Chapter 1, Problem 1.5MAD

Compare Papa John’s and Yum! Brands

The following total liabilities and stockholders’ equity information (in millions) is provided for Papa John’s International, Inc. (PZZA) and Yum! Brands, Inc. (YUM) at the end of a recent year:

	Papa John’s	Yum! Brands
Total assets	$495	$8,075
Total liabilities	444	7,164
Total stockholders’ equity	51	911

Yum! Brands is a much larger company titan is Papa John’s; however, both companies compete internationally in the fast food business. Papa John’s is primarily in the carry-out and delivery pizza business, while Yum! Brands is in the quick-service restaurant business with its Pizza Hut. Taco Bell, and KFC brands.

a. Compute the ratio of liabilities to stockholders’ equity for each company. Round to one decimal place.

b. What conclusions regarding the margin of protection to creditors can you draw for these two companies?

c. Which company is more risky to creditors?