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ACCT212 Project 2: Financial Statement Analysis-YUM! Brands, Inc.

Due by Sunday, end of Week 7, 11:59 P.M. (MT) - 75 points

Description : Using the financial statements for YUM! Brands, Inc. located in Appendix A of your Textbook, you will calculate Vertical and Horizontal Analysis and the Financial Ratios listed below for the year ended in 2006. Due Date: The project is due by the end of Week 7. Grade Weight: (75 points) The financial statement analysis project will count for 7.5% of your overall course grade. The Worksheets contained in this Workbook will aid in completing the requirements for submission.

Requirements: 1. Complete the Excel Spreadsheet in this Workbook labeled Horizontal & Vertical. Calculate the Horizontal & Ver 2. Complete the Excel Spreadsheet in this Workbook labeled Ratios. Calculate the 2006 Ratios and show your computations and the formulas for YUM! Brands, Inc. Financial Statements in Appendix A. Financial Ratio Calculations* A. Liquidity Ratio 1. Current ratio 2. Acid-test ratio 3. Inventory turnover 4. Accounts Receivable turnover 5. Average Collection Period (Days sales in receivables) B. Solvency Ratios 1. Debt ratio 2. Times-interest-earned ratio C. Profitability Ratios 1. Gross Profit Percentage 2. Rate of return on net sales (Profit Margin rate) 3. Rate of return on total assets 4. Rate of return on common stockholders equity 5. Earnings per share of common stock 6. Price/earnings ratio 7. Dividend Yield 8. Book value per share of common stock *Note: If you are unable to locate an item needed for a ratio, make an assumption and make sure you

the Horizontal & Vertical Analysis of YUM Brands, Inc.

Due: End of Sunday, Week #7 PROJECT #2-HORIZONTAL AND VERTICAL ANALYSIS-SOLUTION YUM! Brand, Inc.-Consolidated Statements of Income Vertical 12/30/2006 Analysis in millions %-2006 $8,365 1,196 9,561 87.49% 12.51% 100.00% Vertical 12/31/2005 Analysis in millions %-2005 $8,225 1,124 9,349 87.98% 12.02% 100.00% Horizontal Analysis $ Change 2005-2006 $140 $72 $212 Horizontal Analysis % Change 2005-2006 1.70% 6.41% 2.27%

Revenues Company Sales Franchise and license fees Total Revenues Costs and Expenses Company restaurants Food and paper Payroll and employee benefits Occupancy and other operating expenses Total Costs General and administrative expenses Franchise and license expenses Closures and impairment expenses Refranchising (gain) loss Other (income) expense Wrench litigation (income) expense AmeriServe and other charges (credits) Total Costs and Expenses Operating Profit Net interest expense (income) Income (Loss) Before Income Taxes Income taxes Net Income (loss)

2,549 2,142 2,403 7,094 1,187 35 59 (24) (51) 0 (1) 8,299 1,262 154 1,108 284 $824

26.66% 22.40% 25.13% 74.20% 12.42% 0.37% 0.62% -0.25% -0.53% 0.00% -0.01% 86.80% 13.20% 1.61% 11.59% 2.97% 8.62%

2,584 2,171 2,315 7,070 1,158 33 62 (43) (80) (2) (2) 8,196 1,153 127 1,026 264 $762

27.64% 23.22% 24.76% 75.62% 12.39% 0.35% 0.66% -0.46% -0.86% -0.02% -0.02% 87.67% 12.33% 1.36% 10.97% 2.82% 8.15%

($35) -1.35% ($29) -1.34% $88 3.80% $24 0.34% $29 2.50% $2 6.06% ($3) -4.84% $19 -44.19% $29 -36.25% $2 -100.00% $1 -50.00% $103 1.26% $109 9.45% $27 21.26% $82 7.99% $20 7.58% $62 8.14%

YUM! Brand, Inc.-Consolidated Balance Sheets

Vertical 12/30/2006 Analysis in millions %-2006

Vertical 12/31/2005 Analysis in millions %-2005

Horizontal Analysis $ Change 2005-2006

Horizontal Analysis % Change 2005-2006

ASSETS Current Assets Cash and equivalents Short-term investments Accounts and notes receivable Inventories Prepaid expenses and other current assets Deferred income taxes Advertising cooperative assets Total Current Assets Property, pland and equipment, net Goodwill Intangible assets, net Investments Other assets Deferred income taxes Total Non-current Assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and other current liabilities Income taxes payable Short-term borrowings Advertising cooperative liabilities Total current liabilities Long-Term Liabilities Long-term debt Other liabilities and deferred credits Total long-term liabilities Shareholders' Equity

$319 6 220 93 132 57 74 901 3,631 662 347 138 369 305 5,452 $6,353

5.02% 0.09% 3.46% 1.46% 2.08% 0.90% 1.16% 14.18% 57.15% 10.42% 5.46% 2.17% 5.81% 4.80% 85.82% 100.00%

