ASSIGNMENT COVER SHEET
PROGRAMME : BSC (HONS) Marketing
SUBJECT CODE AND TITLE : FIN1034 Introduction to Business Finance
ASSIGNMENT TITLE : Finance 1034 Assignment
LECTURER : Dr. Chan Ling Foon ASSIGNMENT DUE DATE: 25/06/2023
STUDENT’S DECLARATION
1. I hereby declare that this assignment is based on my own work except where acknowledgement of sources is made.
2. I also declare that this work has not been previously submitted or concurrently submitted for any other courses in Sunway
University/College or other institutions.
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NO. NAME STUDENT ID NO. SIGNATURE DATE
1. Jeremy Lew Ze En 21039557 jeremy 22/06/23
2. Adriel Foo Yue Meng 21022181 adriel 22/06/23
3. Toh Kean Fong 21046461 keanfong 22/06/23
4. Lee Xin Wei 21077177 xinwei 22/06/23
5. Lea Chin Sii Lyin 21050851 lea 22/06/23
E-mail Address / Addresses (according to the order of names above):
21039557@[Link] 21077177@[Link]
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Q2 (2,028 words)
1. Liquidity Ratio
Figure 1 Figure 2
Figure 3
Liquidity ratios represent a significant category of financial metrics utilised to assess a debtor's capacity
to settle current debt obligations without resorting to external capital (Ertugrul & Coskun, 2021).
1.1 Trend analysis of current & quick Ratio
Figure 4
According to Figure 4, UNUM shows an overall stable current ratio trend, whereas other companies
exhibit a volatile pattern with fluctuations.
DSG and Tractorsupply lean towards a downward slope trend. However, DSG experienced a remarkable
surge starting from 2019, with its current ratio soaring from 1.41 times to 3.33 times in 2022. This
impressive increase can be attributed to a substantial rise in current assets, which grew from
approximately $2,122 million to around $9,000 million during the same period. Meanwhile, current
liabilities only rose from $1,504 million to $2,712 million between 2019 and 2022.
This improvement indicates DSG's strengthened capacity to fulfil its short-term obligations. However,
this may also imply underutilization of current assets (Ismail et al., 2022).
Figure 5
Figure 5 illustrates the acid test ratio and corroborates the observed trend in figure 4. However,
Tractorsupply was an exception, particularly in 2014, where the ratio dropped from 2 times in 2013 to
0.26 times. Subsequently, the quick ratio remained stagnant until a slight increase was observed in 2020,
rising from 0.85 times to 0.88 times in 2022.
This suggests that there is a possibility that Tractorsupply lacks sufficient cash to meet its short-term
obligations.
1.2 Industry analysis of current & quick Ratio
Figure 6
Figure 6 shows the current ratio benchmark for the period of 2018 to 2022 from 1 to 1.48 times. Yum!
Brands and UNUM remained below industry standards, particularly for UNUM which may struggle the
most in meeting short-term obligations, whereas Tractorsupply only started falling behind benchmark in
2021 (0.94 times).
Notably, DSG stands above the industry average throughout the period. We can presume that DSG has
the strongest capacity to meet short-term obligations though it may have downsides of potential current
assets underutilization.
Figure 7
Figure 7 displays the quick ratios relative to the industry benchmark. It is evident that UNUM and
Tractorsupply consistently fall below the industry benchmark for quick ratios. Conversely, Boston
Scientific and Yum!Brands surpassed the benchmark until 2021 (1.1 times) and 2020 (1.45 times),
respectively.
Notably, DSG demonstrates a significant improvement, surpassing the industry standard in 2020 with a
quick ratio of 1.63 times and further increasing to 2.49 times in 2022. This reinforces DSG's position as
the most robust company in meeting short-term obligations without relying on inventories.
2. Asset Management Ratio
Figure 8 Figure 9
Figure 10 Figure 11
Figure 12 Figure 13
Figure 14 Figure 15
Figure 16 Figure 17
Asset management ratios encompass a set of metrics that provide insights into how a company has
utilised and managed its assets to generate revenue. These ratios enable stakeholders to assess the
efficiency and effectiveness of the company's asset management practices (Gavrikova et al., 2020).
2.1 Trend analysis of total asset turnover and average collection period ratio
Figure 18
Figure 18 shows all companies with stable trend except for UNUM, which experienced a gradual
downward trend followed by a significant increase from 2019 (192.09 days) to 2022 (379.54 days) due
to a surge in account receivables, from $6,384 million in 2018, to $11,700 million in 2022, while credit
sales only fell from $12,129 million to $11,252 million.
