Assignment Task
Financial analysis and interpretation
Alice Oliver believes that the trend towards eating out more often will only increase, and she is considering an investment in one of two fast-food restaurant chains. She has narrowed down her choice to Giant Burgers and Superfry Steakhouse. The Income Statements and Balance Sheets for these two fast-food restaurants are provided below.
Additional information
The Statement of Cash Flows shows that net cash flows from operations were $22,000 for Giant Burgers and $30,000 for Superfry Steakhouse. Net cash flows from investing activities were $210,000 for Giant Burgers and $180,000 for Superfry Steakhouse. Dividends of $5,000 were paid for Giant Burgers and $6,000 for Superfry Steakhouse. The market prices for Giant Burgers and Superfry Steakhouse shares were $3 and $2 respectively.
Required
a. Conduct a ratio analysis for the two companies.
b. Write a report to Alice Oliver clearly analysing the profitability, asset management, liquidity and financial structure of both the fast-food restaurants. Conclude your report with a clear recommendation as to which one of the two restaurants she should consider investing in.
c. Do you consider that the report you have submitted to Alice Oliver is adequate for the decision-making process? What other types of information would you advise her to investigate in order to have a better basis from which to make her decision? d Alice Oliver has decided to purchase one of the fast-food restaurants and has approached you for further advice on ownership. She notes that she has three options: sole proprietorship, partnership or limited liability company. Describe each format, its advantages and weaknesses, and make a recommendation for Alice, clearly outlining your reasoning.