INDIVIDUAL CASE STUDY on Chipotle

Running Head: CHIPOTLE MEXICAN GRILL CASE STUDY 1

CHIPOTLE MEXICAN GRILL CASE STUDY 21

Chipotle Mexican Grill Inc. Case Study

Chipotle Mexican Grill Inc. Case Study

Since its inception in Denver, Colorado, in 1993, Chipotle Mexican Grill Inc. (CMG) has been a success story in the restaurant industry. The success can be witnessed through the growth of the business, whereby it managed to operate in more than 2000 locations by 2016. Steve Ells, a well-renowned chef, is the mastermind of the tremendously successful Chipotle restaurant. In launching the business, Ells’ objective was to offer a simple menu through the preparation of great food by utilizing diverse cooking techniques (Hoffmann, 2014). The company has clung to the original idea of offering the customers the promise to provide "Food with Integrity."

The business model for CMG is based on components such as committed employees, no franchises, fast and personalized food, high-quality fresh ingredients, as well as an uncomplicated menu. This paper examines the CMG, whereby it will shed more light on how they have been successful. This includes a description of the current mission, objectives, and strategies. The new mission statement for the CMG will be examined based on the diverse components of a great mission statement. More importantly, the paper includes an analysis of the company’s business model and SWOT analysis. Additionally, financial statements and ratios for the business over the past three years will also be reviewed and analyzed.

Mission, Objectives, and Strategies

The existing mission statement for CMG is to provide “Food with Integrity”. The mission statement is precise in terms of its prominent level of focus as well as a singularity in terms of how the business delivers its promise to the consumers. The company shows a tremendous level of commitment in terms of providing foods that leave the consumers feeling honored and appreciated. The vision statement of the business is “to do more than just rolling burritos while working to cultivate a better world” (Hoffmann, 2014). Although this is not an official vision statement for the business, the underlying business practices undertaken by the company replicates the statement. It remarkably represents all that CMG undertakes and prioritizes.

CMG is committed towards utilizing the best ingredients, providing exceptional services and distinctive products, as well as putting more emphasis on responsibility and quality. One of the most vital strategies of the business is to get the ingredients right, which fulfills the objective of ensuring that the food items are perfect for all its customers (Hoffmann, 2014). To this end, CMG is very keen on ensuring that all the ingredients are obtained from the farmers, which gives the business a 100 percent guarantee of ingredients that are natural and fresh. Additionally, the company has strategized on onboarding experts in the restaurant industry, which includes chefs and restaurant attendants. Due to experience and expertise, these individuals have been able to ensure that CMG does not disappoint the customers in terms of food quality and service delivery.

New Mission Statement

The new mission statement for CMG would be segmented into four sub-statements:

· To provide our (1) world class customers with (2) superior quality food with integrity as our commitment to finding the (3) very best ingredients by respecting (4) the animals, the environment, and the farmers.

· To be the (5) employer of choice for the best talent in the restaurant industry, which enhances (6) individual and organizational growth.

· To integrate the (7) best technologies in our operations with high consciousness to human and environmental health.

· To be the (8) leading and most trusted restaurant business in (9) the United States and beyond.

Analysis of CMG’s Business Model

The core business model for CMG is primarily based on creating high-quality fast food experience across its locations. The business has been keen on combining fine dining with fast and high-quality service delivery to its consumers, which creates higher customer value by providing efficient service, clean dining environment, as well as high-quality food, through living up to the promise of the mission statement (Stevens & Lunsford, 2014). CMG has been remarkably successful in identifying and securing a worldwide loyal customer base.

The distinctive products and exceptional services have been at the core of the company’s business model. The company has established a unique brand that gives the business a competitive edge in the fast-food market. The preparation methods integrated into the making the food products emphasize the value put by the business on the consumer’s health and wellness. CMG acknowledges that ingredients are influential in the overall health of the customers, which explains the company’s commitment towards only utilizing the natural, fresh, and real ingredients (Walker & Merkley, 2017).

