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Financial Statement Analysis of KFC

Added on - 01 Dec 2020

Ratio Analysis of KFC Limited

This report is on "ratio analysis of KFC Limited". This study aims to conduct an in-depth ratio analysis of KFC limited, using data derived from the past four years. Ratio analysis if adapted to proportionality express the relationship between figures in a finical statement. Ratios are quick guides or shortcuts that are important in evaluating KFC's financial position and activities and making comparisons with previous years' results of other businesses in the same industry. The key purpose of this ratio is to identify key areas that require further investigation. They are used proportionately in understanding the KFC and business environment.

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Financial Statement Analysis of KFCSaree Abdullah BrakeAbu Dhabi University, Email: 1063765@students.adu.ac.aeSupervised by:Professor Haitham NobaneeAbstractFinancial ratios derived from past data are adapted in many research studies to analyze andestimate the uncertain future of business and related industries in general. These ratios give thegeneral health of an entity and are critical in evaluating the strengths and weaknesses of abusiness entity. Besides, these ratios are significant in ascertain vulnerabilities and challengesthat businesses face. The information obtained from such data is not only important to the topmanagement but also varied users of information in determining investing decisions. In thiscontext, financial ratios are employed to assess the health and performance of a company. Thisstudy aims to conduct an in-depth ratio analysis of KFC limited, using data derived from the pastfour years.
2IntroductionKFC Founded on1952, North Corbin, Kentucky, United States. Presently, KFC is among the bestchicken restaurants recognized globally. It has in excess outlets of 21,000 in more than 130countries and regions globally (Achola, 2016).KFC is operated partly as equity, and partly as a franchised model with the reports as late asDecember 2018, 98% of its restaurants are operating as franchises. The corporation is part ofYum! Brands, which has its headquarters in Louisville, Kentucky. Besides having has over43,5000 restaurants, operating in more than 135 countries and regions (Dittfurth, Gerhardt &Joiner, 2019).With the main focus being on fried chicken, the company also sells chicken pieces, wraps,salads, and sandwiches. KFC is one of the best-established brands in the Western Quick ServiceRestaurants.The two main strategic intents of any entity are profitability and solvency. Profitability refers tothe capability of an entity to ascertain profits, while solvencies can be defined as the capability ofa firm to offset its obligations (Öztekin, 2015).On the contrary, the achievement of these aimsrequires proper management of a company’s resources. This is concisely conducted throughplanning, budgeting, forecasting, controlling, and decision making[CITATION Alk19 \l 1033 ].Besides, the strengths and weaknesses of a business entity should be identified so that correctiveand appropriate measures should be applied (Öztekin, 2015).In a completive market, there is always the freedom of entry and exit. Stockholders and investorsuse financial ratios in evaluating the value of institutions for investment decisions. Some studiesdemonstrated the insufficiencies of disclosed financial ratios in satisfying shareholders'information needs (Chiaramonte & Casu, 2017).Assessment of investment opportunities is very
3critical due to the need for maximizing returns. Corporate entities require capital funds which arethen made available by the investors after they can evaluate the firm’s value through conductingfinancial reports analyses[ CITATION AlM20 \l 1033 ]Basic knowledge of ratio analysis is required for wealth maximization (Minnis & Sutherland,2017).This facilitates the production of goods and services, and for the growth of an economyin general.A financial ratio is a widely adopted technique in financial analysis[CITATION Alk19 \l 1033 ].Theapplication of financial ratios in the interpretation of financial statements demonstrates a quickindication of an entity’s performance and financial position to varied users of financialstatements (Robinson, 2020).analysesThe information needs of potential investors can be ascertained through financial ratio analysis.If the finale information disclosed in a corporate’s financial statements does not satisfy theinvestor’s need for information, they might make wrong economic decisions[ CITATION Aln20 \l1033 ]This will adversely affect their investments should they ignore to consider the importanceof financial ratio analysis, as a source of additional information about the company (Minnis &Sutherland, 2017).MethodologyRobinson, (2020) define ratio as the fractional relationship pf one number to another. On theother hand, it defines ratio analysis as a “tool of financial analysis where a meaningfulrelationship is derived between the financial statement components” (Robinson, 2020).
4Ratio analysis if adapted to proportionality express the relationship between figures in a finicalstatement[ CITATION AlM20 \l 1033 ].Ratios are quick guides or shortcuts that are important inevaluating a firm's financial position and activities and making comparisons with previous years'results of other businesses in the same industry (Ichsani & Suhardi, 2015).The key purpose of this ratio is to identify key areas that require further investigation. They areused proportionately in understanding the firm and its environment.Arkan, (2016)noted thatratios are most meaningful when used in comparison since making generalizations regardingwhat good or bad is difficult for any particular value (Arkan, 2016).A single measure cannotshow the whole situation about a company and one measure should not be adopted as the solecriteria for a final decision.Minnis and Sutherland, (2017).added that a "standing alone", asingle ratio in the financial analysis may not be informative. Greater insights are achieved bycomputing and analyzing several related ratios for a business entity (Minnis & Sutherland,2017).Hence, in this study, ratio analysis was conducted for KFC. The data was obtained from threeyears compilation of KFC’s financial statements from 2017-2019.Table 1: Financial Data (KFC LTD,)Item/Year201920182017Current Assets15,635,92715,664,18113,800,437Current Liabilities9,031,1979,365,9818,040,503Inventories2,274,7482,189,0411,863,081Cash4,493,5942,086,6683,779,199Receivables4,819,0426,816,7284,019,250
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Application of Financial Ratios

From the above report "application of financial ratios", we conclude that the company was managed its debt ratio, with a decreased trend at the lowest recorded in 2019. This low ratio implies that KFC is more stable and has longevity potentials since it has a lower overall debt. Times interest earned ratio is used to evaluate a company's capability to continually service its debts. For the past three years, KFC has maintained an average value of more than 1.6 of its current ratios. This implies KFC has a good position in meeting short-term obligations should they fall due. The quick ratio of KFC discloses the extent of cash and other current assets to be readily converted into cash in meeting the firm’s short-term obligations. For a better understanding of the report, you can also check the marketing plan for KFC and the marketing essentials of KFC.