nutrisystem-inc-ntri

NutriSystem Inc (NTRI) Results are Fluctuating

September 26th, 2012 Posted by Company Research Report No Comment yet

NutriSystem Inc. (NTRI) is a provider of weight management products and services. To know where the company is leading to when it comes to financial status, thus we begin by analyzing their financial statement in this value investing guide. 

NTRI Balance Sheet

Liquidity

When we speak of liquidity, we pertain to the ability of a certain company to pay its short-term debt obligations. If that’s the case, what would it be for Nutrisystem  Inc.? Let us have a look at the table below.

NTRI BS liquidity

Financial liquidity of NTRI showed their ability to pay its short-term debt obligations. As we can see in the table above, the current ratio is the result of dividing current assets by current liabilities wherein the trend of first three years increased then decreased down to 2.85 percent in 2010 and 2011 with average five years of 3.0. The quick ratio, on the other hand, is the result of dividing quick asset (current asset minus inventory) over current liabilities. It showed the same trend as a current ratio but average of 1.91 percent was lesser. The company’s net working capital ratio or the result of working capital over total asset depicted an inconsistent up and down trend with an average of 52.4 percent.

The overall financial liquidity of NutriSystem  Inc. depicts that the company is financially healthy. There have enough funds to settle obligations and creditors. Even net working capital ratio dipped down to 4.09 percent and 18.9 in 2008 and 2010 due to the financial crisis, they were still able to recover in 2009 and 2011. This means that they have sufficient working capital.

Efficiency Ratios

NTRI has a high receivable turnover ratio averaging 40.5 times implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable was efficient and remarkable. Its inventory levels of 8 times trailing twelve months indicate better performance and efficiency in controlling their inventory. But sometimes a high turnover may result in loss of revenue due to inventory shortage. Payable turnover average 6 to 7 times a year means the company pays off their suppliers. This means they have an average of almost two months credit from their supplies. Fixed asset turnover and asset turnover were trending down which means lower ratios. Thus, they are not generating more revenues from their investments of fixed assets and assets as a whole.

NTRI BS efficiency ratios

  • The receivable turnover ratio is the number of times accounts receivable is collected throughout the year. Wherein it showed a declining trend in 2008 and 2009 but eventually increased in 2010 and 2011, leaving an average of 40.5 times. This is considered, definitely, a high receivable turnover.
  • Inventory turnover ratio shows how many times a company’s inventory is sold and replaced over a period. This depicted an increasing trend with a slight decrease in 2009, maybe this is due to the economic crisis in the US. But it increased again in 2010 and 2011 with a good trailing twelve months of 8 times.
  • Likewise, payable turnover ratio shows investors how many times per period the company pays its average payable amount.In the case of NutriSystem  Inc., it increased to 8 times in 2008 but went down 6 times in 2011 with 7 times in trailing twelve months.
  • The fixed-asset turnover ratio measures a company’s ability to generate net sales from fixed-asset investments – specifically property, plant and equipment (PP&E) – net of depreciation. This showed a decreasing trend yearly with only 13 trailing twelve months. So, a lower fixed-asset turnover ratio means that the company has not been effective in using the investment in fixed assets to generate more revenues.
  • Asset turnover ratio is a number of sales generated for every dollar’s worth of assets. This showed a high volume but a decreasing trend yearly for NutriSystem. This meant a lower amount of sales generated for every dollar of total assets.

Cash Conversion Cycle

Cash conversion cycle (CCC ) measures how quickly the company converts its products into cash through sales. CCC is a good sign for NutriSystem Inc. Cash from receivables was converted fast; therefore, cash can be used or financed again in operations. Let’s find out why through the following results:

ntri BS cash conversion cycle

  • Receivable conversion period measures the number of days it takes a company to collect its credit accounts from its customers. Nutrisystem Inc. had an increasing trend from 2007 to 2009 of 8 to 10 days but sadly decreased in 2010 to 8 and 9 in 2011. But overall a lower number of days is better because this means that the company gets its money more quickly.
  • The days’ sales in inventory or inventory conversion period tell the business owner how many days on an average it takes to sell inventory. With the company, it showed a declining trend yearly and trailing twelve months of 45 days. The usual rule is that the lower,  the better since it is better to have inventory sell quickly than to have it sit on the shelves.
  • While payable conversion period measures how the company pays its suppliers in relation to the sales volume being transacted. This showed an increasing trend of almost 54 days and 51 trailing twelve months for the company to pay its suppliers.
  • Cash conversion cycle validates the effectiveness of the company’s resources in generating cash. Wherein it shows an increasing trend in 2008 of 39. 8 but decreases down in 2009 to 2011 of 10.5 days.

