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Annual Report Analysis Project

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Annual Report Analysis Project

  1. 1. ANNUAL REPORT ANALYSIS PROJECT Starbucks, Dunkin' Brands and Panera Bread   Intermediate  Financial  Accoun1ng  1   University  of  Dallas,  Spring  2015     By:  A.  Alsakran,  F.  Masoudy,  M.  Almohammed  and  F.  Alharbi     1  
  2. 2. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     1. Introduction: Purpose  of  The  Analysis:      Financial  analysis  is  the  most  common  method  and  technique  used  to  evaluate  the   financial  performance  and  financial  condi1on  of  a  company.  Different  types  or  ra1os  provide   financial  informa1on  from  different  aspects.  It  involves  selec1on,  evalua1on  and   interpreta1on  of  financial  informa1on  to  provide  meaningful  informa1on.     Recommenda7on:      On  the  basis  of  the  given  ra1o  analysis  it  is  recommended  that  one  should  invest  in   Starbuck’s  Corpora1on  as  it  is  more  secure  and  offers  a  fair  return  to  its  investors.     Overview  of  The  Presenta7on  Structure:      In  this  presenta1on  we  will  analyze  the  financial  ra1os  of  the  3  most  pres1gious   companies  in  the  food  industry  namely:  Panera  Bread,  Dunkin’s  Brands  and  Starbuck’s   Corpora1on.  Then  on  the  basis  of  this  analysis  we  will  present  a  recommenda1on  about   which  company  is  more  worthy  of  investment.  Finally  the  presenta1on  will  end  up  with  the   summary  and  conclusion.     2  
  3. 3. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     2. Overview: 2-­‐1.  INDUSTRY:       Largest  Companies  Within  The  Industry:        Panera  Bread,  McDonald's,  Subway,  Starbucks,  Dunkin’s  Brands  and  Starbuck’s  are  the   largest  companies  in  the  food  industry.  Starbuck’s  Corpora1on  holds  36.7%  of  the  market   share,  Dunkin’s  Brands  holds  24.6%  and  the  remaining  38.7%  is  shared  by  other  companies.     Geographical  Presence  in  The  Industry:      Panera  Bread  holds  a  strong  posi1on  in  the  industry  with  opera1ons  in  more  than  36   countries  in  the  world.  Dunkin’s  Brands  is  currently  opera1ng  in  more  than  30  countries  with   about  40  years  of  experience.  Starbuck’s  Corpora1on  is  opera1ng  in  more  than  65  countries.     Economic  Factor:      The  companies  have  global  existence  and  their  opera1ons  in  different  countries  are   affected  by  the  poli1cal  and  economic  situa1on  of  these  countries.  The  increased   compe11on  in  the  industry  has  saturated  the  market  and  offered  variety  of  products  to  the   customers.  Yet  from  the  financial  analysis  this  can  be  viewed  that  overall  the  industry  is   growing  and  each  company’s  profit  is  increasing  each  year.   3  
  4. 4. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     2. Overview: 2-­‐1.  BUSINESS  STRATEGY  FOR  EACH  COMPANY:       Panera  Bread:       •  Panera  Bread  was  established  in  1981  as  Au  Bon  Pain.  The  company  spread  out  along  the   east  cost  and  interna1onally  through  1990’s.  Later  on,  the  name  was  changed  to  Panera   Bread  in  1997.  Today,  Panera  is  a  specialized  bakery-­‐café  that  caters  baked  goods,   sandwiches,  soups  and  salads.  Panera  has  been  steadily  growing  throughout  the  years  with   a  strong  financial  and  opera1ng  performance.   •  According  to  Shaich,  CEO  and  founder  of  Panera,  in  his  interview  with  Business  Insider,   “Panera  in  its  core  comes  from  a  view  that  compe11ve  advantage  is  everything.”  Panera   believes  in  fresh  and  healthy  ingredients  that  are  delivered  to  stores  on  a  daily  basis.  Also,   they  provide  a  home  style  atmosphere  to  ensure  that  their  customers  are  comfortable   whether  they  dine-­‐in  or  taking  their  orders  to-­‐go.   •  The  company  focuses  on  a  long  term  marking  strategy;  therefore,  it  is  expected  for  Panera   to  con1nue  delivering  its  goods  consistently.   4   Panera  Bread  Company.  (2014,  April  22).  2013  Annual  Report  to  Stockholders.  Retrieved  16  April  2015  
