The percentage change calculation shows that brinker

Question

Financial analysis of Brinker International

Statements illustration

BRINKER INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)

2011 2010

ASSETS

Current Assets: Cash and cash equivalents ..........................................................................................................  $ 81,988  $ 344,624 Accounts receivable .......................................................................................................................... 42,785             45,140 Inventories .......................................................................................................................................... 25,365             26,735 Prepaid expenses and other.............................................................................................................. 59,698             63,961 Deferred income taxes ........................................................................................................               11,524             20,607 Total current assets...................................................................................................................... 221,360           501,067 Property and Equipment: Land ................................................................................................................................................... 156,731           163,018 Buildings and leasehold improvements ................................................................................... 1,383,311       1,367,646 Furniture and equipment................................................................................................................. 543,682           556,815 Construction-in-progress ..................................................................................................................... 6,425             11,870 2,090,149        2,099,349 Less accumulated depreciation and amortization............................................................... (1,033,870)        (970,272) Net property and equipment..........................................................................................          1,056,279        1,129,077 Other Assets: Goodwill............................................................................................................................................. 124,089           124,089 Deferred income taxes ........................................................................................................               30,365             44,213 Other...................................................................................................................................................... 52,475             53,658 Total other assets ........................................................................................................................ 206,929           221,960 Total assets....................................................................................................................... $ 1,484,568 $ 1,852,104 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current installments of long-term debt...................................................................................... $ 22,091            $ 16,866 Accounts payable ........................................................................................................................... 87,549               112,824 Accrued liabilities............................................................................................................................ 287,365             300,540 Income taxes payable..................................................................................................................... 8,596                  19,647 Total current liabilities............................................................................................................... 405,601             449,877 Long-term debt, less current installments ............................................................................           502,572             524,511 Other liabilities...........................................................................................................................           137,485             148,968 Commitments and Contingencies (Notes 9 and 14) Shareholders' Equity: Common stock-250,000,000 authorized shares; $.10 par value; 176,246,649 shares issued and 82,938,493 shares outstanding at June 29, 2011, and 176,246,649 shares issued and 101,571,588 shares outstanding at June 30, 2010 .................................................................................................. 17,625                 17,625 Additional paid-in capital............................................................................................................. 463,688             465,721 Retained earnings......................................................................................................................... 2,013,189        1,923,561 2,494,502        2,406,907 Less treasury stock, at cost (93,308,156 shares at June 29, 2011 and 74,675,061 Shares at June 30, 2010) ...............................................................................................        (2,055,592)    (1,678,159) Total shareholders' equity ........................................................................................................ 438,910             728,748

Total liabilities and shareholders' 'equity              $ 1,484,568       $ 1,852,104

