Financial Accounting
Answer 1)
Referring to the ratios calculated of both the companies, having an overview indicates that the competitor of Tyson Foods, i.e. Pilgrim Pride Corp is more profitable company. The latter company is operating with high net profit margins of 6.53% as against 2.26% net margin of Tyson Foods.
Not only net profit margins, Pilgrim Pride knows how to keep its shareholders happy. The company is operating with high return on equity of 45.87%, while Tyson Foods has significantly low Return on Equity of 12.74%.
Pilgrim pride also has high Return on Total Assets, indicating that the company is earning higher net income in relative to its total assets. While, Pilgrim Pride has ROA of 18.06%, Tyson foods earn 6.46% return on its total assets.
Answer 2)
As of year 2013, the net income of Tyson Foods Inc. was $778 Million. However, the cash flow statement of the company reveals that the cash flow from operations of the company is $1314 Million.
The reason for difference in net income and cash flow from operations is the method of preparing each financial statement. While Income Statement is based on accrual accounting method, cash flow statement is made entirely on cash basis. In other words, cash flow statement provides information beyond that available from the income statement, which is based on accrual, rather than cash, accounting.
Explained further, during the preparation of the income statement, the company arrives at net income by deducting expenses from the revenues. However, all the revenues and expenses are recorded as and when they occur. For Instance, if Tyson Food sold its food item to its customer who promised to pay a month later, Tyson Food will still include the revenue, the day it was bought.
However, under cash flow statement, such transactions are excluded and only cash transactions are included to arrive at operating cash flow. Most of the companies use indirect cash flow statement, under which, all the non-operating expenses and changes in working capital are added to net income so as to arrive at cash flow from operations.
For Instance, while the company has reported a depreciation expense of $519 Million in the income statement, the same is added back to net income under cash flow statement. Similarly, all the changes in net working capital are also added to net income. Below provided is the format for Indirect Cash Flow Statement:
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