Analysis of Solvency Ratios
Solvency ratios also known as long-term debt ratios measure a company ability to meet long-term obligations.
Solvency Ratios (Summary)
Debt Ratios
Coverage Ratios
Kraft Foods Group Inc., solvency ratios
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
The solvency profile of the organization demonstrates fluctuations in leverage and a significant deterioration in debt coverage capacity between 2012 and 2014.
- Capital Structure and Leverage
- A non-linear trend is observed in leverage ratios. Debt to equity decreased from 2.79 in 2012 to 1.92 in 2013, before rising again to 2.30 in 2014. This pattern is mirrored in financial leverage, which fell from 6.53 to 4.46 in 2013 and subsequently increased to 5.26 in 2014. Debt to capital followed a similar trajectory, declining from 0.74 to 0.66 and then recovering to 0.70. In contrast, the debt to assets ratio remained remarkably stable, shifting minimally from 0.43 to 0.44 over the three-year period, indicating that the total debt burden relative to total assets remained constant despite shifts in the equity base.
- Debt Serviceability and Coverage
- A pronounced downward trend is evident in the company's ability to meet its fixed obligations. Interest coverage experienced a consistent decline, dropping from 10.51 in 2012 to 9.16 in 2013, and falling sharply to 3.90 by 2014. Similarly, the fixed charge coverage ratio remained stable at approximately 7.0 between 2012 and 2013 but contracted significantly to 3.22 in 2014. This sharp reduction in coverage ratios suggests a substantial increase in interest expenses or a decline in operating earnings during the final year of the period.
Overall, while the relative debt load against assets remained steady, the increasing financial leverage in 2014 combined with the steep decline in coverage ratios indicates a heightened solvency risk compared to the 2012 and 2013 positions.
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Debt to Equity
Kraft Foods Group Inc., debt to equity calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Current portion of long-term debt | 1,405) | 4) | 5) | |
| Long-term debt, excluding current portion | 8,627) | 9,976) | 9,966) | |
| Total debt | 10,032) | 9,980) | 9,971) | |
| Equity | 4,365) | 5,187) | 3,572) | |
| Solvency Ratio | ||||
| Debt to equity1 | 2.30 | 1.92 | 2.79 | |
| Benchmarks | ||||
| Debt to Equity, Competitors2 | ||||
| lululemon athletica inc. | — | — | — | |
| Nike Inc. | — | — | — | |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 2014 Calculation
Debt to equity = Total debt ÷ Equity
= 10,032 ÷ 4,365 = 2.30
2 Click competitor name to see calculations.
An analysis of solvency indicators between 2012 and 2014 reveals a period of relative stability in total obligations coupled with volatility in shareholder equity. This interaction has resulted in a fluctuating debt-to-equity profile over the observed period.
- Total Debt Trend
- Total debt remained nearly stagnant over the three-year period, moving from US$ 9,971 million in 2012 to US$ 10,032 million by 2014. This represents a marginal increase, indicating a consistent borrowing strategy or a static debt load.
- Equity Fluctuations
- Equity exhibited significant volatility, rising from US$ 3,572 million in 2012 to a peak of US$ 5,187 million in 2013, before declining to US$ 4,365 million in 2014. This fluctuation in the equity base served as the primary driver for the changes in the overall leverage ratio.
- Debt to Equity Ratio Dynamics
- The debt-to-equity ratio decreased from 2.79 in 2012 to 1.92 in 2013, directly reflecting the increase in equity. However, the ratio rose again to 2.30 in 2014 as equity declined. While the 2014 leverage remains lower than the 2012 baseline, the upward trend in the final year suggests a reduction in the solvency cushion.
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Debt to Capital
Kraft Foods Group Inc., debt to capital calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Current portion of long-term debt | 1,405) | 4) | 5) | |
| Long-term debt, excluding current portion | 8,627) | 9,976) | 9,966) | |
| Total debt | 10,032) | 9,980) | 9,971) | |
| Equity | 4,365) | 5,187) | 3,572) | |
| Total capital | 14,397) | 15,167) | 13,543) | |
| Solvency Ratio | ||||
| Debt to capital1 | 0.70 | 0.66 | 0.74 | |
| Benchmarks | ||||
| Debt to Capital, Competitors2 | ||||
| lululemon athletica inc. | — | — | — | |
| Nike Inc. | — | — | — | |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 2014 Calculation
Debt to capital = Total debt ÷ Total capital
= 10,032 ÷ 14,397 = 0.70
2 Click competitor name to see calculations.
An analysis of the solvency position between December 2012 and December 2014 reveals a period of relative stability in total debt levels contrasted by fluctuations in total capital. The overall solvency profile remained consistent, although the reliance on debt for financing capital shifted moderately over the three-year period.
