Financial Data Analysis for Public Restaurants Essay

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The author of this report has been asked to answer two general sets of questions. One pertains to the mechanics of net income versus operating income and other economic factors for a business and much of the rest pertains to the financial data for three different firms. Items that will be discussed will include cash flow ratios, net income, operating income, debt to income ratios and so forth. As noted above, some answers will be general in nature while others will be quite specific. One thing that will be identified as part of this work is which of the three firms might be on thin ice given the financial statistics that are presented in relation to that firm.

First off, the difference between operating income and net income is that the former is revenues minus the cost of getting that work completed, or cost of goods sold. For example, if revenue is $1,000 and the cost of delivering those goods and services is $800, then the operating income is $200. When it comes to net income overall, this is when all expenditures are accounted for including both operating expenses and other expenses that are optional or are not directly related to the revenue obtained for that period. Figures that would be included in net income but not operating income would be research and development, dividend payments to stockholders and so forth. Those items are not necessary to pay for the business completed for that cycle. That being said, items like that have to be paid for by some sort of money, hence the demarcation between operating income and net income overall (Investopedia, 2016).

When it comes to long-term profitability, operating income would absolutely be the more important figure as there needs to be more revenue than operating expenses or the business will not survive.

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In other words, if the net operating income is very small or, worse yet, negative, that would present a problem if there is a dip in revenue or a rise in expenses as that would almost certainly put the company in dire financial shape. Net income is less important as many of the items between operating expenses and net income are voluntary or at least can be planned out in advance. Obviously, an expansion of the business, research and development and so forth would have to come from income (if any) left over after operating expenses. If there little to no money left over after operating expenses are accounted for, then the company is basically covering its basic costs (e.g. materials, wages, etc.) and this would be a sign of trouble (Investopedia, 2016).

When it comes to the three brands in question, the one firm that clearly has the biggest challenge from a cash flow perspective would be Panera Bread. Their operating cash flow to debt ratio is extremely high. The ratio did take roughly a sixteen percent dip from 2009 to 2010 but the latter figure, that being 72.23%, is still alarmingly high. Starbucks is not much better with a 2009 figure of 55.12% and a 2010 value of 63.06%. Starbucks is nearly ten percent below Panera for 2010 but they were heading in the wrong direction as of that year. By comparison, Yum Brands also had a spike upward in operating cash flow to total debt but this was only from 23.27% to 30.57%. They had a pretty large long-term debt ratio in 2009 (23.80%) but it fell sharply to less than three in 2010. The other two firms, despite their rather high short-term debts, have no long-term debts at all.

When it comes to operating cash flow per share, Starbucks is.....

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