Company Analysis Tim Hortons Essay

Tim Hortons is one of North Americas largest developers and franchisors of quick service restaurants with 4,485 system-wide restaurants as of course of study-end 2013 (Annual Report 2013). Tim Hortons is among the largest publicly-traded restaurant durance in North America based on market capitalization, and the largest in Canada by a wide measure. In Canada, they command an approximate 42% share of the quick service restaurant traffic. Tim Hortons Inc. has iconic brand lieu in Canada and strong consumer awareness in the U.S. market (Annual Report 2013). correspond to Ready proportions (2014), the most important financial ratios to assess a caller-ups financial picture are 1. Debt to Equity dimension= check Liabilities / Shareholders Equity 2. Dividend Payout Ratio = Dividend per share / Total kale Earnings 3. generate on Equity= earn Income / Shareholders Equity4. Net Profit Margin= Net Profit / Net SalesDebt-to-Equity RatioThe debt-to- fair-mindedness ratio is a quantific ation of companys financial leverage estimated by dividing the total liabilities by stockholders equity (Bruns 1992). This ratio indicates the proportion of equity and debt habituate by the company to finance its assets. It is really important to know active what the debt-to-income ratio tour indicates. This number needs to be as humiliated as possible. The less debt relative to the income indicates that a company is financially separate off because on that point is extra funds to apply towards future goals. Referring to appendage B, Tim Hortons debt to equity ratio is at 0.34 and has been loyal for the past six years. This shows that the potty has available money on hand to apply toward their financial goals.Dividend Payout RatioThe dividend payout ratio is used to examine if a companys requital tin can support the current dividend fee amount. The statistic is calculated by victorious the dividend and dividing it by the companys total net earnings (Bruns 1992). Inves tors ordinarily seek a consonant and/or improving dividends payout ratio. The dividend payout ratio should non be too high. Growing companies will typically retain more usefulnesss to fund growth and pay lower or no dividends. Companies that pay high dividends may be in mature 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 get implications for the cash management and liquidity of the company. According to Little, dividend payout ratios everywhere ampere-second% means that the company is paying out more to its shareholders than earnings stock (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 all over the previous five years. This shows that the corporation has been r e-investing profits to act their future financial goals.Return on Equity ( roe)The homecoming on equity is the amount of net income arrested as a percentage of shareholders equity (Bruns 1992). The return on equity estimates the profitability 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 up to(p) 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 comparison amidst Tim Hortons and Dunkin Donuts shows that Dunkin Donuts has been fashioning steady improvements during the past 5 years and as of year ending 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 mingled with companies in the same industry, because similar companies are often qualified 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 in the midst of Tim Hortons and Dunkin Donuts (Appendix D), shows that Tim Hortons net profit margin for 2013 was approximately 7% lower than D unkin Donuts. composition 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 donut 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 2 co rporations will take a few years to solidify. Until then I would invest due to the constant stability of the company financials and re-evaluate after a year.