This raises concerns about UNUM’s debt payment ability given the extended collection period of over a
year.
Figure 19
Analysing figure 19, we observed that Boston Scientific, Tractorsupply and UNUM remained a
relatively steady trend. In contrast, Yum!Brands and DSG exhibited fluctuating trends. Yum!Brands
experienced a huge downfall in TATR from its peak, 2013 (1.58 times) to 2014 (0.85 times). However,
both companies showed an upward trend from 2014 until 2018 before experiencing a substantial fall in
TATR, particularly DSG that plummeted down to 1.28 times in 2019 from 2.02 times in 2018. This
regression could be attributed to the impact of the COVID-19 outbreak on operations and sales.
In the case of DSG, while the current assets remained unchanged, there was a surge in fixed assets that
increased more than twofold from 2018 ($2.167 million) to 2019 ($4.491 million). Such a significant
increase may imply an inefficient utilisation of fixed assets.
2.2 Industry analysis of total asset turnover and average collection period ratio
Figure 20
Figure 20 displays the average collection period (ACP) relative to the industry benchmark.
It can be inferred that all the companies consistently remained below the industry benchmark for the
ACP. Notably, DSG stands out as it consistently maintains an ACP below one day, implying DSG’s
ability to collect payment from its debtors, with debts not accumulating for more than a day.
However, UNUM deviates from others, with its ACP significantly exceeding the industry standard.
Considering the peak ACP of 379.54 days in 2022, UNUM takes approximately a year to collect full
payment from its debtors. This may indicate a poor cash flow.
Figure 21
Figure 21 presents the total asset turnover ratio (TATR) in relation to the industry benchmark. UNUM,
Boston Scientific, and Tractorsupply consistently fall below the industry standard, indicating a lower
efficiency in utilising their assets to generate revenue. Conservely, DSG and Yum!Brands consistently
surpasses the benchmark. It is worth noting that the overall economy experienced a decline in 2020
primarily influenced by the COVID-19 pandemic, resulting in the lowest benchmark point of 0.58 times.
Despite the economic challenges, both DSG and Yum!Brands maintained their performance above the
benchmark. These companies demonstrated a consistent ability to generate revenue using their assets.
3. Debt Management Ratio
Figure 22 Figure 23
Figure 24 Figure 25
Figure 26 Figure 27
According to ESCAP (2006), debt management ratios are used to determine how well a company’s
assets are financed by debt rather than equity. Managers and investors use the specific ratio to determine
whether a firm is leveraging its assets with sufficient debt versus equity, as well as generating enough
earnings to cover its debt obligations.
3.1 Trend analysis of debt ratio
Figure 28
Based on Figure 28, Yum!Brand's debt ratio over the past 10 years shows a large variation while other
companies established a consistent sideway trend.
Yum!Brand’s debt ratio skyrocketed in 2015 (0.54 times) to 1.94 times in 2016, and had another rise in
2018, which records as highest point debt ratio (2.56 times) and had fluctuating trends which remains at
a debt ratio above 2 times.
The factor contributing to this noteworthy increase from 2015 to 2022 is the inverse relationship
between total assets and debt, with an increase in total debt, which grew from $3976 million to $11851
million, whereas total assets decreased from $7399 million to $5096 million, signalling potential higher
financial risk.
Figure 29
While other companies have a stable trend as observed in figure 29, Yum!Brands had a fluctuating
trend. In 2013, the debt-to-equity ratio of Yum!Brands consistently grew from 1.32 times to a peak of
4.08 times. However, the number has dropped dramatically to –1.61 times in 2016 and remained a
negative debt-to-equity ratio since then. When the debt-to-equity ratio is negative, the company is
considered extremely risky as it has more liabilities than assets. A negative ratio is typically a sign of
bankruptcy.
3.2 Industry analysis of debt ratio & debt-to-equity
Figure 30
The debt ratio benchmark remains consistent around 0.55 times in the past few years as shown in Figure
30. All companies remained at a debt ratio lower than 1 and industry benchmark, which can be seen as a
positive sign, indicating that the company has a lower level of financial risk and may be better equipped
to handle its debt obligations.
However, Yum!Brands was an exception with an average exceeding ratio of 2.33 times in the period.
