Analysis of Profitability Ratios
Profitability ratios measure the company ability to generate profitable sales from its resources (assets).
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Kraft Foods Group Inc. pages available for free this week:
- Balance Sheet: Liabilities and Stockholders’ Equity
- Analysis of Short-term (Operating) Activity Ratios
- DuPont Analysis: Disaggregation of ROE, ROA, and Net Profit Margin
- Enterprise Value (EV)
- Enterprise Value to FCFF (EV/FCFF)
- Present Value of Free Cash Flow to Equity (FCFE)
- Operating Profit Margin since 2012
- Return on Equity (ROE) since 2012
- Current Ratio since 2012
- Price to Sales (P/S) since 2012
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Profitability Ratios (Summary)
Kraft Foods Group Inc., profitability ratios
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Return on Sales | ||||
| Gross profit margin | ||||
| Operating profit margin | ||||
| Net profit margin | ||||
| Return on Investment | ||||
| Return on equity (ROE) | ||||
| Return on assets (ROA) | ||||
Based on: 10-K (reporting date: 2014-12-27), 10-K (reporting date: 2013-12-28), 10-K (reporting date: 2012-12-29).
- Gross Profit Margin
- The gross profit margin increased significantly from 31.84% in 2012 to 37.45% in 2013, indicating enhanced efficiency or pricing power during this period. However, in 2014, it dropped sharply to 26.61%, reflecting a notable decline in gross profitability which may signal increased costs or pricing pressures.
- Operating Profit Margin
- The operating profit margin exhibited a similar pattern, rising from 14.56% in 2012 to a peak of 25.20% in 2013, suggesting improved operational performance or better cost management. Conversely, it decreased substantially to 10.38% in 2014, signaling a weakening in operating efficiency or increased operating expenses.
- Net Profit Margin
- The net profit margin increased from 8.95% in 2012 to 14.90% in 2013, demonstrating improved overall profitability. This was followed by a decline to 5.73% in 2014, indicating reduced profitability at the net level, likely affected by lower gross and operating margins.
- Return on Equity (ROE)
- The return on equity rose from 45.97% in 2012 to 52.34% in 2013, highlighting strong returns for shareholders during this period. The ROE then fell to 23.89% in 2014, representing a significant reduction in the company’s ability to generate profits from shareholders' investments.
- Return on Assets (ROA)
- Return on assets improved from 7.04% in 2012 to 11.73% in 2013, reflecting enhanced asset utilization and profitability. It later dropped to 4.55% in 2014, indicating a decline in efficiency in the use of assets to generate earnings.
Return on Sales
Return on Investment
Gross Profit Margin
Kraft Foods Group Inc., gross profit margin calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Gross profit | ||||
| Net revenues | ||||
| Profitability Ratio | ||||
| Gross profit margin1 | ||||
| Benchmarks | ||||
| Gross Profit Margin, 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
Gross profit margin = 100 × Gross profit ÷ Net revenues
= 100 × ÷ =
2 Click competitor name to see calculations.
- Net Revenues
- The net revenues of the company remained relatively stable over the three-year period, with a slight decrease from approximately 18,339 million USD in 2012 to 18,205 million USD in 2014. The variations are minimal, indicating a largely consistent revenue stream during these years.
- Gross Profit
- The gross profit experienced significant fluctuations. It increased from 5,840 million USD in 2012 to 6,823 million USD in 2013, followed by a notable decline to 4,845 million USD in 2014. This pattern suggests variability in the company's cost management or changes in the cost of goods sold.
- Gross Profit Margin
- The gross profit margin mirrored the trends in gross profit but demonstrated more pronounced changes. It increased from 31.84% in 2012 to 37.45% in 2013, indicating improved efficiency or pricing power, before declining sharply to 26.61% in 2014. This decline points to a reduction in profitability at the gross level during the final year observed.
Operating Profit Margin
Kraft Foods Group Inc., operating profit margin calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Operating income | ||||
| Net revenues | ||||
| Profitability Ratio | ||||
| Operating profit margin1 | ||||
| Benchmarks | ||||
| Operating Profit Margin, 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
Operating profit margin = 100 × Operating income ÷ Net revenues
= 100 × ÷ =
2 Click competitor name to see calculations.
The operating profit margin exhibited significant fluctuation over the observed period. Initial values demonstrate a substantial increase followed by a considerable decline.
- Operating Profit Margin Trend
- In 2012, the operating profit margin stood at 14.56%. This figure increased markedly to 25.20% in 2013, representing a substantial improvement in profitability. However, a significant decrease was then observed in 2014, with the operating profit margin falling to 10.38%.
The change in operating profit margin appears strongly correlated with movements in operating income, while net revenues remained relatively stable. Operating income increased substantially from 2012 to 2013, driving the margin increase. The subsequent decline in operating income from 2013 to 2014 directly contributed to the reduction in the operating profit margin.
- Revenue Stability
- Net revenues remained consistent across the three years, fluctuating only slightly between US$18,205 million and US$18,339 million. This suggests that changes in revenue did not significantly influence the observed changes in the operating profit margin.