Despite offering high-quality products and services, the prices attached to individual food products are reasonable and highly competitive. Considering the guaranteed naturalness and freshness manifested in the restaurant’s food products, competitive prices have been central to the increased customer base attributable to the massive satisfaction of the consumers. In particular, the company’s business model has embraced customer-oriented and strategic pricing as a way of ensuring that its food indeed portrays integrity (Stevens & Lunsford, 2014). CMG has always ensured that its customers consume the food that can be trusted because it utilizes natural ingredients in preparing the food.

To this end, all customers for the business are presented with the opportunity of having their options and preferences taken into consideration. CMG gives its customers the liberty of making their order while specifying the specific customizations that are consistent with their needs (Stevens & Lunsford, 2014). This attribute of the business model has been critical in ensuring that customers are not limited to what they can get (Walker & Merkley, 2017). More importantly, CMG has never compromised the options and preferences of any of its customers.

SWOT Analysis

The primary objective of undertaking a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis is to establish the strategies that may be utilized by an organization towards building on and protecting the strengths and eradicating the weaknesses while exploiting external opportunities and countering threats (Professional Services Close-Up, 2017).

1. Strengths – These help to protect the existing market’s market share and penetrate new markets.

· Strong distribution network – the business has established a reliable and robust distribution network with the capacity to reach most of the potential markets.

· Strong cash flows – offer resources for purposes of expanding into new ventures.

· Higher returns – effective in executing new projects that earn good returns on capital expenditure through the establishment of the new streams of revenue (Walker & Merkley, 2017).

· Strong dealer community – CMG has a reliable dealer and distributor culture, which ensures that these partners help in promoting the business’ products. They also help to train sales representatives towards explaining to the consumers on the ways of extracting maximum benefits from consuming CMG’s food items.

· Strong brand portfolio – benefitted the business in the expansion endeavors of new products.

· Activity automation – led to product quality consistency and enhanced scaling up/down based on market demand.

· Highly-skilled employees – trains and develops workers, which has led to advanced skills and desire to achieve more.

· Excellent performance – performed superbly in new markets, which has enhanced new revenue streams and diversity, making the business more risk-averse.

2. Weaknesses – Represent areas of improvement for CMG. The analysis of the business weaknesses will tremendously help CMG in building on its strategic positioning and competitive advantage.

· Limited investment in research and development – despite significant investment in research and development, CMG is not at par with the fastest-growing competitors in the restaurant businesses. The business’ investment in R&D is above the industry average, but it lags what leading players are doing concerning innovation (Ragas & Roberts, 2009).

· Low accessibility beyond core business – CMG has been facing challenges in venturing to diverse product segments. The existing culture has been the major stumbling block to the need for diversity.

· High inventory – requires higher capita, which may compromise CMG’s growth in the long-term.

· Inefficient financial planning – the present CMG’s liquid asset ratio and quick ratio indicate that the business may need to utilize the cash in a more efficient manner (Ragas & Roberts, 2009).

· Poor integration with a new work culture – inefficient in merging with firms that have distinct work cultures.

· Poor product marketing – despite reaping a remarkable success, CMG has not clearly defined its unique selling proposition and positioning. This may potentially give competitors an opportunity of attacking the business from the weakness (Ragas & Roberts, 2009).

· Higher employee attrition – CMG’s workforce attrition is higher relative to that of competitors. The company spends more on training and development of the workers.

3. Opportunities

· New customers – the potential attraction of customers from its online platform. CMG may leverage more the online channel to know the customer better and effectively meet their needs based on data analytics using online information.

· Differentiated pricing strategy – leverage the online platform in maintaining loyal customers and attracting new ones through offering exceptional services and pitching value-oriented propositions (Abwanzo, 2017).

· Increased customer expenditure and economic growth – the global economy has experienced significant growth after a recession. CMG may need to take advantage of the economic uptick and leverage the increased customer spending towards obtaining new consumers and increased the market share.

· Low inflation rate – leads to increased market stability while lowering the cost of credit to the consumers (Stevens & Lunsford, 2014).

