Vale SA

Vale S.A (VALE) Is Financially Healthy

January 9th, 2013 Posted by Company Research Report No Comment yet

Vale S.A. (VALE) is a Brazilian multinational corporation engaged in metals and mining and one of the largest logistics operators in Brazil. And Vale, formerly Companhia Vale do Rio Doce is the largest producer of iron ore and nickel in the world. Wikipedia

Balance Sheet

VALE SA Liquidity

Liquidity refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset. Assets that generally can only be sold after a long exhaustive search for a buyer are known as a liquid. Since the main cast of our report is Vale SA, let’s analyze if the company has been liquid from 2007-2011 through the liquidity ratios presented below.

  • Working capital ratio of the company was .02, .20, .12, .11 and .08. with an average of .11. This means that working capital (current asset-current liabilities) was only  11 percent compared to the company’s total asset. Its high working capital was in 2008 at 20 percent.
  • The current ratio was 1.13, 3.21, 2.32, 1.77 and 1.97, with an average of 2.68. This tells us that the current resources of Vale were greater than its current obligations by an average of 2.68.
  • And quick ratio (current asset inventory over current liabilities) was .75, 2.67, 1.97, 1.53 and 1.49 average of 2.44. This shows that the company has a less monetary asset in 2007 while its peak was in 2008 at 2.67.

To consider a firm financially healthy is to have a current and quick ratio of at least 2. With this, current resources of Vale SA is good enough to continue running its business.

VALE SA Asset Management/Efficiency

Efficiency ratios are used to measure the quality of the company’s receivables and how efficiently it uses its other assets. By looking at the table below, this will give us the idea of how efficient Vale SA  uses its other assets from 2007 to 2011.

  • Average inventory turnover ratio of Vale SA was 4.49. This ratio tells how often a business turns its inventory in a year. Because inventories are the least liquid form of asset, a high inventory turnover ratio is generally positive. On the other hand, an unusually high ratio compared to the average for your industry could mean a business is losing sales because of inadequate stocks on hand.
  • The receivable turnover ratio was 5.66 times average. Receivables turnover is a good way to gauge the effectiveness of the company’s payment terms. If this number is low compared to the industry average, it may mean payment terms are too lenient or that you are not doing a good enough job on collections.
  • The payable turnover ratio of Vale SA was 11.84 times average. Payables turnover trends can help a company assess its cash situation. Just as accounts receivable ratios can be used to judge a company’s incoming cash situation, this figure can demonstrate how a business handles its outgoing payments.
  • Asset turnover ratio of the company was .39 average.  This compares the sales revenue of a company to its total asset.  This ratio tells us how effectively and efficiently a company is using its assets to generate revenues as well as indicates the productivity of assets in generating revenues.

Based on the above data, if we are going to convert its efficiency into days,  Vale’s inventory was  81 days, days receivable was 64 and days payable was 31 days.

VALE SA Leverage

The Leverage is the relationship between debt financing and equity financing, also known as the debt-to-equity ratio. Leverage is not necessarily a bad thing. Leverage is useful to fund company growth and development through the purchase of assets. But if the company has too much borrowing, it may not be able to pay back all of its debts.

Debt ratio, debt to equity and solvency ratio of Vale SA from 2007 to 2011 is  detailed below:

  • The company’s debt ratio was .57, .47, .44, .47 and .40. an average of .47. It means that its total liabilities was only 47 percent average compared to the total asset.
  • Its debt to equity ratio was 1.31, .88, .80, .87 and .66. with an average of .90.  The company’s total obligations were high is 2007 at 131 percent compared to stockholders’ equity, however, the company managed to lower it down to 66 percent in 2011.
  • Solvency ratio was .32, .43, .18, .35 and .52. Averagely, it is quite good, a solvency ratio of .20 is good enough as a rule of thumb.

Vale SA’s invested capital was half loan, total debt compared to total asset was 47 percent and 90 percent of total stockholder’s equity. The company was not highly leveraged as they managed to lower it down in 2011.

In order to know who are the majority claimants of the company, we used the following ratios:

  • Current liabilities to total asset was.11 average which means that the creditors have 11 percent claims of the total asset of the company.
  • Its long-term liabilities to total asset was .20, this tells us that 20 percent will be claimed by the banks or bondholders.
  • And stockholders’ equity to total asset was .53 average. It means that  53 percent of the total asset of Vale belong to its stockholders, therefore, they are the majority claimants of the company’s property.

VALE SA Property, Plant & Equipment

This category consists of assets that are tangible and relatively long-lived. The firm has acquired these assets in order to use them to produce goods and services that will generate future cash inflows.  These are recorded at cost upon acquisition of these assets.

Let’s have a glance of Vale SA’s investment in PPE from 2007 to 2011:

  • The company’s investment in PPE has an average of $83,934 in 5 years. If we deduct its accumulated depreciation of $15,217, the net value of the fixed asset would be  $68,716.