The substantial volatility in the operating profit margin warrants further investigation. Understanding the factors driving the significant increase in operating income in 2013, and the subsequent decline in 2014, is crucial for assessing the company’s underlying profitability and sustainability.
Net Profit Margin
Kraft Foods Group Inc., net profit margin calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Net earnings | ||||
| Net revenues | ||||
| Profitability Ratio | ||||
| Net profit margin1 | ||||
| Benchmarks | ||||
| Net Profit Margin, 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
Net profit margin = 100 × Net earnings ÷ Net revenues
= 100 × ÷ =
2 Click competitor name to see calculations.
The net profit margin exhibited significant fluctuation over the observed period. Initial values indicate a substantial increase followed by a considerable decline.
- Net Profit Margin - Overall Trend
- The net profit margin began at 8.95% in 2012, increased markedly to 14.90% in 2013, and then decreased substantially to 5.73% in 2014. This represents a volatile pattern, with a peak in 2013 followed by a significant contraction in profitability.
The increase in net profit margin from 2012 to 2013 suggests improved operational efficiency, potentially stemming from cost controls, pricing strategies, or increased sales volume relative to costs. However, the subsequent decline in 2014 indicates a reversal of these positive trends. This decrease could be attributed to rising costs of goods sold, increased operating expenses, or a reduction in revenue.
- Net Earnings and Net Revenues Relationship
- While net revenues remained relatively stable between 2013 and 2014, decreasing slightly from US$18,218 million to US$18,205 million, net earnings experienced a substantial decrease from US$2,715 million to US$1,043 million. This disparity is the primary driver of the decline in net profit margin, suggesting that the company’s ability to convert revenue into profit was significantly diminished in 2014.
The considerable variance in the net profit margin warrants further investigation into the underlying factors affecting both revenue and earnings. A detailed analysis of cost structures, pricing dynamics, and competitive pressures would be necessary to fully understand the observed trends.
Return on Equity (ROE)
Kraft Foods Group Inc., ROE calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Net earnings | ||||
| Equity | ||||
| Profitability Ratio | ||||
| ROE1 | ||||
| Benchmarks | ||||
| ROE, 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
ROE = 100 × Net earnings ÷ Equity
= 100 × ÷ =
2 Click competitor name to see calculations.
The analysis reveals significant fluctuations in Return on Equity (ROE) over the observed period. Net earnings and equity both experienced changes, contributing to the observed ROE trends.
- Return on Equity (ROE)
- ROE demonstrated a notable increase from 45.97% in 2012 to 52.34% in 2013. This suggests improved profitability relative to shareholder equity during that timeframe. However, a substantial decline to 23.89% was recorded in 2014.
- Net Earnings Trend
- Net earnings increased considerably from US$1,642 million in 2012 to US$2,715 million in 2013, representing a significant improvement in profitability. A subsequent decrease to US$1,043 million in 2014 indicates a substantial reduction in earnings.
- Equity Trend
- Equity increased from US$3,572 million in 2012 to US$5,187 million in 2013, reflecting growth in the company’s shareholder equity. Equity then decreased to US$4,365 million in 2014, though remaining above the 2012 level.
The decrease in ROE in 2014 appears to be driven by a combination of significantly lower net earnings and a reduction in equity, although the decline in earnings had a more pronounced effect. While equity increased in 2013, the substantial earnings growth during that year was a primary driver of the higher ROE. The 2014 results suggest a weakening in the company’s ability to generate profits from shareholder investments compared to the prior two years.
Return on Assets (ROA)
Kraft Foods Group Inc., ROA calculation, comparison to benchmarks
| Dec 27, 2014 | Dec 28, 2013 | Dec 29, 2012 | ||
|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||
| Net earnings | ||||
| Total assets | ||||
| Profitability Ratio | ||||
| ROA1 | ||||
| Benchmarks | ||||
| ROA, 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
ROA = 100 × Net earnings ÷ Total assets
= 100 × ÷ =
2 Click competitor name to see calculations.
The analysis reveals significant fluctuations in Return on Assets (ROA) over the observed period. Net earnings demonstrate volatility, while total assets exhibit a slight decreasing trend. These factors combine to produce a dynamic ROA profile.
- Return on Assets (ROA)
- ROA increased substantially from 7.04% in 2012 to 11.73% in 2013. This improvement suggests a more efficient utilization of assets to generate profit during that year. However, a considerable decline is then observed, with ROA falling to 4.55% in 2014.
- Net Earnings Trend
- Net earnings increased markedly from US$1,642 million in 2012 to US$2,715 million in 2013, contributing to the ROA increase. The subsequent decrease in net earnings to US$1,043 million in 2014 is the primary driver of the ROA decline. This suggests a weakening in profitability during the latter period.
- Total Assets Trend
- Total assets decreased modestly from US$23,329 million in 2012 to US$22,947 million in 2014. While this decrease is not substantial, it partially offsets the impact of the net earnings decline on ROA. The relatively stable asset base indicates that changes in ROA are primarily attributable to earnings performance rather than significant shifts in asset levels.
The substantial variation in ROA highlights the importance of investigating the underlying causes of the net earnings fluctuations. Further analysis is warranted to understand the factors contributing to the 2013 peak and the 2014 decline in profitability.