YUM! Brands Inc. (NYSE:YUM)

The financial data reveals a number of changes and trends in operational efficiency metrics over the five-year period ending in 2015. Several ratios and period-based measures related to inventory, receivables, payables, and the overall cash conversion cycle are analyzed.

Inventory Turnover

The inventory turnover ratio remained fairly stable from 2011 through 2014, fluctuating slightly between approximately 31 and 33 times per year. However, in 2015, there was a significant increase to 40.87, indicating a much faster rate of inventory movement compared to previous years. This suggests improved inventory management or stronger sales leading to quicker stock turnover.

Receivables Turnover

The receivables turnover ratio showed a declining trend over the period. Starting at 38.09 in 2011, it increased slightly to 39.31 in 2012 but then steadily decreased each subsequent year, reaching 29.56 in 2015. This decline suggests that the company was collecting receivables more slowly over time, potentially indicating relaxed credit policies or slower customer payments.

Payables Turnover

The payables turnover ratio generally increased from 12.84 in 2011 to 15.19 in 2015, with some minor fluctuations during the intervening years. This trend points to a faster payment cycle to suppliers over time, implying that the company chose to settle its obligations more promptly as the years progressed.

Average Inventory Processing Period

This metric stayed steady around 11 to 12 days for four years before dropping to 9 days in 2015. This decrease complements the increase in inventory turnover observed in 2015 and reflects an acceleration in inventory processing efficiency.

Average Receivable Collection Period

The average period for collecting receivables decreased from 10 days in 2011 to 9 days in 2012, then remained constant at 10 days in 2013 and 2014 before increasing to 12 days in 2015. This later increase corresponds with the decrease in receivables turnover and suggests a slowdown in cash inflows from receivables during the final year.

Operating Cycle

The operating cycle was remarkably consistent at 21 days throughout the entire period, indicating the time between inventory acquisition and cash collection from receivables remained stable despite variations in individual components.

Average Payables Payment Period

This measure shows a declining trend from 28 days in 2011 to 24 days in 2015, with minor fluctuations. The shortening period indicates that the company paid its suppliers more quickly over time, in line with the increasing payables turnover.

Cash Conversion Cycle

The cash conversion cycle was negative throughout the five years, implying the company generally received cash from customers before it had to pay its suppliers. Although it fluctuated slightly—from -7 days in 2011 to -3 days in 2015—the trend indicates a modest weakening of this advantage by 2015.

Overall, the data demonstrates improvements in inventory management with faster turnover and shorter inventory processing times by 2015. However, there is evidence of slower receivables collection, which could affect liquidity. The company consistently accelerated payments to suppliers, reducing the payables period. The negative cash conversion cycle throughout the period reflects efficient working capital management, though the slight increase suggests a cautious observation of cash flow timing is warranted moving forward.

Company Restaurant Expenses

The company restaurant expenses initially increased from 9,140 million US dollars in 2011 to a peak of 9,852 million US dollars in 2012. Following this peak, expenses decreased to 9,501 million in 2013, then slightly increased again to 9,682 million in 2014 before declining to 9,359 million in 2015. Overall, the expenses showed some fluctuation but remained relatively stable over the five-year period with a tendency towards a decrease in the last two years.

Inventories

Inventory levels displayed a fluctuating trend with an initial increase from 273 million US dollars in 2011 to 313 million in 2012. Subsequently, inventories declined slightly to 294 million in 2013, increased again marginally to 301 million in 2014, and then dropped significantly to 229 million in 2015. The sharp decrease in 2015 suggests improved inventory management or reduced inventory holding.

Inventory Turnover Ratio

The inventory turnover ratio declined gradually from 33.48 in 2011 to 31.48 in 2012, then showed a slight recovery trend to 32.32 in 2013 and 32.17 in 2014. Notably, in 2015, the ratio increased markedly to 40.87. This significant rise in 2015 indicates more efficient use of inventory, reflecting either faster sales or reduced inventory levels. The improved turnover in 2015 aligns with the reduction in inventory holdings observed in the same year.

The financial data over the five-year period exhibits several key trends and changes worthy of note.

