Analyze El Pollo Loco Holdings, Inc.

El Pollo Loco Holdings, Inc. $($LOCO$),$ Spanish for "The Crazy Chicken," operates almost $500$ restaurants, approximately $40\%$ of which are company$-$owned and the rest are franchises. El Pollo

Loco combines the culinary traditions of Mexico and California, creating unique menu items such as their signature Chicken Avocado Burrito. The company aims to improve profitability, in part, by

simplifying operations to make it easier for employees and franchisees to run the restaurants. Recent data $($in millions$)$ for company$-$operated and franchised restaurants are as follows:

a$.$ Determine the profit margin for each segment. Round to one decimal place.

b$.$ Determine the investment turnover for each segment. Round to two decimal places.

Investment

Turnover

Company$-$

Operated

Franchised

c$.$ Use the DuPont formula to determine the return on investment for each segment. Round to one decimal place.

Return on

Investment

Company$-$

Operated

Franchised

d$.$ Which of the following statement is true?

The franchised restaurants have the lowest profit margin, highest investment turnover, and lowest return on investment because El Pollo Loco incurs no cost of goods sold or operating expense in

generating this revenue.

The company$-$operated restaurants have the highest profit margin, investment turnover, and return on investment because El Pollo Loco incurs no cost of goods sold or operating expense in

generating this revenue.

The company$-$operated restaurants have the lowest profit margin, investment turnover, and return on investment because El Pollo Loco incurs cost of goods sold and operating expense in

generating this revenue.

Both segments have relatively the same profit margin, investment turnover, and return on investment because their operating costs are similar.

e$.$ Why would El Pollo Loco operate company$-$owned restaurants?

Company$-$owned restaurants and stores help in establishing brand reputation, testing new products and improving operating efficiencies.

Company$-$owned restaurants and stores help in establishing brand reputation and increasing profit margins.

Company owned restaurants and stores are more profitable than franchises.

Company$-$owned restaurants and stores are low on investments and give high profits.

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