Burger King Financial Overview 06-08
From the balance sheet point of view, we can see that total current assets initially decreased and then remained constant. This decrease was due to a reduction in cash and cash equivalents while simultaneously net receivables increased. This essentially tells us that Burger King’s short term liquidity position took a turn for the worse. On the other hand, considering the fact that long term assets such as ‘property, plant and equipment’ and ‘goodwill’ increased, therefore total assets increased during 06-08.
This tells us that growth took place during the above mentioned period. Total liabilities decreased sharply in 07 but then rose again slightly in 08. This decrease was mainly due to a reduction in long term debt.
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However, growth was still taking place because total liabilities rose again in 08. The income statement for the fiscal year 06-08 shows an extremely healthy increase in the net income, especially from 06-07 (increase from $27 million to $148 million). This also corroborates with our initial analysis of growth taking place in the company.
Referring back to the balance sheet, as mentioned before, there was a sharp decrease in cash and cash equivalents while on one hand we can see that net income has been steadily increasing. What we can gauge from these figures is that burger king has essentially been expanding its business by reinvesting cash. Total assets have increased during this period as well mainly due to an increase in fixed assets. Due to the growth in the net income, stockholder’s equity has also been increasing steadily during this period. Retained earnings as well as capital surplus have also risen considerably during this period.
All of these figures point towards a profitable and growing company. From the cash flow statement, figures show that cash from operating activities has been positive and rising. Cash from investing activities, on the other hand, has been negative and we can see that most of the cash has been used in capital expenditures, yet another sign of a growing and expanding company. Dividend payments have also decreased. The sale of stock has also decreased over this period and in 08 burger king repurchased its stock which is an indicator that they were trying to improve their liquidity position.
From the cash flow statement, we can see that accounts receivables as well as current liabilities have increased. The augmentation of current assets therefore was mainly due to a rise in the value of the account receivables. However, both current liabilities and assets have increased during 07-08 which has resulted in the value of the current ratio remaining just below 1. Therefore, the liquidity position has remained stable although not as good as it should be. Referring back to the balance sheet, we can also that long term debt rose during 07-08. This might have essentially led to an increase in the interest expense of that year.
From an overall point of view, we can see that burger king is a profitable and growing company. Every financial statement essentially hints towards a moderate expansion policy. The fact that net income has been steadily increasing tells us that burger king has been extremely profitable. If it continues to operate in the same manner, it will be able to sustain this growth, keep its investors happy and finance future expansion in an efficient manner. Sources: http://finance. yahoo. com/q? s=BKC William & Haka & Bettner, . Financial and Managerial Accounting. : McGraw-Hill/Irwin, 2003.