· Low transportation cost – lower shipping costs give the CMG an opportunity of either increasing profitability or lowering product prices towards increasing its market share.

· New tax policies – influence business activities and favors the business in terms of increasing profitability (Stevens & Lunsford, 2014).

· Environmental policies – create a level playing ground across industry players. CMG may leverage innovative technologies in gaining market share through its unique products.

4. Threats

· Modern technologies – when created by market disruptors or competitors, innovative technologies may seriously threaten the future of the industry in the medium- and long-term.

· Lack of innovative products – no innovative products that have been developed by besides, what is offered by competitors. Also, there is an irregular supply of new products, which has been associated with low and high sales swings.

· Stronger local distributors – a growing number of reliable distributors threatens the CMG’s profitability because competitors pay the distributors higher margins (Walker & Merkley, 2017).

· Lack of skilled workers – some markets are lacking skilled workers, which threatens a steady profitability growth of CMG in such markets.

· Intense competition – many players in the industry, have witnessed increased stability in profits in the recent past, exerting pressure on the overall sales and profitability of CMG.

· Global risks – because it operates in different countries, CMG is exposed to the risk of currency and exchange rate fluctuations, mainly owing to the volatility experienced in the political climate of some nations around the globe (Abwanzo, 2017).

· Change in customer behavior – most consumers have moved to online channels when making purchases. This attribute dramatically threatens the present physical infrastructure that CMG has invested in its hundreds of stores.

Historical Financial Statements

Income Statement

a. Chipotle Mexican Grill, Inc. Consolidated Income Statement

2019 ($) 2018 ($) 2017 ($)

Revenue 5,586,369 4,864,985 4,476,412

Restaurant operating costs

Food, beverage, and packaging 1,847,916 1,600,760 1,535,428

Labor 1,472,060 1,326,079 1,205,992

Occupancy 363,072 347,123 327,132

Other operating costs 760,831 680,031 651,644

General administration expenses 451,552 375,460 296,388

Depreciation and amortization 212,778 201,979 163,348

Pre-opening costs 11,108 8,546 12,341

Impairment, closure costs, and asset disposals 23,094 66,639 13,345

Total operating expenses 5,142,411 4,606,617 4,205,618

Income from operations 443,958 258,368 270,794

Interest and other income, Net 14,327 10,068 4,949

Income before income taxes 458,285 268,436 275,743

Provision for income taxes (108,127) (91,883) (99,490)

Net income 350,158 176,553 176,253

Earnings per share

Basic 12.62 6.35 6.19

Diluted 12.38 6.31 6.17

Weighted average common shares outstanding

Basic 27,740 27,823 28,491

Diluted 28,295 27,962 28,561

b. Income Statement Horizontal Analysis

	2017 ($)	2018 ($)		2019 ($)
Revenue	100.0%	8.0%		19.9%
Restaurant operating costs
Food, beverage, and packaging	100.0%	4.1%		16.9%
Labor	100.0%	9.1%		18.1%
Occupancy	100.0%	5.8%		9.9%
Other operating costs	100.0%	4.2%		14.4%
General administration expenses	100.0%	21.1%		34.4%
Depreciation and amortization	100.0%	19.1%		23.2%
Pre-opening costs	100.0%	-44.4%		-11.1%
Impairment, closure costs, and asset disposals	100.0%	-73.1%		65.3%
Total operating expenses	100.0%	8.7%		18.2%
Income from operations	100.0%	-4.8%		39.0%
Interest and other income, Net	100.0%	50.8%		65.5%
Income before income taxes	100.0%	-2.7%		39.8%
Provision for income taxes	100.0%	-8.3%		8.0%
Net income	100.0%	0.2%		49.7%
Earnings per share
Basic	100.0%	2.5%		51.0%
Diluted	100.0%	2.2%		50.2%
Weighted average common shares outstanding
Basic	100.0%	-2.4%		-2.7%
Diluted	100.0%	-2.1%		-0.9%

