Corporate Writing on "Cheesecake Factory Profitability Analysis 5-Year Projection for Cash Flow Risk Rate"

Corporate Writing 11 pages (3114 words) Sources: 1+

[EXCERPT] . . . .

Cheesecake Factory Profitability Analysis: 5-Year projection for cash flow / risk rate

Cheesecake Factory Profitability Analysis

The current project focuses on the analysis of the Cheesecake Factory from various angles, including its internal characteristics, the features of the industry and markets in which it operates, its financial highlights and ratios, as well as its ability to control external features. The scope of all these analyses was represented by the ultimate ability to conduct five-year projections for the cash flows and the net income, in order to create a price to be paid for the Cheesecake Factory. In other words, the scope of the current endeavor is that of evaluating the company and forming a final recommendation as to whether or not the firm should be purchased. The aim of the prospective purchase is that of combining resources and products to create diversity and increase profits and returns on equity. Based on the analysis conducted, it was concluded that the Cheesecake Factory would be a profitable investment to make. Specifically, it was found that the company does encounter several challenges, such as lower sales levels, but these issues are generically pegged to external pressures. At an internal level, the company reveals impressive strengths that would help it overcome the threats. The Cheesecake Factory is then worth investing in as it would retrieve higher levels of profitability in the future.

2. Company description

The Cheesecake Factory was founded in 1971 in Los Angeles, California, and it opened its first restaurant seven years later, in Beverly Hills, California. The Cheesecake Factory operates over 150 restaurants in the United States, as well as other restaurants, operated under different brands -- the Grand Lux Cafe and the RockSugar Pan Asian Kitchen.

The restaurants of the Cheesecake Factory are present in 35 American states and the menus include over 200 items. The business success of the Cheesecake Factory has been based on the intense diversification of the menu -- which includes foods from sandwiches to stakes --, the integration of products specific to the restaurants -- the most important of them being the cheesecakes which are served in about 40 different ways -- as well as the creation of large portions of foods. Also, an element which creates points of difference in comparison to other restaurants is the fact that the foods served by the Cheesecake Factory can be combined and customized in order to offer the best value for the customers.

Another point of difference revealed by the Cheesecake Factory is represented by the design of the stores. For all restaurants, the company has created glamour and glitz, inspired from the casinos in Las Vegas. This design enhances the customer experience and adds more value to the clients. Aside from these, the Cheesecake Factory has also opened bakery factories, in which it produces desserts that are then sold in grocery stores (Hoovers, 2011). Diversity is as such present not only in the menu, but also in the business operations.

Aside from the United States however, the Cheesecake Factory also strives to open and operate stores in other global regions. At the beginning of 2011, this desire came closer to materialization as the managerial team at the Cheesecake Factory entered into an exclusive agreement with the Alshaya Group in Kuwait. The scope of the agreement is that of opening and operating 22 new Cheesecake Factory restaurants in five states of the Middle East: Kuwait, the United Arab Emirates, Bahrain, Qatar and the Kingdom of Saudi Arabia. This agreement represents not only an opportunity to sell the company's products onto the selected five Middle East markets, but also the ability to use these new markets as door openers to other regions. In other words, the experience in the five states of the Middle East could serve as opportunity to create the know-how essential for a wider international expansion. Within the future, the Cheesecake Factory also wants to expand its operations in North Africa, Central and Eastern Europe, Russia and Turkey (Reimer, 2011).

3. Economy and industry prospects

The general state of the economy in the United States is poor, with the crisis having revealed severe shortages in the national fiscal system. The information received from authority sources is conflicting, with some arguing that the crisis has been overcome, whereas others arguing that the American economy is closer to collapse than it has ever been. Currently, the United States Congress is focused on finding new financial sources without creating fiscal pressure, and preventing the government from going into payment incapacity.

In this state of the economy, the population and the business community face severe challenges. Economic agents have a restricted access to funds, as the banks and other financial institutions are being extremely prudential and have restricted the access to loans. With lower profits and demands, business agents are forced to reduce their operations, downsize or even declare bankrupt. In such a context, people lose their jobs and, subsequently, their ability to repay their loans. Their purchasing powers are diminished and this impacts all consumer industries.

