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Dean's Foods Financials Essay

937 words - 4 pages

The ratios of a company are very insightful to the true financial situation of the company. Even if there is not information posted, or readily available, it is easy for an analyst to see the inner-workings of a company. Ratios can give you a idea of where to place a company on a comparative basis. Also, ratios such as beta and Price to earnings, give you an idea of how the stock correlates with the market.Analysts use ratios such as times interest earned, and long term debt to capital, to give you a estimate of a bond rating, even if one is not available. Dreyer?s Grand Ice Cream has had a long term debt to capital ratio at about 37.5 percent for the last two years. Also the times interest earned was 4.3 for 2000, and 2.6 for 1999. These ratios give Dreyer?s an approximate bond rating of Baa. Beta is an important ratio to see how the stock fluctuates with the market. When finding a beta you may come across a large range of values. It is best to chose one that does not over or underestimate the correlation between the stock and the market. Over the past few years we found that the beta for Dreyer?s has been about .75. This beta is about average for the food industry. This comprehensive view of the ratios and financial data tells us that Dreyer?s is not an outstanding financial company, but does have some bright spots. The good points are that times interest earned has gone up, and that there is room for profit growth in the future.The Weighted Average Cost of Capital is the amount that the company must receive to actually add value into the company. It is the opportunity cost that the company takes on to meet the financial demands of the current stockholders. For Dreyer?s Grand Ice Cream, they have had a change in the way that they finance debt. In 1998, they had an even weight of fifty-two percent debt and forty-eight percent equity. In 1999, they had changed to a policy of investing in more equity than debt. When estimating the beta for Dreyer?s Grand Ice Cream, we obtained a large range of values. These were from .4 to 1. We felt that the value of .4 was too low, even for a food producer. We chose a beta of .75. We felt that this was a reasonable value and was close to many of the compiled betas.The risk free rate was based on the one year t-bills value for the week ending December 31 of that year. The cost of debt was estimated as the interest rate for a Baa bond interest rate that was issued at the same time of the issuance...

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