Dine Equity Performance

Dine Equity performance:2008
Introduction:2007
The International House of Pancakes opened in 1958 in2006dividends
the state of California. Offering family friendly dinning1
services; However IHOP corporation franchiser of1
restaurants was first established in 1976 in the state of1net income
Delaware. In November 2007 IHOP merged with-154459
Applebee's and in June 2008 formed Dine Equity Inc.-480
for a total of 3,400 franchised and owned Applebee's44553dividend payout ratio
and IHOP restaurants as of December 2008.-6.47421E-06
According to their 2008 annual report there are-0.00208
currently 2,004 Applebee's one of the largest casual2.24E-05
dining restaurants in terms of number of restaurantsFrom the above table is evident that the dividend
and market shares. There are currently 1,396 IHOPpayout ratio has been relatively small over the past
restaurants in competition with restaurants like Denny'sthree years and has been declining, this indicates that
offering children menus and discounts for senior2. Liquidity ratios:
citizens serving low to moderate prices.These are ratios that help in the determination of a
Dine Equity Mission and core value is to become thefirm's ability to pay its short term debts, these ratios
number one franchiser in the restaurant industry whileare used by those who extend financial credit to the
providing and exceptional customer service byfirm to determine the creditworthiness of a firm, these
committing to reducing overheads and optimizing onratios includea. Current ratio
Applebee's and IHOP business.Creditors prefer a high current ratio while share holders
According to their last annual report their 1st quarterprefer a lower current ratio. This ratio indicates the
stock showed the highest closing price for 2008 andcompany's position to repay it short term debts and is
the 4th quarter stock showed the lowest closing pricedetermined as follows
of 2008 compared to 2007 fiscal year highest closingCurrent ratio = current assets/ current liabilitiescurrent
price shown in the 3rd quarter and lowest closing priceratio
for 2007 shown in the 1st quarter. Also according to2008
their 2008 annual report there are 5,300 registered2007
holders as of February 17, 2009.2006current assets
Company Performance:399129
In analyzing this company we will use 4 measurements433678
of performance including profitability, Liquidity, Financial78393current liabilities
leverage and activity ratios.282714
1. Profitability:381340
In analyzing this company's profitability we will look at64105current ratio
the company's return on assets (ROA), return on1.411776566
equity (ROE), Gross profit margin, price earning ratio1.137248
(PE), divided yield and divided payout ratio.a. Gross1.222884
profit margin:The current ratio has increased and this means that
The gross profit margin is a ratio that indicates thethe company is able to repay its short term debts.b.
profitability of a company, it is calculated by dividingQuick ratio:
gross profit by total sales, it is stated as follows:The quick ratio is used when there is a large value of
Gross profit margin = sales – cost of sales/ salesinventory that may not be liquidated easily.
Using the 2008 report we determine the gross profitCurrent ratio = current assets-inventory/ current
margin for the year, 2008, 2007 and 2006, theliabilities
following table summarizes the results:gross profit2008
margin2007
20082006quick ratiocurrent assets
2007399129
2006sales433678
161362878393inventory
48455922820
349560cost of sales73627
1179811396current liabilities
303891282714
208465gross profit381340
43381764105
1806681.33105895
141095gross profit margin0.944173
0.2688457311.216707
0.372853. Financial leverage ratios:
0.403636These ratios determine the extent which a firm is using
The gross profit margin has declined from a high ofits long term debts,a. Debt ratio:
0.403636 in 2006 to 0.26885 in 2008, this indicates thatThe debt ratio indicates the amount of assets that are
the profitability of the company is declining over thefinanced by debts, it is calculated by dividing the total
years, this shows that in the next period the grossdebts by total assets, and the table below summarizes
profit margin may decline.b. Return on assets:the results:
Return on assets indicates the amount of profitDebt ratio = total debts/ total assetsdebt ratio
generated for each dollar of assets. It is calculated by2008
dividing net income by total assets:2007
Return on assets = net income / total assets2006total debts
The following table summarizes the results:return on3318450
assets3434739
2008479657total assets
20073361217
2006total income3831162
-154459768870debt ratio
-4800.987276335
44553assets0.896527
33612170.623847
3831162From the above table the debt ratio has increased
768870return on assetsmeaning that the company is utilizing its long term
-0.045953296debts to acquire assets.b. Debt to equity ratio:
-0.00013This ratio indicates the level of debts and equity used
0.057946in financing the company's operations, the ratio is
From the above table it is evident that the return oncalculated by dividing the total debts by equity, results
assets has been declining over the years, the value isare summarized belowdebt equity ratio
negative for the year 2007 and 2008 meaning that the2008
firm's profitability has declined and therefore expected2007
to decline in the future.c. Return on equity:2006total debt
The return on equity ratio indicates the rate of return3318450
on shareholders equity. It is calculated by dividing net3434739
income by the value of share holder's equity.479657total equity
Return on equity= net income / equity42767
The table below summarizes the results:return on209373
equity289213
200877.59370543
200716.40488
2006total income1.65849
-154459From the above table it is evident that the debt equity
-480ratio has increased meaning that there has been an
44553equityincrease in debt financing relative to equity financing.
