Monday, December 23, 2013

Gross Profit Margin Percentages in the Chemistry Industry

Gross profit margin percentages (GPM%) were determined for 27 publicly-listed chemical companies.  The companies' most recent 10-K filings, submitted to the Securities and Exchange Commission (SEC), were used for the data to compute the GPM%.  Using WordsAnalytics (click here)  the revenues, cost of sales, and gross profits were found for 8 chemical companies with revenues above $5B (billion), for 11 chemical companies with revenues between $2B and $5B, and for 8 chemical companies with revenues less than $2B.  For each company, the GPM% were computed using the current year reported on in the 10-K and the previous year’s results also provided in the 10-K.

The average GPM% for all 27 companies was 27.9%.  Averages were also determined for companies included in each revenue size (< $2B; $2B - $5B; > $5B).  Interesting, the average for the companies with less than $2B in revenues was 31.6%; for the $2B to $5B revenue-size companies, 28.1%, and for the greater than $5B revenue-size companies, 24.1%.

If indeed, smaller revenue-size companies tend to have larger GPM%, as the data I computed shows, one explanation is that smaller companies are able (willing) to take on projects with higher risks.

Wednesday, December 18, 2013

Chemical Waste Disposals by US Chemical Companies

A United States Environmental Protection Agency (EPA) database (click here to go to the database) provides the quantities of chemical wastes generated by US chemical companies (and companies in other sectors).  Although the database is primarily intended to support EPA’s goals of excellent US environmental qualities, the database can also show how individual companies are handling individual chemical wastes.

For example, once a chemical is selected from a list of hundreds of chemicals, individual chemical companies disposing of that chemical can be found.  For the individual chemical company, various disposal methods used by the company, along with quantities disposed of, are provided.

It seems to me that this information on individual companies can be useful for such reasons as the following:  

1.  A company needing to dispose of a chemical can determine how other companies are disposing of that chemical;
2.  An assessment can be make of the attributes of a company’s disposal program (e.g. cost effectiveness inferences, e.g. recovery versus non-recovery; environmental desirability, e.g. the methods of disposal; and total wastes, data which is given; and
3.  Insights into the identities and quantities of company productions.
4.  Process operations management principles identify waste, especially inventory waste, as critical to contend with in improving process operations.  Details at this EPA database might be helpful in decreasing chemical company waste.

Friday, December 13, 2013

A Net Profits Ratio Alone Can be a Misleading Benchmark

The average net profit ratio (net profit as a percentage of revenues) was determined for five European-headquartered companies and compared to the average net profit ratios for six US-headquartered companies.  2012 data was used.

The five European-headquartered companies used for the data were:   BASF, DSM; Solvay; Borealis; and Laxness.  The six US-headquartered companies used were:  Dow; Huntsman; Monentive; Celanese; Cytec; and FMC.  

The average net profit as a percentage of revenues for the European companies is 5.2% and for the US companies, 7.4%.  

The lower average net profit ratio for the five European chemical companies suggests a poorer performance for these five companies compared to the six United States companies.  However, this would be a wrong conclusion.
For example, the average 2012 revenues for the five European companies were $30.7 billion and the average US companies’ revenues were $14.1 billion.  This difference in average revenues is important.  Europe’s 5.2% average net profit as a percentage of revenues represents $1.605 billion in net profit, whereas the US 7.4% represents $1.037 billion in net profit, a difference of $568 million in favor of Europe.  A conclusion is the $568 greater profit being made by the five European-headquartered chemical companies represents a significantly higher increase of value generated by the European companies.  This increased value (wealth) that these European companies generated was reflected in the European companies’ 2012 stock prices, which were significantly higher than for the US companies

Using net profit ratios in comparing companies’ performances without applying the ratios to the companies’ revenues can lead to incorrect comparisons.  The profit amounts being generated are what are important.

Friday, December 6, 2013

Mark-up Ratios for Materials Used in 3D Printing Products

According to a report issued by IDTechEx, an estimated amount of materials used in 3D printing products in 2013 is 1,980 tons.   Click here to go to this report.   Another report from the same company states that of the total materials used in 2013 3D printing products, an estimated 56% will be photopolymers and an estimated 40% will be thermoplastics.  The same report also estimates that the prices obtained for these 1,980 tons are approximately $425 million.  Click here to go to this report.

From this data, identified in the paragraph above, along with market (open) prices for photopolymers and thermoplastics, a ratio of prices obtained for the materials when used in 3D printing products to open market prices of photopolymers and thermoplastics can be obtained.  This ratio represents to me a “mark-up” being obtained by the sellers of the materials as 3D printer-used material compared to when the material is sold on the open market for other uses.

Open market sales prices for photopolymer liquid resins intended for use with 3D printers can be found on the Internet.  Prices seem to be in the $35 to $50 per liter range.  Click here to go to a website that has such prices. 

Plastic News presents current (December, 2013) prices for a variety of thermoplastics.  Prices provided range from $.94 to $1.68 per pound.  Click here to see the prices provided.

Using the above data, I computed ratios of the estimated total prices for the quantities of photopolymers and thermoplastics in 3D printers ($425 million) to the total open market sales prices for 1,109 tons of photopolymers and 792 tons of thermoplastics (1,109 tons + 792 tons = 1,901 tons, which is 96% of the estimated 1,980 tons of materials used in 3D printing; see above for links to data).

Using an average price of $40 per liter for photopolymers and $1.31 per pound for thermoplastics gives a total price of $37.3 million when sold on the open market, versus an estimated $425 million for the same amount (1,901) sold for use in 3D printing products.  The ratio is 11 ($425 million/$37.3 million).  This is a markup of 11 times over the open market pricing assuming the above data is reasonably accurate.

Varying the open market prices for photopolymers and thermoplastics can noticeably affect the mark-up.  For example, if the average price of $50 per liter is used for photopolymers and $1.68 per pound for thermoplastics, the mark-up becomes 9.

Users of 3-D printers have complained about the high prices of materials, which they have been locked into buying when purchasing 3D printers.   The ratios computed above gives some indication of how much higher the prices are, if the assumptions made and the calculations used are correct.