Financial Performance Analysis Report: Domino's Pizza - AC4410 Module

This report provides a comprehensive financial analysis of Domino's Pizza, evaluating its performance through various financial ratios. It begins with an overview of the company and its industry, followed by a literature review on ratio analysis, detailing its benefits and limitations. The core of the report focuses on an in-depth analysis of key financial ratios, including gearing/capital structure ratios, investor ratios, profitability ratios, activity/efficiency ratios, and liquidity ratios, using data from 2014 to 2017. Each ratio is calculated and interpreted to assess Domino's financial health, identifying trends and potential areas of concern. The report concludes with recommendations for improvement and overall conclusions about the company's financial position, highlighting both strengths and weaknesses and suggesting strategies for future success.

Running head: Dominos Financial Analysis 0
Dominos Financial Analysis

Dominos Financial Analysis 1
Table of Contents
Introduction......................................................................................................................................2
Overview..........................................................................................................................................2
Ratio analysis Literature Review.....................................................................................................3
Benefits........................................................................................................................................3
Limitations...................................................................................................................................4
Ratio Analysis in detail....................................................................................................................5
Gearing / Capital Structure ratios.................................................................................................5
Investors’ ratios............................................................................................................................6
Profitability ratios........................................................................................................................6
Activity / Efficiency ratios...........................................................................................................7
Liquidity ratios.............................................................................................................................8
Recommendations and Conclusions................................................................................................9
References......................................................................................................................................10

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Introduction
Financial performance is the ultimate aspect of determining the whether the company is
performing above the standard set by the industry or below the standard set by the industry. This
indicates the level at which the company is and wants to reach in the future. The below report
talks about the overview of the Dominos and the study of the ratios has been undertaken to give
the essence of the financial strength and the weakness of the company.
Overview
Dominos Pizza is an American based food chain which was found in the year 1960. The
headquarters of the corporation are Dominos Farms Office Park in Ann Arbor, Michigan. In
terms of the sales the chain became one of the most popular pizza seller companies in the world.
The company was founded by James Monaghan and Tom Monaghan.
Dominos belong to the food industry providing the fast food to all kinds of the people. In term so
the location the company is operating at 13811 locations presently and with the team of 14100 of
the company owned office. The company opened its first international outlet in Winnipeg,
Manitoba, Canada. Also in the same year Dominos opened its 100th store in Vancouver. By 2014
the company was spread among 6000 international locations (Morning Star, 2018).
In terms of the nature of the business Dominos does not label itself as the fast food chain and
intends to deliver the fresh quality food at the fast pace. The business is operating as the agencies
and franchises. Earlier Dominos was not having the facility of the restaurant to eat and only
provide the pizzas of the finest quality ingredients. Not only the company is ambitious in
majority of the franchisees owning more than 100 stores, the business continues to grow

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eventually. The world class training program and the consistent food quality is what makes the
dominos an exception fast food chain, having the award winning food service team (Morning
Star, 2018).
Ratio analysis Literature Review
Accursing to (Isard, et al 2017) Ratio Analysis is a quantitative analysis of information presented
in the financial statement. Ratio analysis is used to evaluate different aspects of the company
such as the liquidity position of the company, the efficiency, the solvency and the profitability of
the business.
In view of (Loughran and McDonald, 2016) the ratio analysis is needed only to measure the
financial performance of the company from all the aspects. Measuring of the profitability is an
important and the critical aspect and also helps the firm get to know the weak areas against the
benchmark set by the company. The overall financial strength of the company can be determined
by the usage of the ratio analysis technique. The fiscal position of the company can be
determined through the ratio analysis technique
Benefits
Ratios analysis assists in validating or disapproving the business decisions such as investing,
financing and operating decisions of the organization. The financial statements are cumulated
into the figure that can be compared with the previous year, thus giving the helping hand to
evaluate the financial position of the firm.
According to (Weygandt, Kimmel, and Kieso, 2015) The accounting statements simplify the
financial data into the simpler ratios on the basis of the following categories such as liquidity,
efficiency, solvency and the profitability of the business.

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The problems can be identified with the help of the ratio analysis and lets the management put
attention towards the ley potential areas which require help. There are so many problems that are
missed or lost in the complex accounting statements and the ratios will eventually help the
management to pin point the problems and get the relevant solutions for them
In opinion of (Nimtrakoon, 2015) with the help of the ratios the company can conduct the intra
as well inter firm’s comparison operating under the same industry. This technique will help the
organization in understanding the financial position of the company in the better manner and can
improve the performance if there are any variances that are found and have the replacement or
the alternatives for the same.
With the pros come the cons of the Ratio analysis technique which are as follows
Limitations
In case of the ratios the firms can manipulate the data by changing the figure of the ratios to
project the financial position of the company sound and by doing this the investors can be misled
easily. Therefore the technique ends up in the process of the window dressing.
If there are any price changes or any inflation in the price of the company the ratios typically
ignore this factor and it can be observed when the numerous ratios are calculated on the basis of
the historical costs and the changes are not given much importance in price level between the
periods.
Accounting ratios basically ignore the qualitative features of the organization as said by (Kaplan
and Atkinson, 2015). The only thing the company takes into the consideration only the monetary
value of the firm

