Applied Business Project 1 – Financial Analysis

You MUST Submit your ABP-1 report as a PDF file

If you do not submit report as a PDF document, there will be a 10-point deduction!

Name: Farlin, Christian (christianjfarlin@email.arizona.edu)

Project: ABP-1 – Financial Analysis of Illinois Tool Works Inc. (ITW)

Task 1: Company Profile

1.1. Company Governance

Task 1.1 Illinois Tool Works Inc. Corporate Governance

Company's legal company name Illinois Tool Works Inc.
Company's trading exchange and ticker symbol NYSE:ITW
Company's primary website URL http://www.itw.com
Corporate Headquarters Location Glenview, IL 60025-4075

E. Scott Santi:
Most key executive & title
Chairman & CEO, Illinois Tool Works Inc.

Company fiscal year end 12/31/2020

Company full-time employees 43,000
Industry sector Industrials
Industry classification Specialty Industrial Machinery

Table 1 – Illinois Tool Works Inc. Corporate Governance

(Sources: https://finance.yahoo.com/quote/ITW?p=ITW &

https://finance.yahoo.com/quote/ITW/profile?p=ITW &
https://finance.yahoo.com/quote/ITW/balance-sheet?p=ITW Referenced 9/10/2021)

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 Applied Business Project 1 – Financial Analysis

1.2. Financial profile

Task 1.2 Illinois Tool Works Inc. Financial Profile

The date of Financial Profile 9/10/2021
Previous Close 219.99
Volume 649,487
Average volume 853,501
52 week range (high and low) 188.14-242.07
1 Year Target Estimate 242.11
Forward Dividend and Yield 4.88 (2.23%)
Current Market Capitalization 68.909B
Company PE Ratio 26.01
Company Earnings per Share (EPS) 8.41
Company's "Beta" 1.09
Percentage of shares owned by insiders 0.24%
Percentage of shares owned by institutions 79.93%
Analyst Fair Value Recommendation Near Fair Value
Recommendation Rating Hold

Table 2 – Illinois Tool Works Inc. Financial Profile

(Sources: https://finance.yahoo.com/quote/ITW?p=ITW &

https://finance.yahoo.com/quote/ITW/holders?p=ITW &
https://finance.yahoo.com/quote/ITW/analysis?p=ITW Referenced 9/10/2021)

1.3. Investment Assessment (150 word original analysis)

As reported by Simply Wall St., the combination of stockholder-friendly company actions and
a growing EPS reveals that Illinois Tool Works’ stock will appreciate. “Over the last three years,
Illinois Tool Works has grown EPS by 15% per year” (SimplyWallSt.), meaning that company
stock will increase in value. However, analysts state that Illinois Tool Works stock is not
undervalued because “EBIT margins were flat over the last year” (SimplyWallSt.). Thus, analysts
advise stockholders to “hold” their stocks, as they are near value and are projected to increase
in value after Illinois Tool Works’ “revenue grew by a solid 9.9% to US$14b” (SimplyWallSt).
Therefore, analysts view Illinois Tool Works’ stock to be at-value due to the company’s current
performance, their “near fair value” status (YahooFinance), and their projected increase in
value per stock share—which is reliant on growing EBIT margins in the future.

Sources: https://finance.yahoo.com/news/heres-why-think-illinois-tool-091755864.html &

https://finance.yahoo.com/quote/ITW?p=ITW

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 Applied Business Project 1 – Financial Analysis

Task 2: Fundamental Analysis

2.1. Financial Metrics

Task 2.1 Illinois Tool Works Inc. Historical Stock Analysis and Fundamentals
(in thousands except per share items)
Closing Date --> 12/31/2020 12/31/2019 12/31/2018
Balance Sheet Fundamentals
Total Assets 15,612,000 15,068,000 14,870,000
Current Assets 6,523,000 6,253,000 5,778,000
Total non-current assets 9,089,000 8,815,000 9,092,000
Total Liabilities Net Minority Interest 12,430,000 12,038,000 11,612,000
Current Liabilities 2,589,000 2,154,000 3,542,000
Total Non Current Liabilities Net Minority Interest 9,841,000 9,884,000 8,070,000
Common Stock Equity 3,181,000 3,026,000 3,254,000
Income Statement Fundamentals
Total Revenue 12,574,000 14,109,000 14,768,000
Cost of Revenue 7,375,000 8,187,000 8,604,000
Gross Profit 5,199,000 5,922,000 6,164,000
Operating Income 2,882,000 3,402,000 3,584,000
Pretax Income 2,704,000 3,288,000 3,394,000
EBIT 2,910,000 3,509,000 3,651,000
Cash Flow Statement Fundamentals
Operating Cash Flow 2,807,000 2,995,000 2,811,000
End Cash Position 2,564,000 1,981,000 1,504,000
Changes in Cash 544,000 486,000 -1,478,000
Free Cash Flow 2,571,000 2,669,000 2,447,000
Historical Stock Price Data
Adj. Closing price on Closing Date 200.13 173.35 119.06
Stock Volume on Closing Date 658,200 816,100 1,189,400

