Reliance Steel and Aluminum

Reliance Steel and Aluminum

Subject: Business    / Management
Question
Reliance Steel and Aluminum
Historical Performance
The total revenues of Reliance Steel and Aluminum improved from $ 9,223,800,000 in
2013 to $ 10,451,600,000 in 2014 and then declined to $ 9,350,500,000 in 2015
(finance.yahoo.com). The gross profit improved from $ 2,397,600,000 in 2013 to $ 2,621,000,000 in 2014 and
then dropped to $ 2,546,900,000 in 2015.
The net income of Reliance Steel and Aluminum improved from $ 321,600,000 in 2013
to $ 371,500,000 in 2014 and then declined to $ 311,500 in 2015.
Cash and cash equivalents improved from a negative position of -$ 14,000,000 in 2013 to
$ 22,600,000 in 2014 and then dropped to -$ 1,900,000 in 2015. The negative cash positions of
the company in the year 2013 and 2015 are not favorable since it shows a very low liquidity
position (finance.yahoo.com).
The total amount of retained earnings of Reliance Steel and Aluminum increased over the
years from a retained earnings of $ 3,063,000,000 in 2013, to $ 3,328,500,000 in 2014 and then
to $ 3,480,000,000 in 2015. The improved in the total amount of retained earnings of the
company implies that more and more resources were being made available to finance the
company operations. Internal Environment
Corporate Structure
Generally, Reliance Steel and Aluminum’s corporate structure is comprised of a board of
directors and top executive managers. The directors are comprised of experienced and top
professionals from various backgrounds and help to maintain accountability of the company’s
executives. The board of directors is comprised of three standing committees which include the
audit committee, compensation committee and the Nominating and Governance committee. The
top executive managers led by the Chief Executive Officer are in charge of various operational
functions of the company. In my view, the corporate structure of Reliance Steel and Aluminum
helps to put in place a system of controls that guides the corporate leaders. However, the system
is not appropriate for speedier decision making since the top management has to consult with the
directors before making any important decision that affects the organization.
Corporate Culture
Reliance Steel and Aluminum corporate culture is one that encourages decentralization of
management to its main subsidiaries. This allows the subsidiaries to become experts in their core
areas. Also, the company’s employees come from the local communities to enable them provide
excellent and customized services to the consumers since local employees understand their
markets better. The corporate culture of empowering local communities, local employees and
decentralization of management enables the company to achieve and maintain competitiveness
of the company since the subsidiaries are able to interact more with the local communities and
understand their needs better. Corporate Resources
Marketing plan is one of the important tools of Reliance Steel and Aluminum. It specifies
what Reliance Steel and Aluminum offers and how it markets its products and services. The four
P’s of the company’s marketing plan include product, price, promotion and place. The company
provides value added processing services and distributes 100,000 metal products to more than
125,000 customers. Also, the company provides their customers with readily available inventory,
reliable and timely delivery, flexible minimum order size and quality control. In terms of
distribution, the company uses a decentralized management business model that empowers
subsidiaries to provide products and services at their convenient locations.
Other important resources of Reliance Steel and Aluminum include a strong financial
profile and human resources. Being the largest metal service company in North America,
Reliance Steel and Aluminum is able to use its financial might to acquire and establish new
subsidiaries. The company boasts of its skilled human resources and expertise that are able to
adapt and respond quickly to their regional and industry conditions in the local communities.
Financial Section
Liquidity Ratio
Current Ratio

