Investment Thesis
YUM demonstrates strong operational fundamentals with 31.3% operating margin and positive free cash flow of $341M, but faces severe balance sheet distress with negative stockholders' equity of -$7.3B and critically tight interest coverage of 1.2x on $10.2B debt. The company's liquidity ratios of 0.65x and suspicious 1739.5% revenue growth paired with only 4.9% net income growth indicate structural financial fragility that outweighs operational strengths.
Strengths
- Strong operating margin of 31.3% and net margin of 21.0% indicates efficient operations and pricing power
- Positive free cash flow of $341M (16.6% FCF margin) demonstrates ability to generate cash despite balance sheet stress
- Operating cash flow of $416M provides near-term liquidity buffer despite current ratio concerns
Risks
- Negative stockholders' equity of -$7.3B indicates technical insolvency; liabilities exceed assets by $7.3B
- Interest coverage of 1.2x is critically tight with minimal cushion for operational downturn or rate increases
- Liquidity crisis risk: current ratio and quick ratio both at 0.65x, indicating current liabilities exceed current assets by 35%
- Debt-to-assets ratio of 124% (10.2B debt vs 8.2B assets) shows overleveraged capital structure
- Highly suspicious revenue growth of 1739.5% YoY paired with only 4.9% net income growth suggests one-time items masking core business deterioration
- Elevated insider activity (49 Form 4 filings in 90 days) suggests potential information concerns
Key Metrics to Watch
- Quarterly interest coverage ratio stability and debt service sustainability
- Current ratio improvement and working capital management
- Operating cash flow consistency and free cash flow sustainability
- Debt reduction progress and refinancing capacity in current rate environment
- Organic revenue growth rates excluding one-time items
Financial Metrics
Revenue
2.1B
Net Income
432.0M
EPS (Diluted)
$1.55
Free Cash Flow
341.0M
Total Assets
8.2B
Cash
689.0M
Profitability Ratios
Gross Margin
N/A
Operating Margin
31.3%
Net Margin
21.0%
ROE
N/A
ROA
5.3%
FCF Margin
16.6%
Balance Sheet & Liquidity
Current Ratio
0.65x
Quick Ratio
0.65x
Debt/Equity
N/A
Debt/Assets
188.7%
Interest Coverage
1.18x
Long-term Debt
10.2B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T16:46:09.548144 |
Data as of: 2026-03-31 |
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