Using the above scenario, we estimate a 5-year useful life of the property, so the remaining life will be 4.1 years to be usable.  Therefore, the company could save for 4 years for the use of the existing fixed asset.

Income Statement

This is the financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.

VALE SA Income

Income is the amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. It is the “top line” or “gross income” figure from which costs are subtracted to determine net income.  Vale SA’s income from 2007 to 2011 are detailed below:

  • Revenue was 32242, 37426, 23311, 45293 and 58990, its TTM (trailing twelve months) was 48099. Its growth in 2008 was 16 percent, however, it dropped by  38 percent in 2009, but recovered in 2010 until 2011 by 94 and 30 percent.
  • The company’s gross profit was 15779, 19785, 9690, 26479 and 32607 with TTM of 12820. Its growth is also trending up except in 2009 wherein it dropped by 51 percent, the lowest performance in five years.
  • Operating income and income before tax was 15233, 13217, 7123, 20314 and 26799. with ttm of 12820. Both have the same figures and the trend was it lowered by 13 percent in 2008 and 46 percent in 2009 but rose up in 2010 by 185 percent and 32 percent in 2011.
  • Finally, income after tax was 11825, 13218, 5349, 17264 and 22885. ttm was 12830. A growth of 12 percent in 2008, dropped down to 60 percent in 2009, however, it recovered by 223 percent in 2010 and 33 percent in 2011.

Revenue of Vale SA showed a successive positive balance in 5 years period. The trend was up and down but continuously have positive growth in the year 2010 to 2011. Its net income results were impressive at 27 percent.

VALE SA Expense

The economic costs that a business incurs through its operations to earn revenue. In order to maximize profits, businesses must attempt to reduce expenses without also cutting into revenues. Because expenses are such an important indicator of a business’s operations, let’s take a look at Vale’s expenses from 2007 to 2011:

  • The cost of revenue was 16,463, 17641, 13624, 18814 and 26383. Its percentage of total revenue was 51, 47, 58, 42 and 45. with 55 percent ttm.
  • The operating expense was 546, 6568, 2567, 6165 and 5808 which was 2, 18, 11, 14 and 10 percent of revenue. And, its highest operating expense was in 2008 and the lowest in 2007.
  • Likewise, another expense of Vale was 2994, -1, 1774, 2718 and 4147 or an average of  6 percent in five years.
  • And total expense was 3540, 6567, 4341, 8883 and 9955 which was equivalent to 11, 18, 19, 20 and 17 percent of total revenue.

Proportionate of Vale’s expenses against its total revenue was 55 percent cost of revenue, operating expense was 11 percent, other expense 6 percent and total expense average were 17 percent to total revenue.

VALE SA Margin

The margin is a measure of profitability expressed in percentage.  Vale’s  gross margin, operating margin, pre-tax margin and net profit margin from 2007 to 2011 are detailed below:

  • The company’s gross margin was .49, .53, .42, .58 and .55, average was .51. This is the gross profit compared to sales expressed in percentage.
  • Its operating margin and pretax margin were .47, .35, .31, .45 and .45 with average of .41. Its highest was in 2007 and the lowest in 2009 because of low sales in the same year.
  • Net profit margin was .37, .35, .23, .38 and .39. its ttm  was .27. The results showed that in 2009, the net profit margin was only 23 percent it’s lowest while 39 percent in 2011.

Considering its industry, gross margin of Vale was impressive at an average of 51 percent, operating margin was 41 percent with a net margin TTM of 27 percent. Its low margin in 2009 was affected by the low sales of the company.

VALE SA Profitability

What I’ve found out from Rio is that profitability ratios help users of a company’s financial statements determine the overall effectiveness of management regarding returns generated on sales and investments. Commonly used profitability ratios are gross profit margin, operating profit margin, and net profit margin.

What are the results for Vale SA from 2007 to 2011? Let’s find out.

  • Net margin was .37, .35, .23, .38 and .39. TTM was .27. This is the bottom line of the business operation which shows how much of each sales dollar shows up as net income after all expenses are paid.
  • While the asset turnover ratio was .39 TTM. It shows that the company is doing well in using its assets to generate sales.
  • In addition, return on equity was .46, .31, .13, .29 and .34. Its trailing twelve months was .31 and it shows that the company is doing a good job using the investors’ money.
  • Moreover, financial leverage or equity multiplier was 2.31, 1.88, 1.80, 1.87 and 1.66, ttm was 1.90. It is derived by dividing asset by its stockholder’s equity. It allows the investor to see what portion of the ROE is the result of debt.
  • Finally, return on invested capital was .19 TTM. This ratio determines the amount of return that a firm could earn on additional contributed capital. The calculation measures the return generated when a company converts its capital into capital expenditures, which generate revenues from core operations.

Based on the above data, Vale ‘s profitability is good, with no negative result. Its overall performance shows that its peak year was in 2011 while its lean period was in 2009. This was due to low sales in 2009 which resulted in the low-profit-margin, however, total performance was impressive.