  5. 5. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     2. Overview: 2-­‐1.  BUSINESS  STRATEGY  FOR  EACH  COMPANY:       Dunkin'  Brands:     •  Dunkin'  Brands  is  the  one  of  the  largest  coffee  and  donuts  chain  opera1ng  in  almost  all  big  countries   of  the  world.  The  annual  sales  revenue  of  the  company  has  been  flourished  tremendously  over  the   past  five  years  making  it  a  leading  coffee  and  donuts  seller  in  the  interna1onal  market.   •  The  company  has  repot  a  annual  revenue  of  748.71  million  in  2014  which  is  almost  5%  greater  than   the  reported  sales  revenue  of  2013.     •  Dunkin  donuts  was  also  one  of  the  akrac1ve  company  from  investment  point  of  view  having  income   available  for  common  share  holders  of  $176.36  million  which  provides  an  basic  earning  per  share  of   1.67  which  is  greater  than  the  past  year  EPS  of  1.38.   •  Dunkin  donuts  has  been  using  product  differen1a1on  strategy  providing  high  quality  donuts  through   processing  from  hi-­‐tech  machines.   •  There  has  also  been  product  differen1a1on  strategy  used  by  the  company  by  making  the  best  donuts   in  market.   •  The  overall  company  perspec1ve  for  next  5  years  looks  quiet  favorable  because  there  has  been  an   increase  in  overall  sales  and  profits  from  last  5  years.  The  EPS  is  also  rising  which  is  makes  the  Dunkin   Donut  a  good  company  that  investors  can  invest  in.     5   Business  Strategy.  (n.d.).  Starbucks  and  Dunkin  Donuts.  Retrieved  16  April  2015  
  6. 6. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     2. Overview: 2-­‐1.  BUSINESS  STRATEGY  FOR  EACH  COMPANY:       Starbucks  Corpora7on:         •  Starbucks  Corpora1on  is  an  interna1onal  coffee  and  coffeehouse  chain  based  in  Seakle,   Washington.  It  was  founded  in  1971  by  Jerry  Baldwin,  Zev  Siegl  and  Gordon  Bowker.     •  Starbucks  is  the  largest  coffeehouse  company  in  the  world,  with  17,009  stores  in  50   countries,  including  over  11,000  in  the  United.  Their  product  mix  includes  roasted  and   handcraoed  high  quality  and  premium  premium  priced  coffees,  tea,  a  variety  of  fresh  food   items  and  other  beverages.     •  Starbucks  is  to  effec1vely  leverage  their  cornerstone  product  differen1a1on  and  also   offering  a  premium  product  mix  of  high  quality.  Starbuck’s  brand  is  built  on  selling  the   finest  quality  coffee.     •  Starbucks  employs  a  broad  differen1a1on  strategy.    This  strategy  is  concentrated  on  a   broader  segment  of  the  total  market.  Starbucks  serves  a  market  that  is  defined  by  coffee   drinkers.     6   Starbucks  Corpora1on.  (2014,  December  4).  Starbucks  Details  Five-­‐Year  Plan  to  Accelerate  Profitable  Growth  at  Investor  Conference  |   Starbucks  Newsroom.  Retrieved  16  April  2015  
  7. 7. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     3. Financial Ratio Calculations and Analysis: Ra1o   Result   Compared   to  Industry   Defini1on   Interpreta1on   Area  Interpreta1on  Dec.  30,  2014   Dec.  31,   2013   Stock'  adjusted   price    $174.89      $176.69     I.  Liquidity       1.  Current  ra1o   1.15   1.00   1.20   The  ability  to  pay  short-­‐term   debt   It  looks  like  Panera  is  trying  to  improve   it's  current  ra1o  and  is  able  to  pay   short-­‐term  debt  just  by  using  it's   current  assets.   Panera  looks  in  a  good   shape  regarding  its   liquidity.  Panera  can   sa1sfy  its  financial   obliga1ons  without  having   a  financial  distress.       2.  Quick  test   0.86   0.69   0.80   The  ability  to  pay  short-­‐term   debt  immediately  and  without   wai1ng  for  inventory  to  be  sold   Panera  can  pay  most  of  its  debt  quickly.       3.  Current  cash   debt  coverage   1.02   1.20   N/A   The  ability  to  pay  off  the   company’s  current  liabili1es   using  a  give  year  opera1ons   It  is  clear  that  Panera's  liabili1es  has   increased  within  the  last  two  years.   