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Accounting
Operating Leverage, Return on Investment, Economic value added and Net Profit Margin at Yum Brands
A firms performance is often measured using ratios. There are many different ratios which are used, all indicating different types of performance measurement; four of these measures are operating leverage, return on investment (ROI), economic value added (EVA) and net profit margin. These all provide the ability to perform historical assessment to assess the trends or patterns in the firms' performance when measured against itself, as well as allowing the firm to be assessed against other competitors or potential alternate investments. Each of the ratios will be examined and considered in the context of Yum Brands
Operating leverage
Operating leverage is a ratio which shows the companies fixed coasts to variable costs. To calculate the ratio it is necessary to have details of the fixed and the variables costs for the items produced. The equation to calculate the operating leverage is Q. x C/Q x C- FC, where Q. is the quantity, C is the contribution level, (that is the price per unit less the variable costs per unit) and FC are the fixed operating costs (Investing Answers, 2014).
The ratio is useful as it indicates the degree to which...
Firms which make only a few sales, but with each sale making a high level of profit are said to be highly leveraged (Investopedia, 2014). A good example could be an aircraft manufacturer. A firm which sells a higher quantity of goods, but at a lower price with a lower profit per unit, which is the case withy Yum Brands, has a lower level of leverage. Yum Brands will have a lower level of leverage compared to retailers of larger ticket items. However, as the annual accounts do not give sufficient breakdown of the viable and fixed costs for the different products, it is not viable to calculate the operating leverage.
Return on investment (ROI)
The return on investment is a measure which is indicates the level of return or profit that is created by an investment. This is a relativity simply calculation, the profit is divided by the cost of the investment (Libby et al., 2010). This is expressed as a percentage. The measure is often used inside a firm to assess and compare potential outcomes of different projects. For investors, the return on investment will vary, depending ion when they purchased the shares. For…
Leverage permits superior possible returns to the investor than otherwise would have been obtainable but the probable for loss is in addition superior, since the investment becomes valueless, the loan principal and all accumulated interest on the loan still need to be paid back (Kotarski, 2009). In monetary economics it has been projected for a long time that financial capital is put into a company each time the probable return
The lenders loan funds to the lessor but look to the credit of the lessee and the equipment value in the event of default. In other words, the lending is non-recourse as the lessor is not responsible to repay the loan in the event of default. The lender has some protection in that its claim does precede the lessor's claim in the event of default. The power of the leverage
"Management believes that the accounting estimates employed are appropriate and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates actual results could differ from the original estimates, requiring adjustments to these balances in future periods." Based on the data retrieved and the projections made, the accounting division will proceed to the development of the consolidated statements for all of GM subsidies and the overall group.
Another factor that should be taken into consideration is that of overall strategy. Financial statements are snapshots, and sometimes it can be difficult to discern from looking at a small sample of them the firm's overall direction. Key strategic decisions can have a significant impact on the financial statements for a limited period of time. For example, during the period studied FedEx was having trouble absorbing Kinko's which it had
The total asset turnover ratio on the other hand indicates that just as is the case with the fixed asset turnover ratio, the Coca-Cola Company has been less effective in the utilization of all its assets in sales generation. The inventory turnover ratio is essentially a measure of the number of times the inventory of a business entity is replaced or sold within a given period of time. In the
In general, Product Development at Ford involves three major stages, all leading up to the manufacture of the vehicle: Plan, Design, and Verify -- then manufacture. To do this, though, functional areas need to manage costs, plan marketing programs, ensure that needed parts are available, plan manufacturing schedules, hiring (if needed), shift changes, and numerous other data (a/p, a/r, payroll, etc.). The model for Ford is: (Source: Murthy and Desai) Thus, on