Financial analysis - II. Financial Analysis (for...

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II. Financial Analysis (for calculations see Appendix A) Year 2005 2004 2003 2002 Dupont Analysis ROA % 9.89% 8.17% 8.48% 9.20% Liquidity Ratios Current 0.39 0.51 0.51 0.51 Quick 0.16 0.22 0.24 0.24 Leverage Ratios Debt-to-Equity 130.8% 136.6% 122.8% 129.1% Profitability Ratios Return on Sales 5.5% 4.5% 4.9% 5.3% Return on Equity 22.8% 19.3% 20.0% 21.8% Basic Earnings per Share $8.25 $7.42 $6.85 $6.21 Activity Ratios Inventory Turnover 17.4 19.6 21.0 22.4 A. Dupont Analysis (ROA) Return on Assets is a ratio providing a way to measure how well assets are being used to generate profits. It is largely used to evaluate the performance of the firms management team. Darden’s ROA had steadily declined from 2002 to 2004, and then 2005 showed a sudden increase. Factors affecting change in ROA may be new management, or changes in investment strategy. This ratio is very dynamic between industries, so it is best to compare Darden’s ROA with its competitors and industry average to interpret it. Year 2005 Darden Restaurants Inc Applebees INTL Inc Brinker INTL Inc Industry Average S&P 500 ROA% 9.89% 11.59% 7.43% 7.3% 2.8% The above table shows Darden’s ROA in compared with two of its main competitors, Applebees International and Brinker International. Also displayed are the Industrial and S&P averages. All three firms are higher than the industrial average, which means that they manage their funds more efficiently than the other firms. Interestingly, the industrial average is much higher than the S&P 500 market
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average. This indicates that the restaurant industry as a whole is more profitable per investment dollar than most others. Applebees has a higher ROA than Darden which can mean a higher potential for growth. Darden looks superior to Brinker International as well as the industrial average at efficiently using company resources. Darden appears to be a good investment from a stockholders perspective. B. Liquidity Ratios- measure a company’s ability to turn assets into cash to pay on liabilities that must be repaid within one year. This information is important to creditors of the firm who expect to be paid on time. Current Ratio is the ratio of a firm’s current assets to its current liabilities.
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This note was uploaded on 09/26/2007 for the course AEM 2200 taught by Professor Perez,p.d. during the Spring '07 term at Cornell University (Engineering School).

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Financial analysis - II. Financial Analysis (for...

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