YUM! Brands Inc. (NYSE:YUM)

The financial data reveals several significant trends in the company's leverage and coverage ratios over the five-year period ending in 2015.

Debt to Equity

This ratio decreased from 1.82 in 2011 to about 1.37-1.38 in 2012 and 2013, indicating a reduction in leverage during these years. However, from 2014 onwards, there was a sharp increase, reaching 4.37 in 2015. This suggests a substantial rise in the use of debt relative to equity in the company’s capital structure by the end of the period.

Debt to Capital

The debt to capital ratio followed a similar pattern, dropping from 0.65 in 2011 to 0.58 in 2012 and 2013, before increasing considerably to 0.68 in 2014 and 0.81 in 2015. This trajectory indicates a growing proportion of debt financing within the total capital base towards the later years.

Debt to Assets

This ratio decreased slightly from 0.38 in 2011 to around 0.33-0.34 in 2012 and 2013, then escalated to 0.40 in 2014 and 0.49 in 2015. The rise implies an increasing share of assets financed by debt in recent years.

Financial Leverage

The financial leverage ratio mirrored these trends, declining from 4.85 in 2011 to 4.18 in 2012 and 4.01 in 2013, then rising sharply to 5.39 in 2014 and nearly doubling to 8.86 in 2015. This indicates a heightened reliance on borrowed funds relative to equity.

Interest Coverage

The interest coverage ratio peaked at 13.69 in 2012, reflecting strong earnings relative to interest expenses. It dipped sharply to 6.74 in 2013 but then rebounded to 10.39 in 2014 and 12.53 in 2015. This fluctuation suggests variable but generally sufficient ability to meet interest obligations despite increasing debt levels.

Fixed Charge Coverage

This ratio exhibited a moderate decline from 3.05 in 2011 to 2.51 in 2013, remaining relatively flat at 2.55 in 2014 and moderately increasing to 3.00 in 2015. The relatively stable fixed charge coverage ratio indicates that the company's capacity to cover fixed financial charges did not deteriorate significantly despite higher leverage.

In summary, the company experienced a trend of increasing debt usage starting in 2014, as evidenced by rising debt ratios and financial leverage. Despite this increase in leverage, the company maintained adequate interest and fixed charge coverage, suggesting effective management of its debt obligations. However, the sharp rise in leverage ratios by 2015 warrants attention to potential increased financial risk.

Total debt

The total debt exhibited a fluctuating trend over the analyzed period. Initially, there was a decrease from US$3,317 million in 2011 to US$2,942 million in 2012, followed by a slight increase to US$2,989 million in 2013. Subsequently, the debt rose more notably to US$3,344 million in 2014 and further escalated to US$3,977 million in 2015, indicating a significant increase in leverage during the latter years.

Shareholders’ equity

Shareholders’ equity initially increased from US$1,823 million in 2011 to US$2,154 million in 2012 and then stabilized around US$2,166 million in 2013. However, a sharp decline followed in 2014, dropping to US$1,547 million, and continued to fall dramatically to US$911 million in 2015. This downward trend suggests erosion in equity base, potentially due to losses, share buybacks, or dividend distributions exceeding earnings.

Debt to equity ratio

The debt to equity ratio decreased from 1.82 in 2011 to about 1.37–1.38 in 2012 and 2013, reflecting a relatively stronger equity position against debt. However, this ratio increased substantially in the subsequent years, rising to 2.16 in 2014 and reaching 4.37 in 2015. This change highlights a marked increase in financial leverage and risk, primarily driven by the sharp decline in shareholders’ equity coupled with rising total debt.

Total Debt

The total debt shows a fluctuating trend over the five-year period. It decreased from 3317 million USD at the end of 2011 to 2942 million USD in 2012, followed by a slight increase to 2989 million USD in 2013. There was a more noticeable rise in 2014 to 3344 million USD and a significant jump to 3977 million USD by the end of 2015.

Total Capital

Total capital remained relatively stable between 2011 and 2013, with minor variations around the 5100 million USD mark. However, it declined progressively thereafter, dropping to 4891 million USD in 2014 and further to 4888 million USD in 2015.

Debt to Capital Ratio

The debt to capital ratio decreased from 0.65 in 2011 to 0.58 in both 2012 and 2013, indicating a lower proportion of debt in the capital structure during those years. This ratio then increased sharply to 0.68 in 2014 and rose further to 0.81 in 2015, reflecting a substantial increase in leverage over the latter part of the period.

Summary of Trends and Insights

Overall, the data indicates an increasing reliance on debt financing beginning in 2014, as evidenced by rising total debt and an escalating debt to capital ratio. Although total capital remained mostly stable in the early years, it declined slightly in the final two years, which combined with increased debt, suggests a shift toward higher financial leverage. The sharp increase in debt and leverage in 2015 may signal strategic financial decisions such as funding expansion or managing other obligations through borrowing. This shift toward higher leverage could have implications for the company's financial risk profile and cost of capital going forward.

Total debt

The total debt exhibits a fluctuating but overall increasing trend over the five-year period. Starting at 3,317 million US dollars in 2011, it decreased to 2,942 million in 2012 and then remained relatively stable in 2013 at 2,989 million. However, in 2014 and 2015, total debt rose more substantially, reaching 3,344 million and ultimately 3,977 million US dollars, indicating a growing leverage position towards the end of the period.

