Question

Le Pete Bread Company is a national bakery-cafe concept with 1,380 Company-owned and franchise-operated bakery-cafe locations in 40 states and in Ontario, Canada. The company has grown from serving approximately 60 customers a day at its first bakery-cafe to currently serving nearly six million customers a week system-wide, becoming one of the largest food service companies in the United States. Sara Lee Corporation is a global manufacturer and marketer of high-quality, brand-name products for consumers throughout the world focused primarily on the meats, bakery and beverage categories. Selected financial information about each company follows:

Sara Lee Le Pete Bread Sales $ 10,793 million $ 1,353.5 million Net Income $ 527 million $ 86.8 million Return on Assets (ROA) 8.32 % 11.55 % Profit margin 7.05 % 6.45 % Asset turnover 1.18 % 1.79 Required:

Why is Sara Lee less profitable than Le Pete Bread? Return on assets and return on sales in the bakery industry are 4.85% and 8.16%, respectively. How do these two companies compare to their industry and what might explain any noted differences?

Answer 1

1. Sara Lee's profitability ratio is at 4.88%[527/10793] and Le Petes profitability is at 6.41% [ 86.8/1353.5]. Sara Lee's is less profitable since the return on assets and the asset turnover ratio that indicate how efficiently the firm is utilizing the assets to generate revenues. A low asset turnover ratio indicates that the firm has assets but is not efficiently using them i.e. is operating less than its capacity. Also lower profits indicate that the firm may although generate higher sales the expenses can as well be higher which results in lower profits.

2. Return on assets and return on sales as compared to the industry are way higher and the difference is due to higher sales and profits as compared to the industry.

	Sara Lee		Le Pete Brand
Assets	12735.74	[1.18*10793]	2422.765	[1.79*1353.5]
Return	1059.614	[12735.74*8.32%]	279.82936	[2422.765*11.55%]
Return on sales	9.82%	[1059.614/10793]	20.67%	[279.82/1353.5]