5%


18/45

Company Goodyear

Sales Growth (Tire) 5 42.20

Sales Growth (Rubber) 6

Sales Growth (Oil & Gas) 15

Sales Growth (Other Products) 7

EBIT % of Sales (Tire) 14

EBIT % of Sales (Rubber) 15

EBIT % of Sales (Oil & Gas) 18

EBIT % of Sales (Others Products) 25

Depreciation % of Sales (Tire) 5

Depreciation % of Sales (Rubber) 3

Depreciation % of Sales (Oil & Gas) 5

Depreciation % of Sales (Other Produ 5

FCInv % of Sales (Tire) 4

FCInv % of Sales (Rubber) 2.5

FCInv % of Sales (Oil & Gas) 8

FCInv % of Sales (Other Products) 3

WCInv % of Sales (Tire) 2

WCInv % of Sales (Rubber) 1.5

WCInv % of Sales (Oil & Gas) 10

WCInv % of Sales (Other Products) 3

Tax Rate 40

Market Return 15

Risk Free Return 8.04

Beta 1.1

Required Return 15.70

Risk Premium 0.8

Required Rate of Return 16.5

Terminal Growth Rate 4

Shares Outstanding 107

Information Metric 1986 1987 1988 1989 1990

Income Statement

Sales

Tires & Related 7,700 8,085 8,489 8,914 9,359

Rubber, Chemical and Plastic 1,150 1,219 1,292 1,370 1,452

Oil & Gas 400 460 529 608 700

Others 70 75 80 86 92

Total Sales 9,320 9,839 10,391 10,977 11,603

EBIT

Tires & Related 1,078 1,132 1,188 1,248 1,310

Rubber, Chemical and Plastic 173 183 194 205 218

Oil & Gas 72 83 95 110 126


19/45

Others 18 19 20 21 23

Total EBIT 1,340 1,416 1,498 1,584 1,677

EBIT (1 - Tax Rate) 804 850 899 951 1,006

Depreciation

Tires & Related 385 404 424 446 468


Oil & Gas 20 23 26 30 35

Others 4 4 4 4 5

Total Depreciation 443 468 494 521 551

Fixed Capital Investment

Tires & Related 308 323 340 357 374


Oil & Gas 32 37 42 49 56

Others 2 2 2 3 3

Total FCInv 371 393 417 442 469

Working Capital Investment

Tires & Related 154 162 170 178 187


Oil & Gas 40 46 53 61 70

Others 2 2 2 3 3

Total WCInv 213 228 244 262 282

FCFF 663 696 731 768 806

Terminal Value 6,708

PV FCFF 569 513 462 417 3,501

PV FCFF 5,462

Less: Market Value of Debt 998

Less: Bankruptcy Cost 109

Add: Sale of Aerospace 177

Intrinsic Value 4,533

Intrinsic Value Per Share (FCFF) 42.20

Book Value Beginning 1626 1886 2173 2485

ROE 20 19 18 17

Net Income 325 358 391 423

Dividends 65 72 78 85

Book Value Ending 1886 2173 2485 2823


Equity Charge 13% 282 323 367

Economic Income 76 68 55 0


20/45

Company Goodyear





















Tax Rate 40

Market Return 15


Beta 1.1


Risk Premium 0.3

Required Rate of Return 16




Income Statement

Sales

Tires & Related 7,700 8,162 8,652 9,171 9,721


Oil & Gas 400 464 538 624 724

Others 70 76 82 88 95

Total Sales 9,320 9,932 10,588 11,292 12,048

EBIT

Tires & Related 1,155 1,224 1,298 1,376 1,458


Oil & Gas 72 84 97 112 130


21/45

Others 18 19 20 22 24

Total EBIT 1,429 1,524 1,626 1,735 1,854

EBIT (1 - Tax Rate) 857 914 975 1,041 1,112

Depreciation

Tires & Related 462 490 519 550 583


Oil & Gas 24 28 32 37 43

Others 4 5 5 5 6



Tires & Related 308 326 346 367 389


Oil & Gas 32 37 43 50 58

Others 2 2 2 3 3

Total FCInv 371 397 424 455 487


Tires & Related 154 163 173 183 194


Oil & Gas 40 46 54 62 72

Others 2 2 2 3 3

Total WCInv 213 230 249 270 292

FCFF 809 858 911 966 1,025


PV FCFF 698 638 584 534 4,718

PV FCFF 7,171







ROE 20 19 18 17

Net Income 325 358 391 423







22/45

Company Goodyear

Sales Growth 7 #REF!

