Ratio Analysis †Yum! Brands Essay

Yum Brands consolidate net profit margin lies within the industry fairish and for 2 years have shown slow yet steady growth. While sales from US operations declined by 5%, the beau monde continued to make momentum in China, where operating profit increased at an average of 26% year-on-year. Mean spot, 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 bay window be seen in its Cash changeover Cycle, with -49. 2 in 2009. This number is much inflict from its competitors, which suggests a fluid working capital position. Yum generates sales from its inventory and cash from its sales at a faster rate than the time its pays its suppliers. This means that it utilizes the average 60-day full point before it has to fully purchases with suppliers, giving them free cash in principle. However, while this suggests less need to borrow, the company still received cash by issuing long-term 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 place 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 receivable to its focus on sharp adding new stores, with 2008 and 2009 serving as introduction years, before sales can fully pick up.One could also post, however, that sales in the US and International 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 purchase of sales. The company used its cash surplus to repurchase sales at a time when its stock price decreased, making it gain frugal profits. This may also show the companys belief and freight that the stock price will increase again, espec ially because of the surge in opportunities in China.In addition, it reported accumulated other comprehensive impairment in 2008 and 2009. As stated in its 2008 annual report, this loss was traceable to a decline in the unrecognized funded status of U. S. pension plans and unconnected currency translation adjustments brought by the strengthened position of the U. S. Dollar. What is alarming in this situation 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 i nvestors, at the expense of paying their debt position. Source YUM Brands Annual Report 2008 & 2009