c. Income Statement Vertical Analysis
	2017 ($)	2018 ($)	2019 ($)
Revenue	100.0%	100.0%	100.0%
Restaurant operating costs
Food, beverage, and packaging	34.3%	32.9%	33.1%
Labor	26.9%	27.3%	26.4%
Occupancy	7.3%	7.1%	6.5%
Other operating costs	14.6%	14.0%	13.6%
General administration expenses	6.6%	7.7%	8.1%
Depreciation and amortization	3.6%	4.2%	3.8%
Pre-opening costs	0.3%	0.2%	0.2%
Impairment, closure costs, and asset disposals	0.5%	0.3%	1.2%
Total operating expenses	94.0%	94.7%	92.1%
Income from operations	6.0%	5.3%	7.9%
Interest and other income, Net	0.1%	0.2%	0.3%
Income before income taxes	6.2%	5.5%	8.2%
Provision for income taxes	-2.2%	-1.9%	-1.9%
Net income	3.9%	3.6%	6.3%
Earnings per share
Basic	0.0%	0.0%	0.0%
Diluted	0.0%	0.0%	0.0%
Weighted average common shares outstanding
Basic	0.6%	0.6%	0.5%
Diluted	0.6%	0.6%	0.5%

Balance Sheet

a. Chipotle Mexican Grill, Inc. Consolidated Balance Sheet

2019 ($) 2018 ($) 2017 ($)

ASSETS

Current assets:

Cash and cash equivalents 480,626 249,953 184,569

Accounts receivable, net 80,545 62,312 40,453

Inventory 26,096 21,555 9,860

Prepaid expenses and other current assets 57,076 54,129 50,918

Income tax receivable 27,705 - 9,353

Investments 400,156 426,845 324,382

Total current assets 1,072,204 814,794 629,535

Leasehold improvements, property, equipment, net 1,458,690 1,379,254 1,338,366

Restricted cash 27,855 30,199 29,601

Operating lease assets 2,505,466 - -

Other assets 18,450 19,332 26,251

Goodwill 21,939 21,939 21,939

Total assets 5,104,604 2,265,518 2,045,692

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable 115,816 113,071 82,028

Accrued payroll and benefits 126,600 113,467 82,541

Accrued liabilities 155,843 147,849 95,679

Unearned revenue 95,195 70,474 63,645

Current operating lease liabilities 173,139 - -

Income tax payable - 5,129 -

Total current liabilities 666,593 449,990 323,893

Deferred rent - 330,985 316,498

Long-term operating lease liabilities 2,678,374 -

Deferred income tax liabilities 37,814 11,566 814

Other liabilities 38,797 31,638 40,042

Total liabilities 3,421,578 824,179 681,247

Shareholders’ equity:

Common stock 363 360 359

Additional paid-in capital 1,465,697 1,374,154 1,305,090

Treasury stock (2,699,119) (2,500,556) (2,334,409)

Accumulated other comprehensive loss (5,363) (6,236) (3,659)

