Ratio Analysis †Yum! Brands Essay

Yum Brands consolidated net profit margin lies within the industry average and for 2 years have saluten slow yet steady growth. While sales from US operations declined by 5%, the company continued to gain momentum in mainland China, where operating profit increased at an average of 26% year-on-year. Mean maculation, their Return on Assets fairs better than competitors such as McDonalds and Dominos Pizza, showing that management efficiently manages its asset base. The companys efficiency can be seen in its Cash Conversion Cycle, with -49. 2 in 2009. This number is much lower from its competitors, which suggests a liquid working(a) capital position. Yum generates sales from its inventory and cash from its sales at a faster rate than the era its pays its suppliers. This means that it utilizes the average 60-day period in front it has to fully purchases with suppliers, giving them free cash in principle. However, while this suggests less need to borrow, the company stillness received cash by issuing long debt in 2008 and 2009.Due to the nature of the business, on average, 56% of its total assets are fixed. And as Yum ventures into Asian countries, especially China and India, it allocates part of its cash to capital spending. However, in utilizing its fixed assets to generate sales, Yum scores lower compared to Wendys and McDonalds. This may be collectible to its focus on aggressively adding new stores, with 2008 and 2009 serving as introduction years, before sales can fully pick up.One could also note, however, that sales in the US and outside(a) Divisions (ex-China) have decreased from 2007 to 2009. The companys solvency, however, provides another story. As mentioned, Yum reported negative equity in 2008 mainly due to repurchase of sales. The company used its cash surplus to repurchase sales at a time when its stock price decreased, making it gain economic profits. This may also show the companys belief and commitment that the stock price will increase aga in, especially because of the hang glide in opportunities in China.In addition, it reported accumulated other comprehensive loss in 2008 and 2009. As stated in its 2008 annual report, this loss was attributable to a decline in the unrecognized funded office of U. S. pension plans and foreign currency translation adjustments brought by the strengthened position of the U. S. Dollar. What is alarming in this site is that the company is riding on a debt level that is 30% higher than its competitors. Majority of its liabilities are long-term debt, with some maturing in 30 years.Moreover, its current ratio appears to be very much lower than its peers, due to its massive use of cash for buybacks, and which suggests increasing risks to the company. It is hence surprising to note that despite this, the company still continues to distribute dividends with an average payout ratio of 36% year-on-year. This then hints at a possibility that Yum is inflating its dividends to continue attracting investors, at the expense of paying their debt position. Source YUM Brands Annual Report 2008 & 2009