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Compare Papa John’s and Yum! Brands The following total liabilities and stockholders’ equity information (in millions) is provided for Papa John’s International, Inc. (PZZA) and Yum! Brands, Inc. (YUM) at the end of a recent year: Yum! Brands is a much larger company than is Papa John’s; however, both companies compete internationally in the fast food business. Papa John’s is primarily in the carry-out and delivery pizza business, while Yum! Brands is in the quick-service restaurant business with its Pizza Hut, Taco Bell, and KFC brands. a. Compute the ratio of liabilities to stockholders’ equity for each company. Round to one decimal place. b. What conclusions regarding the margin of protection to creditors can you draw for these two companies? c. Which company is more risky to creditors?

BuyFind

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
BuyFind

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

Solutions

Chapter
Section
Chapter 1, Problem 5MAD
Textbook Problem

Compare Papa John’s and Yum! Brands

The following total liabilities and stockholders’ equity information (in millions) is provided for Papa John’s International, Inc. (PZZA) and Yum! Brands, Inc. (YUM) at the end of a recent year:

Chapter 1, Problem 5MAD, Compare Papa Johns and Yum! Brands The following total liabilities and stockholders equity

Yum! Brands is a much larger company than is Papa John’s; however, both companies compete internationally in the fast food business. Papa John’s is primarily in the carry-out and delivery pizza business, while Yum! Brands is in the quick-service restaurant business with its Pizza Hut, Taco Bell, and KFC brands.

  1. a. Compute the ratio of liabilities to stockholders’ equity for each company. Round to one decimal place.
  2. b. What conclusions regarding the margin of protection to creditors can you draw for these two companies?
  3. c. Which company is more risky to creditors?

Expert Solution

a.

To determine

Compute the ratio of liabilities to stockholder's equity for the given companies rounded to one decimal place.

Explanation of Solution

Ratio of liabilities to stockholder's equity: This ratio measures the claims of creditors over claims of stockholders in financing the assets of a company. A lower ratio indicates that the company is able to pay off the creditors’ obligations efficiently.

Calculation of ratio of liabilities to stockholder's equity for Company PJ:

Ratio of liabilities tostockholder's equity} = Total liabilitiesTotal  stockholder's equity =$444$51=8.71 

The ratio of liabilities to stockholder's equity for Company PJ is 8

Expert Solution

b.

To determine

Derive conclusions on the margin of protection to creditors for the two companies.

Expert Solution

c.

To determine

Identify the company more riskier to the creditors.

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