EBIT % of Sales 12


FCInv % of Sales (Tire) 3.5


Tax Rate 40

Market Return 15


Beta 1.1


Risk Premium 0.3





Income Statement

Sales 760 813 870 931 996

EBIT 91 98 104 112 120

EBIT (1 - Tax Rate) 55 59 63 67 72

Depreciation 15 16 17 19 20

FCInv 27 28 30 33 35

WCInv 23 24 26 28 30

FCFF 21 22 23 25 27

Terminal Value 213

PV FCFF 18 16 15 14 114

Fundamental Value of Segment 177


ROE 20 19 18 17

Net Income 325 358 391 423







23/45

Company Goodyear





















Tax Rate 40

Market Return 15


Beta 1.1

Required Return (CAPM) 15.70

Risk Premium 0.3





Income Statement

Sales

Tires & Related 7,700 8,162 8,652 9,171 9,721


Oil & Gas 400 464 538 624 724

Others 70 76 82 88 95

Total Sales 9,320 9,932 10,588 11,292 12,048

EBIT

Tires & Related 1,155 1,224 1,298 1,376 1,458


Oil & Gas 72 84 97 112 130


24/45

Others 18 19 20 22 24

Total EBIT 1,429 1,524 1,626 1,735 1,854

EBIT (1 - Tax Rate) 857 914 975 1,041 1,112

Depreciation

Tires & Related 462 490 519 550 583


Oil & Gas 24 28 32 37 43

Others 4 5 5 5 6



Tires & Related 308 326 346 367 389


Oil & Gas 32 37 43 50 58

Others 2 2 2 3 3

Total FCInv 371 397 424 455 487


Tires & Related 154 163 173 183 194


Oil & Gas 40 46 54 62 72

Others 2 2 2 3 3

Total WCInv 213 230 249 270 292

FCFF 809 858 911 966 1,025


PV FCFF 698 638 584 534 4,718

PV FCFF 7,171


Less: Bankruptcy Test 143


Less: Cash Bonus 1,076



Goldsmith's Perspective

Cash Outflow from Acquisition 4823

Resell Value of Stock 4609

Acquisition Cost 145

Gain (Loss) -359


25/45

Company Goodyear





















Tax Rate 40

Market Return 15


Beta 1.1


Risk Premium 0.3





Income Statement

Sales

Tires & Related 7,700 8,162 8,652 9,171 9,721


Oil & Gas 400 464 538 624 724

Others 70 76 82 88 95

Total Sales 9,320 9,932 10,588 11,292 12,048

EBIT

Tires & Related 1,155 1,224 1,298 1,376 1,458


Oil & Gas 72 84 97 112 130


26/45

Others 18 19 20 22 24

Total EBIT 1,429 1,524 1,626 1,735 1,854

EBIT (1 - Tax Rate) 857 914 975 1,041 1,112

Depreciation

Tires & Related 462 490 519 550 583


Oil & Gas 24 28 32 37 43

Others 4 5 5 5 6



Tires & Related 308 326 346 367 389


Oil & Gas 32 37 43 50 58

Others 2 2 2 3 3

Total FCInv 371 397 424 455 487


Tires & Related 154 163 173 183 194


Oil & Gas 40 46 54 62 72

Others 2 2 2 3 3

Total WCInv 213 230 249 270 292

FCFF 809 858 911 966 1,025


PV FCFF 698 638 584 534 4,718

PV FCFF 7,171




Add: Cash from New Stocks Issuance 720







Gain (Loss) -434


27/45

Company Goodyear





















Tax Rate 40

Market Return 15


Beta 1.1


Risk Premium 0.3





Income Statement

Sales

Tires & Related 7,700 8,162 8,652 9,171 9,721


Oil & Gas 400 464 538 624 724

Others 70 76 82 88 95

Total Sales 9,320 9,932 10,588 11,292 12,048

EBIT

Tires & Related 1,155 1,224 1,298 1,376 1,458


Oil & Gas 72 84 97 112 130


28/45

Others 18 19 20 22 24

Total EBIT 1,429 1,524 1,626 1,735 1,854

EBIT (1 - Tax Rate) 857 914 975 1,041 1,112

Depreciation

Tires & Related 462 490 519 550 583


Oil & Gas 24 28 32 37 43

Others 4 5 5 5 6



Tires & Related 308 326 346 367 389


Oil & Gas 32 37 43 50 58

Others 2 2 2 3 3

Total FCInv 371 397 424 455 487


Tires & Related 154 163 173 183 194


Oil & Gas 40 46 54 62 72

Others 2 2 2 3 3

Total WCInv 213 230 249 270 292

FCFF 809 858 911 966 1,025


PV FCFF 698 638 584 534 4,718

PV FCFF 7,171


Less: Bankruptcy Test 143







Redemption of Bonds 816


Gain (Loss) -218


29/45

Company Goodyear





















Tax Rate 40

Market Return 15


Beta 1.1


Risk Premium 0.3





Income Statement

Sales

Tires & Related 7,700 8,162 8,652 9,171 9,721


Oil & Gas 400 464 538 624 724

Others 70 76 82 88 95

Total Sales 9,320 9,932 10,588 11,292 12,048

EBIT

Tires & Related 1,155 1,224 1,298 1,376 1,458


Oil & Gas 72 84 97 112 130


30/45

Others 18 19 20 22 24

Total EBIT 1,429 1,524 1,626 1,735 1,854

EBIT (1 - Tax Rate) 857 914 975 1,041 1,112

Depreciation

Tires & Related 462 490 519 550 583


Oil & Gas 24 28 32 37 43

Others 4 5 5 5 6



Tires & Related 308 326 346 367 389


Oil & Gas 32 37 43 50 58

Others 2 2 2 3 3

Total FCInv 371 397 424 455 487


Tires & Related 154 163 173 183 194


Oil & Gas 40 46 54 62 72

Others 2 2 2 3 3

Total WCInv 213 230 249 270 292

FCFF 809 858 911 966 1,025


PV FCFF 698 638 584 534 4,718

PV FCFF 7,171

Less: Market Value of Debt 1,538


Less: Repurchase Cost 500








Gain (Loss) -269

Net Income 0 0 0



31/45

Economic Income 1040 0 0 0 0

540


32/45

Outflow Inflow Gain (Loss)

