HI5002 Finance Group Assignment: Domino's Pizza Company Analysis

This report presents a comprehensive financial analysis of Domino's Pizza Enterprises Limited, an ASX-listed company. It examines the company's financial performance using profitability ratios (Return on Total Assets, Net Profit Ratio, and Return on Equity) and operating efficiency ratios (Inventory Turnover Ratio, Account Receivable Turnover Ratio, and Asset Turnover Ratio) from 2015 to 2018. The analysis includes the use of marketable securities for cash management, application of sensitivity analysis in capital budgeting, and an assessment of systematic and unsystematic risks. Furthermore, the report calculates the dividend payout ratio and interprets the company's dividend policy, concluding with a recommendation letter to a potential institutional investor. The study highlights Domino's Pizza's strong financial position, sound cash management, and effective risk management, making it a potentially attractive investment opportunity. The report is designed to provide guidance to investors by providing a clear understanding of the company's financial health and future prospects.

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HI5002
Finance for Business
Group Assignment
Company Performance Analysis

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Abstract
The report is being developed for providing an understating of the financial analysis
carried out for a company to provide recommendation to an institutional investor aiming to
invest within a company. The overall financial analysis is based on an ASX listed entity, that is,
Dominos Pizza Enterprises Limited. It has been suggested to invest within the company on the
basis of iota good profitability and efficiency position, sound cash management, regular dividend
paid to shareholders and effective management of systematic and unsystematic risks.

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Contents
Abstract............................................................................................................................................2
I: Introduction..................................................................................................................................4
II: Detailed discussion on financial analysis of Dominos Pizza Enterprise Limited.......................4
2.1: Brief information of the selected company...........................................................................4
2.2: Use of performance ratios to depict the performance of the company.................................5
Profitability Ratios of Domino’s Pizza........................................................................................5
2.3: Use of marketable securities for cash management............................................................10
2.4: Application of sensitivity analysis in capital budgeting problem.......................................12
2.5: Systematic and Unsystematic Risks Associated with Dominos Pizza................................17
Systematic Risks........................................................................................................................18
Unsystematic Risks....................................................................................................................18
2.6: Calculation of dividend payout ratio and interpretation of dividend policy implemented by
the company...............................................................................................................................19
III: Recommendation Letter to client (As a potential investor).....................................................20
IV: Conclusion...............................................................................................................................21
References......................................................................................................................................22

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I: Introduction
The business entities tend to prepare and disclose their financial information through the
financial statements to facilitate the economic decision-making of its investors. The financial
statement assists the investors of an entity from across the world to take investment decisions by
analysis of its past, present and future financial performance. This report has been developed to
undertake an analysis of the financial performance of a selected listed company on the ASX for
the purpose for providing guidance to an institutional investor. The business entity selected for
the purpose is Domino’s Pizza Enterprise Limited, an ASX listed pizza chain in Australia.
The report undertakes an evaluation of the financial performance of the selected entity
through the use of ratio analysis, cash management, conducting sensitivity analysis and
discussing the systematic and unsystematic risks associated with the company operations. It also
calculates the dividend payout ratio for providing an assessment regarding the dividend policy of
the company. Lastly, the overall findings generated are presented within the recommendation
section to provide guidance to an institutional investor regarding investment within the company.
II: Detailed discussion on financial analysis of Dominos Pizza Enterprise Limited
2.1: Brief information of the selected company
Domino’s Pizza Enterprises Limited is regarded as largest pizza chain in Australia in
reference to the number of stores and its wide network. The company realizes high sales within
the Australian market as it is the largest franchise for Domino’s Pizza brand across the world. Its
pizza chain has extended to several countries across the world having about 2,500 stores and thus
largely contributing to the growth and expansion of Domino’s franchise on an international level.
The major markets of the company include Australia, New Zealand, Germany, Denmark,
Luxemburg, Japan, France and the Netherlands. It has been established in the year 1983 and is
presently regarded as one of the biggest pizza franchised business across Australia. It is
headquartered within Queensland in Australia and is regarded as major player within the food
retail sector of the country. The distinctive advantage is acquired by the company in retail sector
of Australia owing to its capabilities of proving faster and fresh quality food to the people and
also has achieved a leadership in the use of innovative technologies in food sector. It is being

