CAMBELL SOUP COMPANY

SHORT TERM LIQUIDITY

The current and quick ratios have trended downward over the six year period, indicating a
deterioration of short-term liquidity. In addition, the cash flow liquidity ratio shows
decreasing trend, but in year 11, it suddenly increases. The reason behind this is that in Year 9
and 10; company increased its inventories and decreased its deferred taxes to make divestures
and restructurings which resulted in cash downturn in these years. However in Year 11, it
completed major divestitures and accomplished significant restructuring and reorganization
projects which provided positive cash flow to company. The average collection period for
account receivable is firstly increasing and then slightly decreasing. This ratio shows the
ability of the firm to collect from customers. Decreasing in ratio in Year 11 is a good sign
which shows the increasing liquidity of accounts receivable. However, it should not be too
short because this shows existence of restrictive credit policies of the firm. Day’s inventory
held is decreasing from year to year except for Year 9 when company increased its inventory.
This is also a good sign but when we look at the industry, this period is half of the industry
period which is important because too low a number could indicate understocking and lost
orders, decrease in prices, a shortage of materials or more sales than planned. Day’s payable
outstanding has varied each year. As long as the company is not late paying bills, this should
not be significant problem. The net trade cycle worsened the years between 8 and 10 due to an
increasing in collection period and longer number of day’s inventory was held. However; in
Year 11, this cycle has decreased due to success in restructuring of the firm. When compared
with industry average, company is in a better position.

When we look at common-size balance sheet of the company, we see that inventories were
increased in Year 9 and 10 because of divestitures and restructurings. Financing of these were
provided with cash and cash equivalents so the portion of it in year 10 is severely decreased.
Thus, liquidity of the company decreased in these years but in Year 11, company began to
recover its cash. In addition, there was huge decrease from Year 7 to 8 in other temporary
investments which is again related to change in management decision.

If we look at the cash flow from operations, in company, operating cash flows are steady and
growing source of cash, with a substantial increase in Year 11 net operating cash flows ($ 805
million). The slight cash downturn in Year 9 is due to an increase in inventories and a
decrease in deferred taxes. We also see that the declines in net income for Years 9 and 10 are
not reflected in operating cash flows because restructuring and divesture charges having no
immediate cash flow effects.

In Year 11, Campbell Company is in a better position than former years. Numbers shows the
success of management projects. There is no problem relating to the short-term liquidity of
the firm. In fact, almost all ratios of Year 11 is better than industry. However, in coming
years, declines in net income in Years 9 and 10 will reflect on operating cash flows which
may cause liquidity problems in future.

OPERATING EFFICIENCY

The turnover ratios measure the operating efficiency of the firm. If we look at company,
account receivable turnover has decreased which shows company converted account
receivable into cash in more time than early years. The portion of inventory financing was
provided on credit resulting in increasing account receivable and thus decrease account
receivable turnover. On the other hand, inventory turnover ratio has increased, that is
inventory was sold slightly faster. When compared with industry, both ratios are higher than
the industry. This is a good sign because this indicates better position of the firm in asset
productivity.

CAPITAL STRUCTURE AND LONG-TERM SOLVENCY

The analytical process includes an evaluation of the amount and proportion of debt in a firm’s
capital structure as well as the ability to service debt. If we look at the company, we see that
until Year 11, debt ratio, long term debt to total equity and debt to equity ratios had increased.
In Year 11, these slightly decreased. Increasing in ratios means increases risk because debt
involves the satisfaction of fixed financial obligations. The reason behind increasing in ratios
is company’s operations. When we look at common size cash flow statement, we see that in
Year 9 and 10, there was increase in divestitures and restructuring provisions and investments
on other assets of the company. These investments have been financed largely by short term
and long term borrowings. Therefore, debt ratios of the firm increased in these years.
However, in Year 11, repayments of short term and long term borrowings surpassed the
borrowing amount thus these ratios began to decrease. In addition, in Years 9 and 10, we see
that earnings to fixed coverage and cash flow to fixed coverage decreased. This is due to
increase in lease payments (found in other expense part) and interest expense with
restructuring of the company. However, in Year 11, company began to recover these ratios
because of the successful completion of restructuring which may be a good sign for the future
of the company. Company’s cash flow adequacy ratio is less than one, implying that funds
generated from operations are insufficient to cover these items and there is a need for external
financing or company needs to begin reducing account receivables and inventories, thereby
increasing cash from operations. However, as it is mentioned above, company completed its
restructuring policy successfully and so cash flow adequacy ratio of Year 11 suggests
sufficient cash resources with decreasing in account receivables and inventories. Therefore,
company seems to be promising in future in terms of cash flow adequacy.

PROFITABILITY