Retained earnings 2,921,448 2,573,617 2,397,064

Total shareholders’ equity 1,683,026 1,441,339 1,364,445

Total liabilities and shareholders’ equity 5,104,604 2,265,518 2,045,692

b. Balance Sheet Horizontal Analysis

	2017 ($)	2018 ($)	2019 ($)
ASSETS
Current assets:
Cash and cash equivalents	100.0%	35.4%	160.4%
Accounts receivable, net	100.0%	54.0%	99.1%
Inventory	100.0%	118.6%	164.7%
Prepaid expenses and other current assets	100.0%	6.3%	12.1%
Income tax receivable	100.0%	-100.0%	196.2%
Investments	100.0%	31.6%	23.4%
Total current assets	100.0%	29.4%	70.3%
Leasehold improvements, property, equipment, net	100.0%	3.1%	9.0%
Restricted cash	100.0%	2.0%	-5.9%
Operating lease assets		0.0%
Other assets	100.0%	-26.4%	-29.7%
Goodwill	100.0%	0.0%	0.0%
Total assets	100.0%	10.7%	149.5%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	100.0%	37.8%	41.2%
Accrued payroll and benefits	100.0%	37.5%	53.4%
Accrued liabilities	100.0%	54.5%	62.9%
Unearned revenue	100.0%	10.7%	49.6%
Current operating lease liabilities
Income tax payable	100.0%	-100.0%	-100.0%
Total current liabilities	100.0%	38.9%	105.8%
Deferred rent	100.0%	4.6%
Long-term operating lease liabilities
Deferred income tax liabilities	100.0%	1320.9%	4545.5%
Other liabilities	100.0%	-21.0%	-3.1%
Total liabilities	100.0%	21.0%	402.3%
Shareholders’ equity:
Common stock	100.0%	0.3%	1.1%
Additional paid-in capital	100.0%	5.3%	12.3%
Treasury stock	100.0%	7.1%	15.6%
Accumulated other comprehensive loss	100.0%	70.4%	46.6%
Retained earnings	100.0%	7.4%	21.9%
Total shareholders’ equity	100.0%	5.6%	23.3%
Total liabilities and shareholders’ equity	100.0%	10.7%	149.5%
c. Vertical Analysis Balance Sheet
	2017 ($)	2018 ($)	2019 ($)
ASSETS
Current assets:
Cash and cash equivalents	9.0%	11.0%	9.4%
Accounts receivable, net	2.0%	2.8%	1.6%
Inventory	0.5%	1.0%	0.5%
Prepaid expenses and other current assets	2.5%	2.4%	1.1%
Income tax receivable	0.5%	0.0%	0.5%
Investments	15.9%	18.8%	7.8%
Total current assets	30.8%	36.0%	21.0%
Leasehold improvements, property, equipment, net	65.4%	60.9%	28.6%
Restricted cash	1.4%	1.3%	0.5%
Operating lease assets			49.1%
Other assets	1.3%	0.9%	0.4%
Goodwill	1.1%	1.0%	0.4%
Total assets	100.0%	100.0%	100.0%
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	4.0%	5.0%	2.3%
Accrued payroll and benefits	4.0%	5.0%	2.5%
Accrued liabilities	4.7%	6.5%	3.1%
Unearned revenue	3.1%	3.1%	1.9%
Current operating lease liabilities	0.0%	0.0%	3.4%
Income tax payable	0.3%	0.0%	0.0%
Total current liabilities	15.8%	19.9%	13.1%
Deferred rent	15.5%	14.6%
Long-term operating lease liabilities	0.0%	0.0%	52.5%
Deferred income tax liabilities	0.0%	0.5%	0.7%
Other liabilities	2.0%	1.4%	0.8%
Total liabilities	33.3%	36.4%	67.0%
Shareholders’ equity:
Common stock	0.0%	0.0%	0.0%
Additional paid-in capital	63.8%	60.7%	28.7%
Treasury stock	-114.1%	-110.4%	-52.9%
Accumulated other comprehensive loss	-0.2%	-0.3%	-0.1%
Retained earnings	117.2%	113.6%	57.2%
Total shareholders’ equity	66.7%	63.6%	33.0%
Total liabilities and shareholders’ equity	100.0%	100.0%	100.0%

Statement of Cash Flows

a. Chipotle Mexican Grill, Inc. Consolidated Statements of Cash Flows

2019 ($) 2018 ($) 2017 ($)

Operating activities

Net income 350,158 176,553 176,253

Adjustments to reconcile net income to net cash

Depreciation and amortization 212,778 201,979 163,348

Amortization of operating lease assets 163,952 — —

Deferred income tax (benefit) provision 29,962 10,585 (18,026)

Impairment, closure costs, and asset disposals 15,402 61,987 13,345

Bad debt allowance 33 125 214

Stock-based compensation expense 91,396 69,164 65,255

Other (10,592) (2,918) (218)

Changes in operating assets and liabilities

Accounts receivable (2,630) (8,298) (140)

Inventory (4,530) (1,722) (5,250)

Prepaid expenses and other current assets (23,066) (3,811) (6,710)

Other assets 2,818 (2,005) (1,476)