This could indicate that the company has a higher level of financial risk and may face challenges in
managing its debt obligations.
Figure 31
Figure 31 shows that the debt-to-equity benchmark is increasing gradually from 0.04 times to 0.17
times. DSG and Tractorsupply experienced noticeably increased from 2018 to 2022 whereas Boston
Scientific is declining. Despite that, these companies are still above the benchmark, which indicates that
the company is relying more heavily on debt for financing a significant amount of potential growth,
indicating a higher financial risk and potential challenges in managing debt. Conversely, Yum!Brands
has a lower debt-to-equity ratio below the industry benchmark (-1.36 times). This company has a high
debt ratio as observed in figure 30 and a negative debt-to-equity ratio, which raises concerns about the
company's ability to cover its debt obligations and may indicate a higher level of financial risk as well.
4. Profitability Ratio
Figure 32 Figure 33
Figure 34 Figure 35
Figure 36 Figure 37
Figure 38
Profitability ratios are utilised by analysts and investors to assess a business’s capability to generate
profit relative to its sales, balance sheet assets, operating costs, and shareholders’ equity within a
specific time frame (Rutkowska-Ziarko, 2020). Successful businesses strive for higher ratios, as they
generally indicate profitable operations and positive cash flow.
4.1 Trend analysis for Net Profit Margin and Operating Profit Margin
Figure 39
Based on figure 17, the five companies show distinct net profit trends over 10 years. Yum!Brands and
Boston Scientific have experienced significant fluctuations, while UNUM, Dick’s Sporting Goods
(DSG), and Tractorsupply have displayed more consistent patterns with minimal variations. UNUM
declined in 2014 (3.93%) but regained consistency, reaching a peak of 10.96% in 2022, DSG
demonstrated slow and steady growth, starting at 4.98% in 2013 and peaking at 12.36% in 2022. Yum!
Brands saw a surge from 2013 to 2017, with net income increasing from $1,091 million to $1,774
million while sales decreased simultaneously. These findings indicate Yum!Brand’s efficient conversion
of sales into profit.
Figure 40
The operating profit margin measures the profitability of a business by comparing operating income to
net sales. In figure 40, Yum!Brands showed a significant increase in operating profit margin from 2013
to 2017, aligning with its net profit margin trend. During this period, Yum!Brands consistently grew
from 13.72% to a peak of 46.73%. Boston Scientific initially declined but experienced a notable spike
from 2016 to 2018, peaking at 16.93%. DSG, UNUM, and Tractorsupply had relatively stable trends
with minor fluctuations. DSG saw a significant increment in 2021, reaching 21.41% in operating profit
margin due to a rise in EBIT. This suggests effective cost management for DSG.
4.2 Industry analysis for Net Profit Margin and Operating Profit Margin
Figure 41
Looking at figure 41, the industry’s net profit margin benchmark remained below 11% from 2018 to
2022. Yum!Brands consistently exceeded this benchmark with an impressive 25.95%, more than double
the industry standard. This indicates effective pricing and cost control measures. Boston Scientific
surpassed the benchmark in 2018 but declined afterward. UNUM, DSG, and Tractorsupply had
fluctuations but couldn’t consistently meet the benchmark, although DSG recovered from 5.53% to
12.36% in 2022. Lower percentages may suggest higher sales volume compared to Yum!Brands.
Figure 42
In figure 42, the industry’s OPM ranged from 15% to 17% from 2018 to 2022, with a dip to 10.79% in
2020 due to the pandemic. Boston Scientific only met the standard in 2018 and declined afterward.
UNUM and DSG showed upward trend and came close to meeting the standards in 2022. Tractorsupply
consistently fell below the standards but remained stable. Whereas Yum!Brands consistently exceeded
the industry standard, peaking at 41.05% in 2018.
However, a high operating profit margin alone doesn’t indicate overall financial strength. Despite Yum!
Brand’s high margins, their interest expenses increased significantly from $141 million in 2018 to $527
million in 2022, which can impact earnings and stock prices.
5. Market Value Ratios
Figure 44
Figure 43
Market value ratios are financial measurements that assess stock prices, evaluate them in relation to
competitors' stock prices as well as other data points. These ratios monitor public corporations' financial
results to help us better understand their place in the market.
5.1 Trend analysis of market-to-book ratio & PE Ratio
Figure 45
Figure 45 shows UNUM, Dicks Sporting Goods, and Boston Scientific demonstrate relatively stable
market-to-book ratio (MTBR) patterns over the period. In contrast, Tractorsupply and Yum!Brands
display more volatile fluctuations.
