Evaluation of Corporate Performance

Introduction

Located in Whippany, Hanover, in the New Jersey state of the United States of America, Suburban Propane Partners, L.P is a company in the natural gas industry of the country (Suburban Propane, 2018). Suburban Propane is involved in the distribution of the natural gas across the various areas in the United States of America. Suburban Propane is an example of an entrepreneurial project that grew from a cooking woman with problems to the today's multi-million dollar enterprise. In the year 1928, mark and Adele Anton relocated to West Orange from Newark, New Jersey where they built a home. As their house was being constructed, Adele realized that there lacked gas lines close to their house (Suburban Propane, 2018). Mrs. Anton learned to cook with gas, which solved her cooking problem. In the meantime, mark Anton realized an ad regarding a company known as Rock Gas which sold propane (Suburban Propane, 2018). He made an order that made Mrs. Anton the first official satisfied customer. With subsequent ordering for the sake of people who would be moving into the rural New Jersey like the Anton family, mark ordered more equipment, which led to the birth of suburban propane (Suburban Propane, 2018).

Financial Analysis

Pro Forma Financial Statements

Balance Sheet Data

As of September 24, 2016, the assets of suburban propane were valued at $ 2,282,299,000. The following year, the total assets were valued at $ 2,171,283,000. Compared to the financial year 2016, there was a drop in the assets of the company. The fiscal year 2018 had the total assets of suburban propane valued at $ 2,101,199,000. The amount was recorded as a drop for the last two financial years. The following is the graphical representation of the above financial information.

Regarding the trend in the value of total assets in a company, suburban propane is an organization that has recorded a continual decline in its total assets owing to the continuous reduction in the size of the company by having its assets sold. The decrease in the total assets is also an indicator of the decline in the cash and inventory that the company is holding due to the intensification of the investment plans in suburban propane.

The total liabilities of suburban propane in the fiscal year 2016 were valued at $ 1,574,068,000 as of September 24, 2016. The total liabilities in the following year were valued at $ 1,618,301,000 as of September 30, 2017. The increase in the total liabilities was contributed to by the increase in the operational and fixed costs that suburban propane had to incur to facilitate its operations. The liabilities reduced to $ 1,607,375,000 as at September 29, 2018. The reduction in the liabilities was as a result of the cost-saving strategies that the leadership of suburban propane ensured in the fiscal year. The following is the graphical representation of the trend in the number of total liabilities at suburban propane from the fiscal year 2016 to 2018.

The drop in the liabilities of suburban propane between 2017 and 2018 is an indicator of the desirable financial trend as the company expands its operations in the United States of America. 

Income Statements Data

The revenues earned by suburban propane have recorded a steady increase across the three financial years. The revenue of suburban propane in the fiscal year 2016 was $ 1,046,111,000. The revenues recorded a growth in the financial year 2017 and stood at $ 1,187,886,000. By the end of the financial year, 2018 on September 29, 2018, suburban propane recorded revenues of $ 1,344,413,000. The continuous increase in the earnings of the company is a clear-cut indicator of the economic activities taking place at suburban propane across the three fiscal years. The growth of the revenue also indicates the increase in the use of the company's assets to generate income. The forecast of the company's financial performance in the subsequent years demonstrates that the company will be earning more revenues in the coming financial years. The following is the graphical representation of the trend in the revenue earned by suburban propane in the fiscal years 2016, 2017 and 2018.

The net income at suburban propane in the three fiscal years has indicated an upward trend in its growth. As at 24 September 2016, the net income recorded at suburban propane stood at $ 14,440,000. The net income of the company increased in the financial year 2017 as recorded on 30 September 2017 and was recorded as $ 37,995,000. The increase in the net income of the company was attributed to the increase in the revenues earned by the company. In as much as the costs of operation in suburban propane increased in 2017, the revenues made were much more than the expenses. The net income in the fiscal year 2018 was recorded as $ 76,534,000. The net income of suburban propane nearly doubled in 2018 compared in the financial year 2017. The following is the graphical representation of the net income and its trend in suburban propane from 2016 to 2018.

