a) discuss your conclusion about the health and overall situation of the firm, b) identify and develop the three ratios used, and c) explain why you believe they tell the clearest story about the firm.
Given the financial statements provided for Campbell Soup provided below, perform a review of the financial health and overall position of the firm. Identify the three financial ratios that tell you the most about this company (you need NOT calculate all ratios but may need more than three to settle on the three most important ones. From your review, reach a conclusion about the firm’s health and situation. Your minimum 150-word response should a) discuss your conclusion about the health and overall situation of the firm, b) identify and develop the three ratios used, and c) explain why you believe they tell the clearest story about the firm. For your analysis purposes, assume the current market price of the stock is $40.94 per share for 2018 and $41.97 per share 2019.
| Consolidated Statements of Earnings | |||||
| 2019 | 2018 | 2017 | |||
| Net sales | $ 8,107 | $ 6,615 | $ 5,837 | ||
| Costs and expenses | |||||
| Cost of products sold | 5,414 | 4,241 | 3,395 | ||
| Marketing and selling expenses | 842 | 728 | 675 | ||
| Administrative expenses | 610 | 563 | 448 | ||
| Research and development expenses | 91 | 91 | 93 | ||
| Other expenses / (income) | 140 | (73) | (216) | ||
| Restructuring charges | 31 | 55 | 11 | ||
| Total costs and expenses | 7,128 | 5,605 | 4,406 | ||
| Earnings before interest and taxes | 979 | 1,010 | 1,431 | ||
| Interest expense | 356 | 183 | 115 | ||
| Interest income | 2 | 3 | — | ||
| Earnings before taxes | 625 | 830 | 1,316 | ||
| Taxes on earnings | 151 | 106 | 392 | ||
| Earnings from continuing operations | 474 | 724 | 924 | ||
| Loss from discontinued operations | (263) | (463) | (37) | ||
| Net earnings | 211 | 261 | 887 | ||
| Less: Net earnings (loss) attributable to noncontrolling interests | — | — | — | ||
| Net earnings attributable to Campbell Soup Company | $ 211 | $ 261 | $ 887 | ||
| Per Share — Basic | |||||
| Earnings from continuing operations attributable to Campbell Soup Company | $ 1.57 | $ 2.41 | $ 3.03 | ||
| Loss from discontinued operations | (0.87) | (1.54) | (0.12) | ||
| Net earnings attributable to Campbell Soup Company | $ 0.70 | $ 0.87 | $ 2.91 | ||
| Weighted average shares outstanding — basic | 301 | 301 | 305 | ||
| Per Share — Assuming Dilution | |||||
| Earnings from continuing operations attributable to Campbell Soup Company | $ 1.57 | $ 2.40 | $ 3.01 | ||
| Loss from discontinued operations | (0.87) | (1.53) | (0.12) | ||
| Net earnings attributable to Campbell Soup Company(1) | $ 0.70 | $ 0.86 | $ 2.89 | ||
| Weighted average shares outstanding — assuming dilution | 302 | 302 | 307 |
| Consolidated |
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| July 28, 2019 |
July 29, 2018 |
||
| Current assets | |||
| Cash and cash equivalents | $ 31 | $ 49 | |
| 574 | 563 | ||
| Inventories | 863 | 887 | |
| Other current assets | 71 | 71 | |
| Current assets of discontinued operations | 428 | 726 | |
| Total current assets | 1,967 | 2,296 | |
| Plant assets, net of |
2,455 | 2,466 | |
| 4,017 | 3,864 | ||
| Other intangible assets, net of amortization | 3,415 | 3,664 | |
| Other assets ($76 as of 2019 and $77 as of 2018 attributable to variable interest entity) | 127 | 189 | |
| Noncurrent assets of discontinued operations | 1,167 | 2,050 | |
| Total assets | $ 13,148 | $ 14,529 | |
| Current liabilities | |||
| Short-term borrowings | $ 1,371 | $ 1,525 | |
| Payable to suppliers and others | 814 | 705 | |
| Accrued liabilities | 609 | 516 | |
| Dividends payable | 107 | 107 | |
| Accrued income taxes | 15 | 10 | |
| Current liabilities of discontinued operations | 469 | 731 | |
| Total current liabilities | 3,385 | 3,594 | |
| Long-term debt | 7,103 | 7,991 | |
| 924 | 960 | ||
| Other liabilities | 559 | 547 | |
| Noncurrent liabilities of discontinued operations | 65 | 64 | |
| Total liabilities | 12,036 | 13,156 | |
| Commitments and contingencies | |||
| Campbell Soup Company shareholders' equity | |||
| — | — | ||
| Capital stock, $.0375 par value; authorized 560 shares; issued 323 shares | 12 | 12 | |
| Additional paid-in capital | 372 | 349 | |
| Earnings retained in the business | 1,993 | 2,224 | |
| Capital stock in treasury, at cost | (1,076) | (1,103) | |
| Accumulated other comprehensive loss | (198) | (118) | |
| Total Campbell Soup Company shareholders' equity | 1,103 | 1,364 | |
| Noncontrolling interests | 9 | 9 | |
| Total equity | 1,112 | 1,373 | |
| Total liabilities and equity | $ 13,148 | $ 14,529 |
a) An ideal current ratio is 1.2 to 2. The current ratio of Campbell Soup is 0.58, which indicates that the liquidity of the company is bad and the company will face problems in short term.
An ideal debt to equity ratio is 0.5 to 1.5. The debt to equity ratio of Campbell Soup is 10.82, which indicates that the company will find it hard to pay off its debt.
A net margin of 0.03 indicates that the company is earning minimal profit.
Overall, we can conclude that the health and overall situation of Campbell Soup is not good and the management needs to take the necessary action as soon as possible for the company to get back on track.
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