Comparative Analysis Of The Company Ratios Against The Industry Averages (Chipotle Mexican Grill, Inc.) Report Example
The analysis will cover some of the profitability, performance, liquidity and efficiency ratios as indicators of company’s ability to earn profits and to generate returns, as well as to pay its obligations and to manage its working capital. Table 1 below gives a comparison of these selected ratios of Chipotle against the industry averages.
In 2014, Chipotle gross profit margin was 24.57% or 22.93% lower than industry average. Such significant difference is due to the costs of food which have always been extremely high, with a steady tendency of growth. The increase in costs of good sold (COS) was mainly due to higher avocado, dairy and beef costs, due to the Company’s focus on the best possible ingredients, and was partially offset by the appropriate pricing strategies (the nationwide menu price increase in summer 2014).
Both the increase in total revenues due to the opening of 192 new restaurants in 2014, and tight controlling of selling and administrative expenses resulted in Chipotle net profit margin for 2014 being 10.84%, or 6.34% higher than the industry average of 4.50%. Though total selling and administrative expenses grew up to the level of 6.7% of net sales as a result of higher stock based compensation expense and large costs of biennial All Managers' Conference 2014, they were offset by favorable sales trends due to increase both in number of restaurants and customer visits.
Chipotle good liquidity position is illustrated by its current ratio of 3.58 which is 2.3 points higher than industry average of 1.28. In major part, the possibility to ensure cost effective financing is due to the increase in accounts receivable ( 85.48% since 2013, or 51.33M US $ vs. 27.67M US $ respectively) caused by a sales boost, compared to only 17.94% accounts payable growth for the same period ( 69.61M US $ vs. 59.02M US $). Thus, the Company managed to continue its nationwide expansion without affecting liquidity.
Inventory turnover ratios of Chipotle remain stably high: 6.33 times higher than the industry average of 33.31, or 210.75 in absolute figures. The increase of year-end inventory compared to 2013 (15.33 M US $ vs. 13.04 M US $, or 17.56%) is caused primarily by new restaurants opening. The quick movement and processing of inventory is driven by the company focus on customer care, its efforts to serve only fresh and tasty food, and ensured by Chipotle supply chain procedures. The Company is successfully managing its inventory generating it into sales.
Accounts receivable ratio of Chipotle is 80.07, or 33.64 points lower than the industry average of 113.71. First, it is a result of increased nationwide presence; second, in the current economic conditions customers may require longer credit terms and pay their debt later. Still, compared to all the previous years starting from 2011, the company has dramatically improved its accounts receivable ratio (80.07 vs. 116.16 in 2013, 103.41 in 2012 and 270.54 in 2011 respectively). That indicates that Chipotle has a potential for improvement of credit control and credit risk management system.
Ratio of Net Sales to Assets of Chipotle remains 0.11 points above the industry average (1.53 vs. 1.42) as the evidence of the stable Company’s assets growth along with market capitalization and profit earned and retained. Subsequently, the assets’ growth drives the Company low to mid-single digit restaurant sales increase.
Rate Earned on Total Assets of Chipotle is 16.56%, or 9.86% higher then industry average of 6.7%. The Company has been demonstrating the tendency of outperforming the industry benchmarks for yeaars, and such a favorable rate of return is a result of both the impressive growth of total assets and sales boost (27.08% and 27.80% vs. prior year respectively). Such rate of return demonstrates the Company’s superior position against its competitors and will undoubtedly inspire both investors and lenders when financing decisions are taken.
Finally, Chipotle is outperforming the industry in the Rate Earned on Stockholders Equity as well showing the results of 22.16% vs. 12.10%, or 10.06% higher than industry average. It is a credible evidence of the company ability to use stockholders’ funds efficiently and effectively. Both the shareholders’ equity and net income grew significantly in 2014 (2.01B US $ vs. 1.54B US $ in 2013, or 30.5% growth, and 445.37M US $ vs. 327.44M US $, or 36.02% growth respectively), ensuring stable increase in funds generated.
Generally, the company is doing well against the industry benchmarks, focusing on maximizing returns, maintaing good liquidity and profitability levels and striving towards improvement in the areas which require a special control.With constant enhancement of the Company expertise and commitment to excellence, these trends will lead to better experience for its customers and further earnings per share increase for its shareholders.
1. Chipotle Mexican Grill, Inc. Fourth Quarter and Full Year 2014 Results. Retrieved from: www.chipotle.com
2. Market Watch. Annual Financials for Chipotle Mexican Grill, Inc. Retrieved from: http://www.marketwatch.com/investing/stock/cmg/financials
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