Team-Based Financial Statement Analysis

List Team Members:

Jefferson Woods; Brenndon Tso; My Linh Tran

Part 1: Understanding the Business Instructions

1. Each team member (A, B, and C) selects one company to research.
2. Download the Annual Reports of your selected companies.
3. From Item 1 (1A) of the Business Section of the Annual Reports, answer the following questions for each company:
a. How does the company make money?
i. Adobe sells subscription-based products and services to businesses and consumers, where fees are based on total number
of transactions or on a usage basis.
ii. Aramark provides food, facilities, and uniform services to education, healthcare, business & Industry, and sports, leisure
& corrections clients.
iii. Cintas Corporation provides products and services to businesses, such as uniforms, cleaning and restroom supplies, first
aid and safety products, fire extinguishers and testing, and safety courses.

b. What are the company’s business segments?

i. Digital Media (Segment 1)
ii. Digital Experience (Segment 2)
iii. Food & Support Services United States (Segment 1)
iv. Food & Support Services International, (Segment 2)
v. Uniform and Career Apparel (Segment 3)
vi. Uniform Rental and Facility Services (Segment 1)
vii. First Aid and Safety Services (Segment 2)
viii. Fire Protection Services (Segment and Uniform Direct Sale (Segment 3)

c. Complete the following table:

Business Company #1 Cintas Company #2 Aramark Company #3 Adobe
Segment 2021 % of Year- 2020 2021 % of Year- 2020 2021 % of Year-over- 2020
Revenues Total over- Total over- Total Year
Revenues Year Reven Year Revenu Change
Change ues Change es
Business $5,689,632 80.0% 0.8% 5,643,494 6,809,300,00 56.3% (7.6%) 7,366,70 11,194,0 77% 25% 8,966,00
Segment 1 0 0,000 00 0
Business $784,291 11.0% 10.7% 708,569 2,866,200,00 23.7% (2.7%) 2,945,80 3,379,00 33% 27% 2,660,00
Segment 2 0 0,000 0 0
… $642,417 9.0% -12.4% 733,057 2,420,500,00 20.0% (3.8%) 2,517,10
0 0,000
Total 7,116,340 7,085,120 12,096,000,0 12,829,6 14,573,0 11,626,0
00 00,000 00 00

d. Which segment is showing faster growth?

i. Digital Experience (Segment 2)
ii. Food & Support Services United States (Segment 1)
iii. First Aid and Safety Services (Segment 2)

e. What risks does the company face that could adversely impact their ability to make money?
i. Competition. Digital Experience is a relatively new market, and companies are racing to develop technologies and acquire
smaller companies to create bundled product offerings.
ii. Costs. R&D and acquisitions are not cheap, and if the product is outclassed by competitors’ offerings or does not take off
with customers, loss of capital and time can be huge.
iii. Coronavirus impact and recovery. The COVID-19 Pandemic and the pace and degree of recovery continue to adversely
impact business for an extended period of time.
iv. Economic conditions. Unfavorable economic conditions have in the past, are and in the future could adversely affect the
results of operations and financial conditions.
v. Global disaster. Natural disasters, global calamities, climate change, political unrest, sports strikes, and other adverse
incidents beyond their control could adversely affect their revenue and operating risks.
vi. Global economic factors, such as COVID-19 pandemic, could adversely impact the business financial performance.
vii. Economic conditions, such as higher levels of unemployment, inflation, tax rates and changes in tax laws, increase in
labor costs could affect the demand for Cintas’ products and services.
viii. Increased competition and inability to open new, cost-effective operating facilities could affect expansion efforts.
Part 2: Financial Ratio Analysis

1. From the Consolidated Financial Statements in the Annual Report, complete the following table.

Data from the Company’s Annual Report(s)

Company #1 Cintas Company #2 Aramark Company #3 Adobe
2021 2020 2019 2021 2020 2019 2021 2020 2019
Net 1,110,968 876,037 884,981 (91,000,000) (462,000,000) 449,000,000 4,822,000 5,260,000 2,951,458
Income
After
Taxes
Total 7,116,340 7,085,120 6,892,303 12,096,000,000 12,830,000,000 16,227,000,000 15,758,000 12,868,000 11,171,297
Revenue
Total 8,236,823 7,669,885 7,436,662 14,400,000,000 15,713,000,000 13,736,000,000 27,241,000 24,284,000 20,762,400
Assets
Total 3,687,847 3,235,202 3,002,721 2,723,000,000 2,736,000,000 3,320,000,000 14,797,000 13,264,000 10,530,155
Equity