Financial ratios

Liquidity

Current ratio

The current ratio in suburban propane in the fiscal year 2016 was 0.72. The current ratio of suburban propane in the financial year 2017 was recorded as 0.66. The decrease in the current ratio can be attributed to the lowering of the current assets of the company into 2017 from the fiscal year 2016. The reduction can also be linked to the increase in the current liabilities observed in the company in 2017 compared to 2016. The value of the current ratio in suburban propane increased in the financial year 2018 compared to that of 2017 and stood at 0.72. The increase indicated the growing ability of the organization to pay off is current liabilities using its current assets. 

Quick ratio

The quick ratio evaluates the company's ability to take care of its short-term liabilities using its liquid assets. In the fiscal year 2016, the quick ratio of suburban propane was recorded as 0.54. The quick ratio of the company was recorded as 0.65. The increase in the quick ratio value increased owing to the rise in the current assets of the company as it crossed from 2016 to 2017 and the reduction of the liabilities at the company. In the following financial year, the quick ratio of suburban propane rose to 0.70. The consistent rise in the quick ratio in the company was an indicator of the company's liquidation of assets.

Financial Leverage

Equity ratio

The equity ratio at suburban propane has recorded a downward trend from the fiscal year 2016 to 2018. In the financial year 2016, the company's equity ratio was recorded as 0.31. The equity ratio in the fiscal year 2017 had a drop compared to 2016 and stood at 0.25. The equity ratio in the fiscal year 2018 at suburban propane was recorded as 0.24. The steady decline in the equity ratio was because of the reduction in the investment levels for the stakeholders compared to the debt financing at the company. The reduction in the equity ratio of the company is an indicator of the reduced sustainability in potential credit and the increase in the risks associated with future loans. 

Debt to equity ratio

Contrary to the equity ratio, the debt to equity ratio has indicated a steadily rising value at the company in the three fiscal years. The debt to equity ratio of suburban propane in 2016 was recorded as 2.22. The value of the debt to equity ratio in the company grew to 2.92 in the fiscal year 2017, and further grew to 3.25 in the fiscal year 2018. In the financial year 2016, the creditors of suburban propane had 2.22 times the stake of the investors. Such a high debt to equity ratio might be risky for the investors of the company due to the likelihood of skepticism in the approach of investing in the company. The increase in the debt to equity ratio is, therefore, a red flag for the organization. 

Asset Management

Total assets turnover

The total assets turnover measures the ability of suburban propane to generate revenues from its overall assets. The total assets turnover for the company in 2016 was recorded as 0.46. The total assets turnover increased to 0.55 in the fiscal year 2017. Further, the total assets turnover grew to 0.64 in 2018. That was an indicator of the increment in efficiency in the investments using the assets.

Fixed assets turnover

The fixed assets turnover for suburban propane has been on the rise in the last three financial years. In the fiscal year 2016, the fixed assets turnover was recorded as 0.70. The fixed assets turnover for suburban propane was recorded as 0.88 in the fiscal year 2017. The turnover further increased to 1.10 in the financial year 2018. That was an indicator of increased efficiency in the investments.

Profitability

Net profit margin

The net profit margin at suburban propane has recorded a continuous decline in the three financial years, 2016, 2017 and 2018. In the fiscal year 2016, the net profit margin in the company was 84.18%. The value reduced to 83.96% in the financial year 2017 and further to 82.84% in the fiscal year 2018. The reduction in the net profit margin is an indicator of the decrease in the profitability of suburban propane.

Return on assets (ROA)

Suburban propane had an ROA value of 0.63% in the fiscal year 2016. The ROA increased to 1.75% in the financial year 2017. The return on assets further increased to 3.64% in the fiscal year 2018. The constant increment In the ROA is due to the growth in the net income and the total assets of the company. 

Market Value

Book value per share

The book value per share at suburban propane has recorded an incremental trend in the financial years 2016, 2017 and 2018. In 2016, the company filed a book value per share of 0.94. Suburban propane recorded a book value per share of 0.95 and 0.95 in 2017 and 2018 respectively.

