Sysco Corp. Financial Ratio Analysis

Sysco Corp. Financial Ratio Analysis


Abstract

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 webpage).

Sysco Corp. Financial Ratio Analysis

The financial strength of Sysco Corp. was assessed in terms of profitability, financial leverage, liquidity and efficiency. These ratios were calculated based on the company financial statements for the years 1999-2003 from the company’s annual report (see appendix A and B). 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.

Table 1. Sysco Corp. Ratio Analysis

Sysco 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).

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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.

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