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recognized as first company to introduce drone-delivery pizza and also providing innovative
features such as ordering through app and using artificial intelligence in managing its operational
activities (About Dominos, 2019).
2.2: Use of performance ratios to depict the performance of the company
Profitability Ratios of Domino’s Pizza
Financial Data of Domino's Pizza for calculation of Profitability Ratio
Financial Items 2015 2016 2017 2018
Amount in $ Thousands
Earnings before
Interest and tax
$
93,085.00
$
130,603.00
$
164,202.00
$
182,407.00
Net profit after tax
$
68,421.00
$
86,592.00
$
105,804.00
$
121,693.00
Net Sales
$
539,138.00
$
705,702.00
$
790,861.00
$
794,072.00
Shareholder's equity
$
305,056.00
$
394,546.00
$
415,064.00
$
307,664.00
Average shareholder's
equity
$
349,801.00
$
404,805.00
$
361,364.00
Total Assets
$
630,600.00
$
1,125,728.0
0
$
1,132,793.0
0
$
1,302,411.0
0
Average total assets
$
878,164.00
$
1,129,260.5
0
$
1,217,602.0
0
Profitability Ratio of Domino's Pizza

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Ratios Formula 2016 2017 2018
Return on Total
Assets
Earnings before
Interest and
tax/Average
Total Assets
14.87% 14.54% 14.98%
Net profit ratio Net profit/Sales 12.27% 13.38% 15.33%
Return on equity
Net profit after
tax/Average
shareholder's
equity
24.75% 26.14% 33.68%
2016 2017 2018
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
14.87% 14.54% 14.98%
12.27% 13.38%
15.33%
24.75% 26.14%
33.68%
Profitability Ratio of Domino's Pizza
Percentage

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(Source: Domino’s Pizza: Annual Report, 2016, Domino’s Pizza: Annual Report, 2017 &
Domino’s Pizza: Annual Report, 2018)
The profitability position of Domino’s Pizza can be analyzed by the use of following ratios:
 Return on Total Assets (ROTA): The return on total assets is the ratio that measures an
entity’s earnings before interest and tax (EBIT) to its total assets. This ratio indicates that
how effectively a company is using its total assets to generate revenue before its finance
cost and tax expenses. The chart depicts a straight line which shows Domino’s Pizza has
a stable trend in respect of return on total assets. However from 2016 to 2017 return on
total assets have fallen from 14.87% to 14.54% and then it has increased in 2018 to
14.98%. Earnings before interest and taxes have increased over the selected financial
period which means that it is able to achieve control over its operational expenses thus
deriving higher profits (Moles and Kidwekk, 2011).
 Net Profit Ratio: Net Profit Ratio measures the percentage of profitability in relation to
net sales. This Ratio indicates the profit earned per dollar of net sales. On analyzing the
past three years data it can be said that Domino’s Pizza has an upward trend in respect of
net profit ratio from 12.27 to 15. 33%. This is actually a good sign for the stakeholders as
well as prospective investors. The company is performing good in terms of deriving net
profits from its overall sales figure which supports its future growth prospects (Baker and
Powell, 2009).
 Return on Equity: This ratio states the percentage of profit after taxes earned on total
equity of the company. In other words, return on equity measures the effectiveness of a
company is using its equity money to generate revenues after deducting the finance cost
and taxes. The chart depicts upward trend indicating the increase in the ratio in past three
years. This states that company is working very efficiently by using cheap source of
finance (debt) which needs low return to generate higher revenue that can be attributable
to equity investors. The company has attained highest return on its equity in the financial
year 2018 which means that it is bale to effectively generate returns on the shareholders
(Zimmerman and Yahya-Zadeh, 2011).
Operating Efficiency Ratios

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Financial Data of Domino's Pizza for calculation of Operating Efficiency Ratio
Financial Items 2015 2016 2017 2018
Amount in $ Thousands
Net Sales
$
539,138.00
$
705,702.00
$
790,861.00
$
794,072.00
Account Receivables
$
43,883.00
$
72,143.00
$
72,615.00
$
78,181.00
Average account
receivable
$
58,013.00
$
72,379.00
$
75,398.00
Total Assets
$
630,600.00
$
1,125,728.00
$
1,132,793.00
$
1,302,411.00
Average total assets
$
878,164.00
$
1,129,260.50
$
1,217,602.00
Cost of Goods Sold
$
485,182.00
$
638,528.00
$
727,398.00
$
774,136.00
Inventory
$
12,282.00
$
16,675.00
$
21,098.00
$
19,271.00
Average Inventory
$
14,478.50
$
18,886.50
$
20,184.50
Operating Efficiency Ratios of Domino's Pizza
Ratios Formula 2016 2017 2018
Inventory Turnover
ratio
Cost of goods
sold/Average
44.10 38.51 38.35

