Dougall & Gilligan Case
Dougall & Gilligan Global Agency
D&G is one of the largest advertising agencies in the world (11,000 employees), serving a wide variety of industries in many countries (56% of total revenues come from foreign accounts).
1) What are the company’s financial condition and performance, funds requirements, and business risk?
Sources and Uses of Funds (1991-1994)
Major uses of funds are increases in intangible assets ($83.5 M) and net fixed assets ($28.4 M). This is consistent with the acquisition strategy pursued by the company over the past years. Another significant uses of funds are dividends ($67 M), currency losses ($50 M just in 1992), stock repurchases and other adjustments that could reduce shareholders equity. Moreover, cash position has improved over this period ($43 M). These uses were financed largely by the company’s profitable operations ($270 M), the issuance of convertible subordinated debentures ($81 M) and stock issuance ($56 M). Other minor sources of funds are increases in bank loans ($24 M), accruals and deferred compensations. (See Table 1)
Table 1. Source and Uses of Funds (1991-1994)
Financial Ratios
The first thing to note is that the company bills their customers and pays the media for the ads placed. Therefore, the company has a lot of receivables and payables. On average, commissions and fees to D&G are only 13% of these billings.
The current ratio is slightly lower than the industry median (1.06x vs. 1.1x for the industry) and it has fluctuated very little over the past 4 years. A quick ratio does not make sense here because the firm does not have inventories. Average collection period fluctuated without any particular trend, and it is lower than the industry (42 vs. 52 days). Total debt-to-equity ratio is higher than the industry median (6.3x vs. 4.5x) This ratio is so high because it includes accounts payables (57% of total liabilities).
Times interest earned has increased over the period, reflecting a slight improvement in
D&G is one of the largest advertising agencies in the world (11,000 employees), serving a wide variety of industries in many countries (56% of total revenues come from foreign accounts).
1) What are the company’s financial condition and performance, funds requirements, and business risk?
Sources and Uses of Funds (1991-1994)
Major uses of funds are increases in intangible assets ($83.5 M) and net fixed assets ($28.4 M). This is consistent with the acquisition strategy pursued by the company over the past years. Another significant uses of funds are dividends ($67 M), currency losses ($50 M just in 1992), stock repurchases and other adjustments that could reduce shareholders equity. Moreover, cash position has improved over this period ($43 M). These uses were financed largely by the company’s profitable operations ($270 M), the issuance of convertible subordinated debentures ($81 M) and stock issuance ($56 M). Other minor sources of funds are increases in bank loans ($24 M), accruals and deferred compensations. (See Table 1)
Table 1. Source and Uses of Funds (1991-1994)
Financial Ratios
The first thing to note is that the company bills their customers and pays the media for the ads placed. Therefore, the company has a lot of receivables and payables. On average, commissions and fees to D&G are only 13% of these billings.
The current ratio is slightly lower than the industry median (1.06x vs. 1.1x for the industry) and it has fluctuated very little over the past 4 years. A quick ratio does not make sense here because the firm does not have inventories. Average collection period fluctuated without any particular trend, and it is lower than the industry (42 vs. 52 days). Total debt-to-equity ratio is higher than the industry median (6.3x vs. 4.5x) This ratio is so high because it includes accounts payables (57% of total liabilities).
Times interest earned has increased over the period, reflecting a slight improvement in