Case Study Two for solving and explaining

Comparative Analysis of two companies

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.

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 Value9,000 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 1

Conduct a comprehensive ratio analysis of each company and compare the results. This analysis should include the following:

1. Analysis of liquidity

2. Analysis of profitability

3. Analysis of returns to shareholders (market tests)

4. Analysis of solvency

5. Compare the analysis of each company by inserting the ratio calculations from the preceding four steps in a table with the following columns: Ratio name, Quik Burger, Big Steak, and Company with more Favorable Ratio. Indicate in the last column the company that had the more favorable ratio in each case. (If ratios are within 0.1% of each other, consider them neutral.) Overall which company is in better financial shape?

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

Both restaurant chains are considering offering a profit-sharing plan as part of the compensation offered to employees. 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.

Your assignment: Using the information in Parts 1 and 2, decide whether a cash profit sharing plan would be appropriate for either company (i.e., NOT a deferred profit sharing plan).

Your report should be in essay format as a recommendation to each company as to why a profit sharing plan is or is not recommended. Your report must recommend a profit sharing plan for at least one of the two companies. For your report that recommends a profit sharing plan, include a thorough cost/benefits analysis of the plan. In addition, included in your report should be an analysis of the overall parentage of profits to be distributed. Also 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 to be taken into account.

A collaborate session will be held before the due date. Be sure to listen to the session and be prepared to ask any questions about the content or format of the report. Part 2 should at least have many pages plus exhibits and tables.