Waste Management Company Analysis

Waste Management Company Analysis 1
DEPARTMENT OF BUSINESS ADMINISTRATION
TERM PAPER
OF
ENVIORENMENT MANAGEMENT
On
WASTE MANAGEMENT COMPANY

ANALYSIS
SUBMITTED TO SUBMITTED BY
DR. AJAI PRAKASH ABHINAV PANDEY
2nd Sem(MBA e-B)
Roll No. :01
Table of Contents
Executive Summary 14
Introduction 15
Company Background 15
Customers & Services 18
Corporate Portfolio 19
Segment Growth Rates 21
Production Sales Data 22
Regional Net Sales 23
Revenue 24
Net Income 25
Expenses 26
Stock Prices 27
Market Share 28
Current Strategies 28
Corporate 28
Business 30
Functional 31
Core Competencies 32
Solid Waste Disposal 32
Transfer Stations 33
Landfills 34
Recycling 34
Waste-to-Energy 35
Gas-to-Energy 35
Competitive Environment 36
Competitive Profile 36
Revenue 37
Net Income 38
Sales Growth 40
Revenue Per Employee 41
Average Operating Income 42
Net Profit Margin 43
Return on Investment 44
Net Income Per Employee 45
Conclusion of Competitive Analysis 46
Significant Competitors 47
Allied Waste Industries 48
Republic Services 48
Competition Core Competencies 51
Allied Waste 51
Collection 51
Recycling 51
Landfills 52
Gas-to-Energy 52
Collection 52
Landfills 53
Recycling 53
Summary of Core Competencies 53
Key Factors of Competition 55
Geographic Location 55
Pricing 55
Quality of Operations 56
Increases in Recycling 56
Cost Effectiveness 56
Governmental Permits 57
Competitive Summary 57
Purpose of this analysis 58
Corporate Profiles 59
Waste Management Inc. 60
Allied Waste Industries, Inc. 62
Republic Services, Inc. 63
Growth Analysis 64
Revenue 65
Net Income 66
Market Value Analysis 69
Earnings per Share (EPS) 69
Price to Earnings (P/E) 69
Price to Sales (P/S) 70
Price to Book (P/B) 70
Price to Cash Flow (P/CF) 70
Stock Price 72
Profitability Ratios 73
Gross Profit Margin 73
Operating Profit Margin 74
Net Profit Margin 75
Return on Assets 76
Return on Equity 77
Return on Assets Trend Analysis 78
Recommendations for Improvement 79
Liquidity Ratios 82
Current Ratio 83
Quick Ratio 84
Leverage Ratios 86
Debt to Assets and Debt to Equity 86
Interest Coverage (Times Interest Earned) 87
Short-Term Debt 88
Turnover Ratios (Asset Management) 90
Receivables Turnover 90
Fixed Assets Turnover 92
Total Assets Turnover 92
Solvency Ratios 94
Solvency Ratio 95
Operating Cash Flow 96
Financial Analysis Summary 98
Revenue and Sales 102
Company Growth 103
Profit Margins 105
Return on Assets & Velocity 107
Cash Assets 108
Cash Flow 108
Competitive Analysis 111
SWOT Analysis 112
Strengths 112
Technology 112
Strategies 112
Global Position 113
Market Share 113
Marketing 113
Products/Services 113
Licenses/Permits 114
Assets 114
Landfills 114
Trucking Fleet 114
Weaknesses 115
Leadership 115
Financial Measures & Returns 115
Size 117
Dealing with Strengths and Weaknesses 117
Opportunities 120
Renewable Energy Sources 120
Recycling Programs & Gas-to-Energy 121
Threats 121
Political & Governmental 121
Legal Forces 122
Economic Conditions & Complementors 122
Competition 123
Management of Opportunities and Threats 124
Business Definition 128
Evolution of the Industry 128
The Future of Waste Management: New 129
Products/Services
Future Customers 130
Major Competitors 130
Allied Waste Industries 131
Possible Mergers & Acquisitions 132
Objectives 133
Revenue/Sales 133
Justification 133
Net Income 134
Justification 134
Market Share 135
Justification 135
Alternatives 136
Building Materials 138
Solar Panels 139
Windmill Energy Generation 140
Alternative Pros & Cons 141
Building Materials 141
Solar Panels 142
Windmill Energy Generation 142
Recommendations 143
Implementation Considerations 145
Setting Unreasonable Expectations 145
Elastic Business Definition 146
A Cause, Not a Business 146
New Voices 147
Open Market for Capital & Talent 147
Low Risk Experimentation 148
Cellular Division 148
References 150
Tables
Table 1 Gross Segment Revenue 21
Table 2 Net Sales by Product 23
Table 3 Regional Net Sales 24
Table 4 Revenues 25
Table 5 Net Income 25
Table 6 Stock Prices 27
Table 7 Competitive Profile 36
Table 8 Revenue 37
Table 9 Net Income 38
Table 10 Sales Growth Rate 40
Table 11 Revenue Per Employee 41
Table 12 Average Operating Margin 42
Table 13 Net Profit Margin 43
Table 14 Return on Investment 44
Table 15 Net Income Per Employee 45

Table 16 Competitor Comparison 49
Table 17 Operating Revenue; WMI 62
Table 18 Revenue Sources; WMI, AW, RSG 64
Table 19 Revenue – Four-Year; WMI, AW, RSG 66
Table 20 Net Income; WMI, AW, RSG 68
Table 21 Company Ranking – Revenue 68
Table 22 Market Value Analysis 71
Table 23 Company Ranking – Market Value 72
Analysis
Table 24 Stock Prices – Highs and Lows 73
Table 25 Gross Profit Margin; WMI, AW, RSG 74
Table 26 Operating Profit Margin; WMI, AW, RSG 75
Table 27 Net Profit Margin; WMI, AW, RSG 76
Table 28 Return on Assets; WMI, AW, RSG 77
Table 29 Return on Equity; WMI, AW, RSG 78
Table 30 Company Ranking – Profitability 80
Table 31 Current Ratio; WMI, AW, RSG 84
Table 32 Quick Ratio; WMI, AW, RSG 85
Table 33 Company Ranking – Liquidity Ratios 85
Table 34 Debt Ratio; WMI, AW, RSG 87
Table 35 Debt to Equity; WMI, AW, RSG 87
Table 36 Times Interest Earned; WMI, AW, RSG 88
Table 37 Short-Term Debt; WMI, AW, RSG 89
Table 38 Company Ranking – Leverage Ratios 89
Table 39 Receivables Turnover Ratio; WMI, AW, RSG 91
Table 40 Fixed Assets Turnover Ratio; WMI, AW, RSG 92
Table 41 Total Assets Turnover Ratio; WMI, AW, RSG 93
Table 42 Company Ranking – Turnover Ratios 94
Table 43 Solvency Ratio; WMI, AW, RSG 95
Table 44 Operating Cash Flow Ratio; WMI, AW, RSG 96
Table 45 Company Ranking – Solvency Ratios 97
Table 46 Net Profit Margin 105
Table 47 Net Operating Cash Flow 110
Table 48 Net Financing Cash Flow 110
Table 49 Net Investing Cash Flow 111
Table 50 Return on Assets 116
Table 51 Return on Equity 116
Table 52 Company Ranked Profitability Ratios 116
Table 53 Strategy/SWOT Matrix Worksheet 125
Table 54 Projected Revenue/Sales 134
Table 55 Projected Net Income 135
Figures
Figure 1 Company Time Line 18

Figure 2 Segment Revenue by Percentage 21
Figure 3 Income from Operations 22
Figure 4 Revenue Sources 24
Figure 5 Operating Expenses 26
Figure 6 Five Year Total Return 28
Figure 7 Revenue 38
Figure 8 Net Income 39
Figure 9 Sales Growth Rate 40
Figure 10 Revenue Per Employee 41
Figure 11 Average Operating Margin 42
Figure 12 Net Profit Margin 43
Figure 13 Return on Investment 45
Figure 14 Net Income Per Employee 46
Figure 15 Industry Market Share, 60
Figure 16 Revenue Sources; WMI, 61
Figure 17 Revenue Sources; AW, 63
Figure 18 Revenue Sources; RSG, 64
Figure 19 Waste Management Revenue 2004-2007, 66
Figure 20 Waste Management Net Income 2004-2007, 67
Figure 21 Trend Analysis: Waste Management vs. Five 79
year Industry Average

Figure 22 Net Profit Comparison 107
Figure 23 Industry Market Share 131
Executive Summary
This paper will discuss the history of Waste Management
Incorporated. The current strategies, core competencies,
industry segments, and major competitors of the company will
also be discussed. In the competition section, this paper
presents a competitive profile table, outlining key competitive
measurements of their major competitors, Allied Waste and
Republic Services. In that section, we also discuss current
aspects of the competitive environment that are likely to affect
Waste Management, namely recent merger talks between Allied and
Republic.
The next section is the financial section. The financial
analysis section provides key ratios, such as profitability,
liquidity, turnover, leverage, and solvency ratios for Waste

Management and their top two competitors over the past four
years. A growth and market value analysis is presented, with
information on the corporate profile of each firm. A cash flow
discussion is also included for Waste Management.
The next section examines and identifies the key strengths,
weaknesses, opportunities, and threats of Waste Management. The
strengths and weaknesses are discussed, along with how Waste
Management can leverage their strengths, and overcome their
weaknesses. The paper also discusses the opportunities and
threats, of the external environment, and how Waste Management
can take advantage of the opportunities and minimize the impact
of threats.
Forward-looking data is also included in this analysis. The
paper discusses where we think the industry will be in ten years
based on current trends, future customers, competitors, and
future product offerings of Waste Management. The objectives
that we feel are important to the future of the company are also
discussed, along with viable alternatives for the future
industry state. These alternatives are discussed, along with our
recommendation and implementation issues.
Introduction
Company Background
The company, Waste Management Ltd., was founded by Dean L.
Buntrock and his cousin Wayne Huizenga in 1971 (Hoover’s, 2008).

Buntrock and CEO Phillip Rooney, depended mainly upon
acquisitions to create a massive waste-disposal empire (Waste
Management History, 2008). They acquired and consolidated many
local haulers, including firms in Canada during the 1970’s
(Hoover’s, 2008). As the company grew, they began to divide into
specialty areas by forming Chemical Waste in 1975; ENRAC in
1980, which conducted site clean-ups; and servicing nuclear
waste clients with Chem-Nuclear systems in 1982 (Hoover’s 2008).
In 1988 Waste Management entered into a merger agreement with
Wheelabrator, allowing WMI a 22% ownership interest. In 1990,
Wheelabrator Technologies became a subsidiary of Waste
Management Incorporated (Wheelabrator, 2004).
The company grew at a phenomenal pace and in 1993 the
company began to diversify. They also were renamed WMX during
1993. However, in 1997 they changed their name back to Waste
Management (Hoover’s, 2008). That same year Dean Buntrock, and
CEO Phillip Rooney left the company (Waste Management, 2008).
After going through four different CEO’s over a period of eight
months, the company brought in turnaround specialist, Steve
Miller, to take on the role of CEO (Hoover’s, 2008).
In 1998, the company merged with the Houston based company,
USA Waste Services, in a deal that was worth around $25 billion
(Waste Management, 2008). The management team of USA Waste took
control over the business, with John Drury as CEO. In 1999, the
company acquired Eastern Environmental Services for $1.3
billion, and shortly after this acquisition, John Drury took
leave due to medical reasons. It was during this time that
shareholders filed an insider trading lawsuit against the firm.
The acting CEO, Rodney Proto, was fired due to allegations of
insider trading and was replaced with Maury Myers (Hoover’s,
2008).
In 2000, Waste Management moved into a restructuring phase,
selling off their operations in Europe, Asia, and South America.
They hoped to concentrate on their core business. Along the same
lines, in 2002, they began reorganizing operations by reducing
their workforce by 57,000 employees. During this same time the
SEC filed a lawsuit against six former Waste Management
executives for fraud (Hoover’s, 2008).
In 2003 the firm formed new recycling units and acquired
Pelts group, the largest privately held recycling firm. They
also went on to acquire 75 complementary collection business and
divested operations (Hoover’s, 2008). Currently the Houston
based company owns, 354 collection operations, 341 transfer
stations, 277 active landfill disposal sites, 16 waste-to-energy
plants, 105 recycling plants and 108 beneficial-use landfill gas
projects. Such a diversified support structure, allows Waste
Management to serve the various needs of over 21 million

customers (Waste Management History, 2008). In Figure 1 you will
see the timeline for the company.

Time Line of Waste Management Incorporated
1982 1999 Acquired

Acquired
Chem Eastern
1971 Pelts Group
Nuclear Recycling
WMI 1997 Change
Est.. Name Back
1975 2002 Began
Chemical to Waste Re-
Waste Management organization
1980 1998 2002 Insider

ENRAC 1990 Acquired Merger trading
Wheelabrator with USA allegations
Waste
During the 1993 2000 Sold
1970’s made Change Asian, South
acquisitions name American, &
to WMX European
Operations
Figure 1
Customers and Services
Waste Management services over 20 million municipal,
commercial, industrial, and residential customers. For their
bigger customers, they also utilize their “Upstream Group” to

provide a full range of services and waste strategies. They
provide waste and energy resource services to their customers
through their 354 disposal operations, 341 transfer stations,
277 active landfills, 16 waste-to-energy sites, 105 recycling
facilities, and 108 landfill gas sites. They operate in Puerto
Rico, Canada, and in every state in the United States except,
two. The firm continues to pursue the standardization of best
practices and individual customer pricing initiatives, to
provide customers with better service. Waste Management has also
updated and consolidated service call centers in an effort to
provide representatives will real-time solutions for customers.
They handle around 20 million phone calls a year for the
company. Waste Management continues to strive to be first in the
minds of customers (Waste Management Annual Reports, 2007).
Corporate Portfolio
Waste Management owns a portfolio of business functions
including collection, transfer, disposal, recycling, waste-to-
energy, and gas-to-energy segments. In the United States and
Internationally, Waste management Inc. supplies incorporated
services. The company also offers extra waste management
services, such as on-site service, methane gas recovery, and
third-party subcontracted and administrative services. It
services commercial, industrial, municipal, and residential
customers, as well as other waste management companies, electric

utilities, and governmental bodies. It is at present, the
biggest waste disposal company in North America
(www.finance.yahoo.com/q?s=WMI).
They divide their business into the following operating
segments: Eastern, Midwest, Southern, Western, Wheelabrator,
WMRA and other. During the 2007 operating year, these operating
groups provided gross revenue totaling $15.6 billion. Table 1
compares the individual segment revenue for the years 2005
through 2006 and was pulled from the financial statements of
Waste Management. As of 2005 the Canadian operation’s revenues
were allocated between the Midwest and Eastern Groups. Revenue
from the operations in Puerto Rico operations is included in the
other category (Waste Management Annual Report, 2007).
During the 2007 operating year, substantial growth was
achieved through pricing initiatives. During 2007, Waste
Management saw increases in revenue in the Eastern and Western
segments, through transfer station savings. The Southern and
Eastern segments had growth provided by municipal solid waste
revenue. The Western segment had growth from special waste
revenue. However, all of these revenues were offset by lower
waste volumes. In Figure 2 the revenue percentages are broken
down into the operating segments (Waste Management Annual
Report, 2007).
Table1
Gross Segment Revenue (millions)
2007 2006 2005

Eastern 3281 3614 3632
Midwest 2983 3003 2922
Southern 3681 3759 3590
Western 3508 3511 3416
Wheelabrator 868 902 879
WMRA & Other 1260 1023 1101
Segment Revenue Percentages
Eastern
Group
8%
6% 21% Midwest
Group
Southern
Group
23%
Western
19% Group
Wheelbrator
23%
Recycling
and Other
Figure 2
Segment Growth Rates
Looking at gross revenue, the segment that is growing is
the recycling segment. It had a 23% revenue increase from 2006
to 2007. The rest of the segments are actually declining. This
is due to the economic downturn affecting the volume of waste.
Most of the increases in the other segments are related to price
increases, but were offset with the volume declines. Figure 3
was taken from the financial statement presentation of Waste
Management Incorporated, and shows the income from operations
growth over the past three years. Over the 2006 and 2007 year
the company experienced 11% growth in operating income. Over the
2005 to 2006 year the company had 19% growth (Waste Management
Investor Presentation, 2007).
Income from Operations Growth (In Millions)
$2,254
$2,400
$2,029
Income from
Operations
$1,950 $1,710
$1,500
2005 2006 2007
Figure 3
Product Sales Data
In Table 2 the net sales by product are presented for Waste
Management Incorporated. Their biggest revenue comes from their
collection services division. Collection of waste makes up 55%
of the entire net sales, and its’ value is $3300 million.
Landfill service revenue makes up 20% of the entire net sales,
bringing in revenue of $1200 million. Transfer of waste makes up
$660 million, recycling $480 million, and waste-to-energy $360
million (www.finance.yahoo.com/q?s=WMI).
Table 2
Net Sales by Products
Collection $3300
Landfill $1200
Transfer $660
Recycling $480
Waste-to-energy $360
Note: Currency is in Millions
Regional Net Sales
Regional net sales are shown in Table 3 for Waste
Management. During the 2007 operating year the Southern and
Western divisions brought in the most net sales revenue. This
was in large part due to special waste service charges in the
Western division and the amount of waste collections in the