Yum!Brands experienced a significant decline in 2016, with its MTBR plunging to a negative value of -
1.93 times from 11.67 times in 2015 and have remained negative since then. This sharp decrease can be
attributed to a substantial decline in the book value per share (BVPS) from a positive value of $2.17 to a
negative value of -$31.7. According to Alimov (2022), this may suggest that the company's debt
outweighed its total assets, as discussed in the debt ratio presented in figure 28.
Figure 46
Figure 46 depicts a consistent trend in the price-to-earnings (PE) ratio for all companies, except Boston
Scientific, which exhibited a distinct pattern. Boston Scientific's PE ratio entered a bull market, surging
from 37.76 times in 2019 to 273.46 times in 2020. Subsequently, it gradually increased to 308.86 times
in 2021 but experienced a sharp decline in 2022, settling at 88.62 times and reverting back to a bear
market.
Investors have high expectations for future growths from Boston Scientific particularly in the year 2019
and 2020. Hence, the company was priced in overly optimistic expectations, which eventually led to an
unsustainable situation. As the company fails to meet these high growth expectations, the stock price
declines from 308.86 times in 2021 to 88.62 times to align with its actual earnings capacity.
5.2 Industry analysis of Market-to-book Ratio & PE Ratio
Figure 47
According to Figure 47, the MBTR benchmark was 2.01 times in 2018 and declined to 0.89 times in
2022. The lowest point was recorded as 0.59 times in 2020, reflecting the adverse impact of the COVID-
19 pandemic on the stock market's performance (Jabeen et al., 2022).
Yum!Brands and UNUM both fall below the MTBR benchmark and are considered undervalued.
Particularly for Yum!Brands, it consistently displays a negative figure throughout the entire period,
indicating that it may not be a favourable investment choice for investors.
Despite the downturn in market performance due to the COVID-19 outbreak, DSG, Boston Scientific
and Tractorsupply remain above the MTBR benchmark, although DSG falls short in 2018 but managed
to surpass the standard in subsequent years.
Figure 48
In contrast to other companies, Boston Scientific is significantly above the industry benchmark,
especially in 2020 (273.46 times) and 2021 (308.86 times) as illustrated above in figure 48, while other
companies PE ratio remained below the benchmark. The combination of Boston’s Scientific’s high
market price per share and significantly low EPS can indicate that the stock may be overvalued relative
to its earnings potential, likewise, other companies that are the opposite of Boston Scientific and below
the benchmark may be undervalued.
6. Overall Performance
6.1 Ranking in companies performances
1. Dick’s Sporting Goods (DSG) [4.3 rating]
2. Boston Scientific [3.2 rating]
3. Yum!Brands [3 rating]
4. Tractorsupply [2.9 rating]
5. UNUM [2.6 rating]
Table 1
7. Recommended Strategies (954 words)
7.1 Dick’s Sporting Goods recommended strategies
While maintaining a substantial asset portfolio can be advantageous for meeting short-term obligations,
it also presents a potential drawback. DSG currently exhibits a liquidity ratio of 3.33 times, indicating an
excess of idle assets that may be underutilised. It is recommended that DSG divest its unused
machinery or equipment that generates minimal or no sales. By doing so, the company can free up
space and resources while optimising asset utilisation (Gallo, 2015). By leveraging its current assets,
such as cash, marketable securities, and inventories (which amounted to approximately $2,600 million
and $2,300 million respectively in 2022), the company can generate greater profits.
Capitalising on its exceptional liquidity and low debt ratio, DSG could leverage additional debt to
pursue larger-scale ventures, thereby increasing profitability and revenue. For example, the company
could secure loans to undertake ambitious projects such as expanding into untapped geographic markets
or investing in research and development to develop advanced technologies or solutions that cater to
specific consumer needs and desires. This strategic approach would enable DSG to expand its global
presence and establish a more dominant position within the market. With careful and effective
execution, DSG is poised to surpass Yum!Brands in terms of performance and market influence.
7.2 Boston Scientific recommended strategies
Boston Scientific has shown a downward trend in various key indicators, signalling a bearish market
performance, the most prominent aspect that can be improved on is their net profit margin. The margin
consistently declined from the year 2018 until 2022, recording its lowest at -1.16% in 2020.
