Danaher Case Analysis

Danaher Case Analysis

1. What is your evaluation of the company’s financial performance?

Danaher Corporation (“Danaher”) has continued to grow through acquisitions, as opposed to organically. The issue with this is they have been adding debt to their balance sheet with long-term debt in 2006 double what is was in 2002. Positive is that its Total Debt/Equity ratio has stayed relatively constant and all of Danaher’s debt is long-term although the maturity of same is not clear and also the other liabilities is not explained. With an economy that looks as though a recession could be possible, banks may be reluctant to commit for longer tenors or such amounts. In this regard, Danaher must be prepared to weather the storm if there is a credit crunch especially considering its reliance on debt to acquire new companies and grow.

When reviewing its Balance Sheet, it is evident that Danaher is becoming less liquid with its current ratio at 1.4x in 2006 compared to 1.9x in 2002. Its quick ratio is 0.8x, meaning the company will struggle to meet its short-term obligations. In addition, cash has reduced by more than half from 2002 to 2006. Furthermore the amount of inventories is steadily growing. Danaher seems to be acquiring companies with high levels of inventory which is leading to this trend however, its liquidity ratios are showing that Danaher still hasn’t grasped how to efficiently turn its inventory into sales. Therefore, this could indicate that Danaher is growing too fast and perhaps they should focus on the companies they have already acquired and look for ways to improve their efficiency instead of acquiring new businesses.

Another item of note is its increasing equity. In 2006, equity was greater than 2x what equity was in 2002. At first glance this looks good, however when looking closer it becomes clear that this increase is purely related to goodwill (+ USD3.7mln). Of course, this is typical item in the balance sheet of an acquisitive company but...