Southern division. This trend can also be seen during the 2006
and 2005 operating years, as well (Waste Management Annual
Report, 2007).
Table 3
Regional Net Sales (millions)
2007 2006 2005

Eastern 2650 2875 2848
Midwest 2491 2487 2414
Southern 3141 3191 3034
Western 3064 3046 2969
WMRA & Other 1167 933 992
Revenue
RevenueSourcesWaste ManagementInc.
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000 Revenue SourcesWaste
$500 Management Inc.
$0
Figure 4 Retrieved from: Waste Management, Inc. (WMI)

Table 4
Revenue
2003 2004 2005 2006 2007

WMI 11,648.0 12,516.0 13,074.0 13,363.0 13,310.0
www.wastemanagement.com
In Table 4 the revenue for Waste Management is shown for the
last five years in millions. As of December 2007, revenues at
WMI were 13.31B; down .37% from 2006 (13.36B). Revenue has
steadily been climbing for the company until 2007. This was in
large part due to volume declines, and will be discussed in
further detail in the financial section. A visual representation
the breakdown of revenues by services is presented in Figure 4.
Collection makes up the largest portion of the company’s revenue
sources, followed by landfills, transfer stations, recycling,
and last waste-to-energy operations.
Net Income
Table 5
Net Income
2003 2004 2005 2006 2007

WMI 630.0 939.0 1,182.0 1,149.0 1,163.0
Table 5 shows the net income for Waste Management for the
past five years in millions. Net income rose at WMI Company
during 2007 by $14 million. This is in large part due to cost
savings initiatives the company has instigated. This will also
be discussed in the financial section in more detail.
Expenses
Operating Costs as a Percent of Revenue
68% 66.0%
as a % of Revenue
Operating Costs
66% 64.3%
63.1%
64%
62%
60%
2005 2006 2007
Figure 5
Figure 5, which was obtained from the investor presentation
of Waste Management, shows the operating costs over the past
three years as a percent of revenue. The chart depicts the
increased cost savings initiatives Waste Management has put into
place to lower operating costs. These include an updated mapping
system for truck routes, improvements in safety programs, and a

reduction in administrative staff (Waste Management Annual
Reports, 2007).
Stock Prices
Table 6
Stock Prices
2003 2004 2005 2006 2007

WMI 29.600 29.940 30.350 36.770 32.670
In the Table 6, we can see that the stock prices have
steadily increased until 2007. This is largely due to the
economic downturn, divestures, and the potential losses
associated with decreased waste volumes. The ratios that affect
stock price will be discussed in more detail in the financial
section (Waste Management, 2007).
In Figure 6 the comparison of cumulative five year returns
is depicted. From this graph you can see that Waste Management
has returns in line with both the Dow Jones industry averages
and the S&P 500 index. This data was pulled from the financial
statements of Waste Management (Waste Management Annual Report,
2007).
Comparison of Cumulative Five Year Total Return
200 WMI
150
$ Return
100 S&P 500
50
0 Dow Jones
Waste &
2002 2003 2004 2005 2006 2007 Disposal
Year Services
Figure 6
Market Share
As for market share, Waste Management Inc. holds the
biggest share with a 28.5% share, Allied Waste controls around
13% of the market, and Republic Services has 6.6% of the market
share (Scharf, 2008). Past the point of these three competitors,
there is a highly fragmented market with many competitors
(Hoover’s, 2008). Each firm has similar strategies, but
different financial data based on their share of the market,
price structure, and cost savings initiatives.
Current Strategies
Corporate Strategy
In this part, an analysis of the present national and
international business stratagems followed at WMI will be

studied. Waste Management’s corporate strategy is to grow
revenue through pricing; and continue efforts to lower
operating, selling, general, and administrative costs through
process standardization and productivity improvements. They want
to continue to improve their business units through their “fix
or seek exit” strategy and generate strong and consistent cash
flows from operations for shareholders. Waste Management is also
continuing to divest underperforming operations (Waste
Management Annual Report, 2007).
The company continues to grow their business units and look
for synergistic acquisitions. They are concentrating
particularly in the areas of energy generation and recycling.
Their strategy is to service the waste needs of customers, by
providing environmentally friendly and sustainable solutions to
satisfy current and future customers. Waste Management is
dedicated to producing the highest level of client support and
services. They also want to achieve high returns for
shareholders (Waste Management Annual Report, 2007).
Waste Management is also devoted to the continual
improvement of safeguards for the environment. These efforts
distinguish Waste Management as an ecologically friendly company
that will be able to continue to meet increased environmental
regulations.
Business Strategy
Waste Management adapts its business to serve the unique
requirements of each of its consumer clusters. The firm has
decreased their focus on combinations and attainments, and in
there place, the firm relies on increasing their resources and
growing services. Through WMI’s fiscal resources, the company is
able to construct and attain valuable assets that allow them to
attain fiscal objectives. They work together with the different
administrations, educational associations, and support
departments, of the geographic regions they conduct business
within, to obtain access to the most cost efficient techniques
of waste management that are accessible. One of their chief
strategies is to increase investor prosperity by belonging to
organizations in every geographic region that the company
conducts business within. It is their goal to maintain
facilities and community faith in their continued presence
within the geographic regions they compete in.
They compete among other competitors in the waste industry
on price, services, and availability. They are currently
implementing cost saving programs to reduce the amount of
operating cost passed on to customers. They continue to look for
ways to improve operating efficiency and customer service. They
recently centralized call centers to provide better information

and service to customers. They also service more geographical
regions than their competitors. Waste Management seeks to be the
first in the minds of customers on waste services (Waste
Management, 2007).
Functional Strategy
The company’s functional strategy is to shift to extra
profitable procedures, like expanding their environmental
operations and cost savings initiatives. One of their
initiatives is to focus on improving the fuel efficiency of
their operating fleet. They are planning on expanding their
research and development of alternative fuel sources, for
vehicles. They are expecting to invest around $500 million
toward increasing the fuel efficiency of their fleet over the
next ten years. They also plan to continue their environmentally
friendly marketing campaign, under the “Think Green” slogan
(Waste Management, 2007).
In the human resource area, Waste Management seeks to
improve the safety record of the company. This will aid them in
financial strategies to reduce costs and improve operating
income. This strategy also promotes employee welfare. The
company is seeking to imbed safety into the everyday operations.
It is a way of life that is imbedded in the way they work, the
judgments they formulate, and the measures they acquire. WMI
aims to accomplish outstanding protection and be the safest

company in the industry. The strategy is known as Mission to
Zero (M2Z). The company plans to support this plan to reduce the
amount of hazardous decisions, dangerous conditions, perilous
tools, and unsafe approaches that employees might take. The
foundation of M2Z is well documented, and each employee goes
through the safety training process. This program actively
enhances employee happiness and superior consumer contentment
Core Competencies
Waste Management specializes in handling, collecting,
treating, transferring, and disposing of solid and hazardous
waste. The firm also holds core competencies in the industry
segments of recycling, waste-to-energy, and gas-to-energy
generation. All of these core business processes derive off of
the company’s ability to provide effective customer services.
Solid Waste Disposal
Waste Management provides solid waste pickup and disposal.
This waste includes, food items, furniture, newspapers, and so
on. In 2003, the US produced more than 236 million tons of solid
waste. This equates to around 4.5 pounds of waste per person,
per day (Municipal Solid Waste, 2008). Waste Management collects
waste for nearly 20 million residential, commercial, and
industrial customers. They have an extensive area they can
service, since they are in all states except two in the United
States. They also have the largest fleet of trucks to serve
customers needs (Waste Management Annual Report, 2007).
They provide curbside service, and contract terms of three
years for industrial or commercial accounts. For residential
services they contract with municipalities for one to five
years, to provide services. They process the waste down two
paths. They either haul it directly to the landfill, or collect
it and take it to a transfer station to be compacted. Once the
waste has been compacted it is hauled to the closest landfill,
via Waste Management’s trucks or their railcar system (Waste
Management, 2007).
Waste management also treats hazardous waste. This kind of
waste includes hazardous waste items such as, medical and
nuclear waste. Waste in this segment is largely generated by
industrial manufacturers (Hazardous Waste, 2008). They operate
several hazardous waste landfill sites, and meet necessary EPA
regulations to operate them (Waste Management Annual Report,
2007).
Transfer Stations
WMI owns and operates 341 transfer stations that serve as
efficient way stations between collection points and landfill
disposal. At these stations waste is consolidated and compacted
for eventual transport to landfills. They own more transfer
stations than their major competitors. This enables them to be

more efficient in the transportation and disposal of waste
Landfills
WMI owns and operates the largest network of landfills in
the industry. As of December 31, 2007, WMI owned or operated 271
solid waste and six hazardous waste landfills. In addition, it
managed 187 closed landfills. WMI utilizes Next Generation
Technology that accelerates the decomposition of waste in
landfills so that decomposition time is reduced from decades to
years (Waste Management, 2007).
Recycling
Recycling has enabled Waste Management to process newly
manufactured products, and in addition it saves valuable
landfill space. Waste is sorted out that can be recycled and new
products are manufactured from this waste (Municipal Solid
Waste, 2008). WMI processes more recyclables than any other
company in North America. Through its subsidiary, WM Recycle
America, WMI partners with the local community to process more
than 5.5 million tons of recyclable materials each year through
its 109 material recovery facilities. For commercial accounts,
WMI offers easy and cost-effective recycling through its single-
stream recycling, eCycling, or shredding, to regional and
national bale routes (Waste Management, 2007).

Waste-to-energy
Waste Management, through their subsidiary Wheelabrator, is
able to process garbage into energy resources. This is one of
Waste Management’s strongest core competencies. In fact none of
their immediate competitors, mentioned in this paper, have that
capability. Wheelabrator’s waste-to-energy plants have the
capabilities of producing 609 megawatts of power, enough to
power over 900,000 homes (Wheelabrator, 2004). The added
benefits of converting waste-to-energy, is that it reduces the
waste going to landfills by 90%. The process has also been
approved by the Environmental Protection Agency as having one of
the lowest environmental impacts in the generation of
electricity (Waste Management Annual Report, 2007).
Gas-to-Energy
As of December 31, 2007, WMI was producing commercial
quantities of methane gas at 108 of it solid waste landfills,
where it is either sold to electricity utilities or to natural
gas suppliers. Waste Management leads the industry in the
building and operations of methane gas plants. During the 2007
year alone, they built seven new operations. These operations
supply enough energy to power around 400,000 homes and enable
the company to gain renewable energy credits for greenhouse gas
emissions (Waste Management, 2007).

All of these competencies give Waste Management the potential
to dominate the waste industry. However, they are not without
competitors. The next section will discuss the competitive
environment Waste Management faces, the top two competitors, and
discuss the core competencies of the top two competitors against
Waste Management.
Competitive Environment
Competitive Profile
The competitive environment in the waste industry is highly
fragmented past the top three competitors (Hoovers, 2008). In
Table 7 the comparative competitive profile of companies in the
waste industry are presented. These areas will be discussed in
the sections below.
Table 7
Competitive profile of the companies under the waste management
Industries 2007
WMI ALLIED REPUBLIC WASTE STERICYCLE
SERVICES CONNECTION
Revenues $13,310 $6,068.7 $3,176.2 $958.5 $932.8

(Millions)
Net Income $1,630 $ 273.6 $290.2 $99.1 $118.4
(Millions)
Sales 3.49% 3.17% 6.07% 14.69% 18.36%
Growth
Rate
(2003-
2007)
Revenue $282,477 $267,908 $245,369 $198,773 $160,345
Per
Employee
Average 14.45% 16.40% 16.72% 22.98% 25.75%

Operating
Margin
(2003-
2007)
Average 8.05% 2.89% 8.91% 10.90% 13.17%
Net Profit
Margin
(2003-
2007)
Return On 6.00% 1.36% 6.57% 5.59% 9.53%
Investment
(2003-
2007)
Net Income $24,599 $15,311 $24,031 $20,044 $19,812

Per
Employee
Data for Table obtained from:
http://www.reuters.com/finance/stocks/ratios?symbol=RSG.N
http://www.reuters.com/finance/stocks/ratios?symbol=AW.N
http://www.reuters.com/finance/stocks/ratios?symbol=WMI.N
Revenue
Table 8
Revenue

SERVICES CONNECTION
Revenues $13,310 $6,068.7 $3,176.2 $958.5 $932.8
(Millions)
Figure 7
In Figure 7, the graph shows the revenue in millions for
five firms in the waste industry. Waste Management’s revenue is
higher than all other competitors depicted, combined. The other
four together have earned around $11,000 million, whereas WMI
alone has earned $13,310 Million. The area that seems to be
growing the most rapidly is the recycling segment of the
industry. This segment will play an important role in the
continued success of revenue growth for Waste Management. Last
year alone, they recycled 8 Million tons.
Net Income
Table 9
Net Income

SERVICES CONNECTION
Net Income $1,630 $ 273.6 $290.2 $99.1 $118.4

(Millions)
Figure 8
In Table 9 you can see that Waste Management has more net
income than other competitors, $1,630 million. This can be
attributed to their large market share and varied geographical
presence. They are followed by Republic Services at $290.2
million and Allied Waste at $273.60 million. Stericycle and
Waste connection have a relatively small portion of the net
income presented. In Figure 8 the graphical representation of
Table 9 is presented.
Sales Growth
Table 10
Sales Growth Rate

SERVICES CONNECTION
Sales 3.49% 3.17% 6.07% 14.69% 18.36%

Growth
Rate(2003-
2007)
Figure 9
Waste Management Inc. has lower sales growth rates than all
other competitors, except Allied Waste. In Table 10 and Figure
9, these trends can be observed. The top two competitors of
Waste Management, Allied and Republic, have growth rates of
3.17% and 6.07% respectively. These trends signal that the
smaller firms in the industry are rapidly acquiring new
customers. This explains the higher sales growth of the smaller
firms. Waste Management is so geographically diversified that
they are struggling to create sales growth. They are

concentrated on growth through acquisitions, new technologies,
and maintaining their market share.
Revenue Per Employee
Table 11
Revenue Per Employee

SERVICES CONNECTION
Revenue $282,477 $267,908 $245,369 $198,773 $160,345

Per
Employee
Figure 10
In Table 11 and Figure 10, data shows that Waste Management
has the highest return per employee. The firm is showing a
return of $282,477 per employee, which is more than their top
two competitors, Allied Waste and Republic Services. Their
return per employee is $267,908 and $245,369 respectively.
Generally, the more employees a company has the less the per
head revenue. However, Waste Management has the highest number
of employees, and still has a higher return. They are utilizing
their workforce efficiently to create value for the company.
Average Operating Income
Table 12
Average Operating Margin

SERVICES CONNECTION
Average 14.45% 16.40% 16.72% 22.98% 25.75%

Operating
Margin
(2003-
2007)
Figure 11
In Table 12 and Figure 11 the operating margins are
presented. Operating margin is calculated by dividing operating
income by the net sales. This calculation shows how much money
the firm is actually generating for each dollar of sales. This
calculation can show efficiency issues. Investors would like to
see this margin increasing over time. Waste Management has the
lowest operating margin, 14.45%. Allied has 16.40% and Republic
has 16.72%. Stericycle and Waste Connection are actually
generating more dollars of sales and have better operating
expenses than the three largest firms in the industry.
Net Profit Margin
Table 13
Net Profit Margin

SERVICES CONNECTION
Average 8.05% 2.89% 8.91% 10.90% 13.17%

Net
Profit
Margin
(2003-
2007)
Figure 12
In Figure 12 the last five year average for net profit
margin is presented. The numbers are also shown in Table 13. For
Waste Management their average net profit margin is 8.05%, which
is only one above the lowest in the industry competitors
presented. This should come as no surprise, since they are the
lowest in the average operating margin, as well. Again, Waste
Connection and Stericycle have better net profit returns over
the past five years than the top three competitors.
Return on Investment
Table 14
Return on Investment

SERVICES CONNECTION
Return 6.00% 1.36% 6.57% 5.59% 9.53%

On
Investment
(2003-
2007)
Figure 13
Table 14 and Figure 13 show the return on investment for
the firms over the past five years. Figure 13 visually depicts
the return on investment Waste Management had over the five year
average, 6%. Republic has provided a return on investment of
6.57%, and Stericycle has the biggest return on investment of
9.53%. Allied Waste has the worst return on investment.
Net Income Per Employee
Table 15
Net Income Per Employee

SERVICES CONNECTION
Net $24,599 $15,311 $24,031 $20,044 $19,812

Income
Per
Employee
Figure 14
Figure 14 and Table 15 represents net income per employee.
Again, Waste Management has the highest net income for employee
at $24,599. So Waste Management, while having a lower operating
and net profit margin, actually get more revenue per employee
than their competitors. This is in large part due to recent
restructuring strategies the firm has undertaken. They have
dismissed many of their administrative employees in order to
reduce overhead costs. These figures denote that Waste
Management is efficient in generating revenue through their
employees.
Conclusion of competitive analysis
Waste Management is certainly the biggest in the industry.
They outrank their competitors in revenue, net income, revenue
per employee, return on investments, and net income per
employee. However, they do not lead in every measurement
contained in Table 7, the competitive analysis. They need to
evaluate their sales growth, average operating margin, and
average net profit margins. The only real threat to Waste
Management is the possibility of a loss of market share, or the
merger of their next two largest competitors. Stericycle and
Waste Connection have the potential to be an attractive
acquisition target for Waste Management or the other firms. They
have high sales growth and operating profit margins.
Significant Competitors
The waste management industry deals with five different
categories of waste, created by individuals or organizations.