Income statement of BRINKER INTENATIONAL

	2011	2010(a)	2009	2008	2007
Income Statement Data:
Revenues .....................................................................	. . $2,761,386	$2,858,498	$3,276,362	$3,860,921	$4,007,771
Operating Costs and Expenses:
Cost of sales.............................................................	. . 742,283	816,015	923,668	1,101,125	1,126,756
Restaurant labor........................................................	. . 886,559	926,474	1,054,078	1,239,604	1,261,579
Restaurant expenses .................................................	. . 655,060	660,922	784,657	922,382	950,957
Depreciation and amortization ..................................	. . 128,447	135,832	145,220	147,393	171,768
General and administrative........................................	. . 132,834	136,270	147,372	163,996	188,630
Other gains and charges ...........................................	. . 10,783	28,485	118,612	196,364	(9,082)
Total operating costs and expenses.......................	. . 2,555,966	2,703,998	3,173,607	3,770,864	3,690,608
Operating income .........................................................	. . 205,420	154,500	102,755	90,057	317,163
Interest expense............................................................	.. 28,311	28,515	33,330	45,862	30,929
Other, net......................................................................	. . (6,220)	(6,001)	(9,430)	(4,046)	(5,071)
Income before provision for income taxes ...................	. . 183,329	131,986	78,855	48,241	291,305
Provision for income taxes ..........................................	. . 42,269	28,264	6,734	2,644	80,144
Income from continuing operations .....................	. . 141,060	103,722	72,121	45,597	211,161
Income from discontinued operations, net of
taxes.................................................................	. . 0	33,982	7,045	6,125	18,888
Net income .......................................................	. . $ 141,060	$ 137,704	$ 79,166	$ 51,722	$ 230,049
Basic net income per share:
Income from continuing operations .....................	. . $ 1.55	$ 1.02	$ 0.71	$ 0.44	$ 1.74
Income from discontinued operations...................	. . $ 0.00	$ 0.33	$ 0.07	$ 0.06	$ 0.16
Net income per share............................................	. . $ 1.55	$ 1.35	$ 0.78	$ 0.50	$ 1.90
Diluted net income per share:
Income from continuing operations .....................	. . $ 1.53	$ 1.01	$ 0.70	$ 0.43	$ 1.70
Income from discontinued operations...................	. . $ 0.00	$ 0.33	$ 0.07	$ 0.06	$ 0.15
Net income per share............................................	. . $ 1.53	$ 1.34	$ 0.77	$ 0.49	$ 1.85
Basic weighted average shares outstanding ...................	. . 90,807	102,287	101,852	103,101	121,062
Diluted weighted average shares outstanding.................	. . 92,320	103,044	102,713	104,897	124,116
Balance Sheet Data:
Working capital.............................................................	. . $ (184,241)	$ 51,190	$ 110,812	$ 88,745	$ 277,298
Total assets ..................................................................	. . 1,484,568	1,852,104	1,948,947	2,193,122	2,318,021
Long-term obligations...................................................	. . 640,057	673,479	883,521	1,061,669	960,196
Shareholders' equity ....................................................	. . 438,910	728,748	646,924	595,089	805,089
Dividends per share......................................................	. . $ 0.56	$ 0.47	$ 0.44	$ 0.42	$ 0.34
Number of Restaurants Open (End of Period):
Company-operated .......................................................	. . 868	871	1,024	1,265	1,312
Franchised/Joint venture...............................................	. . 711	679	665	623	489
Total..............................................................	. . 1,579	1,550	1,689	1,888	1,801
Revenues of franchisees(b)	$1,558,886