However,  it  s1ll  can  pay  out  its   liabili1es  just  by  using  its  opera1on   income.   II.  Ac7vity       4.  Accounts   receivable  turnover   26.45   27.92   15.90   Measures  liquidity  of   receivables   Panera  is  working  in  reducing  its   receivable  turnover.  Form  almost  28  in   2013  to  26.5  in  2014   Panera  has  a  very  good   cash  conversion  cycle.    It   manages  its  cash  by   reducing  the  net  working   capital  which  means   Panera  is  able  to  pursue   new  opportuni1es.       5.  Inventory   turnover   29.95   30.06   N/A   Measures  liquidity  of  inventory   Panera  turns  over  its  inventory  once   every  month.  That  is  good  since  it  deals   with  food  that  has  short  expira1on   dates.       6.  Asset  turnover   1.97   1.95   1.50   Measures  how  efficiently   assets  are  used  to  generate   sales   Panera  generates  almost  $2  for  each   dollar  in  assets.   Panera  Bread:     7  
  8. 8. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     3. Financial Ratio Calculations and Analysis: III.  Profitability       7.  Profit  margin  on   sales   7.09%   8.23%   6.92%   Measures  net  income  generated  by  sales   Panera  has  a  beker  profit  margin  comparing  to   the  industry  margin   Even  though  Panera  has   a  high  profitability  ra1os,   it  does  not  prefer  to   distribute  dividends.   Panera  aims  to  use  its   retain  earnings  to  keep   up  its  con1nuous  growth.       8.  Return  on  assets   13.94%   16.02%   10.50%   Measures  overall  profitability  of  assets   The  company  generates  more  return  from  its   assets  than  do  the  industry       9.  Return  on   common  stock  equity   24.97%   25.78%   N/A   Measures  profitability  of  owners'   investment   Panera's  owners  are  genera1ng  roughly  25%   profits  for  their  investment  which  is  a  very   good  return  rate.       10.  Earning  per  share    $6.67      $6.85     N/A   Measures  net  income  per  share           11.  Price-­‐earning   ra1o    $26.22      $25.79      $33.90     Measures  the  ra1on  of  the  stock  market   price  to  earning  per  share   In  the  year  ended  on  31  Dec.  2014,  it  takes  an   investment  of  $26.22  to  generate  one  dollar  in   earnings       12.  Payout  ra1o   0.00%   0.00%   33.00%   The  propor1on  of  earnings  that  is  paid   out  as  dividends   Panera  has  never  paid  dividends  which  might   make  the  investor  reluctant  to  invest  in  this   company.  However,  this  investment  might  be   akrac1ve  for  future  value.   IV.  Coverage       13.  Debt  to  assets   0.47   0.41   N/A   Measures  total  assets  provided  by   creditors   Although  the  percentage  has  increased,  Panera   uses  more  equity  for  opera1ons   Panera  can  easily  pay  its   yearly  financial   obliga1ons  because  it   does  not  rely  en1rely  on   debts  to  finance  its   opera1ons.         14.  Times  interest   earned   151.28   294.17   10.20   Measures  ability  to  pay  interest  as  they   due   Panera  has  a  very  high  capacity  to  pay  interests   as  they  due       15.  Cash  debt   coverage   0.59   0.75   N/A   Measures  the  ability  to  repay  its  total   liabili1es  using  a  given  year  opera1on   cash  flows   The  company  can  pay  most  of  its  liabili1es   using  its  opera1ng  cash  flows       16.  Book  value  per   share   27.39   24.45   N/A   Measures  the  amount  each  share  would   receive  if  the  company  were  liquidated   at  the  amounts  recorded  on  the  balance   sheet   Since  the  book  value  of  the  equity  has   increased  in  2014,  each  share  would  be   compensated  at  almost  16%  of  its  market  price   if  the  company  were  liquidated.       17.  Free  cash  flow     $110,862,000       $153,961,000     N/A   Measures  the  amount  of  discre1onary   cash  flow   Panera  has  enough  free  cash  that  can  be   u1lized  in  new  opportuni1es  which  in  return   would  enhance  stockholder's  equity.   8  
