*Note: If you are unable to locate an item needed for a ratio, make an assumption and make sure you note your assumption in your work.
PROJECT #2HORIZONTAL AND VERTICAL ANALYSISSOLUTION 









Horizontal 
Horizontal 
YUM! Brand, Inc.Consolidated Statements of Income 
Vertical 

Vertical 
Analysis 
Analysis 

30122006 
Analysis 
31122005 
Analysis 
$ Change 
% Change 

in millions 
%2006 
in millions 
%2005 
20052006 
20052006 
Revenues 






Company Sales 
$8,365 

$8,225 



Franchise and license fees 
1,196 

1,124 



Total Revenues 
9,561 

9,349 



Costs and Expenses 






Company restaurants 






Food and paper 
2,549 

2,584 



Payroll and employee benefits 
2,142 

2,171 



Occupancy and other operating expenses 
2,403 

2,315 



Total Costs 
7,094 

7,070 



General and administrative expenses 
1,187 

1,158 



Franchise and license expenses 
35 

33 



Closures and impairment expenses 
59 

62 



Refranchising (gain) loss 
24 

43 



Other (income) expense 
51 

80 



Wrench litigation (income) expense 
0 

2 



AmeriServe and other charges (credits) 
1 

2 



Total Costs and Expenses 
8,299 

8,196 



Operating Profit 
1,262 

1,153 



Net interest expense (income) 
154 

127 



Income (Loss) Before Income Taxes 
1,108 

1,026 



Income taxes 
284 

264 



Net Income (loss) 
$824 

$762 






















Horizontal 
Horizontal 
YUM! Brand, Inc.Consolidated Balance Sheets 

Vertical 

Vertical 
Analysis 
Analysis 

30122006 
Analysis 
31122005 
Analysis 
$ Change 
% Change 

in millions 
%2006 
in millions 
%2005 
20052006 
20052006 
ASSETS 






Current Assets 






Cash and equivalents 
$319 

$158 



Shortterm investments 
6 

43 



Accounts and notes receivable 
220 

236 



Inventories 
93 

85 



Prepaid expenses and other current assets 
132 

75 



Deferred income taxes 
57 

181 



Advertising cooperative assets 
74 

77 



Total Current Assets 
901 

855 



Property, pland and equipment, net 
3,631 

3,356 



Goodwill 
662 

538 



Intangible assets, net 
347 

330 



Investments 
138 

173 



Other assets 
369 

320 



Deferred income taxes 
305 

225 



Total Noncurrent Assets 
5,452 

4,942 



Total assets 
$6,353 

$5,797 










LIABILITIES AND SHAREHOLDERS’ EQUITY 






Current Liabilities 






Accounts payable and other current liabilities 
$1,386 

$1,256 



Income taxes payable 
37 

79 



Shortterm borrowings 
227 

211 



Advertising cooperative liabilities 
74 

77 



Total current liabilities 
1,724 

1,623 



LongTerm Liabilities 






Longterm debt 
2,045 

1,649 



Other liabilities and deferred credits 
1,147 

1,076 



Total longterm liabilities 
3,192 

2,725 



Shareholders’ Equity 






Preferred stock, no par value, no shares issued 






Common stock, 265 shares and 278 shares issued in 2006 and 2005, respectively 






Retained earnings 
1,593 

1,619 



Accumulated other comprehensive loss 
156 

170 



Total shareholders’ equity 
1,437 

1,449 



Total liabilities and shareholders’ equity 
$6,353 

$5,797 










Ratio 

Formula 

Calculation 


Result 


(words) 

(numbers) 



A. Liquidity Ratios 

Hint: All Formulas are located on Page 710 & 711, with the exception of Gross Profit % 













1. Current Ratio 
= 
Current assets 
= 

= 




Current liabilities 













2. Acid Test Ratio 
= 
Cash+Shortterm Investmetns + Net Current receviables 
= 

= 




Current Liabilities 













3. Inventory turnover 
= 
Cost of goods sold 
= 

= 




Average inventory 













4. Accounts Receivable turnover 
= 
Net Sales 
= 

= 


*Use Total Sales and Net A/R and Notes Receivable 

Average net accounts receivable 













5. Average Collection Period (Days’ sales in receivables) 
= 
Average net accounts receivable 
= 

= 




One day’s sales 













B. Solvency Ratios 















1. Debt ratio 
= 
Total liabilities 
= 

= 




Ttoal assets 













2. Timesinterestearned ratio 
= 
Income from operations 
= 

= 


Note – Use Operating Profit 

Interest expense 













C. Profitability Ratios 















1. Gross Profit Percentage 
= 
Gross profit 
= 

= 


Note: Gross Profit is Revenue – Costs. Do Not Include Expenses 

Total Revenue 





Formula on Page 328 







2. Rate of return on net sales (Profit Margin rate) 
= 
Net income 
= 

= 




Net sales 













3. Rate of return on total assets 
= 
Net income + Interest expense 
= 

= 




Average total assets 













4. Rate of return on common stockholders’ equity 
= 
Net income – Preferred dividends 
= 

= 




Average common stockholder’s equity 













5. Earnings per share 
= 
Net income – Preferred dividends 
= 

= 
$ 

Hint – Page 758 – Use Weighted Average without Dilutive Shares 

Average number of shares of common stock outstanding 













6. Price/earnings ratio 
= 
Market price per share of common stock 
= 
29.40 
= 




Earnings per shares 













7. Dividend Yield 
= 
Dividend per share of common stock 
= 

= 


Hint: Dividend Per Share – Located on Page 751 in Textbook 

Market price per share of common stock 

29.40 











8. Book value per share 
= 
Total Stockholder’s equity – Preferred equity 
= 

= 
$ 



Number of shares of common outstanding 





















Market Price Information was retreived from the following link: 





http://finance.aol.com/quotes/yumbrandsinc/yum/nys/historicalprices?tf=12%2F29%2F200610%2F4%2F2009&gran=d 



Project 2 Rubric – Students 



Criteria 
Excellent 
Good 
Poor 
Very Poor 
H & V Analysis: 





Completeness 
All requirements are completed in accordance with the directions, labeled and organized well in worksheet. 
All requirements are completed and mostly follow the directions, labeled and fairly organized in worksheet. 
Most requirements are completed that mostly follow the directions, missing some labels and only somewhat organized. 
Requirements are not completed and/or the directions were generally not followed, missing labels and unorganized. 

Accuracy 
All ratios are calculated with accurate results and appropriate terms of expression. 
80% plus of ratios are calculated with accurate results and mostly appropriate terms of expression. 
6079% of ratios are calculated with accurate results and some appropriate terms of expression. 
Less than 60% of ratios are calculated with accurate results and some appropriate terms of expression. 
Ratios: 





Completeness 
All requirements are completed in accordance with the directions, labeled and organized well in worksheet. 
All requirements are completed and mostly follow the directions, labeled and fairly organized in worksheet. 
Most requirements are completed that mostly follow the directions, missing some labels and only somewhat organized. 
Requirements are not completed and/or the directions were generally not followed, missing labels and unorganized. 

Accuracy 
All ratios are calculated with accurate results and appropriate terms of expression. 
80% plus of ratios are calculated with accurate results and mostly appropriate terms of expression. 
6079% of ratios are calculated with accurate results and some appropriate terms of expression. 
Less than 60% of ratios are calculated with accurate results and some appropriate terms of expression. 