427674. Activity ratios:a. Asset turnover:
209373These ratios include the asset turnover ratio which
289213return on equityindicates how a company is using its assets to
-3.611639816generate sales, the ratio increased in 2008 to 0.48
-0.00229from a low of 0.1264 in 2007.
0.154049Asset turnover =- total sales/ total assets
From the above table it is evident that the return onThe table below summarizes the results:
equity has been declining over the years, the value isAsset turnover
negative for the year 2007 and 2008 meaning that the2008
returns on shareholders equity has declined and is2007
expected to decline in future.d. Price earning ratio:2006sales
This is another ratio that indicates the profitability of a1613628
company, it is a ratio that indicates the price paid by484559
shareholders relative to profits, and it is calculated by349560assets
dividing the price per share by earning per share.3361217
Price earning ratio= price per share/ earnings per3831162
share768870
The table below summarizes the results:price earningAsset turnover
ratio0.480072545
20080.126478
20070.454641
2006price per shareForecast of the company:
34.74The company's profitability has declined in the past
104.76three years, sales have increased but the profits have
146.9earnings per sharedeclined, it is expected that the level of profitability of
-10.09the company will decline in future, the decline in
-0.13profitability has been as a result of increased
2.46price earning ratioexpenses including an increase in restaurant expenses
-3.443012884from 117,448 in 2007 to 978,197 in 2008, other
-805.846expenses that increased include interest expenses
59.71545from 28,658 in 2007 to 203,141 in 2008, also
It is evident that the price earning ratio was relativelyadministration expenses have also increased and this
high in 2006 given that investors were paying 56.71has resulted into a decline in profits, it is expected that
dollars for a dollar earned, however in 2007 and 2008in future the level of profits will decline.
it is evident that this ratio value is negative meaningShare holder equity is also expected to decline as
that investors are experiencing losses, the share pricedividends and return on equity decline, this means that
has also declined over the years meaning that therein future we expect less equity financing and an
has been a decline in investors confidence.e. Dividedincrease in debt financing, the increase in debt financing
yield:will mean that the company will pay higher interest
The divided yield ratio indicates how the companyexpenses resulting into a further reduction in profits.
pays out its dividends in a year relative to the price ofSummary:
its shares, it is calculated as follows:From the above analysis it is evident that the company
Divided yield = divided per share/ share pricehas been performing poorly in the last three years,
The following table summarizes the results:there has been an increase in expenses that have
Divided yieldresulted to losses, this has reduced investor
2008confidence whereby equity financing has declined and
2007share prices have also declined. This decline in equity
2006divided per sharefinancing has resulted into increased debt financing and
1the company is now experiencing an increase in
1interest expenses which have in turn reduced profits.
1share priceThe company should try and reduce its interest
34.74expenses by reducing its debt financing, this can be
104.76achieved through boosting investor confidence, with
146.9the current decline in share prices it is evident that in
Divided yieldfuture the share prices will increase as the company
0.028785262starts to gain profits and therefore this would be a
0.009546good investment option, over time the company will
0.006807repay its debts and this will increase its profitability
From the above table it is evident that the divided yieldgiven that the sales levels have increased over the
ratio is relatively low for the three years. Howeverpast three years and therefore expected to increase
there has been a slight increase in the ratio as thein future.
price of shares decline.f. Divided payout ratio:References:
The divided payout ratio indicates how the companyDine Equity Inc. (2009) Dine Equity financial report 2008,
pays out its dividends in a year relative to earning, it isretrieved on 17th November, from
calculated as follows:Stickney, C. and Schipper, K. (2006) Financial
Divided payout ratio= dividend per share/ net incomeAccounting: An Introduction to Concepts, Methods and
The table below summarizes the results:dividendUses, New Jersey: Prentice hall press.
payout ratio