Most of the firms competing within the industry provide similar
services. This is why in large part a firms’ competitive
advantage depends on its number of geographic locations,
resources, services, and price. Since Waste Management has such
geographically diversified holdings they able to service more
people, than any of their competitors. The next two competitors,
based on market share are Allied Waste, with 13%, and Republic
Services, with 6.6% (Scharf, 2008). These are the two major
competitors that Waste Management must contend with. Given the
fact that these two have started recent merger talks, Waste
Management should be watching their moves very carefully. A
brief description of these two competitors is discussed below.
Allied Waste Industries
Allied Waste Industries is headquartered in Phoenix, AZ.
They also have locations in 37 states in the United States and
Puerto Rico. They also deal with non-hazardous solid waste
management, waste collection, recycling, and disposal services
to individual and industrial clients. Their services start from
door-to-door collection through the end process of disposal.
They have over 8 million residential, commercial and industrial
customers in over 100 major markets. They employ 23,000
employees and own 291 collection companies, 161 transfer
station, 161 active landfills, and 53 recycling facilities.

During the 2007 operating year they also expanded their methane
gas collection projects (Allied Waste Annual Report, 2007).
Allied Waste’s business strategy encompasses the following:
vertical integration of waste services, improving operating
efficiencies through the implementation of best practices,
focusing on improved customer service, improving and maintaining
market position, and to provide financial and system support to
the ongoing operations of the organization (Allied Waste Annual
Report, 2007).
Republic Services Inc.
RSI is the second major competitor of Waste Management
Industries. Their corporate office is at Florida and they
operate in 21 states. The company provides services to
commercial, industrial, municipal, and residential customers.
They have 136 collection facilities, 94 transfer station, 58
solid waste landfills, and 33 recycling facilities. Their
strategy is to focus on high growth markets (Republic Services
Annual Report, 2007).
Republic seeks to manage their free cash flow to maximize
shareholder value by reinvesting in the existing fleet,
equipment, and landfill facilities. Their goal is to provide
higher levels of customer service and to seek growth of revenue.
Their growth strategy is to increase market share through
internal growth or acquisitions. They also hope to improve

margins through the acquirement of economies of scale and scope,
cost efficiency, and asset utilization. They are striving to
acquire more commercial, residential, and industrial customer
contracts through sales and marketing strategies (Republic
Services Annual Report, 2007).
In Table 16 the growth rate for sales is presented, along
with net income and revenue for each company.
Table 16
Competitor Comparison
Organization Relative Market Growth Rate

Share
WMI 28.5% 2.2%
AW 13% 5.1%
RSG 6.6% 7.2%
This shows that Waste Management should be particularly
concerned with the growth strategies of both Allied Waste and
Republic services. The sales growth of Waste Management is only
2.2%, while Allied Waste has a 5.1% growth rate, and Republic
has a 7.2% growth rate (Scharf, 2008). The growth strategies of
both companies are a direct threat to Waste Management.
Allied and Republic are considering acquisitions to gain
even more market share, and focusing on the high growth arenas.
They could very easily take over Waste Management’s market
share. Given that Allied and Republic are considering a merger,
Waste Management will need to react quickly. If those two

companies merge then they will have locations in predominantly
the same geographic regions as Waste Management. This will cause
both companies to compete over customers. This will also give
the new combined companies around the same asset quantities as
Waste Management. This would take away Waste Management’s
strength in landfill sites, transfer stations, and the size of
their trucking fleet. If the merger were to happen, this would
move the importance on to strategies focusing on increased
efficiencies, customer service, and price.
Competition Core Competencies
Allied Waste
Allied Waste Industries, Inc. provides solid waste
collection, transfer, recycling and disposal services for more
than 8 million customers.
Collection
Allied Waste provides collection services under four
service lines: commercial, residential, roll-off and recycling
collection. They service residential, commercial, and municipal
customers. They have 300 collection locations that provide
curbside pick-up and transportation directly to the landfill or

transfer station. They service over 10 million customers and
like Waste Management, they also use trucks and rail systems to
transport waste (Allied Waste Annual Report, 2007).
Transfer Stations
Allied serves its customers through its use of transfer
stations to effectively consolidate solid waste before transport
to landfill facilities. On December 31, 2007 Allied Waste owned
or operated 161 transfer stations. These stations help to reduce
costs by compacting waste material prior to transportation
(Allied Waste Annual Report, 2007).
Recycling
Allied Waste operates 53 recycling facilities. These
facilities sort, and process paper, cardboard, aluminum, and
other metals. They sell the resulting recycled products at the
current commodity prices.
Landfills
To service its customers Allied Waste owns or operates
landfills for its solid waste collection. At the end of 2007,
the company had a network of 161 active landfills. They do not
possess any hazardous landfill site permits, like Waste
Management (Allied Waste Annual Report, 2007).
Gas-to-Energy
Allied Waste also has 50 gas-to-energy sites for the
collection of methane gas in the production of energy. Waste

Management also has this core competency (Allied Waste Annual
Report, 2007).
Republic Services, Inc.
Republic Services operations include the collection, transfer,
and disposal of solid waste.
Collection
Republic Services provides non-hazardous solid waste
collection services for commercial, industrial, municipal and
residential customers through 136 collection companies located
in 21 states. Again, they provide curbside service for their
residential customers. They also service commercial, industrial,
and municipal customers. They do not possess hazardous waste
landfill sites (Republic Services, Annual Report, 2007).
Transfer Stations
As of December 31, 2007, Republic Services owned or
operated 94 transfer stations. Waste at these facilities is
compacted and transferred to trailers for transport to landfills
or recycling facilities. Unlike Waste Management and Allied they
do not have rail systems to transport waste on (Republic
Services, Annual Report, 2007).
Landfills
Republic Services operates 58 landfills, some of which
accept non-hazardous special waste, including utility ash,

asbestos and contaminated soil (Republic Services, Annual
Report, 2007).
Recycling
In addition, Republic Services has 33 recycling facilities
and other recycling operations. Recycled materials are salvaged
and sold to third parties (Republic Services, Annual Report,
2007).
Summary of Core Competencies
It is easy to see from the listing of the core competencies
of Waste Management, Allied Waste, and Republic Services that
each has similar core competencies. They all have landfills,
transfer stations, and recycling centers. Allied Waste and Waste
Management both process methane gas into energy, while only
Waste Management has the capability to transfer waste into
energy. This is why we have identified waste-to-energy as their
most important core competency. This is not to say that this
cannot be copied by their competitors in the future, but
presently, it is their unique competency.
In addition each firm has managerial knowledge
competencies. These firms all have industry experience in the
various competencies listed above, with the exception of the gas
and waste-to-energy areas. All the firms seem to pursue the same
cost saving initiatives and customer service improvements.

Due to Waste Management’s geographic presence, size, and
asset base they are not particularly vulnerable to the
competition, as it stands. Waste Management has the resources to
continue advanced research in energy generation alternatives.
They also have locations in more states than their other two
competitors. Their most vulnerable point would be a loss of
market share, since most of their revenues come from their
collection services. Participants in the waste industry tend to
follow the trends and do not pursue direct attacks on one
another. This might be due to Waste Management’s size, because
quite frankly, neither of Waste Management’s competitors has had
the geographic presence to give them a run for their money.
However, this just might happen if Allied and Republic merge.
Key Factors of Competition
Companies in the waste management industry compete mainly
on geographic location, pricing, and quality of operations
(Republic Services Annual Report, 2007). Other factors that can
be considered as factors to competition include market trends
toward recycling, cost efficiencies, and regulatory licensing.
Geographic Location
Geographic location plays a major role in a firms’ ability
to compete in this industry. Waste Management has more locations

than either Allied or Republic. This gives Waste Management a
competitive advantage over their rivals. This is one reason
Allied and Republic are considering a merger (Waste Management
Annual Report, 2007).
Pricing
With volumes declining, firms in this industry are instead
turning to organic growth to support operations, in the form of
price increases. It is important for firms’ to control costs and
minimize the amount of cost passed on to customers. If
competitors are in the same geographic region, but one has
higher pricing, it is likely they will lose customers. The
industry trends say that it is unlikely the price structure will
differ drastically between firms, because the bigger firms are
hesitant about going into a price war (Value Line Republic
Services, 2008).
Quality of Operations
Firms are competing more and more on customer service.
Since each provide relatively the same services, and have the
same pricing structure, firms must improve customer service.
This includes “right price” strategies by Waste Management and
similar pricing strategies from Republic and Allied (Waste
Management Annual Report, 2007).
Increases in Recycling
Trends in the industry are also moving toward an increased
focus on recycling and environmentally friendly programs.
Environmental pollution is one of the biggest problems that this
industry has to solve. Increased demand from customers and
government regulators for environmentally friendly solutions is
driving the competition in the recyclable commodities arena.
Firms are increasingly competing on their ability to perform
tasks in an environmentally friendly manner, and reduce their
dependence on new landfills for sustainability.
Cost Effectiveness
With decreases in volumes, all the firms in the industry
are working on cost efficiency programs. This enables the firms
to reduce the amount of cost it passes on to the customer. This
is very important in the geographic locations that have more
than one competitor. It also has added benefits to the company
of increasing profits, the utilization less resources, and the
potential to earn more return.
One of the main factors in the waste industry is fuel. Fuel
is one of the most important factors, because of collection
trucks. Firms have thousands of trucks, which use millions of
gallons of fuel for collection from door to door. Waste
Management has recently started to explore alternative fuel
usage in their fleet (Waste Management, 2008).
Governmental Permits
One of the other key factors to competition is the ability
of the firms to obtain and maintain government permits for
operations. They also have to ensure compliance with local and
federal regulatory laws that could close them down. Those
companies that can obtain the required permits have a
competitive advantage over those firms that cannot.
Competitive Summary
In the waste industry individuals, municipalities,
commercial, and industrial organizations define customer
expectations. With the government regulations in the industry
firms are rule takers. They have very little lead-way to be a
rule breaker. If they do not follow set industry regulations
they can be fined or shutdown. Prices remain relatively in-line
among competitors. There have not been any price wars in the
waste industry. Waste Management, as well as, Allied and
Republic have largely grown organically over the past year. With
increased fuel prices and operational costs, the cost advantages
Waste Management has seen in the past has been eroded. The
competition is becoming increasingly dependent on cost savings,
to generate higher returns.
Waste Management is positioned well within the growth
segments of recycling and energy generation. They have unique
operations in the waste-to-energy and more recycling operations
than their competitors. They are strong in every segment they

participate in due to their geographic locations, resources, and
abilities. However, Allied is quickly moving into the gas-to-
energy segment, and if they merge with Republic they will have
nearly the same asset strength as Waste Management. Right now
Allied Waste and Republic are positioned as the number two and
three competitor in disposal, transfer, and recycling segments
In the next section we will review key ratios of Waste
Management and their key competitors. There will also be
discussions on how Waste Management can improve these ratios
against their competitors.
Financial Analysis
Financial Analysis: Waste Management, Inc.
This analysis will focus on the financial performance of
Waste Management, Inc. and its top two competitors in the solid
waste industry, Allied Waste and Republic Services for the years
2004 through 2007. It is hoped that through this analysis the
financial strengths and weaknesses of Waste Management and its
major competitors will be recognized; strengths can be exploited
and weaknesses can be improved. The financial data presented in
this analysis was compiled from each company’s 2007 annual
report and form 10K, Morningstar, and Yahoo Finance. The
majority of the ratios were calculated independently.

The financial analysis includes revenue and income
analysis, market value analysis, and financial ratios. The
ratios are compared with Allied Waste and Republic Services, and
are presented in the following segments: profitability ratios,
liquidity ratios, leverage ratios, turnover ratios, and solvency
ratios. In addition, under each ratio segment, recommendations
for improvement are presented.
Corporate Profiles
The waste management industry is made up primarily of three
companies; Waste Management Inc., Allied Waste Industries, and
Republic Services. Waste Management has the largest market share
at 29%, followed by Allied Waste at 13%, and Republic Services
at 7% market share. The remaining 51% of the industry is highly
fragmented among many smaller competitors.

Industry Market Share
29%
WMI
AW
51% RSG
Others
13%
7%
Figure 15 Industry Market Share
Waste Management, Inc. (WMI)
Waste Management, Inc. provides integrated waste services
in the United States, Puerto Rico, and Canada. It offers
collection, transfer, recycling, disposal, and waste-to-energy
services. The company also provides additional waste management
services, such as on-site services, methane gas recovery, and
third-party subcontracted and administrative services. It
services commercial, industrial, municipal, and residential
customers, as well as other waste management companies, electric
utilities, and governmental entities. It is currently the
largest waste disposal company in North America, and is based in
Houston, Texas (www.finance.yahoo.com/q?s=WMI).
The revenue of Waste Management can be broken into six
segments that include: collection, landfills, transfer stations,

recycling, and waste-to-energy. Waste Management receives 56% of
its revenue from collection services, 20% from landfill, 11%
from transfer, 8.3% from recycling, and 6% from waste-to-energy.
Figure 16 shows the breakout of these revenues for the 2007 year.
Revenue Sources Waste Management, Inc.
Collection
6%
8%
Landfill
11%
Transfer
55%
20% Recycling
Waste-to-
Energy
Figure 16 Revenue Sources WMI Data: Annual Report, WMI
The mix of operating revenues from Waste Management’s
different services is reflected in the Table 17. Recycling
showed an increase of $224 million for 2007, while the rest of
the services showed decreases. These decreases were due to lower
volumes, as a result of significant slowdown in residential
construction (Annual Report, WMI, 2007).
Table 17
Operating Revenues - WMI
2007 2006 2005

Collection 8,714 8,837 8,633
Landfill 3,047 3,197 3,089
Transfer 1,654 1,802 1,756
Recycling and other 1,298 1,074 1,183
Intercompany -2,271 -2,449 -2,466
Total 13,310 13,363 13,074
Data: www.wastemanagement.com
Allied Waste Industries, Inc. (AW)
Allied Waste Industries, Inc. operates as a non-hazardous
solid waste management company in the United States and Puerto
Rico. The company provides collection, transfer, recycling, and
disposal services for residential, commercial, and industrial
customers. Allied Waste Industries is currently the number two
waste management company and is headquartered in Phoenix,
Arizona(www.finance.yahoo.com/q?s=AW). In Figure 17 the revenue
sources for Allied Waste are presented for 2007.

Revenue Sources - Allied Waste
7% 4% 5% Collection
Landfill
14%
Transfer
Recycling
70%
Other
Figure 17 Revenue Sources, AW Data: Annual Report, AW
Republic Services, Inc. (RSG)
Republic Services, Inc. provides non-hazardous solid waste
collection and disposal services for commercial, industrial,
municipal, and residential customers in the United States. It is
currently ranked as the number three waste management company in
the United States. Republic Services, Inc. was founded in 1996
and is headquartered in Fort Lauderdale, Florida
(www.finance.yahoo.com/q?s/RSG). In Figure 18 the revenue
sources for Republic Services are presented by percentage for
2007.
Revenue Sources - Republic

Services
9% 6%
9% Collection
Landfill
Transfer
Recycling
76%
Figure 18 Revenue Sources, RSG Data: Annual Report, RSG
Table 18 summarizes the revenue sources for all companies
in percentages for 2007.
Table 18
Revenue Sources
Revenue Sources WMI AW RSG

Collection 56% 70% 76%
Landfill 20% 14% 9%
Transfer 11.0% 7% 9%
Recycling 8.3% 4% 6%
Waste-to-Energy 6% 0% 0%
Other 0% 5% 0%
Data: Annual Report, 2008 www.wastemanagement.com, www.awin.com,
www.republicservices.com
Growth Analysis
Given the fact that 51% of the market is controlled by many
small firms, growth is a vital opportunity for firms in the

waste industry. The growth analysis section includes data and
comments covering the areas of revenue (sales) and income.
Revenue (sales)
As of December 2007, revenues at Waste Management were
$13.31 billion, down .37% from 2006 ($13.36 billion). Allied
Waste had 2007 revenues of $6.1 billion, up 2.5% from 2006 ($5.9
billion). Republic Services revenue for 2007 was $3.19 billion,
up 3.9% from 2006 ($3.07 billion).
The revenues for Waste Management were lower by $53 million
in 2007, primarily as a result of volume declines and
divestitures and offset largely by increased yields from the
base business and higher recycling commodity prices (Annual
Report, WMI, 2007). Divestures included underperforming and non-
strategic operations. The operations divested were mainly
collection services, and a few recycling and transfer stations.
The revenues for Allied Waste increased 2.5% in 2007; $160.2
million primarily as a continued result of price growth from a
6% price increase in 2005 (Annual Report, AW, 2007). Republic
Services had an increase of 3.9%, with revenues increasing
$105.6 million, primarily due to a pricing initiative instituted
in 2003 (Annual Report, RSG, 2007). Figure 19 reflects revenue
results for Waste Management from 2004 through 2007:

Waste Management Revenue
13,600.0
13,400.0
13,200.0
13,000.0
12,800.0 Revenue
12,600.0
12,400.0
12,200.0
12,000.0
2004 2005 2006 2007
Figure 19 Waste Management Revenue Data: www.morningstar.com
The Table 19 summarizes the four-year revenues for each
company:
Table 19
Revenue
Revenue 4-
year
2004 2005 2006 2007
Waste 12,516.0 13,074.0 13,363.0 13,310.0
Management
Allied Waste 5,362.0 5,612.2 5,908.5 6,068.7
Republic 2,708.1 2,863.9 3,070.6 3,176.2

Services
Data: www.morningstar.com
Net Income
Net income is determined by subtracting cost of goods sold,
depreciation, taxes, interest, and other expenses from revenue.