$158 43 236 85 75 181 77 855 3,356 538 330 173 320 225 4,942 $5,797

2.73% 0.74% 4.07% 1.47% 1.29% 3.12% 1.33% 14.75% 57.89% 9.28% 5.69% 2.98% 5.52% 3.88% 85.25% 100.00%

$161 ($37) ($16) $8 $57 ($124) ($3) $46 $275 $124 $17 ($35) $49 $80 $510 $556

101.90% -86.05% -6.78% 9.41% 76.00% -68.51% -3.90% 5.38% 8.19% 23.05% 5.15% -20.23% 15.31% 35.56% 10.32% 9.59%

$1,386 37 227 74 1,724 2,045 1,147 3,192

21.82% 0.58% 3.57% 1.16% 27.14% 32.19% 18.05% 50.24%

$1,256 79 211 77 1,623 1,649 1,076 2,725

21.67% 1.36% 3.64% 1.33% 28.00% 28.45% 18.56% 47.01%

$130 ($42) $16 ($3) $101 $396 $71 $467

10.35% -53.16% 7.58% -3.90% 6.22% 24.01% 6.60% 17.14%

Preferred stock, no par value, no shares issued Common stock, 265 shares and 278 shares issued in 2006 and 2005, respectively Retained earnings Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity

1,593 (156) 1,437 $6,353

25.07% -2.46% 22.62% 100.00%

1,619 (170) 1,449 $5,797

27.93% -2.93% 25.00% 100.00%

($26) $14 ($12) $556

-1.61% -8.24% -0.83% 9.59%

Ratio
A. Liquidity Ratios 1. Current Ratio
=

Formula
(words) Hint: All Formulas are located on Page 710 & 711, with the exception of Gross Profit % Current ratio Current liabilities =

2. Acid Test Ratio

Cash & equivalnets+A/R & NR+Sjprt term investment Current liabiliteis

3. Inventory turnover

Cost of goods sold Avergae inventory

4. Accounts Receivable turnover = *Use Total Sales and Net A/R and Notes Receivable 5. Average Collection Period (Days sales in receivables)

Net sales Average A/R and N/R

365 Account receivable turnover

B. Solvency Ratios 1. Debt ratio


= Total liabiliteis Total assets =

2. Times-interest-earned ratio Note - Use Operating Profit C. Profitability Ratios 1. Gross Profit Percentage

Operating profit Interest expense

Revenue less cost Revenue

Note: Gross Profit is Revenue Costs. Do Not Include Expenses Formula on Page 328 2. Rate of return on net sales (Profit Margin rate) =

Net income Revenues

3. Rate of return on total assets

Net income Average total assets

4. Rate of return on common stockholders equity

Net income Average common stock holders equity

5. Earnings per share Hint - Page 758 - Use Weighted Average without Dilutive Shares 6. Price/earnings ratio

Net income Number of common stock shares outstanding

Market price per share Earnings per share

7. Dividend Yield Hint: Dividend Per Share Located on Page 751 in Textbook 8. Book value per share

Dividend per share Market price per share

Total common stock holders equity Number of common stock shares outstanding

Market Price Information was retreived from the following link: http://finance.aol.com/quotes/yum-brands-inc/yum/nys/historical-prices?tf=12%2F29%2F2006-10%2F4%2F2009&gran=d Market Price on 12/29/06 was used.

Calculation
(numbers)

Result

901 1,724 545 1,724 7,094 89 9,561 228

0.52

0.32

79.71 times

41.93 times

365 41.93

8.70 days

4,916 6,353 1,262 154

0.77

8.19 times

2,467 9,561

26%

$824 9,561

9%

824 $6,075

14%

$824 1,443 $824 265

0.57

3.11

29.40 3.11 3 29.40

9.45

10%

1,437 265

5.42

10%2F4%2F2009&gran=d

Project 2 Rubric - Students


Criteria H & V Analysis: Completeness Excellent All requirements are completed in accordance with the directions, labeled and organized well in worksheet. All ratios are calculated with accurate results and appropriate terms of expression. Good Poor Most requirements are All requirements are completed that mostly completed and mostly follow the directions, follow the directions, missing some labels and labeled and fairly only somewhat organized in worksheet. organized. 80% plus of ratios are calculated with accurate results and mostly appropriate terms of expression. 60-79% of ratios are calculated with accurate results and some appropriate terms of expression.

Accuracy

Ratios: Completeness All requirements are completed in accordance with the directions, labeled and organized well in worksheet. All ratios are calculated with accurate results and appropriate terms of expression. All requirements are completed and mostly follow the directions, labeled and fairly organized in worksheet. 80% plus of ratios are calculated with accurate results and mostly appropriate terms of expression. Most requirements are completed that mostly follow the directions, missing some labels and only somewhat organized. 60-79% of ratios are calculated with accurate results and some appropriate terms of expression.

Accuracy

Very Poor Requirements are not completed and/or the directions were generally not followed, missing labels and unorganized. Less than 60% of ratios are calculated with accurate results and some appropriate terms of expression.

Requirements are not completed and/or the directions were generally not followed, missing labels and unorganized. Less than 60% of ratios are calculated with accurate results and some appropriate terms of expression.