  9. 9. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     3. Financial Ratio Calculations and Analysis: Ra1o   Result   Compared  to   Industry   Defini1on   Interpreta1on   Area  Interpreta1on   Dec.  30,   2014   Dec.  31,   2013   Stock'  adjusted  price    $42.40      $46.98     I.  Liquidity       1.  Current  ra1o   1.24   1.34   1.20   The  ability  to  pay  short-­‐term   debt   Dunkin  Donuts  from  its  current   ra1o  is  able  to  pay  short-­‐term   debt  just  by  using  it's  current   assets.   The  liquidity  posi1on  of  Dunkin  Donuts  is   beker  as  compared  to  industry  and  the   company  has  sufficient  current  assets   available  to  fulfill  its  current  liabili1es  in  the   case  of  liquida1on.  The  good  liquidity   posi1on  of  the  Dunkin  Donuts  is  one  of  its   key  strengths  and  help  in  avoiding  general   problems  in  the  1mes  of  recession.       2.  Quick  test   0.88   0.98   0.80   The  ability  to  pay  short-­‐term   debt  immediately  and  without   wai1ng  for  inventory  to  be   sold   Dunkin  Donuts  can  pay  most  of   its  debt  quickly  also  they  don’t   have  inventory  to  deduct         3.  Current  cash  debt   coverage   0.57   0.41   N/A   The  ability  to  pay  off  the   company’s  current  liabili1es   using  a  give  year  opera1ons   It  is  clear  that  Dunkin  Donuts   liabili1es  has  decreased  within   the  last  two  years.  However,  it   s1ll  can  pay  out  its  liabili1es  just   by  using  its  opera1on  income.   II.  Ac7vity       4.  Accounts  receivable   turnover   5.22   6.84   15.90   Measures  liquidity  of   receivables   Dunkin  Donuts  is  working  in   reducing  its  receivable  turnover.   Ac1vity  ra1os  despite  of  having  good   accounts  receivable  turnover  does  not   represent  very  good  performance  of  the   organiza1on  as  the  asset  turnover  ra1o  is   significantly  less  than  the  industry  average.   This  means  that  the  Dunkin  Donut  is   understanding  and  not  fully  u1lizing  its   asset's  capacity.  This  could  be  due  to  strict   policies  for  receivable  credit  payback  as  the   accounts  receivable  turnover  is  significantly   beker  than  the  industry  average.       5.  Inventory  turnover   0.00   0.00   N/A   Measures  liquidity  of   inventory   Dunkin  Donuts  has  No   Inventory       6.  Asset  turnover   0.23   0.22   1.50   Measures  how  efficiently   assets  are  used  to  generate   sales   Dunkin  donuts  receives  23  cents   for  every  $1  on  assets   Dunkin'  Brands:     9  
  10. 10. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     3. Financial Ratio Calculations and Analysis: III.  Profitability       7.  Profit  margin  on  sales   23.55%   20.58%   6.92%   Measures  net  income   generated  by  sales   Dunkin  donuts  has  a  very  high    profit   margin  comparing  to  the  industry   margin.   The  profitability  ra1os  of  Dunkin   Donuts  are  significantly  beker  than   the  industry  averages  which  means   the  company  has  compe11ve   advantage  over  sales  and  cos1ng  as   compared  to  the  industry.  Return  on   assets  is,  however,  lower  than  the   industry  averages  which  means  that   the  company  is  not  fully  u1lizing  its   assets  and  has  the  capacity  to   generate  much  higher  profits  using  its   available  assets.  The  high  payout  ra1o   is  jus1fied  with  the  fact  that  the   company  is  not  u1lizing  the  capacity   of  current  assets  and  therefore  does   not  need  to  find  more  ventures  or   opportuni1es  before  fully  u1lizing  its   current  asset's  capacity.       8.  Return  on  assets   5.50%   4.55%   10.50%   Measures  overall  profitability   of  assets   The  company  generates  Less  return   from  its  assets  than  do  the  industry.       9.  Return  on  common  stock   equity   45.49%   38.79%   N/A   Measures  profitability  of   owners'  investment   Dunkin  Donuts  owners  are  genera1ng   More  profits  in  2014  than  2013  for  their   investment  which  is  a  very  high  return   rate.       10.  Earning  per  share   $1.67     $1.38     N/A   Measures  net  income  per  share           11.  