Golden Parachute 4968 4609 -359

Poison Pill 4968 4533 -434

Poison Put 5711 5493 -218

Share Repurchase 5221 4952 -269

Offer for the Current Holding 814.78

Worth of Current Holding 601.68

Gain 213.10


33/45

Market share of Goodyear 32%

Market share of Michelin 0.11

sales growth 0.06

tax rate 0.4

depreciation (% of sales) 0.05

FC Inv 0.03WC Inv 0.02

Market Return 0.15

Risk Free Return 0.0804 0.1004

Beta 1.1


Risk Premium 0.004

Required Rate of Return 0.16096

terminal Growth rate 0.04

1986 1987 1988 1989 1990

Total Sales of Goodyear 7700 8162 8652 9171 9721

Michelin sales 2647 2806 2974 3152 3342

EBIT 397 421 446 473 501

EBIT (1-tax) 238 253 268 284 301

depreciation 385 408 433 459 486

FC inv 79 84 89 95 100

WC inv 53 56 59 63 67

FCFF 491 520 552 585 620Terminal Value 5328

PV FCFF 423 520 552 585 5948

PV FCFF 8027

less mkt value of debt 100

intrinsic value 7927

SYNERGY Calculation

Revenue enhancement 385 408 433 459 486

savings in selling and admin 73 77 80 85 89

savings in R&D 10 10 10 10 10

Cap ex savings 26 28 30 32 34

pv of RE 332 408 433 459 486 2117

pv of S&A savings+R&D 75 87 90 95 99 446

Cap ex savings 23 21 20 18 17 98


34/45

PV of synergy 2661


35/45

Company Goodyear





















Tax Rate 40

Market Return 15


Beta 1.1


Risk Premium 0.3





Income Statement

Sales

Tires & Related 7,700 8,162 8,652 9,171 9,721


Oil & Gas 400 464 538 624 724

Others 70 76 82 88 95

Total Sales 9,320 9,932 10,588 11,292 12,048

EBIT

Tires & Related 1,155 1,224 1,298 1,376 1,458


Oil & Gas 72 84 97 112 130


36/45

Others 18 19 20 22 24

Total EBIT 1,429 1,524 1,626 1,735 1,854

EBIT (1 - Tax Rate) 857 914 975 1,041 1,112

Depreciation

Tires & Related 462 490 519 550 583


Oil & Gas 24 28 32 37 43

Others 4 5 5 5 6



Tires & Related 308 326 346 367 389


Oil & Gas 32 37 43 50 58

Others 2 2 2 3 3

Total FCInv 371 397 424 455 487


Tires & Related 154 163 173 183 194


Oil & Gas 40 46 54 62 72

Others 2 2 2 3 3

Total WCInv 213 230 249 270 292

FCFF 809 858 911 966 1,025


PV FCFF 698 638 584 534 4,718

PV FCFF 7,171



Value of Goodyear 6,351

Add: Value of Michelin 7,927

Add: Synergy 2,661

Add: Real Option 680

Less: Acquisition Cost 8,720




ROE 20 19 18 17

Net Income 325 358 391 423





37/45




38/45


39/45

15% 0.1534

0.05753


40/45

1987 1988 1989

Total Revenues

Cost of Goods Sold

Information Metric 1987 1988 1989

Operating Profit After Tax 914 975 1041

Addback: Depreciation 571 609 649

