Sherwin-Williams Financial Ratio Analysis: 5-Year Review
This paper conducts a comprehensive financial ratio analysis of Sherwin-Williams over a five-year period, benchmarking the company's performance against industry competitors Akzo Nobel N.V. and PPG Industries. The analysis covers liquidity ratios (current and quick), turnover ratios (accounts receivable and total assets), market price ratios, DuPont return-on-equity decomposition, horizontal and vertical income statement and balance sheet analysis, and dividend discount model valuation. The findings reveal declining liquidity, strong asset utilization, superior receivables collection, and an overvalued stock price relative to dividend growth projections. The paper concludes with recommendations for improving the company's financial health.
- Introduction to Financial Ratio Analysis: Purpose and role of financial ratio analysis
- Liquidity Ratios: Current and quick ratio trends versus competitors
- Turnover Ratios: Receivables and asset turnover efficiency analysis
- Market Price Ratios and DuPont ROE Analysis: Valuation multiples and DuPont ROE decomposition
- Horizontal and Vertical Analysis: Income statement and balance sheet percentage changes
- Valuation and Overall Financial Situation: Dividend discount model and integrated financial assessment
- Recommendations to Improve Financial Health: Practical steps to address liquidity weaknesses
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What makes this paper effective
- Uses actual five-year numerical data in tabular form, giving concrete support to every ratio discussed rather than relying on general assertions.
- Consistently benchmarks Sherwin-Williams against two named industry competitors (Akzo Nobel and PPG Industries), lending comparative depth to each metric.
- Combines multiple analytical frameworks — liquidity, turnover, market value, DuPont decomposition, horizontal/vertical analysis, and dividend discount valuation — into a cohesive financial portrait.
Key academic technique demonstrated
The paper demonstrates multi-framework financial analysis: rather than relying on a single ratio or statement, it triangulates findings across six distinct analytical methods. The DuPont decomposition is especially well-executed, breaking ROE into its three component drivers (profit margin, asset turnover, and financial leverage) to explain why the company's return on equity exceeds 120% despite poor liquidity.
Structure breakdown
The paper opens with a theoretical introduction to financial statements and ratio analysis, then moves methodically through ratio categories (liquidity → turnover → market price → DuPont ROE), followed by statement-level analysis (horizontal then vertical), a stock valuation using the dividend growth model, an integrated assessment of the company's overall financial situation, and a practical recommendations section. This progression — from component metrics to integrated judgment — mirrors the structure used in professional financial analysis reports.
Introduction to Financial Ratio Analysis
Financial statements help evaluate a company's financial performance and position. The income statement, statement of financial position, and statement of cash flows are the most fundamental financial statements, as they analyze the quantifiable data and information related to a firm's performance. These are the most commonly employed financial statements in the calculation of financial ratios. Appropriate analysis of a financial statement aids in attaining useful financial information utilized for decision-making. Financial statements thus help project both the historical and current financial condition of a company, and forthcoming predictions can be made through additional examination of past financial statements.
A financial ratio can be defined as the numeric result obtained by dividing one financial data point by another, and it is used to represent the relationship between different financial variables (Collier et al., 2004). Financial ratio analysis facilitates the examination of the financial health of a corporation and makes it much easier to appraise how a company performs relative to rival companies and industry benchmarks. In the case study undertaken, Sherwin-Williams faces competition from Akzo Nobel N.V. and PPG Industries. The purpose of this paper is to analyze the financial statements of Sherwin-Williams for the past five years in relation to the industry.
Liquidity Ratios
Liquidity ratios measure both the financial health and the financial performance of a company. These ratios examine the capability of a corporation to settle its current liabilities as they become due (Ross et al., 2013).
The current ratio is computed by dividing current assets by current liabilities. This ratio assesses current assets relative to current liabilities to determine whether the company has sufficient assets that can be liquidated immediately in order to meet obligations and debt (Ross et al., 2013).
Over the past four financial years, the current ratio declined significantly — from 1.68 in 2012 to 0.69 in 2013, then to 0.55 in 2014 and further to 0.54 in 2015. This implies that the company's financial health is eroding and that, in the past three years, it has been unable to meet its short-term debt obligations. In the prior year, the current ratio of Akzo Nobel was 1.24 while that of PPG Industries was 1.41, indicating that Sherwin-Williams has a weaker liquidity position relative to its competitors.
The quick ratio indicates the capacity of a firm to meet its short-term obligations without liquidating its inventories. It is calculated as cash and short-term marketable securities plus receivables, divided by current liabilities (Weygandt et al., 2008).
The quick ratio of Sherwin-Williams declined considerably over the past four years, from 1.18 in 2012 to 0.33 in 2015. This implies that the company is largely unable to meet its short-term debt obligations without drawing on its inventories. According to Market Watch (2016), PPG Industries had a quick ratio of 1.04 while Akzo Nobel had a quick ratio of 0.91. Sherwin-Williams' comparatively poor and deteriorating quick ratio signals weaker financial health relative to its peers.
Turnover Ratios
The accounts receivable turnover ratio indicates the number of times within a financial year that a firm is able to collect its receivables. This ratio is designed to examine the capability of a firm to effectively extend credit to its customers and collect those funds in a timely and efficient manner (Weygandt et al., 2008). The accounts receivable turnover ratio of Sherwin-Williams increased from 9.55 times in 2014 to 10.16 times in 2015. This increase indicates that the company is aggressive in collecting funds, reflects a low amount of bad debt, and suggests a high-quality customer base. On average, accounts receivable collection was completed in approximately 36 days. By comparison, the receivables turnover of PPG Industries in 2015 was 5.47 while that of Akzo Nobel was 5.39 (Market Watch, 2016), indicating that Sherwin-Williams is substantially more effective at collecting receivables than its industry peers.
The asset turnover ratio measures a firm's ability to generate sales from its total assets by comparing net sales to average total assets. The total assets turnover ratio of Sherwin-Williams increased over the past three years, from 1.61 in 2013 to 1.84 in 2014 and further to 1.98 in 2015. This increase indicates effective utilization of total assets to generate revenue — in 2015, $1.98 of revenue was generated for every dollar of total assets. By contrast, the total asset turnover of PPG Industries was 0.88 and that of Akzo Nobel was 0.92 in 2015 (Market Watch, 2016), suggesting that those competitors may face ineffective inventory management or surplus production capacity.
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