Financial Analysis Using Financial Performance Metrics

Financial Performance Metrics
‡ Formerly, ³Financial 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

Corporate Financial Policy

2.2

Corporate Financial Policy 2.´ ‡ Market Metrics measure the firms¶ relationship to the broader Stock Market.3 . ‡ Growth measures the firm¶s ability to maintain its economic position in the growth of the economy and industry.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 ³profits.

4 2.625.02 . 226.1 1.1 50.648.1 642.216.520.0 2.8 2. except per share) 1998 ershey Sales Cost o oo s Sol peratin ncome nterest Expense Pre ax ncome et ncome Cash & E ui alents ccounts ecei a le n entory Current ssets et.1 879.9 0.4 .81 56. & E uip otal ssets Current ia ilities Short erm e t Current Portion on erm e t Stoc hol ers' E uity Stoc Price Per Share e innin En in Earnin s Per Share Shares utstan in Corporate Financial Policy einz 9.4 5.6 99.2 1. Plant.5 $ 4.8 45.768.8 1. 49 .042.071.4 1.1 . 8 14 .0 8.7 85.255. 28.711.0 451. 2. 61.0 40.7 557.6 2. 5.0 1.164.5 2.1 4.404.2 1. 94.686.19 66.7 8. 01.6 2. Prop.94 62.6 $ 2.0 801.209.0 1.1 814.9 9.1998 Summary Statistics ($ Millions.19 2.

2 1 . . 8 . 12 .2 . . . 1 .9 .2 . Corporate Financial Policy 2.8 882. 1. 1 . 28. .9 8. 18.8 8 1. 2. .8 . 2 . 21. . 22. 28 . estr ct ring Discontin ed Cum ect o Normali ed Charges Operations Acctg Change ncome . 11. 1 .9 2. 12 .1998 Normali ed arnings Net ncome Hershey Foods Camp ell oup Conagra Dean Foods General ills Hein nterstate a eries Kellogg s Na isco Qua er ootsie oll Wrigley .2 .9 19 . 88. 18. 29 .

.Commonly Used Financial Ratios: Liquidity Calculation Current Ratio Quick Ratio Cash Ratio Current Assets Current Liabilities Strength Higher Current Assets ± Inventory Current Liabilities Higher Cash and quivalents Current Liabilities Higher Corporate Financial Policy 2.

. Plant. Property quipment Strength Higher Higher Sales Capital (Interest Bearing Debt + Turnover Stockholders¶ quity) Higher Corporate Financial Policy 2.Commonly Used Financial Ratios: Activity Calculation Total Asset Turnover Fixed Asset Turnover Sales Total Assets Sales Net.

Commonly Used Financial Ratios: Activity (Part 2) Calculation Accts Rec Turnover Accts Rec ays utstanding Inventory Turnover _______ ales_______ Accounts Receivable ___3 ays___ A/R Turnover trength igher o er Cost o oods old Inventory igher Inventory _____3 ays_____ ays Inventory Turnover utstanding Corporate Financial Policy o er 2.8 .

9 .Commonly Used Financial Ratios: Leverage Calculation Debt to quity Financial Leverage ³Cap´ Ratio* Interest Coverage * Capitali ation Ratio Strength Lower Total Liabilities Stockholders¶ quity Total Assets Stockholders¶ quity STD+ CPLTD + LTD Interest Bearing Debt + Stockholders¶ q PTI + Interest xp Interest xpense Lower Lower Higher Corporate Financial Policy 2.

1 .Commonly Used Financial Ratios: Profitability Calculation Net Margin Pre-Tax Margin Operating Margin Gross Margin Net Income Sales Pre-Tax Income Sales arnings Before Interest and Taxes Sales (Sales ± COGS) Sales Strength Higher Higher Higher Higher Corporate Financial Policy 2.

Non-Debt Current Liabilities Corporate Financial Policy 2.Commonly Used Financial Ratios: Profitability (Part 2) Calculation Return on Assets Return on Net Assets Return on Capital Return on quity _Net Income_ Total Assets _Net Income_ Net Assets* Strength Higher Higher ____Net Income_____ (Interest Bearing Debt + Stockholders¶ q) ____Net Income_____ Stockholders¶ quity Higher Higher * Net Assets = Total Assets .11 .

