Financial Analysis of Yum Brands

A Financial Analysis of Yum Brands, Inc Restaurants are, and give keep on to be, an highly realizeable business. As a result, dowerholders who puzzle interest in gulls a good deal(prenominal) as McDonalds and Starbucks need not to worry about negative implications for the diet giants compared to much risky industries. One telephoner in particular, Yum Brands (YUM), is another brand investors should become familiar with. Consumers may recognize the more specific stores the company owns such as Taco Bell and Pizza Hut, only if investors should crystallise the vernacular sales and earnings maturation associated with this organization.In addition, composition there are well-nigh(prenominal) another(prenominal) companies in the restaurant industry, Yum not only rings familiar with consumers uniform Starbucks, but Yum engenders excellent financial news at a train above its competitors. However, before trying to access these financial statements, it is important to substantiate more specifics about Yums business model. According to Reuters, Yum is a quick improvement restaurant (QSR) with over 34,000 units in more than 100 countries and territories. These quick serving restaurants include consumer favorites such as Taco Bell, Pizza Hut, Long bearful Silvers, and KFC.Whether the operating segment sells pizza or chicken, Yum develops, operates, franchises and licenses a worldwide organization of restaurants, which prepare, package and sell a menu of food items. As distributively of these fast-food places is obvious to most readers in America, it is as well as quite a interesting that over 100 countries are familiar with these names as well. In fact, segments same KFC were materially introduced in many markets worry China before more obvious competitors uniform McDonalds. Since fast food is generally considered an ine tolerateic, or non-cyclical, total, plane during times of economic uncertainty, Yum lead prosper.darn most of it s food is relatively flash compared to rivals such as Brinker and Darden, consumers willing still flock to Yum restaurants in alike(p) volume during any stage of the economic cycle. Therefore, revenue growth should continue to remain steady, but positive, category after year making Yum a great portfolio choice at any time. To justify this claim, during the past twelve months, Yum received a revenue figure, according to Reuters, of $9. 56 billion. This reduce was a 5. 05% increase compared to the previous year number.While this increase in margin was a snap to a lower place the just year-to-year increase of 6. 58%, the difference in growth decline was only a 23% difference. Other companies like Brinker saw a 43% deceleration during this same time period. In addition, while rough investors may critique the industry 11. 31% growth in sales during the past to Yums lower numbers, it is also important to introduce that Yum supports the seconds highest sales figure in its indus try, and handle of revenue growth will be much difficult than smaller-capitalization companies to come-by.This is in addition to the fact that many lower-revenue companies in this industry are actually seeing negative sales growth (not deceleration) during the same time frame as the aforementioned analysis. With these thoughts on sales at hand, these numbers can be used at the broadest of levels to illustrate that the steady increase and influx of money into Yum over its charge has aided in the appreciation of its share price. Since 2003, not once has Yum seen a calendar year decrease in price. This comes with a 25% appreciation in 2006 and a 12% escalation so further in 2007 disrespect the recent economic turmoil.These sales and share price indications illustrate that Yum will fair very well during all types of economic activity. Nevertheless, revenue cannot be the only financial analysis required to find superior companies. It is rattling to understand how efficient a company is in reducing be and using capital and labor to actually produce the final good. These intangible-sounding comparisons can actually become tangible given the use of margins. Starting from gross margins, investors should be happy to find out that over the past twelve months, growth at 25. 9% has been higher(prenominal) than the pervious five dollar bill year average of 24. 82%. While the former is a sec below the industrys average of 29. 04%, it is important to stress that Yums revenue is the second highest in a fairly large industry, making outstanding margins difficult to come by. Nevertheless, compared to closelipped revenue competitors, Yums gross margins are better than Starbuckss (23. 62%), Dardens (23. 50%), and Brinkers (16. 42%). In addition, Yums operating margins of 13. 14% are not only higher than its five year average of 12. 84%, but is doing better than the industrys twelve month margin of only 11. 76%.Moreover, these operating figures for Yum are also better than the same-time period numbers of Starbucks (11. 18%), Darden (9. 53%), and Brinker (7. 87%). While these numbers all indicate growth for Yum, the biggest instrument (that will be justified later with valuation tactics) is earnings differences. Fortunately for Yum, a 16. 27% increase in earnings per share over the past year is 29. 74% higher that the companys five year average increase. Compared to competitors, all iii of Brinker, Darden, and Starbucks saw a deceleration of earnings growth last year, and none of these yearly increases matched the top-revenue producer, Yum.While there is clear evidence that Yum is great growth story, nearly investors may wonder whether Yum is overvalued given its success. Fortunately for these investors, this is not the case. In fact, some potential shareholders may make the claim that Yum is undervalued. Currently the industry has a P/E multiple of 31. 88 and a price to sales ratio of 2. 10. However, if analyst expectations are correct or and undere stimate actual results (5/5 and 4/5 correct or below last five quarters for EPS and sales singlely), Yum sees a forward price to sales ratio 1. 9 and price to earnings ratio of 20. 18. Now while these numbers are not extraordinarily undervalued, as companies like Darden have slightly lower figures, compared to the industry as a whole and competitors like Starbucks (2. 25 price to sales and 31. 48 price to earnings), Yums valuation is far from being labeled as a negative characteristic. Therefore, given good growth reports and not too much speculation relative to share price, there is strong news from both further financial achievement and valuation.However, before reaching a final conclusion, there are some other indicators to look at. One of these criteria is management efficiency. According to Reuters, Yum had seen a 60. 80% ROE figure for the past twelve months. While a bit smaller than the five year average, the number easily obliterates the industrial average and all three af orementioned market-cap competitors. This figure illustrates that Yum is not only change magnitude its net profit year after year, but helping investors by purchasing back some of its stock. Although capital spending is a bit below industrial averages at -0. 0% over the past five years for Yum, the company still has a healthy balance yellow journalism of cash, especially compared to its price (undervalued). In addition, efficiency also comes from the companys turnover ratios. receivable turnover at 41. 62%, inventory turnover at 80. 93%, and asset turnover at 1. 61% are all quite above the industrial averages and many competitor averages as well. Solvency with a menstruum ratio of 0. 59 is quite low, but inline relative to the rest of the industry, but fast food restaurants need not to worry too much about liquidating assets.In addition, 83. 13% of equity for Yum is owned by institutional investors. This number is above the industrial figure at 74. 07% and also above Dardens and Starbucks respective numbers. While there are many intelligent retail investors, having the true(a) experts in institutional investors carry the bulk of the company shows optimism for future performance. And in additional to this control, another enticement in a 1. 81% dividend outlet should also help investors relay this company into more hands at a higher share price.Looking at the business model and extreme features, there is strong evidence to support that investing in this company will yield strong returns. Technically speaking, the share price of Yum just recently crossed both the 50 day SMA and EMAa bullish signal, and while there is encouragement to invest any time to profit from this company, now would be an almost ideal situation. Therefore, with the above information provided to make long term investors, it is closely assured that investing in YUM Brands will produce genteel capital gains for shareholders. Article Source http//EzineArticles. com/712239