financial analysis report (ppt)

Financial Analysis Using Financial

Performance Metrics

Corporate Financial Policy 2.2

Financial Performance Metrics

• Formerly, “Financial Ratios”• Relative Basis for Comparison• Thousands of Potential Metrics

– One Number Divided by Another Number– Multiple Permutations and Combinations

• Six Major Categories– Liquidity– Activity– Leverage– Profitability– Market– Growth

• Applicable to Historical Information as well as Plan and Outlook Projections


Metric Categories

• Liquidity Metrics measure the firm’s abilities to meet its maturing short-term obligations.

• Activity Metrics measure how effectively the firm is using its resources.

• Leverage Metrics measure the extent to which the firm has been financed by debt.

• Profitability Metrics measure management’s overall effectiveness in generating “profits.”

• Market Metrics measure the firms’ relationship to the broader Stock Market.

• Growth measures the firm’s ability to maintain its economic position in the growth of the economy and industry.


1998 Summary Statistics($ Millions, except per share)

1998 HersheyHershey Heinz

Sales 4,435.6$ 9,209.3$ Cost of Goods Sold 2,625.1 5,711.2 Operating Income 642.7 1,520.3 Interest Expense 85.7 226.0 Pre-Tax Income 557.0 1,255.0 Net Income 340.9 801.6

Cash & Equivalents 39.0 99.4 Accounts Receivable 451.3 1,071.8 Inventory 493.2 1,328.8 Current Assets 1,134.0 2,686.5 Net, Plant, Prop, & Equip 1,648.1 2,394.7 Total Assets 3,404.1 8,023.4

Current Liabilities 814.8 2,164.3 Short-Term Debt 345.9 301.0 Current Portion LTD 0.1 38.6 Long-Term Debt 879.1 2,768.3 Stockholders' Equity 1,042.3 2,216.5

Stock Price Per ShareBeginning 61.94 50.81 Ending 62.19 56.63

Earnings Per Share 2.38 2.19 Shares Outstanding 143.1 366.0


1998 Normalized Earnings

Net Restructuring Discontinued Cum Effect of NormalizedIncome Charges Operations Acctg Change Income

Hershey Foods 340.9$ -$ -$ -$ 340.9$

Campbell Soup 660.0 193.0 18.0 11.0 882.0 Conagra 613.2 - - 14.8 628.0 Dean Foods 106.3 - (18.3) - 88.0 General Mills 421.8 100.2 - - 522.0

Heinz 801.6 53.7 - - 855.3 Interstate Bakeries 127.9 - - - 127.9 Kellogg's 502.0 46.3 - - 548.3

Nabisco (71.0) 362.0 36.0 - 327.0 Quaker 280.0 50.2 - - 330.2 Tootsie Roll 67.5 - - - 67.5 Wrigley 304.5 (6.8) - - 297.7


Commonly Used Financial Ratios: Liquidity

Calculation Strength

Current Ratio

Current Assets Current Liabilities

Higher

Quick Ratio

Current Assets – Inventory Current Liabilities

Higher

Cash Ratio

Cash and Equivalents Current Liabilities

Higher


Commonly Used Financial Ratios: Activity


Total Asset Turnover

SalesTotal Assets

Higher

Fixed Asset Turnover

SalesNet, Plant, Property &

EquipmentHigher

Capital Turnover

Sales(Interest Bearing Debt +

Stockholders’ Equity)Higher


Commonly Used Financial Ratios: Activity (Part 2)


Accts Rec Turnover

_______Sales_______Accounts Receivable

Higher

Accts Rec Days Outstanding

___365 Days___A/R Turnover Lower

Inventory Turnover

Cost of Goods SoldInventory

Higher

Inventory Days Outstanding

_____365 Days_____Inventory Turnover

Lower


Commonly Used Financial Ratios: Leverage


Debt to Equity

Total LiabilitiesStockholders’ Equity

Lower

Financial Leverage

Total AssetsStockholders’ Equity

Lower

“Cap” Ratio*

STD+CPLTD +LTD Interest Bearing Debt+ Stockholders’ Eq

Lower

Interest Coverage

PTI + Interest Exp Interest Expense

Higher

* Capitalization Ratio


Commonly Used Financial Ratios: Profitability


Net Margin

Net IncomeSales

Higher

Pre-Tax Margin

Pre-Tax IncomeSales

Higher

Operating Margin

Earnings BeforeInterest and Taxes

SalesHigher

Gross Margin

(Sales – COGS)Sales

Higher


Commonly Used Financial Ratios: Profitability (Part 2)


