FIN 320 Final Project Financial Analysis Report (3)

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Southern New Hampshire University *

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Apr 3, 2024

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FIN 320 Final Project Financial Analysis Report Financial Analysis, Financial Evaluation, and Financial Recommendations 1. Financial Analysis A. Financial Calculations: Using the latest quarter’s financial statements for your chosen business and the Financial Formulas spreadsheet, calculate the financial formulas below to assess the business’s financial health. ● Working capital: o Current Assets 1,669,343 o Current Liabilities 1,087,707 581,636 o The total amount will be used to pay shareholders and reinvest back into the business, indicating short-term financial health by assessing available current assets after paying current debts. ● Current ratio: o Current Assets 1,669,343 o Current Liabilities 1,087,707 1.534735917 o This ratio shows the company's ability to pay its short-term liabilities within a year. A ratio between 1.2-2 is considered good ● Debt ratio: o Total Liabilities 5,025,179 o Total Assets 7,991,493 .628816 o “A debt ratio measures the amount of leverage used by a company in terms of total debt to total assets.A debt ratio of greater than 1.0 or 100% means a company has more debt than assets while a debt ratio of less than 100% indicates that a company has more assets than debt.” (Fernado,J) ● Earnings per share: o Net Income 317,000,000 o Shares Outstanding 28,000,000 11.32142857 o We have a good number indicating that after everything is paid off then those who invested in GMC will be paid out. o ● Price and earnings ratio: o Stock Price 1868 o EPS 41 45.5 o A higher PE ratio,like 45.5, means there is a high chance for higher growth rates in the future 1

● Total asset turnover ratio: o Total Revenue 2,478,000,000 o Total Assets 7,911,000,000 .31323 o A ratio of .31 is a low ratio which means we are not generating a lot of revenue relative to our assets ● Financial leverage: o Total Assets 7,991,000,000 o Shareholder’s Equity 2,886,000,000 2.768884269 o A ratio higher than 2 is considered bad since it means we have more debt than equity ● Net profit margin: o Net Income 313,220,000 o Total Revenue 24,719,500 12.67096826 o This shows that after all expenses are paid we are left with $12.67 ● Return on assets: o Net Income 313,220,000 o Total Assets 791,100,000 3.9593 o A ROA belower %5 is not good. A higher ROA means a company is more efficient at generating income. We have a low ROA because of the high amount of assets we have. ● Return on equity: o NI - Pref. Div. 313,000,000 o Shareholder's Equity 28,860,000 10.84546085 o A 10.8 means we doing well in terms of growth through equity financing B. Working Capital Management: Working capital management involves managing current assets and liabilities, including cash, marketable securities, debtors, and stock. It is crucial for a company's profitability and liquidity. Effective management ensures sufficient cash flow to meet short-term operating costs and debt obligations. Working capital improves credit rating and allows for growth opportunities. Efficient management also leads to improved profitability and operational efficiency. It ensures business continuity, improves customer relationships, enhances shareholder value, and reduces financial costs by reducing external financing reliance. C. Financing: Businesses finance operations and expansion through two types which are debt financing and equity financing. Debt financing involves borrowing money over time, usually with interest, from sources like bank loans, bonds, or trade credit. Equity financing raises money by selling “company shares, often through IPOs or venture capital investments”(Parker,T). Venture capitalists invest in start-ups and small 2

businesses with long-term growth potential, while angel investors invest their personal capital in start-ups in exchange for equity. D. Short-Term Financing: Short-term financing sources can help businesses improve their financial health by providing immediate liquidity for operational costs, growth opportunities, or managing cash flow fluctuations. Common options include trade credit, bank overdrafts, short-term loans, commercial paper, and factoring. Trade credit allows suppliers to provide goods or services on credit, while bank overdrafts allow businesses to withdraw more money than their account can hold. Commercial paper is an unsecured debt instrument issued by corporations. Based on how much assets we have I would advise our company to go with factoring. We are not in a position to take out more loans and with factoring we would be able to pay off some debts in order to improve our numbers.Factoring does not involve loans or interests and while we will lose some receivables I believe taking care of our debts will help us in the long run. E. Bond Investment: Corporate bonds offer regular income, higher returns, and diversification benefits. However, they also carry credit risk, interest rate risk, and liquidity risk. Ethical factors should be considered when investing in certain companies. For example, investing in a company with a poor environmental workplace could cause harm to our image and workers.. To compare potential returns, investors can use the Yield to Maturity (YTM), “YTM = [(C + (F - P) / n) / ((F + P) / 2)] * 100”(Fernando,J), and consider the company's environmental practices. Overall corporate bonds offer both benefits and risks depending on the company we choose. F. Capital Equipment: Investing in capital equipment can increase efficiency, reduce costs, and improve a business's reputation. Environmentally friendly equipment improves the image of the company since we are in a time period where the awareness of green energy is very important to our consumers. However, it also comes with risks such as high upfront costs, uncertainty, and potential environmental impacts. Ethical factors should be considered when investing in capital equipment, considering the impact on stakeholders like employees, customers, and the environment. The investment should not lead to job loss or reduced wages, but rather to reduce the business's environmental impact. As a restaurant company we should focus on equipment that is safe for the environment and our employees managing the equipment. G. Capital Lease: A capital lease is a “lease agreement that provides the lessee with the benefits and risks of owning a leased asset” (Hayes, A) . Benefits include asset ownership, tax benefits, fixed payments, and potential depreciation. Risks include depreciation, maintenance and repair costs, and long-term commitment. Ethical considerations include transparency, fair treatment, and sustainability. Businesses should disclose the existence of the lease in financial statements, ensure timely payments, and consider the 3

