-for shining star-need Introduction part of the whole essay. combine the part I already have.

Executive Summary

Panera Bread Company is a bakery café, and it engages in providing a meal and dining environment with high quality for customers. The company had more than 1,000 bakery-cafes in 46 states by the end of 2006. From 2003 to 2006, the company had strong margin, and it could finance its rapid growth through retained earnings. However, the company was expected to have tighter margins in 2007 because of rising commodity costs. Furthermore, the company’s stock price significantly dropped by 10% as a result of forecast growth in 2007. If the company wanted to continue to improve margins, it could not increase the prices or rely on internal channel generating funds to finance the growth. Increasing prices would decrease sales and possibly make stock price further decline. Also, it would limit the ability of internal funding to achieve the firm’s expected growth due to tighter margins. Therefore, Panera should use both short-term and long-term debt to finance the growth. Furthermore, the company should repurchase $75 million stock in 2008, because repurchasing stock can reduce the supply of stock so that the stock price increases again. Also, reducing the supply of stock can send a positive signal to the market that the firm is doing well. For long-term debt borrowing, the firm should respectively borrow $60,984,000, $188,019,000, $277,600,000, $250,004,000, $219,460,000, $185,762,000 in 2007, 2008, 2009, 2010, 2011 and 2012. In the short run, the firm can increase its liability by $166,688 in 2008, $208,359 in 2009, $218,777 in 2010, $229,716 in 2011 and $241,202 in 2012. Also, the firm can increase its deferred rent and other liability by $56,438 in 2008, $70547 in 2009, $74,074 in 2010, $77,778 in 2011 and $81,667 in 2012.

Analysis and Recommendation

First of all, Panera had tighter margin because of low transaction growth and uncertain cost. In other words, Panera’s low net income cannot help business continue operating comfortably and cannot avoid potential financial problems. In addition, Panera’s stock price decreased quickly in the past years, which means Panera cannot issue new stocks anymore. In the stock market, if Panera increase the supply of their stocks, the stock prices will drop faster, because the supply of stock is greater than the demand of the stock. Thus, Panera has to increase the stock price. And Panera chose to repurchase stock from market because they want to decrease the shares of outstanding stock in the market. According to law of supply, when the quantity of supply going down, the price of supply going up. Besides, Panera can send a positive signal to the market that the firm is doing well, to attract new customers and new investors’ attention. The way to repurchase stocks would cause a result in increasing the demand of the stocks and the stock price. Therefore, Panera can repurchase stocks and increase the stock price later.

Secondly, we assume that the interest rate on all kinds of debt borrowing is 6%, and that the stock repurchase only occurs in 2008. Assume sales growth of 25% for 2008 and 2009 and 5% thereafter.

All the items are measured as a fixed percentage of its revenue of the same year. The fixed percentage is assumed as following.

Based on the forecasting, the firm should increase its current liability by $166,688 in 2008, $208,359 in 2009, $218,777 in 2010, $229,716 in 2011 and $241,202 in 2012. Since the company’s forecast of current ratio is 1.15 in 2007, 1.10 in 2008, 1.10 in 2009, 1.10 in 2010, 1.10 in 2011, and 1.10 in 2012, which are greater than 1.0, it means Panera’s current asset can cover its current liabilities, and it has an efficient use of cash. Thus, Panera should use short-term debt to finance the growth.

According to the calculation, the firm should borrow long term debt in following five years for $60,984 in 2007, $188,019 in 2008, $277,600 in 2009, $250,004 in 2010, $219,460 in 2011, and $185,762 in 2012. Because the total debt ratio will be 0.34 in 2007, 0.49 in 2008, 0.53 in 2009, 0.49 in 2010, 0.45 in 2011, and 0.42 in 2012, which means Panera has long term ability to meet its debt obligations. Thus, Panera should use short term debt and long term debt combination based on the analysis.

Based on the external financing needed calculated from the spreadsheet, the forecast of time interest earned ratio will be 586.67 in 2007, 25.47 in 2008, 10.33 in 2009, 7.34 in 2010, 8.56 in 2011, and 10.24 in 2012, which means Panera’s earnings before interest and taxes can cover its interest obligation. Lastly, by Panera forecast of its profit margin is 5.37% in 2007, 4.30% in 2008, 4.04% in 2009, 3.86% in 2010, 3.95% in 2011, and 4.04% in 2012, which means Panera can still make profit in the future, even though the profit is growing slowly. Panera’s forecast of return on asset is 0.08 in 2007, 0.07 in 2008, 0.06 in 2009, 0.06 in 2010, 0.06in 2011, and 0.06 in 2012. These data measure the profit or earing the firm makes for every dollar in total assets are stable. And forecast of return on equity 0.12 in 2007, 0.13 in 2008, 0.13 in 2009, 0.12 in 2010, 0.11in 2011, and 011 in 2012, these data indicate the profit or earrings the firm making for every dollar in total equity are stable. According to these calculation results, the company has ability to pay for both long-term and short-term debt when they use the short term and long term debt combination.

Conclusion.

After the analysis, Panera should repurchase $75 million stock and use short term and long term debt combination to finance its growth. Panera should borrow $60,984,000, $188,019,000, $277,600,000, $250,004,000, $219,460,000, $185,762,000 in 2007, 2008, 2009, 2010, 2011 and 2012 in the long term. And the company can increase its liability by $166,688 in 2008, $208,359 in 2009, $218,777 in 2010, $229,716 in 2011 and $241,202 in 2012 in the short run.