Leverage

NTRI BS leverage

  • Debt ratio indicates what proportion of debt a company has in relation to its assets.  Wherein from 2007 to 2009, it has been slightly decreasing but in 2010 to 2011 it abruptly increased to 50 percent and it had an average of 36.4 percent. This indicates that Nutrisystem Inc. has more assets than debt.
  • Debt to equity ratio is a measure of the relationship between the capital contributed by creditors and the capital contributed by shareholders. This showed a decreasing trend for NutriSystem Inc except in 2010 and 2011 wherein it increased to 100 percent. This means that the company has a high debt/equity ratio and have been aggressive in financing their growth with debt.
  • Solvency ratio determines how well the company is able to meet its debts as well as obligations, both long-term and short-term. The trend depicts a decreasing ratio year after year but has an average of 103.6 percent.

By looking into their debt ratio, we can get the idea about the leverage of NutriSystem Inc. along with the potential risks they are facing in terms of its debt load. In 2011 they have more assets than debts. Debt to equity ratio showed that a 100 percent means that the debt equal to equity or a lot of debt was used to finance and increased operations. So,  Nutrisystem, Inc. could generate more revenues than it would have without outside financing. But the cost of this debt financing may outweigh the gain that they generate on the debt through investment and business activities.  Eventually, this can lead to bankruptcy if not handled properly by their management and leave nothing to shareholders.

As per solvency ratio provides a measurement of how likely a company will be able to continue meeting its debt obligations.  Wherein Nutrisystem, Inc. started as a very high solvent company but it went trend down to 32 percent in 2011. And generally speaking, the lower a company’s solvency ratio, the greater the probability that the company will default on its debt obligations.  But this varies from industry to industry. As a general rule of the thumb, a solvency ratio of greater than 20 percent is still considered financially healthy.

Majority Control of the Company Based on its Total Assets

ntri BS major control of the company

  • Current liabilities to total assets identifies how much will be claimed by the creditor against total assets which declined for the first three years and increased slightly in 2010 of 14 percent and 2.25 with an average of 26.38.
  • While long-term debt to total assets is to make out how many claims the banks have or the bondholder against its total assets.  This show an increasing trend, and visibly that in 2010 and 2011 it has a long-term debt of 23.3 percent against its total assets.
  • Then, stockholders equity to total assets is to know how much the owner can claim in its total assets which showed a good portion of the total asset for the first three years and went down in 2010 and 2011 to 50 percent due to the long-term debt share.

Based in NutriSystem Inc. a total five years of operation the majority in control of their total asset is their stockholders at 63.96 percent than their creditors of 26.38 and last to their bank/bondholder at 9.78 percent average. For the first three years stockholders maintained a high ratio but because of the long-term debt acquired in 2010 and 2011, it shared with their total assets that lower the portion of shareholders.

Plant, Property & Equipment

ntri BS PPE

  • Gross plant, property, and equipment is the gross total of fixed assets cost, this showed a trend that was increasing yearly for the last five years. It had a growth ratio of 32 percent, 2.4, 40, and 10 with an average of 47.6 million dollars.
  • Accumulated depreciation is to reduce the carrying value of an assets to reflect the loss of value due to wear,  tear and usage. Wherein it also shows a yearly increasing trend with an average of 21.2 million dollars which is 44.5 percent of the average cost of plant, property, and equipment.
  • Net plant, property, and equipment is the result after deducting the accumulated depreciation from gross PPE, this showed a decrease in 2009 but it increased back in 2010 and 2011. It had an average of 26.4 million dollars which is 55.4 percent of the average cost.

NTRI Income Statement

An income statement allows the business as well as investors to understand if the company is operating efficiently and successfully. 

