The food and beverage sector provides its investors with a variety of investment opportunities ranging from major soft drink companies to major diversified food companies. To determine whether stock in this sector is appropriate to purchase for a portfolio, it is necessary to understand the company's long-term debt-to-equity (D/E) ratio.
The food and beverage sector includes the beverages - brewers; beverages-soft drinks; beverages - wineries and distillers; confectioners; dairy products; farm products; food - major diversified; meat products; and processed and packaged goods industries. As of May 12, 2015, using trailing 12-month data, the respective long-term D/E ratio of these industries is 53.71 for beverages - brewers; 171.29 for beverages-soft drinks; 133.61 for beverages - wineries and distillers; 117.29 for confectioners; 132.87 for dairy products; 58.74 for farm products; 52.30 for food - major diversified; 63.87 for meat products; and 146.38 for processed and packaged goods.
Fundamental analysis uses the D/E ratio to determine a company's financial leverage and stability. The D/E ratio is calculated by dividing a company's total liabilities by its shareholders' equity.
The simple average of the long-term D/E ratio of the food and beverage sector is 103.34, or (53.71 + 171.29 + 133.61 + 117.29 + 132.87 + 58.74 + 52.30 + 63.87 + 146.38) / 9. This D/E ratio of the food and beverage sector comprises the long-term D/E from all small-, mid- and large-cap food and beverage companies.
The average D/E ratio of the food and beverage sector includes companies with large market capitalizations, such as PepsiCo Incorporated and The Coca-Cola Company, as well as small-cap stocks, such as Synutra International Incorporated. PepsiCo has a long-term D/E ratio of 189.91, The Coca-Cola Company has a long-term D/E ratio of 146.78, and Synutra International Incorporated has a long-term D/E ratio of 404.25. Therefore, for every $1 of Synutra International Incorporated in shareholders' equity, the company has $404.25 in liabilities and is aggressive at financing its growth with debt.