Darden Financial Ratios and Financial Statements Analysis and Review

In "Darden Inc. 2018 Financial Statements and Financial Ratios: Defined, Discussed, and Analyzed for 5 Years” that was written by, Paul Borosky, MBA., doctoral candidate, and owner of Quality Business Plan and Finance Homework Help, the author summarized Darden Inc.'s 2019 10k, Darden 2018, 10k annual report, Darden 2017 10k annual report, and Darden 2016 10k annual reports as the basis for information gathering.  After all of Darden's 10k annual statements were collected, which included Darden Income Statements and Darden's Balance Sheets, he then used proprietary financial templates to calculate different financial ratios such as Darden ROE, ROA, and debt ratio.

Darden 2015 to 2018 Income Statement Summarized

Darden Restaurant Inc.
Income Statement 2018
2018 2017 2016 2015 2014
Revenues               8,080               7,170               6,933           6,764           6,285
COGS               2,303               2,070               2,039           2,085           1,892
Gross Profit               5,777               5,100               4,894           4,679           4,393
SG&A                  409                  387                  384              430              413
Depreciation                  313                  272                  290              319              304
R & D                     -                     -                     -                -                -
Other                     -                     -                     -                -
Operating Expenses               7,313               6,492               6,311           6,396           5,976
EBIT                  766                  677                  622              175              174
Other Income
Interest Expense                  161                    40                  172              192              134
EBT                  605                  637                  450              175              174
Taxes                      2                  154                    90              (21)                (9)
Net Income                  596                  479                  375              709              286

Darden Restaurant 2018 Revenues Analysis:

Darden’s revenues started 2015 at approximately $6.28 billion.  As of 2018, revenues had increased to approximately $8.08 billion.  In terms of revenue growth, their year-over-year average, for the last four years, has been 6.5%.  As compared to the industry, this is well above average.  Further, the most significant growth has come in the last year.  This indicates that the firm may be trending towards higher revenue growth in the future.

Darden Restaurants Inc.
Revenues and Growth
2018 2017 2016 2015 2014
Revenues               8,080               7,170               6,933           6,764           6,285
Revenue Growth 12.7% 3.4% 2.5% 7.6% N/A

Darden Restaurant 2018 Cost of Goods Analysis:

In 2014, cost of goods sold was approximately 30.1% of revenues.  As of 2018, this has declined to 28.5% of revenues.  Further, this trend has been consistent for the last four years.  This indicates that the organization is doing a better job negotiating prices with vendors.  If the firm can maintain this trend, then more funds will be available for other costs or future dividends.

Darden Restaurants Inc. COGS as % of Revenues
Income Statement 2018
2018 2017 2016 2015 2014
Revenues               8,080               7,170               6,933           6,764           6,285
COGS               2,303               2,070               2,039           2,085           1,892
COGS %
Revenues
28.5% 28.9% 29.4% 30.8% 30.1%

Darden Restaurant 2018 SG&A Analysis:

Darden’s SG&A has been trending lower for the last five years.  In 2014, SG&A was 6.6% of revenues.  The statistic had steadily decreased to 5.1% of revenues in 2018.  This indicates that the company is generating more revenues using fewer overhead costs.  Unfortunately, this trend is not sustainable.  Further decline in this area may substantially hinder quality control, research and development and other indirect, yet, important aspects of operations due to budget cuts.

Darden Restaurants Inc. SG&A as % of Revenues
Income Statement 2018
2018 2017 2016 2015 2014
Revenues               8,080               7,170               6,933           6,764           6,285
SG&A                  409                  387                  384              430              413
SG&A %
Revenues
5.1% 5.4% 5.5% 6.4% 6.6%

Darden Restaurants 2015 to 2018 Balance Sheet Summarized

Darden Restaurants Inc.
Balance Sheet
2018 2017 2016 2015 2014
Cash               146               233               274               535                 98
Short Term Investment                  -                  -                  -                  -                  -
Account Receivable                 83                 75                 64                 78                 84
Inventory               205               178               175               163               197
Other                  -                  -                  -                  -                  -
Current Assets               553               587               820            1,056            1,976
Net PPE            2,429            2,272            2,041            3,215            3,381
Goodwill            1,183            1,201               872               872               873
Other                  -                  -                  -                  -                  -
Total Assets            5,469            5,292            4,583            5,995            7,101
Accounts Payable               277               249               242               199               233
Accrued Expense               177               149               135               141               126
Accrued Taxes                  -                   2                  -                 13                  -
Notes Payable                  -                  -                  -                  -               208
LT Debt - Current                  -                  -                  -                 15                 15
Other                  -                  -                  -                  -                  -
Total Current Liabilities            1,384            1,289            1,187            1,197            1,619
LT Debt               926               936               440            1,452            2,481
Other                  -                  -                  -                  -                  -
Total Liabilities            3,274            3,190            2,630            3,661            4,944
Common Stock            1,631            1,614            1,502            1,405            1,302
Treasury                 (8)                 (8)                 (8)                 (8)                 (8)
Retained Earnings               658               560               548            1,026               996
Other                  -                  -                  -                  -                  -
Total Equity            2,195            2,102            1,952            2,334            2,157
Total Equity & Liability            5,470            5,292            4,583            5,995            7,101

Darden Restaurant 2018 Cash Analysis:

Darden started 2014 with approximately $98 million in cash.  The cash position has grown $146 million in 2018.  In relations to sales and total assets, the significant fluctuation between both comparables indicate that neither, sales nor total assets, are benchmarks used for the executive team to assess their cash needs.  With this said, a better way to analyze their cash position would be through the use of financial ratios, specifically the current ratio and quick ratio.

