Question

Growth Profitability and Financial Ratios for Alamo Group Inc
Financials
	2015-12	2016-12	2017-12	TTM
Revenue USD Mil	880	845	912	935
Gross Margin %	23	24.3	25.7	25.8
Operating Income USD Mil	67	68	89	90
Operating Margin %	7.6	8	9.7	9.6
Net Income USD Mil	43	40	44	47
Earnings Per Share USD	3.76	3.46	3.79	3.98
Dividends USD	0.32	0.36	0.4	0.41
Payout Ratio % *	8.2	9.2	9.3	10.3
Shares Mil	11	12	12	12
Book Value Per Share * USD	31.2	33.93	38.57	40.02
Operating Cash Flow USD Mil	53	76	71	44
Cap Spending USD Mil	-15	-10	-13	-19
Free Cash Flow USD Mil	37	66	57	25
Free Cash Flow Per Share * USD	2.35	4.65	4.89
Working Capital USD Mil	278	249	291
Key Ratios -> Profitability
Margins % of Sales	2015-12	2016-12	2017-12	TTM
Revenue	100	100	100	100
COGS	76.98	75.72	74.28	74.25
Gross Margin	23.02	24.28	25.72	25.75
SG&A	15.45	16.27	16	16.14
R&D
Other
Operating Margin	7.56	8	9.73	9.61
Net Int Inc & Other	0.04	-0.64	-0.7	-0.66
EBT Margin	7.6	7.36	9.03	8.95
Profitability	2015-12	2016-12	2017-12	TTM
Tax Rate %	35.38	35.61	46.2	44.18
Net Margin %	4.91	4.74	4.86	5
Asset Turnover (Average)	1.43	1.46	1.53	1.35
Return on Assets %	7.01	6.93	7.43	6.77
Financial Leverage (Average)	1.67	1.43	1.42	1.6
Return on Equity %	12.38	10.7	10.59	10.75
Return on Invested Capital %	9.19	9.09	9.72	8.74
Interest Coverage	10.94	11.52	18.02	18.26
Key Ratios -> Growth
	2015-12	2016-12	2017-12	Latest Qtr
Revenue %
Year over Year	4.83	-3.96	8.01	10.54
3-Year Average	11.86	7.67	2.83
5-Year Average	10.89	6.95	7.74
10-Year Average	9.1	6.35	6.11
Operating Income %
Year over Year	6.17	1.64	31.23	6.27
3-Year Average	13.08	10.05	12.3
5-Year Average	16.6	6.02	14.04
10-Year Average	13.42	11.37	14.05
Net Income %
Year over Year	5	-7.32	10.66
3-Year Average	14.34	3.52	2.5
5-Year Average	15.4	4.54	8.92
10-Year Average	14.36	13.3	13.62
EPS %
Year over Year	9.94	-7.98	9.54	18.1
3-Year Average	16.14	5.34	3.48
5-Year Average	16.13	5.24	9.57
10-Year Average	12.68	11.55	11.82
Key Ratios -> Cash Flow
Cash Flow Ratios	2015-12	2016-12	2017-12	TTM
Operating Cash Flow Growth % YOY	0.74	0.44	-0.06
Free Cash Flow Growth % YOY	0.82	0.77	-0.13
Cap Ex as a % of Sales	1.76	1.16	1.48	2.02
Free Cash Flow/Sales %	4.22	7.79	6.28	2.7
Free Cash Flow/Net Income	0.86	1.64	1.29	0.54
Key Ratios -> Financial Health
Balance Sheet Items (in %)	2015-12	2016-12	2017-12	Latest Qtr
Cash & Short-Term Investments	4.46	3.04	3.97	10.17
Accounts Receivable	29.79	30.82	32.24	31.65
Inventory	24.98	24.56	24.32	22.55
Other Current Assets	0.9	0.85	0.83	1.05
Total Current Assets	60.13	59.27	61.36	65.41
Net PP&E	17.98	17.66	16.44	15.32
Intangibles	21.29	22.59	21.52	18.36
Other Long-Term Assets	0.6	0.49	0.68	0.91
Total Assets	100	100	100	100
Accounts Payable	7.54	7.8	8.73	8.29
Short-Term Debt	0.01	0.01	0.01	0.04
Taxes Payable	0.58	0.84	0.92	0.74
Accrued Liabilities	5.96	2.08	1.95	4.46
Other Short-Term Liabilities		3.5	4.23
Total Current Liabilities	14.09	14.24	15.85	13.53
Long-Term Debt	23.86	12.67	9.38	19.71
Other Long-Term Liabilities	2.32	2.96	4.56	4.23
Total Liabilities	40.27	29.86	29.79	37.47
Total Stockholders' Equity	59.73	70.14	70.21	62.53
Total Liabilities & Equity	100	100	100	100
Liquidity/Financial Health	2015-12	2016-12	2017-12	Latest Qtr
Current Ratio	4.26	4.16	3.87	4.83
Quick Ratio	2.43	2.38	2.29	3.09
Financial Leverage	1.67	1.43	1.42	1.6
Debt/Equity	0.4	0.18	0.13	0.32
Key Ratios -> Efficiency Ratios
Efficiency	2015-12	2016-12	2017-12	TTM
Days Sales Outstanding	73.31	75.32	75.23	84.12
Days Inventory	85.4	81.75	78.45	81.39
Payables Period	25.13	25.29	26.65	30.54
Cash Conversion Cycle	133.58	131.78	127.03	134.96
Receivables Turnover	4.98	4.85	4.85	4.34
Inventory Turnover	4.27	4.46	4.65	4.48
Fixed Assets Turnover	8.25	8.2	9	8.96
Asset Turnover	1.43	1.46	1.53	1.35