Price-­‐earning  ra1o    $25.39      $34.04      $33.90     Measures  the  ra1on  of  the   stock  market  price  to  earning   per  share   In  the  year  ended  on  31  Dec.  2014,  it   takes  an  investment  of  $25.39  to   generate  one  dollar  in  earnings  which  is   less  than  last  year  and  less  than  the   industry.       12.  Payout  ra1o   54.87%   55.14%   33.00%   The  propor1on  of  earnings  that   is  paid  out  as  dividends   Dunkin  Donuts  has  paid  high  rate  of   dividends  which  make  the  company   akracted  by  the  investors.   IV.  Coverage       13.  Debt  to  assets   0.88   0.87   N/A   Measures  total  assets  provided   by  creditors    the  percentage  has  increased,  and  it's   high  comparing  to  the  industry.   Coverage  ra1os  of  Dunkin  Donuts   depicts  good  performance  of  the   company  in  the  recent  financial  year   as  the  free  cash  flows  and  the     interest  cover  ra1o  improved  despite   of  the  slight  decrease  in  book  value  of   the  company's  shares.  The  improving   ra1os  therefore  depict  that  Dunkin   Donuts  has  good  coverage  posi1on   despite  of  having  high  debt  to  assets   ra1o.  Cash  debt  coverage  however   raises  ques1ons  over  the  Dunkin   Donut's  performance  which  means   that  the  company  does  not  generate   sufficient  cash  from  its  opera1ons   despite  of  having  good  profit  margins.       14.  Times  interest  earned   4.98   3.80   10.20   Measures  ability  to  pay  interest   as  they  due   Dunkin  donuts  has  a  good  capacity  to   pay  interests  as  they  due.       15.  Cash  debt  coverage   0.07   0.05   N/A   Measures  the  ability  to  repay   its  total  liabili1es  using  a  given   year  opera1on  cash  flows   The  company  cant  pay  most  of  its   liabili1es  using  its  opera1ng  cash  flows   so  its  risky.       16.  Book  value  per  share   3.49   3.82   N/A   Measures  the  amount  each   share  would  receive  if  the   company  were  liquidated  at   the  amounts  recorded  on  the   balance  sheet   Since  the  book  value  of  the  equity  has   decreased  in  2014,  and  there  is  a  huge   gap  between  the  book  value  and  the   market  value.     17.  Free  cash  flow    $175,685      $110,700     N/A   Measures  the  amount  of   discre1onary  cash  flow   Dunkin  Donuts  has  enough  free  cash   that  can  be  u1lized  in  new   opportuni1es  which  in  return  would   enhance  stockholder's  equity.   10  
  11. 11. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     3. Financial Ratio Calculations and Analysis: Ra1o   Result   Compared   to  Industry   Defini1on   Interpreta1on   Area  Interpreta1on   Dec.  30,   2014   Dec.  31,   2013   Stock'  adjusted  price    $42.40      $46.98     I.  Liquidity       1.  Current  ra1o   1.37   1.02   1.20   The  ability  to  pay  short-­‐ term  debt   Starbuks  is  capable  of   paying  off  its  short  terms   liabili1es   Starbucks  does  not  a  very  good   liquidity  posi1on.  Overall,  the  key   liquidity  measurements  indicate  that   the  company  is  in  a  posi1on  in  which   financial  difficul1es  could  develop  in   the  future.  However,  investors  may   accept  this  because  the  company  is   growing  and  using  the  cash  for   growth  reasons.       2.  Quick  test   1.01   0.81   0.80   The  ability  to  pay  short-­‐ term  debt  immediately  and   without  wai1ng  for   inventory  to  be  sold   Starbucks  can  pay  most  of   its  debt  very  quickly.       3.  Current  cash  debt   coverage   0.14   0.77   N/A   The  ability  to  pay  off  the   company’s  current  liabili1es   using  a  give  year  opera1ons   Starbucks  liabili1es  have   increased  significantly  for   the  last  two  years.  However,   it  s1ll  can  pay  out  its   liabili1es  just  by  using  its   opera1on  income.   II.  Ac7vity       4.  Accounts  receivable   turnover   27.59   28.39   15.90   Measures  liquidity  of   receivables   Starbucks'  receivable   turnover  decreased  slightly   from  2013  to  2014     Starbucks  is  doing  well  in  terms  of   ac1vity  ra1os.  