Your course project
involves the financial analysis and business analysis of Texas Roadhouse: “Texas Roadhouse is a growing, moderately
priced, full service restaurant chain. We offer an assortment of specially seasoned
and aged steaks hand-cut daily in every restaurant and cooked to order over
open gas-fired grills.” (http://phx.corporate-ir.net/phoenix.zhtml?c=179897&p=irol-irhome).
Its stock symbol is TXRH, and it trades on the Other-the-Counter market (NASDAQ). You will want to read the company’s
information carefully at Texas Roadhouse’s Investors
site. You will analyze the company from
the point of view of a potential investor. For your group project, you will incorporate but expand
(cross-sectional comparisons with industry as well as with peer competitor) on
your individually-done financial ratio analysis, as well as build out a full
SWOT analysis of the subject company.
Please go to the library and study the previous report on Steak-N-Shake
for an idea of what is expected—although be aware that the project has expanded
in scope since that project was completed.
Important: For your group ratios presentation, you must calculate and interpret all ratios on pages 40-49 of your textbook, both from a time-series perspective and a cross-sectional perspective. You and your group will find a compelling reason why *not* to invest in TXRH today (given a 5-year expected holding period for your investment), based partly on financial ratio analysis and partly on all other business factors: general management, product-market strategy, competition, the economy, marketing, human resource management, ethics, service management, or other variables. Also, for your group project, you must use (1) Value Line Investment Survey (hardcopy, in our library reference area) to help you on your evaluation (place it as an appendix to your group report), as well as Mergent Online (available electronically through our library). Make sure to cite these in your reports so I will know where and how you used them.
ANSWERS TO FREQUENTLY-ASKED-QUESTIONS/CONCERNS:
Note: If you haven't already, you may get the company's 10-K report to search for detailed and specific company info using the links that you used in the individual ratios part of the project or that were demonstrated in the PC lab.
1-
You may not use any industry averages that require someone to pay
for them (you may only use those available free to anyone). On my website I have provided a number of
“free-of-charge” websites
and our library resources on industry financial ratio values.
2-
You will most likely not
be able to find an industry average for every single ratio. This is one reason we are including the
analysis of a peer competitor.
3-
When doing ratios, make sure you are using annual data, not
quarterly data.
4-
As part of your liquidity analysis, in order to incorporate the
information in the Statements of Cash Flows, study the operating cash flows for
the largest entries (largest dollar amounts), and comment on them. Also, if you can find data on unused short-term borrowing capacity
(possibly by searching the 10-K report), comment on that as well. Formula:
Unused borrowing capacity = (Total borrowing capacity – Amount of
short-term borrowings).
5-
You can then use CTRL-F, once the 10-K is open in WORD, to find
information not in the financial statements (Example: use “loans” or “notes payable” as search
words).
6-
To get the exact stock price for the day the fiscal year ends, try http://finance.yahoo.com/q/hp?s=TXRH.
Change both the start and end dates to be
the same day (or the nearest trading day just prior to that) as the last day in
the fiscal year
(i.e., 12/30/2008,
12/25/2007, 12/26/2006).
7-
For number of common stock
shares, search the 10-K report (see above). 2007's 10-K should have 2007 and
2006 shares outstanding.
You may also have to go back to the Yahoo
website to get an older 10-K report for the very first year of data (2006
fiscal year). Or, you may get it from the
company's website under the Investors
Relations (as you mouse-over the word “Investors” you will see a sub-menu)
area. Use the number of fully diluted
shares.
8-
For Common Equity, use Total Stockholder's Equity as long as there
is no preferred stock.
9-
Instead of using purchases in the average payment period, just use
COGS (since we have no way of knowing what % of COGS purchases represent).
10-
Yes, “net receivables” is the same as Accounts Receivable, net.
11-
Should I use "net income applicable to common shares" as
my earnings available to common shareholders? Yes. If that number is negative,
the only ratio
for which one should put
"NA" instead of the calculated number would be the P/E ratio (we
don't report a P/E ratio if it would be negative, with the idea
that price is always positive and we
are reporting with P/E the multiple of $1 of earnings one is willing to pay for
the stock).
When doing EPS, use net income,
fully diluted, before extraordinary items or accounting changes.
12-
Yes, “Revenues” is the same as “Sales Revenues”.
13-
Yes, "Cost of Revenues" is equivalent to "Cost of
Goods Sold".
14-
For the tax rate for each year, calculate the average tax rate, calculated
as tax owed divided by taxable income (earnings before tax).
15-
No, you do not need a bibliography.
However, I do need to know where you got your industry averages, and
make sure to footnote
reference any and all outside
info you are using in the body of your report.
The group
presentations/group paper due date is on Week 7 of the course. Your group will turn in one paper and also do
a PowerPoint presentation to the class.
Presentation & paper should focus on the following items:
1. (Briefly) Why are investments analysts so “high” on this company? What
did you find in your ratio analysis that might support this optimism?
IMPORTANT: Include peer comparisons to
one other peer company, as requested in Problem 2-13, page 59, of your
textbook.
2. What are the “cracks in the wall” (fault lines) that make this optimism
dangerous now? Include management (including business product/market strategy
and competitive forces), marketing, production/operations management, human resource management, ethical, as well as financial
aspects. A SWOT analysis works well here
(see two-page handout given in class from Kerin/Peterson), or you can try to
link everything to the modified DuPont formula. Include peer comparison data in this
discussion as well.
3. What are the “cracks in the wall” (fault lines) that make this optimism
dangerous for investors who are holding the stock and then selling it 5 years
from now? Consider the same aspects detailed in #2.
