Financial Statement Analysis-YUM! Brands, Inc.

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

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 & Vertical Analysis of YUM Brands, Inc.

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 note your assumption in your work.

PROJECT #2-HORIZONTAL AND VERTICAL ANALYSIS-SOLUTION
					Horizontal	Horizontal
YUM! Brand, Inc.-Consolidated Statements of Income	Vertical		Vertical	Analysis	Analysis
	30-12-2006	Analysis	31-12-2005	Analysis	$ Change	% Change
	in millions	%-2006	in millions	%-2005	2005-2006	2005-2006
Revenues
Company Sales	$8,365		$8,225
Franchise and license fees	1,196		1,124
Total Revenues	9,561		9,349
Costs and Expenses
Company restaurants
Food and paper	2,549		2,584
Payroll and employee benefits	2,142		2,171
Occupancy and other operating expenses	2,403		2,315
Total Costs	7,094		7,070
General and administrative expenses	1,187		1,158
Franchise and license expenses	35		33
Closures and impairment expenses	59		62
Refranchising (gain) loss	-24		-43
Other (income) expense	-51		-80
Wrench litigation (income) expense	0		-2
AmeriServe and other charges (credits)	-1		-2
Total Costs and Expenses	8,299		8,196
Operating Profit	1,262		1,153
Net interest expense (income)	154		127
Income (Loss) Before Income Taxes	1,108		1,026
Income taxes	284		264
Net Income (loss)	$824		$762


					Horizontal	Horizontal
YUM! Brand, Inc.-Consolidated Balance Sheets		Vertical		Vertical	Analysis	Analysis
	30-12-2006	Analysis	31-12-2005	Analysis	$ Change	% Change
	in millions	%-2006	in millions	%-2005	2005-2006	2005-2006
ASSETS
Current Assets
Cash and equivalents	$319		$158
Short-term investments	6		43
Accounts and notes receivable	220		236
Inventories	93		85
Prepaid expenses and other current assets	132		75
Deferred income taxes	57		181
Advertising cooperative assets	74		77
Total Current Assets	901		855
Property, pland and equipment, net	3,631		3,356
Goodwill	662		538
Intangible assets, net	347		330
Investments	138		173
Other assets	369		320
Deferred income taxes	305		225
Total Non-current Assets	5,452		4,942
Total assets	$6,353		$5,797

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable and other current liabilities	$1,386		$1,256
Income taxes payable	37		79
Short-term borrowings	227		211
Advertising cooperative liabilities	74		77
Total current liabilities	1,724		1,623
Long-Term Liabilities
Long-term debt	2,045		1,649
Other liabilities and deferred credits	1,147		1,076
Total long-term liabilities	3,192		2,725
Shareholders’ Equity
Preferred stock, no par value, no shares issued
Common stock, 265 shares and 278 shares issued in 2006 and 2005, respectively
Retained earnings	1,593		1,619
Accumulated other comprehensive loss	-156		-170
Total shareholders’ equity	1,437		1,449
Total liabilities and shareholders’ equity	$6,353		$5,797

Ratio		Formula		Calculation			Result
		(words)		(numbers)
A. Liquidity Ratios		Hint: All Formulas are located on Page 710 & 711, with the exception of Gross Profit %

1. Current Ratio	=	Current assets	=		=
		Current liabilities

2. Acid Test Ratio	=	Cash+Short-term Investmetns + Net Current receviables	=		=
		Current Liabilities

3. Inventory turnover	=	Cost of goods sold	=		=
		Average inventory

4. Accounts Receivable turnover	=	Net Sales	=		=
*Use Total Sales and Net A/R and Notes Receivable		Average net accounts receivable

5. Average Collection Period (Days’ sales in receivables)	=	Average net accounts receivable	=		=
		One day’s sales

B. Solvency Ratios

1. Debt ratio	=	Total liabilities	=		=
		Ttoal assets

2. Times-interest-earned ratio	=	Income from operations	=		=
Note – Use Operating Profit		Interest expense

C. Profitability Ratios

1. Gross Profit Percentage	=	Gross profit	=		=
Note: Gross Profit is Revenue – Costs. Do Not Include Expenses		Total Revenue
Formula on Page 328
2. Rate of return on net sales (Profit Margin rate)	=	Net income	=		=
		Net sales

3. Rate of return on total assets	=	Net income + Interest expense	=		=
		Average total assets

4. Rate of return on common stockholders’ equity	=	Net income – Preferred dividends	=		=
		Average common stockholder’s equity

5. Earnings per share	=	Net income – Preferred dividends	=		=	$
Hint – Page 758 – Use Weighted Average without Dilutive Shares		Average number of shares of common stock outstanding

6. Price/earnings ratio	=	Market price per share of common stock	=	29.40	=
		Earnings per shares

7. Dividend Yield	=	Dividend per share of common stock	=		=
Hint: Dividend Per Share – Located on Page 751 in Textbook		Market price per share of common stock		29.40

8. Book value per share	=	Total Stockholder’s equity – Preferred equity	=		=	$
		Number of shares of common 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

Project 2 Rubric – Students
Criteria	Excellent	Good	Poor	Very Poor
H & V Analysis:
	Completeness	All requirements are completed in accordance with the directions, labeled and organized well in worksheet.	All requirements are completed and mostly follow the directions, labeled and fairly organized in worksheet.	Most requirements are completed that mostly follow the directions, missing some labels and only somewhat organized.	Requirements are not completed and/or the directions were generally not followed, missing labels and unorganized.
	Accuracy	All ratios are calculated with accurate results and appropriate terms of expression.	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.	Less than 60% of ratios are calculated with accurate results and some appropriate terms of expression.
Ratios:
	Completeness	All requirements are completed in accordance with the directions, labeled and organized well in worksheet.	All requirements are completed and mostly follow the directions, labeled and fairly organized in worksheet.	Most requirements are completed that mostly follow the directions, missing some labels and only somewhat organized.	Requirements are not completed and/or the directions were generally not followed, missing labels and unorganized.
	Accuracy	All ratios are calculated with accurate results and appropriate terms of expression.	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.	Less than 60% of ratios are calculated with accurate results and some appropriate terms of expression.

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