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inventory
Account Receivable
turnover ratio
Net
sales/Average
account
receivables
12.16 10.93 10.53
Asset Turnover ratio
Net
Sales/Average
total assets
0.80 0.70 0.65
(Source: Domino’s Pizza: Annual Report, 2016, Domino’s Pizza: Annual Report, 2017
&Domino’s Pizza: Annual Report, 2018)

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2016
2017
2018
0.00
5.00
10.00
15.00
20.00
25.00
30.00
35.00
40.00
45.00
44.10
38.51 38.35
12.16
10.93
10.53
0.80
0.70
0.65
Operating Effeciency Ratio
Axis Title
Times
The operational efficiency of Domino’s Pizza has been analyzed with calculation of
following ratios:
 Inventory Turnover Ratio: Inventory turnover ratio shows how efficiently a company is
replacing its inventory during a period. It is measured in number of times. This ratio
states that company is using its inventory economically to generate revenue. The chart
has depicted a downward trend over last three years. This symbolizes that company is not
able to replace its inventory efficiently and paying high cost of holding or storing the
inventory and high cost of order for the inventory (Feldman and Libman, 2011). This is
the reason that the inventory turnover ratio comes from 44.10 times to 38.35 times in past
three years.
 Account Receivable Turnover Ratio: Account receivable turnover ratio depicts the
effectiveness of a company in receiving payments from its debtors during a time-period.

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The graph has depicted a downward trend in past three years which indicates that
company is not able to collect its debts on time and company is selling its product on
credit. It shows that company is following the strategy to sale on credit to increase its
sales and then collecting its debts. This can results in negatively impacting the future
financial performance of the company (Arnold, 2013).
 Asset Turnover Ratio: Asset Turnover Ratio depicts the company efficiency in using its
assets to generate revenue. It measures the assets contribution towards per dollar of sales.
In the past three years we can say company is not efficiently using its resources to
generate revenue as there is a downward trend in asset turnover ratio. It was 0.80 times in
2016 which comes to 0.65 times in 2018. Net sales have been increased in the past three
years but still company is not using its resources to its best. Domino’s Pizza is able to
generate higher revenue with the available resources. It should have a look in to it
(Krantz, 2016).
2.3: Use of marketable securities for cash management
Marketable securities are financial instrument that can be realized in cash at a reasonable
price. Marketable securities are held by company for cash management because maturity of these
securities are between 3 months to 1 year and can be easily liquidated whenever cash is required
on stock exchange or in any other way. The rates of marketable securities are affected very little
in terms of price and that is why it can easily bought and sold in the market (Schlichting, 2013).
Marketable securities that are available in Domino’s Pizza’s current assets are investment
in mutual funds, cash equivalents, advertising Fund cash equivalent and advertising fund
investments. Restriction is imposed on some funds so that the fund can be used for the purpose
for which it is being reserved. By using these securities as an instrument company can manage
its cash. Investment in marketable securities are far better than idle cash because idle cash
doesn’t give return and cash deposited in bank offers very low returns whereas investment in
securities offers a better return and safety of investment too (Gibson, 2011). Short term liabilities
are generally due for payment in a year. The period of maturity of these marketable securities is
also falls within a year which is the best way to pay off short term liabilities. The Company has
to fulfill some regulatory requirements too such as maintaining working capital at a specified
level or for measuring company’s solvency and liquidity (Reilly and Brown, 2011).