Company Sales

The company's sales experienced fluctuations rather than consistent growth. Starting at $10,893 million in 2011, sales increased to a peak of $11,833 million in 2012. However, a decline followed in 2013 to $11,184 million, after which sales remained relatively stable through 2014 and 2015, ending at $11,145 million. This pattern suggests a brief period of growth followed by stagnation or mild contraction in revenue.

Accounts and Notes Receivable, Net

Accounts and notes receivable increased steadily across the five years, rising from $286 million in 2011 to $377 million in 2015. This consistent upward movement indicates an expansion in the credit extended to customers or perhaps slower collections, which may have implications for working capital management.

Receivables Turnover Ratio

The receivables turnover ratio declined markedly from 38.09 in 2011 to 29.56 in 2015. Since this ratio measures how efficiently the company collects its receivables, the downward trend suggests a deceleration in collections, with receivables turning over less frequently. This trend aligns with the growth in accounts receivable and could indicate either more lenient credit policies or collection challenges.

Overall, the data shows a decoupling between stable sales and increasing accounts receivable, accompanied by a reduction in the efficiency of receivables collection. The company may need to assess credit terms or collection processes to optimize cash flow and working capital.

Company Restaurant Expenses

The company restaurant expenses increased from 9140 million US dollars in 2011 to a peak of 9852 million US dollars in 2012. After this peak, expenses showed a fluctuating but generally decreasing trend, dropping to 9359 million US dollars by the end of 2015. This pattern suggests initial rising costs followed by some cost containment or efficiency improvements over the subsequent years.

Accounts Payable

Accounts payable displayed a gradual decline over the observed period, decreasing from 712 million US dollars in 2011 to 616 million US dollars in 2015. This reduction may indicate either improved payment management, lower purchasing on credit, or efforts to decrease outstanding liabilities.

Payables Turnover Ratio

The payables turnover ratio increased from 12.84 times in 2011 to 15.19 times in 2015, showing an overall improvement in the company's efficiency in paying its suppliers. A higher ratio suggests that the company is paying its payable accounts more rapidly relative to its purchases. Despite slight fluctuations in 2013 and 2014, the upward trend is clear and consistent with the decreasing accounts payable balance.

Working Capital

There is a clear downward trend in working capital over the five-year period, decreasing significantly from -129 million US dollars in 2011 to -1400 million US dollars in 2015. This indicates a continuous deterioration in the company’s short-term liquidity position, with the negative working capital becoming substantially larger each year.

Company Sales

Sales demonstrate a relatively stable pattern during the period analyzed, starting at 10,893 million US dollars in 2011, peaking at 11,833 million in 2012, before slightly declining and fluctuating around the 11,000 million mark through to 2015. There is no substantial growth or decline in company sales, suggesting consistent revenue generation without significant expansion or contraction.

Working Capital Turnover

The absence of data for working capital turnover ratios means it is not possible to evaluate how efficiently the company is using its working capital to generate sales. However, given the negative and declining working capital, it is likely that this metric would reflect challenges in operational efficiency or liquidity management.

Inventory Turnover

The inventory turnover ratio exhibits a generally stable trend from 2011 to 2014, fluctuating slightly between 31.48 and 33.48. However, there is a marked increase in 2015, rising significantly to 40.87. This suggests that the company improved the efficiency of its inventory management in the final year, resulting in faster inventory cycles and potentially better sales velocity or inventory utilization.

Average Inventory Processing Period

The average inventory processing period closely mirrors the inventory turnover trend, starting at 11 days in 2011, increasing slightly to 12 days in 2012, and then stabilizing again at 11 days through 2014. In 2015, there is a notable reduction to 9 days, aligning with the sharp increase in inventory turnover. This decrease indicates that the company was able to reduce the time inventory remains on hand, contributing to greater operational efficiency.

Overall Insight

The data collectively indicate that while the company maintained consistent inventory management practices from 2011 to 2014, a strategic improvement or operational change occurred in 2015. This change significantly enhanced inventory turnover and shortened the average processing period, reflecting improved inventory control and possibly a more responsive supply chain or better demand forecasting.

