SYSCO

Financial Statement Analysis: A Focus on Relevant Ratios

SYSCO - Introduction

    Broadline foodservice distributor History Number one player – $30.8 billion sales, almost $1 billion net income Main competitors:    U.S. Foodservice (subsidiary of Ahold) - $19.8 billion sales Aramark - $11 billion sales PFG - $6.6 billion sales

Liquidity - Numbers

Current Ratio Quick Ratio Industry 2005 2004 2003 2002 2001 1.4

1.16

1.23

1.34

1.42

1.43

0.8

0.73

0.78

0.89

0.92

0.92

Liquidity Ratios

   Current ratio is below industry and trending lower Quick ratio - same Higher fuel costs and major geographical disruptions / low-margin business  SYSCO upgrading systems and supply chain, provoking higher near-term debt

Profitability Ratios

Industry 2005 2004 2003 2002 2001 Gross Profit Margin 17.40% 20.15% 20.31% 20.79% 21.01% 20.75% Oper Profit Margin 3.20% 6.29% 6.19% 6.11% 6.16% 5.91% Net Profit Margin Return on Assets Return on Equity 2.00% 3.18% 3.09% 2.98% 2.91% 2.74% 6.90% 11.63% 11.56% 11.22% 11.35% 10.92% 20.30% 34.85% 35.38% 35.42% 31.88% 27.80%

Profitability – Analysis

   SYSCO is significantly more profitable than the industry on a consistent basis and by all measures General upward trend with growth Buying power affords lower COGS

Debt Ratios

Debt Ratio Debt/Equity Ratio Times Interest Earned Industry 2005 2004 2003 2002 2001 0.40

0.67

0.67

0.68

0.64

0.61

0.66

7.20

0.74

0.84

21.19

21.93

0.93

18.34

0.76

18.46

0.57

14.47

Debt - Analysis

    Debt ratios higher than industry Position as #1 player probably affords SYSCO more stable cash flows Relatively low debt ratios stem from high receivables, higher average collection period (not necessarily good) Very high Interest Coverage numbers (Times Interest Earned) enables SYSCO to carry more debt

Asset Management Ratios

Industry 2005 2004 2003 2002 2001 Inventory Turnover 15.6

Average Collection Period 19.2

16.49

27.53

16.65

27.24

16.83

28.06

16.50

27.52

16.26

27.78

Average Payment Period N/A Total Asset Turnover 3.5

38.72

38.87

41.24

38.15

38.41

3.66

3.74

3.77

3.90

3.98

Asset Management Analysis

     Slightly high Inventory Turnover probably reflects SYSCO’s clout as #1 player SYSCO likely uses its buying power to purchase in large blocks, thereby lowering turnover Strategy reflected in profitability Average collection period reflects SYSCO’s greater number of national chain (corporate) accounts SYSCO certainly dictates a higher Average payment period because of market position

Summary

 SYSCO is consistently profitable but may need to address liquidity to forestall downward trend  SYSCO needs to be sure not to let acquisitions and higher costs create perfect storm affecting liquidity  Most variations are positive and reflect SYSCO’s dominance in the foodservice distribution industry

Sources

   SYSCO, Inc. 2005 Annual Report Yahoo! Finance Section www.moneycentral.com