Starbucks  collects  its   A/R  twice  every  month  while  the   average  in  the  industry  is  once  a   month,  so  it's  way  beker  than   compe1tors.  For  the  inventory   turnover  and  asset  turnover,  other   companies  have  achieved  higher   ra1os.         5.  Inventory  turnover   6.29   5.74   N/A   Measures  liquidity  of   inventory   Starbucks'  inventory  is  sold   once  every  two  month.         6.  Asset  turnover   1.53   1.29   1.50   Measures  how  efficiently   assets  are  used  to  generate   sales   Starbucks  generates  almost   $1.5  for  each  dollar  in   assets.   Starbucks  Corpora7on:     11  
  12. 12. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     3. Financial Ratio Calculations and Analysis: III.  Profitability       7.  Profit  margin   on  sales   12.57%   0.06%   6.92%   Measures  net  income  generated  by   sales   in  2014,  Starbucks  has  a  very  good  a  profit  margin.  In   2013  it  was  very  bad  because  of  the  low  net  earning   the  same  year.   Starbucks  profitability  is  in  general   way  beker  than  most  of    other   companies  in  the  same  industry.  It   has  very  good  Profit,  return  on   assets,  and  pay  out  ra1o.  The   reason  of    low  ra1os  in  2013  is   because  of  the  low  earing  the   company  had  in  the  that  year         8.  Return  on   assets   19.23%   0.08%   10.50%  Measures  overall  profitability  of  assets   Starbucks  generates  in  assets  more  than  the  industry   average  by  almost  9%  in  2014.  However,  in  2013  it  was   very  low  because  of  the  low  earnings.       9.  Return  on   common  stock   equity   39.21%   0.20%   N/A   Measures  profitability  of  owners'   investment   Panera's  owners  are  genera1ng  roughly  25%  profits  for   their  investment  which  is  a  very  good  return  rate.       10.  Earning  per   share    $2.75      $0.01     N/A   Measures  net  income  per  share           11.  Price-­‐ earning  ra1o    $27.16       $7,566.00      $33.90     Measures  the  ra1on  of  the  stock   market  price  to  earning  per  share   In  the  year  ended  on  31  Dec.  2014,  it  takes  an   investment  of  $27.16to  generate  one  dollar  in  earnings       12.  Payout   ra1o   37.87%   7577.11%   33.00%   The  propor1on  of  earnings  that  is  paid   out  as  dividends   in  2014,  Starbucks  has  paid  %37.87  as  dividend,  which   is    a  good  percentage  for  investors   IV.  Coverage       13.  Debt  to   assets   0.51   0.61   N/A   Measures  total  assets  provided  by   creditors   half  of  the  company's  assets  is  being  financed  with   debt   Starbucks  has  a  very  good  coverage   ra1os  compared  to  other   companies  in  the  same  industry.   The  fact  that  half  of  the  company   assets  is  financed  is  because  the   growth,  which  is  reasonable  in  a   case  like  this.  Starbucks  can  easily   pay  the  interest  as  they  due,  the   average  of  TIE  for  the  last  2  years  is   30  while  the  industry  average  is   only  10.       14.  Times   interest  earned   49.29   8.18   10.20   Measures  ability  to  pay  interest  as   they  due   Starbucks  has  a  very  high  capacity  to  pay  interests  as   they  due       15.  Cash  debt   coverage   0.14   0.77   N/A   Measures  the  ability  to  repay  its  total   liabili1es  using  a  given  year  opera1on   cash  flows   in  2013  the  company  can  pay  most  of  its  liabili1es   using  its  opera1ng  cash  flows,  however,  in  2014  the   can  not.       16.  Book  value   per  share   14.37   15.39   N/A   Measures  the  amount  each  share   would  receive  if  the  company  were   liquidated  at  the  amounts  recorded  on   the  balance  sheet   Each  share  would  be  compensated  at  almost  %14.4    of   its  market  price  if  the  company  were  liquidated.     17.  Free  cash   flow    $(553)    $1,147     N/A   Measures  the  amount  of  discre1onary   cash  flow   Starbucks  does  not  have  enough  free  cash  that  can  be   u1lized  in  new  opportuni1es.   12  