Receivables Turnover

The receivables turnover ratio demonstrates a downward trend over the analyzed period. It starts at 38.09 in 2011, slightly increases to 39.31 in 2012, then consistently declines over the next three years, reaching 29.56 by the end of 2015. This indicates that the company is collecting its receivables less frequently each year after 2012, which may suggest a slowdown in the efficiency of credit management or changes in credit policy.

Average Receivable Collection Period

The average receivable collection period remains relatively stable around 9 to 10 days for the first four years, fluctuating between 9 and 10 days, and then increases to 12 days in 2015. This aligns with the decline in receivables turnover, reflecting that the time taken to collect receivables has slightly lengthened. Although the increase is moderate, this shift might warrant further examination to understand whether it results from operational changes or shifts in customer payment behavior.

Overall Insight

The inverse relationship observed between the receivables turnover ratio and the average collection period is typical; as the turnover decreases, the collection period lengthens. The data suggests a weakening in the efficiency of receivables management from 2012 to 2015. Such a trend could impact cash flow and operational liquidity, highlighting the need for potential improvements in credit policies or collection strategies to maintain or enhance the working capital cycle.

Inventory Turnover Efficiency

The average inventory processing period exhibited a slight fluctuation over the analyzed years. It started at 11 days in 2011, increased marginally to 12 days in 2012, reverted to 11 days in the subsequent two years, and then decreased to 9 days in 2015. This downward trend toward the end of the period indicates an improvement in inventory management efficiency, suggesting that the company became more effective in processing inventory within a shorter timeframe.

Receivables Collection

The average receivable collection period remained relatively stable initially, with a slight decline from 10 days in 2011 to 9 days in 2012, before stabilizing at 10 days in 2013 and 2014. However, in 2015, this period increased to 12 days, indicating a longer duration to collect receivables. This increase may signal emerging challenges in credit collection or changes in customer payment behavior during that year.

Operating Cycle Consistency

The operating cycle maintained a constant duration of 21 days throughout the entire five-year period. This constancy suggests that despite fluctuations in inventory processing and receivables collection periods, the overall cycle time for converting inventory and receivables into cash remained steady, reflecting balanced operational performance in these areas.

Payables Turnover

The payables turnover ratio shows an overall increasing trend over the five-year period. Starting at 12.84 in 2011, the ratio increased to 14.4 in 2012, then slightly decreased to 13.5 in 2013. From 2013 onwards, there is a steady increase reaching 13.95 in 2014 and then 15.19 in 2015. This pattern indicates that the company has been improving its efficiency in paying its suppliers over the period, particularly notable in the last two years.

Average Payables Payment Period

The average payables payment period follows an inverse trend relative to the payables turnover. It starts at 28 days in 2011 and decreases to 25 days in 2012. In 2013, it slightly increases to 27 days, then decreases again to 26 days in 2014, and finally reaches 24 days in 2015. This decline suggests that the company has been reducing the time it takes to pay its suppliers, improving its payment promptness. The fluctuations in the middle years show some variability, but the overall trend is towards shorter payment periods.

Inventory Processing

The average inventory processing period remained relatively stable over the five-year span, fluctuating slightly between 9 and 12 days. After maintaining around 11 to 12 days in the initial years, it decreased noticeably in the final year to 9 days, indicating an improvement in inventory turnover efficiency.

Receivable Collection

The average receivable collection period demonstrated minor variability, staying within 9 to 12 days. There was a slight decline from 10 days in 2011 to 9 days in 2012, followed by consistent figures around 10 days in the subsequent years, before increasing to 12 days in the last year. This uptick in the final period suggests a marginal slowdown in collecting receivables.

Payables Payment

The average payables payment period showed a downward trend overall, reducing from 28 days in 2011 to 24 days by the end of 2015. Notable fluctuations occurred in the interim years, but the consistent decline indicates a tendency toward quicker payment to suppliers.

Cash Conversion Cycle

The cash conversion cycle (CCC) improved slightly across the years but remained negative throughout the entire period. Starting from -7 days in 2011, it increased towards zero, reaching -3 days in 2015. This negative CCC suggests that the company collects cash from customers before it needs to pay its suppliers, with the cycle becoming shorter, reflecting enhanced working capital management efficiency.