Although Waste Management’s revenue was down, the company’s
net income was up 1.2%, or $14 million, primarily from decreases
in operating expenses, as well as significant returns provided
by its recycling operations (Annual Report, WMI, 2007). Figure
20 shows the net income trend for Waste Management in millions,
from 2004 through 2007:
Waste Management Net Income
1400.0
1200.0
1000.0
800.0
Net Income
600.0
400.0
200.0
0.0
2004 2005 2006 2007
Figure 20 Waste Management Net Income
Allied Waste had a significant net income increase in 2007
of 70% or $112.7 million over 2006 net income. This is
attributable to revenue increases of 6% during 2007 and a
decrease in operating expenses of 1.7% from 2006 to 2007 (Annual
Report, AW, 2007).

Republic Waste had a moderate net income increase of 3.8%
or $10.6 million, the continued result of price initiatives in
2003 (Annual Report, RSG, 2007).
Table 20 summarizes the four-year net income amounts for
each company:
Table 20
Net Income
Net Income -
4 Yr.
2004 2005 2006 2007
Waste 939.0 1,182.0 1,149.0 1,163.0
Management
Allied Waste 49.3 203.8 160.9 273.6
Republic 237.9 253.7 279.6 290.2
Services
Table 21 ranks the revenue and net income for the three
companies for the year 2007. It is clear that Waste Management
has over double the revenue of Allied Waste, and over quadruple
the revenue of Republic Services. Waste Management also has four
times the net income of Allied and Republic.
Table 21
Company Rank – Revenue for year 2007
Company Rank – Highest Middle Lowest

Revenue - 2007
Revenue WMI - AW – RSG –
$13,310 6,068.7 3,176.2
Net Income WMI - RSG – AW – 273.6
$1,163 290.2
Market Value Analysis
In this section, will be presented several ratios used in
determining the value of a company’s stock. It is important to
note that none of these ratios should be used by themselves in
trying to determine whether a stock is over or undervalued by
the market. These ratios include earnings per share, price
earnings, price to sales, price to book, and price to cash flow.
Each one will be explained and then shown in Table 6.
Earnings per Share
The earnings per share, represents the amount of net income
that a company makes per share of stock that is available on the
market (Business Ratios, 2008). Companies calculate the earnings
per share by dividing the total earnings by the number of shares
outstanding. All of the companies reported an increase for 2007
over 2006 numbers.
Price to Earnings (P/E)
The price/earnings (P/E) ratio is determined by dividing
the market value per share of stock by the earnings per share of
stock. This ratio gives the company an idea of what the public
is willing to pay per share of stock, based on the company’s
earnings (Business Ratios, 2008). The Table 6 shows that Waste
Management has the lowest P/E ratio among its competitors. So,
investors are only willing to pay $15.80 per $1 of earnings.

Price to Sales (P/S)
The Price to Sales, or P/S ratio, is determined by dividing
the market capitalization of the stock by the total revenues of
the company. Like price earnings, the P/S reflects the value
placed on the sales by the market. It is desired to have a lower
the price to sales ratio because the investor is paying less for
each $1 of sales (Business Ratios, 2008).
Price to Book (P/B)
The Price to Book looks at market value of stock compared
to the book value of the stock. It is calculated by taking the
current price per share and dividing by the book value per
share. As with the price to sales, a lower price to book ratio
can signal a good investment for investors (Business Ratios,
2008).
Price to Cash Flow
The Price to Cash Flow is determined by dividing the
stock’s price by the cash flow per share. Lower numbers,
relative to the industry and competitors, suggests the market
has undervalued the stock (Business Ratios, 2008). Waste
Management’s price to cash flow is under the industry average of
14.0%.
Table 22 organizes all of these ratios and compares the
three companies.
Table 22
Market Value Analysis
2004 2005 2006 2007

Earnings per share
Waste Management $1.61 $2.09 $2.10 $2.23
Allied Waste $0.11 $0.42 $0.32 $0.71
Republic Services $1.08 $1.20 $1.39 $1.51
Price/Earnings
Waste Management 18.7 14.5 17.5 15.8
Allied Waste 84.0 20.3 37.2 24.5
Republic Services 21.9 21.5 19.7 22.2
S&P 500 19.0 17.3 16.8 16.5
Price/Sales
Allied Waste 0.6 0.5 0.7 0.7
S&P 500 1.6 1.5 1.6 1.5
Price/Book
Allied Waste 1.3 1.1 1.5 1.3
S&P 500 3.0 2.8 2.9 2.7
Price/Cash Flow
Allied Waste 4.6 3.9 4.5 3.9
S&P 500 11.5 10.8 11.1 11.6
Table 23 ranks each company in the market value analysis.
Table 23
Company Rank – Market Value Analysis
Earnings per Share WMI - $2.23 RSG - AW - $0.71

$1.51
Price/Earnings WMI – 15.80 RSG - AW – 24.50
22.20
Price/Sales AW – 0.70 WMI - 1.30 RSG – 2.0
Price/Book WMI - 2.80 RSG - 2.70 AW - 1.30
Price/Cash Flow RSG - 9.3 WMI - 7.0 AW - 3.9
Waste Management has the highest earnings per share and
price to book of $2.23 and $2.80 respectively. They have the
lowest price to earnings, $15.80, perhaps signaling a good
investment opportunity. However it is in the middle for
price/sales and price/cash flow.
Stock Prices
The stock price, in Table 8, shows the high and lowest
stock price for each company for the years 2004 through 2007.
Because of Republic Services’ lower debt and high net profit
margin the market has rewarded it with a steady increase in its
high market price. Likewise, the market has rewarded WMI with a
consistent increase in stock price. The market has not yet
recognized Allied Waste’s efforts in decreasing its debt and
increasing its net profit. Table 24 records the stock high-and-
low prices for each company.

Table 24
Stock Prices – Highs and Lows
2004 2005 2006 2007

Waste Management - 31.1 30.71 38.35 40.38
High
Waste Management - 26.56 27.21 33.28 32.67
Low
Allied Waste - High 14.28 13.5 9.13 13.99

Allied Waste - Low 8.2 9.78 6.98 9.3
Republic Services - 22.36 25.39 28.66 34.85

High
Republic Services - 16.63 20.23 25.3 26.61
Low
Data: www.financeYahoo!
Profitability Ratios
Profitability ratios show the combined effects of
liquidity, asset management, and debt on operating results. The
profitability ratios discussed in this section are the gross
profit margin, operating profit margin, net profit margin,
return on assets, and return on equity.
Gross Profit Margin
The gross profit margin is calculated by dividing the gross
profit by revenue (Brigham, 2004). Gross profit is the amount of
revenue dollars remaining after the cost of goods sold has been
deducted. If the gross profit margin is declining over time, it
may indicate that your inventory management needs to be
improved, or that your prices are not rising as fast as the cost
of goods (Business Ratios, 2008).

Waste Management increased its gross profit margin 1.1%
primarily through a decrease in its operating expenses of $185
million (Annual Report, WMI, 2007). Allied Waste increased its
gross profit margin by almost 2% in 2007, primarily a result of
revenue gains of $160 million (Annual Report, AW, 2007).
Although Republic Services reported an increase of revenue of
$105.9 million, its gross profit margin decreased by .2% due to
a $72.9 million increase in the cost of goods sold (Annual
Report, RSG, 2007).
Table 25 reflects the gross profit margins for each company.
Table 25
Gross Profit Margin
Gross Profit 2004 2005 2006 2007

Margin
Waste 34.20% 33.90% 35.70% 36.80%
Management
Allied Waste 37.10% 34.70% 35.70% 37.60%
Republic 36.70% 37.00% 37.30% 37.10%
Services
Data: www.wastemanagement.com , www.awin.com ,
Operating Profit Margin
The operating profit margin is also known as coverage ratio
and measures company’s earnings before interest and taxes
(Business Ratios, 2008). It is determined by dividing the
operating income by revenue. This ratio indicates how much money
the company is making on its primary business operations. It

shows the percentage of each sales dollar remaining after all
normal costs of operations, and indicates whether the overall
costs are trending up or down (Business Ratios, 2008).
Waste Management posted an increase in operating profit
margin of 1.7% primarily from realizing a deduction in
depreciation and amortization of $75 million from 2006 to
2007(Annual Reports, WMI, 2007). Allied Waste saw an increase of
1.4%, primarily from a decrease in the cost of goods sold of
$87.2 million (Morningstar, 2008). Republic Services’ operating
profit margin remained unchanged from 2006 at 16.9%.
Table 26 summarizes the operating profit margins for each
company.
Table 26
Operating Profit Margin
Operating Profit 2004 2005 2006 2007

Margin
Waste Management 13.60% 13.10% 15.20% 16.90%
Allied Waste 16.50% 16.00% 16.00% 17.40%
Republic 16.70% 16.70% 16.90% 16.90%
Services
Net Profit Margin
The net profit margin is calculated by dividing the net
profit by revenues. This shows you how much money the company
has left after it has deducted all expenses.
Waste Management’s net profit margin increased 0.15% for
2007. Waste Management’s net profit margin shows that it made a

profit of 8.74% on each dollar of sales in 2007. Allied Waste’s
net profit margin gained 1.8%, due to increased revenue, and
decreased COGS of $87.2 million (Annual Report, AW, 2007).
Republic Services net profit margin increased slightly as a
result of increased revenue from pricing.
Table 27 summarizes the net profit margins for each company.
Table 27
Net Profit Margin
Net Profit 2004 2005 2006 2007

Margin
Allied Waste 0.92% 3.55% 2.67% 4.51%
Republic 8.78% 8.86% 9.10% 9.13%
Services
Return on Assets
The return of assets ratio gives an indication as to how
effective a company is using its assets to generate earnings.
Return on assets is made up of two components: net margin and
asset turnover. Net margin is found by dividing net income by
sales. It reveals what percentage of each dollar in sales a
company retains. Asset turnover is found by dividing sales by
assets. It reveals how well a company does in producing sales
from its assets. You multiply the two components to determine
return on assets. Companies with high return on assets, compared
to their peers, are more efficient at using assets to generate
profits (Stock.about.com, 2008).

In 2007 Waste Management’s return on assets was 5.70% which
means that WMI made 5.70% on each dollar of assets. This is a .
2% increase from 2006. Allied Waste increased its return on
assets by .8%, from 1.17% in 2006 to 1.97% in 2007. This was a
result of Allied increasing its net profit by price increases
and decreases in interest expense (Annual Report, AW, 2007).
Republic Services increased its return on assets by .29% due to
increases in net margin, through price increases (Annual Report,
RSG, 2007).
Table 28 shows the return on assets for each company.
Table 28
Return on Assets
Return on 2004 2005 2006 2007

Assets
Waste 4.52% 5.62% 5.51% 5.70%
Management
Allied Waste 0.36% 1.50% 1.17% 1.97%
Republic 5.28% 5.63% 6.23% 6.52%
Services
Return on Equity
The return on equity measures how well the company did
earning money for its investors. The return on equity is the
ratio of net income to stockholders’ equity. The calculation is
determined by dividing net income earned by the company by the
total shareholders’ equity (Business Ratios, 2008).

In 2007, Waste Management’s return on equity was 19.36%
which means that Waste Management made 19.36% on each dollar of
shareholders’ equity (Morningstar, 2008).
Allied Waste earned 8.36% on each dollar of shareholders’
equity, an increase of 2.83%. This was primarily due to a $112.7
million increase in its net income (Morningstar, 2008).
Republic Services reported a return on equity of 21.29%.
This means that it made 21.29% on each dollar of shareholders’
equity. This was the result of lower shareholder equity, in
combination with a higher net income for 2007 (Morningstar,
2008).
Table 29 shows the return on equity for each company.
Table 29
Return on Equity
Return on Equity 2004 2005 2006 2007

Allied Waste 2.21% 8.50% 5.80% 8.63%
Republic 12.60% 14.59% 18.47% 21.29%
Services
Return on Assets Trend Analysis
Waste Management’s return on assets has trailed the
industry five-year average of 5.71% from 2004 to 2006, but was
very close to matching the average in 2007. Figure 21 is a trend
analysis depicting WMI return on assets compared against the
industry five-year average.

Waste Management Return on Assets

Ret
urn
Per
cen
tag
6
e
5
4 WMI Return
on Assets
3
Industry 5 yr
2 average
0
2004 2005 2006 2007
Figure 21 Trend Analysis: Waste Management ROA vs. Industry
Data: www.reuters.com
Recommendations for Improvement

Table 30 summarizes the profitability ratios for the three
companies.
Table 30
Company Rank – Profitability Ratios
Company Rank Highest Middle Lowest

Gross Profit Margin AW - 37.6% RSG - WMI - 36.8%
37.1%
Operating Profit AW - 17.4% WMI - RSG - 16.9%
Margin 16.9%
Net Profit Margin RSG - 9.13% WMI - AW – 4.51%
8.74%
Return on Assets RSG - 6.52% WMI - AW - 1.97%
5.70%
Return on Equity RSG - WMI - AW - 8.63%
21.29% 19.4%
To improve its gross profit margin ratio, net profit
margin, return on assets, and return on equity, Waste Management
should increase its revenue through pricing, and/or decrease its
cost of doing business. Increasing prices could cause sales to
fall as the pricing environment is very competitive. Price
increases require a careful reading of inflation rates,
competitive factors, and basic supply and demand of the services

(Entrepreneur, 2008). Where feasible, Waste Management should
continue to increase pricing through analyzing each customer
account individually (called right-pricing). Specific decisions
on pricing, cost control, efficiency, containing interest
expenses, and productivity will affect net income.
Controlling variable costs will improve the gross profit
margin because variable expenses are recorded as operating costs
or cost of goods sold (Business Ratios, 2008). Variable costs
can be decreased by managing labor, maintenance and repair,
subcontractor costs, supplies, utilities, fuel, and transfer and
disposal costs. For supplies, (containers and equipment) the
company can explore the option of buying in bulk and eliminating
wasteful spending in areas of packaging and shipping fees.
Maintenance and repair costs can be reduced by keeping up-to-
date maintenance systems in place. For labor, utilities, and
subcontractor costs, the company needs to evaluate the current
routes they have for efficiency. Once efficiencies have been
evaluated they can take corrective actions to help reduce these
costs. It might be cheaper for them to outsource some of their
services or modify pickup schedules.
Additionally, Waste Management recognized a decrease in its
risk management cost of $74 million, a 25.4% change from 2006 to
2007. This was accomplished by focusing on safety, and reducing

accident and injury rates. Waste Management should continue
their efforts in this area.
Fuel costs were significantly higher, especially in the
fourth quarter. Waste Management received $29 million in 2007
from fuel surcharges. However, total fuel expenses for the year
was $581 million (Annual Report, WMI, 2007). Waste Management
should investigate alternative fuel sources for its fleet,
continue to monitor its fleet routes to reduce mileage and
maintenance costs, and continue conversion of its truck fleet
from diesel to natural gas.
The operating profit margin includes cost of goods sold,
selling, general, and administrative costs. In 2007 Waste
Management had an increase in its SG&A costs of 3.2%. This is in
large part due to the strategic initiatives the firm is taking
to improve operations and processes in the future. To improve
this area Waste Management should monitor its work force
compensation, professional fees, and higher sales/marketing
costs (Annual Report, WMI, 2007). They should also evaluate the
path their strategic initiatives are taking to ensure they are
creating value.
While Waste Management’s returns on assets and equity are
less than Republic Services’, they are higher than the industry
average of 3.0% and 13.9% respectively (MSN Money, 2008). The
company needs to improve the way it utilizes its assets to

generate revenue. There could be obsolete assets, or assets that
are not operating efficiently in there inventory. These assets
should be evaluated for possible disposal.
Liquidity Ratios
These ratios measure the amount of liquidity that a company
has to cover its short-term debt obligations. In general, the
greater coverage of liquid assets to short-term liabilities, the
better the signal that a company can pay its short term debt
obligations and still fund its ongoing operations (Business
Ratios, 2008).
Current Ratio
The current ratio (also called the working capital ratio)
measures the company’s ability to generate cash to meet short-
term obligations (less than 12 months). It is determined by
dividing the current assets by the current liabilities. A
decline in this ratio can be attributed to an increase in short-
term debt, a decrease in current assets, or a combination of
both (Business Ratios, 2008).
Waste Management’s ratio fell slightly in 2007, due to a
reduction of current assets by $702 million in the area of cash,
cash equivalents, and other current assets (Morningstar, 2008).
Waste Management’s current ratio of .95 means that for every
dollar of debt they have $.95 cents of assets (Business Ratios,
2008). Allied Waste saw its ratio fall from .68 to .52, due to a
$714.4 million increase in current liabilities, mainly in the
area of short-term debt and accrued liabilities (Morningstar,
2008). Republic Services had a slight increase in its current
ratio due to an increase of its current assets by $20.4 million
in the area of other current assets (Morningstar, 2008).
Table 31 reflects the current ratio values for each company.
Table 31
Current Ratio
Current Ratio 2004 2005 2006 2007

