Praxair Inc. Operation Research Hw

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12. a. The Cash Flow statement that appears on Yahoo! Finance an “indirect” Cash Flow statement. The first line of is “ Net Profit” rather than “Cash at start of period”.

b. According to cash flow of Praxair. Inc.(PX),

2014

2013

Operating Cash Flow (OCF)

$2,868,000,000

$2,917,000,000

Investing Cash Flow (ICF)

-$1,803,000,000

-$3,237,000,000

Financing Cash Flow (FCF)

-$1,008,000,000

$328,000,000

c. From the Income Statement, the net profit in 2012, 2013 and 2014 are $4,828,000,000, $5,181,00,000 and $5,311,000,000. By comparing OCF, ICF, FCF to net profit in corresponding year, we can analyze the financial health of the company. For a healthy business, its OCF should be larger than zero, because higher OCF to net profit refers that a company receives more payments from customers. From 2012 to 2014, OCF is relatively constant and positive for PX, which infers a healthy company. ICF equals to cash received from selling assets minus cash spent to buy assets. Typically, ICF should be negative for a healthy company. PX kept a negative ICF from 2012 to 2014, which shows that the company spend more money on assets probably to expand production, so that ICF shows the company is in a healthy condition. FCF is the cash coming from or going to leaders or investor, which can vary from period to period. The FCF of PX varied from 2012 to 2014, so it is hard to tell whether it is a healthy company or nor directly from FCF. However, the relatively constant net profit shows the company is operating well.

13. a. [pic 25]

[pic 26]

[pic 27]

Comment:

ROA indicates how profitable a company is relative to its total assets. The ROA in 2013 and 2014 are relatively low, which indicates the company is not efficient enough in managing sales expense and assets.

b. [pic 28]

[pic 29]

[pic 30]

[pic 31]

[pic 32]

[pic 33]

Comment:

The ROS decreases from 2013 to 2014, but not too much. The decreasing ROS signals the possibility of financial troubles. The Assets Turnover also tells how efficient they company is deploying its assets in generating revenue. The assets turnover for both year are relatively high, which means the company is performing well.

c. [pic 34]

[pic 35]

[pic 36]

Comment:

ROE measures the company’s profitability by checking how much profit a company generates with the money shareholders have invested. The ROE are high for PX, which shows the company is quiet profitable and probably continues to grow.

14. [pic 37]

where a = working capital/total assets

b = retained earnings/ total assets

c = earnings before interest and taxes / total assets

d = market value of equity / book value of total liabilities

e = annual sales / total assets

2014

2013

Working Capital

$349,000,000

$252,000,000

Retained Earnings

$11,461,000,000

$10,528,000,000

Earnings before Interest and Tax

$2,470,000,000

$2,593,000,000

Marketing Value of Equity

$36,794,076,540

$36,810,853,080

Annual Sales

$12,273,000,000

$11,925,000,000

Total Assets

$19,802,000,000

$20,255,000,000

Book Value of Total Liabilities

$5,623,000,000

$6,609,000,000

For 2014,

[pic 38]

For 2013

[pic 39]

Comment:

Z-score is created by AHman to evaluate possibility of the company to go bankrupt. The z-score for 2013 and 2014 are much larger than 2.7, which indicates the company will performs well and will not go bankrupt in the next two years.

15. The assessment of the “fiscal fitness” of Praxair by various indicators is shown separately in the comment part of each question. By summarizing all the indicators from question 10 to 14, it clearly shows that PX is a healthy company and performs business well. The company is efficient in managing its sales, expense and assets and keeps making money during its operation. PX also has sufficient money to go through possible market fluctuation. More importantly, the high z-score further proves the health condition of the company and indicates it is not possible for the company to go bankrupt in the next two years.