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Accounting Final

Financial Anaylsis of Panera Bread Co. and Chipotle Mexican Grill, Inc.
by

Jason Dunleavy

on 6 September 2012

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Transcript of Accounting Final

Financial Analysis Company Profile Chipotle Mexican Grill, Inc. was founded in 1993 and is based in Denver, Colorado.
Chipotle Mexican Grill, Inc. develops and operates fast-casual, fresh Mexican food restaurants in the United States, Canada, and England.
Its restaurants primarily offer burritos, tacos, burrito bowls, and salads.
Its assembly line production method not only allows customers to choose what goes into their food, but also enhances efficiency.
It is well known for its commitment to its mission statement, "Food With Integrity," by using organic ingredients and naturally raised meat.
As of December 31, 2011, it operated 1,230 restaurants, which includes 1 ShopHouse Southeast Asian Kitchen. Company Profile Panera Bread is a chain of bakery–café quick casual restaurants in the United States and Canada.
Panera Bread Company was founded in 1981 and is based in St. Louis, Missouri
Its bakery-cafes offer fresh baked goods, sandwiches, soups, salads, and custom roasted coffees, and other complementary products, as well as provide catering services.
The company also provides fresh dough, produce, tuna, and cream cheese items, as well as sweet goods items through its company-owned and franchise-operated bakery-cafes.
As of December 27, 2011, it operated 740 company-owned bakery-cafes and 801 franchised bakery-cafes under the Panera Bread, Saint Louis Bread Co., and Paradise Bakery & Cafe names. "A Loaf of Bread In Every Arm" "Food With Integrity" Horizontal Analysis Sales for 2011 2,269,548,000
Sales for 2010 - 1,825,625,000
Increase 433,626,000 Increase in sales 433,626,000
Sales for 2010 1,825,625,000 23.8% Horizontal Analysis Sales for 2011 1,822,032,000
Sales for 2010 - 1,542,489,000
Increase 279,543,000 Increase in sales 279,543,000
Sales for 2010 1,542,489,000 18.1% Income Statement Income Statement Balance Sheet This information tells us that for the year ended 2011, Panera had an 18.1% increase in revenue. This is substantial increase, especially in a suppressed economy and certainly gives a good outlook for the company's future Cash for 2011 222,640,000
Cash for 2010 - 229,299,000
Decrease (6,659,000) Decrease of Cash 6,659,000
Cash for 2010 229,299,000 2.3% This information tells us that during the 12 months ended December 2011 there was a 2.3% decrease in the amount of cash and cash equivalents on hand. Although it is beneficial to have cash on hand, an excess of cash may be unnecessary. Further investigation needs to be performed to understand where the cash was spent and what their future liquidity needs are This information tells us that for the year ended 2011, Chipotle had a 23.8% increase in revenue. This is substantial increase and should be noted Balance Sheet Cash for 2011 401,243,000
Cash for 2010 - 224,838,000
Increase 176,405,000 Increase of Cash 176,405,000
Cash for 2010 224,838,000 78.5% This percentage represents the increase of cash on hand on Dec 31, 2011 vs. Dec 31 2010. The increase of 78.5% is significant and is a good indication that the company must be doing well. Vertical Analysis Income Statement Balance Sheet Cost of goods sold 1,429,113,000
Net Sales 2,269,548,000 63.0% Cash 401,243,000
Total Assets 501,192,000 80.06% Year Ended, December 31, 2011 December 31, 2011 This percentage represents the cost of goods sold over the net sales. This means that for every dollar earned, 63 cents goes towards the cost of the product. To analyze this percentage more accurately, comparisons need to be made horizontally and also to competitors in the industry. This percentage represents the cash over the total assets. This means that out of every dollar of asset that Chipotle has, about 80 cents of that is cash. 80.06% is a huge percentage and indicates that the company has adequate cash to expand and grow in the future. Vertical Analysis Cost of goods sold 1,185,969,000
Net Sales 1,822,032,000 65.09% Cash 222,640,000
Total Assets 353,119,000 63.05% Year Ended, December 26, 2011 Income Statement Balance Sheet December 27, 2011 Rate of Return on Net Sales Net Income after taxes 214,945,000
Net Sales 2,269,548,000 9.47% Net Income after taxes 135,952,000
Net Sales 1,822,032,000 7.46% Price-Earnings Ratio Market price per share 404.06
