Analysis of Long-term (Investment) Activity Ratios
Activity ratios measure how efficiently a company performs day-to-day tasks, such us the collection of receivables and management of inventory.
Long-term Activity Ratios (Summary)
Reynolds American Inc., long-term (investment) activity ratios
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
An analysis of the investment activity ratios between 2012 and 2016 reveals a significant divergence in efficiency metrics starting in 2015. While the utilization of fixed assets remained relatively stable and recovered toward the end of the period, the overall asset and equity turnover ratios experienced a sharp decline, indicating a substantial increase in the company's capital base relative to its revenue generation.
- Net Fixed Asset Turnover
- The net fixed asset turnover ratio exhibited a slight downward trend from 11.79 in 2012 to a low of 10.05 in 2014. However, this was followed by a strong recovery, with the ratio increasing to 11.86 in 2015 and peaking at 12.50 in 2016. This suggests that the efficiency of generating sales from fixed investments improved in the latter part of the analyzed period.
- Total Asset Turnover
- A steady improvement in total asset turnover was observed from 2012 to 2014, rising from 0.74 to 0.80. This trend reversed abruptly in 2015, where the ratio dropped precipitously to 0.28, before a marginal increase to 0.33 in 2016. This contraction indicates that the total asset base expanded at a rate far exceeding the growth in revenue during 2015.
- Equity Turnover
- Equity turnover remained consistent between 2012 and 2013, followed by a peak of 2.67 in 2014. Similar to the total asset turnover, a severe decline occurred in 2015, with the ratio falling to 0.82 and continuing a slight downward trajectory to 0.78 in 2016. The marked decrease suggests a significant increase in shareholders' equity that was not immediately matched by proportional increases in sales.
The contrast between the rising net fixed asset turnover and the declining total asset and equity turnovers suggests that the growth in the balance sheet post-2014 was not driven by fixed asset investments. Instead, the decline in overall turnover ratios points toward a substantial increase in other assets or equity, which diminished the overall efficiency of the capital structure in generating revenue.
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Net Fixed Asset Turnover
Reynolds American Inc., net fixed asset turnover calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net sales, includes excise taxes | 16,846) | 14,884) | 12,096) | 11,966) | 12,227) | |
| Property, plant and equipment, net | 1,348) | 1,255) | 1,203) | 1,074) | 1,037) | |
| Long-term Activity Ratio | ||||||
| Net fixed asset turnover1 | 12.50 | 11.86 | 10.05 | 11.14 | 11.79 | |
| Benchmarks | ||||||
| Net Fixed Asset Turnover, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Net fixed asset turnover = Net sales, includes excise taxes ÷ Property, plant and equipment, net
= 16,846 ÷ 1,348 = 12.50
2 Click competitor name to see calculations.
The analysis of long-term investment activity from 2012 to 2016 reveals a fluctuating trend in asset utilization efficiency, characterized by an initial decline followed by a strong recovery and expansion.
- Net Fixed Asset Turnover Trend
- The net fixed asset turnover ratio experienced a downward trajectory between 2012 and 2014, decreasing from 11.79 to a period low of 10.05. This decline suggests a period where the growth in net property, plant, and equipment outpaced the growth in net sales. However, a significant reversal occurred in 2015 and 2016, with the ratio climbing to 11.86 and reaching a peak of 12.50, respectively.
- Revenue Growth and Asset Efficiency
- The recovery in the turnover ratio is primarily attributed to an acceleration in net sales. After remaining relatively stagnant between 2012 and 2014, net sales increased from 12,096 million US dollars in 2014 to 16,846 million US dollars by 2016. This represents a substantial increase in revenue generation capacity relative to the fixed asset base.
- Capital Investment Patterns
- Net property, plant, and equipment showed a consistent upward trend throughout the five-year period, growing steadily from 1,037 million US dollars in 2012 to 1,348 million US dollars in 2016. While capital investment grew linearly, the non-linear growth in sales during the latter two years resulted in enhanced operational efficiency, as evidenced by the rising turnover ratio.
Overall, the data indicates that the company successfully leveraged its expanded fixed asset base to drive significant revenue growth toward the end of the analyzed period, resulting in a superior level of fixed asset productivity by 2016 compared to the 2012 baseline.
