La Paloma Restaurant Financial Analysis (Research Paper Sample)

Financial Analysis Assignment
University
Subject code:
Lecturer’s Name
Student ID
Date submitted
Executive Summary
La Paloma Restaurant is involved in restaurant and bar activities, and it was incorporated into service in 2000. The company is performing well financially, and it has reported positive trend in its operations since inception. Though the company has been hampered by the financial inadequacies in regard to the increase in operating expenditure, the profitability of the company is within the range of the industrial average. The company’s sales revenue is increasing, and the addition of new employees in the sector prompted for increased profitability for the organization. Though the company is not involved in investment strategies, its expansion activities necessitated increase in revenue outlay, and fostered its competitiveness in the economy. With these initiatives in place, the investors and the management is assured of increased profitability of the company in the future. However, the net profit for the company was hampered by the huge operating expenses associated with wages and salaries and advertisement costs. In order to be in par with other organizations in the sector, the management should reduce the advertisement costs, and ensure that the wages and salaries of employees are harmonized. The employees should be encouraged to increase their production level in the sector.

Financial Data Calculations
Common Sized Income and Balance Sheet
Horizontal Common Sized
La Paloma Restaurant and Bar
Balance Sheet
2008 2009 2010 2011 2012
Current Assets
Cash 100.00% 101.67% 105.50% 78.05% 65.07%
Accounts receivables 100.00% 103.10% 125.26% 131.52% 116.05%
Inventory 100.00% 154.65% 210.97% 232.06% 279.42%
Investments 100.00% 106.82% 96.83% 65.97% 57.41%
Total Current Assets 100.00% 109.94% 117.43% 101.04% 95.95%
Fixed Assets
Building (less depr.) 100.00% 96.53% 95.20% 136.34% 132.22%
Equip. (less depr.) 100.00% 107.28% 108.95% 125.42% 122.70%
Total Fixed Assets 100.00% 99.09% 98.47% 133.75% 129.96%
Total Assets 100.00% 103.10% 105.48% 121.64% 117.38%
Liabilities and Owner’s Equity
Current Liabilities
Accounts payable 100.00% 102.19% 107.43% 150.99% 130.43%
Current portion of
long-term debt 100.00% 97.47% 94.94% 92.41% 151.90%
Other short-term
loans 100.00% 96.17% 103.17% 145.22% 113.83%
Total Current Liabilities100.00% 99.45% 103.82% 138.51% 129.15%
Long-Term Liabilities
Mortgage 100.00% 98.30% 97.08% 145.06% 138.06%
Bank Loans 100.00% 102.86% 105.84% 119.05% 107.86%
Total Long-term Liabilities 100.00% 99.53% 99.43% 138.07% 129.94%
Net Owner’s Equity 100.00% 108.50% 112.20% 96.80% 98.98%
Total Liabilities and Equity 100.00% 103.10% 105.48% 121.64% 117.37%
La Paloma Restaurant and Bar
Income Statement
2008 2009 2010 2011 2012
Net Sales 100.00% 112.00% 117.60% 127.01% 152.41%