Cash Flow

Cash flow statements facilitate decision making by providing a basis for judgments concerning the profitability, financial condition, and financial management of a company. It is categorized into three; operating cash flow, investing cash flow and financing cash flow. The graph below shows the cash flow of Vale from 2007 to 2011:

VALE SA Cash Flow from Operating Activities

Operating cash flows are cash received or expended as a result of the company’s internal business activities. It includes cash earnings plus changes to working capital.

Transactions affecting the operating cash flow of Vale SA from 2007 to 2011 are as follows:

  • Net income was 11825, 13218, 5456, 17453 and 22652. TTM was 12522. This is the result of the normal transaction of the business.
  • While the depreciation and amortization were 2186, 2807, 2722, 3260 and 4122.
  • On the other hand, accounts receivable was 0, -466, 616, -3800 and -821. while
  • Its inventory was -343, -467, 530, 503 and -1343.
  • Moreover, other working capital was 1579, -338, 26, 541 and -725.
  • Other non-cash items were -3535, 1729, -2276, 1478 and 1993.
  • So, its net cash provided by operating activities was 11012, 17114, 7136, 19669 and 24496 with TTM of 20515. It is a consistently positive balance.

After the adjustments on the operating activities transactions of Vale company, its net operating cash flow was still high at $20515 TTM.  It has money left for future expansion.

VALE SA Cash Flow from Investing Activities

Cash received from the sale of long-life assets or spent on capital expenditure (investments, acquisitions, and long-life assets) fall under this category.

Transactions related to cash flow from investing activities of Vale company from 2007 to 2011 are:

  • Total cash outflow was -10048, -11535, -13765, -19138 and -16943 which are investments in PPE, purchases of investments and other investing activities.
  • While total cash inflow was 1042, 134, 606, 1954 and 2874 which includes sales/maturities of investments and PPE reductions.
  • So, net cash used for investing activities was -9006, -11401, -13159, -17184 and -14069.

Net cash used in investing activities of Vale SA incurred a negative balance because cash outflow was more than its cash inflow transactions under-investing category.

VALE SA Cash Flow from Financing Activities

Financing cash flows refer to cash received from the issue of debt and equity or paid out as dividends, share repurchases or debt repayments.


  • Total cash inflow was 0, 15210, 5339, 6693 and 2442. These came from debt issued and common stock issued.
  • While total cash outflow was  -5209, -6206,- 4714, -9262 and -16813,  which were debt repayment, repurchase of treasury stock, cash dividends paid and other financing activities.
  • So, net cash provided by (used for) financing activities was -5209, 9004, 625, -2569 and -14371. Its negative balance was due to cash outflow exceeds cash inflow while positive balance, the company has more than enough funds to offset cash out under financing category.

Under financing cash flow activities, it incurred a negative balance in 2007, 2010 and 2011 because cash outflow transactions were greater than cash inflows. Meanwhile, cash outflows exceed cash inflows in 2008 and 2009 which resulted in a positive balance.

VALE SA Free Cash Flow

This is a measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. Without cash, it’s tough to develop new products, make acquisitions, pay dividends and reduce debt.


  • Free cash flow of Vale SA from 2007 to 2011 was 4361, 8142, -960, 7022 and 8421. It has a negative balance in 2009 because it is capital expenditure exceeds its operating cash flow balance, however, rests of the period shows a positive result.

The company shows that it is financially healthy consecutively from 2007 to 2008 and 2010 to 2011. It means it has available funds to retire debts and pay dividends. However, it was negative in 2009 by 13 percent.

VALE SA Cash Flow Ratios

Cash flow analysis uses ratios that focus on cash flow and how solvent, liquid, and viable the company is. Here are the most important cash flow ratios with their calculations and interpretation for Vale SA operation from 2007-2011.

  • Cash flow margin is the result of dividing the operating cash flow by total revenue. For Vale SA, its trailing twelve months was .43 which means that for every dollar of sales, it generates cash flow of $0.43.
  • While the operating cash flow was the result of dividing the operating cash flow by total current liabilities. Vale SA’s trailing twelve months was 1.51 which shows that it can meet financial obligations thru cash generated by operating activities.
  • On the other hand, the free cash flow ratio compares the company’s free cash flow to its operating cash flow. The company incurred a negative result in 2009 of .13, however, recovered in the succeeding period.
  • Further, the capital expenditure ratio was 1.66, 1.99, .88, 1.56 and 1.52. its TTM was 1.19. It measures the company’s ability to acquire long-term assets using free cash flow.  It shows that the company can invest in itself in capital expenditures.
  • Furthermore, the total debt ratio was .34 TTM. It tells us of a company’s ability to cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better the company’s ability to carry its total debt.

Finally, Vale SA, as far as its profitability ratios are concerned,  shows impressive results except in its free cash flow in 2009 which was negative -0.13. However, the company managed to recover thereafter.

Written by Rio
Edited by Cris

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