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Total Asset Turnover
Reynolds American Inc., total asset turnover calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net sales, includes excise taxes | 16,846) | 14,884) | 12,096) | 11,966) | 12,227) | |
| Total assets | 51,095) | 53,224) | 15,196) | 15,402) | 16,557) | |
| Long-term Activity Ratio | ||||||
| Total asset turnover1 | 0.33 | 0.28 | 0.80 | 0.78 | 0.74 | |
| Benchmarks | ||||||
| Total Asset Turnover, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Total asset turnover = Net sales, includes excise taxes ÷ Total assets
= 16,846 ÷ 51,095 = 0.33
2 Click competitor name to see calculations.
The analysis of investment activity between 2012 and 2016 reveals two distinct operational phases characterized by a significant shift in the company's asset base and its efficiency in generating revenue.
- Revenue Growth Trends
- Net sales remained relatively stable from 2012 to 2014, fluctuating between 11,966 million and 12,227 million US dollars. However, a period of accelerated growth began in 2015, with sales rising to 14,884 million US dollars, and further increasing to 16,846 million US dollars by 2016.
- Asset Base Expansion
- Total assets exhibited a slight downward trend from 2012 to 2014, decreasing from 16,557 million to 15,196 million US dollars. This was followed by a substantial increase in 2015, where total assets surged to 53,224 million US dollars, representing a more than threefold increase in the asset base within a single year. Assets remained elevated in 2016 at 51,095 million US dollars.
- Total Asset Turnover Analysis
- From 2012 to 2014, the total asset turnover ratio improved steadily from 0.74 to 0.80, indicating an increase in the efficiency of asset utilization to drive sales. This trend reversed sharply in 2015, as the ratio plummeted to 0.28. This decline is directly attributable to the massive expansion of the asset base, which far outpaced the growth in net sales during that period. A slight recovery in efficiency was observed in 2016, with the ratio rising to 0.33.
Overall, the data indicates a strategic shift occurring around 2015. While the company successfully grew its top-line revenue, the dramatic increase in total assets led to a significant reduction in asset turnover, suggesting that the newly acquired or invested assets have not yet reached the revenue-generation efficiency levels observed prior to 2015.
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Equity Turnover
Reynolds American Inc., equity turnover calculation, comparison to benchmarks
| Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | Dec 31, 2012 | ||
|---|---|---|---|---|---|---|
| Selected Financial Data (US$ in millions) | ||||||
| Net sales, includes excise taxes | 16,846) | 14,884) | 12,096) | 11,966) | 12,227) | |
| Shareholders’ equity | 21,711) | 18,252) | 4,522) | 5,167) | 5,257) | |
| Long-term Activity Ratio | ||||||
| Equity turnover1 | 0.78 | 0.82 | 2.67 | 2.32 | 2.33 | |
| Benchmarks | ||||||
| Equity Turnover, Competitors2 | ||||||
| Coca-Cola Co. | — | — | — | — | — | |
| Mondelēz International Inc. | — | — | — | — | — | |
| PepsiCo Inc. | — | — | — | — | — | |
| Philip Morris International Inc. | — | — | — | — | — | |
Based on: 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31).
1 2016 Calculation
Equity turnover = Net sales, includes excise taxes ÷ Shareholders’ equity
= 16,846 ÷ 21,711 = 0.78
2 Click competitor name to see calculations.
The analysis of the financial performance between 2012 and 2016 reveals a significant structural shift in the company's capital efficiency. While net sales exhibited a strong upward trajectory in the latter part of the period, this growth was overshadowed by a massive expansion of shareholders' equity, leading to a sharp decline in equity turnover.
- Net Sales Trends
- Net sales remained relatively stable between 2012 and 2014, fluctuating slightly around the 12 billion USD mark. A period of accelerated growth began in 2015, with sales rising to 14,884 million USD and further increasing to 16,846 million USD by December 31, 2016.
- Shareholders' Equity Dynamics
- Shareholders' equity showed minimal volatility from 2012 to 2014, ending that period at 4,522 million USD. However, a substantial increase occurred in 2015, where equity jumped to 18,252 million USD, and continued to grow to 21,711 million USD in 2016. This suggests a significant injection of capital or a major accounting reorganization during this timeframe.
- Equity Turnover Performance
- The equity turnover ratio experienced a stark inversion. From 2012 to 2014, the ratio was high and stable, peaking at 2.67, indicating efficient utilization of equity to generate sales. Following the surge in equity in 2015, the ratio plummeted to 0.82 and further declined to 0.78 in 2016. The data indicates that the growth in the equity base far outpaced the growth in net sales, resulting in a diminished capacity to generate revenue per unit of equity.
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