Financial Analysis of Yum Brands

A Financial Analysis of Yum Brands, Inc Restaurants be, and will continue to be, an extremely profitable business. As a result, manageholders who pull in interest in brands such as McDonalds and Starbucks need not to worry about detrimental implications for the victuals giants compared to more risky industries. One company in particular, Yum Brands (YUM), is some other brand investors should become known with. Consumers may recognize the more specific stores the company owns such as Taco Bell and pizza Hut, only investors should realize the sales and shekels increase associated with this organization.In addition, while thither are many companies in the restaurant industry, Yum not all rings familiar with consumers like Starbucks, but Yum engenders excellent financial intelligence at a level in a higher place its competitors. However, before trying to access these financial statements, it is important to visit more specifics about Yums business model. According to Reut ers, Yum is a quick service restaurant (QSR) with over 34,000 units in more than 100 countries and territories. These quick service restaurants include consumer favorites such as Taco Bell, Pizza Hut, wide John Silvers, and KFC.Whether the operating segment dish outs pizza or chicken, Yum develops, operates, franchises and licenses a worldwide system of restaurants, which prepare, package and sell a menu of food items. As each of these fast-food places is obvious to most readers in America, it is also sort of interesting that over 100 countries are familiar with these names as swell up. In position, segments like KFC were truly introduced in many markets like China before more obvious competitors like McDonalds. Since fast food is generally considered an inelastic, or non-cyclical, good, even during times of economic uncertainty, Yum will prosper.While most of its food is relatively tawdry compared to rivals such as Brinker and Darden, consumers will still flock to Yum rest aurants in similar volume during any present of the economic cycle. Therefore, revenue addition should continue to remain steady, but positive, year after year do Yum a great portfolio choice at any time. To justify this claim, during the former(prenominal) twelve months, Yum received a revenue mannikin, according to Reuters, of $9. 56 billion. This material body was a 5. 05% increase compared to the previous year number.While this increase in delimitation was a bit below the average year-to-year increase of 6. 58%, the difference in exploitation decline was only a 23% difference. Other companies like Brinker saw a 43% subnormality during this same time period. In addition, while nigh investors may critique the industry 11. 31% growth in sales during the past to Yums lower numbers, it is also important to realize that Yum supports the seconds highest sales figure in its industry, and appreciation of revenue growth will be frequently difficult than smaller- majusculeizati on 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 partd at the broadest of levels to illustrate that the steady increase and influx of money into Yum over its career has back up in the appreciation of its share impairment. 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 far in 2007 condescension 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 splendid companies. It is vital to understand how efficient a company is in reducing costs and using capital and labor to actually produce the final good. These intangible-sounding comparisons can actually become tangible condition 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 than the pervious quint year average of 24. 82%. While the spring is a bit 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 close 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 thes e numbers all indicate growth for Yum, the biggest instrument (that will be reassert 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 three 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 in that location is exposed evidence that Yum is great growth story, some 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 underestimate actual results (5/5 and 4/5 correct or below last five quarters for EPS and sale s respectively), 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 watertight 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 aforementioned market-cap competitors. This figure illustrates that Yum is not onl y increase 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 sheet 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 current 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 sell investors, having the real experts i n 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 yield should also help investors relay this company into more hands at a higher share price.Looking at the business model and fundamental 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 close ideal situation. Therefore, with the above information provided to benefit 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