Campbell Soup Company Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Quick Ratio

Another ratio that helps in evaluation of short term liquidity is quick ratio. In quick ratio, the element of inventory is removed from the current asset because in retail industry, inventory is not considered liquid and Campbell Soup’s 4 yearly quick ratios is 0.40, while in the year 2013 the quick ratio was below its average that is 0.29.

Activity Ratios and Working Capital Management

Working capital management also depicts the short term liquidity day’s inventory, which on average is 59 days; it can be interpreted as whole stock is sold in just 59 days. Receivable days are around 14 days, which shows that on average Campbell collects cash from debtors in just 14 days. Payable days depict on average how many days it takes to pay the creditors, payables days are average 43 days. Cash conversion depicts that on average Campbell soup converts current assets into cash in 40 days, which is four yearly averages.

Forecasted cash flow statement depicts that in 2015 there will be negative cash change while from 2016 there is a positive net change in cash which increase cash reserves.

Financial Leverage

The financial leverage measures the element of debt of the company. Campbell Soup’s financial leverage for four years is 6.80, which seems to be a nominal amount. In the year 2013 financial leverage is maintained at 6.84. Debt to equity ratio also measures the financial gearing of the company. Campbell Soup’s four yearly debts to equity ratio are 2.16 while in 2013 debt to equity ratio is 2.09 which is above the average. This figure is not assumed to high as a nominal amount of debt is necessary in the financials in order to reduce the cost of capital.

Asset Utilization

Asset utilization ratio can be interpreted as the efficiency of the asset. A higher ratio is good as it depicts the efficient use of the asset. Campbell Soup’s yearly asset turnover ratio for four years is 3.71 which means on an average Campbell soup can generate $3.71 on per dollar investment in fixed asset.

Return on investment

Return on invested capital of Campbell soup’s yearly average for four years is 20.54%. In the previous year, Campbell soup was earning more than 20% return on invested capital, which in the current year had declined. The possible reason could be a decline in income, and an increase in capital employed.

Campbell soup’s profitability ratios depict that gross profit margin ratio has reduced from past year which on average was 39% and in current year it declined to 36.16. The possible reason is decline in sales and increase in COGS. Net profit margin which used to be above 10% has also declined and in the current year it has reduce to 5.695.

Campbell Soup is buying back share through the Treasury option, which seems that Campbell Soup is following the policy to compensate shareholders through capital appreciation of share price.

Comment on the usefulness of the financial statements of this company for your analysis

The financial statement analysis provides useful information such as for investment purpose. It can provide useful information to the prospective investor to assess the financial viability of the company. On the basis of the past performance, future performance can also be predicted.

On the forecasted financials and ratios analysis; in depth analysis can be made about the company and can be compared to its competitors for its potential. If Campbell Soup is stronger than its peers in the same industry, then it will be worth to invest in Campbell soup.

Campbell Soup Company Case Solution

Other usefulness of financial statement analysis could vary from stakeholder to stakeholder, for example, Campbell soup’s manager requires financial statement to manage the affairs of the company by assessing the performance and to take important decision to improve the financial performance and to maintain the decision that were useful in improving the financial affairs of the company. Shareholders of the Campbell soup will also require financial statements of the company to assess the return that Campbell soup food is earning and risk. The risk is in the term that whether Campbell soup is aggressively increasing its financial gearing to generate more revenues. Shareholders will also be interested in the auditor’s reports and management comments.

Financial statements of Campbell soup are also useful to banks and financial institutions which assess the credit potential of the Campbell soup and decided to whether to lend or not and how much amount should be lent for how much period of time. Other conditions such as any covenants are required to set upon Campbell soup to protect the loan amount and chances to increases the payments of the loans. Such situation only knows when there are financials available....................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.