John Deere - Ratio Analysis



John Deere Financial Statement Ratio Analysis

Introduction

The purpose of this paper is to analyze the financial performance of John Deere for the year 2011 and 2012. The importance of financial ratios is that it highlights business strengths and weaknesses. This also permits investors, businessmen and entrepreneurs to set goals with respect to their investment and business success and further to keep track on these goals.

Discussion

For financial ratio analysis, the following ratios have been chosen in order to interpret and asses the overall financial performance of John Deere.

Debt-To-Equity Ratio

This ratio shows how much debt company has acquired in order to finance their operations i.e. it shows company's leverage. Higher this ratio means that company has finance their majority of their operation from loan (Tracy, 2012).

Source: John Deer Co Annual report 2012

Ratio

Formula

2011

2012

Debt-To-Equity Ratio

Long-term debt/stockholders' equity

2.494

3.28

John Deere Debt to equity ratio has been increasing in 2012 from 2011. In 2011 it shows 2.494 while it increased to 3.28. This shows that company has increased their long term debt in 2012 with 22,453 while it was 16,960 in 2011. This was increase since company has Medium-term notes increased from last year with 15,737 which has enhanced overall long term debt.

According to finance theory, it is advisable that company should maintain their debt to equity ratio up to 50% or up to 40% in order to increase investors confident in the company.

Overall, John Deere long term debt position is not favorable as they have more portion of debt than equity utilized to finance their operation and assets.

Current Ratio

Current ratio shows liquidity of the company. This ratio comprises of liquid assets that company hold such as cash, account receivable, inventory and marketable securities (Tracy, 2012).

Source: John Deer Co Annual report 2012

Ratio

Formula

2011

2012

Current Ratio

Current assets/ Current Liabilities

1.955409

2.037266

John Deere current ratio is showing rising picture. In 2011, current ratio was 1.9 while in 2012, it increased to 2.0372. According to finance theory, current ratio match current assets with current liabilities and notify that whether current assets can meet current liabilities i.e. short term obligations. In 2011, John Deere for every dollar in current liabilities, there is $1.955 in current assets, while this trend enhanced in 2012 i.e. for every dollar in current liabilities, there is $2.0372 in current assets. N increase trend increases investors confident since they gaze for dividend i.e. return and when they ...