Return on Assets

_Net Income_Total Assets

Higher

Return on Net Assets

_Net Income_Net Assets*

Higher

Return on Capital

____Net Income_____(Interest Bearing Debt+ Stockholders’ Eq)

Higher

Return on Equity

____Net Income_____Stockholders’ Equity

Higher

* Net Assets = Total Assets - Non-Debt Current Liabilities


Commonly Used Financial Ratios: Market


Price- Earnings

Stock Price EPS

Higher

Market to Book

Market Capitalization* Stockholders’ Equity

Higher

Dividend Yield

Dividend Stock Price

Higher

Shareholder Return**

(Pt - P(t-1)) + D P(t-1)

Higher

* Market Capitalization = Stock Price X Shares Outstanding

** Where: P = Stock Price; D = Dividends; t = Time Period


Financial Performance Metric Comparison

Hershey Heinz1996 1997 1996 1997

LiquidityCurrent Ratio 1.21 1.30 1.12 1.05 Quick Ratio 0.63 0.67 0.57 0.55 Cash Ratio 0.08 0.07 0.04 0.07

ActivityTotal Asset Turnover 1.25 1.31 1.06 1.11 Fixed Asset Turnover 2.49 2.61 3.48 3.77 Capital Turnover 1.87 2.01 1.50 1.59 Acc Rec Turnover 13.54 11.92 7.54 8.36 Acc Rec Days OS 27.0 30.6 48.4 43.6 Inventory Turnover 4.85 4.92 3.87 4.12 Inventory Days OS 75.3 74.1 94.4 88.5

LeverageDebt to Equity 1.74 2.86 2.19 2.46 Financial Leverage 2.74 3.86 3.19 3.46 Capitalization Ratio 45.5% 60.1% 55.4% 58.6%Interest Coverage 11.73 8.26 5.40 5.79

ProfitabilityNet Margin 7.7% 7.8% 7.2% 7.6%Pre-Tax Margin 12.9% 12.9% 11.2% 12.0%Operating Margin 14.1% 14.6% 14.1% 15.0%Gross Margin 42.3% 42.1% 36.6% 36.9%Return on Assets 9.7% 10.2% 7.6% 8.4%Return on Net Assets 11.5% 12.2% 9.4% 10.6%Return on Capital 14.5% 15.7% 10.9% 12.1%Return on Equity 26.6% 39.5% 24.4% 29.1%


DuPont Ratio Analysis

2. Net Margin X Asset Turnover = Return on Assets

Net IncomeSales

X___Sales___Total Assets

=Net IncomeTotal Assets

3. Return on Assets X Financial Leverage = Return on Equity

Net IncomeTotal Assets

XTotal Assets

Equity=

Net IncomeEquity


Hershey and HeinzDuPont Analysis

Hershey Heinz1996 1997 1996 1997

Net Margin Net Income / Sales 7.7% 7.8% 7.2% 7.6%

X

Total Asset Turnover Sales / Total Assets 1.25 1.31 1.06 1.11

=

Return on Assets Net Income / Total Assets 9.7% 10.2% 7.6% 8.4%

X

Financial Leverage Total Assets / Equity 2.74 3.86 3.19 3.46

=

Return on Equity Net Income / Equity 26.6% 39.5% 24.4% 29.1%


Hershey and HeinzDuPont Analysis

Hershey Heinz1992 1997 1992 1997

Net Margin NI / Sales 7.5% 7.8% 7.5% 7.6%

X

Total Asset Turnover Sales / Total Assets 1.21 1.31 1.03 1.11

=

Return on Assets Net Income / Total Assets 9.1% 10.2% 7.8% 8.4%

X

Financial Leverage Total Assets / Equity 1.82 3.86 2.92 3.46

=

Return on Equity Net Income / Equity 16.6% 39.5% 22.8% 29.1%


Addendum to DuPont Ratio Analysis

1. Pre-Tax Margin X (1 – Tax Rate) = Net Margin

Pre-Tax IncomeSales

X (1 -TaxesPTI

) =

Pre-Tax IncomeSales

X(

PTIPTI

-TaxesPTI

) ==

Pre-Tax IncomeSales

X__PTI – Taxes__Pre-Tax Income

=Net Income

Sales

4. Return on Equity X (1 – Divd Payout) =SustainableGrowth Rate

Net IncomeEquity

X (1 -DividendsNet Inc

) =

Net IncomeEquity

X (NINI

-DivdNI

) =

Net IncomeEquity X

(Net Inc – Divd)Net Income

=(Net Inc – Divd)

Equity


Notes to Accompany 1980 DuPont Analysis

1. Pre-Tax Margin =Pre-Tax Income

Sales

2. After-Tax Retention Rate = (1 -Taxes PTI

)

3. Net Margin =Net Income

Sales

4. Asset Turnover =_ _Sales___ Total Assets

5. ROA (Return on Assets) =_Net Income_ Total Assets

6. Financial Leverage =Net Income Total Assets

7. ROE (Return on Equity) =Net Income

Equity

8. Income Retention Rate = (1 -Dividend Net Inc

)

9.Financial or SustainableGrowth Rate

=Net Inc - Divd

Equity

Financial or Sustainable Growth Rate is the rate of growth that a firm can experience given no equity is issued (or purchased) and balance sheet/income statement relationships (as reflected in the ratios) are unchanged.


