You and your best friend have decided to quit your jobs, turn in your retirement, and purchase your own restaurant. In your market area there are a lot of restaurants, and you've looked at several that were available for sale. You'll narrowed your choices to either Shadracks or Brighams. From you and your friend's experience, both restaurants have good food, and generally good service. The owner of Shadracks' says that he and his wife want to retire and move to Key West. The owner of Brighams indicates that he is tired of the long hours, and has accepted a salaried position with his old employer, IBM. Both restaurants have provided you with a year end balance sheet and income statement (below).
Please prepare a paper on your analysis and recommendations regarding the following questions. (You must choose one or the other of the two restaurants to purchase):
1. Based solely on the financial analysis of the information provided, which restaurant would you buy? (Be sure to share the financial ratios and other pertinent financial analysis you use in making your decision)
2. Explain other financial information that could help you make a better decision if it were available.
3. What other questions that are not specifically financial in nature would you want answered about these two restaurants?
Balance Sheet Shadracks Brighams
Current Assets
Cash 4500 8800
A/R 2000 6000
Inventory 20000 44000
Total Current Assets 26500 58800
Fixed Assets
Land 50000 100000
Building 250000 45000
Equipment 80000 120000
less accumulated depreciation -22000 -180000
Total Fixed Assets 358000 490000
Total Assets 384500 548800
Current Liabilities
A/P 22000 55000
Wages Payable 8000 4000
Total Current Liabilities 30000 59000
Long-term Dept 180000 320000
Total Liabilities 210000 379000
Owners Equity
Capital 100000 50000
Retained Earnings 48000 61000
Total Owners Equity 148000 111000
Total Liabilities & Equity 358000 490000
Income Statement Shadracks Brighams
Revenue 460000 700000
Cost of Goods Sold 276000 413000
Gross Profit 184000 287000
Expenses
Payroll 92000 136400
Benefits 13800 20460
Advertising 9200 18600
Utilities 23000 37200
Telephone 2400 3000
Repairs & Maintenance 5520 9920
Supplies 3220 6200
Interest 16000 26500
Depreciation 11000 19000
Total Expense 176140 277280
Net Profit 7860 9720