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Part of the reason why Panera has experienced revenue growth above 10% per year, is due to the expansionary strategy they have. From 2011 through 2014, they opened 100 new Bakery-Café per year. In addition, during 2014, catering sales declined, breakfast sales increased, and there has been increased competition within the market.

While there are several risk factors that Panera faces, discretionary consumer spending can have a large impact on revenues. If consumers are uncertain about the future, they may not be willing to make as many purchases and limit their discretionary spending. This would and has resulted in decreased sales for Panera. Currently, the Federal Reserve is discussing expansionary policy, signaling that the recession is over. However, consumers may take even longer before increasing their spending.

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The growth in sales has declined due to several factors including changing market conditions. With the changing environment, Panera’s management and leadership has been able to effectively manage their expenses better than the industry averages. It should be noted that there are other factors that affect the industry average such as types of restaurants, location, and food costs.

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The operating profit margin is a measure of how well a company is managing its costs in terms of operating costs and other expenses (not including interest or taxes). Over the 5 years, Panera has only earns $0.12 for every dollar of sales after accounting for operating costs. The industry average earns $0.17 for every dollars of sales after accounting for operating costs. Relative to the industry Panera is not as good at managing costs based on this ratio alone. Part of the decline in this average is the increased competition and decreased sales in catering.

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Return on Assets (ROA) is a measure of how well the company is able to turn assets into profits. Over the last 5 years, Panera’s assets has average earning a 13.7% return on net income. The industry asset’s has earned a lower rate of 12.02% on net income. This means that relative to the industry Panera is better at converting its assets into profit than the rest of the industry (on average). In addition, Panera has been improving its return on assets over the last five years except for this past year (2014).

Return on Equity (ROE) is a measure of how well the shareholders investments are used to generate profits. Unlike the ROA this ratio focuses solely on the shareholders not doesn’t consider debt in it’s calculation. Furthermore, ROE was calculated by dividing total stockholders’ equity by net income. For Panera’s shareholders they have averaged a return of 22.60% for every dollar invested. Compared to the industry, the industry has outperformed Panera by 27.78%. On reason why Panera’s ROE has increase almost every year over the last five years is because they do not provide dividends, instead they keep those funds in retained earnings in order to grow and improve the company. Furthermore, the dip in ROE for 2014 wasn’t due to a decrease total stockholder equity, but was due to a loss in net income.

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The quick ratio is a measure of the company’s ability to pay for current liabilities with it’s most liquid assets. The calculation of Panera’s quick ratio was taken by dividing the sum of cash and receivables by the current liabilities. This ratio provided a 5 year average of 1.07 for Panera, while the industry average was only 0.53. It should be noted that there are variations the quick ratio and the industry average method of calculation is unknown at this point in time. Nonetheless, the quick ratio calculation used for Panera is more conservative since it only focuses on cash and receivables for liquid assets. This result means that Panera is better suited to pay off short-term obligations than the industry. However, Panera has a declining quick ratio over time due to the increasing current liabilities that Panera incurs. Of the current liabilities, accrued expenses has been increasing relatively more than accounts payable.

The current ratio was also calculated; however, didn’t seem significantly different than the quick ratio. Over the 5 years, the current ratio was 1.38 and on average 0.31 higher than the quick ratio. In addition, an Analysis of Variance (ANOVA) was conducted to see if there was a statistical difference between the Current Ratio and the Quick Ratio. The p-value result was 0.2454, which means that there is not enough evidence to suggest that the means of the current ratio and quick ratio are different. Therefore, the current ratio was excluded from this presentation.

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The debt to equity ratio is a measure of how much debt the company has (current and long-term debt) compared to its equity. The lower the level of debt the company has the lower the debt to equity ratio. This can be useful for companies who are looking to use debt to finance investments, since lenders can be more certain of being repaid. Panera’s 5 year average debt to equity ratio is 0.42, while the industry has a higher average ratio of 0.74. This means that Panera has less debt relative to equity than the rest of the industry (on average). It is worthwhile noting that over the last 5 years, Panera has been increasing the amount of debt relative to the shareholder’s equity. The increase in debt is due to Panera $100 million of long-term debt, to be paid off in 3-5 years.

