Chapter 12, Problem 12.71SC

(Learning Objectives 4, 5: Calculate and analyze ratios and earnings quality for a company in the restaurant industry)

Note: This case is part of The Cheesecake Factory serial case contained in every chapter in this textbook.

To follow are The Cheesecake Factory Incorporated's financial statements from its 2016 Form 10-K.

Data from the US. Securities and Exchange Commission EDGAR Company filings, www.sec.gov

Data from the U.S. Securities and Exchange Commission EDGAR Company filings, www.sec.gov

The preceding financial statements have been condensed and adapted for educational use and should not be used for investment decisions.

Requirements

1. Calculate The Cheesecake Factory’s net working capital for 2015 and 2016. What does the net working capital figure mean? Did The Cheesecake Factory's net working capital increase or decrease from 2015 to 2016? Explain.

2. Calculate The Cheesecake Factory’s current ratio for 2015 and 2016. Did the current ratio improve or deteriorate?

3. Calculate The Cheesecake Factory’s quick ratio for 2015 and 2016. Did the quick ratio improve or deteriorate?

4. How would you assess The Cheesecake Factory’s overall ability to pay its current liabilities? Explain.

5. Calculate inventory turnover for 2016. Next, calculate days' inventory outstanding. What does this number mean?

6. Calculate accounts receivable turnover for 2016. Assume all net revenue is from credit sales. Next, calculate days’ sales outstanding. What does this number mean?

7. Calculate accounts payable turnover for 2016. Next. calculate days’ payable outstanding. What does this number mean?

8. Calculate the cash conversion cycle (in days). Explain what this cash conversion cycle number means.

9. Calculate the debt ratio for 2016 and for 2015. Has the debt ratio increased or decreased?

10. Calculate the times-interest-earned ratio for 2016. Use “interest and other expense, net” as interest expense. What does this ratio mean?

11. Calculate the following profitability ratios for 2016:

1. a. Gross margin percentage
2. b. Operating income percentage
3. c. Rate of return on sales
4. d. Rate of return on assets

12. Comment on The Cheesecake Factory’s profitability in 2016 based on the profitability ratios you just calculated.

13. How would you evaluate the company’s earnings quality?