Sysco Corp. Financial Ratio Analysis Essay
The present assessment evaluates the financial situation of Sysco Corporation. Ratio analysis was conducted on the financial statements for the years 1999-2003. This analysis was evaluated on a trend basis and compared to some key current industry indicators. Likewise, other non-financial considerations, the annual report’s message to shareholders and the company’s future perspective are assessed. Introduction Sysco Corp. ‘s (known as SYY in the NY stock market) core business is to market and distribute food and related products to the food-service industry.
It is classified in the “groceries and related products nec” industry (SIC 5149), although it has several other secondary SIC classifications due to the wide array of products the company handles. The company’s customer base is composed of restaurants, healthcare and educational facilities, lodging establishments, and other food-service customers. The company is operationally divided into two segments: Broadline and Sygma. These two segments distribute a full line of food products and a wide variety of non-food products to traditional and chain restaurant customers.
By the end of June, 2003, the corporation operated 162 facilities throughout the United States and Canada. In fiscal 2003, the group acquired Reed Distributors Inc, J&B Foodservice, Abbott Foods Inc. and Asian Foods Inc. (Thompson Research
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Table 1 below shows the financial ratios calculated for the years 2000-2003. Later in this report is described the company’s financial performance against industry standards. Sysco Corp. is considered one of the leaders in the grocery market. Currently, Sysco has about $24. 3 billion in outstanding shares. This places the company at the top of the chart following the number one market cap Tesco PLC with $31. 6 billion in outstanding shares. This value is calculated by multiplying the total outstanding shares by the market value of the stocks.
This places Sysco among the big cap companies and shows the size of the company. Profitability It is crucial to assess the profitability of the company. A key profitability indicator is the return of assets (ROA). The indicator median values in the industry have been 5, 5. 4 and 4. 8% in the years 2000, 2001 and 2002 respectively. Sysco performed well above these with values of 9. 99, 11. 74 and 11. 99%. However, these values are slightly below higher performers of 12. 7, 13. 3 and 13. 4% (D&B). Another key ratio to evaluate is the net profit margin (NPM), which measures profits earned per dollar of sales.
The company showed a NPM of 2. 67, 3. 07 and 3. 18% for the years 2000, 2001 and 2002 respectively. These values are well above the median of 1. 3, 1. 3 and1. 4%. However, these values are slightly lower than the upper industry indicators of 3. 5, 3. 4 and 3. 9% (D&B). Further profitability information about the company can be derived from the return on equity information (ROE). Sysco is ahead of the leaders in this category performing at 32. 12% in 2002, well ahead of Publix Super Markets Inc. with 21. 42% and an industry median of 14.4%.
However, there is still room for improvement as the upper industry’s standard was 42. 7 in 2002 (D&B). Financial leverage Another important item that can be determined from the financial statements is the long-term debt/equity ratio. Investors usually are more comfortable when the ratio is between $0. 35 to $0. 50 and a $1. Obviously Sysco falls in the comfortable investor-defined area of $0. 57. The rest of the leaders for this industry show D/E ratios of $1. 74 for Uni-Marts Inc. and $4. 30 for 7-Eleven Inc.
By comparing with the industry averages we see that Sysco appears to be behind the leaders. However, investors see it as a good investment opportunity and upgraded Sysco to a strong-buy. Investors can determine if investments in the company will be repaid and the interest payments paid on time. Usually the total debt/equity ratios indicate the ability to borrow, but most importantly the lender will assess industry standards to determine the financial worth of the company. Sysco had a ratio of 64% in 2002, which is below the industry’s median of 128.5%.
This value is way below the industry, which will ensure borrowers’ investment protection. Liquidity A commonly used liquidity measure is the quick ratio, which shows the number of dollars of liquid assets available to cover each dollar of current debt. Sysco is in a favorable position with values of 0. 94, 0. 85 and 0. 95 for the years 2000, 2001 and 2002 respectively. These values are just slightly above the median of 0. 9, 0. 8 and 0. 8 for the same periods and well below of the upper industry values of 1. 6, 1. 3 and 1. 5 (B&D).
On the other hand, the company has current ratios slightly below industry standards. While the company’s financials show current ratios of 1. 53, 1. 37 and 1. 52, for the years 2000, 2001 and 2002 respectively, the industry median were 1. 6, 1. 5 and 1. 6. Efficiency The efficiency ratios prove that Sysco is performing well above industry standards. The company had an average collection period of 26. 66 days while the industry had a median of 28. 5 days in 2002. But, the sales-to-inventory ratio was 21. 62 in the same year, well above the median of 14.
1 and slightly below the upper standard of 24. 0. This is a good indicator that the company has efficient operations as it maintains low inventories while able to collect receivables in a prompt manner. Finally, we look to total revenue for the sector to determine how the company has been performing for the last year. Sysco is among industry leaders with $28. 2 billion in total revenue. Most important, is Sysco’s revenue growth of 11. 90%, which is about the same of the top performers in the industry. These numbers indicate the company has steady growth potential.