Tyson Food Case

Topics: Value added, Tyson Foods, Vertical integration Pages: 7 (2128 words) Published: November 14, 2010
In 1935, John Tyson started what would later become Tyson Foods Inc. Through forward and backward integration the family business grew into a fully integrated leader of the poultry industry. Their mission is to become the undisputed world leader in growing, processing, and marketing chicken and chicken-based food products. Stated and Implied Objectives

Profit - Net Income increased 816.7% in 1999; Mostly attributed to divestments from meat and seafood business lines; maintain a profit growth
Growth - Sustain growth, achieve success in present environment and position Tyson for the future
Citizenship - Obey safety and health regulations, take good care of their people, and be socially responsible
Survival - Continue to grow and defend Tyson’s share in targeted markets

Stated and Implied Strategies
Forward Integration - Tyson is already fully integrated; increase Western U.S. distribution
Backward Integration – Acquired Hudson Foods and Holly Farms
Horizontal Integration – International Markets, Increase value-added products, i.e. prepared frozen chicken patties, chunks, fillets, breaded tenders, etc.
Diversification – Concentric diversification: Turkey, Beef, Pork; Synergy through common end use

Financial Audit
Liquidity: Tyson Foods had Sales of $7,363,000,000 in 1999, a decrease from 1998 (sales = 7,414b). The Company’s Current Ratio, 1.75, and Quick Ratio, 0.75, are not great and are lower than the Industry averages, CR 2.0 and QR 0.8. Tyson’s Debt to Equity, 1.39, is higher than the Industry Average of 1.1. This is risky to creditors because they have 1.39$ of debt per dollar of equity. The Debt to Asset Ratio for the firm, 0.58, is higher than the Industry Average, 0.535. This means Tyson has .0.58$ of debt per dollar of assets. Performance: Tyson foods performance is better than average. The industry GPM, 15%, is lower than Tyson’s GPM, 18%. The CGS to sales ratio, 82%, is better than the Industry Average, 85%. Tyson outperformed the Industry in other ratios; NP/Sales 3.13% (I=2.5%), RRA 4.53% (I=4.5), and RRE 10.81% (I=9.4). The SAE/Sales ratio, 9.63, is higher than the Industry Average, 9.4. The increase in performance was aided by divesting the meat and seafood business lines. Activity: Tyson Foods is not controlling inventory well (CGS/Inv. 6.12; I=9.3) and days are higher than the industry (59.64; I=39.25). The A/R Turnover is lower (12.22; I=18.7) while the average collection days are higher (29.87; I=19.52). Fixed Asset Turnover, 3.37, is lower than the Industry, 4.5. TA turnover, 1.45, is lower than the Industry Average, 2.2. There are problems with FA and TA turnovers. It takes longer for Tyson to collect accounts than the Industry and a longer time between sales and collecting cash. Limits: It is possible for Tyson to raise equity funds since there is a market for their stock. Of course this would increase their risk and may hurt their overall book value of the shares. The company cannot increase their debt based on equity or based on assets because they above both Industry Averages. It can improve operations to free up some capital. $547 million can be used as capital by improving A/R collection and Inventory Days based on industry averages. SWOT

* Strong corporate culture- Open communication and trust among diverse workforce. * Fully integrated- Operations including breeding, hatching, raising, and processing chickens. * Value-added products- Convenience added for market segments. * Brand ID- Largest firm in poultry industry.

* Research and development- Continuous R&D activities for improving product. * Technology- Electronic Data Interchange used for receiving and invoicing orders. * First mover- Established reputation as leader in industry. * Horizontally integrated- Acquisition of Holly Farms and Hudson Foods. * Advertising- Largest advertiser in industry, “Tyson for Families” program. * Product quality-...
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