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environmental impact of their leasing decisions. Ethical considerations include considering energy-efficient equipment or other environmentally friendly options. 2. Financial Evaluation In this section of the report, you will evaluate the three available financial options for the business and recommend which option or options are the best for the business to choose. H. Bond Investment: Bond investments can be beneficial for a business's financial health, but their suitability depends on factors like liquidity, risk tolerance, interest rates, and credit rating. A thorough financial analysis is crucial to determine the business's risk tolerance, interest rates, and credit rating. Other financial information, such as market conditions, inflation expectations, and tax considerations can also impact bond prices. From the calculations above I would put this option in the bottom three since we don’t have the best debit ratio and we have too many assets to pay off. I. Capital Equipment: CMG’s capital equipment investment is a crucial decision considering its financial health, expected return on investment, and strategic fit with its goals. As most of you might know, the average lifespan of our commercial kitchen equipment is around 10 years. We are also known as an environmentally friendly company from the way we grow our food and raise our livestock. It makes sense for us to invest in capital equipment. The only problem is the amount of assets we have right now. We have already built and equipped over 300 new Chipotle restaurants with new equipment already. In 2022 or even in 2023 capital investing would have been the best option out of the three provided. I suggest waiting until the lifespan of our equipment runs out and then invest in this. It would be relatively easy since we bought all the new equipment for all the stores around the same amount of time. J. Capital Lease: A capital lease is a lease agreement that grants similar rights to the asset owner, and is considered a loan for tax and accounting purposes. CMG’s financial analysis should consider cash flow, balance sheet, tax implications, and ownership. Lease payments can be deducted as business expenses potentially reducing taxable income. Capital lease can also lead to higher debt ratio and higher long-term costs. There is also a chance that the equipment we purchase could become obsolete. Personally I haven’t seen much improvement in the technology CMG uses but our company is looking to expand. Based on the amount of stores we have opened and our high pe ratio it would be best for us to invest in capital lease. We should see which areas are best and which aren’t so renting out a building rather than purchasing it is a smart idea. We have no idea whether or not the locals are fans of chipotle or if the area is located in an area where we can expect a high amount of consumers. That is why investing in capital lease is the safest option out of the three. 3. Future Financial Considerations: [In one paragraph, describe the business’s likely future financial performance based on its latest financial well-being and risk level. Use financial information to support your claims.] 4

Based on our high PE, net profit margin, and ROE I would say our financial future looks bright. Building and equipping over 300 new stores added more assets which affect our debt ratio and total asset turnover this year. That’s the short term damage but in the long run this will all be worth it. If we continue with a high net profit margin those numbers will slowly help increase/decrease our other ratios and improve our image. We all know it takes time for a store to make money since we have to buy new equipment, buy insurance, stock it,and hire employees to run the place. All we did was spend money at the beginning for each store. Now that we are done spending all we have to do is wait and see how much revenue each store is making. In 2023 we made over $8 billion in revenue with the help of those new stores. The net income was $1.23 billion that year. With the help of financial analysis I can safely predict that our future will shine brighter than this year or the years before. References ● Hayes, A. (n.d.-a). Capital lease: What it means in accounting, 4 criteria. Investopedia. https://www.investopedia.com/terms/c/capitallease.asp ● Parker, T. (n.d.). The basics of financing a business. Investopedia. https://www.investopedia.com/articles/pf/13/business-financing-primer.asp ● Fernado ,J. (n.d.). Current ratio explained. Investopedia. https://www.investopedia.com/terms/c/currentratio.asp ● Fernando, J. (n.d.). Yield to maturity (YTM): What it is, why it matters, formula. Investopedia. https://www.investopedia.com/terms/y/yieldtomaturity.asp ● 5