Darden: Cash as a % of Sales
Balance Sheet
2018 2017 2016 2015 2014
Cash               146               233               274               535                 98
% of Sales 1.8% 3.2% 4.0% 7.9% 1.6%
% of Cash 2.7% 4.4% 6.0% 8.9% 1.4%

Darden Restaurant 2018 Accounts Receivable Analysis:

Darden’s account receivable ended 2014 at $84 million.  Further, this was 1.3% of sales.  As of 2018, the revenues were about the same.  However, Darden was able to reduce their accounts receivable, as a percentage of sales, to 1.0%.  This indicates that the company has become more efficient with collecting their debt.  Not only does this help cash flow, this also assists with improving working capital.

Accounts Receivable as a % of Sales
Balance Sheet
2018 2017 2016 2015 2014
Accounts Receivables                    83                 75                 64                 78                 84
% of Sales 1.0% 1.0% 0.9% 1.2% 1.3%

Darden Restaurant 2018 Inventory Analysis:

The organization started in 2014 with an inventory position of $197 million.  This position increased to $205 million in 2018.  In reviewing the percent of sales comparison and total asset comparison with inventory (Shown below), the firm seems to align their inventory position with percent of sales.  Further, the company seems to be declining their inventory position with sales.  In other words, Darden is holding less inventory as sales increase.  This is fantastic because it shows the company is maximizing their inventory usage.  However, if the firm is consistently selling out of products, then sales will inevitably be detrimentally impacted.  You can’t sell something you don’t have.  Common sense to you and I, not so much for some companies.

Darden: Inventory as a % of Sales and Total Assets
Balance Sheet
2018 2017 2016 2015 2014
Inventory               205               178               175               163               197
% of Sales 2.5% 2.5% 2.5% 2.4% 3.1%
% of Total Assets 3.7% 3.4% 3.8% 2.7% 2.8%

Darden Restaurants 2018 Financial Ratios

Liquidity Ratios
Ratios 2018 2017 2016 2015 2014
Current Ratio                  0.40             0.46             0.69             0.88             1.22
Cash Ratio                  0.11             0.18             0.23             0.45             0.06
2018 Darden Asset Utilization
Ratios 2018 2017 2016 2015 2014
Total Asset Turnover                  1.48             1.35             1.51             1.13             0.89
Fixed Asset Turnover                  3.33             3.16             3.40             2.10             1.86
Darden 2018 - Profitability Ratios
Ratios 2018 2017 2016 2015 2014
Return on Assets 10.90% 9.05% 8.18% 11.83% 4.03%
Return on Equity 27.16% 22.79% 19.21% 30.38% 13.26%
Net Profit Margin 7.38% 6.68% 5.41% 10.48% 4.55%
Darden 2018 - Long-term Debt
Ratios 2018 2017 2016 2015 2014
Debt Ratio 16.93% 17.69% 9.60% 24.23% 34.95%

Darden Restaurant Current Ratio Analysis:

Darden’s current ratio started at 1.22 in 2014.  However, the company had continually dropped their current ratio to .4 in 2018.  This action indicates that the company is maximizing their current assets turnover.  This action is common in some industries, such as grocery stores.  However, for restaurants, this strategy may be quite risky.  Especially, if a recession sets in.

A better strategy for Darden would be to increase their current ratio to industry standards, which is about .7.  By doing this, the organization may enjoy moderate liquidity.  Further, investors would perceive less risk with the organization.  This may inevitably increase stock prices.

Darden Restaurant 2018 Cash Ratio Analysis:

Darden’s cash ratio is well below industry averages.  This shows that the company, again, relies heavily on current revenues to generate cash.  In other words, the company has very little cash reserves.

The theme playing out here is that the company is relying heavily on revenues and revenue growth to meet short-term liquidity needs.  In the event of a recession, the organization may find borrowing costs significantly higher due to their stringent cash buffer policies

Darden Restaurant 2018 Fixed Asset Turnover Analysis:

The same theme is playing out for fixed asset turnover as compared to total asset turnover.  Specifically, fixed asset turnover has increased from 1.86 in 2014 to 3.33 in 2018.  This trend is well above industry averages.  Quite frankly, I am not sure if this ratio can improve any further.  Management is doing a fantastic job with utilizing assets.

Darden Restaurant 2018 Days Sales Outstanding Analysis:

The days sales outstanding for Darden started at 4.87 in 2014.  This ratio decreased substantially over the last five years.  In 2018, this ratio was down to 3.75.  This means that the company is taking longer to collect on their accounts receivable.  As a restaurant, this ratio should not be too worrisome.

Darden Restaurant 2018 Return of Assets Analysis:

Darden’s return on assets ended 2014 horribly at 4.03%.  In 2015, possibly after the sale of Red Lobster, this ratio jumped up to 11.83%.  In 2016, the return on assets fell to 8.18%.  However, in the last three years, the company’s return on assets has gradually increased to 10.9% in 2018.  This shows that the company is continually optimizing their return on assets.  Once this ratio levels off, optimization may be reached.  In other words, the company may still be optimizing their asset usage… room for improvement.

Darden Restaurant 2018 Return of Equity Analysis:

In the last three years, Darden has continually improved their return on equity.  In 2016, their return on equity was 19.2%.  Industry average is 14.77%.  As of 2018, return on equity reached 27.16%.  This shows the organization is exploiting their debt opportunities and wisely balancing their capital budgeting structure.

Darden Restaurant 2018 Profit Margin Analysis:

In the last three years, Darden’s profit margin has increased from 5.4% to 7.38%.  Not only is the organization continually increasing the revenues but they are also maintaining a strong net profit growth.  By doing this, the organization will possibly have plenty of funds for dividend payments, as well as, funding future growth opportunities.