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

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:

a. Gross margin percentage

b. Operating income percentage

c. Rate of return on sales

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?

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A1 The Cheesecake Factory Incorporated Consolidated Statements of Income: Condensed and adapted for educational use (In thousands) Fiscal Year 2015 $ 2,275,719 $ 2,100,609 $ 1,976,624 $ 1,877,910 2 2016 2014 2013 4 Revenues 5 Costs and expenses: Cost of sales Labor expenses 526,628 759,998 88,010 700,090 2,074,726 200,993 (9,225) 191,768 52,274 504,031 684,818 660,951 85,563 1,935,363 165,246 (5,894) 159,352 42,829 $ 139,494 $ 116,523 $ 101,276 $ 114,356 490,306 646,102 82,835 612,650 1,831,893 144,731 (6,187) 138,544 37,268 455,685 603,069 78,558 579,644 1,716,956 160,954 (4,504) 156,450 42,094 Depreciation and amortization expense 8 Other expenses 9. Total costs and expenses 10 11 Income from operations 12 Interest and other expense, net 13 Income before income taxes 14 Income tax expense 15 Net income 16 17 Note: Financial information presented here should not be used for investment decisions. 18 A1 The Cheesecake Factory Incorporated Consolidated Balance Sheets: Condensed and adapted for educational use (In thousands, except share data) January 3, 2017 December 29, 2015 December 30, 2014 Assets Current assets: Cash and cash equivalents 43,854 14,159 18,739 72,658 34,010 41,976 225,396 892,191 53,839 15,632 58,018 15,170 17,383 62,327 33,255 38,233 224,386 828,305 6. Accounts receivable Income tax receivable Other receivables Inventories Prepaid expenses Total current assets 12 Property and equipment, net 13 Other assets: Intangible assets, net Prepaid rent Other assets Total other assets Total assets 64,592 34,926 52,438 221,427 910,134 10 11 14 23,054 42,162 96,542 161,758 $ 1,293,319 21,972 46,881 46,906 115,759 $ 1,233,346 20,781 46,212 41,692 108.685 1,161,376 15 16 17 18 19 20 Liabilities and Stockholders' Equity 21 Current liabilities: Accounts payable Other accrued expenses Total current liabilities 25 Noncurrent liabilities 26 Stockholders' equity: Preferred stock Common stock Additional paid-in capital Retained earnings Treasury stock Total stockholders' equity Total liabilities and stockholders' equity 22 41,564 334,962 376,526 313,586 47,770 302,456 350,226 294,581 57,325 264,686 322,011 282,855 23 24 27 947 931 918 774,137 1,238,012 (1,409,889) 603,207 $ 1,293,319 29 710,242 1,140,788 (1,263,422) 588,539 $ 1,233,346 654,033 1,060,211 (1,158,652) 556,510 $ 1,161,376 31 32 33 34 35 Note: Financial information presented here should not be used for investment deaisions. 601 2345 22~~3333