A Financial Analysis of ConAgra Foods, Inc.'s Stability

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A Financial Analysis of ConAgra Foods, Inc.'s
Stability

• Jon Crockett and Jarrett Berry
• AAEC 2020

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Presentation Overview

• Overall Goals of Project
• Coverage and Evaluation of Financial Ratios
• Conclusion

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Overall Goals

• To give a broad financial analysis of ConAgra
  Foods, Inc.s financial health using relative
  measures of ratios.
  
• To help others to better understand the
  importance of using ratios for analysis.

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Coverage and Evaluation of Ratios

• A look at the different categories of Financial
  Ratios that apply to ConAgra and an
  interpretation of this information.
  
• The different types of financial ratios include
• Liquidity
• Activity
• Debt
• Profitability

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Liquidity Ratio Analysis

• Liquidity ratios measure a firms ability to meet
  its current financial obligations.
  
• Liquidity Ratios include
• Net working capital
• Current Ratio
• Quick Ratio

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Net Working Capital

• While not technically a ratio, Net Working
  Capital (NWC) is a key element for internal
  control.
  
• The higher this number the better.
• NWC is found by subtracting current liabilities
  from current assets.
  
• ConAgra improved its NWC from 394.5mil in 2000
  to 427mil in 2001.
  
• This is a sign of growing assets while keeping
  their liabilities stable.

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Current Ratio

• The Current Ratio is a direct evaluation of a
  companys liquidity.
  
• The higher this value, the more liquid a firms
  resources are.
  
• Current Ratio is found by dividing current assets
  by current liabilities.
  
• ConAgras Current Ratio for 2001 of 1.06 is
  roughly the same as in 2000, but it is slightly
  less than that of the Industry Average.
  
• This could be improved by lowering their reliance
  on debt financing.
  

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Quick Ratio

• The Quick Ratio is comparable to the Current
  Ratio except that it takes inventory levels into
  consideration.
  
• This is found by subtracting inventories from
  current assets and then dividing by current
  assets.
  
• Although ConAgras quick ratio has remained
  constant over the past two years, it still lags
  behind the industry average.
  
• This is a sign that their inventories are lower
  than they possibly should be.

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Activity Ratio Analysis

• Activity Ratios are used to measure the speed
  with which accounts are converted into cash.
  
• Activity Ratios include
• Inventory Turnover
• Average Collection Period
• Total Asset Turnover

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Inventory Turnover

• Inventory Turnover is measurement of a firms
  inventory liquidity.
  
• This is found by cost of goods sold(COGS) by
  inventory.
  
• Generally a lower number is better, so ConAgras
  4.60 in 2001 is a great improvement from its 5.47
  in 2000. This is also nearly two days better than
  the industry average.

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Average Collection Period

• Average Collection Period(ACP) is an indicator of
  the firms efficiency in collecting its accounts
  receivable.
  
• It is found by dividing accounts receivable by
  average sales per day.
  
• ACP must be compared to typical credit terms. It
  is also assumed that all sales are on credit.
  
• Although ConAgras ACP declined from 18 days in
  2000 to 21.3 days in 2001, the firm is still a
  great deal better off in this category than the
  industry average, which is a positive sign.

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Total Asset Turnover

• Total Asset Turnover illustrates the firms
  ability and proficiency in using its assets to
  generated sales.
  
• It is found by dividing sales by total assets,
  and is measured in times per year
  
• When using cross-sectional analysis, a company
  must take special care in comparing Total Asset
  Turnover because new assets tend to have lower
  turnover. ConAgras 1.41, though, compares nicely
  to the industry average of 1.65

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Debt Ratio Analysis

• A companys debt position is a measure of how
  much of the firms profits are generated using
  money borrowed from other companies or
  individuals.
• Debt Ratios include
• Financial Leverage Multiplier
• Debt Ratio
• Interest Coverage Ratio

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Financial Leverage Multiplier

• The Financial Leverage Multilplier (FLM) is used
  to convert the companys Return On Assets to its
  Return on Equity. This reflects the impact of
  leverage, or use of debt, on owners return.
• It is the ratio of total assets to stockholders
  equity.
  
• ConAgras FLM stayed steady from 2000 to 2001,
  but its 4.14 fails to meet the Industry Average
  of 2.83.
  
• This shows that the company relies too heavily on
  debt to finance its assets.

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Debt Ratio

• The Debt Ratio measures the companys degree of
  indebtedness by showing the proportion of
  borrowed funds used to finance assets.
  
• It is found by dividing total debt by total
  assets.
  
• While the ConAgras ratios from 2000 and 2001 are
  the same, the firm shows weakness when compared
  to the Industry Average.
  
• To lower this ratio and risk to investors,
  ConAgra should attempt to lower its reliance on
  long term debt and raise retained earnings levels
  to finance operations.

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Interest Coverage Ratio

• Often referred to as Times Interest Earned Ratio,
  the Interest Coverage Ratio(ICR) measures a
  firms ability to make its interest payments.
  
• ICR is found by dividing the companys Earnings
  Before Interest and Taxes(EBIT) by its interest
  expense.
  
• ConAgras ICR improved from 2000 to 2001, but
  still falls short of the Industry Average by
  nearly 50.

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Profitability Ratio Analysis

• Profitability Ratios evaluate a companys
  earnings with respect to sales, assets, owners
  investments and share values.
  
• Profitability Ratios include
• Gross Profit Margin
• Operating Profit Margin
• Net Profit Margin
• Return on Total Assets
• Return on Equity

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Gross Profit Margin

• The Gross Profit Margin(GPR) is the percentage of
  each sales dollar that remains after the firm has
  paid for the goods sold.
  
• It is found by subtracting COGS from sales and
  dividing by sales.
  
• ConAgra improved, once again, from 2000 to 2001
  but its 14.3 is grossly behind the Industry
  Average of 37.9
  
• This shows that their selling prices are not as
  high as they should be to compensate for their
  cost of goods.

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Operating Profit Margin

• Operating Profit Margin(OPM) measures the
  percentage of sales revenue remaining after all
  expenses.
  
• OPM is found by dividing operating profits by
  sales revenue.
  
• While ConAgra did improve during the year, it
  once again fell short of the Industry Average.
  

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Net Profit Margin

• Net Profit Margin(NPR), one of the most popular
  indicators of company health, measures the
  percentage of sales revenue remaining after ALL
  expenses are paid.
• NPR is found by dividing net profits by sales
• ConAgras NPR is growing but is still behind the
  Industry Average of 6.5.

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Return on Total Assets

• Return of Total Assets(ROA), also known as return
  on investment, measures a firms effectiveness at
  generating profits with its assets.
  
• ROA is found by dividing the net profits after
  taxes by total assets.
  
• ROA for ConAgra is lower than the Industry
  Average and can by affected by many other ratios.

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Return on Equity

• The Return on Equity(ROE) is extremely important
  to potential investors.
  
• ROE is found by dividing net profit by owners
  equity.
  
• ConAgra is toward the bottom of the totem pole
  when compared to the Industry Average this could
  lead to investors shying away from the firms
  stocks and bonds and toward higher returns.

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Conclusion

• At a glance, it would seem that no one would dare
  invest in ConAgra, but given a closer, more
  knowledgeable, look, the firms financial
  information shows that it is a company with low
  risk to investors and on an upward slope after
  showing losses and a drop in stock prices in
  2000. It looks like a long road ahead of ConAgra
  but also a road that leads to success for the
  company and its investors.