Finance for Non Financial Managers: MeadWestvaco's Financial Position, 2002-2008

Looking at the changes in MeadWestvaco's financial position for the years 2002 - 2008. The companies merged 2001/2002. From 2002 to 2004, though MWV was able to grow its revenues (gold stacks, top right), its sales prices were barely higher than the Cost of Goods Sold, making it impossible to be profitable (bottom right: profit shown in black, loss shown in ghosted red). It wasn't that every business unit was unprofitable, but a huge challenge was coming from international competition in paper products. Losses were financed by increasing debt (red stacks). A further problem was that a vast amount of money was tied up in forestry lands (Property, Plant and Equipment, copper stacks, top left) for the least profitable operations. In 2005 a major restructuring cut through these problems: Printing and Writing Paper was sold off to Cerberus Capital Management to form NewPage. This reduced PP&E by $2 bn, allowing debt to be paid down and brought under control. It also meant that Sales shrank by about $2 bn, but Cost of Goods Sold shrank equally, leaving a profit on the bottom line. Since that time MWV has been profitable, though sometimes with very thin margins. The challenge is to get a sufficient Return on all the Assets of the business to meet shareholder expectations and provide a positive Economic Profit. Learn more about Income/Outcome Business Simulations at http://www.income-outcome.com

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