- Total Debt Trends
- Total debt exhibited a marginal and steady upward trend, increasing from US$ 9,971 million in 2012 to US$ 10,032 million by 2014. This indicates a controlled approach to borrowing with minimal growth in total liabilities over the analyzed timeframe.
- Total Capital Fluctuations
- Total capital showed more volatility, rising from US$ 13,543 million in 2012 to a peak of US$ 15,167 million in 2013, before contracting to US$ 14,397 million in 2014. This movement suggests changes in the equity base or other capital components rather than shifts in borrowed funds.
- Debt to Capital Ratio Interpretation
- The debt to capital ratio experienced a non-linear trend, decreasing from 0.74 in 2012 to 0.66 in 2013, and subsequently rising to 0.70 in 2014. The decline observed in 2013 was primarily driven by the increase in total capital rather than a reduction in debt. The subsequent rise in 2014 reflects the reduction in total capital while debt levels remained constant, resulting in a higher proportion of debt relative to total capital.
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Debt to Assets
Kraft Foods Group Inc., debt to assets calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Current portion of long-term debt | 1,405) | 4) | 5) | |
| Long-term debt, excluding current portion | 8,627) | 9,976) | 9,966) | |
| Total debt | 10,032) | 9,980) | 9,971) | |
| Total assets | 22,947) | 23,148) | 23,329) | |
| Solvency Ratio | ||||
| Debt to assets1 | 0.44 | 0.43 | 0.43 | |
| Benchmarks | ||||
| Debt to Assets, Competitors2 | ||||
| lululemon athletica inc. | — | — | — | |
| Nike Inc. | — | — | — | |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 2014 Calculation
Debt to assets = Total debt ÷ Total assets
= 10,032 ÷ 22,947 = 0.44
2 Click competitor name to see calculations.
An analysis of the solvency position from 2012 to 2014 reveals a marginal increase in financial leverage. While the debt to assets ratio remained relatively stable, there is an observable trend of rising debt obligations coupled with a contracting asset base.
- Total Debt Trends
- Total debt experienced a steady, albeit slight, increase over the three-year period, rising from US$ 9,971 million in 2012 to US$ 10,032 million by the end of 2014.
- Total Asset Trends
- A consistent downward trend is observed in total assets, which decreased from US$ 23,329 million in 2012 to US$ 22,947 million in 2014, indicating a gradual reduction in the company's overall resource base.
- Debt to Assets Ratio Interpretation
- The debt to assets ratio remained constant at 0.43 throughout 2012 and 2013 before increasing to 0.44 in 2014. This upward movement is driven by the inverse relationship between the increasing total debt and the declining total assets, signifying that a larger proportion of the company's assets were financed through debt by the end of the period.
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Financial Leverage
Kraft Foods Group Inc., financial leverage calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Total assets | 22,947) | 23,148) | 23,329) | |
| Equity | 4,365) | 5,187) | 3,572) | |
| Solvency Ratio | ||||
| Financial leverage1 | 5.26 | 4.46 | 6.53 | |
| Benchmarks | ||||
| Financial Leverage, Competitors2 | ||||
| lululemon athletica inc. | — | — | — | |
| Nike Inc. | — | — | — | |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 2014 Calculation
Financial leverage = Total assets ÷ Equity
= 22,947 ÷ 4,365 = 5.26
2 Click competitor name to see calculations.
The analysis of solvency ratios between 2012 and 2014 reveals a period of fluctuation in the capital structure, characterized by a notable shift in financial leverage and equity levels against a backdrop of relatively stable total assets.
- Total Asset Trend
- A marginal and consistent decline in total assets is observed, decreasing from US$ 23,329 million in 2012 to US$ 22,947 million by 2014. This indicates a stable asset base with minimal contraction over the three-year period.
- Equity Variations
- Equity levels experienced significant volatility. There was a substantial increase from US$ 3,572 million in 2012 to US$ 5,187 million in 2013, representing a significant strengthening of the equity base, followed by a contraction to US$ 4,365 million in 2014.
- Financial Leverage Dynamics
- The financial leverage ratio demonstrates an inverse correlation with equity movements. The ratio was highest in 2012 at 6.53, suggesting a high reliance on debt financing. This figure decreased sharply to 4.46 in 2013, reflecting the increase in equity. However, the ratio rose again to 5.26 in 2014, as the reduction in equity increased the proportion of debt relative to shareholders' funds.
