Financial Statistics for Large Chemical Companies – Part 4

In earlier blogs I presented several financial statistics for large chemical companies. (Click here, here, and here to read these earlier blogs.)

In this blog, I am presenting in the following table, for twenty-six large global chemical companies, earnings before interest, taxes, depreciation, and amortization expense (ebitda) as a percentage of sales compared to net income (earnings after interest, taxes, depreciation, and amortization expense) as a percentage of sales: 

 

company	net income as % of sales	ebitda as % of sales	price to earnings ratio
air products	22.6%	40.9%	31.6
akzo nobel	5.8%	14.5%	23.3
albemarle	12.0%	26.2%	38.7
arkema	5.0%	15.0%	28.1
asahi kasei	4.8%	13.7%	14.6
basf	0.0%	11.0%	31.9
celanese	35.1%	40.2%	7.3
chemours	6.6%	17.6%	22.2
clariant	15.4%	26.0%	53.5
covestro	4.3%	13.8%	24.0
dow	3.2%	14.5%	11.6
dsm	6.3%	18.9%	47.6
dupont	0.0%	24.7%	35.3
eastman	5.8%	12.9%	49.1
evonik	3.8%	15.6%	22.3
fmc	12.0%	27.2%	21.5
huntsman	10.8%	17.7%	9.1
kemira	5.8%	17.9%	18.2
lanxess	14.9%	14.1%	4.6
linde	9.2%	31.7%	49.2
lyondellbasell	5.0%	14.0%	8.5
sekisui	5.2%	11.8%	16.0
solvay	0.0%	21.9%	23.8
trinseo	0.3%	10.0%	5.7
umicore	9.2%	16.6%	32.7
wacker	4.3%	14.2%	27.6
westlake	4.4%	16.0%	25.7
yara	5.9%	19.0%	11.6
average	7.8%	19.2%	24.8

 

Also in the table is the recent stock price per share to earnings per share ratio for each company.

In many of the company annual reports, management provide discussion on how the ebitda margins (ebitda as a percentage of sales) is an important financial metric for measuring the company’s success. The discussions suggest that ebitda margins are a more relevant metric than net income margins (net income as a percentage of sales).

Apparently, investors in these companies’ stocks also believe ebitda margins are more relevant than net income margins for investment decisions, as shown in the following table:

 

correlations	correlation result
net income as % of sales to ebitda as % of sales	76%
net income as % of sales to price to earnings ratio	-5%
ebitda as % of sales to price to earnings ratio	25%

 

This table shows correlations between net income margins to ebitda margins, net income margins to price to earnings ratios, and ebitda margins to price to earnings ratios. Price to earnings ratios indicate how much an investor is willing to pay for a company’s earnings – the higher the ratio, the more the investor is willing to pay.

The correlation between net income and ebitda margins is good, as would be expected. However, there is poor correlation between net income margins and price to earnings ratios compared to the correlation between ebitda margins and price to earnings ratios. This suggests to me that investors, like company managers, view ebitda margins as a better metric for evaluating the company’s success.