Ratio analyses can be used for performance evaluation, analyzing trends, assessing industry benchmarks, and forecasting growth within a company (Knežević, Rakočević, & Đurić, 2011). Additionally, investors use financial ratios to make decisions about the viability of investments, the company’s potential growth, how a company manages its debt, and how effectively a company manages its liquidity (Gibson, 2011). Prior to investing in any company, investors should also evaluate the potential investment’s leverage. The company’s earnings ratios, yields on dividends, and book value per share should also be assessed.
This paper introduces a regional restaurant chain, Frisch’s Restaurants, Inc. (Frisch’s) and discusses the various ratios relevant to investors interested in Frisch’s, such as degree of financial leverage, price to earnings ratio, percentage of earnings retained, dividend yield, and book value per share. Moreover it contains a section including a vertical common-size analysis for gross profit and operating profit as a function of sales. Additionally, throughout the paper discussions will detail the findings and outline what investors might use in a decision with regard to investing in Frisch’s.
Frisch’s are operated regionally in Ohio, Kentucky, and Indiana (Frisch’s, n.d.). It “operates full service family-style restaurants under the name ‘Frisch’s Big Boy’” (Frisch’s, n.d., “Business Description” para. 1), and it offers drive-thru services as well. At the end of its 2013 fiscal year (which occurred on May 28th), the company operated 95 Frisch’s Big Boy restaurants and had licensed 25 additional restaurants to other operators (Frisch’s, 2013). Frisch’s (2013) reported having 5,800 employees at the end of fiscal year 2013, and it also was noted to have paid its 210th consecutive quarterly cash dividend at that time.
The use of a company’s debt is referred to as its financial leverage (Gibson, 2011). One measure of the use of debt can be found in a company’s degree of financial leverage ratio. This measure shows the relationship between the operating income of a company (earnings before interest and taxes) and its earnings per share (Gibson, 2011). As Exhibit 1 shows, Frisch’s degree of financial leverage was 1.20 in 2006 and 1.21 in 2007. This indicates that in 2006, for every $1 increase in operating income, there is a change of 1.21 times in earnings before interest and taxes. Similarly, in 2007, an increase of $1 in operating income would result in a 1.20 times increase in earnings before interest and taxes.
Analysing the ratio of one with the other in the industry provides for better understanding about the performance of the company in market. An investor has to make a comparative analysis before making any investment decision.
1. Context: In early September’08 Giant Consumer Products, Inc. (GCP) realized that Frozen food division, which had been growing at 2.8% (compounded annual growth) rate since 2003 to 2007 and accounted for almost 33% of GCP’s overall business volume, is not doing well now. The sales as well revenue volume is around 3.9% behind the target. Most specifically marketing margin (key parameter for GCP business) was also under plan by 4.1%. GCP had been doing well in wall-street but performance of past couple of quarters has increased the worries of GCP i.e. whether GCP will able to maintain its profitable growth.
... show that the company is growing and expanding, property and inventory, as a percentage of assets, should be increasing instead of decreasing. More property and inventory, if it is not owned by creditors, would also decrease their debt to total assets ratio.
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
The times interest earned ratio uses a company’s income statement to assess its ability to meet long-...
I have leant that ratio analysis offers better insight of a company’s financial position on the short-term and long-term basis. However, I would recommend that investor advice should be based on ratio analysis that considers ratios from several years. This will ensure that the investor is making an informed decision based on the company’s financial ratio performance trend.
Ratios traditionally measure the most important factors such as liquidity, solvency and profitability, as well as other measures of solvency. Different studies have found various ratios to be the most efficient indicators of solvency. Studies of ratio analysis began in the 1930’s, with several studies of the concluding that firms with the potential to file bankruptcy all exhibited different ratios than those companies that were financially sound.
Many customers will buy more package food in the future as it is cheaper and more convenience because customers can buy it in high volume and keep it for the long time.
McDonald’s has proven over time that the business practices they utilize work well and have led them to obtaining the title of the largest food retailer in the world. The founder of the company made a tactical decision in franchising the idea of providing fast food at a cheap price. Today, fast food has become a staple of not only American life but a viable food option all over the world. For McDonald’s a critical factor in them reaching the level of growth they currently experience has been franchising. It can be assured that McDonald’s will continue to grow through the usage of the franchising techniques as new food markets continue to develop all over the world.
Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000.
Frito-Lay is one of the top producers in the snacking industry and the name rings all too familiar among consumers. What consumers are not familiar with is the competition among Frito-Lay and their numerous competitors such as “ConAgra (DAVID Seeds, Crunch n’ Munch, Orville Redenbacher), Kraft Foods (Nabisco, Honey Maid) and Procter & Gamble (Pringles)” (Sloan, Marshall & Stuart, 2012 p. 443). The lovable corn chip snacks got their beginning in 1932 when C.E. Doolin began selling them in San Antonio, Texas. Coincidentally in the same year Herman W. Lay founded his business with Lay’s potato chips in Nashville, Tennessee. Subsequently in 1961 the two chip retailers merged to become Frito-Lay, Inc. However, by 1965 Frito-Lay, Inc merged with
This bar graph is showing that the trend is sporadic from year to year. This ratio shows the company’s total sales that are available for financing and supporting the company’s ongoing operations. Large ratios are needed to show that the company is in a better place to develop than its rivals. Kraft Food Group has room to grow in this
Ratios analysis also makes possible comparison of the performance of different divisions of the firm. The ratios are helpful in deciding about their efficiency or otherwise in the past and likely performance in the future.
Kentucky Fried Chicken (KFC) is a very well known restaurant in the world. It is rated at number 60 as the world most well known brand by BusinessWeek (McDonalds at number 9 and Nescafe, 23).
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.