Uploaded byRahul Mishra
Restaurant Valuation Ratios
The document analyzes valuation ratios in the restaurant industry, comparing various companies and outlining the factors influencing their performance and growth potential. It highlights the challenges such as low technical skills required, competition in raw materials, and the impact of public opinion and social media on reputation. The analysis categorizes companies as rising stars, falling stars, dogs, or recovering firms based on their price-to-book and price-to-earnings ratios and emphasizes the importance of considering different business models and risk profiles.
Restaurant Valuation Ratios
- 1. valuation ratios inthe restaurant industry katherine koh, zac loo, rahul mishra & ying zhou
- 2. • Relatively lowstart-up costs • Low technical skills required • High personal desire • Money can be spent on other leisure activities • Can spend money making food at home • Raw materials face competition • Effectively commodity inputs • Switching cost are effectively zero • Public opinion can destroy reputation • Social media increases customer’s voice • Most look for point of difference • Everyone wants everyone else’s customers porter’s forces
- 3. demand growth 25% 46% 53% 0% 10% 20% 30% 40% 50% 60% 1955 20002010 % of food dollars spend away from the home
- 4. overview company a –international franchise operator company b – international steakhouse company c – u.s variety and cake wholesale company d – u.s. airport restaurants
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- 6. aa franchisefranchise bbsteakysteaky c!c! cakes!cakes! dd airportairport Type of food Variety Steakhouse Variety Branded variety Restaurants 1,500 269 64 148 % Owned 24% 100% 100% 100% % Franchised 76% - - - New stores p/year 100 3 14 21 Countries 9 2 1 1 Average cheque $10.25 $17.50 (Dinner) $12.50 (Lunch) $15.78 - Target market All ages 25-54 - - Differentiation Hometown Texas Upscale, casual Airports comparisons company
- 7. first impressions… Company Awas the only company who could access debt Everyone else had negative net financial leverage Due to high cost of getting debt? Company A is potentially the rising star Who is the falling star?
- 8. driver of company’s pb& pe multiples? ZAC current returns are they performing well? have they slumped? are there returns headed up or down? driven by fundamentals - sales growth, cogs growth prospects is demand growing? have the results tended up or down? off-balance sheet items internally generated brand value risk profile
- 9. match the price-to-bookequity valuation multiple with each of the four restaurant businesses puzzle!! Rahul
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- 12. restaurantrestaurant price/bookprice/book valuevalue reasoningreasoning a franchise 3.9 fallingstar - high current return, low growth c cakes! 4.4 rising star - high growth, high current return b steaky 1.0 dog - low current return/growth d airport 1.0 recovering firms - rebounding returns, high growth
- 13. Match the price-to-earningsvaluation multiples below with each of the four restaurant businesses discussed above. Another game!! Grace
- 14. Net Operating ProfitAfter Tax (NOPAT)
- 15. restaurantrestaurant price/earningsprice/earnings reasoningreasoning afranchise 20.0 falling star - has hit a peak and now has less growth opportunities b steaky 9.6 dog - has low growth, and low returns c cakes 34.5 rising star - has strong results and shows further growth potential d airport 28.0 recovering firms - high growth, still reestablishing returns
- 16. your three takeaways •limitations given comparable firms within a given industry – differing business models – differing revenue streams – different risk profiles • issues with ratios vs. scale • use more than one ratio
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