Running head: FINANCIAL STATEMENT ANALYSIS PAPER Financial Statement Analysis Paper Principles of Accounting ACC/300 Mr. John Opincar June 24, 2009 Abstract Landry’s has become a successful company over the years because the customers enjoy the specialty items that they serve on their menu. It has become a company that we enjoy taking our families out to dinner, celebrating birthday parties and certain special events. However, this paper will complete the financial analysis for the reported years of 2002 and 2003.
Upon review of the financial statements will find out the financial performance of Landry’s and show the analysis. The ratio analysis of Landry’s will be reviewed as well and in details discussed from their earnings per share, return on assets, current ratio, times interest earned, asset turnover, debt to total assets, current cash debt coverage, cash debt coverage, and free cash flow. Financial Statement Analysis Paper In any type of business, a balance sheet for all financial transactions has to be present and and accounted for.
In the case of Landry Restaurants, this company is publicly traded and has stockholders. Earnings per share are very important to the stockholders. The earning per share is defined as the amount of earnings generated for each share of common stock. Most companies report earnings per share, earnings per share is the net income divided by weighted average common shares outstanding. In the year 2003 the shares in the company increased slightly more than in 2002 which this ultimately says the company generated more revenue in 2003.
If one is investing in a particular company he or she definitely wants to see a return on their investments. Asset turnover or return on assets is the net income divided by the average assets of a company in this case it is Landry’s restaurant. In the equation that was done it was determined there was a sharp increase in asset turnover from the years 2002 to 2003. There a number of ratios that can be compared on a financial statement. The current ratio of a business is important. The current ratio lets one know what is exactly happening in the business at the present time.
The current ratio is defined as current assets such as accounts receivables, inventories any type of work in progress or cash that are divided by the business current liabilities. Business liabilities can consist of many things such as insurance on building, employee insurance these liabilities way heavy on any type of business especially one that is large as Landry’s Restaurant. Based on the Time Interest Earned Ratio Landry’s ability to pay interest bills from profit earned decreased. In 2002 Landry’s could pay their interest bill just over 13 times from earnings before interest tax.
In 2003 Landry’s ability to pay interest bills was almost cut in-half to 7 times. We think that as a result of the decrease in ability to pay interest bills, creditors could be concerned about these findings. Landry’s Debt to Asset ratio also increased from year 2002 to 2003. In 2002 Landry had a debt to asset ratio of 0. 39. In 2003 Landry’s debt to asset ratio increased to 0. 45. While both numbers are acceptable and considerably low, the increase from 2002 to 2003 could influence potential investors to not invest in Landry’s stock. This increase also suggests that Landry’s debt also increased from 2002 to 2003.
Overall, while there was a slight increase from 2002 to 2003 Landry’s still had a good debt to asset ratio. We think that a contributing factor to the debt increase is due to the fact that the Landry’s chain is expanding. Well, the declining trend isn’t great, but it’s understandable given that our trend analyses revealed that Landry’s added 95 restaurants in just the past two years. (Phillips, Libby, & Libby, 2005, p580/ch13) Landry’s asset turnover is very impressive. In 2002 it was 1. 11 which indicates the restaurant had a high profit margin in 2002.
In 2003 Landry’s asset turnover decreased to 1. 09, which indicates a slight increase in profit margin from 2002. Companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. (Investopedia,) The low asset turnover indicates that Landry’s has a good pricing strategy. Landry’s low asset turnover also indicates the franchises growth in revenue in relation to sales. Current cash debt coverage is a cash-basis ratio that accounts for the changing liabilities and cash flows that a company experiences during the course of a time period. Current cash ebt coverage ratio is a measure of liquidity (Investor Words, n. d. ). The ratio is calculated by taking the net cash provided by operating activities and dividing it by the average current liabilities. The average current liabilities are determined by adding the current year’s and previous year’s current liabilities and dividing them by two. In the case of Landry’s Restaurants in 2002 the current cash debt coverage was 90% and in 2003 the current cash debt coverage was 79%. The cash debt coverage ratio shows the percent of debt that current cash flow of a company can retire (Investor Words, n. . ). The cash debt coverage is determined by subtracting the dividends from the cash flow from operations and dividing that total by the total debt, which can also be explained as total liabilities. In the case of Landry’s Restaurants Inc. , there were no dividends given so one must assume there were none, so it was determined that the cash debt coverage ratio for 2002 is 30. 51% and for 2003 the cash debt coverage ratio is 24. 39%. Free cash flow is the amount of cash that a company has left over after it has paid all of its expenses, including investments (Investor Words, n. . ). While free cash flow doesn’t receive as much media coverage as earnings do, it is considered by some experts to be a better indicator of a company’s financial health. The free cash flow of a company is determined by adding the net income and the Amortization/Depreciation and then subtracting the changes in Working Capital and the Capital Expenditures. In the case of Landry’s Restaurants Inc. , the free cash flow in 2002 was (16,599. 00). And in 2003 the free cash flow was (78,017. 00). This content can be found on the following page: [pic]http://www. nvestorwords. com/2084/free_cash_flow. html This content can be found on the following page: [pic]http://www. investorwords. com/6474/current_cash_debt_coverage_ratio. html Reference Investor Words (n. d. ). Current cash debt coverage ratio. Retrieved June 20, 2009, from http://www. investorwords. com/6474/current_cash_debt_ratio. html Investopedia (). Asset Turnover. Retrieved June 24, 2009, from www. Investopedia. com/university/ratios/assetturnover. asp Phillips, F. , Libby, B. , & Libby, P. (2005). Fundamentals of Financial Accounting (1e ed. ). : Mcgraw Hill.