Earnings per share 7.27 Market price per share 143.71
Earnings per share 4.86 29.57 Book Value Per Share of Common Stock Common stockholders' equity 1,044,226,000
Number of common shares 31,700,000 Common stockholders' equity 655,076,000
Number of common shares 29,180,000 32.94 22.45 Current Ratio Current Assets 501,192,000
Current Liabilities 157,453,000 Current Assets 353,119,000
Current Liabilities 238,334,000 1.48 to 1 Acid-Test Ratio Cash + Receivables + Marketable Securities
Current Liabilities Cash + Receivables +
Marketable Securities
Current Liabilities Cash 401,243,000
Receivables 14,627,000
Marketable Securities _
Total 415,870,000 Cash 222,640,000
Receivables 82,235,000
Marketable Securities -
Total 304,875,000 When Panera is compared to Chipotle, there is a 2.01% difference on the return of net sales. This may not seem like a large difference but this represents a 27% higher when compared for Chipotle. These ratios still need to be compared to prior years and industry standards for true analysis for the company's results of operations The investor is paying $55.58 for each dollar of Chipotle's earnings and $29.57 for each dollar of Panera's earnings. It seems like Panera is a better buy, but keep in mind that there are several factors that will also need to be taken into account. 55.58 This proves that there must be a lot of stockholder confidence in these companies because it is trading for much higher than its book value. In the case of liquidation, the stockholders would receive much less than what they paid for. With Chipotle's current market price at $404.06 per share and Panera's at $143.71, in the case of liquidation one would receive a higher percentage of what they paid for from Panera. 415,870,000
157,453,000 3.18 to 1 304,875,000
238,334,000 2.64 1.28 This percentage represents the cost of goods sold over the net sales. This means that for every dollar earned, 65.09 cents goes towards the cost of the product. To analyze this percentage more accurately, comparisons need to be made horizontally and also to competitors in the industry. This percentage represents the cash over the total assets. This means that out of every dollar of asset that Panera has, about 63.05 cents of that is cash. This number is not as high as Chipotle's, but investigation needs to be preformed as to what the other assets are. Working capital is a very important measure of liquidity of a business. The current ratio measures the ability of a business to pay its current debts using its current assets. A general guideline is that a business should have a ratio of at least 2:1. Chipotle exceeds this ratio by 1.18 while Panera is short by 0.52. The acid-test is a better measurement of immediate liquidity. This ratio uses quick assets, which include cash, accounts recievable and marketable securities. A general guideline is that the acid-test ratio should be at least 1:1. Both Chipotle and Panera fulfill this guideline, but Chipotle is more secure. Conclusion When comparing the two companies horizontally, Chipotle has a greater increase in sales and cash year over year.
Additional, when comparing the two companies vertically, Chipotle appears stronger, with a lower cost of goods sold and a higher cash over total assets.
When comparing profitability, Chipotle has a higher return on net sales.
Based on the book value per share of common stock, and comparing that to the market trading price of each of these two companies, in the (slight) case of each of the company's liquidation, one would receive from Panera a higher percentage of what they paid.
Again, due to the fact that Chipotle's market trading price is extremely high ($404 per share), its price-earnings ratio is not a attractive as Panera's.
Both the current ratio and acid-test ratio indicate an easier ability for Chipotle to pay its debts. On a personal note, I enjoy both of these fast-casual eateries. But as a young stock investor with many years ahead of me to watch my investments grow, I can disregard the fact that the market price seems high and choose to invest in Chipotle. When comparing the two companies with my chosen ratios, Chipotle triumphs Panera. Although when comparing few ratios, Panera's stockholders seem to be getting more value for each dollar spent. However, Chipotle's increase in sales and cash are to attractive to pass up. It should be noted, however, that this does not make Panera a bad investment, but for now Burritos it is!
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