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Panera Bread and Danish Crown: Financial Analysis Essay

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Updated: Apr 3rd, 2022

Balance Sheet

What components of stockholders’ equity do each of the companies disclose?

Danish Crown’s disclosures contributed capital, other reserves and retained earnings in its equity section. While Panera Bread discloses common stock, treasury stock and preferred stock in its equity.

Do the companies have preferred stock shares outstanding? If so, what special features do these shares contain?

Only Panera Bread has preferred stock outstanding.

The main feature of preferred shares is that they have fixed dividends. Whether the company suffers losses, it has the obligation to pay them.

Do either of the companies report treasury shares? If so, do the companies disclose the reason for reacquiring the shares?

Panera Bread has reported its treasury shares in the annual report and all the reasons for reacquiring the shares turn out to be under authorized share repurchase authorizations.

Income Statement

What are the basic and diluted earnings per share for each company?

The basic EPS for Panera Bread is $5.94 and the diluted EPS is $5.89.

Have the companies reported any discontinued operations?

Both companies have failed to do so.

Do the companies disclose any stock compensation plans? If so, are they reporting such plans under the fair value or intrinsic value methods? What was the value of compensation expense measured for any outstanding stock option plans?

Stock compensation plan of Panera Bread was disclosed. The company reports its plan under the intrinsic value method. The compensation expense was measured to be $395,072.6 ($68.90 x 5734).

Financial Ratio Analysis

Gross Profit Margin

The gross profit ratio is the key financial indicator to assess a company’s profitability from its core activities. It reveals the financial health of a firm. The Danish Crown’s gross profit ratio has decreased to 12.57% in 2012/13 from 12.99% in 2011/12. But for Panera Bread, it has increased from 12.09% in 2011 to 13.28% in 2012. This is because the profit has also increased in same proportion as compared to sales for Panera Bread but not in the case of Danish Crown (Drake, 2011).

Net Profit Margin

Danish Crown’s net profit ratio has decreased from 3.07% in 2011/12 to 2.72% in 2012/13. This decrease is due to ineffective control of cost and expenses associated to the company’s operations and other expenses. Pricing strategy and operating efficiency of a company is measured through the net profit margin of that company.

Panera Bread’s net profit ratio has increased from 7.46% in 2011 to 8.14% in 2012. Increase in net profit margin means that Panera Bread is earning more against its sales as compared to the previous period (Walther, 2012).

Return on Stockholders’ Equity

Return on Equity indicates how much profit is being made on the amount invested by shareholders. Danish Crown’s return on equity has decreased from 29.88% in 2011/12 to 26.55% in 2012/13 which indicates that the company has not been efficiently generating profits against the money invested by its shareholders.

However, this ratio has increased for Panera Bread from 20.75% in 2011 to 21.10% in 2012. Higher return on equity also indicates higher competition because it is very much easier to start a business within such industries. This ratio also provides useful information for the comparison of profitability for two companies operating in the same nature of the industry (Drake, 2011).

Current Ratio

The current ratio measures ability of a company to pay its debts over the next 12 months or over its business cycle by comparing the company’s current assets to its current liabilities. The current ratio of Danish Crown has increased from 1.46 times in 2011/12 to 1.75 times in 2012/13.

So is for Panera Bread. It has increased from 1.48 times in 2011 to 1.73times in 2012.

Higher the current ratio, the higher is the ability of the company to pay off its obligations. An increase in current ratio of both companies indicates more efficiency compared to previous periods and safe liquidity. This ratio indicated capacity of the company to generate cash from its products and how efficient it is in doing so (Drake, 2011).

Quick Ratio

Quick ratio is also known as acid test ratio. It takes into account the ability of a company to pay its short term debts. It is a more reliable test of short term solvency than current ratio as it shows the ability of any company to pay its short term debts immediately. Quick assets are actually current assets with less inventory. For Danish Crown, quick ratio has increased from 1.02 times in 2011/12 to 1.14 times in 2012/13 which means the company is more stable during this period against its current liabilities compared to the prior period.

