Meat Vs. Plants: A Key Business Ratio Comparison
Advocates who seek to persuade people to eliminate animal products from their diets target their messages toward a variety of audiences. These include consumers of animal products and companies that produce and sell such products. Another important audience to consider is current and potential investors in companies involved in the meat production industry.
The Humane Party in the U.S. recently produced a report that could provide beneficial information for investors. It compared key business indicators for meat- and plant-based industries. The authors conducted an analysis of Key Business Ratios by Dun & Bradstreet library solutions—ratios used to indicate the efficiency, solvency, and profitability of publicly owned companies within an industry.
Specifically, the authors compared ratios for 9 animal-based industries (e.g., poultry and dairy products) and 6 planted-based industries (e.g., fresh fruits and vegetables, grain and field beans). To compare ratios between overall animal- and plant-based industries, the authors combined median numbers for individual industries into an average for each ratio. The full report is available online. A summary of the findings follows.
Solvency And Liquidity
Solvency and liquidity ratios measure enterprises’ capacity to meet their short- and long-term obligations. And liquidity also includes the capability to quickly transform non-cash assets into cash.
The authors conclude that, overall, animal-based industries are more liquid with a better capacity to meet their short-term obligations than plant-based industries. They based this conclusion on the comparison of several ratios. The most significant differences show that animal-based industries have a higher liquidity. This indicates that they “have some breathing room in terms of meeting their short-term debts.” Plant-based industries have an over-reliance on their inventory, instead of cash, to pay debt. And animal-based industries have less cash frozen in the form of fixed assets. But, plant-based industries come out on top in regard to two ratios comparing liability to net worth. This indicates that they present more secure investment opportunities for creditors than animal-based industries.
Efficiency ratios measure the ability of a company to utilize its assets and manage its liabilities in an effective way.
The authors conclude that, overall, plant-based industries are more efficient than animal-based industries. And they make better use of their assets and liabilities. The most significant differences between the ratios indicate that plant-based industries have a better inventory turn-over. And they require less of an investment to generate sales. On the flip side, animal-based industries appear to be more efficient in utilizing their short-term assets and liabilities for supporting sales. This indicates that they are more effective in using their working capital (the day-to-day money used in the trading operations of a business, equal to the current assets minus the current liabilities).
Profitability ratios describe how well a company is performing. They analyze how companies earn their profits in relation to sales, assets, and net worth.
The results indicate that, overall, plant-based industries are significantly more profitable than animal-based industries. And they generate shareholders a higher return on their investment. The specific differences indicate as follows:
- Plant-based industries have a higher return on sales, or profits after taxes from the year’s sales, by a factor of 0.39%.
- Plant-based industries have a higher return on assets, or the after tax earnings of assets, by a factor of 0.98%. The authors note that while this difference may appear small, “depending on the revenues generated, it can represent millions of dollars.”
- Plant-based industries have a higher return on the capital invested by the owners or stockholders by a factor of 2.46%. The authors state that this ratio “shows that plant-based industries generate more profits for every dollar invested by the shareholders than animal-based industries.”
These findings could be useful for advocates targeting potential business investors. While the authors do not discuss specific implications of the results, they suggest that their analysis could potentially influence future investment decisions in animal- and plant-based industries. Overall, choosing to invest in plant-based industries appears to be a smarter choice than investing in animal-based industries. This seems particularly true for long-term investments. According to the results, while animal-based industries appear to be better able to meet short-term obligations, plant-based industries are more efficient and profitable than animal-based industries. They also offer more secure and profitable investment opportunities.