Cash Flow Chart

Fiscal Years   2011 2010 2009 Cash Flows from Operating Activities:       Net income.............................................................................................................. . $ 141,060 $ 137,704 $ 79,166 Income from discontinued operations, net of taxes....................................... . 0 (33,982) (7,045) Adjustments to reconcile net income to net cash provided by operating       activities:       Depreciation and amortization....................................................................... . 128,447 135,832 145,220 Restructure charges and other impairments................................................. . 8,427 31,766 76,957 Deferred income taxes ..................................................................................... . 15,277 (25,516) 40,921 Net (gain) loss on disposal of assets .............................................................. . (401) (4,878) 36,955 Stock-based compensation.............................................................................. . 12,789 15,595 17,128 (Earnings) Loss on equity investments ......................................................... . (1,802) (114) 201 Other..................................................................................................................... . 405 2,637 (823) Changes in assets and liabilities, excluding effects of dispositions:   Accounts receivable...................................................................................... . 1,255 6,083 (800) Inventories ..................................................................................................... . 1,341 6,544 (1,680) Prepaid expenses and other ........................................................................ . 1,044 1,847 2,150 Other assets ................................................................................................... . 406 551 1,496 Current income taxes .................................................................................. . (3,976) 51,800 (42,153) Accounts payable......................................................................................... . (21,515) (9,963) (43,512) Accrued liabilities ......................................................................................... . (15,178) (7,483) (68,199) Other liabilities............................................................................................... . (7,591) (11,021) (1,975) Net cash provided by operating activities .................................................... . 259,988 297,402 234,007 Cash Flows from Investing Activities:       Payments for property and equipment.............................................................. . (70,361) (60,879) (88,152) Proceeds from sale of assets................................................................................ . 8,696 26,603 81,865 Investment in equity method investees ............................................................ . (2,896) 0 (4,612) Decrease in restricted cash................................................................................... . 0 29,749 4,688 Net cash used in investing activities .............................................................. . (64,561) (4,527) (6,211) Cash Flows from Financing Activities:       Purchases of treasury stock ................................................................................ . (422,099) (22,868) (3,739) Payments of dividends......................................................................................... . (53,185) (34,448) (45,355) Proceeds from issuances of treasury stock....................................................... . 33,057 2,396 4,650 Payments on long-term debt................................................................................ . (16,127) (391,046) (19,735) Net proceeds from issuance of long-term debt ................................................ . 0 196,389 0 Excess tax benefits from stock-based compensation..................................... . 291 139 551 Net payments on credit facilities ........................................................................ . 0 0 (160,757) Net cash used in financing activities ............................................................. . (458,063) (249,438) (224,385) Cash Flows from Discontinued Operations:       Net cash provided by operating activities ........................................................ . 0 39,033 40,958 Net cash provided by (used in) investing activities.......................................... . 0 167,998 (4,927) Net cash provided by discontinued operations............................................ . 0 207,031 36,031 Net change in cash and cash equivalents.......................................................... . (262,636) 250,468 39,442 Cash and cash equivalents at beginning of year............................................. . 344,624 94,156 54,714 Cash and cash equivalents at end of year........................................................ . $ 81,988 $ 344,624 $ 94,156

In this paper, I will select the annual report of Brinker International to collect relevant statistics for my financial analysis, as a real company in restaurant industry, Brinker International managed to achieve a profound and comprehensive development in the previous years. The "plan to win" strategy applied by this company contributes to the nice financial sheets largely in recent years. To date, this company has reimaged 383 company-owned restaurants in 15 markets. With the goal to complete 614 restaurants by the end of fiscal 2014, more guests across the country will be able to enjoy updated elements both inside and outside at their favorite Chili's locations.

b. The current ratio in 2011 could be calculated by current assets/current debt=0.545;

The quick ratio in 2011 could be calculated by quick assets/current debt=0.336;

Based on the comparison with the data in 2009 or 2010, the data are more optimistic now, while the quick ratio becomes lower, this could reflect the huge inventory of this company.

c. The equation for inventory turnover equals the Cost of goods sold divided by the average inventory. In this situation, the Inventory turnover rate =5800000/25365=228.66

d. According to my calculation, the debt level of BRINKER INTENATIONAL is relatively low, so the leverage is low to similar enterprises in this industry

e. Profit margin= gross profits divided by net sales, in this situation, the profit margin=9.54

f. Price/earning ratio=the average share price/net income per share≈20/1.53=13; price/cash flow ratio=share price/cash flow per share=20/25≈0.8; market/book ratio =25.32/20=1.266.

The lower these indicators be, the higher potential for investors here

g. The percentage change calculation shows that Brinker International did witness a boom in the profitability in 2011 compared with 2010, while the pressure from inventory should also be eliminated in the future

h. Based on the Du Pont analysis, the major strengths of Brinker International come from its gradual accumulation in restaurant industry as well as the capability to compete against competitors in such a market; the weaknesses of Brinker International come from its weakness in brand building and capability for penetration of new market, Brinker International is a late entrant of this industry, the reputation and goodwill plays a weak role in the operation of this company.

I. Financial ratio analysis could lead to some typical issues now:

First of all, too much reliance on these mechanical data. The calculation methods have a lot of faults; too much reliance on these data could affect the judgment of the CEO;

 Second, ratio analysis ignored the scale economy. The marginal production keeps descending but we could not say this is a bad news for the company;

J. Indicators should include profit margin; R&D input, current ratio compared with the industrial average level; strategic positioning etc as well as the efficiency and management of the whole company