Commonly Used Financial Ratios: Market Calculation Pricearnings Market to Book Dividend Yield Shareholder Return** ** Strength Higher Stock Price PS Market Capitali ation* Stockholders¶ quity Higher Dividend Stock Price Higher (Pt . t = Time Period Corporate Financial Policy 2. D = Dividends.12 .P(t-1)) + D P(t-1) Higher * Market Capitali ation = Stock Price X Shares Outstanding here: P = Stock Price.

49 1.92 3 .3 . % 1 .Financial Performance Metric Comparison ershey 199 199 iquidity Current atio uick atio Cash atio ctivity otal sset urnover Fixed sset urnover Capital urnover cc ec urnover cc ec ays S nventory urnover nventory ays S everage ebt to quity Financial everage Capitali ation atio nterest Coverage Profitability et Margin Pre ax Margin perating Margin ross Margin eturn on ssets eturn on et ssets eturn on Capital eturn on quity 1.9% 8. % 12.9% 24. % 42.8 94.13 Corporate Financial Policy . 8 1.2% 14. ein 199 1. % 12.12 .4% 1 .8 . 4 48.19 .2% 1 . 9 .3 1.2 2. % 9.1 1.1% 29. .21 . 2. 4. 1. 4 .4 2.8 3. 11.4 3. % 14. 1.19 3.1% 8.4 1. 1 11. . . % . 3 .3 43.48 1.1% 42. % 3 .12 88. % 2 . % 39.1% 1 .9% 14.4 3. % . 3.8 . 1 2.11 3.31 2. % .4% .1% 3 .4 8. 4 2 . % 11. . .9% 14.1% 2. 9 8.2 2.3% 9.8% 12. 4 4 % 3 2.2% 11. 4 199 1.8 13. 4.4% 1 . % . 1.4% . 4.2% 12. % 12.92 4.

Return on Assets X Financial Leverage = Net Income Total Assets X Total Assets quity = Return on quity Net Income quity Corporate Financial Policy 2. Net Margin Net Income Sales X Asset Turnover ___Sales___ Total Assets = Return on Assets Net Income Total Assets X = 3.DuPont Ratio Analysis 2.14 .

. 1 . 2 . otal Asset urno er ales otal Assets 1. .2 1.2 .11 eturn on Assets et nco e otal Assets . .Hershey and Hein DuPont Analysis Hershey 1 1 et ar in et nco e ales Hein 1 . Financial e era e otal Assets uity 2. eturn on uity et nco e uity 2 .1 . . 2 .2 1 . . 1 1.1 . . 1.1 Corporate Financial Policy 2.

22. 2 . Financial e era e otal Assets uity 1.1 . 1 1. .2 .21 1. Hein 1 2 1 .1 1 . 2 . . 2.Hershey and Hein DuPont Analysis Hershey 1 2 1 et ar in ales . 1. otal Asset urno er ales otal Assets 1. . . eturn on uity et nco e uity 1. 2 .1 Corporate Financial Policy 2.11 eturn on Assets et nco e otal Assets .

1 . Return on quity et Income quity et Income quity et Income quity (1 ± Divd Payout) (1 ( I I Dividends ) et Inc Divd I ) ( et Inc ± Divd) et Income Corporate Financial Policy ( et Inc ± Divd) quity 2. Pre-Tax argin (1 ± Tax Rate) Taxes PTI et argin Pre-Tax Income ales Pre-Tax Income ales Pre-Tax Income ales (1 - ) ( PTI Taxes ) PTI PTI __PTI ± Taxes__ Pre-Tax Income et Income ales ustainable ro th Rate 4.Addendum to DuPont Ratio Analysis 1.

18 .Corporate Financial Policy 2.