To ensure positive margins in the future, Boston Scientific could look to reduce its operating costs.
These may include advertising costs, administrative expenses, asset depreciations and R&D. The
company can reduce these indirect costs by outsourcing or using fractional services for positions that
don't require full time staff or switch to a more remote working environment to save office space and
utility costs. As demands rise, Boston Scientific could also look to slowly increase the prices of their
products to maintain a positive margin.
Boston Scientific could also look to improve their total asset turnover ratio. Hovering right below the
industry benchmark at the 0.4 mark shows that they have not been effectively utilising its assets to
generate revenues. Boston Scientific should look to immediately liquidate unused assets that have no
contribution to sales. Leasing assets instead of buying new ones is also another great alternative. Any
leased machineries are not counted as a fixed asset which contributes to a more robust looking balance
sheet.
7.3 Yum!Brands recommended strategies
Yum!Brands has demonstrated exceptional performance in asset management and profit margins.
However, Yum!Brands face challenges such as high debts, a negative debt-to-equity ratio, and a
negative MTBR.
In 2016, significant fluctuations were observed in Yum!Brands' financial indicators, including a sharp
decline in MTBR, debt-to-equity and significant rise in debt ratios. These fluctuations were primarily
driven by Yum!Brands' decision to spin off its China operating segment and the sale of $460 million
worth of equity to Yum China Holdings private equity (Jones, 2023).
To ensure the successful expansion of the spin-off company and not running into financial risk, Yum!
Brands must prioritise strategic planning and tailor marketing offerings to effectively cater to the
China market. Clear communication of the spin-off's scope to employees, encompassing specific
business units, assets, and operations involved, is crucial to avoid marketing myopia. By doing so, Yum!
Brands can establish a robust spin-off entity capable of alleviating debts and driving profitability beyond
current levels.
Additionally, it is recommended that Yum!Brands develop a distinct brand identity for the spin-off
company in China and establish effective communication channels with investors, customers, and other
stakeholders. Crafting a compelling narrative that highlights the spin-off's strategic focus, growth
prospects, and value proposition will enable Yum!Brands to address any perceived negative MTBR
liabilities, while emphasising the considerable value of intangible assets such as franchises and licences.
This approach will instil investor and market confidence in the spin-off venture.
7.4 Tractorsupply recommended strategies
Tractorsupply currently demonstrates a lack of growth in both its net profit margin and operating profit
margin, indicating a stagnant state. To break free from this cycle and stimulate growth, it is
recommended that Tractorsupply consider utilising debt funding to expand its operations. This may
involve initiatives such as opening new locations, acquiring advanced tools or technology, or increasing
production capacity. It is worth noting that Tractorsupply has maintained a conservative debt level of
only 1% over the past decade, thus underutilizing the potential benefits of leveraging debt. By
leveraging debt at an appropriate level, Tractorsupply may experience increased sales and potentially
improved profit margins.
Furthermore, Tractorsupply exhibits notable inefficiency in managing its assets, as evidenced by a
considerably low total asset turnover ranging from 0.15 to 0.28 times over the course of ten years. In
light of the potential increase in debts resulting from borrowing funds and loans, a prudent decision
would be to divest any underutilised or unused assets. These assets currently occupy valuable space
within the company without generating significant value. Such a strategic move would alleviate the
burden of potential debts and enhance Tractorsupply’s financial position.
7.5 UNUM recommended strategies
UNUM reflects the worst overall performance. Although its liquidity ratio has shown improvement over
time, reaching a peak of 0.26 times in 2022, it is still significantly behind the industry benchmarks,
suggesting potential challenges in meeting short-term obligations. To enhance cash flow and liquidity, it
is recommended that UNUM incentivizes customers to make early payments by offering discounts or
favourable terms for prompt settlement. According to Newman (2007), such incentives can effectively
motivate customers to settle their accounts sooner, thereby reducing the extended collection period that
stood at over a year (379.54 days in 2022).
Furthermore, UNUM exhibits the lowest total asset turnover, approximately 0.18 times, indicating the
least efficient utilisation of assets within the industry. This raises concerns about the company's capacity
to generate optimal earnings and profits from its asset base. To address this issue, UNUM should foster
a culture of training and development, providing employees with the necessary skills and knowledge to
fully leverage the company's assets. By cultivating a well-trained workforce, UNUM can maximise the
efficiency and effectiveness of asset usage, ultimately contributing to overall operational efficiency
(Newman, 2007).
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