Total assets

Total assets show a consistent decline throughout the observed years. The asset base decreased from 8,834 million US dollars in 2011 to 8,011 million in 2015. Despite minor fluctuations, the downward trend is evident each year, signaling a contraction or possible divestment of assets over time.

Debt to assets ratio

The debt to assets ratio experienced some variability but overall increased from 0.38 in 2011 to 0.49 in 2015. The ratio decreased initially, reaching a low of 0.33 in 2012, before gradually increasing to 0.34 in 2013, then rising more sharply to 0.40 in 2014 and 0.49 in 2015. This upward movement implies that the company became more leveraged over the period, with a greater proportion of its assets being financed by debt.

Overall Analysis

The financial data indicate a pattern where the company increased its financial leverage by raising debt levels while its asset base declined. The rising debt to assets ratio reflects this trend towards higher leverage. This may imply increased financial risk as debt forms a greater share of the capital structure, while the contraction in total assets could suggest shifts in asset management strategies, potential asset sales, or impairment. Careful monitoring of debt service capabilities and asset quality would be advisable given these developments.

Total Assets

The total assets exhibit a gradual decline over the five-year period, starting at $8,834 million in 2011 and decreasing to $8,075 million by 2015. This suggests a reduction in the company’s asset base, which may impact its operational capacity or investment potential.

Shareholders’ Equity

Shareholders’ equity initially increases from $1,823 million in 2011 to a peak of $2,166 million in 2013. However, a significant decline follows, dropping sharply to $911 million by 2015. This decrease could indicate substantial equity erosion, potentially due to losses, dividend payments exceeding earnings, or other financial activities affecting retained earnings or capital.

Financial Leverage

The financial leverage ratio decreases from 4.85 in 2011 to a low point of 4.01 in 2013, indicating reduced reliance on debt financing relative to equity during this timeframe. Post-2013, the ratio sharply increases, reaching 8.86 by 2015, reflecting a marked rise in leverage. This increase likely results from the concurrent decline in shareholders’ equity alongside the relatively stable decrease in total assets, signaling an escalating debt-to-equity risk profile for the company.

Earnings before Interest and Tax (EBIT)

The EBIT experienced fluctuations over the observed five-year period. Starting at $1,843 million in 2011, it increased to a peak of $2,314 million in 2012. This was followed by a decline to $1,821 million in 2013 and a further reduction to $1,579 million in 2014. In 2015, EBIT rebounded to $1,942 million, showing partial recovery but not surpassing the 2012 high. The overall pattern indicates some volatility with a notable peak early in the period and a trough in 2014 before improvement.

Interest Expense

The interest expense showed inconsistency throughout the years. It started at $184 million in 2011, slightly decreased to $169 million in 2012, then sharply increased to $270 million in 2013. Subsequently, it decreased significantly to $152 million in 2014 and remained relatively stable at $155 million in 2015. The substantial increase in 2013 followed by a decrease suggests fluctuations in debt levels or interest rates impacting the cost of borrowing.

Interest Coverage Ratio

The interest coverage ratio, representing the company's ability to meet interest payments from operating earnings, exhibited variability in line with EBIT and interest expense trends. It improved from 10.02 times in 2011 to a peak of 13.69 times in 2012, reflecting strong earnings relative to interest costs. However, it dropped sharply to 6.74 times in 2013, indicating a reduced capacity to cover interest due to the combination of decreasing EBIT and rising interest expense. The ratio recovered to 10.39 times in 2014 and further improved to 12.53 times in 2015, suggesting enhanced financial stability in the latter years after the 2013 decline.

Overall Insights

Over the five-year span, the company's operating profitability and interest expense displayed volatility, impacting its interest coverage ability. The year 2013 stands out as a challenging period with lower EBIT and elevated interest costs, resulting in the lowest interest coverage ratio. The subsequent years showed a trend toward recovery and stabilization, with improving EBIT and reduced interest expenses contributing to stronger capacity to service debt. This indicates resilience and potential effective management of financial risks following the difficulties encountered in 2013.

Earnings before fixed charges and tax

The earnings before fixed charges and tax show a fluctuating trend over the five-year period. Starting at 2,468 million US dollars in 2011, there was a notable increase to 3,035 million in 2012. However, this was followed by a decline to 2,580 million in 2013 and a further decrease to 2,345 million in 2014. In 2015, earnings recovered somewhat, rising again to 2,679 million. Overall, earnings exhibit volatility with a peak in 2012 and a trough in 2014.

Fixed charges

Fixed charges increased steadily from 809 million US dollars in 2011 to a peak of 1,029 million in 2013. After 2013, fixed charges decreased to 918 million in 2014 and continued to decline slightly to 892 million in 2015. Despite the peak in 2013, the latter years show a downward adjustment in fixed charges.

Fixed charge coverage ratio

The fixed charge coverage ratio reflects the company’s ability to cover fixed charges from earnings before fixed charges and tax. Starting at 3.05 in 2011, the ratio improved to 3.41 in 2012, indicating increased coverage capacity. However, it then declined significantly to 2.51 in 2013 and remained relatively stable around 2.55 in 2014. In 2015, the ratio improved to 3.0. This pattern indicates that while the coverage capacity peaked early in the period, it weakened in the middle years before recovering toward the end of the period.