2015 2014 2013 Reliance Steel and Aluminum 2.58 4.7 4.78 Ryerson Holding Corp RYI 2.69 2.47 3.04 Worthington Industries, Inc. 1.93 2.03 1.89 The current ratio measures the ability of the firm to meet its short term maturing obligations
as they fall due using its current amounts of current assets. In relation to the calculation above,
Reliance Steel and Aluminum’s current ratio for the year 2015 was 2.58. This indicates that the
company’s amount of current assets are more than the current liabilities and thus, the firm is
highly liquid and can settle its short term obligations as they fall due. A strong current ratio is
important since it means that the firm has adequate cash and other assets that can be quickly
converted to cash to pay any maturing obligations. A current ratio of 2.5 is favorable to the
company and it’s a strong indicator of liquidity level. However, the current ratio of Reliance
Steel and Aluminum declined in the year 2015 from a current ratio of 4.7 in the previous year
which shows a declining liquidity position of the company.
Generally, Reliance Steel and Aluminum had better liquidity ratios than its competitors
except in 2015, when its liquidity ratio fell below that of Ryerson Holding Corp RYI. This means
that Reliance Steel and Aluminum was better to positioned to settle its maturing obligations
better than the competitors.
Profitability ratios
a. Gross profit margin
Gross Profit Margin 2015 2014 2013 Reliance Steel and Aluminum 0.272 0.25 0.26 Ryerson Holding Corp RYI 0.1792 0.1639 0.1782 Worthington Industries, Inc. 0.14 0.16 0.15 Net Profit Margin 2015 2014 2013 Reliance Steel and Aluminum 0.03 0.04 0.03 b. Net profit margin Ryerson Holding Corp RYI -0.02 -0.71 3.68 Worthington Industries, Inc. 0.02 0.05 0.05 In relation to the profitability ratios, Reliance Steel and Aluminum made positive margins
as indicated by the net profit margin. Ideally, net profit margin calculates the returns of an
organization which is the net profit after deduction of all expenses divided by the total amount of
sales. A net profit margin of 3.33 percent means that the company was making positive earnings
and was profitable in the period of operation. This implies that the company’s expenses and total
costs of goods sold were actually less than the total amount of sales made during the period. On
the other hand, a gross profit margin of 27.2 percent means that Reliance Steel and Aluminum
was making positive margins from its sales after deducting the costs of all goods sold. Gross
profit margin is a measure of profitability and shows the returns of the organization after
deducting costs of goods sold but before the expenses incurred during the period. A positive
gross profit margin indicates that the firm is actually making earnings from its sales but may not
actually indicate the amount of expenses incurred during the period.
Generally, the gross profit margin of Reliance Steel and Aluminum improved in the year
2015 compared to the previous year 2014. However, the net profit margin declined slightly in
2015 compared to the year 2014 which implies that the expenses of the company increased that
lowered the net profit. The decline in the net profit margin of the company shows slowing profit
levels of the company.
Compared to its major competitors, Reliance Steel and Aluminum had better gross profit
margins. However, the net profit margin of the company was the lowest in 2013 but then improved to surpass the competitors in 2015 in which the company recorded the highest net
profit margin. This means that Reliance Steel and Aluminum was the most profitable company in
2015 compared to its major rivals.
c. Return on investment
Return on Investment 2015 2014 2013 Reliance Steel and Aluminum 0.0666 0.0747 0.0755 Ryerson Holding Corp RYI 0.0146 0.0183 0.018 Worthington Industries, Inc. 0.0711 0.1192 0.1182 In terms of return on investment, Worthington Industries, Inc. has the highest returns
followed by Reliance Steel and Aluminum. Based on the calculation above, it is evident that
Reliance Steel and Aluminum made 6.66 percent which is the return of its invested capital over
the entire year of 2015. Return on investments shows each dollar earned by a company from its
total invested assets in the business. A return on investment of 6.66 mean that the company
made at least 0.0666 dollars from each dollar of asset invested in the business. This implies that
the firm was actually generating incomes from its composition of both current and non-current
assets. 1. Asset Management Ratios
a. days of inventory
Days of inventory 2015 2014 2013 Reliance Steel and Aluminum 85 77 75 Ryerson Holding Corp RYI 91 89 93 Worthington Industries, Inc. 49 53 63 In terms of the calculation above, the days of inventory which shows the number of days
inventory is sold increased in the year 2015 to 85 days compared to an average of 77 days in
2014 and 75 days in 2013. The increase in date of inventory is unfavorable since it indicates that
the company was selling its inventory slower to get cash in the year 2015 compared to the
previous year of 2014 and 2013. The days in inventory in both years were extremely high which
means that the company was taking over two and half months to convert its inventory into cash.
Therefore, a lot of cash is trapped in holding inventory which is not favorable for the company.
The high number of inventory days may also signify increased risks of obsolescence of the
company inventory which is an unfavorable outcome for the organization. Generally,
Worthington Industries Inc. performed better than Reliance Steel and Aluminum in converting its
inventory into cash as shown by fewer days of inventory.
b. Average collection period Average Collection Period 2015 2014 2013 Reliance Steel and Aluminum 37 42 43 Ryerson Holding Corp RYI 41 42 41 Worthington Industries, Inc. 59 59 61 In regard to the calculation above, the average collection period declined in the year 2015
to 37 days compared to 42 days in 2014. The decline in the average collection period is positive
since the collection period shows the number of days taken to collect all outstanding accounts from sales made on credit. The decline in the average collection period indicates that debtors
were taking lesser time to settle their outstanding accounts thus enabling the company to have
higher cash reserves that could be used to finance its operations. When accounts are settled on
time, the organization can utilize the receipts to finance its operations and projects which is good
for the company.
Generally, Reliance Steel and Aluminum had the lowest average collection period in
2015 which mean that it was collection its accounts much faster compared to its rivals.
Worthington Industries, Inc. recorded the worst average collection period over the three years
compared to its major competitors. 4. Leverage Ratios
a. Debt to asset
Debt to asset 2015 2014 2013 Reliance Steel and Aluminum 0.45 0.48 0.47 Ryerson Holding Corp RYI 1.09 1.06 1.06 Worthington Industries, Inc. 0.62 0.64 0.63 Generally, the debt to total asset ratio of Reliance Steel and Aluminum Company fell
from 0.48 in the year 2014 to 0.45 in the year 2015. The decline in the debt to total asset ratio
implies that the company was using less debt to finance its operations in the year 2015 compared
to 2014. A decline in debt to total asset ratio is good for the company especially because high
levels of debt are associated with increase in financial distress of the company. As indicated in the calculation above, it is evident that Reliance Steel and Aluminum had
the lowest debt to asset levels which means that it has a very favorable leverage compared to its
rivals. b. times interest earned
Times interest earned 2015 2014 2013 Reliance Steel and Aluminum 4.24 5.06 4.82 Ryerson Holding Corp RYI 1.02 0.75 1.13 Worthington Industries, Inc. 4.16 9.15 9.42 The times interest earned ratio declined in the year 2015 to reach 4.24 from the previous
year’s ratio of 5.06. Essentially, times interest earned ratio measures the company’s ability to pay
off its interest expenses using its available earnings. The decline in the times interest earned ratio
suggests that the company’s ability to pay off its interest expenses using its available earnings
declined in the year 2015 compared to the previous year of 2014. This is not a favorable outcome
for the company since it means increased costs of obtaining and servicing short term debts by the
company.
In terms of times interest earned, Reliance Steel and Aluminum performed better than its
main rivals in the year 2015. However, Worthington Industries, Inc. had better times interest
earned ratios in the year 2014 and 2013. References
Reliance Steel & Aluminum Co. (RS). Retrieved at:
https://finance.yahoo.com/quote/RS/financials?p=RS