Earnings per share (EPS)

The earnings per share at suburban propane were 0.02, 0.07, and 0.15 in the financial years 2016, 2017 and 2018 respectively. The EPS value of the company was the least in 2016 and the highest in 2018 recording an increase across the three fiscal years. The increment in the EPS is an indicator of the increasing value of shares at suburban propane.

Debt

Debt ratio

The debt ratio at suburban propane was recorded as 0.54, 0.59, and 0.60 in the financial years 2016, 2017 and 2018 consecutively. The increase in the debt ratio is a sign of the rise in the outsourcing of funds in the company in the form of debt from the financial institutions. That has led to the reduction in the amount contributed by the stakeholders.

Equity multiplier

The equity multiplier at suburban propane has been recorded as 3.22, 3.93, and 4.25 in the financial years 2016, 2017 and 2018 respectively. The equity multiplier represents the number of times that the total assets in suburban propane have exceeded the owners' equity. There has been a rise in the equity multiplier owing to the growth in assets of the company. 

Measures of leverage value

Price to earnings ratio (PE ratio)

In 2016, the PE ratio of suburban propane was recorded as 993.7. In the year 2017, the PE ratio was calculated as 291.4 while the PE ratio further dropped to 128.9 in the fiscal year 2018.

Price to book ratio (PB ratio)

The PB ratio at suburban propane was recorded as 20.26 in the financial year 2016. In the fiscal year 2017, the PB ratio was recorded as 20.02, which was a drop. The PB ratio of the company further dropped to 19.98 in the financial year 2018.

Activity Ratios

Inventory turnover ratio

The inventory turnover ratio at suburban propane had a continuous decrease in the company for the three fiscal years. The reduction in the inventory turnover ratio suggests that the stock at suburban propane takes longer before being sold out completely. 

Working capital turnover ratio

The working capital turnover ratio for suburban propane was -18.11 in 2016. The working capital turnover ratio in 2017 was -16.76, and in 2018, the working capital turnover ratio was -21.94. The negative working capital turnover ratio in the company for the three financial years suggested that suburban propane had more current liabilities than the current assets.

Cash Flow

The cash provided by operating activities at suburban propane has had an increase in the three financial years that the company. The following is the analysis of the cash provided by operating activities.

	Year
Cash provided by operating activities(in dollars)	2016	2017	2018
	157421000	161336000	208542000

The following is the graphical representation of the cash provided by operating activities.

The cash used up by the investing activities had a reduction in the year 2017 from 2016 and an increase in the year 2018. The following is the tabular representation of the information.

	Year
Cash used in the investing activities(in dollars)	2016	2017	2018
	53905000	22988000	39090000

The following is the graphical representation of the cash used in the investment activities.

The cash used up by the financing activities at suburban propane has had a reduction in the three financial years as follows.

	Year
Cash used up by financing activities(in dollars)	2016	2017	2018
	218513000	172900000	167077000

The following is the graphical representation of the cash used by financing activities at suburban propane from 2016 to 2018.

Return on equity (ROE) using the DuPont system

According to the DuPont analysis, the return on equity (ROE) can be calculated as follows.

ROE = net income/average equity

ROE= (net income/revenue) × (revenue/average assets) × (average assets/average equity)

ROE in 2016= (14440000/1046111000) × (1046111000/2282299000) × (2282299000/708230000) × 100

ROE = 2.04%

ROE in 2017= (37995000/1187886000) × (1187886000/2171283000) × (2171283000/552980000) × 100

ROE = 6.87%

ROE in 2018= (76534000/1344413000) × (1344413000/2101199000) × (2101199000/493820000) × 100

ROE = 15.49%

Economic Value Added (EVA)

EVA = net operating profit after taxes - (invested capital × weighted average cost of capital)