Allied Waste 0.53 0.58 0.68 0.52
Republic 1.11 0.72 0.65 0.66
Services
Quick Ratio
The quick ratio, also known as the acid test, serves a
function that is similar to that of the current ratio. The
difference is that the quick ratio subtracts inventory from
current assets and compares the resulting figure to current
liabilities. This calculation includes only cash on hand or cash
already due from accounts receivable (Business Ratios, 2008).
In 2007 WMI increased its quick ratio to 0.86, which means
that Waste Management has $0.86 of quick assets for every $1 of
current liabilities. These quick assets are considered easily

transferable into cash. Allied Waste reported a drop in its
quick ratio to 0.41. Republic Services also had a drop in its
quick ratio to 0.51. Table 32 reflects the quick ratio of each
company.
Table 32
Quick Ratio
Quick Ratio 2004 2005 2006 2007

Allied Waste 0.42 0.47 0.52 0.41
Republic 0.92 0.62 0.54 0.51
Services
In Table 33 Waste Management is the leader in both the
current and quick ratios. However, the company’s ratio values
are less than the industry averages of 1.1 and 1.0 respectively
(MSN Money, 2008).
Table 33
Company Rank – Liquidity Ratios
Highest Middle Lowest

Current Ratio WMI - 0.95 RSG - 0.66 AW - 0.52
Quick Ratio WMI - 0.86 RSG - 0.51 AW - 0.41
To improve these ratios Waste Management can pay off
current liabilities or current bills, delay purchases, or
consider long-term loans to repay short-term debt. Waste
Management could also decrease its’ account receivable turnover
by reducing the time it takes to collect receivables (Business
Ratios, 2008).
Leverage Ratios (Debt Management)
These ratios measure the extent to which the companies use
debt financing. The ratios discussed in this section are the
debt ratio, the debt to equity ratio, interest coverage, and
short-term debt ratio.
Debt Ratio (Debt-to-Assets) and Debt to Equity
The debt ratio measures the percentage of a company’s
assets that are financed by creditors. It is calculated by
taking the total debt and dividing it by the total assets. A
higher ratio indicates a possible overuse of leverage, so a
lower ratio is preferred (Business Ratios, 2008).
The debt to equity ratio indicates the degree of financial
debt or leverage that a company is using to enhance its return.
The formula is total debt divided by owners’ equity. It is
preferred that companies have a falling trend because this

indicates they have greater equity and less debt (Business
Ratios, 2008).
In 2007, Waste Management’s debt ratio increased 1.5% and
its debt to equity increased 0.18 as a result of a $513 million
increase in long-term debt and decreases of $493 million in
short-term debt (Annual Report, WMI, 2007). Allied Waste
improved its debt ratio by 1.6% and debt to equity ratio 0.38.
This was primarily due to a $167.6 million reduction in total
debt (Morningstar, 2008). Republic Services’ debt to assets
increased 3% and its debt to equity increased 0.11 as a result
of additional long-term liabilities of $169 million in 2007
(Morningstar, 2008). Table 34 reflects the debt ratio (total
debt to total assets), and Table 35 shows the debt to equity of
all three companies.
Table 34
Debt Ratio
Debt Ratio 2004 2005 2006 2007

Waste 71.4% 71.0% 69.8% 71.3%
Management
Allied Waste 80.0% 75.7% 73.8% 72.2%
Republic 58.3% 65.4% 67.8% 70.8%
Services
Table 35
Debt Ratio and Debt to Equity Ratio
Debt to Equity 2004 2005 2006 2007

Waste 1.37 1.33 1.20 1.38
Management
Allied Waste 3.56 2.97 2.21 1.83

Republic 0.72 0.92 1.09 1.20
Services
Interest Coverage
Interest coverage is also known as “times interest earned
ratio.” The formula is operating income divided by the interest
expense. This is a measure of how many times your interest
obligations are covered by earnings from operations. If this
ratio is declining over time, it is a clear indication that your
financial risk is increasing (Business Ratios, 2008). A higher
ratio indicates increased solvency. For 2007 all of the
companies improved on their interest coverage.
Waste Management improved its interest coverage as a result
of increased operating income of $225 million and a $24 million
reduction in interest expense (Annual Report, WMI, 2007). Allied
Waste improved its interest coverage due to increased operating
income of $88.3 million, while reducing its interest expense by
$25 million (Annual Report, AW, 2007). Republic Services
improved its interest coverage from increasing its operating
income 16.5 million and lowering its interest expense by $1
million (Annual Report, RSG, 2007). Table 36 shows the interest
coverage for all companies for 2004 through 2007.
Table 36
Times Interest Earned

Times Interest 2004 2005 2006 2007

Earned
Waste Management 3.73x 3.45x 3.72x 4.32x
Allied Waste 1.16X 1.56X 1.7X 1.96X
Republic Services 6.59X 7.02X 6.85X 7.89X
Short-Term Debt Ratio
Short-Term Debt is a ratio of short-term debt to total
liability and equity. Short term debt is payable within 12
months (Business Ratios, 2008).
Waste Management decreased its short-term debt ratio 2.4%,
primarily a result of reducing its short-term debt by $493
million. Allied Waste increased its short-term debt ratio due to
a $320.7 million increase in short-term debt obligations
(Morningstar, 2008). Republic Services short-term debt ratio
remained below 1%. Table 37 reflects the short-term debt ratio
for each company.
Table 37
Short-Term Debt
Short-Term Debt 2004 2005 2006 2007

Allied Waste 2.40% 1.80% 1.70% 4.00%
Republic 0.10% 0.10% 0.10% 0.10%
Services

Table 38 summarizes the company positions for all of the
leverage ratios.
Table 38
Company Rank Leverage Ratios

Debt Ratio AW - 72.2% WMI - RSG - 70.8%
71.3%
Debt to Equity AW – 1.83 WMI – 1.38 RSG - 1.20
Interest Coverage RSG - 7.89x WMI - AW - 1.96x

4.32x
Short-Term Debt AW - 4.00% WMI - RSG - .10%
1.60%
Waste Management can improve its leverage ratios by decreasing
its debt. In 2007, Waste Management increased its long-term debt
by $513 million. This increase is part of Waste Management’s
strategy to grow and support their business (Annual Report, WMI,
2007). Waste Management needs to find other ways to finance
operations, if it wishes to improve the leverage ratio.
Waste Management’s debt/equity is at 1.38, which means it
has $1.38 of long term debt to each dollar of shareholder
equity. To improve its debt to equity ratio, it needs to
continue to use its free cash flow to pay off debt. The interest
coverage can be improved by decreasing debt, and securing lower
interest rates on long term obligations.
During 2007 Waste Management took steps to pay down its
short-term debt, decreasing it by $493 million (Annual Report,

WMI, 2007). They need to continue this trend of paying off
short-term debt, but need to evaluate how they are doing this.
If they are borrowing long-term funds to do this, then they are
not helping their total leverage position.
Turnover Ratios (Asset Management Ratios)
The asset management ratios measure how effectively the
firm is managing its assets. In this section three ratios are
discussed: receivables turnover, fixed assets turnover, and
total assets turnover.
Receivables Turnover Ratio
The accounts receivable turnover ratio measures the
effectiveness of the company’s credit policy. It is determined
by dividing the revenue by the average accounts receivable. If
the turnover is too low, it may indicate the company is being
too generous granting credit or is having difficulty collecting
from its customers. A high receivable turnover ratio is wanted,
because money is flowing into the company faster (Morningstar,
2008).
For 2007, Waste Management’s accounts receivable, net of
the allowance for doubtful accounts of $97 million, was $1,674.
This is an increase of $24 million over 2006 (Annual Report,
WMI, 2007). Both Allied Waste and Republic Services had no

change in their receivables turnover ratio. Table 39 reflects
the receivable turnover for each company.
Table 39
Receivables Turnover
Receivables 2004 2005 2006 2007

Turnover
Allied Waste 8.1 8.4 8.7 8.7
Republic 10.5 10.4 10.7 10.7

Services
Fixed Assets Turnover Ratio
The fixed assets turnover measures how effective the firm
uses its plant and equipment to generate sales. It is determined
by dividing the revenue by the value of the fixed assets.
Generally it is desirable to have a higher ratio, because it
indicates that more money is being earned per dollar of fixed
assets. If the ratio is high, it is a good indicator the assets
of the company are being used efficiently and effectively. A
declining ratio may indicate excess investments in plant,
machinery and equipment, or other fixed assets (Business Ratios,
2008). It could also indicate the firm is not operating at the
minimum efficient scale. In Table 40 you can observe that

Waste Management and Allied Waste were unchanged from 2006 to
2007, but Republic Services had a slight increase.
Table 40
Fixed Assets Turnover
Fixed Assets 2004 2005 2006 2007

Turnover
Allied Waste 1.3 1.4 1.4 1.4

Republic Service 1.4 1.4 1.4 1.5
Total Assets Turnover Ratio
The total assets turnover ratio measures the turnover of
all the firm’s assets and indicates how well a firm is using all
of its assets to generate revenue (Business Ratios, 2008; Stock
Information, 2008). The ratio is determined by dividing revenue
by total assets. It is desired to have a higher ratio (Business
Ratios, 2008).
Due to rounding in Table 25 it appears that Waste
Management had a slight improvement of its ratio, while both
Allied Waste and Republic Services were unchanged. In actuality
if you calculate these figures out to four places, you can
observe that each of these companies had a slight increase in
this ratio for 2007. These changes were due to small increases
in both assets and revenue for Republic and Allied Waste. Waste
Management’s increase was actually reflective of less revenue

and assets during 2007. Table 41 summarizes the total assets
turnover for each company.
Table 41
Total Assets Turnover
Total Assets 2004 2005 2006 2007

Turnover
Allied Waste 0.4 0.4 0.4 0.4
Republic 0.6 0.6 0.7 0.7

Services
Table 42 summarizes the company positions for all turnover
ratios.
Table 42
Company Rank Turnover Ratios
Company Rank - Turnover Ratios -

2007
Receivables RSG – 10.7 AW - 8.7 WMI – 7.1
Fixed Assets RSG - 1.5 AW - 1.4 WMI - 1.2
Total Assets WMI - 0.7 RSG - 0.7 AW - 0.4
To improve its receivables, Waste Management could take the
following actions: increase collection efforts, reduce credit
terms, shorten the billing process, reduce billing errors, and

train its credit and collections personnel in proper collection
procedures.
To improve its fixed and total assets Waste Management
should continue to focus on the superior maintenance program it
has recently implemented. This will help keep new purchases at a
minimum. In addition, leasing should be pursued as an
alternative to equipment purchasing. All purchases should show
an expected increase in profitability before closing any deal
(Business Ratios, 2008).
Solvency Ratios
Solvency ratios are measures to assess a company’s ability
to meet its long-term obligations and remain solvent. Two
general, overall solvency ratios are presented below.
Solvency Ratio
The general solvency ratio is determined by taking the
company’s total assets divided by the total liabilities. All of
the companies have more assets than liabilities using this ratio
(Business Ratios, 2008).
Waste Management’s solvency ratio fell in 2007. The primary
reason for this was total assets decreased by $425 million due
to lower current assets (Morningstar, 2008). Allied Waste raised
its solvency ratio by increasing its total assets by $137.7
million and through reducing its total liabilities $167.6

million (Morningstar, 2008). Republic Services increased their
total assets by $38.4 million in 2007 but still fell in
solvency. The total liabilities for Republic Services increased
$156.7 million, primarily due to long-term debt liabilities
(Morningstar, 2008). In Table 43 the solvency ratios for each
company are presented.
Table 43
Solvency Ratio
Solvency Ratio 2004 2005 2006 2007
Allied Waste 1.24 1.34 1.35 1.39
Republic 1.72 1.54 1.47 1.41

Services
Operating Cash Flow Ratio
The operating cash flow ratio measures how well current
liabilities are covered by the cash flow generated from a
company’s operations. The OCF Ratio is determined by dividing
the cash flow from operations by the current liabilities. It is
desired to have a rising operating cash flow ratio (Business
Ratios, 2008).
Waste Management increased its operating cash flow ratio as
a result of reducing its current liabilities, short-term debt,
by $493 million. Allied Waste had a falling operating cash flow

ratio, as a result of increased accrued current liabilities in
the amount of $394.1 million (Morningstar, 2008). Republic
Services increased their operating cash flow during 2007,
primarily from a reduction in the area of federal income taxes
payable (Annual Report, RSG, 2007). Table 44 shows the operating
cash flow ratios for each company.
Table 44
Operating Cash Flow Ratio
Operating Cash 2004 2005 2006 2007

Flow Ratio
Allied Waste 0.37 0.45 0.60 0.47

Table 45 ranks the company positions for all of the
solvency ratios.
Table 45
Company Rank – Solvency Ratios

Solvency Ratio RSG - WMI - 1.40 AW - 1.39
1.41
Operating Cash Flow RSG - WMI - 0.94 AW - 0.47
1.05
To improve its solvency ratios, Waste Management should
increase the value of its assets, decrease liabilities, and

improve operating cash flow. This is achieved through managing
fixed costs, reducing variable costs, increasing revenue
inflows, and growing revenue through pricing and market
expansion (Business Ratios, 2008).
In the waste industry, pricing is very competitive and
there is the propensity for losing customers to competitors in
overlapping territories. Waste Management introduced individual
customer pricing in 2003 and is in-place across all operating
groups (Annual Report, WMI, 2005).
Waste Management is mostly concerned with reducing its
variable costs. Through its truck routing system, “Fleet Route”,
it has improved route density and eliminated redundant truck
routes. In addition, Waste Management uses a fleet maintenance
system that automates shop functions and track repairs. In 2007
the company realized a savings of $74 million from its risk
management component. This was the result of Waste Management’s
continued focus on safety.
Financial Analysis Summary
In summary, various financial ratios have been presented
for Waste Management and its two competitors. In each section,
the ratios and their values were given followed by
recommendations to improve each ratio. In addition, a ranking
table for 2007 values showed the position of Waste Management in
comparison with Allied Waste and Republic Services.

