Financial Statement Analysis Dean Food Financial Essay

Submitted By shyboy246
Words: 812
Pages: 4

Financial Ratios are very beneficial to a business, investors, and lenders when it comes to determining a company’s financial outcome for the year. Ratios are useful because they play a role in the company’s performance, they tell you how well the company is doing, as well as comparisons of companies of different size. This paper will analyze Dean Food Financial statements, to generate the ratios analysis and compare historical data and industry benchmarks.

The following Table below shows the ratio data for Dean Food Financial
Liquidity Ratio
Formula
2012
2011
2010
Current Ratio
Current assets / Current Liabilities
1.07
0.98
1.23
Efficiency Ratios




Total Asset Turnover
Net Sales / Average Total Assets
2.00
1.90
N/A
Fixed Asset Turnover
Net Sales / Average Fixed Assets
5.75
6.18
N/A
Working Capital Turnover
Net Sales / Average Working Capital
32.09
-126.26
8.08
Leverage Ratios




Debt to equity
Total Liabilities / Shareholders Equity
14.92
-56.65
4.31
Times Interest Earned
Income before interest & tax / Interest Expense
-2.60
7.12
-1.61
Profitability




Operating Margin
Operating Income / Net Sales
0.04
-0.14
0.03
Net Margin
Net Profit / Revenue
0.01
-0.12
0.01
EBIT Return on Assets
EBIT / Total Net Assets
0.04
-0.14
0.03
Return on Assets
Net Income / Total Assets
0.03
-0.27
0.01

Liquidity ratios aid business managers in determining how well their business can satisfy short-term financial responsibilities. The Current Ratio is a form of liquidity ratio that will show how the company will be able to pay its short term debts. If the ratio is less than 1 then it will show that Dean Food Financial does not have enough short term assets to pay off its short term Liabilities. The Industry median for all three years starting with 2010 (1.40, 1.30, 1.70) was higher than Dean Foods Financial showing that Dean Food needs to improve especially in the year 2011 (0.98).
If we look at the Efficiency Ratios, we can determine the weight of the firm sales. The lower the asset turnover ratio, as compared to historical data for the firm and industry the more sluggish the firm sales are. This could indicate a problem in one or more of the asset categories. The fixed asset turnover ratio compares sales revenue to its fixed assets. This will depict how efficiently the company uses fixed assets to generate revenue. As we can see the fixed asset rate for Dean Food Financial is fairly low compared with the Industry median thus concluding that the company is not as efficient in managing its fixed assets. The fixed assets are crucial because they usually represent the largest component of total assets.
Working capital refers to the “current position” of a business. The main reason businesses create a balance sheet is to find out the business working capital (capital that sustains the business). Working capital reveals more about the financial state of a business (Kennon, 2013). When a business pays attention to the working capital, that business can locate any difficulties that may surface. It tells the business what would be retained if a business increased all of its short- term resources, and used those resources to pay back its short- term liabilities. The more working capital a business has, the less financial stress it experiences.
The debt-equity ratio is another leverage ratio that company's…