Question

CASE 6-9 EAT AT MY RESTAURANT -LIQUIDITY REVIEW With this case, we review the liquidity of several restaurant companies. The restaurant com panies reviewed and the year-end dates are as follows: 1. Yum Brands, Inc. (December 25, 2010; December 26, 2009) consist of six operating segments: KFC-U.S., Pizza Hut-U.S., Taco Bell -U.S. Long John Silver's ("LJS") _ U.S. and A&W All American Food Restaurants ("A&W") - U.S., YU Restaurants China ("China Division")." 10-K Source: Yum! Brands, Inc. and Subsidiaries 2010 10-K M Restaurants International("YRI" or "International Division") and YUM 2. Panera Bread (December 28, 2010; December 29, 2009) "Panera Bread Company and its subsidiaries, referred to as "Panera Bread," "Panera," the "Company," "we," "us," and "our," is a national bakery-café concept with 1,453 Company-owned and franchise-operated bakery-café locations in 40 states, the District of Columbia, and Ontario, Canada." 10-K Source: Panera Bread 2010 10-K 3. Starbucks October 3, 2010; September 27, 2009) "Starbucks is the premier roaster and retailer of specialty coffee in the world, operating in more than 50 countries." 10-K Source: Starbucks 2010 10-K Yum Brands, Inc. 2010 2009 94 73 .69 36 Panera Bread 2010 1.56 1.27 Starbucks Data Reviewed Current ratio Acid test 2009 2.26 1.93 2010 2009 1.55 .98 1.29 .59 Required a. For each company, indicate the trend in liquidity b. Give your opinion as to the relative liquidity of each of these companies. How would

Answer 1

a. Following is the trend in equity for each of the following company :-

Yum brands inc.

Current ratio of yum brand inc. was 0.73 in 2009 which further improved to 0.94 in 2010, thus, a rise of around 28.77% in current ratios in 2010 compared to what it was in 2009. Whereas acid test ratios which was 0.36 in 2009 also increased to 0.69 in 2010 thus, around 91.67% . We can see both current ratios and acid test ratios has improved showing a string liquidity position of the company.

Panera bread

Current ratios of Panera brand was 2.26 in 2009 which deteriorated to 1.56 in 2010, thereby a decrease of around 30.97%. also acid test ratios also decreased from 1.93 in 2009 to 1.27 in 2010 thereby a decrease of around 34.20% . This goes to show that liquidity position of Panera bread has declined over a year.

Starbucks

Current ratio of Starbucks was around 1.29 in 2009 which increased to 1.55 in 2010 thereby a increase of around 20.16% . And acid test ratio was around 0.59 in 2009 which increased to 0.98 in 2010 thereby a increase of around 66.10%. this goes to show that liquidity position if Starbucks improved in previous 1 year.

2 . We can see that liquidity position of Panera bread was best among the three company. Both the current ratios and acid test ratios of Panera bread was better than other two companies which it has more current assets available to pay off its current liabilities and also it has more readily available Cash convertible assets to pay off its current liabilities quickly . However, it should be noted that both of it's current ratios acid test raio has fallen in 2010 as compared to 2010 but it may be possible that it may have realised that it has far more than required current assets to pay current liabilities i.e. why Panera bread should be placed on top in terms of best liquidity position. Second number comes of Starbucks and the last is yum breads inc. yum bread has the weekest short term liquidity position among the three companies so ranking of three companies on the basis of liquidity position can be as follows :-

Company	Rank
Panera bread	1
Starbucks	2
Yum bread inc.	3