Starbucks Coffee, Yum Brands, and Panera Bread: An Analysis of Mega Corporations in the Food Industry

Often times it can be a somewhat complicating task to determine the overall health of a company. In this case study we look at two of simplest yet most important factors in determining a company’s overall financial health, Net income and Net cash. The three companies analyzed in this case are all in the food industry and include, Yum Brands, Panera Bread, and Starbucks Coffee. Each company offers a varying level of financial assets, and in this essay we will examine the health of each of these companies.

Net cash from gained operating activities and net income are both essentially information for a determining the health of a business. Net income is essentially the purpose for which every business exists, to generate net income. Net income is defined as is an entity's income minus cost of goods sold, expenses and taxes for an accounting period (Gibson, 2013). Net cash on the other hand is a good criteria for judging the overall health of a business. Having a good cash flow in business gives management greater flexibility in handling day to day operations and expenditures associated with those operations. Although low cash flow may not necessarily mean the business is in bad shape, it could be a sign of eventual problems to come should the business face any hard times. On the other hand, having too much cash on hand can also be a bad sign as well. Too much cash on hand could mean the business is not re-investing capital into the business properly to ensure future growth. Both net income and net cash are important factors to consider for investors, but net cash levels can vary greatly depending on the management of the company, net income is a far more important factor in determining the health of a business and long term profitability. The three restaurants discussed in the problem are Yum Brands, Panera Bread, and Starbucks from 2009 to 2010.

In 2009 Yum Brands (in millions) had $1,404 in net cash; by 2010 they had increased their net cash to $1,968 for an overall year over year net cash increase of over $500 million. By comparison Yum’s net income increased by only $95 million from $1,083 to $1,178. The fact that net cash increase by over 5 times’s as much as net income reveals a few positive facts about the Yum Brand business. This disparity in the value increase of both functions could mean a number of things. First, it is possible that Yum was able to lower their cost of goods sold. This would help to explain the large increase in net cash year over year. Additionally a large decrease in operating expenses could also explain the large net cash increase. Panera bread has the most consistent financials of the three companies analyzed in this case study. The company showed great growth, with a year over year increase in net income of $24,000 or %28.5, and a net cash increase $23,000 or %10.7. The fact that panera was able to increase its net income, without using much of its cash is a good sign for the company. It shows that they are using less of each dollar they have to generate sales. Additionally Panera does not have any long term debts or notes payable; this is a very positive indicator for the financials of the company. It shows that they are able to self finance all of their operational functions without taking on any debt. The final company analyzed in this case was Starbucks, and this company displayed astronomical year over year growth from 2009 to 2010 in both net income and net cash. In 2009 net income for the coffee chain was $3,915 and rose to an astounding $9,483, for a net increase of over %150. Additionally the company has no long term debt on their books. There are a number of reasons that may have allowed Starbucks to create so much income, including lower product costs, a large increase in the number of franchise locations. Because of the large growth the company was able to accomplish in 2010, the company was able to pay a dividend back to shareholders as well.

After reviewing the financials for each company, I would not say any of the three companies have a cash flow problem, but I do believe that Yum brands in under utilizing their cash. Thje company was able to increase cash over income at a ratre of 4/1. The cadsh could have been better utilized to increase sales. Yum Brands is also the only company of the three that is carrying long term debt on their balance sheet, their extensive pile of cash could also be used to pay down these debts. Ultimately the Yum fiancials are still in overall good shapre, as they were able to pay a dividend in both the 2009 and 2010 fiscal years.

Although each of these companies has varying levels of fiunancial success, all three appear to be stable financially. What we have seen in this case study is three companies that have chosen to utilize their cash assets in varying ways. Statrbucks has a large amount of cash on hand, whereas Yum Brands has chosen to pay a diviend to investors. All of these forms of fincial management are acceptable and in this case study we were able to see the results of each method