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Domino’s Pizza is investing in mutual funds and cash equivalents so that it can pay off its
short term liabilities. Company’s investment in marketable securities such as advertisement fund
and advertisement fund investment which are restricted is for advertisement and promotion of
domino’s brand in future. By investing in such securities company is also complying with its
regulatory requirements and attaining faith of bankers and creditors by maintaining liquidity and
solvency.
2.4: Application of sensitivity analysis in capital budgeting problem
Project Life 4 Years
Cost of Equipment 2,000,000.00$
Reisdual Value 200,000.00$
Depreciation Method Straight Line
Life of Equipment 4 years
Depreciation of Equipment per
year 450,000.00$
Initial Working Capital 600,000.00$
Recovery of working capital 600,000.00$
Selling Units per year 300000 per year
Selling Price 20.00$
Variable Cost 12.00$
Fixed Cost 300,000.00$
Discount Rate 10%
Tax Rate 30%
Information Provided

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Particulars Year 0 Year 1 Year 2 Year 3 Year 4
Cash Inflows
Selling Units 300000 300000 300000 300000
Selling price 20.00$ 20.00$ 20.00$ 20.00$
Net Cash Inflows 6,000,000.00$ 6,000,000.00$ 6,000,000.00$ 6,000,000.00$
Cash Outflows
Variable Cost 3,600,000.00$ 3,600,000.00$ 3,600,000.00$ 3,600,000.00$
Fixed Cost 300,000.00$ 300,000.00$ 300,000.00$ 300,000.00$
Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Total Cash outflows 4,350,000.00$ 4,350,000.00$ 4,350,000.00$ 4,350,000.00$
Cash flows before tax 1,650,000.00$ 1,650,000.00$ 1,650,000.00$ 1,650,000.00$
Less: Tax @ 30% 495,000.00$ 495,000.00$ 495,000.00$ 495,000.00$
Cash Flows after tax 1,155,000.00$ 1,155,000.00$ 1,155,000.00$ 1,155,000.00$
Add: Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Cash Flows before
depreciation after tax 1,605,000.00$ 1,605,000.00$ 1,605,000.00$ 1,605,000.00$
Initial Equiment Cost (2,000,000.00)$
Salvage Value 200,000.00$
Working Capital
Initial Requirement (600,000.00)$
Recovery 600,000.00$
Net Cash Flows (2,600,000.00)$ 1,605,000.00$ 1,605,000.00$ 1,605,000.00$ 2,405,000.00$
Statement of Cash flows
Years Cash flows PVF @ 10% PV @ 10%
0 (2,600,000.00)$ 1.000 (2,600,000.000)$
1 1,605,000.00$ 0.909 1,459,090.909$
2 1,605,000.00$ 0.826 1,326,446.281$
3 1,605,000.00$ 0.751 1,205,860.255$
4 2,405,000.00$ 0.683 1,642,647.360$
NPV 3,034,044.806$
Project NPV when there is no change in value drivers
Sensitivity Analysis
A: When unit sales decrease by 10%

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Particulars Year 0 Year 1 Year 2 Year 3 Year 4
Cash Inflows
Selling Units 270000 270000 270000 270000
Selling price 20.00$ 20.00$ 20.00$ 20.00$
Net Cash Inflows 5,400,000.00$ 5,400,000.00$ 5,400,000.00$ 5,400,000.00$
Cash Outflows
Variable Cost 3,240,000.00$ 3,240,000.00$ 3,240,000.00$ 3,240,000.00$
Fixed Cost 300,000.00$ 300,000.00$ 300,000.00$ 300,000.00$
Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Total Cash outflows 3,990,000.00$ 3,990,000.00$ 3,990,000.00$ 3,990,000.00$
Cash flows before tax 1,410,000.00$ 1,410,000.00$ 1,410,000.00$ 1,410,000.00$
Less: Tax @ 30% 423,000.00$ 423,000.00$ 423,000.00$ 423,000.00$
Cash Flows after tax 987,000.00$ 987,000.00$ 987,000.00$ 987,000.00$
Add: Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Cash Flows before
depreciation after tax 1,437,000.00$ 1,437,000.00$ 1,437,000.00$ 1,437,000.00$
Initial Equiment Cost (2,000,000.00)$
Salvage Value 200,000.00$
Working Capital
Initial Requirement (600,000.00)$
Recovery 600,000.00$
Net Cash Flows (2,600,000.00)$ 1,437,000.00$ 1,437,000.00$ 1,437,000.00$ 2,237,000.00$
Statement of Cash flows when Unit sales decrease by 10%
Years Cash flows PVF @ 10% PV @ 10%
0 (2,600,000.00)$ 1.000 (2,600,000.000)$
1 1,437,000.00$ 0.909 1,306,363.636$
2 1,437,000.00$ 0.826 1,187,603.306$
3 1,437,000.00$ 0.751 1,079,639.369$
4 2,237,000.00$ 0.683 1,527,901.100$
NPV 2,501,507.411$
Project NPV when Unit sales decrease by 10%
B: When price per unit decrease by 10%