Accounts payable (973) 32,080 10,908

Accrued payroll benefits 11,759 29,568 6,188

Accrued liabilities 36,543 14,831 28,179

Unearned revenue 30,400 6,829 4,207

Income tax payable/receivable (32,083) 14,439 (4,173)

Deferred rent — 21,297 29,996

Operating lease liabilities (151,557) — —

Other long-term liabilities 1,862 869 6,316

Net cash provided by operating activities 721,632 621,552 468,216

Investing activities

Purchase of leasehold improvements, property (333,912) (287,390) (216,777)

Purchase of investments (448,754) (485,188) (199,801)

Maturities of investments 476,723 385,000 330,000

Proceeds from sale of equipment 13,969 — —

Net cash used in investing activities (291,974) (387,578) (86,578)

Financing activities

Acquisition of treasury stock (190,617) (160,937) (285,218)

Tax withholding on stock-based compensation (10,420) (5,411) (702)

Stock plan transactions and other activities (698) (187) 26

Net cash used in financing activities (201,735) (166,535) (285,894)

Effect of exchange rate changes 406 (1,457) 2,056

Net change in cash, cash equivalents 228,329 65,982 97,800

Opening cash, cash equivalents, and restricted cash 280,152 214,170 116,370

Closing cash, cash equivalents, and restricted cash 508,481 280,152 214,170

Supplemental disclosures of cash flow information

Income taxes paid 109,571 67,053 119,787

Accrued purchases of leasehold improvements 36,886 30,870 31,806

Acquisition of treasury stock — 2,474 2,274

b. Cash Flow Statement Horizontal Analysis

	2017 ($)	2018 ($)	2019 ($)
Operating activities
Net income	100.0%	0.2%	98.7%
Adjustments to reconcile net income to net cash
Depreciation and amortization	100.0%	23.6%	30.3%
Amortization of operating lease assets
Deferred income tax (benefit) provision	100.0%	-158.7%	-266.2%
Impairment, closure costs, and asset disposals	100.0%	364.5%	15.4%
Bad debt allowance	100.0%	-41.6%	-84.6%
Stock-based compensation expense	100.0%	6.0%	40.1%
Other	100.0%	1238.5%	4758.7%
Changes in operating assets and liabilities
Accounts receivable	100.0%	5827.1%	1778.6%
Inventory	100.0%	-67.2%	-13.7%
Prepaid expenses and other current assets	100.0%	-43.2%	243.8%
Other assets	100.0%	35.8%	-290.9%
Accounts payable	100.0%	194.1%	-108.9%
Accrued payroll benefits	100.0%	377.8%	90.0%
Accrued liabilities	100.0%	-47.4%	29.7%
Unearned revenue	100.0%	62.3%	622.6%
Income tax payable/receivable	100.0%	-446.0%	668.8%
Deferred rent	100.0%	-29.0%
Operating lease liabilities
Other long-term liabilities	100.0%	-86.2%	-70.5%
Net cash provided by operating activities	100.0%	32.7%	54.1%
Investing activities
Purchase of leasehold improvements, property	100.0%	32.6%	54.0%
Purchase of investments	100.0%	142.8%	124.6%
Maturities of investments	100.0%	16.7%	44.5%
Proceeds from sale of equipment
Net cash used in investing activities	100.0%	347.7%	237.2%
Financing activities
Acquisition of treasury stock	100.0%	-43.6%	-33.2%
Tax withholding on stock-based compensation	100.0%	670.8%	1384.3%
Stock plan transactions and other activities	100.0%	-819.2%	-2784.6%
Net cash used in financing activities	100.0%	-41.7%	-29.4%
Effect of exchange rate changes	100.0%	-170.9%	-80.3%
Net change in cash, cash equivalents	100.0%	-32.5%	133.5%
Opening cash, cash equivalents, and restricted cash	100.0%	84.0%	140.7%
Closing cash, cash equivalents, and restricted cash	100.0%	30.8%	137.4%
Supplemental disclosures of cash flow information
Income taxes paid	100.0%	-44.0%	-8.5%
Accrued purchases of leasehold improvements	100.0%	-2.9%	16.0%
Acquisition of treasury stock	100.0%	8.8%