Table 3: Illinois Tool Works Financial Profile

(Sources: https://finance.yahoo.com/quote/ITW/balance-sheet?p=ITW &

https://finance.yahoo.com/quote/ITW/financials?p=ITW &
https://finance.yahoo.com/quote/ITW/cash-flow?p=ITW &
https://finance.yahoo.com/quote/ITW/history?p=ITW Referenced 9/10/2021)

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 Applied Business Project 1 – Financial Analysis

2.2. Media Perspectives (150 word original analysis)

MarketWatch’s “Illinois Tool Works profit more than doubles to best expectations, but stock
falls” article reveals two key pieces of information that can be independently verified by an
investor by reviewing the company’s financial reports. First, MarketWatch reveals that “Net
income rose to $775 million, or $2.45 a share, from $319 million, or $1.01 a share, in the year-
ago period” (MarketWatch). The article also states that revenue grew despite inflationary cost
increases of raw material. An investor can validate the source’s information by reviewing the
financials of Illinois Tool Works, such as their income and cash flow statements. MarketWatch
additionally reveals that Illinois Tool Work “stock has slipped 0.9% over the past three months”
(MarketWatch), meaning that, while revenue has increased, the company’s value has diminished
in the marketplace. This trend can be independently verified by an investor by combing through
Yahoo Finance’s portfolio on Illinois Tool Works, including their financial reports and historical
stock price summaries.

(Sources:https://www.marketwatch.com/story/illinois-tool-works-profit-more-than-doubles-to-
beat-expectations-but-stock-falls-2021-07-30?siteid=yhoof2&
https://finance.yahoo.com/quote/ITW/history?p=ITW&
https://finance.yahoo.com/quote/ITW/balance-sheet?p=ITW Referenced 9/10/2021)

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 Applied Business Project 1 – Financial Analysis

Task 3: Quantitative Analysis Analysis

3.1. Stock Price Analysis Table

Task 3.1 Historical Stock Price Analysis Table- adj. closing prices
ITW DOV NYSE
Closing Date Illinois Tool Works Inc. Dover Corporation NYSE Dow 30
December 31, 2019 173.35 112.06 28,538.44
January 31, 2020 168.87 110.69 28,256.03
February 28, 2020 161.92 100.34 25,409.36
March 31, 2020 138.19 81.98 21,917.16
April 30, 2020 158.00 91.46 24,345.72
May 29, 2020 167.69 95.46 25,383.11
June 30, 2020 171.10 94.78 25,812.88
July 31, 2020 181.02 101.03 26,428.32
August 31, 2020 193.31 108.30 28,430.05
September 30, 2020 190.18 106.82 27,781.70
October 30, 2020 192.80 109.15 26,501.60
November 30, 2020 207.77 120.80 29,638.64
December 30, 2020 200.13 123.17 30,409.56

Table 4 – Industry Stock Price Closing Price Table

(Source:
https://finance.yahoo.com/quote/ITW/history?period1=1577750400&period2=1609372800&int
erval=1d&filter=history&frequency=1d&includeAdjustedClose=true &
https://finance.yahoo.com/quote/DOV/history?period1=1577750400&period2=1609372800&in
terval=1d&filter=history&frequency=1d&includeAdjustedClose=true &
https://finance.yahoo.com/quote/%5EDJI/history?period1=1577750400&period2=1609372800
&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true Referenced 9/10/2021)

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 Applied Business Project 1 – Financial Analysis

3.2. Industry Stock Price Graph

ITW/DOV/DOW Historical Stock Price Comparison Graph

250 35,000.00

200 30,000.00

NYSE Dow 30 CLosing Price

Adj. CLosing Price ($)

150 25,000.00

100 20,000.00

50 15,000.00

0 10,000.00

Illinois Tool Works Dover Corporation NYSE Dow 30

Figure 1– Historical Stock Price Comparison Graph

(Source:
https://finance.yahoo.com/quote/ITW/history?period1=1577750400&period2=1609372800&int
erval=1d&filter=history&frequency=1d&includeAdjustedClose=true &
https://finance.yahoo.com/quote/DOV/history?period1=1577750400&period2=1609372800&in
terval=1d&filter=history&frequency=1d&includeAdjustedClose=true &
https://finance.yahoo.com/quote/%5EDJI/history?period1=1577750400&period2=1609372800
&interval=1d&filter=history&frequency=1d&includeAdjustedClose=true Referenced 9/10/2021)

