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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

Exploring the Capital Structures for Four Restaurant Companies

Use online resources to work on this chapter's questions. Please note that website information changes over time, and these changes may limit your ability to answer some of these questions.

This chapter provides an overview of the effects of leverage and describes the process that firms use to determine their optimal capital structure. The chapter also indicates that capital structures tend to vary across industries and across countries. If you are interested in exploring these differences in more detail, the Morningstar website provides information about the capital structures of each of the companies it follows. The following discussion questions demonstrate how we can use this information to evaluate the capital structures for four restaurant companies: Cheesecake Factory (CAKE), Chipotle Mexican Grill (CMG), Ruby Tuesday (RT), and Darden Restaurants Inc. (DRI).

1. To get an overall picture of each company’s capital structure, it is helpful to look at a the Key Ratios screen and then select the Financial Health tab. Common size balance sheet data are provided over a 10-year period. What, if any, are the major tends that emerge when you’re looking at these data? Do these companies tend to have relatively high or relatively low levels of debt? Do these companies have significant levels of current liabilities? Have their capital structures changed over time?

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Summary Introduction

To determine: The level of debt, whether these companies have significant level of current liabilities, and the way the capital structure changes over the time.

Introduction:

Optimal Capital Structure:

The optimal mix of debt and equity in the capital structure of the company is known as the optimal capital budget. The optimal capital budget is also known as the optimal capital structure.

Explanation

For CA Company there is no debt in the capital structure in year 2010 to 2013, current liabilities increase and capital structure change in every year.

For CM Company there is no debt in the capital structure in year 2010 to 2013, current liabilities increase and capital structure fluctuates in every year.

For RT Company there is an increase in debt financing and  current liabilities and capital structure fluctuates every year...

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