Costs of goods sold 100.00% 114.21% 118.99% 134.72% 154.20%
Gross Profit 100.00% 110.37% 116.57% 121.49% 151.08%
Operations
Wages—payroll taxes 100.00% 115.04% 123.07% 147.68% 165.41%
Rent (Equipment) 100.00% 103.70% 105.84% 111.11% 115.56%
Advertising 100.00% 112.00% 147.00% 190.51% 213.37%
Insurance 100.00% 110.00% 113.58% 123.47% 126.42%
Supplies 100.00% 112.00% 101.85% 113.43% 118.06%
Interest 100.00% 103.04% 105.19% 146.67% 149.63%
Utilities 100.00% 114.48% 129.64% 153.95% 161.62%
Depreciation 100.00% 103.04% 103.49% 137.04% 142.96%
Misc. 100.00% 97.71% 89.15% 95.16% 98.05%
Total Operating Expenses100.00% 111.22% 118.08% 142.97% 155.38%
Net Profit 100.00% 105.78% 108.45% 5.72% 127.96%
Vertical Common Sized
La Paloma Restaurant and Bar
Balance Sheet
2008 2009 2010 2011 2012
Current Assets
Cash 9.00% 8.87% 9.00% 5.77% 4.99%
Accounts receivables 8.00% 8.00% 9.50% 8.65% 7.91%
Inventory 4.00% 6.00% 8.00% 7.63% 9.52%
Investments 16.00% 16.58% 14.69% 8.68% 7.83%
Total Current Assets 37.00% 39.45% 41.19% 30.73% 30.25%
Fixed Assets
Building (less depr.) 48.00% 44.94% 43.32% 53.81% 54.07%
Equip. (less depr.) 15.00% 15.61% 15.49% 15.46% 15.68%
Total Fixed Assets 63.00% 60.55% 58.81% 69.27% 69.75%
Total Assets 100.00% 100.00% 100% 100.00% 100.00%
Liabilities and Owner’s Equity
Current Liabilities
Accounts payable 10.81% 10.70% 11.00% 13.41% 12.00%
Current portion of
long-term debt 3.90% 3.69% 3.52% 2.96% 5.05%
Other short-term
loans 6.72% 6.25% 6.55% 8.00% 6.50%
Total Current Liabilities22.43% 20.64% 21.07% 24.37% 23.55%
Long-Term Liabilities
Mortgage 28.20% 26.88% 25.95% 33.63% 33.17%
Bank Loans 10.37% 10.35% 10.41% 10.15% 9.53%
Total Long-term Liabilities 38.57% 37.23% 36.36% 43.78% 42.69%
Net Owner’s Equity 40.00% 42.13% 42.57% 31.85% 33.76%
Total Liabilities and Equity 100.00% 100.00% 100.00% 100.00% 100.00%
La Paloma Restaurant and Bar
Income Statement
2008 2009 2010 2011 2012
Net Sales 100.00% 100.00% 100.00% 100.00% 100.00%
Costs of goods sold 42.50% 43.34% 43.00% 45.00% 43.00%
Gross Profit 57.50% 56.66% 57.00% 55.00% 57.00%
Operation Costs
Wages—payroll taxes 25.80% 26.50% 27.00% 30.00% 28.00%
Rent (Equipment) 1.00% 0.93% 0.90% 0.87% 0.76%
Advertising 2.00% 2.00% 2.50% 3.00% 2.80%
Insurance 1.50% 1.47% 1.45% 1.50% 1.24%
Supplies 1.60% 1.60% 1.39% 1.43% 1.24%
Interest 5.00% 4.60% 4.47% 5.77% 4.91%
Utilities 5.50% 5.62% 6.06% 6.67% 5.83%
Depreciation 2.50% 2.30% 2.20% 2.70% 2.35%
Misc. 3.60% 3.14% 2.73% 2.70% 2.32%
Total Operating Expenses48.50% 48.16% 48.70% 54.60% 49.44%
Net Profit 9.00% 8.50% 8.30% 0.40% 7.56%
Ratio Calculations
Net Profit to Owner’s equity
= Net profit before taxes / Owner’s equity
2008 = 121,500 / 810,600 * 100
= 14.99%
2009 = 128,520 / 879,500 * 100
= 14.61%
2010 = 131,771 / 909,500 * 100
= 14.49%
2011 = 6,947 / 784,663 *100
= 0.89%
2012 = 155,473 / 802,356 * 100
= 19.37%
Net Profit to net sales
= Net profit before taxes / Net sales
2008 = 121,500 / 1,350,000