Common Size Income Statement

Hershey TootsieFoods Roll Wrigley

Common Size Income StatementSales 100.0% 100.0% 100.0%Cost of Goods Sold 59.2% 48.3% 42.3% Gross Income 40.8% 51.7% 57.7%S, G, & A 26.3% 25.7% 37.1% Operating Income 14.5% 26.1% 20.6%Interest Expense (Income) 1.9% -1.2% -0.9% Pretax Income 12.6% 27.3% 21.5%


Total Asset Turnover Analysis

Hershey General QuakerFoods Mills Oats

Other TurnoversAccounts Receivable 9.828 15.270 17.087 Inventory 5.322 6.131 9.083 Fixed Assets 2.691 5.086 4.525 Total Assets 1.303 1.562 1.929

Common Size Balance SheetCash 1.1% 0.2% 14.1%Accounts Receivable 13.3% 10.2% 11.3%Inventories 14.5% 10.1% 10.4%Current Deferred Taxes 1.7% 3.5% 4.6%Other Current Assets 2.7% 2.8% 4.0% Current Assets 33.3% 26.8% 44.4%Net, Plant, Property, & Equip 48.4% 30.7% 42.6%Intangibles (Goodwill) 15.6% 16.3% 9.8%Other Assets 2.7% 26.1% 3.2% Total Assets 100.0% 100.0% 100.0%


Financial Leverage Analysis

Hershey CampbellFoods Soup Kellogg's

Other RatiosCapitalization Ratio 63.2% 116.5% 89.2%Debt to Equity 2.266 5.445 4.677 Short-Term Debt / Equity 0.332 1.603 0.698 Long-Term Debt / Equity 0.843 1.338 1.814

Common Size Balance SheetAccounts Payable 4.6% 9.0% 7.7%Accrued Liabilities 8.6% 13.0% 14.1%Accrued Income Taxes 0.5% 2.9% 0.0%Short-Term Debt 10.2% 24.9% 12.3%Current Portion of LTD 0.0% 0.0% 0.0% Current Liabilities 23.9% 49.8% 34.0%Long-Term Debt 25.8% 20.8% 32.0%Other Long-Term Liabilities 19.6% 14.0% 16.4%Stockholders' Equity 30.6% 15.5% 17.6% Total Liabilitites and SE 100.0% 100.0% 100.0%


1998 Net Sales($ Millions)

$388.7

$2,004.7

$2,735.8

$3,265.8

$4,435.6

$4,842.5

$6,033.0

$6,551.2

$6,696.0

$6,762.1

$8,400.0

$9,209.3

$23,840.5

$0 $5,000 $10,000 $15,000 $20,000 $25,000

Tootsie Roll

Wrigley

Dean Foods

Interstate Bakeries

Hershey Foods

Quaker Oats

General Mills

Industry Average

Campbell Soup

Kellogg's

Nabisco

Heinz

Conagra


1998 Annual Growth inNet Sales

-3.8%

-3.5%

-1.6%

-1.0%

1.2%

1.7%

1.8%

3.1%

3.5%

3.5%

7.6%

-0.7%

11.2%

-6% -3% 0% 3% 6% 9% 12%

Campbell Soup

Interstate Bakeries

Industry Average

Hershey Foods

Tootsie Roll

Wrigley

General Mills

Dean Foods

Conagra

Heinz

Kellogg’s

Quaker Oats

Nabisco


1998 Net Sales CAGR*1994 to 1998

-5.0%

0.8%

0.8%

2.2%

5.1%

5.3%

5.8%

5.9%

6.9%

7.0%

8.0%

3.2%

-6% -3% 0% 3% 6% 9% 12% 15%

Quaker Oats

Kellogg's

Conagra

Nabisco

General Mills

Campbell Soup

Hershey Foods

Industry Average

Wrigley

Heinz

Tootsie Roll

Dean Foods

Excludes Interstate Bakeries’ 30.0

1994-1998 CAGR

* CAGR: Compound Annual Growth Rate


Net Sales Comparison1994 to 1998

102.3

110.6 112.3 112.6

119.3123.0

111.9

106.7

50

75

100

125

150

1994 1995 1996 1997 1998

Industry Average

Hershey Foods

financial analysis report (ppt)

Documents

financial analysis

dupont analysis financial

financial leverage analysis

financial performance

market metrics

leverage metrics

heinz dupont analysis

activity metrics measure