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Particulars Year 0 Year 1 Year 2 Year 3 Year 4
Cash Inflows
Selling Units 300000 300000 300000 300000
Selling price 18.00$ 18.00$ 18.00$ 18.00$
Net Cash Inflows 5,400,000.00$ 5,400,000.00$ 5,400,000.00$ 5,400,000.00$
Cash Outflows
Variable Cost 3,600,000.00$ 3,600,000.00$ 3,600,000.00$ 3,600,000.00$
Fixed Cost 300,000.00$ 300,000.00$ 300,000.00$ 300,000.00$
Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Total Cash outflows 4,350,000.00$ 4,350,000.00$ 4,350,000.00$ 4,350,000.00$
Cash flows before tax 1,050,000.00$ 1,050,000.00$ 1,050,000.00$ 1,050,000.00$
Less: Tax @ 30% 315,000.00$ 315,000.00$ 315,000.00$ 315,000.00$
Cash Flows after tax 735,000.00$ 735,000.00$ 735,000.00$ 735,000.00$
Add: Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Cash Flows before
depreciation after tax 1,185,000.00$ 1,185,000.00$ 1,185,000.00$ 1,185,000.00$
Initial Equiment Cost (2,000,000.00)$
Salvage Value 200,000.00$
Working Capital
Initial Requirement (600,000.00)$
Recovery 600,000.00$
Net Cash Flows (2,600,000.00)$ 1,185,000.00$ 1,185,000.00$ 1,185,000.00$ 1,985,000.00$
Statement of Cash flows when Price per unit decreases by 10%
Years Cash flows PVF @ 10% PV @ 10%
0 (2,600,000.00)$ 1.000 (2,600,000.000)$
1 1,185,000.00$ 0.909 1,077,272.727$
2 1,185,000.00$ 0.826 979,338.843$
3 1,185,000.00$ 0.751 890,308.039$
4 1,985,000.00$ 0.683 1,355,781.709$
NPV 1,702,701.318$
Project NPV when Price per unit decreases by 10%
C: When Variable cost per unit got increased by 10%

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Particulars Year 0 Year 1 Year 2 Year 3 Year 4
Cash Inflows
Selling Units 300000 300000 300000 300000
Selling price 18.00$ 18.00$ 18.00$ 18.00$
Net Cash Inflows 5,400,000.00$ 5,400,000.00$ 5,400,000.00$ 5,400,000.00$
Cash Outflows
Variable Cost 3,960,000.00$ 3,960,000.00$ 3,960,000.00$ 3,960,000.00$
Fixed Cost 300,000.00$ 300,000.00$ 300,000.00$ 300,000.00$
Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Total Cash outflows 4,710,000.00$ 4,710,000.00$ 4,710,000.00$ 4,710,000.00$
Cash flows before tax 690,000.00$ 690,000.00$ 690,000.00$ 690,000.00$
Less: Tax @ 30% 207,000.00$ 207,000.00$ 207,000.00$ 207,000.00$
Cash Flows after tax 483,000.00$ 483,000.00$ 483,000.00$ 483,000.00$
Add: Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Cash Flows before
depreciation after tax 933,000.00$ 933,000.00$ 933,000.00$ 933,000.00$
Initial Equiment Cost (2,000,000.00)$
Salvage Value 200,000.00$
Working Capital
Initial Requirement (600,000.00)$
Recovery 600,000.00$
Net Cash Flows (2,600,000.00)$ 933,000.00$ 933,000.00$ 933,000.00$ 1,733,000.00$
Statement of Cash flows when Variable cost per unit increases 10%
Years Cash flows PVF @ 10% PV @ 10%
0 (2,600,000.00)$ 1.000 (2,600,000.000)$
1 933,000.00$ 0.909 848,181.818$
2 933,000.00$ 0.826 771,074.380$
3 933,000.00$ 0.751 700,976.709$
4 1,733,000.00$ 0.683 1,183,662.318$
NPV 903,895.226$
Project NPV when Variable cost per unit increases 10%
D: When the given fixed cost increased by 10%