  13. 13. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     4. A Comparison of The Companies By Area: 1.    Liquidity:      Aoer  comparing  the  three  companies,  we  can  conclude  that  Panera  has  the  best  liquidity  ra1os,   then  Starbucks  and  the  last  is  Dunkin  Donuts.  The  the  reason  that  Starbucks  is  does  not  have  a  high   liquidity  is  because  of  their  expanding  and  using  cash  for  growth.       2.  Ac7vity:      Based  on  all  the  three  companies  ac1vi1es,  it  seems  that  Panera  has  a  good  ability  to  get  new   chances  as  long  as  they  are  working  on  the  franchise  ideas  to  expand  their  business.  Comparing  to   Starbucks,  which  assembles  its  account  receivables  twice  monthly  and  its  compe1tors  collect  them   every  month.       3.    Profitability:      Comparing  the  profitability  to  these  three  company,  we  see  that  Starbucks  has  beker  profitability   than  Panera  and  Dunkin  donuts  that’s  because  Panera  does  not  distribute  dividends  and  there   profitability  is  lower  than  Starbucks.  Also,  Dunkin  Donuts  has  lower  profitability  ra1o  even  though  they   distribute  dividends  but  on  the  other  hand,  they  are  not  fully  u1lizing  its  assets.     4.    Coverage:      Aoer  comparing  all  companies  coverage  ra1os,  it  seems  that  all  companies  can  meet  their   financial  obliga1ons  without  having  financial  distress.  Even  though  Starbucks  doesn't  have  free  cash   flow,  it  fulfilled  its  obliga1ons  toward  lenders.  Although  Panera  keeps  a  high  book  value  among  the   other  companies  and  a  high  TIE,  it  s1ll  does  not  pay  dividends  which  might  discourage  investors  from   inves1ng  in  it.   13  
  14. 14. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     5. Investment Recommendation: Recommenda7ons:     Based  on  the  given  ra1o  analysis,  we  will  prefer  to  invest  our  money  in  Starbuck’s   Corpora1on  for  the  following  reasons:     •  It  possesses  a  high  market  share.   •  Although  the  company  doesn’t  have  the  best  current  cash  debt  coverage  ra1o  yet  Its    liquidity  ra1os  are  sa1sfactory.     •  The  ac1vi1es  ra1os  are  also  improving  each  year.   •  It  has  the  highest  return  on  asset  and  price  earnings  ra1o.   •  Panera  Bread  has  the  highest  earning  per  share,  book  value  per  share  and  free  cash    flows  but  its  payout  ra1o  is  zero  for  2  years  while  the  payout  ra1o  of  Starbuck’s    Corpora1on  is  very  good.   •  Its  free  cash  flows  are  nega1ve  this  year  because  in  the  previous  year  it  paid  a  huge    amount  of  dividend  to  its  shareholders.  The  company  possesses  a  great  poten1al  for    improvement  in  the  future.   •  The  company  has  a  low  debt  to  asset  ra1o  which  means  low  risk.   •  The  profitability  ra1os  are  also  favorable  for  investors.     14  
  15. 15. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     6. Summary and Conclusion: Summary:      The  purpose  of  the  presenta1on  was  to  do  strategic  financial  analysis  of  the  three   most  successful  companies  in  the  food  industry  namely;  Panera  Bread,  Dunkin’s  Brands  and   Starbuck’s  Corpora1on  and  to  iden1fy  the  best  one  for  the  purpose  of  investment  on  the   basis  of  this  analysis.  It  con1nued  by  explaining  business  strategy  for  each  company  and   followed  by  a  comprehensive  ra1o  analysis  for  each  company.  Then  on  the  basis  of  analysis   it  was  recommended  that  the  money  should  be  invested  in  Starbuck’s  Corpora1on.       Conclusion:      As  a  result  of  the  analysis,  it  is  concluded  that  among  the  three  companies  the   performance  of  Panera  Bread  is  the  best  but  it  is  not  paying  any  dividend  to  its  investors  for   2  years  which  makes  it  unfavorable  for  investors.  Although  the  performance  of  Starbuck’s   Corpora1on  is  not  as  good  as  it  was  in  the  past,  but  it  holds  a  huge  market  share  and  has  a   great  poten1al  to  grow.  On  the  basis  of  analysis,  it  is  recommended  that  Starbuck’s   Corpora1on  is  the  best  op1on  available  for  investment.   15  