Overall then, the state of the economy is unstable and the future is difficult to foresee. Nevertheless, this situation is expected to change as the recession would be overcome and the national output would increase. While in 2009, the economy contracted by 0.4 per cent, during the period from 2012 through 2014, it is expected for it to increase by an annual average of 4.4 per cent. For the year 2011, the projection is that of a 2.4 increase in the real gross domestic product. After 2015 however, the growth rate of the GDP is expected to decrease as the economy overcomes the crisis and becomes more and more stable. The table below indicates these projections:

Table 1: Economic projections 2010 -- 2020

Estimate for 2009

Forecast for 2010

Forecast for 2011

Projected annual average for 2012-2014

Projected annual average for 2015-2020

Real GDP

GDP price index

Consumer price index

Nominal GDP

$14,253 billion

$14,706 billion

15,166 billion

$17,816 billion

$22,770 billion

Nominal GDP, percentage change

Unemployment rate

10.1%

Interest rate, three-month treasury bill rate

Interest rate, ten-year treasury note rate

Source: Congressional Budget Office, 2010

4. Financial highlights

At a general level, the financial competence of the Cheesecake Factory remains increased and this is obvious in terms of its stable revenues. Within the current economic climate, in which numerous economic agents were forced to declare bankrupt, the Cheesecake Factory has generated positive revenues. The table below reveals the financial highlights of the Cheesecake Factory from 2006 through 2010 (data available in the company's last Annual Report).

Table 2: Financial highlights for the Cheesecake Factory

2010

2009

2008

2007

2006

Revenues

$1,659.4 million

$1,602.0 million

$1,606.4 million

$1,511.6 million

$1,315.3 million

Comparable restaurant sales

Operating income margin

Diluted income per share

$1.42

$1.07

$0.84

$1.01

$1.02

Cash flow from operations

$165.2 million

$197.1 million

$169.2 million

$160.1 million

$152.7 million

Restaurants open at the beginning of the fiscal year

Source: The Cheesecake Factory 2010 Annual Report

As it can be observed from the highlights above, the company has followed a generally ascendant trend with the exceptions of 2009 and 2010, when specific decreases were registered. In 2010 for instance, the economic agent registered a $4.4 million decrease in its sales revenues, but recovered in 2010 with a $57.4 million increase in sales revenues. However, in 2010, the Cheesecake Factory registered a $31.9 million decrease in its cash flows, which had, until that time, followed an ascendant path. These decreases in cash flows and sales revenues reveal the fact that the Cheesecake Factory was not immune to the internationalized financial crisis and that the decreasing purchasing power of its consumers also took its tool on the firm. Nevertheless, the stability of the financial highlights from the past years and the already recovering sales indicate that the firm possesses the ability to create future profits.

5. Valuation analysis

The company's revenues and earnings per share have been following an ascendant trend throughout the past years, as is revealed in the table below:

Table 3: Revenues and earnings per share in 2009, 2010 and 2011 (as measured in June)

2009

2010

2011

Revenues

$407.944 million

$418.909 million

$430.746 million

Earnings per share

$0.27583

$0.31594

$0.42236

Source: Reuters, 2011

The sustained increase in the overall company income and earnings per share indicate the strong financial position of the organization, which has managed to succeed even in times of economic challenges. Since 2009, the EPS has almost doubled, indicating as such a greater value creation for the shareholders. Also, the increase in the earnings per share indicates that the company has become more profitable in time.

Aside from the revenues and the evolution of the earnings per share, the company's condition is also revealed with the aid of other ratios, such as the return on equity, the return on assets, the gross profit margin or the debt to equity ratio. The table below reveals the values of these ratios for the Cheesecake Factory in 2011 as well… READ MORE

How to Reference "Cheesecake Factory Profitability Analysis 5-Year Projection for Cash Flow Risk Rate" Corporate Writing in a Bibliography

Related Corporate Writings:

Five Year Development Plan Term Paper

Five-Year Development Plan:

A career development is an important part of the performance review process since it documents an individual's strengths and development areas with regards to career goals. As… read more

Term Paper 5 pages (1740 words) Sources: 5 Topic: Management / Organizations

---

Capital Budgeting Analysis Essay

net cash flow for the second year would be if all cash expenses were as described in the scenario but there were no depreciation expenses. Explain the impact of depreciation… read more

Essay 4 pages (1062 words) Sources: 2 Topic: Economics / Finance / Banking

---

Cash Flow Forecasts Research Paper

Cash Flow Forecasts

Our company is going to be preparing cash flow forecasts going forward. These forecasts will be prepared by the finance department with input from managers across the… read more

Research Paper 4 pages (1290 words) Sources: 3 Topic: Economics / Finance / Banking

---

Five-Year Career Plan a Clear Vision Term Paper

Five-Year Career Plan

A clear vision, backed by definite plans, gives you a tremendous feeling of confidence and personal power. - Brian Tracy

Career Goals and Objectives

Over the next… read more

Term Paper 4 pages (1962 words) Sources: 2 Topic: Career / Labor / Human Resources

---

Cash Flow Statement Research Proposal

Cash Flow Statement for the Year to 31.12.07.

Operating profit

Depreciation for 2007

Loss on disposal of fixed assets

Changes in stocks / inventories

Changes in debtors / receivables

Changes… read more

Research Proposal 2 pages (656 words) Sources: 2 Style: Harvard Topic: Accounting / Auditing

---

View 100+ more related papers  >>