Net Margin 4.Notes to Accompany 198 DuPont Analysis 1.Divd quity 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. Asset Turnover . After-Tax Retention Rate 3. RO (Return on quity) 8. Income Retention Rate 9. Financial Leverage . ROA (Return on Assets) .19 . Financial or Sustainable Growth Rate = = = = = = = = = Pre-Tax Income Sales (1 Taxes ) PTI Net Income Sales _ _Sales___ Total Assets _Net Income_ Total Assets Net Income Total Assets Net Income quity (1 Dividend ) Net Inc Net Inc . Corporate Financial Policy 2. Pre-Tax Margin 2.

Corporate Financial Policy 2.2 .

. Intere t pen e Income 1. . 2 .2 2.Common Si e Income Statement er ey Foo Common Si e Income Statement 1 . Sale Co t o oo Sol . oot ie oll 1 .2 ro Income . . 21. Preta Income 12.1 2. S 2.21 . peratin Income 1. 2. 1.1 1. Corporate Financial Policy 2. . 2. ri ley 1 .

. . . .Total Asset Turnover Analysis ers ey Foo s t er Turnovers Accounts eceiva le nventory Fi e Assets Total Assets Co on i e alance eet Cas Accounts eceiva le nventories Current e erre Ta es t er Current Assets Current Assets et Plant Property uip ntan i les oo ill t er Assets Total Assets . . . 2. . 2 . 2 . 2 . .2 .2 . . . .22 Corporate Financial Policy . 2 ua er ats . . . . . 2 . . . . . 2. . 2. . 2 . . 22 2. eneral ills . .2 .2 . . . 2. 2.

2 ity ity Co on i e alance eet Acco nts Paya le Accr e Lia ilities Accr e nco e a es ort er et C rrent Portion o L C rrent Lia ilities Long er et t er Long er Lia ilities toc ol ers ity otal Lia ilitites an . 32.2 . . 3.2 . 2. ellogg s . . 2. 2.23 Corporate Financial Policy . 2. 2. . .Financial Leverage Analysis ers ey Ca p ell op Foo s t er atios Capitali ation atio e t to ity ort er et Long er et 3.332 . . .33 . . . . . . . . 3. .2 2. . 2. 3 . . . 3. 23. . 3 . . . .3 .

0 $4.8 $2.209.5 $9.265.1 $6.8 $2.000 $25.000 $20.7 $5.3 $8.1998 Net Sales ($ Millions) Conagra Heinz Nabisco Kellogg's Campbell Soup Industry Average General Mills Quaker Oats Hershey Foods Interstate Bakeries Dean Foods Wrigley Tootsie Roll $0 $23.000 $15.696.000 2.551.004.840.435.7 $388.735.0 $6.842.033.6 $3.2 $6.24 Corporate Financial Policy .400.762.5 $4.0 $6.000 $10.

6% -3.8% 1.5% 3.7% -1.5% -3.1% 7.1998 Annual Growth in Net Sales Dean Foods General Mills Wrigley Tootsie Roll Hershey Foods Industry Average Interstate Bakeries Campbell Soup -0.6% 11.2% 3.8% 1.0% -1.2% Conagra Kellogg¶s Heinz Quaker Oats Nabisco -6% -3% 0% 3% 6% 9% 12% Corporate Financial Policy 2.7% 1.2 .5% 3.

0% 6.2 .8% 5.1998 Net Sales CAGR* 1994 to 1998 Dean Foods Tootsie Roll Heinz Wrigley Industry Average Hershey Foods Campbell Soup General Mills Nabisco Conagra Kellogg's -5. 1994-1998 CAGR 8.9% 5.2% 2.8% 0.8% 3.0% 7.0% 0.1% Quaker Oats -3% 0% 3% * CAGR: Compound Annual Growth Rate 6% 9% 12% 15% -6% Corporate Financial Policy 2.3% 5.9% 5.2% xcludes Interstate Bakeries¶ 3 .

9 106.6 123.7 110.0 119.Net Sales Comparison 1994 to 1998 150 Hershey Foods 125 111.3 Industry Average 75 50 1994 1995 1996 1997 1998 Corporate Financial Policy 2.2 .3 112.6 112.3 100 102.