c. Vertical Analysis - Cash Flow Statements
	2017 ($)	2018 ($)	2019 ($)
Operating activities
Net income	29.6%	34.3%	37.3%
Adjustments to reconcile net income to net cash
Depreciation and amortization	27.4%	39.3%	22.7%
Amortization of operating lease assets			17.5%
Deferred income tax (benefit) provision	-3.0%	2.1%	3.2%
Impairment, closure costs, and asset disposals	2.2%	12.1%	1.6%
Bad debt allowance	0.0%	0.0%	0.0%
Stock-based compensation expense	11.0%	13.5%	9.7%
Other	0.0%	-0.6%	-1.1%
Changes in operating assets and liabilities
Accounts receivable	0.0%	-1.6%	-0.3%
Inventory	-0.9%	-0.3%	-0.5%
Prepaid expenses and other current assets	-1.1%	-0.7%	-2.5%
Other assets	-0.2%	-0.4%	0.3%
Accounts payable	1.8%	6.2%	-0.1%
Accrued payroll benefits	1.0%	5.8%	1.3%
Accrued liabilities	4.7%	2.9%	3.9%
Unearned revenue	0.7%	1.3%	3.2%
Income tax payable/receivable	-0.7%	2.8%	-3.4%
Deferred rent	5.0%	4.1%
Operating lease liabilities			-16.2%
Other long-term liabilities	1.1%	0.2%	0.2%
Net cash provided by operating activities	78.6%	120.9%	76.9%
Investing activities
Purchase of leasehold improvements, property	-36.4%	-55.9%	-35.6%
Purchase of investments	-33.5%	-94.4%	-47.8%
Maturities of investments	55.4%	74.9%	50.8%
Proceeds from sale of equipment			1.5%
Net cash used in investing activities	-14.5%	-75.4%	-31.1%
Financing activities
Acquisition of treasury stock	-47.9%	-31.3%	-20.3%
Tax withholding on stock-based compensation	-0.1%	-1.1%	-1.1%
Stock plan transactions and other activities	0.0%	0.0%	-0.1%
Net cash used in financing activities	-48.0%	-32.4%	-21.5%
Effect of exchange rate changes	0.3%	-0.3%	0.0%
Net change in cash, cash equivalents	16.4%	12.8%	24.3%
Opening cash, cash equivalents, and restricted cash	19.5%	41.7%	29.9%
Closing cash, cash equivalents, and restricted cash	35.9%	54.5%	54.2%
Supplemental disclosures of cash flow information
Income taxes paid	20.1%	13.0%	11.7%
Accrued purchases of leasehold improvements	5.3%	6.0%	3.9%
Acquisition of treasury stock	0.4%	0.5%
Net cash generated during the year	100.0%	100.0%	100.0%

Chipotle Mexican Grill Inc. Financial Ratios

Annual Data	December 31, 2019	December 31, 2018	December 31, 2017
Current ratio	1.6085	1.8107	1.9437
Long-term debt/ capital	0.6141	-	-
Debt/Equity ratio	1.6943	-	-
Gross margin	20.4514	18.7255	16.8934
Operating margin	7.9472	5.3108	6.0494
Net profit margin	6.2681	3.6291	3.9374
Asset turnover	1.0944	2.1474	2.1882
Return on assets (ROA)	6.8597	7.7931	8.6158
Return on investment (ROI)	8.0286	12.2492	12.9176

From the above table summarizing the financial ratios for CMG, the current ratio has declined from 1.9437 in 2017 to 1.6085. This decline can be attributed to the increase in short term liabilities that have more than doubled in 2019 from 2017. The implication is that the business may be straining in terms of meeting its short-term obligations. Another crucial ratio presented in the table is the gross margin, which is steadily increasing from 2017. The higher level of gross margin registered by CMG indicates that the company is making increased profits after settling the cost of goods sold. The implication is that the firm is efficient in utilizing labor and raw materials in the process of producing various food products.