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 Applied Business Project 1 – Financial Analysis

Task 4: Technical Analysis

4.1. Fundamental numbers needed for Financial Ratios

Task 4.1 Fundamental numbers needed for Financial Ratios for Illinois Tool Works Inc.
Market Capitalization 9/10/2021 68,909,000,000
Gross Accounts Receivable [Accounts Receivable] 2,621,000,000
Cash, Cash Equivalents, and Short-Term Investments
[Cash] 2,564,000,000
Current Assets 6,523,000,000
Current Liabilities 2,589,000,000
Total Equity Gross Minority Interest (Total Equity) 3,182,000,000

Table 5 – Fundamental numbers needed for Financial Ratios for Illinois Tool Works Inc.

(Sources: https://finance.yahoo.com/quote/ITW?p=ITW &

https://finance.yahoo.com/quote/ITW/balance-sheet?p=ITW Referenced 9/10/2021)

4.2. Acid Test (150 word original analysis)

Acid Test = (Cash + A/R)/Current Liabilities

Acid Test = (2,564,000,000 + 2,621,000,000) / (2,589,000,000)

Acid Test = 2.002703747 = 2.00

Illinois Tool Works Inc. can pay off their short-term debts with plentiful short-term assets as
shown by the acid test. Their acid ratio test of 2.00 illustrates that the company is performing
well, with plenty of liquidity to cover their short-term debt. From the standpoint of their
investors, the acid test ratio of 2.00 reveals that Illinois Tool Works Inc. is paying out fair
dividends while keeping the company profitable. If Illinois Tool Works Inc. had an acid test ratio
in the 4.00 to 6.00 range, investors would be outraged because the company would be hanging
onto too much money and thus not paying out fair dividends or reinvesting back into the
company. If Illinois Tool Works Inc. had an acid test ratio below 1.00, then they would be
unable to pay their short-term debt. Compared to other companies, who may receive a score of
1.00 or less, Illinois Tool Works Inc. is performing ahead of the curve.

(Source: https://www.investopedia.com/terms/a/acidtest.asp Accessed 9/10/2021)

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4.3. Working Capital Ratio (150 word original analysis)

Working Capital Ratio = (Total current assets) / (current liabilities)

Working Capital Ratio = (6,523,000,000) / (2,589,000,000)

Working Capital Ratio = 2.519505601 = 2.5

As stipulated by BDC, the Working Capital Ratio Test determines if a company possesses the
necessary funds to carry out short-term operations, which includes meeting payments. A
company is deemed to be in “good standing” if they receive a score of 1.5 to 2. Illinois Tools
Work Inc.’s score of 2.5 reveals that they are in solid ground in terms of liquidity and being able
to meet their financial obligations. Investopedia reveals that a significantly higher score than 2
does not equate to better standing. In fact, it may show that the company is mismanaging
resources and not generating maximum revenue. This specific liquidity test is important because
it measures a company’s ability to currently function, rather than future performance. A
company can crumble due to present mismanagement even if their future is promising.
Therefore, as determined by the Working Capital Ratio Test, Illinois Tools Work Inc. resides in a
good situation.

(Sources: https://www.investopedia.com/ask/answers/041015/what-does-low-working-capital-
ratio-show-about-companys-working-capital-management.asp &
https://www.bdc.ca/en/articles-tools/money-finance/manage-finances/using-working-capital-
ratio Accessed 9/10/2021)

4.4. Price-to-Book Ratio (150 word original analysis)

Price-to-Book Ratio = Market Capitalization / Total Equity

Price-to-Book Ratio = (68,909,000,000) / (3,182,000,000)

Price-to-Book Ratio = 21.65587681 = 22.00

Investopedia states that the Price-to-Book Ratio “compare[s] a firm's market capitalization to its
book value” through division (Investopedia). The Price-to-Book Ratio determines if a company’s
stock is overvalued, undervalued, or near value by analysts. If a company’s P.B. ratio is
significantly above 3, then their stocks are trading at a premium and are thus overvalued
compared to their actual, or “book”, assets. If the company’s P.B. ratio is less than 3 but greater
than 1, the company’s stock is near value. If the book value is greater than the market capital
value, then the P.B. score is less than 1, and the company’s stock is undervalued. The lower the

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ratio, the more undervalued the company’s stock is. Illinois Tools Work Inc. has a P.B. score of
22, meaning that their stock is drastically overvalued—which should prompt investors to sell
their stock. Therefore, the P.B. test reveals that Illinois Tool Works Inc. appears to have better
value than its actual financial condition.

(Source: https://www.investopedia.com/terms/p/price-to-bookratio.asp Accessed 9/10/2021)

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