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Particulars Year 0 Year 1 Year 2 Year 3 Year 4
Cash Inflows
Selling Units 300000 300000 300000 300000
Selling price 18.00$ 18.00$ 18.00$ 18.00$
Net Cash Inflows 5,400,000.00$ 5,400,000.00$ 5,400,000.00$ 5,400,000.00$
Cash Outflows
Variable Cost 3,960,000.00$ 3,960,000.00$ 3,960,000.00$ 3,960,000.00$
Fixed Cost 330,000.00$ 330,000.00$ 330,000.00$ 330,000.00$
Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Total Cash outflows 4,740,000.00$ 4,740,000.00$ 4,740,000.00$ 4,740,000.00$
Cash flows before tax 660,000.00$ 660,000.00$ 660,000.00$ 660,000.00$
Less: Tax @ 30% 198,000.00$ 198,000.00$ 198,000.00$ 198,000.00$
Cash Flows after tax 462,000.00$ 462,000.00$ 462,000.00$ 462,000.00$
Add: Depreciation 450,000.00$ 450,000.00$ 450,000.00$ 450,000.00$
Cash Flows before
depreciation after tax 912,000.00$ 912,000.00$ 912,000.00$ 912,000.00$
Initial Equiment Cost (2,000,000.00)$
Salvage Value 200,000.00$
Working Capital
Initial Requirement (600,000.00)$
Recovery 600,000.00$
Net Cash Flows (2,600,000.00)$ 912,000.00$ 912,000.00$ 912,000.00$ 1,712,000.00$
Statement of Cash flows when Cash fixed cost per year increases by 10%
Years Cash flows PVF @ 10% PV @ 10%
0 (2,600,000.00)$ 1.000 (2,600,000.000)$
1 912,000.00$ 0.909 829,090.909$
2 912,000.00$ 0.826 753,719.008$
3 912,000.00$ 0.751 685,199.098$
4 1,712,000.00$ 0.683 1,169,319.036$
NPV 837,328.051$
Project NPV when Cash fixed cost per year increases by 10%
2.5: Systematic and Unsystematic Risks Associated with Dominos Pizza
The systematic risks are the market risks that are associated with a company owing to the
market in which it operates and is not possible to be reduced through the use of diversification.
On the other hand, unsystematic risks are the risks that are inherent within a company due to

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nature of its business operations and the industry in which it operates (Bragg, 2010). The risks as
analyzed from the annual report of Dominos Pizza are discussed below:
Systematic Risks
The following are the systematic risks that are associated with the company:
 Market Risk: The market risk is associated with the company due to fluctuations within
the foreign exchange rates and interest rates that can result in managing its exposure due
to changes in the market conditions. The company manages the exposure to these risks
with the use of sensitivity analysis and also encompasses the use of future contracts such
as swaps and options to mitigate the risk associated with the fluctuations in the foreign
currency rate. The risks associated with the interest rate fluctuations are being managed
through developing a mix between fixed and floating rate and also by the use of interest
rate swap (Annual Report: Dominos Pizza Enterprise Limited, 2018).
 Credit Risk: This type of risk is associated with the business operations due to possibility
of default by any on the franchisee to meet the obligations of contract and this can result
in causing financial loss to en entity. The company has adopted the use of collaterals in
dealing with the risks relating to financial losses that can be caused due to defaults. Also,
the exposure to the risk is controlled through continually reviewing the credit policies of
the company.
 Liquidity Risk: The Company is exposed to liquidity risk due to its inability to manage
properly its payables and receivables account that can result in disrupting the cash flow
position. The company manages the liquidity risk with the use of adequate reserves,
banking facilities and continuously reviewing the cash flows and completing the maturity
profiles of financial assets and liabilities(Annual Report: Dominos Pizza Enterprise
Limited, 2018).
Unsystematic Risks
The unsystematic risks associated with the company due to nature of its operations and
the industry in which it conducts its activities is listed below:
 Franchise Risk: The Company conducts its operations within Australia under franchises
system which is regulated by Master Franchise Agreements (MFAs). The agreement can