Similarly, the increase in the net profit margin recorded by CMG implies that the company is efficient in the conversion of sales into a profit. However, the decline in asset turnover from 2017 suggests that CMG may not be efficient in utilizing its assets in the generation of sales. The same aspect can be witnessed in decline in the ROA ratio. Notably, there is a decline in ROI ratio, which may imply that CMG is not prudent when making decisions regarding funding future projects.

Conclusion

From the paper, CMG has been performing exceptionally well in the restaurant industry. The famous mission statement of the company: Food with Integrity, has been instrumental in attracting customers to the restaurant. However, the restaurant has portrayed a tremendous level of dedication towards delivering its promise to the customers. CMG has been consistent in offering its customers fresh and natural ingredients that are highly conscious of the health of the customers.

The SWOT analysis has indicated that the business can effectively leverage its strengths and opportunities in offsetting the weaknesses and threats it faces. The financial statements have suggested that the company is vast in terms of assets and profitability, which can be utilized for further expansion and diversification. The financial ratios have indicated that CMG has improved in the last three years, although they are still more opportunities for further growth.

References

Abwanzo, B. (2017). Chipotle Company Assessment. Available at SSRN 3278492.

Chipotle posts financial results for its third quarter ended september 30. (2017). Professional Services Close-Up.

Hoffmann, A. (2014). Chipotle Mexican Grill, Inc.: Conscious Capitalism by Serving 'Food with Integrity'. Strategic Management and Business Policy.

Ragas, M. W., & Roberts, M. S. (2009). Communicating corporate social responsibility and brand sincerity: A case study of Chipotle Mexican Grill's ‘Food with Integrity’program. International Journal of Strategic Communication, 3(4), 264-280.

Stevens, N. L., & Lunsford, R. (2014). Beyond the burrito: Chipotle Mexican Grill's brand extension. Journal of Business Cases and Applications, 12, 1.

Walker, R., & Merkley, G. (2017). Chipotle Mexican grill: Food with integrity?. Kellogg School of Management.

APPENDICES

Appendix 1 Matrix: Internal Factor Evaluation (IFE) Matrix

Key internal factor	Weight	Rating	Weighted Score
Strengths
Strong distribution network	8	3	0.24
Higher returns	11	4	0.44
Excellent performance	8	3	0.24
Strong dealer community	4	1	0.04
Strong brand portfolio	12	4	0.48
Highly-skilled employees	4	3	0.12
Strong cash flows	7	3	0.21
Activity automations	6	1	0.06
Weaknesses
Limited investment in R&D	5	2	0.10
Low accessibility beyond core business	8	3	0.24
High inventory	4	2	0.08
Inefficient financial planning	4	2	0.08
Poor integration with a new work culture	7	4	0.28
Poor product marketing	6	2	0.12
Higher employee attrition	6	4	0.24
Total	100		2.97

Appendix 2: External Factor Evaluation (EFE) Matrix

Key external factor	Weight	Rating	Weighted Score
Opportunities
New customers	11	4	0.44
Differentiated pricing strategy	8	3	0.24
Increased customer expenditure and economic growth	6	3	0.18
Low inflation rate	9	2	0.18
Low transportation cost	7	1	0.07
New tax policies	8	1	0.08
Environmental policies	9	2	0.18
Threats
New technologies	6	2	0.12
Lack of innovative products	7	3	0.21
Stronger local distributors	8	3	0.24
Lack of skilled workers	5	2	0.10
Intense competition	9	4	0.36
Global risks	3	3	0.09
Change in customer behavior	4	4	0.16
Total	100		2.65

Appendix 3: SWOT Bivariate Strategy Matrix

SO Strategies · Increase profitability (S2, S1, O1, 03, 05) · Enhance brand image (S5, S7, O2)	WO Strategies · Increase business returns (W5, O2) · Increase market share (W6, 03)
ST Strategies · Innovative technologies (S8, T1)	WT Strategies · Lower competition (W6, T5)