UMGC McCormicks Financial Ratios for 2023 Discussion Responses – Description
Please help responding to two classmate responses.
1. Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last three years for your company. You also may use debt/equity ratio in your analysis. Present ratios in your posting as a table.
McCormick202020212022+/- Over Last 3 YearsROE20.2818.1215.00-5.28Net Margin13.3411.9510.74-2.60Asset Turnover.50.51.49-.01Financial Leverage17.12
2. Find ROE, Net profit margin (listed as net margin), asset turnover, financial leverage for the last year for its major peer competitor. You also may use debt/equity ratio of peer competitor in your analysis. Present ratios in your posting as a table.
Conagra202020212022+/- Over Last 3 YearsROE11.0115.8110.24-.77Net Margin7.6011.617.70+.10Asset Turnover.50.50.52+.02Financial Leverage2.55
3. Has the company’s ROE changed over the last three years? What was the main factor that influenced this change?
ROE for McCormick has reduced over the past 3 years from 20% to 15%. This reduction is still above the average for its biggest competitor, which is Conagra. Although the company has seen a decrease in their ROE it is not far from the standard for the expected ROE for the food industry as a whole of around 13%. Also, McCormick has a low debt-to-equity ratio, .82, when compared to Conagra for 2022 which had a .94. This can be seen as a positive meaning they are able to borrow and fund based on their operations and do not require to have additional funds brought in to compensate for the borrowings.
4. Compare the ratios of you company to the peer competitor. If the management of the company would like to improve the company’s return on equity, what should the management of the company do?
As stated above McCormick has had a good year and is near the average for the food industry overall, which is 13%. One of its competitors, Conagra is just slightly below the average for the industry at 10%. However, this could still be impacted by the split that Conagra and Lamb Weston undertook approximately 5 years ago. Furthermore, McCormick is positioned well to continue to invest in the company to grow their brand and returns. Some of the key ventures that the company should look into would be to invest heavily in ways to improve efficiency in their production in order to allow for less time from start to finish and in turn provide a higher return on their products. Management can look to invest further in the company which will lower the ROE in the near term but has more positive impacts on the returns later on so that the company is better prepared to take on the industry in the future. By investing now they are able to avoid struggles in the future.
5. Reflection – the students also should include a paragraph in the initial response in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace.
One of the key takeaways from the first discussion post and the readings accompanying this was that Return on Equity (ROE) is a driving factor in many investors understanding of a company’s performance. While this is not the one-stop for the wholistic view of how a company is expected to perform it is a good indicator of the current state of a company. Were I an investor in McCormick I would be encouraged to see a small dip in my earnings in the near term if it meant that the company began to invest further in the production of its goods so that I would then, in turn, see a greater return in the future as the efficiency and productivity increased.
Second Response to below
McCormick & Co. (MKC)
The following chart shows McCormick and it’s two competitors’ ratios to date for 2023.
2023 (%)ROENet ProfitAsset Turnover
Financial
leverage
McCormick & Co (MKC)14.0710.425.100.74Congra Brands Inc. (CAG)9.136.593.580.91Unilever PLC (ULVR)42.3112.7210.001.20
The following chart shows McCormick’s past 3 yrs. ratios.
McCormick %ROE202314.07202215.0202118.12
In looking at McCormick & Co’s ROE, I don’t see a significant change. In 2021. Covid had an effect on all sales in, but McCormick was higher that year with 18.12%. They were up 0.67/0.73% in the stock exchange. When comparing to the competitor it seems that Unilever PLC is doing better in all aspects. McCormick is doing better than Congra in all aspects except financial leverage.
In this week’s lessons I have learned how to do find different ratios for a business, I also learned how to compare them. I never knew of MorningStar before and looked up a few companies just to see who they compare to competitors and who their competitors are. I won’t use this in my current job, as I do payroll and don’t have any sales or profits, but I can use this in my construction business to see how my business is doing.
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