Company Analysis Tim Hortons Essay

Tim Hortons is one of join Americas largest developers and franchisors of quick attend to restaurants with 4,485 system-wide restaurants as of year-end 2013 (Annual Report 2013). Tim Hortons is among the largest publicly-traded restaurant chains in North America based on market capitalization, and the largest in Canada by a wide measure. In Canada, they command an approximate 42% shargon of the quick service restaurant traffic. Tim Hortons Inc. has iconic brand status in Canada and strong consumer awareness in the U.S. market (Annual Report 2013). According to Ready Ratios (2014), the most important monetary ratios to assess a companys financial picture are 1. Debt to Equity Ratio= Total Liabilities / Shareholders Equity 2. Dividend Payout Ratio = Dividend per share / Total web Earnings 3. top on Equity= Net Income / Shareholders Equity4. Net Profit margin= Net Profit / Net salesDebt-to-Equity RatioThe debt-to-equity ratio is a quantification of companys financial leverage es timated by dividing the score liabilities by stockholders equity (Bruns 1992). This ratio indicates the proportion of equity and debt utilize by the company to finance its assets. It is really important to know about what the debt-to-income ratio number indicates. This number needs to be as low as possible. The less debt relative to the income indicates that a company is financially better off because there is extra money to apply towards future goals. Referring to Appendix B, Tim Hortons debt to equity ratio is at 0.34 and has been steady for the past six geezerhood. This shows that the corporation has available money on hand to apply toward their financial goals.Dividend Payout RatioThe dividend payout ratio is used to regard if a companys earnings pile support the current dividend payment amount. The statistic is calculated by taking the dividend and dividing it by the companys total net earnings (Bruns 1992). Investors usually seek a consistent and/or improving dividends pa yout ratio. The dividend payout ratio should not be too high. Growing companies will typically retain much profits to fund growth and pay lower or no dividends. Companies that pay higher dividends may be in advance industries where there is little room for growth and paying higher dividendsis the best use of profits.Dividends are paid in cash therefore, high dividend payout ratio can have implications for the cash management and liquidity of the company. According to Little, dividend payout ratios over 100% means that the company is paying out more to its shareholders than earnings received (2014). This is typically not a good recipe for the companys financial health it can be a sign that the dividend payment will be cut in the future. According to Appendix B, Tim Hortons dividend payout is at 38.52% and has been consistent over the previous five years. This shows that the corporation has been re-investing profits to meet their future financial goals.Return on Equity ( roe)The re turn on equity is the amount of net income returned as a plowshare of shareholders equity (Bruns 1992). The return on equity estimates the positiveness of a corporation by revealing the amount of profit generated by a company with the money invested by the shareholders. According to Kennon, a business that has a high return on equity is more likely to be one that is capable of generating cash internally (2014). The higher a companys return on equity compared to its industry, the better. According to Appendix B, Tim Hortons ROE is currently at 32.46%.The subsequent five years has shown similar percentages except for year 2010. The ROE was actually 53.29%. Looking at Appendix C, the ROE similitude between Tim Hortons and Dunkin Donuts shows that Dunkin Donuts has been making steady improvements during the past 5 years and as of year terminus 2013 has surpassed Tim Hortons ROE. According to Wong, Dunkin Donuts is the second largest coffee chain after Starbucks with over 7000 outlets , far ahead of Tim Hortons and the company is preparing to expand to the western U.S. (28 August 2014).Net Profit MarginThe net profit margin is a number which indicates the efficiency of a company at its cost control (Bruns 1992). The profit margin ratio shows what percentage of sales are left over after all expenses are paid by the business. A higher net profit margin shows more efficiency of the company at converting its revenue into actual profit. This ratio is a good way of making comparisons between companies in the same industry, because similar companies are often subject to similar business conditions. Tim Hortons netprofit margin for year 2013 was at 13.04% and for the previous 5 years has been stable (Appendix B). A comparison between Tim Hortons and Dunkin Donuts (Appendix D), shows that Tim Hortons net profit margin for 2013 was approximately 7% lower than Dunkin Donuts. While Tim Hortons has had a steady profit margin, Dunkin Donuts has increased their profit margin by 14% over the last five years.ConclusionReviewing the ratios that were presented indicate that Tim Hortons has been a stable profitable company. Their debt to equity ratio has been consistently low, dividend payout ratio has been steady at 38%, return on equity has been consistently between 30 and 50% and the net profit margin has been constant at 13% (appendix B). A review of appendix B shows that the ratios presented have been consistent however, on August 27 2014 Burger King announced that a deal had been reached to buy the Canadian ring chain (Isidore & Sahadi, August 2014). Many have speculated that the main reason for the merger was to reduce the business taxes paid by the corporation. Looking into the future, the Burger King acquisition may hurt the financial stability of Tim Hortons in the U.S. markets due to loyalty. I think the merger between the two corporations will take a few years to solidify. Until then I would invest due to the constant stability of the company fina ncials and re-evaluate after a year.