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Eaton Corp Plc Financial Health

The Good and the Bad Signs of the Organisation’s Financial Health

As a multinational power management company, Eaton Corporation plc, which was initially known as Eaton Corporation Limited, has six segments, namely: Hydraulics, Aerospace, Truck and Automotive, Electrical Americas, and Electrical Rest of World. Although it is based in Dublin, Ireland, it sells it products to consumers in over 175 countries globally (Eaton Corp, 2014). The company’ financial health appears to be stable in recent years although it has experienced financial turbulence over the year.

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The company has 103,000 full-time employees (Eaton Corp, 2014). The employee turnover is not alarming although there was an unidentified laid off employees in 2003 after

 five of the factories in Netherlands, Australia, and Britain merged after purchasing Delta’s electrical unit. These factories had 1,700 employees (New York Times, 2003). Since 2009, the company has witnessed a destabilized growth in profit. Although some periods recorded a tremendous growth (in 2009-2010, it almost tripled from $385 million to $929 million), some periods have recorded diminishing profits (in 2011-2012, from $1,350 million to $1,217million) (Morning Star, 2014). The company’s trailing twelve months’ profit makes $1,599 million, which is a decreased profit from the profit obtained in 2013 ($1,861 million).

Nevertheless, the corporation has recorded a steady revenue growth since 2009 (Morning Star, 2014). This indicates that there has been a steady increase in sales. The corporation has cancelled any major orders. However, in 2007, there was a case in court where E.C Styberg Engineering Company had sued Eaton Corp for breaching a contract (Bloomberg Law, 2007). According to Styberg, the company cancelled an order for 240 units of I-brakes made by Styberg that were to be delivered on 8th of May 2000. The order was placed on April 2000. Subsequently, the company did not pay for any orders placed after 11th of May 2000. The district court ruled in favour of Eaton (Bloomberg Law, 2007). Although litigation fees were used, the case did not bring a major set-back for the company.

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How Fiscal and Monetary Policies Affect the Financial Health of the Organization

Global central banks have maintained monetary policies that are quite accommodative. For example, the Federal Reserve has started to curtail the open market buying of bonds (Morning Star, 2014). Such accommodative policies have encouraged such large corporations as Eaton Corp to invest in companies mainly based in the developed economies. Unfortunately, the return on invested capital has continuously diminished over the years. For example, the invested capital in 2004 gained more (13.64%) than the invested capital in 2013 (8.16%) (Morning Star, 2014). The lowest return on invested capital attained was in 2009.

However, this was highly attributed by the 2008-2009 financial crisis. As evident, the company’s investment has never fully recovered from this crisis despite the favourable monetary policies. The highest return on investment experienced was in 2011 where it gained 12.24% (Morning Star, 2014). This has been the only double-digit return experienced since 2009.  

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Nevertheless, the company has a favourable equity that is attractive to many investors.  This includes dividend growth, god earnings per share, strong margins and good balance sheet. The net and gross margins have continuously increased since 2004. The company has also recorded a double digit return on equity since 2004. However, in 2009, it recorded a single digit-return of 5.85%. The highest growth was in 2006 when it made 24.10% in return (Morning Star, 2014).

The company’s earnings per share have continuously grown since 2004 with the current price of $3.90 in 2013. The highest price recorded was $3.93 in 2010. The dividends have also continually increased since 2004, with the lowest experienced in 2007 ($0.47), the highest were in 2013 ($1.68) (Morning Star, 2014). The company should take advantage of the monetary and fiscal policies provided by central banks and governments for the sake of strengthening the economies. This will allow the company to steady its growth in return on investments.

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