Analysis of “Eat at My Restaurant †Cash Flow” Essay

Understanding the lessen of coin within an organization is critical to knowing the health of an organization. Without this understanding, a business may process into a situation where even though they are profit sufficient, they may non have enough property on hand to meet their obligations. This paper volition look at the case study Eat at My Restaurant Cash F dispirited (Gibson, 2013) and will analyze the difference between lucre immediate payment provided by operating(a) activities and net income and determine which a better indicator of long-term profit capacity is. It will then provide an analysis of the currency fuse ratios for each of the firms contained in the case study. Finally, this paper will conclude with a determination of if one of the companies in the case study has a cash flow problem. Net Cash versus Net IncomeNet income is derived from the Income Statement, which is base on the accrual method of accounting. Under the accrual method, revenue is accept w hen earned and expenses are recognized when incurred. Net cash provided by operating activities uses the cash method of accounting where cash and expenses are recognized when received and paid. For example, under the accrual method, which net income is based on, a company would recognize revenue for services delivered based on the delivery of services instead of when a customer actually abides the invoice for these services. This is an of the essence(predicate) distinction because from an income perspective, the company will eventually receive that money, the company will not actually have that cash in-hand to pay expenses or make investments until response of payment from their customer.This could create a situation where although the company looks profitable, in reality they cannot make their short-term commitments. When considering whether net cash provided by operating activities or net income is a better indicator of long-term profitability, the writer feels that the words lo ng-term are critical to that decision. While net cash iscritical to determine the ability of the organization to meet its immediate requirements, the non-cash factors that are included in the net income calculation portray a more accurate view of the long-term profitability. excessively because of the timing differences between when revenue and expenses are recognized, the accrual method behind the net income model will produce visibility that is more accurate. For example, a month that produces low volume of sales and a high volume of receivable could produce a positive cash flow when in reality that low sales volume will negatively affect the subsequent months. This variance would be conspicuous in the net income but would not be visible in net cash. Case Study Company ComparisonYum Brands, Inc.In the two years presented in the case study (2009-2010), Yum Brands, Inc. saw a large decline in its operating cash flow/current maturities of long-term debt and current notes payable. This requests that they are less able to meet their current debt obligation. However, when looking at operating cash flow/ come in debt, there is an step-up of 7.3% showing that Yum Brands, Inc. is more able to cover its debt with operating cash. A review of the operating cash flow per share shows an increase of $1.14 showing an improvement in its ability to make capital expense decisions and pay dividends to its shareholders. Finally, Yum Brands, Inc. a .9 increase in operating cash flow/cash dividends. This shows that they are more able to pay dividends with its yearly operating cash. Panera BreadDuring the same two-year period (2009-2010), Panera Bread did not have any long-term debt mature or have any current notes payable. They did however have 17.27% decrease in their ability to meet their kernel debt burden with operating cash. Panera Bread did show an increase of $0.74 in operating cash flow per share indicating an improved ability to make capital purchase decisions and pay dividends to its shareholders. Panera Bread did not make any dividend payments in either year. StarbucksIn 2009 and 2010, Starbuck also did not have any long-term debt mature or have any current notes payable. However, they did show a 7.94% increase in their operating cash flow/total debt ratio. This indicates an improvedability to cover their total debt with operating cash flow. During this same period, Starbucks had an increase of $0.37 in operating cash flow per share indicating an improved ability to make capital purchase decisions and pay dividends to its shareholders. Although they did not pay any dividends in 2009, they did show an increase of 9.97 in operating cash flow/cash dividends in 2010. This shows that they are more able to pay dividends with yearly operating cash. Cash Flow WoesWhile Panera Bread does show an increase of 28.5% in net income-including noncontrolling interest, they are only showing an increase of 10.6% in net cash provided by operating activities. This combined with a 17.27% decrease in their operating cash flow/total debt ratio could indicate potential challenges meeting debt. Furthermore, although Panera Bread does show an improvement of $0.74 in operating cash flow per share, they have not issued any dividends. This could indicate that Panera Bread is trying to invest in growth or potentially they are having difficulty meeting cash obligations. For these reasons, the writer believes Panera Bread may be experiencing a cash flow problem however, a deeper look into their financial statements, balance sheets and cash flow statements over a broader timeframe would be required to assess their true position. final resultNet Cash and Net Income are both critical elements allowing a view to the health of an organization. While it is imperative that a business has visibility to the cash available to pay debt, make investments, make capital purchases and pay its shareholders, it is equally important to have visibility to all reven ue and expenses. While each tells their declare story, in the end it is when used together that they bring the most value.ReferencesGibson, C. H. (2013). Financial Reporting & Analysis. Mason South-Western Cengage Learning.