2. Using the data from the company’s annual report in the table above, compute the following ratios for each firm for the 3 years of
statements:
● Return on Equity
● Net Profit Margin
● Total Asset Turnover
● Debt Utilization

Calculated Financial Ratios:

Company #1 Cintas Company #2 Aramark Company #3 Adobe
2021 2020 2019 2021 2020 2019 2021 2020 2019
Return on Equity 30.13% 27.08% 29.47% (33%) (17%) 14% 35.33% 39.66% 28.03%
Net Profit Margin 16.56% 13.18% (0.075%) (0.04%) 0.03% 30.55% 40.88% 26.42%
Total Asset Turnover 0.81 0.87 0.84 0.82 1.18 .58 .53 .54
Debt Utilization 2.23 2.37 2.48 5.29 5.74 4.14 .2786 .3104 .393
 3. All teammates should collaborate and write a brief discussion of your findings. Specifically, use the DuPont Identity to explain the key
drivers of each company’s Return on Equity.
a. The primary reason for the decrease in return on equity ratio (ROE) over 2021 year is the decrease in profitability measured by
ROA and Net Profit Margin ratios.
b. The catalyst for the decrease in Return on Equity over the years from 2019 through 2021 is the overall poor performance as shown
in the Net Profit Margin and Total Asset Turnover ratios.
c. Cintas’ ROE has increased from 2019 through 2021 due to its operating efficiency and asset use efficiency as reflected by
the increased on its Net Profit Margin and Total Asset Turnover.

Part 3: Courses of Action to Improve Return on Equity

Complete the following
1. If you were to improve the company with the lowest ROE in your sample, how might you accomplish that? What ROE
driver(s)s (i.e., ratio(s)) will address and what course(s) of actions will you recommend? Please enter your answer(s) in the
following table:
Most Recent ROE Target Values of Course(s) of Action to Improve the chosen ROE Drivers (e.g.,
of Company with ROE Driver(s) to cut operating costs, improve asset turnover by minimizing
the Lowest ROE Improve Said inventory, etc.). Explain and illustrate how your proposed
Company’s ROE course(s) of action with the chosen ROE Drivers might
accomplish your target ROE improvement.
2021 2022
Return on Equity (33%) 5.0%
Net Profit Margin (0.075%) 1.0% Raise prices or find cheaper vendor sources, reduce staff
Total Asset Turnover 0.84 .75 Improve inventory management by reducing DSI
Debt Utilization 5.29 1.0 Decrease or restructure debt. Taking on more debt in their
case would hurt more than help.

Part 4: Valuation
Complete the following steps for each company:
1. Navigate to Morningstar.
2. Type the ticker of your selected company in the search bar.
3. Select the hyperlinked name of the company.
4. Select Valuation.
5. Collect the last four years’ valuation ratios for the company in the table below.

Data from www.morningstar.com

Company #1 Cintas Company #2 Aramark Company #3 Adobe
2021 2020 2019 2021 2020 2019 2021 2020 2019
Price/Earnings Ratio 41.38 39.67 31.66 (30.5) (29.4) 24.38 56.59 48.18 54.97
Price/Cash Flow Ratio 34.30 29.31 22.43 14.29 54.85 11.11 37.76 42.35 36.67
Price/Book Value 12.90 10.32 8.99 3.48 3.57 3.27 18.2 18.06 15.11
Earnings Yield 2.42 2.52 3.16 (0.98) (4.76) 4.10 1.77 2.17 1.82

In the past few years, some companies have struggled with Covid-19 while others have thrived, depending on industry. Companies like Adobe and

Cintas were able to adapt their offerings and stay profitable (or increase sales) while Aramark suffered due to shutdowns and event cancellations,

resulting in them taking on more debt to stay afloat. If a company is subject to total industry disruption, their valuation may take a hit as they

cannot always get products and may not always have anyone to sell to. Cintas was able to pivot to make Covid-19 sanitation products, increasing

profits and becoming more valuable. Adobe was able to offer adapted digital B2B solutions to help businesses keep and attract new customers in

the digital marketplace. Aramark, supplying physical food to schools, prisons, and sports arenas, really struggled to find alternate ways to sell their

products and had large, year over year losses.