Question

Financial Statement Analysis Project

TAB 1

Download the most recent 10-K of Chipotle (CMG) and prepare a “common size” income statement (vertical analysis) for each of the three years. If Chipotle adjusted their line items in the current year, you can add/delete/rephrase a row on the template.

Once completed, examine the data and write a 150-300 word analysis describing any significant trends from year to year. Did the company’s income statement become stronger or weaker over time? You can use the Management Discussion & Analysis for help in explaining key changes.

Answer 1

Particulars	2019	2018	2017
Revenue	55,86,369	48,64,985	44,76,412
Restaurant operating costs
Food, beverage and packaging	33.08%	32.90%	34.30%
Labor	26.35%	27.26%	26.94%
Occupancy	6.50%	7.14%	7.31%
Other operating costs	13.62%	13.98%	14.56%
General and administrative expenses	8.08%	7.72%	6.62%
Depreciation and amortization	3.81%	4.15%	3.65%
Pre-opening costs	0.20%	0.18%	0.28%
Impairment, closure costs, and asset disposals	0.41%	1.37%	0.30%
Total operating expenses	92.05%	94.69%	93.95%
Income from operations	7.95%	5.31%	6.05%
Interest and other income, net	0.26%	0.21%	0.11%
Income before income taxes	8.20%	5.52%	6.16%
Provision for income taxes	-1.94%	-1.89%	-2.22%
Net income	6.27%	3.63%	3.94%

As we observe the income statement for a period of consecutive 3 years starting from 2017 to 2019, it is evident that the company shows improvement in most of the aspects. The Revenue figure has shown a constant growth which gives a good first impression. Most of the operating cost has decreased year to year while taken as a percentage of revenue which denotes the increased GP Ratio.All the other expenses have either decreased or increased slightly when taken as a percentage of revenue. The total operating expense came down to nearly 92% from 95% in the year 2018. Income from operation, thus shows an improvement in a considerable magnitude due to the reasons. While coming to the net income, The same has almost doubled as compared to previous two year which emphasizes strong income statement of the company.

Though the scenario is that way, there is still some room for improvement and the adverse market conditions are the hindrance to the goal. The increase of nearly 15% of the input material from 2018 to 2019 where the increase in revenue of 8% is one of the points which can be noted from the analysis of income statement. Thus the company need to focus on such points and find a way to cope with the sudden market changes and any unfavorable situation in the market.