Net operating profit after taxes in 2018 = 153,311,000

Invested capital in 2018 = total assets – current liabilities

Invested capital = 2101199000 – 219038000

Invested capital = 1,882,161,000

Weighted average cost of capital in 2018 = E/V × Re + D/V × Rd × (1- Tc) where

Re = cost of equity

Rd= cost of debt

E= market value of the firm’s equity

D= market value of the firm’s debt

V= E + D = total market value of the firm’s financing (equity + debt)

E/V = percentage of financing that is equity

D/V = percentage of financing that is debt

Tc= corporate tax rate

WACC = 0.235 × 0.06 + 0.765 × 0.15 × (1- 0.21)

WACC = 0.10

EVA = 153,311,000 – (1,882,161,000 × 0.10)

EVA = -43,850,070.

The negative economic value added for suburban propane indicates that the company is destroying the value for the funds invested in it.

Financial Analysis

Findings

Suburban Propane has been based in innovative and entrepreneurial foundation given that it was formed in response to a challenge that was in the rural New Jersey. The company has had a rough financial journey with increases and decreases in its financial prowess. Increasingly, the company has become profitable in the market compared to the other American based energy companies. However, the reduction in its earnings per share and the economic value added are signs that indicate that suburban propane might be headed for a downward trend in its financial quest. 

Recommendations on whether to buy the stock

Based on a financial analyst point of view, it is not recommended to buy the stock of suburban propane. The first reason why it is not recommendable is that the company has a negative economic value added value in the financial year 2018. That means that the company has begun losing the financial strength in terms of utilizing what the investors have given to it. THz other reason why it may not be a good idea to invest in suburban propane is that the debt to equity ratio has had a constant increment from 2016 to 2018. That means that the company is increasingly exposed to financing using debt, which may reduce the profitability of the organization in the near future.

Financial risks associated with operating internationally

The first risk is the currency fluctuations (Heckmann, Comes& Nickel, 2015). The unprecedented currency values in the various areas across the world may make it hard for suburban propane to maintain its profitability as the company prepares to venture into international business (Buckley & Casson, 2016). The other risk is the association with foreign exchange. The foreign exchange rate that is increasing day in day out is set to increase the expenses associated with payment of workers of the company as well as for the goods and services that the company outsources. The third danger associated with suburban propane operating internationally is the political differences (Bekaert & Hodrick, 2017). The various political climatic factors experienced in the various parts of the world may reduce the financial leverage that suburban propane has enjoyed while operating within the United States of America.

Conclusion

Suburban Propane has been identified as one of the energy companies in the United States of America that have projected different levels of financial performance in the country. Beginning from an idea established to solve the challenges of cooking to Mrs. Anton, Suburban Propane is an organization that resulted from entrepreneurial ideologies and has continued to spread its spirit in the modern age of financial endeavors. With the current unstable performance in the various financial metrics, there is a need for the management of the company to decide on the way forward regarding the unstable performance to attract potential investors from in and out of the United States of America. 

Bekaert, G., & Hodrick, R. (2017). International financial management . Cambridge University 

Press.

Buckley, P. J., & Casson, M. (2016). The future of the multinational enterprise . Springer.

Heckmann, I., Comes, T., & Nickel, S. (2015). A critical review on supply chain risk–Definition, 

Measure and modeling. Omega , 52 , 119-132.

Ocampo, J. A. (2018). International Asymmetries and the Design of the International Financial 

System 1. In Critical Issues in International Financial Reform (pp. 45-74). Routledge.

Suburban Propane. (2018). History. Retrieved from https://www.suburbanpropane.com/about/history/  