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Interest Coverage
Kraft Foods Group Inc., interest coverage calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Net earnings | 1,043) | 2,715) | 1,642) | |
| Add: Income tax expense | 363) | 1,375) | 811) | |
| Add: Interest and other expense, net | 484) | 501) | 258) | |
| Earnings before interest and tax (EBIT) | 1,890) | 4,591) | 2,711) | |
| Solvency Ratio | ||||
| Interest coverage1 | 3.90 | 9.16 | 10.51 | |
| Benchmarks | ||||
| Interest Coverage, Competitors2 | ||||
| lululemon athletica inc. | — | — | — | |
| Nike Inc. | — | — | — | |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 2014 Calculation
Interest coverage = EBIT ÷ Interest expense
= 1,890 ÷ 484 = 3.90
2 Click competitor name to see calculations.
A consistent downward trend in the interest coverage ratio is observed between 2012 and 2014, indicating a progressive reduction in the margin of safety available to meet interest obligations from operating profits.
- Earnings Before Interest and Tax (EBIT) Volatility
- Operating earnings exhibited significant instability over the period. EBIT rose from 2,711 million USD in 2012 to a peak of 4,591 million USD in 2013, before declining sharply to 1,890 million USD in 2014. The precipitous drop in earnings in the final year is the primary driver behind the deterioration of the solvency metric.
- Interest Expense Analysis
- Net interest and other expenses increased substantially from 258 million USD in 2012 to 501 million USD in 2013, remaining relatively high at 484 million USD in 2014. The sharp rise in expenses between 2012 and 2013 offset the growth in EBIT, contributing to the initial decline in the coverage ratio.
- Interest Coverage Ratio Performance
- The interest coverage ratio declined from 10.51 in 2012 to 9.16 in 2013, and subsequently plummeted to 3.90 in 2014. This trajectory reflects a significant weakening of the ability to service debt, particularly in 2014, where the ratio fell by approximately 57.5% compared to the previous year.
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Fixed Charge Coverage
Kraft Foods Group Inc., fixed charge coverage calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Net earnings | 1,043) | 2,715) | 1,642) | |
| Add: Income tax expense | 363) | 1,375) | 811) | |
| Add: Interest and other expense, net | 484) | 501) | 258) | |
| Earnings before interest and tax (EBIT) | 1,890) | 4,591) | 2,711) | |
| Add: Rental expenses | 148) | 176) | 150) | |
| Earnings before fixed charges and tax | 2,038) | 4,767) | 2,861) | |
| Interest and other expense, net | 484) | 501) | 258) | |
| Rental expenses | 148) | 176) | 150) | |
| Fixed charges | 632) | 677) | 408) | |
| Solvency Ratio | ||||
| Fixed charge coverage1 | 3.22 | 7.04 | 7.01 | |
| Benchmarks | ||||
| Fixed Charge Coverage, Competitors2 | ||||
| lululemon athletica inc. | — | — | — | |
| Nike Inc. | — | — | — | |
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
1 2014 Calculation
Fixed charge coverage = Earnings before fixed charges and tax ÷ Fixed charges
= 2,038 ÷ 632 = 3.22
2 Click competitor name to see calculations.
The analysis of solvency ratios indicates a significant deterioration in the capacity to meet fixed obligations by the end of the 2014 fiscal year. While a stable coverage position was maintained between 2012 and 2013, a sharp contraction occurred in the final year of the period analyzed.
- Earnings before Fixed Charges and Tax
- A volatile trend is observed in earnings, which rose from US$ 2,861 million in 2012 to a peak of US$ 4,767 million in 2013, before declining sharply to US$ 2,038 million in 2014. The 2014 figure represents a decrease below 2012 levels, indicating a substantial reduction in the funds available to service fixed obligations.
- Fixed Charge Obligations
- Fixed charges increased significantly between 2012 and 2013, rising from US$ 408 million to US$ 677 million. These obligations remained elevated in 2014 at US$ 632 million, reflecting a sustained increase in the company's fixed financial commitments relative to the start of the period.
- Fixed Charge Coverage Ratio
- The coverage ratio remained nearly constant during the first two years, recording 7.01 in 2012 and 7.04 in 2013. However, a substantial decline is observed in 2014, with the ratio falling to 3.22. This downward trend is the result of the simultaneous decline in earnings and the maintenance of higher fixed charges, which significantly reduced the margin of safety for meeting fixed financial commitments.
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