Waste Management’s strengths lie in the following ratios
and figures: revenue, gross and net income, total assets
turnover, earnings per share, price per earnings, price per
book, and the liquidity ratios. Waste Management is in the
middle with net profit margin, operating profit margin, return
on assets, return on equity, price per sale, and price per cash
flow. It ranks last among its competitors in accounts receivable
turnover, fixed asset turnover, operating profit, and gross
profit margin.
The company experienced a decrease in revenue of $53
million in 2007, or 0.4%. This was primarily due to volume
declines in the economic slowdown of residential and commercial
building and price competition. Waste Management’s revenue
growth for 2007 was primarily a result of increased yield on the
base business from pricing. In addition steps were taken to try
and control company variable costs. These variable costs
include: maintenance and repair, labor, fuel, subcontractor
costs, transfer and disposal costs, and risk management costs.
Waste Management is growing its net income through its efforts
to improve operating efficiency and get rid of unprofitable
segments.
One of the financial challenges for Waste Management is
finding sources of growth from its current market and in seeking
revenue growth from new markets. It is their current goal to

explore the opportunity of acquisitions to assist them in their
growth goals (Annual Report, WMI, 2007). In order to improve
their financial situation, it is going to be imperative that
they carefully evaluate all expenditures, and look for ways to
strengthen and expand their market share.
Waste Management currently has the largest market share,
yet they are behind their two competitors on operating profit,
gross profit, receivable turnover, and fixed asset turnover.
Correcting the efficiencies in operating and gross profit is
very much reliant on revenue generation and cost reductions. In
fact, Allied Waste has even started streamlining their
operations to reduce costs.
Waste Management is well on their way to developing
significant cost savings and revenue generation. They have
implemented a better maintenance and repair system, a tailored
pricing system, safety improvements, routing evaluations, and a
restructuring effort for their organization and management
structure. However, they are going to have to do more. An
impending merger between Allied Waste and Republic Services will
bring Waste Management’s two biggest competitors up to their
market share and resource level.
Waste Management needs to start looking at possible
acquisition targets that will strengthen the core business and
possibly give them an edge over the competition. They will need
to continue their focus on energy generation and recycling. This
will include working closely with governmental authorities to
choose locations where the company will benefit most by
expanding into. They will need to continue there research in
alternative fuel sources, but in the meantime, the company needs
to evaluate the possibility of route changes. This might include
a different time to pick-up garbage containers in high traffic,
urban areas. They need to explore alternative bin sizes for
their industrial clients. Research needs to be conducted on the
possibility of expanding the bin size to lengthen the time
between pick-ups. The cost of the bins would need to be
evaluated against the savings to see if this is a feasible
alternative. Both of these would reduce the amount of fuel being
spent by the company. Labor cuts could be another option, if the
garbage trucks could be mainly automated, so one person could
run them. This again would need to be evaluated against the
additional costs and the potential cost savings.
The company should also explore the possibility of finding
new customers to purchase the products of their recycling
operations. Revenue growth opportunities exist for Waste
Management in the recycling sector. Recycling services for 2007
increased revenue by $224 million. Waste Management could invest
in building new recycling facilities or expanding existing ones.
Currently Waste Management operates 99 recycling locations for

paper, glass, metal, and plastics are processed for resale. They
also have six secondary recycling locations that sell the
recycled material as raw material for manufacturing and consumer
use. Waste Management also recycles rubber, electronics, and
commodities (Annual Report, WMI, 2007). With stricter
regulations being enacted recycling is a strong growth
opportunity for Waste Management.
To improve in accounts receivable turnover, the firm needs
to evaluate their current pricing policies. Changes might
include discounts for those that pay early, or changing to a
pay-up-front method for problem accounts. The aging of accounts
receivable would need to be evaluated to determine what type of
credit terms the firm is offering. It may be fixed by just a
simple change in the credit policies of the firm.
For fixed asset turnover improvements the firm needs to
evaluate the age and condition of their current fixed assets. It
could be that these assets are not running at optimal speed and
need to be replaced or disposed of. It could also be that the
firm has assets that are not earning the firm money and that
could be disposed of. This would be something the firm needs to
look into immediately. It may be that they are overpaying for
the assets and could get a cheaper price somewhere else. These
are all considerations the firm must take into account when
evaluating ways to improve this ratio.

While Waste Management has the largest market share, that
does not guarantee them a larger profit. They must continually
improve and respond to the actions in the market. This includes
staying on top of regulatory and competitive changes. If the
company will continue their initiatives to improve services,
decrease costs, and gain market share they can remain
competitive.
Revenue and Sales
During the 2007 operating year, Waste Management had sales
of $13.31 billion (Waste Management, 2007). The public sector,
including franchises and municipal contracts provided for $3.6
billion of this amount. Waste Management breaks their revenue
recognition into the different market segments they serve. Based
on the 2007 gross revenue, revenue earnings can be allocated
between the following segments: Wheelabrator, 6%; WMRA & Other,
8%; Eastern Group, 21%; Midwest Group, 19%; Southern Group 23%;
and the Western Group 23% (Waste Management, 2007).
Company Growth
The waste industry is experiencing flat volume and weak
pricing (Hoover’s, 2008). This is in large part due to the
weakening construction industry. Construction waste can impact
waste volume by as much as 15% to 20%. However, other trends in
the industry itself, such as recycling and energy generation
efforts help to offset this for Waste Management Incorporated.

Sustainable growth goals discussed in October 2007, by CEO
David Steiner, include goals aimed at sustaining the company
from now until 2020. These goals include: the doubling of waste-
based energy production, increase he volume of recyclable
material processed, investment in cleaner technologies, and the
preservation of additional wildlife habitat across North America
(Waste Management, 2007). These strategies are aimed at
leveraging the company’s core business strengths and taking
advantage of their expertise in organic growth (Waste
Management, 2007).
During the 2006 operating year revenue growth was a modest
2.2%, and was mainly composed of price hikes. During 2007
revenue growth was 3.3%, attributable to more price hikes and
efficiency boosting programs such as, operating unit
consolidation, staff reduction, and a new fleet maintenance
system (Waste Management Value Line, 2008). However, even these
cost initiatives did not offset the impact of declining volumes
and company divestments during 2007. It is projected by Value
Line that in 2008 Waste Management will increase service fees by
2.5% to 3.0% over 2007. Standard and Poor’s projects that during
the 2008 operating year there will be low single-digit organic
growth stemming from such prices hikes as these. This should
help the company average close to 10% earnings growth over 2008
(Standard & Poor’s, 2007).

Is this growth picture good enough? Declining volumes in
the waste industry are forcing firms to cut costs and raise
prices. There are also high start-up costs to contend with in
the industry. For new firms considering market entrance, the
growth rate is probably not enough to entice them to enter given
the high costs and moderate-to-low growth rate. Existing firms
will continue to promote cost savings initiatives and pass costs
to customers. This will generate low organic growth for the firm
temporarily. Waste Management Incorporated’s management
recognize the need to continue efforts on lowering operating,
general, and administrative costs, with standardized processes
and productivity improvements (Waste Management, 2007). The goal
for Waste Management will be to keep customers by remaining the
lower priced competitor.
While growth may not be as high as a few years prior, there
are still growth opportunities for Waste Management. These
include growth opportunities and their recycling, waste-to-
energy, and gas-to-energy operations. The company is positioned
well to pull through the slow growth period, as long as it
continues its’ focus on innovative projects and controls costs.
Profit Margins
Waste Management had a net profit margin in 2007 of 8.74%.
In Table 46 you can see the net profit margin for the years 2004
through 2007. You will observe that profit margins have remained
relatively flat for Waste Management. There were declines in net
profit from 2005 to 2006 of .81%, and an increase in 2007 over
2006 profits of .15%. Observing the top competitors of Waste
Management, you will notice the same trend, with relatively flat
profit changes in from 2004-2007 for Republic. Allied Waste
seems to be the only one with wide swings in net profit.
Table 46
Net Profit Margin
2004 2005 2006 2007

Allied Waste 0.92% 3.55% 2.67% 5.11%
Republic Services 8.78% 8.86% 9.10% 9.13%
In related areas net profits of Stericycle, a medical waste
disposal company, show a different trend. In 2004 they had net
profits of 15.1%, in 2005 it was 15.3%, in 2006 it was 13.6%,
and in 2007 it was 13.9% (Stericycle, 2008). In the hazardous
waste segment, Clean Harbors profit ratios were as follows: in
2004 1.1%, in 2005 3.6%, in 2006 6.3%, and a decline in 2007 to
4.7% (Clean Harbors, 2008). In the building industry, which
largely affects waste volumes, there have been significant
declines in net profit margins during the 2006 and 2007
operating years. There trends were rising during 2004 and 2005,
only to plummet during the housing bubble bust in 2006. For

example, Champion builders had net profit margins of 3.3% during
2005, but only .6% in 2007 (Champion Builders International,
2008). In the net profit comparison figure, Figure 22, you can
see the relative changes between net profit for Waste Management
and the other industries discussed previously.
Net Profit Comparison

18.0%
16.0% Stericycle
14.0%
Net Profit
12.0% Clean
10.0% Harbors
8.0%
Champion
6.0%
4.0%
2.0%
WMI
0.0%
2004 2005 2006 2007

Year
Figure 22
Return on Assets and Velocity
The return of assets ratio, gives an indication as to how
effective a company is using its’ assets to generate earnings.
For 2007, Waste management had a return on assets of 5.7%, as
calculated using 2007 financial statements. This was up from the
2006 number by .19%. They have been steadily improving each
year. In 2004 they only achieved a return of 4.52% and in 2005
they had moved up to a 5.62% return (Waste Management Annual
Report, 2007).
Inventory Turnover was 81.3 and asset turnover was .7% for
2007 (Hoover’s, 2008). The total asset turnover ratio measures
how much in sales revenue is generated per dollar of assets. The
company’s turnover ratio of .70, denotes that for every 1.42
dollars in assets they can generate one dollar worth of sales
(Morningstar WMI, 2008). The inventory turnover ratio can help
the firm identify how efficiently inventory quantities are being
managed. Low turnover can mean the company is carrying obsolete
inventories or that the company is carrying too much or too
little inventory. These figures are important to the inventory
costs of carrying too much inventory, or the cost of running out
of inventory (Wiley, 2008).
Cash Assets
For Waste Management, Value Line lists cash assets as $666
million in 2005, $614 million in 2006, and $348 million in 2007.
The most logical explanation for these decreases is the
continued focus of Waste Management on paying off existing debt.
Since the market they participate in is entering the mature
stage, they are focusing on paying off existing debts that may
have been from start-up or incremental improvement costs. This
can be seen in the same Value Line report, by examining the debt
due. The debt due was $522 million in 2005, $822 million in
2006, and $329 million in 2007(Waste Management Value Line,
2008).
Cash Flow
Cash flow results shows whether the cash generated from
operations is enough to cover investing. If it is then the
company has a healthy flow of cash. If not, then the company may
have to finance their operations by selling stock (Money Chimp,
nd).
Net operating cash flow has been increasing each year from
2003 until 2006. There was a slight decrease in 2007 cash flows
of $101 million (Hoover’s, 2008). These changes are in large
part due to the economic downturn and declining volumes of
waste. Waste Management is combating these issues by reducing
operating costs and increasing their service fees. They have
also started to reduce their overseas operations and
administrative staff (Waste Management Value Line, 2008). Items
that significantly affected their cash flows from 2006 to 2007
were as follows: changes in tax benefit recognition under SFAS
No. 123(R); operating income improvements, net of depreciation
of $150 million, a reduction during 2007 of risk management
liabilities by $80 million, increased bonus payments, increased
payments for liabilities, and more trade receivables than in
2005. Net cash flows for Republic Services and Allied Waste have
been improving, with Republic having a slight dip between 2005
and 2006. The dip in Republic’s cash flow between 2005 and 2006
was due, in large part, to an $83 million tax deferral for the
2005 operating year based on the IRS’ response to Hurricane
Katrina. The net operating cash flow can be observed in Table
47.
Table 47
Net Operating Cash Flow
2004 2005 2006 2007

WMI 2,218.0 2,391.0 2,540.0 2,439.0
Allied 650.4 716.6 921.6 1,057.0
Republic 666.3 767.5 522.1 661.3
For Waste Management their net financing cash outflow has
increased (Hoover’s, 2008). The numbers that affect the
financing aspect include the repurchase of 40 million shares of
stock during 2007, at cost of $1.4 billion. They also paid out
$495 million of cash dividends in 2007 compared to $476 million
in 2006 (Waste Management Annual Report, 2007). In Table 48 the
net financing cash flow is shown for Waste Management, Republic,
and Allied Waste. Republic actually decreased their cash outflow
between 2006 and 2007. Allied Waste increased their cash outflow
significantly between 2006 and 2007. Data for the prior years
are also provided to show trends prior to the current year.
Table 48
Net Financing Cash Flow (millions)
2004 2005 2006 2007

WMI (1,130.0) (1,090.0) (1,803.0) (1,946.0)
Allied (489.2) (45.5) (274.8) (334.8)

Republic (437.3) (480.0) (409.4) (408.3)
Net investing over the past year has decreased from 2006
numbers for all three competitors, except Republic. For Waste
Management their net investing cash flow has decreased over the
past year from $788 million in 2006 to $761 million in 2007
(Hoover’s, 2008). Allied’s investment fell from $609 million in
2006 to $585 million in 2007 (Hoover’s, 2008). In Table 49 the
net investing cash flows of all three competitors over the past
four years has been presented so you can observe the different
company trends. Decreases are most likely the result of
continual cost savings initiatives during the lower growth
period.
Table 49
Net Investing Cash Flow (millions)
2004 2005 2006 2007

WMI (863.0) (1,062.0) (788.0) (761.0)
Allied (537.9) (683.0) (608.8) (585.4)
Republic (206.7) (297.2) (215.4) (260.3)
Competitive Analysis
From figures presented in the financial section, it is easy
to see that Waste Management does dominate the market. They do
have this advantage over competitors. They also have a larger
share of revenues because of this. However, they often rank in

between their competitors on financial indicators. It is clear
that they seem to be quite stagnant, due to the fact that they
are so large. However with merger talks, it is clear that Allied
Waste and Republic Services may be gaining ground quickly. It
will be up to Waste Management to respond quickly to their need
for improvements and how to maintain their market share. One
tool that can help management analyze the current conditions
within the market and organization is a SWOT analysis.
SWOT Analysis
Now after looking at the company structure and key
financial measurements a SWOT analysis can be conducted. The
purpose of this analysis is to provide managers an understanding
of the forces that impact company. Once these forces have been
effectively identified managers can come up with plans to
strategically combat these forces.
Strengths
Technology
Waste Management has current technologies utilizing waste-
to-energy and gas-to-energy processes. Out of the top three
competitors: Allied, Waste Management, and Republic Services,
Waste Management is the only one with this technology know-how.
Strategies
Strategies already focused on utilizing alternative energy
sources to fuel delivery trucks. Other strategies by Waste

Management focus on expanding the waste-to-energy and gas-to-
energy plants.
Global Position
Waste Management has operations in the United States,
Puerto Rico, and Canada. Only allied has operations in another
country, Puerto Rico.
Market Share
Waste Management serves nearly 20 million customers (Waste
Management, 2007). They therefore have a larger market share
than Allied Waste or Republic services.
Marketing
Waste Management’s continued focus on the environment gives
them an advantage over Allied Waste or Republic Services. Waste
Management focuses on displaying an environmentally friendly
image. They have the “think green” slogan on the side of their
trucks and the use of their old landfills for protected wildlife
habitats (Waste Management, 2007). They also focus on the
creation of green energy, currently producing 450 megawatts of
green energy from their methane gas collection programs. Through
their recycling programs they recycle over 3.5 million tons of
paper and cardboard; more than 25,000 tons of aluminum; and

processed more than 214,000 tons of metals in 2007 thereby
reducing greenhouse gas emissions (Waste Management, 2007).
Products/Services
Waste Management has waste-to-energy and gas-to-electricity
capabilities that other competitors do not possess.
Licenses/Permits
Waste Management Incorporated has more government permits
for solid waste landfills than its’ three closest rivals
combines (Leckey, 2007).
Assets
Landfills
Waste Management owns 277 active landfill sights, more than
any of their competitors (Waste Management, 2007). Even if
Republic and Allied Waste combine, Waste Management will still
own 49 more landfills.
Transfer Stations
Waste Management currently operates 341 transfer stations
(Waste Management, 2007). Given the long distances to some of
the landfills, the use of transfer stations makes it more
economical for the company. The transfer stations can compact
the waste and then transport it to the landfill or waste-to-
energy facility. Allied Waste only has 164 transfer stations
(Allied Waste, 2007). Republic Services only has 93 transfer
stations (Republic Services, 2007).

Trucking Fleets
Waste Management Incorporated has one of the largest
trucking fleets in collection services (Hoover’s, 2008).
Weaknesses
Leadership
Waste Management has a centralized structure. Under
corporate management, there are six operating groups, of which
four are organized by geographic area and two are organized by
function. With a centralized management structure it makes it
hard for them to respond to rapid changes in the competitive
environment. It also affects the amount of innovation in the
company. Innovation most readily occurs in decentralized
operations.
Financial Measures and Returns
While some of Waste Management’s financial ratios are good,
in most cases their competition is still better. For return on
equity and assets Waste Management tends to fall in between its’
two competitors. You can see this trend in the following
information. In Table 50, return on assets is depicted. Observe
that Waste Management’s return is 5.70%, Allied Waste is 1.97%,
and republic is 6.52%. In Table 51 the return on equity is
detailed for the past four years. For Return on equity Waste
Management is 19.36%, Allied Waste is 8.63%, and Republic
Services is 21.29%.
In Table 52 profitability ratios are present for each firm
in ranking order. Waste Management tends to earn more revenue,
but has a lower gross profit margin that its’ competitors. In
the net profit region they also lie in between Allied Waste and
Republic Services. This leads to the point that Waste Management
has some room for improvement on these figures.
Table 50
Return on Assets
Return on 2004 2005 2006 2007

Assets
Waste 4.52% 5.62% 5.51% 5.70%
Management
Allied Waste 0.36% 1.50% 1.17% 1.97%
Republic 5.28% 5.63% 6.23% 6.52%
Services
Table 51
Return on Equity
Return on Equity 2004 2005 2006 2007

Allied Waste 2.21% 8.50% 5.80% 8.63%
Republic 12.60% 14.59% 18.47% 21.29%
Services
Table 52
Company Rank – Profitability Ratios
Company Rank Highest Middle Lowest

Gross Profit Margin AW - 37.6% RSG - WMI - 36.8%
37.1%
Operating Profit AW - 17.4% WMI - RSG - 16.9%

Margin 16.9%
Net Profit Margin RSG - 9.13% WMI - AW – 4.51%
8.74%
Size
Given Waste Management’s large size they will have to be
careful not to underestimate their competition. With Republic
and Allied Waste talking mergers, Waste Management will have to
carefully watch their strategic planning and be able to react
quickly to competitor’s moves. In large companies this is
sometimes difficult to do.
Dealing With Strengths and Weaknesses
Waste Management has a major strength in their market
share, asset quantity, technological know-how, and
environmentally friendly operations. They can utilize these
three aspects to gain first mover advantage by continually
improving and developing these assets.
In the energy generation area, Waste Management already as
an advantage over Allied Waste and Republic Service. They
already have the technological know-how, and have already
started to build the processing facilities to support this type
of future technology. Waste Management can use these
capabilities to continue to expand in this market. By utilizing

the increasing demand for power, they can gain first mover
advantage over Allied Waste and Republic. The same is true for
their utilization of gas-to-energy resources. While, Allied is
also experimenting in this arena, Waste Management has more
landfills to utilize in this area.
Given their market share, it will be hard for other
operating companies to match their ability to service so many
parts of the industry. They operate in every state except two
(Waste Management, 2007). They also operate in Canada and Puerto
Rico. This gives them an advantage over the firms only operating
in domestic markets. They do have to consider that Allied Waste
is presently competing with them in Puerto Rico, also. By
continually expanding their customer base they can maintain and
grow in market share. Of course this is subject to controlling
costs and meeting customer needs as well.
Waste Management can also leverage their increasing image
to be environmentally friendly to draw in more environmentally
conscious consumers and expand on their environmental product
offerings. This strength has many added benefits. It will
benefit the company in the long-run as regulations increase on
the trash disposal and landfill space becomes more-and-more
limited. There is also a large amount of profit potential. They
are essentially taking something given to them and processing it
into a revenue generating product (Waste Management, 2007).

