BUSI 690 LIBERTY UNIVERSITY Historical_Financial_Records_Analysis_Domino_s_Business_Analysis__Week_6____Copy.docx.pdf

DOMINO’S PIZZA ANALYSIS 1

Case Study: Domino’s Pizza Business Analysis

Benjamin J. Bessler

School of Business, Liberty University

Author Note

I have no known conflict of interest to disclose.

Correspondence concerning this article should be addressed to Benjamin J. Bessler.

Email: [email protected]

DOMINO’S PIZZA ANALYSIS 2

Case Study: Domino’s Pizza Historical Financial Statements Analysis

Income Statement

Analyzing the last 3-years of Domino’s Pizza consolidated statements of income

Domino’s has continued to see an overall growth in revenue (United States Securities and

Exchange Commission, 2023). However, despite this overall increase in revenue there are other

key financial metrics that have decreased in 2022 and should pose a certain level of concern to

both investors and the companies upper-level management. These metrics that have declined

from 2021 include the overall gross margins (decreasing from $1,688,242,000 in 2021 to

$1,648,606,000 in 2022) as well as net income (decreasing from $510,467,000 in 2022 to

$452,263,000 in 2021). Additionally, Domino’s has also seen a decrease in earnings per share

(dropping from $13.72 to $12.66). Most of these financial income numbers more closely

resemble those of two years ago in 2020 when Domino’s was reporting numbers that were

heavily impacted by the COVID-19 pandemic. The reason for the drop in performance and

overall profitability in 2022 is most likely associated with inflation and a rise in the cost of sales

(rising from $2,669,131,000 in 2021 to $2,888,552,000 in 2022). An additional factor could also

be a potential decrease in overall consumer demand that may be occurring as the economy and

consumers return to a more normal null state following the pandemic.

Balance Sheet

Reviewing Domino’s balance sheet, like the company’s income metrics, there have also

been overall decreases in performance. The most critical areas that have seen negative trends are

in the form of both the company’s current and total assets. Each of these respective metrics saw

decreases in year-to-year changes as shown in the horizontal analysis of Appendix E. One

positive change is an overall decrease in Domino’s overall current and total liability as well as a

DOMINO’S PIZZA ANALYSIS 3

small reduction in the long-term debt that the company owes having made an additional years’

worth of payments. The total stockholders’ deficit saw a moderate reduction in 2022

($4,189,065,000) but is still significantly higher than it was in 2020 ($3,300,405,000). While the

decrease in this metric in 2022 is a positive the company will need to target this more

aggressively in the future to turn the deficit into a source of equity through future growth and

expansion in the global and international marketplace.

Statement of Cash Flows

Similar to some of the financials listed on the income statement the cash flow analysis

also revealed a decrease in overall company performance in 2022. While items like net income

decreased to numbers that demonstrated 3-year lows the company chose to increase payments of

common stock dividends and equivalents to 3-year highs. In 2022 the company paid total

dividends of $157,531,000 compared to $139,399,000 in 2021. This dividend represented $4.40

per share in 2022 and $3.76 per share in 2021. This increase in the dividend demonstrates

financial stability to investors and is possible since Domino’s is at the forefront of its respective

industry. However, choosing to increase the dividend in this way could also call into question

the company’s true expansion goals and how aggressively it is pursuing continued growth of its

global operations.

Ratio Analysis

Profitability Ratios

Domino’s profitability ratios are very positive when compared with those of another

pizza giant, Papa John’s. In nearly every category of the profitability ratios analyzed in

Appendix D Domino’s shows strong growth and performance against the rest of the industry.

DOMINO’S PIZZA ANALYSIS 4

However, this analysis also reveals a year-over-year decrease that returns Domino’s performance

and profitability to numbers that were seen in 2020. This similar 2022 decrease in profitability

ratios is also seen in the analysis of Papa John’s which means that this could be an industry wide

problem and not just an issue with the performance of Domino’s individually. Because this is

just a one-year reduction in profitability it is too early to say if this is a trend for the company or

if they are simply feeling the results of growth that may have occurred too quickly following the

COVID-19 pandemic (Lai, et al., 2021). This growth could have caused skewed metrics as

society emerged from a global quarantine that may have seen abnormal spending or eating

habits.