Profitability

NTRI IS profitability

  • Their net margins, the after-tax the profit a company generated for each dollar of sales, showed a downward trend and has a growth ratio of -49.8 percent, -18.8, 20.8, -53.6 and trailing twelve months of 1.12.
  • Their asset turnover which measures the effectiveness of the company to convert its assets into revenues likewise showed a decreasing trend and has a growth ratio of -2 percent, -17, -0.63, -16 and trailing twelve months of 2.70.
  • The return on assets tells us how much profit the company generated for each dollar of total assets. It decreased from 2007 to 2009 of -50.8, -32.5 but the increase of 20.3 percent in 2010 and abruptly drops again in 2011 of -61 percent. This tells us that they tried to recover in 2010 but earnings went down in 2011 causing lesser returns from assets.
  • Their return on equity the company could return such profit percent for every dollar of equity. For the past three years, it has been moving down it recovered 40 percent growth in 2010 but still, it went down 50.4 percent in 2011.
  • Their return on invested capital, this is the financial measure that quantifies how well a company generates cash flow relative to the capital it has invested in its business. Almost the same with return on equity except that in 2011 it declined more of 64.5 percent.
  • The company’s financial leverage this measures the financial structure ratio of the company base on total assets against total stockholders equity.  This shows a decreasing trend for the first three years but it abruptly increases in 2010 and 2011 with a trailing twelve months of 2.14.

NutriSystem Inc.’s profitability trend does not look good especially when it declined in the first three years and current year. Its asset turnover ratio tends to be inversely related to their net profit margin, wherein the higher the net profit margin the lower the asset turnover. This means that they earn more from revenue than converting assets to revenue. The investors can compare companies using this to determine which one is the most attractive business.

Their return on assets depicted unsatisfactory earnings for every dollar of total assets due to their net income and total assets growth ratio yearly which was on a downward trend but somehow managed to increase in 2010 and abruptly declined again in 2011. In terms of their returns using the DuPont Model; wherein an equity multiplier is used to measure their financial leverage allowing investors to see what portion of the return on equity was the result of debt;  it also declined but abruptly increased back in 2010 to 2011 due to the acquired long-term debt of 35 million dollars. Even if their return on equity showed a high favorable decreasing trend due to the financial crisis in the US, sales went down so as their earnings. The bulk of the return comes from profit margins and sales. Likewise, cash flow earned from the invested capital because of the crises also plays unsteadily. So, overall profitability was not quite impressive.

Income

This shows how much money NutriSystem  Inc. had brought in for the last five years in million dollars.

ntri is income

  • Revenue means how much money a company has generated in terms of “sales”, representing the amount of money a company brings in for selling its goods and services. This shows that Nutrisystem Inc. sales trend went down with a growth ratio of -11.5 percent, -23.3, -3.4, -21.4 and trailing twelve months of 406 million dollars.
  • Gross profit shows how much of their markup a company receives on the goods and services it sells after deducting its cost of revenue wherein it also depicted a decreasing trend.
  • Operating profit is the best indicator of a company’s true performance in their operations.This is the result of deducting all the expenses incurred in their operations, wherein it showed a downhill trend of -44.7 percent, -52.2, 23.3, and -64. It recovered in 2010 but still abruptly decreased again in 2011.
  • Net income is what’s left over for a company after all expenses have been accounted for.Same as operating profit, the trend  was downward after deducting the provision for income taxes
Income shows that Nutrisystem Inc. experienced a marketing problem causing sales to go down, aside from the US financial crises. They recovered substantially in 2010 but in 2011 they cut off almost 50 percent of their operations. Thus, net income amounts, like a domino effect, became smaller.

Expenses

The table below showed how much NutriSystem  Inc. spent (in million dollars) over the last five years of their operation.

ntri is expenses

  • The cost of revenue was the amount NutriSystem Inc. paid for the goods that were sold during the year. This showed a declining trend and growth ratio of -6.8 percent, -28, -7.8, and -12.
  • Operating expense was the expenses incurred in conducting the company’s regular operations of the business. This depicted an up and decreasing trend with the growth ratio of 3.6 percent, -6.9, -4.1 and -20.3.
  • Other income and expense were the non-operating income and expenses from their business. This reflected the income and expense in 2007 to 2009 only.
  • Provision for income tax was the amount allocated for their payment of income taxes. This shows a growth ratio of -44.2 percent, -67.6, 72.7 and -68.4.