Waste Management has one of the largest asset bases for
landfills, transfer stations, and trucks (Waste Management,
2007). With such a large asset base they have the capabilities
of servicing more customers than their competitors. These assets
can also be leveraged to generate the company more money by
finding ways to effectively use them to their fullest potential.
Consequently, this is one of the areas Waste Management needs to
focus on improving. However, it is clear that if they can
improve their return on these assets they have the resources to
outperform their competition.
In dealing with weaknesses, Waste Management should
continually look for ways to create a culture that fosters
innovation. This could include the decentralization of
management. With decentralization, this will give the local
branches the opportunity to react quickly to competitor moves
and customer needs of their specific regions.
Concerning financial measures there will need to be a
continued effort in improving the net, operating, and gross
profits by further implementation of cost saving programs. Waste
Management has already started to do this by getting rid of
unprofitable customers, reducing administrative positions, and
with improved safety standards for employees (Waste Management,
2007). It is vital to overcome their financial weaknesses that
they focus on utilizing their assets better. This could include

the evaluation of assets to determine if they are obsolete or if
the costs of retaining the asset outweigh the benefits, or
profit generation. These steps would help to improve their
return on assets and could free-up valuable cash to be invested
elsewhere.
While, Waste Management has better ratios than their two
competitors, they do lie slightly below the industry average.
To overcome their low quick and current ratios they could
evaluate their credit policy and evaluate the current assets.
This might include issuing discounts to those that pay in a
shorter time period. It might also include the evaluation of
inventory. How, much inventory is the firm holding and is it
cost effective to hold this level. They should evaluate whether
the money invested in inventory could be better invested
elsewhere.
The final weakness is Waste Management’s large size. Even
though their size is attributable to their many locations, which
is beneficial in growth opportunities, it can be their downfall.
Waste Management needs to take steps to continue innovation and
customer retention, especially with the merger of Allied Waste
and Republic Services. If they underestimate the power of their
competitors this could be to their detriment. They will also
need to continue to improve relations with governmental agencies
that have the power to revoke any operating licenses.

Opportunities
Renewable Energy Sources
Investment in renewable energy production is one of the
largest opportunities for Waste Management Incorporated. This
particular segment of their industry has very attractive growth
potential. Demand for renewable energy is growing very rapidly.
Right now renewable energy sources only make up around 7% of the
U.S. electricity supply (Waste Management, Inc. SWOT Analysis,
2007). Increases in regulation and the demand for more clean
sources of energy are a big opportunity for Waste Management to
gain a strategic position at the head of this market.
Recycling Programs and Gas Energy
There is also the continued attractiveness of increased
utilization of recycling programs and the landfill gas to energy
projects. During 2007, seven landfill gas-to-energy projects
were operational. Given their expertise in that area they have
the opportunity to leverage this knowledge to benefit third
parties (Waste Management, 2007).
Threats
Political and Governmental
Due to the amount of governmental regulation within the
waste management industry, the threat of increasing regulatory
acts is prominent. These regulatory actions are likely to get
more and more stringent as time progresses. This can add to

increased costs of operations, and regulatory permits. Also,
recent regulation changes in construction debris disposal in
landfills can affect the company. The regulations limit the type
of materials, from construction, that can be disposed of in
landfills. This can increase the costs of the firm in finding
alternative disposal methods (Waste Management, Inc. SWOT
Analysis, 2007).
Legal Forces
Significant threats exist regarding lawsuits from
environmental violations given the form of business. As of
December 31, 2007 four lawsuits have been filed against Waste
Management and its’ subsidiaries for such violations. The
allegations are that Waste Management and its’ subsidiaries
failed to comply with proper storage requirements for leachate
at their landfill locations. They also violated federal air
regulations at one of their landfills, failed to meet reporting
requirements, and violated National Pollutant Discharge permits
conditions at a landfill. They believe that these charges will
amount to $100,000 or more (Waste Management Annual Reports,
2007).
Economic Conditions and Complementors
Due to the recent economic downturn waste volumes are
declining. According to the IMF world economy outlook, the real
GDP growth of the U.S. is expected to slowdown in 2008. It is

estimated that GDP will only grow 1.1% in 2008, down from the
3.3% the industry saw in 2006 (Waste Management, Inc. SWOT
Analysis, 2007). This leads to less revenue without cost
increases. With cost increases comes the potential loss of
customers to competitors who may have lower prices. It is
imperative for Waste Management to control cost in order to
offset the amount of cost increases passed on to customers.
Recent declines in complementing industries, such as the
building industry, also have a negative impact on waste volumes.
It is estimated that 15% to 30% of waste volumes are generated
by the construction industry.
Waste minimization strategies are also a threat to the
company. With increases in the costs of treating waste and
disposing of waste, companies look for other alternatives to
reduce waste. Industries start to adopt cleaner technologies and
put cheaper, pollution prevention equipment in place. In the
hazardous waste segment, which Waste Management also competes,
is currently seeing the implementation of waste minimization
through reuse and recycling programs.
Competition
With the likely merger of Republic Services and Allied
Waste, Waste Management will encounter a bigger competitor than
they have recently dealt with. Their competition will now have
the combined resources to issue a substantial threat to Waste

Management’s market position. The company must also contend with
high competition from municipalities and regional government
authorities. These competitors have the advantage of subsidies,
giving them a competitive advantage over private firms.
Management of Opportunities and Threats
In order to take advantage of opportunities within the
market Waste Management will need to continue their focus on
energy generation. This will come in the form of increasing the
waste-to-energy production facilities and continual improvement
in waste-to-energy processes. Money should be allocated to
research and development in order to stay ahead of other
competitors and look for continuing alternatives for waste
disposal. Waste Management will also need to continue to improve
and focus on recycling programs to support the more
environmentally friendly customers and look at expansionary
opportunities. There is also the opportunity to better utilize
existing resources to generate increases in revenue.
As for threats, minimization of the impact of government
regulations will be hard to control. Of course there is always
lobbying, but there is not guarantee. The best way to minimize
this threat is to stay ahead of the changing regulations by
continuous improvement of disposal processes. This should

generate more efficiency for the firm, increased revenues, and
less problems with more stringent regulations.
In dealing with the economic downturn and municipal
competition, the firm will need to continue to focus on cost
effective programs. These programs will allow the firm to reduce
costs and continue revenue generation, with small increases to
the customer. It may be beneficial to look at the market
segments the firm is currently servicing, and explore
opportunities in unexploited market niches. The main focus
should be on cost reduction and customer retention.
Table 53
Strategy/SWOT Matrix Worksheet
Waste Management, Inc. Strengths - S Weaknesses – W

SO Use strengths 1 WTE Operations 1 Centralized
Strat to take Management
egies advantage of Structure
opportunities 2
WO Overcome Gas-to-Energy 2 Mid-range
Strategies weaknesses by Operations returns for
taking Return on assets
advantage of 3 5.70%
opportunities Global
ST Use strengths Operations
Strategies to avoid In Puerto Rico & 3 Large Size
threats Canada
WT Minimize
Strategies weaknesses 4 4 Return on equity
and avoid 29% Market Share midrange 19.36%
threats
5 5 Midrange
Environmental operating and
Programs net profit
margins. 16.9%
6 and 8.74%
Large asset respectively
base, with 277
Active landfills
and 314 Transfer 6 Lowest gross
Stations profit margin of
36.8%
7
7 Lower Quick
Largest trucking ratio .86 and
fleet in waste current ratio of
collection when compared
with industry
average. However
they are higher
than their top 2
competitors.
Opportunities – SO Strategies WO Strategies
O
1 Renewable Energy 1 Continue to 1 Increase returns
Resources expand WTE sites by expanding the
(S1,S2,O1) growing Waste-
to-energy and
2 Recycling 2 Develop Gas-to-energy
Programs and recycling markets
expansion program (W2,W4,W5,W6,O1)
awareness
3 (S5,O2)
3 Creation of an 2 Decentralize
expanded global Evaluate and decisions in the
presence Pursue expansion global
opportunities operations(W1,
within the W2,O3)
4 Utilize closed national
landfills for boarders of
revenue their global 3 Expand the sale
resources. market (S3,S6, of recycled
O3) materials
(W2,W5,W6,O2)
4 Evaluate
alternative
revenue
generation
techniques for
existing assets
(W2,W4,O4)
Threats - T ST Strategies WT Strategies
1 Government 1 Continue to 1 Development more
regulations develop WTE and processes to
environmentally supply
friendly electricity
2 GDP of only 1% processes (S1, (T2,W2)
S1,S5,O1)
3 Fuel Price 2 Increase

Increases 2 Consider the operating
possibility of efficiency
acquiring programs and
4 Merger talks Republic (S6,T4) close
between Allied unprofitable
and Republic locations (T2,
3 T3,W3)
5 Impending legal
claims for 3 Decentralize
environmental Management so
violations locations can
react to
environmental
changes (T4,W1)
4 Implement
operating
procedures to
minimize risk of
environmental
violations(T5,
W1)
Business Definition
Evolution of the industry
In the future, the waste management industry will continue
to move toward more renewable products and services. In 1991 the
EPA erected very high barriers to entry into the disposal
landfill market by enacting the Subtitle D regulations. The
permitting process involves the investment of $25 to $100
million just to seek an operating permit, and the process could
take up to ten years or more to complete. This effectively
limits the number of waste landfills in the United States. As an
answer to the future limited landfill space, governments, waste
companies, product companies, and consumers will have to devise
alternatives to the current model of waste production and waste
disposal (MSW Management, 2001).
Waste Management will need to continue their focus on
environmentally friendly practices and maintain there compliance
with governmental permit regulations. They will need to continue
their acquirement of new competencies in environmental disposal
and recycling programs, to minimize their impact on the
environment. They will also continue to make customer service
process improvements and change to meet the needs of the growing
customer segments.
The Future of Waste Management: New Products/Services
As the leader in waste collection, Waste Management will
have to expand its presence in waste-based energy production. To
accomplish this Waste Management will have to expand their
partnerships with governments, to develop new waste-to-energy
plants and gas-to-energy (landfill gas) projects.
In addition, it is anticipated that Waste Management will
need to significantly increase its capacity to process
recyclable materials. While Waste Management has instituted a
single stream process that has increased capacity for local
recycling programs, it is obvious that more recycling plants
will be needed in the future. Waste Management will also need to
implement research and development to explore the possibility
recycling other materials. It may be that they can expand the
list of items that can be recycled and reused successfully. This
would significantly increase the amount of products Waste
Management can provide and increase the life of their landfills.
Finally, for Waste Management to remain successful it will
need to continue its relentless efforts in the area of cost
reduction. Waste Management should continue to expand its use of
natural gas in their fleet trucks. The company is already
expecting to invest up to $500 million per year, over the next
ten years to increase the fuel efficiency and emission of their
fleet by 15% (Waste Management Annual Report, 2007).

Future Customers
Waste Management should continue to keep its current base
of customers and operating segments. Waste Management’s current
revenue segments include collection, landfill, transfer,
recycling, and waste-to-energy. They will still focus on
municipalities, industrial, commercial, and residential
customers. It is anticipated that Waste Management will move
further into the areas of recycling, and waste-to-energy as
America moves toward a goal of zero waste. This could lead to a
slight increase in commercial or industrial customers seeking
more environmentally friendly solutions. Further growth and
revenue increases, in the collection segment, will come from
identifying those markets that will provide higher profit
margins, and from acquisitions and/or mergers. There is also the
possibility that Waste Management could see an increase in its
landfill revenue, as tipping fees will likely increase as other
company’s landfills fill to capacity.
Major Competitors
The waste management industry is made up primarily of
three companies; Waste Management Inc., Allied Waste Industries,
and Republic Services. Waste Management has the largest market
share at 29%, followed by Allied Waste at 13%, and Republic
Services has a 7% share of the industry market. This can be seen
in Figure 23.
Industry Market Share
29%
WMI
AW
51% RSG
Others
13%
7%
Figure 23
Allied Waste Industries, Inc. (AW)
Allied Waste Industries, Inc. operates as a non-hazardous
solid waste management company in the United States and Puerto
Rico. The company provides collection, transfer, recycling, and
disposal services for residential, commercial, and industrial
customers. Allied Waste Industries is currently the number two
waste management company and is headquartered in Phoenix,
Arizona (www.finance.yahoo.com/q?s=AW).
Republic Services, Inc. (RSG)
Republic Services, Inc. provides non-hazardous solid waste
collection and disposal services for commercial, industrial,
municipal, and residential customers in the United States. It is
currently ranked as the number three waste management company in

the United States. Republic Services, Inc. was founded in 1996
and is headquartered in Fort Lauderdale, Florida.
(www.finance.yahoo.com/q?s/RSG)
Possible Merger and Acquisitions
In June 2008 Republic Services made a bid to purchase
Allied Waste for approximately $6.07 billion to which Allied
Waste accepted the offer, pending shareholder and regulatory
approval. In response, on July 14, 2008, Waste Management made a
$6.2 billion offer for Republic Services. This offer was a 22%
premium over Republic Services’ closing price on Friday, July
11, 2008. On July 18, 2008, Republic Services decided not to
enter merger negotiations with Waste Management, because
management decided that the proposal would not result in a more
favorable transaction for its shareholders than the merger with
Allied Waste (SmartMoney, 2008). Republic Services and Allied
Waste are moving their merger plans forward by hiring Deloitte
Consulting, LLP to advise them in their merger integration
planning (Houston, 2008).On July 24, 2008, Waste Management
announced that it will seek to buy shares of Republic Services
(Yahoo!, 2008). This merger has a tremendous effect on the
competitors in the future. If these two firms merge their assets
will be combined to provide an equivalent size opponent to Waste
Management. We feel that these opponents, along with firms that

pursue environmentally friendly strategies, will be our major
competitors.
Objectives
Revenue/Sales
Waste Management will generate average annual sales growth
of 2.5% for the next 4 years.
Justification
Waste Management will see a revenue increase 2.5% per year
primarily from its pricing initiatives as well as higher
recycling commodity pricing. It will see a decrease in
collections for 2008 due to volume declines primarily resulting
from economic slowdowns in the residential and commercial
building industries. Revenue from the collection line of
business is anticipated to increase in years 2009 through 2011
due to price increases (Annual Report, WMI, 2007).
Recycling commodity pricing will continue to rise
approximately 10% per year, contributing $578 million over the
four year period.

Table 54
Projected Revenue/Sales
Projected Revenue/Sales 2007 2008 2009 2010 2011

Collection 8,714 8,656 9,002 9,097 9,187
Landfill 3,047 2,986 2,976 2,988 3,010
Transfer 1,654 1,620 1,596 1,616 1,635
Wheelabrator 868 878 887 896 900
Recycling and other 1,298 1,428 1,542 1,711 1,876
Intercompany -2,271 -1,926 -1,989 -1,975 -1917
Total 13,310 13,642 14,014 14,333 14,691
Net Income
Waste Management will generate average annual net income
growth of 2.5% for the next four years.
Justification
Waste Management will continue to increase its net income
due to increases in revenue from its recycling operation and
from steady collection and landfill fees. Although collection
revenue will be modest, Waste Management has the capability to
increase its landfill tipping fees from local haulers. Driving
the increase in net income will be management insistence on
decreases in its operating expenses, primarily fuel expenses
through the continued efforts to change its fleet from diesel to
natural gas, as well as lowering its work-related injuries
through its zero accident campaign (Annual Report, WMI, 2007).