Alamo Group (ALG) The Company is a leader in the design and manufacture of high-quality agricultural equipment and infrastructure maintenance equipment for governmental and industrial use. The company is headquartered in Seguin, Texas. considering an investment in the common stock of Alamo Group, Inc is this possible?

Answer 1

To make a thorough analysis, we will go at the figures one by one:

Financial items	Comments
Revenue	Growing every year, TTM figure is the highest which means that the company has done quite well in the last 12 months.
Gross margin	Highest in last 12 months.
Operating income	Highest in last 12 months.
Operating margin %	Second highest. Just a bit lower than 2017-12 figures
Net income	Highest in TTM
EPS	Highest in TTM
DPS	Highest in TTM
Payout ratio	Increasing every year
Shares (in million)	Has been constant since 2015
BVPS	Highest in TTM, increasing every year
Operating cash flow	Has decreased in TTM. This means that company's investments has not made enough operating profit in the last 12 months. FCF has also decreased.
Capital spending	Highest in TTM
Working capital	highest in TTM
Profitability ratios	Apart from net interest income which is negative, the other ratios are quite good indicators. The company seems to be in quite a good financial health.
Growth ratios	Revenue, operating income, net income and EPS are all quite in good shape. The average results are bit lower in recent years.
Cash flow ratios	This area is a bit of concern for the company as it is not growing. The growth percentages are negative in recent years. This area needs attention. Company has to look at other investment alternatives.
Financial health ratios	Overall the ratios are good but the company is seeing a decline in health though by a lower margin. Some ratios have taken a dig in the last 12 months. Performance needs to be improved.
Liquidity ratios	Moderately good. Financial leverage is quite high,
Efficiency ratios	Position is not so good. Improvement needs to be sought. Turnover ratios, DSO, payable period figures are not indicating efficiency.

The company is in great shape overall. The financial position is also quite sterdy. However some improvements need to be sought urgently so that it can continue to carry on its current position for years to income and not lose its investors. So, for now, it is wise to invest in Alamo.