After-tax Operating Cash Flow 1485 1584 1691

Outflow 446 396 104

P.V of Outflow 384 341 77

Inflow 245.1035

P.V of Inflow 182.1519

Option Valuation

PV OCF (S) 947

Initial Outlay (X) 874

Time before option expires, t 13

Risk free rate of return, r 8.04

Standard deviation, 30%

d1 1.58

d2 0.50N(d1) 0.94

N(d2) 0.69

Value of Option 680


41/45

1990 1991

1990 1991 1992 1993 1994 1995 1996 1997

1112 1188 1270.629 1359.382 1455.287 1559.052 1671.474 1793.445

693 739 789.5278 843.5705 901.8502 964.7753 1032.803 1106.444

1805 1928 2060 2203 2357 2524 2704 2900

22 24 25.41258 23 21 19 18 18

14 13 12 9 7 6 5 4

260 266 268 212 209 207 203 203

166.571 146.9094 127.5983 87.01376 73.95037 63.14027 53.37945 46.01677


42/45

S&P 102.09 114.24 125.46 135.76 136 131.21

Firestone 6.625 6.875 8.5 10.5 12.5 12.875

Goodrich 18.25 19.25 22.75 24.875 27.25 25.875

Goodyear 11.75 13 15.875 16 19.875 19.125

Market Return 11.9% 9.8% 8.2% 0.2% -3.5%Stock Return - Firestone 3.8% 23.6% 23.5% 19.0% 3.0%

Stock Return - Goodrich 5.5% 18.2% 9.3% 9.5% -5.0%

Stock Return - Goodyear 10.6% 22.1% 0.8% 24.2% -3.8%

Stock Return - Average 6.6% 21.3% 11.2% 17.6% -1.9%

116.18 120.42 166.07 166.1 182.05 231.22

0.0365 0.3791 0.0002 0.0960 0.2701


43/45

116.18 122.55 111.96 109.61 120.42 140.64 152.96 168.11 166.07

10.375 12.625 10.625 12 11.875 18.5 19 20 20.625

21.75 22.25 20 19 22 32.125 37.5 41 35.5

17.375 19 21.25 24.5 24.25 35 28 32.25 30.375

-11.5% 5.5% -8.6% -2.1% 9.9% 16.8% 8.8% 9.9% -1.2%-19.4% 21.7% -15.8% 12.9% -1.0% 55.8% 2.7% 5.3% 3.1%

-15.9% 2.3% -10.1% -5.0% 15.8% 46.0% 16.7% 9.3% -13.4%

-9.2% 9.4% 11.8% 15.3% -1.0% 44.3% -20.0% 15.2% -5.8%

-14.8% 11.1% -4.7% 7.7% 4.6% 48.7% -0.2% 9.9% -5.4%

0.1564


44/45

164.93 159.18 153.18 166.1 167.24 180.6 191.85 182.08 211.28

22.25 17.5 17.125 19.5 17 18.375 21.5 18.375 23.875

30.375 33 27 28.375 27 29.5 31.875 31.5 32.875

30.375 26.375 25.75 26.75 26 26.875 29.5 27.375 31.25

-0.7% -3.5% -3.8% 8.4% 0.7% 8.0% 6.2% -5.1% 16.0%7.9% -21.3% -2.1% 13.9% -12.8% 8.1% 17.0% -14.5% 29.9%

-14.4% 8.6% -18.2% 5.1% -4.8% 9.3% 8.1% -1.2% 4.4%

0.0% -13.2% -2.4% 3.9% -2.8% 3.4% 9.8% -7.2% 14.2%

-2.2% -8.6% -7.6% 7.6% -6.8% 6.9% 11.6% -7.6% 16.2%


45/45

238.9 250.84 231.22

25.625 25.375 24.625

47 43.5 38.125

36.5 33 34.875

13.1% 5.0% -7.8%3.48%

7.3% -1.0% -3.0% 6.44%

43.0% -7.4% -12.4% 3.97%

16.8% -9.6% 5.7% 5.10%

22.4% -6.0% -3.2% 5.17%

financial distress of goodyear corporation

Documents