Finance HW Case study Write executive summary 1 page

Executive Summary

Introduction

Panera Bread, a predominant, higher end chain restaurant franchise, has had consistent sales growth over the past several years. The company increased its number of outlets by 17% and attained more than a 4% same store sales growth in 2006 alone. Like many companies, Panera Bread faces numerous changes to the environment it operates in which has had a direct impact on its “transaction growth”—the increase in same-store sales ignoring the effect of price increases. Panera has seen a trend, since 2006 that continues into 2007, of lower than anticipated “transaction growth.” Even though Panera’s margins remain strong, it has also been having issues with maintaining a constant profit margin over the past two years as previous financial statements would suggest. Panera Bread must figure out a way to recover and retain growth as it has done so many times in the past.

Analysis

Panera breads business model focused around high-quality bread which required the best ingredients, specialized equipment, and careful training. For example, Panera baked its breads on heated stone slabs in European-style ovens. This strategy was appreciated by their customers, as Panera consistently earned recognition for the quality of its offerings, often attaining the top position in customer-satisfaction surveys. The essential business model, therefore, was to provide a meal and a dining environment of sufficient high quality that customers would gladly pay for that quality- at a price that would also make the company financially successful. Unfortunately recently, Panera Bread has been facing new challenges. In recent years they have experienced a constant fall off in profit margin as well as many other important business metrics. This has led to them needing external financing for the first time. Due to recent hardships Panera has repurchased 75 million dollars in stock. This was in an effort to raise stock price.

Recommendation

We recommend that Panera Bread use short term external financing. We recommend this because they need to take out debt in order to finance the projected increase of their sales. The reason we recommend short term financing over long terms that the company has a current ratio over 1. This means that Panera has enough assets to pay for its debt in the short-run.

Conclusion

Panera Bread had a booming period of growth, but now faces more hardships than ever. Due to a rough period Panera repurchased 75 million dollars of its own stock in order to drive up price. This didn’t prevent Panera from needing external financing though. We recommended that they take on short term external financing in order to meet future projected sales growth numbers. Panera has a current ration over 1 which to a creditor is good, and means that they have enough assets in hand to pay off debt in the short-run.

Year2003200420052006200720082009201020112012

ROA11.85%11.88%11.92%10.85%8.17%6.66%6.26%5.99%6.12%6.26%

ROE15.40%15.98%16.46%14.80%12.41%12.95%13.21%11.71%11.17%10.70%

Profit Margin8.37%8.05%8.15%7.10%5.37%4.30%4.04%3.86%3.95%4.04%

Total Asset Turnover1.4160921.4757631.4629271.527751.52173911.5503881.5503881.5503881.5503881.550388

Equity multiplier1.299931.3451611.3807491.3644841.51977021.9442482.1092481.9552971.8237321.710009

Times Interest Earned1002.2293376.2781644.561008.359586.6666725.4677510.325617.3432188.56147810.2407

Cash Coverage Ratio1383.5634781.7222304.781488.424986.6666744.4788818.0334612.8247814.9524417.88516

Current Ratio1.5785991.5189481.1831461.1642921.15384621.1023621.1023621.1023621.1023621.102362