Simpson Manufacturing Co financial analysis and consolidated statements 2011-2012

Simpson Mfg

The capital structure refers to the way that the company is financed. There are two basic forms of financing -- debt and equity -- and a number of other choices that can be made within the scope of those options. The capital structure for Simpson Manufacturing as of December 31, 2011 is 11.3% liabilities and 88.7% equity. The company has $5.239 million in long-term debt, $95.515 million in total liabilities and $789.6 million in shareholder's equity. This capital structure is appropriate for the type of company that Simpson is, and the type of industry in which it operates. The income statement shows that the company is modestly profitable, but that profits are declining. The combined effects of share buybacks and dividends have reduced the value of the firm in fiscal 2012. Given that the company is in a state of contraction, a policy of limiting debt and total liabilities is appropriate. The current levels of both are very low. A certain amount of liabilities is required for basic operations -- accounts payable and accrued liabilities are the largest categories of debt. In addition, the company's long-term debt level has declined in the past year, and at a far faster rate than the decline in the size of the company. Thus, Simpson has a capital structure that is weighted more to equity than it was the previous year. Again, this is conservative financial management for a shrinking company and such a conservative approach is normally recommended.

Simpson has significant international presence. The company sells on six continents and manufactures on three. As an international company, Simpson has achieved a significant amount of diversification in its markets, and that should benefit its financials in the long run. The company is still working to establish its brand in Australia, something that has held back its growth in that region. The diversification, however, is important, because as the company notes in its annual report it remains dependent on housing starts in the United States, so increasing its international presence is specifically designed as a means of diversifying away from this dependence. It is expected that the positive effects of these new acquisitions on the stability of the company will take a few years to materialize.

Financially, the international presence should provide income. The process of diversification is slow, however. North American sales went from 78.8% of total sales in 2010 to 78.3% in 2012, mostly on strength in Europe but hampered by slight recovery in North America. It is also worth noting that the company lost $5.7 million in foreign exchange rate differences in the 2011 fiscal year. It had made money on exchange rates in the prior two years, however, such that it is close to a breaking even on forex over the three-year period. The 2012 forex gain (loss) was reportedly not significant (2012 Q4 Results).