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however be terminated in the condition of incurring financial losses and incapability to
achieve the growth targets. The company manages this risk by developing close work
relationship with the franchisor and also regularly reviewing its compliance with the
standard rules and obligations (Annual Report: Dominos Pizza Enterprise Limited, 2018).
 Safety Risk: The Company operates within the food sector and thus recruits large number
of workforce diversity for carrying out its different operational activities. These business
operations are associated with higher number of risks related to health or state incident
that can result in negatively impacting the employee welfare. The company mitigates the
risk by ensuring its compliance with health and safety standard of food sector to ensure
that such type of incidents are prevented to occur within the workplace.
 Supply Chain Risk: This can pose a major risk to the company performance as
continuous availability of raw materials and the production of products and their delivery
to the financial customers is dependent on effective working of different supply chain
activities. The company aims to eliminate the risk by adopting a multi-sourcing strategy
that regulates the supply of raw materials and thus managing the risks of non-availability
of raw materials in a timely manner (Annual Report: Dominos Pizza Enterprise Limited,
2018).
2.6: Calculation of dividend payout ratio and interpretation of dividend policy
implemented by the company
Calculation of Dividend Payout Ratio
Items 2016 2017 2018
Dividend Per Share $1.52 $1.84 $2.20
Earnings Per Share $4.41 $6.05 $8.65
Dividend Payout Ratio 34.47% 30.41% 25.43%

20
2016 2017 2018
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
34.47%
30.41%
25.43%
Dividend Payout Ratio
In Percentage
Domino’s Pizza is following regular dividend policy. Company with regular dividend
policy will pay out dividends every year. The amount of dividend does not depend on earnings of
the company. Dividend will be paid regardless company’s earnings. If earnings of the company
are high then the excess profits will be retained by the company for future possibilities. If
the company is making a loss then also company will pay dividend to its shareholders under
regular dividend policy. Domino’s pizza has declared dividend regularly to its shareholders
regardless of higher earnings in past three years. Dividend payout ratio is continuously
decreasing because the growth rate of dividend is not in line with the growth rate of earnings.
Dividend per share is not increased at the rate on which Earning per share is increased. The
dividend payout ratio was 34.47 % in 2016 that falls down to 30.41% in 2017 and again it
decreased by 4.98% in 2018. It shows Domino’s Pizza is retaining excess profits for future
possibilities (Davies and Crawford, 2011).
III: Recommendation Letter to client (As a potential investor)
To (Investor Name)
It is recommended to the institutional investors aiming to invest within the company that
Dominos Pizza Enterprises Limited is in presently a good state of financial growth and

21
development. This can be ascertained on the basis of ratio analysis of the company which ahs
indicates its good profitability and efficiency position. The analysis of the financial statements of
the company over past three years has indicated that it is able to derive large profits owing to its
increasing trend of the ratios of ROA, ROE and net profitability. However, the major point of
concern is its lower operational efficiency as it is not able to effectively convert its inventory to
sales and also realizing cash from its accounts receivables (Damodaran, 2011). The cash
management by the company is however appropriate by the use of marketable securities that can
be quickly converted to cash for meeting the short-term financial obligations and eliminating any
type of liquidity risk. The analysis of systematic and unsystematic risks associated with the
company has also indicated that it is taking adequate measures for mitigating these risks and
ensuring that these types of risks does not negatively impact the company future performance in
any manner. It is also providing regular dividends to the shareholders which further indicate its
good financial growth prospects. Therefore, it can be said to a potential investor to invest within
the company owing to its good present and future financial performance (Brigham and Michael,
2013).
From
(Analyst Company Name)
IV: Conclusion
The report has inferred that Dominos Pizza is presently in a state of good financial
condition owing to its strong profitability position. The company is also providing regular
dividend to the shareholders indicating that they are receive constant returns on their equity
investment. Also, it possesses good cash management and has implemented adequate strategies
for eliminating any type of systematic or unsystematic risks associated with the company. The
company is recommended to increase its operational effectiveness for sustaining its future
financial performance.

22
References
About Dominos. 2019. Who we are. [Online]. Available at: https://www.dominos.com.au/about-
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Annual Report. 2016. Dominos Pizza Enterprise Limited. [Online]. Available at:
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Annual Report. 2017. Dominos Pizza Enterprise Limited. [Online]. Available at:
https://investors.dominos.com.au/annual-reports [Accessed on: 30 May, 2019].
Annual Report. 2018. Dominos Pizza Enterprise Limited. [Online]. Available at:
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