= 0.09
2009 = 128,520 / 1,512,000
= 0.09
2010 = 131,771 / 1,587,600
= 0.08
2011 = 6,947 / 1,714,608
= 0.04
2012 = 155,473 / 2,057,530
= 0.08
Net Sales to owner’s equity
= Net sales/owner’s equity
2008 = 1,350,000 / 810,600
= 1.67
2009 = 1,512,000 / 879,500
= 1.72
2010 = 1,587,600 / 909,500
= 1.75
2011 = 1,714,608 / 784,663
= 2.19
2012 = 2,057,530 / 802,356
= 2.56
Net Sales to Fixed assets
= Net sales/ Fixed Assets
2008 = 1,350,000 / 1,275,750
= 1.06
2009 = 1,512,000 / 1,264,100
= 1.20
2010 = 1,587,600 / 1,256,200
= 1.26
2011 = 1,714,608 / 1,706,220
= 1.00
2012 = 2,057,530 / 1,657,950
= 1.24
Gross Profit margin
= Gross profit / Net Sales * 100
2008 = 776,250 / 1,350,000 * 100
= 57.50%
2009 = 856,720 / 1,512,000 * 100
= 56.66%
2010 = 904,912 / 1,587,600 * 100
= 57.00%
2011 = 943,074 / 1,714,608 * 100
= 55.00%
2012 = 1,172,792 / 2,057,530 * 100
= 57.00%
Working Capital = Current Assets – Current Liabilities
2008 = 749,250 – 433,400
= 315,850
2009 = 823,700 – 431,000
= 392,700
2010 = 879,820 – 444,956
= 429,864
2011 = 757,024 – 600,281
= 156,743
2012 = 718,928 – 559,722
= 159,206
Current ratio = Current Assets / Current Liabilities
2008 = 749,250 / 433,400
= 1.73
2009 = 823,700 / 431,000
= 1.91
2010 = 879,820 / 444,956
= 2.00
2011 = 757,024 / 600,281
= 1.26
2012 = 718,928 / 559,722
= 1.28
Quick ratio = Quick assets / Current Liabilities
2008 = 668,250 / 433,400
= 1.54
2009 = 698,432 / 431,000
= 1.62
2010 = 708,938 / 444,956
= 1.59
2011 = 569,054 / 600,281
= 0.95
2012 = 492,600 / 559,722
= 0.88
Receivables to working capital
= Accounts receivables /Working capital
2008 = 162,000 / 315,850
= 0.52
2009 = 167,024 / 392,700
= 0.43
2010 =202,922/ 429,864
= 0.47
2011 = 213,068 / 156,743
= 1.36
2012 = 188,000 / 159,206
= 1.18
Inventory to working capital
= Inventory/Working capital
2008 = 81,000 / 315,850
= 0.26
2009 = 125,268 / 392,700
= 0.32
2010 =170,882 / 429,864
= 0.40
2011 = 187,970 / 156,743
= 1.20
2012 = 226,328 / 159,206
= 1.42
Accounts receivable turnover
= Net credit sales / Average accounts receivables
2008 = 270,000 / 162,000
= 1.67
2009 = 302,400 / 167,024
= 1.81
2010 =317,520 / 202,922
= 1.56
2011 = 342,292 / 213,068
= 1.61
2012 = 411,506 / 188,000
= 2.19
Collection period
= Accounts receivables/Average daily credit sales
2008 = 162,000 / 1,080,000 * 365
= 54 days
2009 = 167,024 / 1,209,600 * 365
= 50 days
2010 =202,922/ 1,270,080 * 365
= 58 days
2011 = 213,068 / 1,371,686 * 365
= 57 days
2012 = 188,000 / 1,646,024 * 365
= 42 days
Net sales to inventory
= Net sales/Inventory
2008 = 1,350,000 / 81,000
= 16.67
2009 = 1,512,000 / 125,268
= 12.07
2010 = 1,587,600 / 170,882
= 9.29
2011 = 1,714,608 / 187,970
= 9.12
2012 = 2,057,530 / 226,328
= 9.09
Net sales to working capital
= Net sales/working capital
2008 = 1,350,000 / 159,206
= 8.48
2009 = 1,512,000 / 156,743
= 9.65
2010 = 1,587,600 / 429,864
= 3.69
2011 = 1,714,608 / 315,850
= 5.43
2012 = 2,057,530 / 392,700