Appendices

Suburban Propane
CURRENT RATIO
current ratio = current assets/ current liabilities
	2016
current ratio = 147299000/205054000
0.718342
	2017
current ratio = 139493000/210366000
0.663097
	2018
current ratio = 157768000/219038000
0.720277
	QUICK RATIO
quick ratio = (current assets- inventories)/ current liabilities
	2016
quick ratio = (147299000-37341000)/205054000
0.536239
	2017
quick ratio = (139493000-2789000)/210366000
0.649839
	2018
quick ratio = (157768000-5164000)/219038000
0.696701
	EQUITY RATIO
equity ratio = total equity/total assets
	2016
equity ratio = 708230000/ 2282299000
0.310314
	2017
equity ratio = 552980000/2171283000
0.254679
	2018
equity ratio = 493820000/2101199000
0.235018
	DEBT TO EQUITY RATIO
debt to equity ratio = total liabilities/ shareholders’ equity
	2016
debt to equity ratio = 1574068000/ 708230000
2.222538
	2017
debt to equity ratio = 1618301000/552980000
2.926509
	2018
debt to equity ratio = 1607375000/493820000
3.254982
	TOTAL ASSETS TURNOVER
total assets turnover = sales/ total assets
	2016
total assets turnover = 1050000000/ 2282299000
0.460062
	2017
total assets turnover = 1190000000/2171283000
0.548063
	2018
total assets turnover = 1340000000/2101199000
0.637731
	FIXED ASSETS TURNOVER
fixed assets turnover = sales/ net fixed assets
	2016
fixed assets turnover = 1050000000/1501800000
0.699161
	2017
fixed assets turnover = 1190000000/1351010000
0.880822
	2018
fixed assets turnover = 1340000000/1217920000
1.100236
	NET PROFIT MARGIN
net profit margin = net profit/total revenue
	2016
net profit margin = 880619000/1046111000
0.841803
	2017
net profit margin = 997339000/1187886000
0.839592
	2018
net profit margin = 1113719000/1344413000
0.828405
	RETURN ON ASSETS
return on assets = net income/total assets
	2016
return on assets = 14440000/2282299000
0.006327
	2017
return on assets = 37995000/2171283000
0.017499
	2018
return on assets = 76534000/2101199000
0.036424
	BOOK VALUE PER SHARE
book value per share = total owners' equity/number of shares outstanding
	2016
book value per share = 708230000/754060000
0.939222
	2017
book value per share = 552980000/581790000
0.95048
	2018
book value per share = 493820000/518490000
0.95242
	EARNINGS PER SHARE
earnings per share = (net income-preferred stock)/average shares outstanding
	2016
earnings per share =14440000/754060000
0.01915
	2017
earnings per share =37995000/581790000
0.065307
	2018
earnings per share = 76534000/518490000
0.147609
	DEBT RATIO
debt ratio = total debt/total assets
	2016
debt ratio =1224502000/2282299000
0.536521
	2017
debt ratio =1272164000/2171283000
0.585904
	2018
debt ratio =1255138000/2101199000
0.597344
	EQUITY MULTIPLIER
equity multiplier = total assets/total owners' equity
	2016
equity multiplier =2282299000/708230000
3.222539
	2017
equity multiplier =2171283000/552980000
3.926513
	2018
equity multiplier =2101199000/493820000
4.25499
	PRICE TO EARNINGS RATIO
price to earnings ratio = market value per share/earnings per share
	2016
PE ratio =19.03/0.01915
993.7337
	2017
PE ratio =19.03/0.065307
291.393
	2018
PE ratio =19.03/0.147609
128.9217
	PRICE TO BOOK RATIO
price to book ratio = market value per share/book value per share
	2016
price to book ratio =19.03/0.939222
20.26145
	2017
price to book ratio =19.03/0.95048
20.02146
	2018
price to book ratio =19.03/0.95242
19.98068
	INVENTORY TURNOVER
inventory turnover = cost of goods sold/average inventory
	2016
inventory turnover =901140000/45350000
19.87078
	2017
inventory turnover =1020000000/53220000
19.16573
	2018
inventory turnover =1120000000/59110000
18.94772
	WORKING CAPITAL TURNOVER RATIO
working capital turnover ratio = net annual sales/(current assets-current liabilities)
	2016
working capital turnover ratio = 1046111000/(147299000-205054000)
-18.1129
	2017
working capital turnover ratio =1187886000/(139493000-210366000)
-16.7608
	2018
working capital turnover ratio =1344413000/(157768000-219038000)
-21.9424