Margins

Nutrisystem Inc.’s margin tells us the total performance of their business operations. It showed a good profit margin of at least more than 50 percent, unfavorable declining operating margin with the ratio below 30 percent and lastly, a net margin of less than 10 percent. This means operations are in a bad shape to have margins below our scaling standards.

ntri is margin

  • Their gross margin indicates the percentage of revenue dollars available for expenses and profit after the cost of merchandise is deducted from revenues. And this averages 52.86 percent.
  • And their operating margin is the operating income expressed as a percentage of sales or revenue after deducting the operating expenses from gross profit. Which has an average of 11.5 percent?
  • While the net margin is the net income expressed as a percentage of sales or revenue after deducting provision for income tax from income before tax. And it has a 7 percent average only.

ntri income statement

Above graph presents us the modified income statement of Nutrisystem Inc. The movement was all decreasing from 2007 to 2011. This tells us that sales of their products diminished so as its cost or expenses, leaving a merger net income yearly. Overall operations were affected by the lower sales and problem in marketing their products.

NTRI Cash Flow Statement

Cash flow statement helps us determine if Nutrisystem Inc. has an available cash for the operation or if they have a good free cash flow and excess of funds to refinance operations for business expansion.

Cash Flow from Operating Activities

Nutrisystem Inc. had sufficient cash flow provided from operating activities but it seems to be declining down yearly except for 2010 favorable increase. This tells us that they are having problems on their sales, not in their operations. But eventually, operations inventory and payables will be affected if sales of products slow down. 

ntri cfs operating activities

Their net income showed a diminishing trend and growth ratio of -55.7 percent, -36.9, 17.2, -64.7 with trailing twelve months of 5 million dollars and only in 2010 it recovered to have a positive growth. Its depreciation and amortization increased for the first three years but eventually settled to 12 million dollars in 2010 and 2011. Deferred income taxes showed the negative difference of -2 and -3 in 2007 and 2009 with a positive 4 in 2010. As noted, Nutrisystem Inc. paid their workers or employees with stock for compensation. Their inventory trends look unstable with up and down differences every year. Accounts payable, accrued liabilities and income taxes payable seems to have differed only in 2009 to 2011. Other working capitals have the balance of -12 in 2008 and 2010 the rest have positive amounts of 4, 1 and 12. And other non-cash items showed balances only in 2007 to 2009 with no amounts for 2010 and 2011. Thus, overall they had a net cash flow from operations which started good but in decreasing trend except in 2010 with a trailing twelve months of 39 million dollars.

Cash Flow from Investing Activities

Net cash used for investing activities was used in investments in PPE, purchases of investments, sale/maturities of investments and other investing activities. This means Nutrisystem, Inc. has used funds wisely into their investing activities amounting favorably good to the sale in 2007, 2010 and 2011.

ntri cfs investing activities

Their investments in plant, property, and equipment showed negative amounts with a growth ratio of -36.8 percent, -33.3, 1.5 and -60 with trailing twelve months of -10 million dollars. In 2008 they had a PPE reductions of 1 with a net acquisition of -6. They had purchases of investments in 2007 amounting -193, 2009 of -30, 2010 of -1 and -10 in 2011 with trailing twelve months of -19. They also had sale/maturities of investments in 2007 of 243, 2008 of 2, in 2010 and 2011 of 10 and 21 respectively. With other investing activities, the company had 2 in 2007. Therefore, net cash used in investing activities had an up and down trend yearly, with positive differences in 2007 of 33 and in 2011 of 3, with negative amounts of -14, -39 and -10 in 2008 to 2009 respectively.