Table 55
Projected Net Income
Projected Net Income 2007 2008 2009 2010 2011

1,163 1,192 1,221 1,252 1,283
Market Share
Waste Management will expand its market share by 3% over
the next four years.
Justification
Gains in market share in this industry have traditionally
been the result of consolidation, mergers, and acquisitions.
However, as the leader in renewable waste-based energy
production and recyclable materials, Waste Management stands to
increase its current market share of 29%.
Waste Management must increase its volume of recyclable
materials through the development of new recycling plants,
acquiring existing companies that own recycling facilities, or
expanding the capabilities at its existing facilities.
Waste Management has recently made a bid to buy Republic
Services, but the bid was refused by RSG. Waste Management has
made it clear that it intends to buy shares of Republic Services
in the future. This will no doubt bring an anti-trust issue in
to play that will have to be addressed.

Waste Management will increase its total market share by
investing in alternative energy sources, including both landfill
gas-to-energy and waste-to-energy combustors.
Alternatives
As the industry leader, Waste Management Inc. has the
financial resources and human capital, to explore alternative
means of growth that stretch their current operations. Trends in
the industry are moving toward an increased focus on
environmentally friendly operations. As government regulations
continue to increase, the industry is continually moving toward
more environmentally friendly operations and processes.
Consumers are more aware of the environment and are demanding
energy resources that do the least amount of harm to the
environment. Waste Management can use this to their advantage in
a number of different ways, which will not only allow them to
increase market share, net income, and revenues, but it will
also improve their image among society.
In the idea generation process for alternatives, the core
competencies, existing assets, and future of the industry were
all considered. Waste Management already has an enormous asset
base, from which to draw upon for alternatives. We feel the
merger of Allied Waste and Republic will force Waste Management
to look at acquisitions, in order to gain market share in the
waste disposal segment. However, should they choose, we feel

they can venture into the following alternatives to grow their
presence in other markets and support their current market
presence.
The three alternatives that we generated include: 1. Enter
the building industry using their own recycled products. 2.
Invest in solar panels to run their garbage disposal plants and
facilities. 3. Place windmills on closed landfills to produce
energy to sell to consumers. These alternatives are unique in
that they could all be used simultaneously with existing assets,
if Waste Management found the alternative to be profitable.
Given the current trend of consumers placing a great amount
of weight on being environmentally responsible, these
alternatives could help them achieve their objectives to
increase market share by 3%, net income by 2.5%, and revenues by
2.5%, over the next four years. Although Waste Management is
feeling increased pressure from the competition, including a
merger between the number two and three companies, we feel that
Waste Management can still achieve these objectives. Devoting
research and development efforts to these alternatives, right
away, will allow Waste Management to be successful in its
endeavors to "think outside the box", and provide a unique way
to outpace the competition.

Building Materials
The first alternative Waste Management can explore to
achieve these objectives, is to venture into the building
industry using recycled products such as plastic, glass, and
aluminum as components of building materials. They would be the
first-mover, among Waste Management companies, to venture into
this operation. This would give them an edge over competitors
who enter later. Waste Management already promotes
environmentally friendly practices and procedures; and this
would only further improve their image with customers, as well
as give them a source of diversification to increase net income
and revenues.
There are two paths that Waste Management could explore
under this option. The first is generating the recycled
materials to sell or utilizing the materials to enter the
building market. In the home building industry, Waste Management
will be able to compete, not by being the best home builder
necessarily, but by being the most environmentally conscious
home builder. Waste Management can maintain a low cost basis
because all of its building materials will be "donated" in the
form of waste. This gives them a major competitive advantage
over other home builders, as they compete for market share in
this emerging industry. Selling houses gives Waste Management a
tangent to explore that is away from their normal operations,

but is still aided by their normal activities of recycling.
Ensuring that these houses are built quickly and efficiently, as
well as making them energy star certified should make this
alternative a successful way to boost sales (Balogh, nd.).
The other path is to simply sell the products on the open
market to home builders. While this is more in line with Waste
Management’s current operations, this is a viable backup, should
the building industry be unattractive.
This strategy is unlike any strategy the competitors have.
This alternative will enable Waste Management to grow market
share in other industries, increase the revenues brought in, and
increase net income through the use of existing assets.
Solar Panels
Another alternative for Waste Management to consider is to
invest in solar panels to run their garbage disposal plants. If
Waste Management could find a way to run their plants full-time
using only the power of the sun, they would not only become an
icon in their industry, but they would be globally recognized.
Again, this option would increase revenues by adding sales of
those consumers that are the most worried about the health of
the environment. This will also increase the firms’ net profit,
by creating reduced costs for utilities. This alternative could
also generate growth, by drawing in customers who are concerned
with the environmental impacts of firms.

Other alternatives using solar panels include the
conversion of Waste Managements fleet to run off of solar power.
When taking into account all the costs that are incurred by
Waste Management companies, the use of gasoline and diesel hurts
their bottom line more than anything else. A company that is
spending most of its earnings to fuel its operations cannot be
successful in adding explosive growth to its net income. Using
the energy of the sun is free to any company that can
successfully harness it, and would be worth the short-term
expenditure to invest in these solar panels. As fuel prices
constantly rise, Waste Management companies will all be looking
for a solution that will enable them to operate at a cost low
enough to turn a profit. Waste Management can generate higher
returns if the process can be perfected for their fleet. Their
competitors will literally burn their profit up as gas prices
rise. These alternatives are also unique for the company because
no other waste management company has explored the use of
alternative energy sources to operate their fleet.
Windmill Energy Generation
Keeping the same theme of alternative energy and
environmentally friendliness, the third option Waste Management
should look into is placing windmills on their closed landfills,
in order to create electricity. Not only could Waste Management
use the electricity to help operate its own plants, but Waste
Management could actually venture into selling this energy as
any power company would. The windmills could be made of recycled
material and the wind certainly would be a free resource that
Waste Management would never run out of.
Windmills are just starting up as a viable means of
creating electricity and the time to create windmill farms is
now. In order to maintain as well as create brand awareness,
Waste Management would still operate this section of its
business under the Waste Management brand name. This would give
Waste Management a chance to increase revenues and net income by
not only making money off of materials exiting the home, but now
they would be able to sale a service that goes into the home as
well. This essentially gives Waste Management the opportunity to
create "two-in-one" customers as both waste and power services
would be available to all households (The Sustainable Resource
Guide, 2007).
Alternative Pros & Cons
Building Materials
Of course the positive aspects of this alternative are the
potential to increase revenues, net income, and market share,
while prolonging the life of landfill assets. This alternative
opens-up a largely untapped revenue base for the company. The
negatives include economic downturns in the building industry
and the potential of the process to require more asset

acquirement to produce the products.
Solar Panels
The positive aspects of this alternative are the increased
cost savings to the company and potential acquirement of
environmentally focused customers. The negatives come down to
the costs involved in acquiring and setting up the plant to use
the panels. There could also be significant research and
development costs to create the technology to convert the fleet
over to solar power.
Windmill Energy Generation
The positive aspects of this alternative are the increased
costs savings, new revenue potential, and increase in net
income. The negative aspects include the costs involved with
acquiring the assets to harness and transport the energy.
In summary, these alternatives would be relatively unique
to Waste Management. They would provide them with increased
opportunities to cut costs, increase revenues, increase market
share, and increase net income. The alternatives would provide
Waste Management with entry into a relatively untapped market.
These alternatives have the potential to bring about a dynamic
change for Waste Management. However, they also have some
drawbacks that need to be taken into consideration. The
exploration into these alternatives will largely be in uncharted
territories, in which Waste Management has never ventured

before. It will bring about the addition of differing kinds of
employees, added costs, and the risk of failure. If one of the
alternatives were to fail, Waste Management could more than
likely continue operations with no visible problems, but if two
or all three were to fail, the consequences could be disastrous.
However, the opportunity to outpace the competition is worth
taking the chance of having to deal with the cons that go along
with these alternatives.
Recommendations
In order to achieve Waste Management’s objectives, we
recommend that Waste Management tries a mixture of all three
alternatives, as opposed to using only one. One positive factor
about the alternatives is that they can stand on their own or
they can be used together to make even more of an impact. Each
alternative would affect the objectives in their own way, but
when the right mixture of each is used, the objectives become
much more realistic to achieve.
In deciding to utilize all of these alternatives, we
evaluated the current and future industry environment. Pricing
and cost efficiency are two major factors in the industry
currently. All of these alternatives utilize, to a large extent,
assets Waste Management already owns. These alternatives also
have the possibility of creating costs efficiencies for the
company. They are also very cognizant of industry trends toward

environmental consciousness.
If Waste Management explored each alternative, they would
first and foremost create an image of one that is socially
responsible. This would set the stage for an increase in net
income, revenues, and market share. Building houses and selling
power would increase revenues, as well as net income, and
investing in solar panels would lower costs, further creating a
surge in net income. Together, all of these would steal market
share and further solidify Waste Management’s position as the
industry leader. It is possible that they could also ward off
threats, like the merger of major competitors, if they were to
capture even more market share through these alternatives.
In addition, over the next five years there will only be
further pressure to pursue environmentally friendly operations.
Those companies that are perceived to efficiently achieve these
goals will be the ones who earn customer loyalty and have the
potential to open up new markets. Each of these alternatives
serves as a way to improve the image of Waste Management over
other companies in the industry. This aspect by itself will
contribute a great deal to achieving the objectives set forth
over the next five years.

Implementation Considerations
There are also several factors that Waste Management must
take into consideration when trying to implement a mix of these
three alternatives. Most of the issues that would arise from
implementing these alternatives would be similar, because they
are all pointed relatively in the same direction. Observing a
few different aspects and challenges that may arise during
implementation of these alternatives will allow Waste Management
to better understand the most effective ways to venture into
these new projects.
Setting Unreasonable Expectations
The first pitfall that must be avoided when implementing
new alternatives is to avoid setting your goals and expectations
too high. We believe the objectives of 3% growth in market
share, and 2.5% in net income, as well as revenues over four
years is not only feasible, but it is well in line with our
alternatives. By not making its expectations unreasonable, Waste
Management can focus on steady growth and taking the time to
make the correct decisions, in order to implement these
alternatives effectively. Setting the bar too high when
experimenting with new alternatives will only serve to lower
employee morale by being too demanding, losing revenues by not
working efficiently, and essentially losing market share because
so much time, effort, and money is tied up in the alternative.

Elastic Business Definition
One aspect of demand for these new alternative's outputs is
that it will be relatively elastic. That is, as the price goes
up for these new services, the demand will tend to go down.
Waste Management must realize that although people are concerned
about the environment, they will be unwilling to pay
unreasonable amounts regardless of the environmental impact. It
will be a necessity that Waste Management is able to be
profitable from these alternatives without raising prices so
much that customers will be unwilling to do business with them.
Creation of a Cause, Not a Business
Becoming a company that is constantly aware of its
environmental impact does not need to take priority over making
a profit. The bottom line is that companies are in business to
turn a profit in order to sustain growth and satisfy
shareholders. Waste Management must be careful with using these
alternatives only as a cause to better the environment, and they
must insure that these alternatives are viable business options
as well. Waste Management must not get caught up in simply
operating for the environment's sake, but they must also focus
these alternatives as ways to make ever-increasing profits.

New Voices
When attempting to implement these alternatives, Waste
Management’s management must encourage input from its employees
on ways to successfully adopt these new experiments. According
to Gary Hamel, there are three places that Waste Management
should look, in order to hear the most innovative ideas that
could help Waste Management make a smooth and profitable
transition into these alternatives. Waste Management should look
to its younger employees or anyone with a youthful outlook;
employees near the geographic areas, because they usually have
fewer resources and are move creative; and newcomers who offer a
fresh new perspective on the situation. Encouraging input from
all these sources will profit Waste Management by allowing it to
gain insight from a diverse group with fresh, new ideas (United
Bit, 2000).
Open Market for Capital and Talent
When initially trying to implement these new projects,
Waste Management must not limit their own opportunities by
deciding to spend only a certain amount on these alternatives.
If Waste Management is serious about being an innovative leader,
they must make the necessary sacrifices in order to push through
any difficulties and give these alternatives every chance to
succeed. Also, these new projects are going to require some of
the most knowledgeable, intelligent human capital that Waste

Management can find. The company must create an atmosphere that
will not only attract top talent, but also one that will
maintain this talent. In order to do this, Waste Management must
create a work environment that promotes experimentation and
innovation, while also compensating their employees at a level
as good as or better than the employee could find elsewhere.
Low Risk Experimentation
By trying to implement a mixture of all three of these
alternatives, Waste Management gives itself a cushion when it
comes to the risk involved in each. If one alternative is
clearly not going to work, Waste Management can abandon this
operation and focus even more of its efforts onto the other two.
These alternatives certainly won't be accomplished without
taking on some risk, but Waste Management has established enough
financing that a loss wouldn't be totally crippling to its
operations. The main aspect of risk that Waste Management’s
management must keep in mind is that the realization of when one
of the alternatives isn’t going to work out, and be willing to
put a stop to it before too much money is lost.
Cellular Division
The last aspect of implementation that Waste Management
must take into consideration when looking at these alternatives
is cellular division. Right now, Waste Management has mainly
focused on its core competency, and has yet to stretch itself

out in order to experiment with alternatives that are "outside
the box." These alternatives give Waste Management a chance to
differentiate and diversify its business operations. Instead of
becoming a stagnant company, these alternatives will yield
results not only with net income, revenues, and market share,
but they will also promote a company-wide attitude of growth and
innovation. (United Bit, 2000)
In summary Waste Management should carefully evaluate each
alternative for viability and strategic possibilities. They
should keep a close watch on market trends and respond
accordingly, in order to maintain and increase market share.
They should decide on the course of action that will help them
meet their growth, revenue, and net income objectives, as well
as provide the firm with long-term profitability.

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Waste Management Company Analysis

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Waste Management Company Analysis

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Waste Management Company Analysis 1

DEPARTMENT OF BUSINESS ADMINISTRATION

WASTE MANAGEMENT COMPANY

Table 15 Net Income Per Employee 45

Figure 1 Company Time Line 18

year Industry Average

This paper will discuss the history of Waste Management

Incorporated. The current strategies, core competencies,

industry segments, and major competitors of the company will

also be discussed. In the competition section, this paper

presents a competitive profile table, outlining key competitive

measurements of their major competitors, Allied Waste and

Republic Services. In that section, we also discuss current

aspects of the competitive environment that are likely to affect

Waste Management, namely recent merger talks between Allied and

The next section is the financial section. The financial

analysis section provides key ratios, such as profitability,

liquidity, turnover, leverage, and solvency ratios for Waste

years. A growth and market value analysis is presented, with

information on the corporate profile of each firm. A cash flow

discussion is also included for Waste Management.

The next section examines and identifies the key strengths,

weaknesses, opportunities, and threats of Waste Management. The

strengths and weaknesses are discussed, along with how Waste

Management can leverage their strengths, and overcome their

weaknesses. The paper also discusses the opportunities and

threats, of the external environment, and how Waste Management

can take advantage of the opportunities and minimize the impact

Forward-looking data is also included in this analysis. The

paper discusses where we think the industry will be in ten years

based on current trends, future customers, competitors, and

future product offerings of Waste Management. The objectives

discussed, along with viable alternatives for the future

industry state. These alternatives are discussed, along with our

recommendation and implementation issues.

The company, Waste Management Ltd., was founded by Dean L.

Buntrock and his cousin Wayne Huizenga in 1971 (Hoover’s, 2008).

Buntrock and CEO Phillip Rooney, depended mainly upon

acquisitions to create a massive waste-disposal empire (Waste

Management History, 2008). They acquired and consolidated many

local haulers, including firms in Canada during the 1970’s

(Hoover’s, 2008). As the company grew, they began to divide into

specialty areas by forming Chemical Waste in 1975; ENRAC in

1980, which conducted site clean-ups; and servicing nuclear

waste clients with Chem-Nuclear systems in 1982 (Hoover’s 2008).

In 1988 Waste Management entered into a merger agreement with

Wheelabrator, allowing WMI a 22% ownership interest. In 1990,

Wheelabrator Technologies became a subsidiary of Waste

Management Incorporated (Wheelabrator, 2004).

The company grew at a phenomenal pace and in 1993 the

company began to diversify. They also were renamed WMX during

1993. However, in 1997 they changed their name back to Waste

Management (Hoover’s, 2008). That same year Dean Buntrock, and

CEO Phillip Rooney left the company (Waste Management, 2008).

After going through four different CEO’s over a period of eight

months, the company brought in turnaround specialist, Steve

Miller, to take on the role of CEO (Hoover’s, 2008).

In 1998, the company merged with the Houston based company,

(Waste Management, 2008). The management team of USA Waste took

company acquired Eastern Environmental Services for $1.3

billion, and shortly after this acquisition, John Drury took

leave due to medical reasons. It was during this time that

shareholders filed an insider trading lawsuit against the firm.