Acquired by Tyson Foods in 2014, Hillshire Brands was a manufacturer and marketer of foods under brands such as Jimmy Dean, Hillshire Farm, Van's, Sara Lee, and Aidells.
A company creates wealth for its long-term shareholders in 2 main ways - through dividend payments and through the accumulation of retained earnings. This graph shows the accumulation of per-share equity of long-term shareholders (green bars), which consists of the retained earnings plus all capital invested in the company, and the cumulative dividends the company has paid over time per share of its stock (blue bars).
In the words of Warren Buffett: "We're looking for... businesses earning good returns on equity while employing little or no debt."
Return on equity is a key metric of financial performance, indicating a company's ability to generate earnings using shareholder capital. Over time, ROE is one of the major determinants of the rate at which a company creates shareholder wealth. The average ROE for large U.S. companies is 12%, and many investors use it as a threshold for attractive investments.
Companies can boost ROE by increasing leverage, which reduces the safety of the investment. Therefore, it is useful to look at the return on assets (ROA), which measures a company's earning power regardless of its capital structure. A widening gap between ROE and ROA may be a warning sign that should be thoroughly investigated.
Earnings per share is a popular metric used to value a company (using P/E ratio); growth in EPS is often used to judge company growth potential. However, many investors believe that EPS is an inferior metric to ROE, because it ignores the amount of capital the company used to generate earnings.
Free cash flow shows how much cash a company generates from operations, above and beyond what is required to maintain or expand its productive assets. This cash can be returned to investors, or spent by management on growing the company or paying back its debts.
Balance sheets of many companies contain intangible assets such as goodwill, trademarks, patents, etc. Many investors consider intangibles more difficult to value than physical assets. If intangible assets had been valued incorrectly, they must be impaired, resulting in a loss charged against shareholder equity. This chart demonstrates the potential loss to shareholder equity from such impairments.
Companies often use debt financing to increase their return on equity. However, as the amount of debt financing increases relative to the amount of equity financing, the company becomes more sensitive to down turns and other negative events. As a result, many investors use the ratio of debt to equity as a measure of a company's financial risk, and avoid companies that have this ratio above 1.
This chart shows shareholder equity as a percentage of total assets, allowing investors to judge the overall leverage. Companies with a higher proportion of equity can be viewed as safer investments. This metric is particularly important for highly leveraged institutions, such as banks, where it must be at least 4% according to government regulations.
The ratio of current assets to current liabilities is known as the current ratio. This metric is a quick measure of the company's ability to pay its short-term obligations. A current ratio below 1 is a warning sign that should be investigated, especially for companies that cannot count on adequate cash flow from operations.
This chart shows the cumulative dilution of investor ownership in a company over time. Dilution reduces an investor's participation in the future earnings. Dilution increases when a company issues new shares, and decreases when a company buys its shares back. Many investors avoid companies with large chronic dilution.
analysis provides insight into factors affecting the Return On Equity of a company.
The DuPont equation decomposes ROE as follows:
ROE = (Net margin) * (Asset turnover) * (Asset to equity ratio)
Net margin indicates operating efficiency, Asset turnover measures the total asset use efficiency, and the Asset to equity ratio is a measure of financial leverage.
The dividend payout ratio tells investors what percentage of earnings a company returns to shareholders, and what percentage it retains and reinvests. This ratio represents a major capital allocation decision by the company, and can be used to judge management rationality. Rational management should pay out all earnings that cannot be productively reinvested. Therefore, a low dividend payout ratio for a profitable company with a low growth potential may be a warning sign.
Many investors use the P/B ratio as a quick way of judging company valuation. Value investors - followers of Graham and Dodd - specifically seek out companies with low P/B ratios. However, investors should be careful not to make investment decisions on this metric alone, without considering a company's earning and growth potential, since a low P/B ratio can be a sign of a bleak future for the business.
P/E ratio is a popular way of making a quick judgment of a company valuation. Value investors - followers of Graham and Dodd - often seek solid companies with low P/E ratios as investment opportunities. However, P/E ratio represents an oversimplified approach to business valuation, and can often lead to incorrect investment decisions.
In July 2001, the corporation made a cash-tender offer for all of the outstanding common shares of The Earthgrains Company (Earthgrains) at a price of $40.25 per share. In August 2001, the corporation completed the acquisition, acquiring all of the outstanding shares and merging Earthgrains into a wholly owned subsidiary of the corporation. Consideration of $1,941 [M], which consisted of $1,915 of cash and $26 of stock, was issued to acquire the Earthgrains shares. Cash on the Earthgrains balance sheet on the acquisition date reduced the cash expenditure to a net amount of $1,829. In addition, the corporation assumed $1,010 of Earthgrains' long-term debt and notes payable. There are no contingent payments or commitments associated with this acquisition. The results of operations for Earthgrains have been included in the consolidated financial results of the corporation since August 8, 2001.
On June 28, 2012, Sara Lee Corporation, renamed The Hillshire Brands Company, completed the previously disclosed separation of its international coffee and tea business from the Company. Immediately prior to the separation, the Company's international coffee and tea business was held by the Company's wholly owned subsidiary, DE US, Inc. ("CoffeeCo"). The separation was accomplished by a series of transactions, commencing with the distribution after the close of business on June 28, 2012, by the Company to the Company's shareholders of record as of the close of business on June 14, 2012 of 100% of the outstanding shares of common stock of CoffeeCo. One share of common stock of CoffeeCo was distributed for each outstanding share of common stock of the Company. Immediately after the distribution of the CoffeeCo common stock, CoffeeCo paid a $3.00 per share special dividend to CoffeeCo's shareholders of record as of the time immediately after the distribution of the CoffeeCo common stock, which were the Sara Lee shareholders of record as of the close of business on the record date. After the distribution of the $3.00 special dividend, CoffeeCo merged with a subsidiary of D.E MASTER BLENDERS 1753 N.V. ("D.E MASTER BLENDERS 1753"), with CoffeeCo surviving the merger as a subsidiary of D.E MASTER BLENDERS 1753. The ordinary shares of D.E MASTER BLENDERS 1753 were exchanged for all of the shares of CoffeeCo common stock and all of the ordinary shares of D.E MASTER BLENDERS 1753 were distributed to the CoffeeCo shareholders, which were the Sara Lee shareholders of record as of the close of business on the record date. Immediately after the separation and prior to the market open on June 29, 2012, Sara Lee effected the previously disclosed 1-for-5 reverse stock split of Sara Lee common stock and changed its name to The Hillshire Brands Company.
Tyson Foods, Inc. (NYSE: TSN) and The Hillshire Brands Company (NYSE: HSH) today announced that they have entered into a definitive agreement under which Tyson Foods will acquire all outstanding shares of Hillshire Brands for $63 per share. The all-cash transaction is valued at approximately $8.55 billion, including Hillshire Brands' outstanding net debt. In addition, Tyson Foods will be making, on behalf of Hillshire Brands, a payment of the $163 million termination fee associated with the termination of Hillshire Brands' merger agreement with Pinnacle Foods Inc. (NYSE: PF).