Similarly, in Panera Bread, this ratio has increased from 1.41 times in 2011 to 1.65 times in 2012. Current ratio could overestimate the short term financial strength of a company, but the quick ratio is more conservative and depicts the true picture of a company’s ability to pay its short term obligations (Drake, 2011).

Inventory Turnover

Inventory turnover measures how well a company is utilizing its investment in inventory. The inventory turnover for Danish Crown Has decreased from 15.25 times in 2011/12 to 14.14 times in year 2012/13. This indicates that company has been invested too much in inventory and is owed a lot higher by account receivables. This may lead to bad bebts and obsolete inventory.

While the inventory turnover for Panera Bread has increased from 107.08 times in 2011 to 108.05 times in 2012. This is the clear indication that the management of this company has been using inventory efficiently to support sales (Drake, 2011).

Debt-to-Assets

The debt to assets ratio for the Danish Crown was 0.77 times in 2011/12 which decreased to 0.76 times in 2012/13. While in case of Panera Bread, it has decreased from 0.36 times in 2011 to 0.35 times in 2012. This ratio determines the amount of the debt element in relevance to the total assets. It tells how much the company is dependent on its own assets and how much on the debt taken from lenders. It is a financial ratio, which indicates the proportion of an entity’s assets and debt used to finance the operations (Drake, 2011).

Debt-to-Equity

This ratio is used to gauge the ability of the company to repay its obligations once they are due. Increase in this ratio means that company is relying on creditors to finance its operation, in the long term this avey dangerous trend and the company should think to issue some equity to compensate that. Danish Crown’s debt to equity ratio was 3.40 times in 2011/12 and it has decreased to 3.14 times in 2012/13 which is a good indication. Lenders and creditors’ interests are better protected when this ratio is low. Thus, companies with low debt to equity ratio like Danish Crown might be attractive for lenders and creditors.

Same is the case with Panera Bread. Its debt to equity ratio has also decreased 0.56 times in 2011 to 0.54 times in 2012 (Learning, 2010).

Times-Covered Ratio

It measures the ability of a company to pay interest. It measures how easily a company can pay interest on the debt, it owes to lending parties. Danish Crown’s times-covered ratio was 17.02 times in 2011/12 and decreased to 16.50 times in 2012/13. It indicates that Danish Crown is financially unhealthy by the end of this period.

Similarly, Panera Bread’s times-covered ratio has also decreased from 267.95 times in 2011 to 261.43 times in 2012. This is, however, too much for a company and Panera Bread is capable of meeting its interest obligations from gross earnings. This lower time-covered ratio indicates that Panera Bread is safe, but is neglecting opportunities to increase earnings through leverage compared to the previous year.(Mongiello, 2009)

What type of information do you find in the footnotes to the financial statements?

The footnotes to the financial statements provide the information regarding the intangible assets, property, plant and equipment, biological assets, deferred tax assets, inventories, receivables, other investments, pension obligations, deferred tax liabilities, other provisions, subordinate loans, mortgage debt, other debt, issued bonds, other credit institutions, bank debt, finance lease commitments etc.

Do you find the balance sheet, income statement or other measures such as ratios the most informative? Comment on the advantages and disadvantages of using ratios for analysis.

Balance sheets and income statements are not the most informative for an analyst. The information provided in the whole annual report is farther more informative than the mere figures provided in the balance sheet and income statement.

The ratios are simple to calculate and easy to understand. But the biggest disadvantage of ratio analysis is that it does not provide useful information until it is compared to any relevant period’s data. The benchmark is necessary to be provided to make the analysis useful. However, the ratios if properly examined can cater the potential investors in the decision making process.

References

Drake, P. (2011). Financial Ratio Analysis. Web.

Learning, C. (2010). Web.

Mongiello, M. (2009). International Financial Reporting. Web.

Walther, L. (2012). Principles of Accounting. Web.

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