Cash Flow from Financing Activities

The cash flow from financing activities was provided by debt issued through long-term debt in 2010 and 2011 amount 30 million dollars each. NTRI’s cash provided by common stocks issued of 2 and 1, and other financing activities of 6 and 2 in 2007 and 2008. Moreover, they used cash from financing activities to pay debt repayments in 2011 of 30 million dollars and common stocks repurchased from 2007 to 2010. They also paid dividends from 2008 to 2011 and other financing activities from 2009 to 2011 with trailing twelve months of -20 and -4. Therefore, net cash flow from financing activities has a declining trend with growth ratios of -29.8 percent, -68.8, 176, -67 with trailing twelve months of -23.

ntri cfs financing activities

As we can see NTRI borrowed money only in 2010 and 2011 and even paid half in 2011. The bulk of cash flow was used in the repurchased of common stock, dividend payments, and other financing activities. Thus accounts for the balance of cash flow from financing.

Free Cash Flow

nutrisystem inc

To get if the company have the free cash flow to be used in operations and expansions, we deduct from operating cash flow a number of capital expenditures. Therefore, we can say that NutriSystem Inc. has sufficient free cash flow but in a decreasing trend yearly with the growth ratio of -10 percent, -39.5, -4, and -17 and trailing twelve months of 28 million dollars.

Net Change in Cash

ntri cfs net change in cash

The overall cash flow of NTRI. showed that in 2007 and 2011 they have a positive amounts 28 and 27 million dollars respectively, with negative amounts in 2008 to 2010. This means that the company’s cash flow from operations in 2008 to 2010 was not enough after deducting the investing and financing activities. This may be due to the US financial crisis and decreases in sales of their products. Thus, the cash at the end of each period after deducting the net change in cash from cash at the beginning of period likewise decreased.

ntri cfs

The graph shows cash from operations, investments and financing and the result net change in cash. This depicts a five-year period and the flow from operations appears to slowly go down year after year. Investing activities declined from the first three years and went up in 2010 and 2011. While the company’s financing activities went up in their first three years, then down in 2010 and up again in 2011. Net change in cash started good but the succeeding three years it went down and up again in 2011.

Cash Flow Statement Efficiency Ratios

Cash flow analysis uses ratios that focus on cash flow and how solvent, liquid, and viable the company is. Here are the most important cash flow ratios as well as the results of NTRI:

ntri cfs efficiency

  • Operating cash flow to sales ratio measures how much cash generated from its revenue for the period and gives investors an idea of the company’s ability to turn sales into cash. It showed a slight decreased in 2008, a dip in 2009 of -19.4 percent, increase of 21.3 in 2010 and abrupt decrease again in 2011 of -10.6 with trailing twelve months of 9.6 percent.
  • Operating cash flow ratio measures how much cash left after considering short debt by using the result of operating cash flow from operations over current liabilities. This shows a good liquidity in terms of using cash flow as opposed to income which is sometimes a better gauge. Herein it indicates an up and down trend increase in 2008 of 13.6 percent, decrease in 2009 of -34.9, increase in 2010 of 17.5 and decreases down in 2011 of -31.6 for NTRI.
  • Free cash ratio helps us conclude if the company will grow in the future. Through the result of operating cash flow, less dividend paid less capital expenditure over operating cash flow. It shows sufficiently the company has free cash flow. Even if the trend is declining down yearly, in 2011 it increases 47.9 percent and trailing twelve months to 23 percent.
  • Capital expenditure ratio measures company sustainability in maintaining their assets by using the result of operating
  • Cash flow over capital expenditure for the period. This shows an up and down trend with 3.90 trailing twelve months. So, the company has the financial ability to invest in itself through capital expenditures (CAPEX), then it is thought that the company will grow.
  • Total debt ratio measures company efficiency, the result of operating cash flow over total liabilities. Wherein it shows that Nutrisystem, Inc. has a good total debt ratio the first three years but in 2010 and 2011 it decreases down to 0.89 and 0.63 due to the long-term debt they acquired. And this means operating cash flow will not be sufficient the last.
  • Current coverage ratio measures how much cash available after paying all its current debt. It is determined by cash flow from operating less dividend over current liabilities. It resulted in a decreasing trend except in 2010 and had a growth ratio of -6.2 percent, -50.3,  27.8, and -40.8. This means that after paying off dividends their operating cash flow is no longer enough to pay their current obligation in 2009 and 2011.

Written by Nelly

Edited by Cris

No comments yet. You should be kind and add one!

Leave a Reply

Your email address will not be published.This is a required field!

You may use these HTML tags and attributes:
<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Note:

Research Reports can be found under the company tab.