Question

with the given financial information, would you give Chipotle a loan for $650 million? Why or why not?

CHIPOTLE MEXICAN GRILL, INC. CONSOLIDATED STATEMENT OF INCOME (in thousands, except per share data) Year ended December 31, 2018 2017 2016 $4,864,985 $4,476,412 $3,904,384 Revenue Restaurant operating costs (exclusive of depreciation and amortization shown separately below): Food, beverage and packaging Labor Occupancy Other operating costs General and administrative expenses Depreciation and amortization Pre-opening costs Impairment, closure costs, and asset disposals Total operating expenses Income from operations Interest and other income, net Income before income taxes Provision for income taxes Net income Earnings per share: Basic Diluted Weighted average common shares outstanding: Basic Diluted 1,600,760 1,326,079 347,123 680,031 375,460 201,979 70 8,546 66,639 4,606,617 258,368 10,068 268,436 (91,883) $ 176,553 1,535,428 1,205,992 327,132 651,644 296,388 163,348 163.348 12,341 13,345 4,205,618 270,794 4,949 275,743 (99,490) $ 176,253 1,365,580 1,105,001 293,636 641,953 276,240 146,368 17,162 23,877 3,869,817 34,567 4 ,172 38,739 (15.801) $ 22.938 $ $ 6.35 6.31 $ $ 6.19 6.17 $ $ 0.78 0.77 27,823 27.962 28,491 28,561 29.265 29,770 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (in thousands) Year ended December 31, 2018 2017 2016 $176,553 $176,253 $22,938 Net income Other comprehensive income (loss), net of income taxes: Foreign currency translation adjustments Unrealized gain (loss) on available for sale securities Tax benefit (expense) Other comprehensive income (loss), net of income taxes Comprehensive income (2,736) 291 (132) (2.577) $173,976 4,689 (274) 88 4,503 $180,756 (1,291) 2,251 (849) 111 $23,049

Answer 1

Based on the figures provided in the income statement and the cash flow statement (no balance sheet has been provided) I would give Chipotle a loan for $650 million.

First of all we can see that the company is generating positive cash from its operations and its free cash flow is also positive for all the years. Hence Chipotle has a strong ability to remain in business since the company’s free cash flows will support its operations and pay for the ongoing capital expenses. Thus there is very less chances of red flags being present in the company’s ability to service its debt payments (including both principal and interest payments).

It should be noted that free cash flow = Cash flow from operations – Capital expenditures. In this case the capital expenditure is purchase of leasehold improvements, property and equipment for Chipotle.

	2018	2017	2016
Cash flow from operations	621,552	468,216	355,160
less: purchase of leasehold improvements, property and equipment	287,390	216,777	258,842
Free cash flow	334,162	251,439	96,318