Liquidity Ratios

Because the current ratios have been above 1.0 for the past 3 years it is clear Domino’s

holds better than average liquidity ratios. The most recent current ratio for 2022 is little changed

from 2021 and is 1.47 but does represent a decline when compared with the 2020 current ratio

when the company produced a 1.85. Regardless of this decline Domino’s current liquidity ratio

is significantly stronger than that of Papa John’s which has reported lower than a 1.0 over the

past two years as shown in Appendix D. Additionally, Domino’s has maintained a positive

working capital. This is important because it allows the company to pay current liabilities on

time as well as to finance inventory expansion, maintain additional accounts receivable, and hold

a larger base of operations without a need to borrow or raise additional equity (Thompson, et al.,

2022). This positive working capital is noticeably missing at Papa John’s as the company has

held negative balances in this liquidity ratio category, significantly limiting their operational

flexibility when compared with Domino’s. The reporting of these numbers by a direct

competitor like Papa John’s should serve as a strong positive for Domino’s because they have

DOMINO’S PIZZA ANALYSIS 5

significantly more flexibility to overcome unforeseen events then other large chains in the quick

service industry sector.

Leverage Ratios

The biggest take-away from this section and the respective financial ratios associated are

Domino’s large debt that it is carrying and a total stockholder deficit. Domino’s current debt-to-

assets ratio is higher than 1.0 and has increased 3-years in a row. Although, still greater than a

1.0 Papa John’s has a considerably lower total debt-to-assets ratio due to holding a much lower

overall debt to creditors. Despite poor debt-to-assets ratios both companies maintain good credit

worthiness as evidenced by their times-interest-earned ratio.

Activity ratios

When making a direct comparison between Domino’s and Papa John’s in this category,

Domino’s performs extremely well in almost every activity ratio category. Appendix D shows

that Domino’s has fewer days of inventory, and more inventory turns annually. Both are

desirable metrics as it is preferable to maintain lower inventory as well as to have a higher

number of inventory turnover. There is a sizable gap in the numbers reported between the two

companies and Papa John’s days of inventory is almost seven times as many as Domino’s (10.3

days for Domino’s vs. 69.2 days for Papa John’s). The only ratio metric in this category that

Domino’s loses out on is the average collection period. In this financial statistic Papa John’s

receives cash payments approximately 17.8 days after making a sale while Domino’s must wait

approximately 20.7 days from the sale to collect payment. Although Papa John’s is still leading

this ratio Domino’s has closed the gap in this metric significantly from 2021 and sees a decrease

in average collection period while Papa John’s average collection period increased.

DOMINO’S PIZZA ANALYSIS 6

Price-to-Earnings Ratio

Both Domino’s and Papa John’s report strong price-earnings ratios. While the ratios are

higher at Papa John’s than Domino’s, both companies have seen decreases in the year-to-year

change. Despite these decreases both companies remain strongly focused on growth and are

poised to continue seeing increases in sales and growth both in the short and long term.

Domino’s strategic vision must be focused more globally to realize the maximum amount of gain

in potential whereas Papa John’s still has a great deal of room to continue growing domestically

and focus on meeting and exceeding US sales target projections (Shiedlower, 2023). This

difference in strategic vision for the two companies will ensure that they remain in direct

competition domestically while Domino’s seeks to take on other competitors in the international

marketplace. Both companies also experienced overall decreases in free and internal cashflow

when compared to the past 3 years of financial reports analyzed. This cash flow reduction will

limit the flexibility of both companies and could reveal a larger trend for the industry that growth

may be slowing down as inflation spikes. Additionally, shifts to the domestic economy may

make producing pizzas or other foods at quick service establishments more expensive. If this

trend is realized Price-Earning ratios will continue to decrease at both companies and growth

targets will need to be further cut.

Summary

Despite overall decreases in financial performance Domino’s remains in a strong position

within the quick service industry when compared to Papa John’s. Many of the declines in

performance can be attributed to a change in the domestic economy that has seen rising prices

and shifting consumer spending habits. Because of a strong free cash flow (albeit reduced) and

large pre-established coverage across the nation Domino’s remains poised to see continued

DOMINO’S PIZZA ANALYSIS 7

growth even if it is slower than previously expected or desired. The company has managed to

increase dividends year-over-year and demonstrated a high level of financial security to

investors. The next step for Domino’s is to continue global expansion to capture more

international markets while sustaining its domestic dominance as competitors, such as Papa

John’s, begin to solely focus on increasing domestic sales. Maintaining this balance will be key

to the strategic success of Domino’s shaking off a decline in net income and revenue to return to

positive gains for the business moving forward.

DOMINO’S PIZZA ANALYSIS 8
References
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chains deliver soft sales, outlook. CNBC. 
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