Panera Bread Case

779 Words Nov 16th, 2015 4 Pages
At the end of 2007, Panera Bread Company was in an unfamiliar position where taking out debt was a necessary action to gain funding. Raising prices would be an option to help with the deteriorating margins, but there is fear that this move will slow the growth of the company. Other options, such as lowering the quality of food, would go against Panera’s fundamental goal of serving high quality food. At this time, Panera is in a position where it needs to repurchase stock. The $75 million buy-back should help give confidence to their shareholders. However, to accomplish their growth goals and stock repurchase, Panera will require external funding for the first time.
Given Panera’s financials from 2003-2007, we forecasted Panera’s income
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We continued to plow back 100 percent for the following years, retaining all net income in order to pay down debt quicker. We thought this would be appropriate as the company did not want to pack on so much debt, and could in the later years possibly lower the plowback amount and instead distribute dividends if necessary. Since the company is still vastly growing and is in need of sources to finance the growth, we would recommend keep reinvesting all of net income back into the company.
Taking out long-term debt would make sense for Panera. Given the fact that their goal is to continue their long-term growth, a long-term note payable would be a better fit than a short-term revolving line of credit. While short-term debt would be ideal if Panera were trying to cover short-term supply or inventory needs, long-term notes payable would allow Panera to borrow at a lower interest rate over a stable period of time.
Looking to external equity to be a source of financing is another option for Panera must evaluate. With equity financing, Panera would generate funds on its own rather than borrowing. In Panera’s case, the company’s retained earnings are not large enough to be effective in financing growth as a result of their decreasing margins. Seeking funding through external equity would seem to make sense, but with Panera being in a position

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