4. As part of #1, #2, and #3, what do the industry standard ratio values tell
you? (Don’t limit your analysis to just trend or time-series analysis.)
5. Make sure to address all 3 drivers in your DuPont analysis, including how
they explain the time-series changes in ROE and the “versus industry” ROE
comparison.
Ratio Analysis:
• Calculate all ratios for all three years (you will have already done two
years by yourself) in an Excel file, calculating the ratios by using cell
formulas that reference cells with your numerator and denominator data in
them. Include your cell formulas as an
appendix to your report.
• Analyze each of the five categories of ratios in Chapter 2 of your textbook,
providing at least two or three paragraphs on each category you analyze. Don’t forget to include your peer
competitor’s ratio values as well as the industry average ratio values
(cross-sectional analysis) to supplement the three years’ trend analysis for
our subject company.
• To fill out your profitability analysis, include a DuPont analysis using the
DuPont identity, with the numbers filled in for each of the three ratios for
the company, for each of the three years.
Include the industry values for ROE and the three drivers (NPM, TAT, EM) for the last year, as well. Within the body of your paper, comment on the
drivers of ROE performance (NPM or TAT or FLM) and how each of them have
changed from one year to the next, thus contributing to the ROE change.
• DO use industry averages, available online and through Mergent Online at the
library. You may not use any industry averages that require someone to pay for
them. You may use only those available free for anyone at Malone. Also, you are expected to use Value Line
Investment Survey, available in the Reference area of the library (hardcopy).
• Regarding liquidity as assessed through the Statement of Cash Flows, study
the operating cash flows for the largest entries (largest dollar amounts), and
comment on them. If
you can find data on unused short-term borrowing capacity (possibly by
searching the 10-K report), comment on that as well.
Grading:
Not everyone will receive the same grade on the group portion of the
project. Based on the work done from the
very start of the course project through the oral presentation, each of the
group members will be evaluating his/her own as well as your contribution to
all the work done. You and your fellow group members will be individually
graded based partly on the quality and quantity of all group members' contributions.
The paper and
presentation requirements are as follows:
Paper: Your course project paper, done
in WORD, and based on ratios done in Excel.
It is due at the time of your presentation. It should be no more than 10-13 pages, not
including exhibits such as graphs, tables and charts.
•
No, you do not need a bibliography, but you should footnote any
references you are using when gathering information from outside sources. However, I do need to know where you got your
industry averages. Also, include the
Value Line Investment Survey report on TXRH (photocopy) as an appendix to your
report.
• Format: Your report must start your report with an Executive Summary and end
with a Conclusion. Both the Executive Summary and the Conclusion should highlight
major strengths or weaknesses that are supported in your five-category
analysis. IMPORTANT: Give some specific
ratio numbers (values) to support your key findings.
• Format: Add to the impact of your presentation with graphs or charts you
construct of key ratios (again, choose those that have a story, which support
your Executive Summary).
• Type your group project write-up, double-spaced. Spell-check it and have
someone proofread for grammar before turning it in to me. I recommend that you
finish your paper early and have someone else proofread it. I take off
points for incorrectly spelled words and grammar errors.
• Length of the written part of the paper (not including exhibits such as ratio
calculations or the financial reports you download) should be 10-13 pages. In
no case should it be more than 13 pages, not including in-text
charts/graphs/tables and end-of-paper exhibits.
• Format: Included each piece of information (such as balance sheets) you used
for a peer competitor or for the industry that you got using Internet Explorer
or Mergent Online or Value Line as an appendix.
• Excel Requirement: You must do your ratio
calculations in an EXCEL worksheet and use cell references to calculate your
ratios. You may select from the individuals’ XLS files which were done for the
individual part of the report, augmenting this with the peer data for all
ratios calculated on Texas Roadhouse (Problem 2-13, pg. 59 of your textbook)
and the industry ratio values you locate online or through Mergent Online. You will turn in printouts of both the values
and the cell formulas.
Values: Print out your worksheet.
Cell Formulas: Change the display in Excel from values to formulas by holding
down the CTRL key and pressing ~. The ~key is just below the ESC key on the
left side of the keyboard. You may need to adjust the column widths before
printing out your cell formulas (you may also have to change to landscape mode
in you page setup). Once cell formulas are printed, you may change back to
values by again pressing CTRL~.
• Format Choices: You may elect to reference the calculated ratio values
by saying "See Appendix I".
Or, cut and paste your ratio values to small tables within the paper
itself.
Oral Presentation and PowerPoint:
Presentation: Each group participant will be speaking for part of your
presentation. You will have 20 minutes for your group presentation. I will call
“stop” at 22 minutes, so do not go over. However, I would not expect a group to
use less than 17 minutes, either. Try to divide the presentation up so that
each person speaks about 4-6 minutes.
The board (your fellow students serve as the board of directors) and I
will ask several questions after your presentation. Each student must be prepared to answer any
question that may arise (so each of you should be very familiar with every
part of the analysis). Your group and
individual grades will relate partly to how well you field questions.
Presentations must use PowerPoint. Print out handouts (6 to a page, pure black
& white) and bring copies for me and each student in the class, which you
will pass out as you begin your oral presentation (or provide it to me one
business day early and I will get your copies for you; otherwise, your
group is responsible for making all necessary copies).
Final note:
Even though the project you are doing is more extensive in scope, I highly
recommend that you make a trip to the library to look at the two successful MBA
projects on SteakNShake (front desk reserve, under
Zietlow).