Use the Thomson ONE-Business School Edition online database to work this chapters questions.

Exploring the Capital Structures for Four Restaurant Companies

This assignment provides an overview of the effects of leverage and describes the process that firms use to determine their optimal capital structure. The assignment also indicates that capital structures tend to vary across industries and across countries. If you are interested in exploring these differences in more detail, Thomson ONE provides information about the capital structures of each of the companies it follows. The following discussion questions demonstrate how we can use this information to evaluate the capital structures for four restaurant compa¬nies: Cheesecake Factory (CAKE), Chipotle Mexican Grill (CMG), Ruby Tuesday (RT), and O'Charley's Inc. (CRUX).

Discussion Questions

1. To get an overall picture of each company's capital structure, it is helpful to look at a chart that summarizes the company's capital structure over the past decade. To obtain this chart, choose a company to start with and select FINANCIALS. Next, select MORE>THOMSON REPORTS dr CHARTS>CAPITAL STRUCTURE This should generate a chart that plots the company's total long-term debt, common equity, and total current liabilities over the past decade. What, if any, are the major trends that emerge when you're looking at these charts? Do these companies tend to have relatively high or relatively low levels of debt? Do these companies have significant levels of current liabilities? Have their capital structures changed over time?

2. To get more details about the companies' capital structures over the past 5 years, select FINANCIALS>FINANCIAL RATIOS>THOMSON RATIOS. From here, you can select ANNUAL RATIOS and/or 5 YEAR AVERAGE RATIOS REPORT. In each case, you can scroll down and look for "Leverage Ratios." Here you will find a variety of leverage ratios for the past 5 years. (Notice that these two pages offer different information. The ANNUAL RATIOS page offers year¬end leverage ratios, while the 5 YEAR AVERAGE RATIOS REPORT offers the average ratio over the previous 5 years for each calendar date. In other words, the 5 YEAR AVERAGE RATIOS REPORT smoothes the changes in capital structure over the reporting period.) Do these ratios suggest that the company has significantly changed its capital structure over the past 5 years? If so, what factors could possibly explain this shift? (financial statements might be useful to detect any shifts that may have led to the company's changing capital structure. You may also consult the company's annual report to see if there is any discussion and/or explanation for these changes. Both the historical financial statements and annual report information can be found via Thomson ONE)

3. Repeat this procedure for the other three companies. Do you find similar capital structures for each of the four companies? Do you find that the capital structures have moved in the same direction