The debt ratio is similar to the debt to equity ratio in that it has the current and long-term debt as the numerator; however, instead of looking at the companies equity it looks at the amount of total assets it has. This ratio provides a good measure of the company’s operating leverage. Panera’s 5 year average debt ratio was 0.25 and has been fairly constant with a slight increase in recent years. This means Panera has about 4 times as many assets as it does liabilities.

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The inventory turn is a measure of efficiently the company manages its inventory by determining how much business can be conducted with an investment in inventory. Inventory turn is calculated by dividing the cost of goods sold by inventory. Panera’s 5 year average is 27.94, while the industry is very close at 28.58. The restaurant industry performs better than Panera in managing inventory; however, Panera has been on a upward trend. This means that they are continually getting better at managing inventory.

The receivable days is a measure how efficiently the company is able to collect on their accounts receivables. The higher number means the longer it takes for a company to collect. On average, Panera is able to collect their accounts receivables in about 13 days, while the industry takes about twice that about of time to collect receivables. While the Panera has kept their receivable days lower than the industry, they have been in their accounts receivable faster than they have been added inventory. This leads to a upward trend and Panera might be getting “worse” with collections.

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The asset turn ratio is similar to the return on asset ratio; however, the asset turn looks at gross sales while the ROA looks at net sales. The asset turn ratio gives a more general measure of how efficiently the company uses its assets. Panera’s 5 year average is 1.79 with is 0.72 higher than the industry average. This means that Panera is more efficiently using its assets to generate revenues.

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The free cash flows represent the available cash left over after the company has paid its operating expenses, capital expenditures, and dividends. The free cash flow is also important because the more cash a company has available the more cash it will have to use for replacing or fixing assets, and they will not be dependent on outside financing. In the calculation of the free cash ratio, cash flow from operations was subtracted by capital expenditures and dividends. Panera doesn’t issue dividend and therefore wasn’t used in the calculation. However, Panera has been several capital expenditures through the purchase of new bakery-cafés. Panera has a 5 year average of $137.7 million; however, has been increasing spending on new bakery-cafés which has lead to a decline in free cash flow.

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To determine the level of cash a company has is to dividend depreciation by the cash flow from operations. Depreciation is a forward-looking item, since it is deducted at a pre-defined schedule. Panera’s 5 year average is 0.32 or 32% this is a relatively low level of cash flows resulting from depreciation, therefore the cash flow is dependent on the market or consumer spending.

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The debt to cash flow ratio is calculated by dividing the sum of short-term debt, current maturities, and long-term debt by the cash flow from operations. This ratio is important when determining how long a potential lender could be paid back with 100% of the cash flows going towards that purpose. While companies would not paid that dedicate that high of a percentage to paying of debt, it still is a good measure of financial flexibility. Panera’s 5 year average is 1.01, meaning that they could pay off their entire debt in one year if they dedicated 100% of cash flows from operations for that purpose. The ratio has increased in the last year due to Panera accruing $100 million in longer-term debt.

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The price to earnings ratio or (P/E) ratio uses the current share price and divides that by the company’s earnings per share. It should be noted that typically the P/E ratio is calculated for quarter by quarter, sometimes over the last four quarters. However, for the purposes of this presentation the 5 year price per earnings is shown. Currently, Panera’s stock is selling for 26.33 times earnings and is currently 0.04 greater than the industry’s current P/E ratio. Therefore, there isn’t much difference between the growth potential of Panera versus the industry.

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The beta is a measure of a assets volatility relative to a market. The beta was calculated over various lengths of time and compared to the S&P 500 Market Index (INDEXSP.INX). Calculation of the beta was performed by dividing the covariance of Panera and S&P 500 Index by the variance of the S&P 500 Index. The average 3, 5, and 10 year beta was 0.81, meaning that the Panera’s stock is about 20% less volatile than the S&P 500. The 1 month beta was -0.292 meaning that it moves inversely to the market (i.e. if the market increases, Panera’s stock decreases). Until the middle of 2013, Panera followed the growth rate of the S&P 500 Index and started to deviate. This deviation is part of the reason why the beta is decreasing from the 1 year, 3 month, and 1 month time periods. The deviation from the market can be caused the by the unsystematic risk of Panera. The more stocks a index or portfolio has the more one can eliminate the unsystematic risk or diversifiable risk.

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