Waste Management Inc Case Study

Waste Management, Inc. is the leading provider of integrated environmental solutions in North America. It was incorporated in 1987 and is based in Houston, Texas. The company was formerly known as USA Waste Services, Inc. and changed its name to Waste Management, Inc. in 1998. The company partners with their customers and communities to manage and reduce waste from collection to disposal while recovering valuable resources and creating clean, renewable energy. Its recycling operations include collection and materials processing, plastics materials recycling, and commodities recycling. The company also provides recycling brokerage and electronic recycling services, including the collection, sorting, and disassembling of electronics to reuse or recycle various collected materials. The company also engages in renting and servicing portable restroom facilities to municipalities and commercial customers under the Port-o-Let name; and involves in landfill gas-to-energy operations comprising recovering and processing the methane gas produced naturally by landfills into a renewable energy source, as well as provides street and parking lot sweeping services Their motto is to "maximize resource value, while minimizing - and even eliminating - environmental impact so that both [their] economy and [their] environment can thrive. Waste Management, Inc. has received over 60+ awards over the past 4 years ranging from 2006 Business Recycler of the Year to 2010 EPA Projects of the Year for their University of New Hampshire Eco-Line Project, and Altamont Landfill Resource and Recovery Facility.

Waste Management, Inc. is a part of the Waste Management/Solid Waste Services & Recycling Industry. This industry includes about 18,000 companies with combined annual revenue of about $75 billion. Major companies other than Waste Management, Inc. include Republic Services and Waste Connections. The industry is highly concentrated. The 50 largest companies account for about 55 percent of revenue.

Ratios

Liquidity Ratios

Liquidity Ratios indicate the ability to meet short-term obligations to creditors as they mature or come due. The current ratio is a measure of a company's ability to pay off its short-term debt as it comes due. The current ratio is computed by dividing the current assets by the current liabilities. Both assets and liabilities with maturities of one year or less are considered to be current for financial statement purposes. A low current ratio may indicate a company faces difficulty in paying its bills. A high value for the current ratio, however, does not necessarily imply greater liquidity.

Current Ratios:

2010: 2482000/2485000 = 1 time

2009: 3010000/2901000 = 1.04 times

2008: 2335000/3036000 = .77 times

The quick ratio, or acid test ratio, is computed by dividing the sum of cash, marketable securities, and accounts receivable by the current liabilities. This comparison eliminates inventories from consideration since inventories are among the least liquid of the major current asset categories because they must first be converted to sales. In general, a ratio of 1.0 indicates a reasonably liquid position in that an immediate liquidation of marketable securities at their current values and the collection of all accounts receivable, plus cash on hand, would be adequate to cover the firm's current liabilities.

Quick Ratios:

2010: (539000 + 1696000)/ 2485000 = .90 times

2009: (1140000 + 1643000)/ 2901000 = .96 times

2008: (480000 + 1649000)/ 3036000 = .70 times

The average payment period is computed by dividing the year-end accounts payable amount by the firm's average cost of goods sold per day. We calculate the average daily cost of goods sold by dividing the income statement's cost of goods sold amount by 365 days in a year.

Average Payment Period

2010: 1792000/ (7824000/365) = 83.60 days

2009: 1695000/ (7241000/365) = 85.44 days

2008: 1750000/ (8466000/365) = 75.45 days

Asset Management Ratios

Asset management ratios indicate the extent to which assets are turned over, or used to support sales. These are also sometimes referred to as activity or utilization ratios, and each ratio in this category relates financial performance on the income statement with items on the balance sheet. The total assets turnover ratio is computed by dividing net sales by the firm's total assets. It indicates how efficiently the firm is utilizing its total assets to produce revenues or sales. It is a measure of the dollars of sales generated by one dollar of the firm's assets. Generally, the more efficiently assets are used, the higher a firm's profits. The size of the ratio is significantly influenced by characteristics of the industry within which the firm operates.

Total Assets Turnover:

2010: 12515000/21476000 = .58 times

2009: 11791000/21154000 = .56 times

2008: 13388000/20227000 = .66 times

The fixed assets turnover ratio is computed by dividing net sales by the firm's fixed assets and indicates the extent to which long-term assets are being used to produce sales. The fixed assets turnover represents the dollars of sales generated by each dollar of fixed assets. A high fixed assets turnover ratio is not necessarily a favorable sign; it may come about because of efficient use of assets (good) or because of the firm's use of technologically obsolete equipment that has small book values because of the effects of accumulated depreciation (poor).

Fixed Assets Turnover:

2010: 12515000/11868000 = 1.05 times

2009: 11791000/11541000 = 1.02 times

2008: 13388000/11402000 = 1.17 times

The average collection period is calculated as the year-end accounts receivable divided by the average net sales per day and thus indicates the average number of days that sales are outstanding. It reports the number of days it takes, on average, to collect credit sales made to the firm's customers. A shorter average