Case Study Two

Comparative Analysis of two companies

The question I have is based around the development of a profit sharing plan for the companies below. Their financial picture is below, however I need to get guidance on the following:

The owners of both chains heard that Starbucks was successful in improving morale and reducing turnover by offering its employees stock options. Since both Quik Burger and Big Steak are privately owned, stock options are not feasible, yet the owners feel that giving employees a share in the profits could result in overall improvement in customer service and profits.

I need the following:

1)A recommendation for a profit sharing plan for at least one of the two companies.

2)An analysis of the overall parentage of profits to be distributed.

3)Address how profits would be distributed, including the bases for calculating the amount of distributions, who is eligible to receive profit sharing distributions, how distributions are allocated to employees, when distributions take place, and any and all other relevant considerations

Below are the financial statement of two companies, Quick Burger and Big Steak. Both are restaurants with locations located in the southwest U.S. Both restaurants offer table service and take out options; however, Quick Burger also has a counter service and provides more of a diner-like experience (similar to Denny's) while Big Steak is a full-service restaurant with a lunch and dinner menu and brunch on weekends and has a full bar.

Assume all numbers are based on year-end 2019 data. DO NOT CONSIDER THE EFFECTS OF COVID-19.

Balance Sheets

(In Thousands)

	Quik Burger	Big Steak
Assets
Cash	$2,000	$4,500
Accounts Receivable (net)	2,000	6,500
Inventory	2,000	5,000
Property, Plant, and Equipment (net)	20,000	35,000
Other Assets	4,000	5,000
Total Assets	$30,000	$56,000
Liabilities and Stockholders' Equity
Accounts Payable	$2,500	3,000
Notes Payable	1,500	4,000
Bonds Payable	10,000	30,000
Common Stock ($1par value)	1,000	3,000
Paid-in Capital in Excess of Par Value	9,000	9,000
Retained Earnings	6,000	7,000
Total Liabilities and Stockholders' Equity	$30,000	$56,000

Income Statements

(In Thousands)

	Quik Burger	Big Steak
Sales	$53,000	$86,000
Cost of Goods Sold (including restaurant operating expense)	37,000	61,000
Gross Profit from Sales	$16,000	$25,000
General Operating Expenses
Selling Expenses	$7,000	$10,000
Administrative Expenses	4,000	5,000
Interest Expense	1,400	3,200
Income Tax Expense	1,800	3,400
Total Operating Expense	$14,200	$21,600
Net Income	$1,800	$3,400

In addition, dividends paid were $500,000 for Quik Burger and $600,000 for Big Steak; the market prices of the stock were $30 and $20, respectively; and the betas were 1.00 and 1.15.

Part 2

Below are additional statistics about the two restaurant chains.

	Quik Burger	Big Steak
Employees	FT: 170* PT: 1,800**	FT: 450*** PT: 1,100
Total Payroll	$16.1 million****	$28.6 million****
Number of FT Hires 2019	15	41
Number of FT Terminations 2019	20	38
Average Number of PT Hires Per Year	1,700	550
Average Number of PT Terminations Per Year	1,650	570
Employee Satisfaction Survey (from 2019)	Overall satisfaction: 52%	Overall satisfaction: 74%
Number of Restaurants	60	44
Customer Survey Rating (from 2019)	Overall satisfaction: 62%	Overall satisfaction: 81%

*FT employees include restaurant managers, some assistant managers, headquarters employees, and some restaurant cashiers.

**Virtually all cooks, wait staff, and cleaning crews are PT.

*** FT employees include restaurant managers and assistant managers, headquarters employees, all chefs, and some cooks, wait staff and cashiers.

****Includes payroll taxes