  16. 16. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     7. End-of-Presentation: Project  Component   Slides  Number   Introduc1on   2   Overview   3   Financial  Ra1o  Calcula1ons  and  Analysis   7   Investment  Recommenda1on   13   Summary  and  Conclusion   14   References   16   16  
  17. 17. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     References (1): Berman,  K.,  &  Joe  Knight ;  with  John  Case.  (2013).  Financial  Intelligence,  Revised  Edi2on:  A  Manager’s  Guide  to  Knowing  What  the   Numbers  Really  Mean.   Business  Strategy.  (n.d.).  Starbucks  and  Dunkin  Donuts.  Retrieved  16  April  2015,  from  hkps://sites.google.com/site/ starbucksanddunkindonuts/business-­‐strategy   Carlberg,  C.  G.  (2010).  Business  analysis:  MicrosoD  Excel  2010.  Indianapolis,  IN:  Que  Corpora1on,U.S.   Carlberg,  C.  G.  (2011).  Sta2s2cal  analysis:  MicrosoD  Excel  2010.  Indianapolis,  IN:  Que  Corpora1on,U.S.   DNKN  Income  Statement  |  Dunkin’  Brands  Group,  Inc.  Stock  -­‐  Yahoo!  Finance.  (n.d.).  Retrieved  6  April  2015,  from  hkp:// finance.yahoo.com/q/is?s=DNKN  Income  Statement   Dunkin’  Brands  |  Financials.  (n.d.).  Retrieved  6  April  2015,  from  hkp://investor.dunkinbrands.com/financials.cfm   Dunkin’  Brands  Group  Inc.  (n.d.).  Retrieved  6  April  2015,  from  hkp://www.marketwatch.com/inves1ng/stock/dnkn/financials   Goudreau,  J.  (2014).  Here  Are  The  Epiphanies  That  Made  Panera  A  $4.5  Billion  Restaurant  Chain.  Business  Insider.  Retrieved  from  hkp:// www.businessinsider.com/panera-­‐bread-­‐founder-­‐ron-­‐shaich-­‐on-­‐growth-­‐strategies-­‐2014-­‐11   Kieso,  D.  E.,  Weygandt,  J.  J.,  &  Warfield,  T.  D.  (2014).  Intermediate  Accoun2ng,  2014  FASB  Update.  United  States:  John  Wiley  &  Sons.   NASDAQ’s  Homepage  for  Retail  Investors.  (2015,  April  6).  Retrieved  6  April  2015,  from  hkp://www.nasdaq.com   News  and  Advice  for  a  Life1me  of  Financial  Decisions.  (n.d.).  Retrieved  6  April  2015,  from  hkp://www.dailyfinance.com     17  
  18. 18. ACCT  5325  –  ANNUAL  REPORT  ANALYSIS  PROJECT     References (2): Our  History.  (n.d.).  Retrieved  6  April  2015,  from  hkps://www.panerabread.com/en-­‐us/company/about-­‐panera/our-­‐history.html   Panera  Bread  Company.  (2014a,  April  22).  2013  Annual  Report  to  Stockholders.  Retrieved  16  April  2015,  from  hkps:// www.panerabread.com/content/dam/panerabread/documents/financial/2013/ar-­‐2013.pdf   Panera  Bread  Is  On  The  Right  Track  To  Future  Growth.  (n.d.).  Retrieved  6  April  2015,  from  hkp://www.gurufocus.com/news/267651/ panera-­‐bread-­‐is-­‐on-­‐the-­‐right-­‐track-­‐to-­‐future-­‐growth   Ross,  S.  A.,  Westerfield,  R.  W.,  &  Jordan,  B.  D.  (2012).  Fundamentals  of  Corporate  Finance  Standard  Edi2on  (10th  ed.).  New  York,  NY:   McGraw  Hill  Higher  Educa1on.   Starbucks  Corpora1on.  (2014b,  December  4).  Starbucks  Details  Five-­‐Year  Plan  to  Accelerate  Profitable  Growth  at  Investor  Conference  |   Starbucks  Newsroom.  Retrieved  16  April  2015,  from  hkps://news.starbucks.com/news/live-­‐blog-­‐starbucks-­‐path-­‐for-­‐growth-­‐outlined-­‐ at-­‐2014-­‐biennial-­‐investor-­‐day   U.S.  Securi1es  and  Exchange  Commission.  (2013).  Panera  Bread.  Retrieved  16  April  2015,  from  hkp://www.sec.gov/cgi-­‐bin/viewer? ac1on=view   U.S.  Securi1es  and  Exchange  Commission.  (2014c).  Dunkin’  Brands.  Retrieved  16  April  2015,  from  hkp://www.sec.gov/cgi-­‐bin/browse-­‐ edgar?ac1on=getcompany   U.S.  Securi1es  and  Exchange  Commission.  (2014d).  Panera  Bread.  Retrieved  16  April  2015,  from  hkp://www.sec.gov/cgi-­‐bin/viewer? ac1on=view   U.S.  Securi1es  and  Exchange  Commission.  (2014e).  STARBUCKS.  Retrieved  16  April  2015,  from  hkp://www.sec.gov/cgi-­‐bin/viewer? ac1on=view   Yahoo  Finance  -­‐  Business  Finance,  Stock  Market,  Quotes,  News.  (n.d.).  Retrieved  6  April  2015,  from  hkp://finance.yahoo.com/     18  

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