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There is a different approach in calculating the ratios when calculated by different firms at the
same time. For example in case of the current assets many firms take current liabilities into the
consideration with some having an exclusion of the bank overdraft.
Ratio Analysis in detail
Gearing / Capital Structure ratios
These are those ratios which are formed up of the capital structure and determine the proportion
of the finance of debt against the equity. One such ratio is the times interest coverage ratio which
determines the amount of expense of the interest the company can bear with the existing
earnings.
Gearing ratio
Times Interest Coverage Ratio EBIT 3.98 4.06 4.13 4.24
Interest Expense
From the above table it can be analyzed that the Domino’s pizza has improve the times interest
coverage ratio as compared to the last four years. In 2014 the ratio was 3.98 times where as it
increased to 4.24 in the year 2017. The increase in the ratio indicates the company is able to pay
the interest obligations on time (Jenter and Lewellen, 2015).

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Investors’ ratios
Investor’s ratios are calculated to measure the ability the business can return to the owners in
terms of the money. The Earnings per share ratio is the part of the investor ratio and determines
the penny earned by the shareholders on investing per dollar (Nimtrakoon, 2015).
Investors Ratio
Earnings per
share Net Profit 0.13 0.12 0.15 0.17
Weighted average Outstanding Shares
The earnings per share ratio of the Domino’s company earlier declined from 0.13 to 0.12 in the
year 2015 and thereafter the company improved its performance by increasing the volume of the
sales but at the same time decreasing the heavy cost of goods sold. The number of outstanding
shares also increased in comparison to the previous year (Öztürk and Karabulut, 2017).
Profitability ratios
Profitability ratios are the financial ratios that help in determining the financial position of the
company in terms of how much profit is earned with respect to the sales and the production costs
incurred. The gross profit the net profit and the return on equity form the club under the
profitability ratios (Laitinen, 2017)
.
Profitability Ratios
Gross Profit Ratio Gross Profit * 100 30% 31% 31 31%

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%
Sales
Return on Equity Net Income 26% 24%
30
% 33%
Shareholders’
Equity
Net Profit ratio Net Profit * 100 8% 9% 9% 10%
Sales
From the profitability point of view the company is performing outstanding as all the three ratios
are increasing in comparison to the cumulative effect of the four years and also at the faster pace.
This means the company is maintain its cost and focusing more on the profitability to expand its
business in near future and to provide the future value to the shareholders of the company. The
gross profit rose by 1% in general but the net profit has increased by 2 percentage points. The
return on equity has been drastic from 26% to 33% thereby instilling the confidence among the
shareholders to invest (Laitinen, 2017).
Activity / Efficiency ratios
These ratios determine the ability of the company to convert the assets into the generation of the
income for future purposes. The Inventories turnover period ratio, Trade receivables collection
period ratio and Trade payables payment period ratio are categorise for this category (Gitman,
Juchau and Flanagan, 2015).

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Activity / Efficiency
ratios
Inventory * 365 6.96 6.09 5.90 5.24
Sales
Payables * 365
15.9
3 17.62 16.53 14.01
Sales
Receivables * 365
21.6
0 21.73 22.14 22.78
Liquidity ratios
The liquidity ratios of the company represent the liquid position of the firm and how well the
current obligations can be paid with the help of the existing current assets can be easily
converted into the cash.
201
4
2015 2016 2017
Liquidity ratio
Current ratio Current assets 1.61 1.61 1.23 1.46
Current Liabilities
Quick Ratio Quick Assets 0.56 0.71 0.48 0.53

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Current Liabilities
The current ratio of the Dominos Company is low as compared to the ideal ratio of 2:1. However
it can be seen that earlier the ratio was 1.61 and it fell down to 1.23 in the year 2016 due to
decrease in the current assets and simultaneous increase in the current liabilities. This happened
due to the poor cash conversion cycle. Since the receivable cycle is taking time to generate the
cash of 22 days the company shall reduce the same to improve both the ratios. The company
shall also focus on improving the quick ratio as it determines the cash position of the business
(Ehiedu, 2014).
Recommendations and Conclusions
From the above analysis it can be concluded that though the company performing well still there
are some areas that needs improvement and which are the current ratio, quick ratio, and activity
and efficiency ratios. The overall financial position of the company is dependent on these ratios
and the cash conversion cycle of the company. To improve these ratios Dominos must get rid of
the useless assets and the food menu which is not working. It shall switch from short term to the
long term loans to avoid the current obligations. In a way the cycle shall be long so that the
company gets the time to pay back to the creditors and majorly it shall focus on controlling the
overhead expenses. All these strategies may work in the positive direction of the Domino’s Pizza
and it shall continue to serve it customers with better models and efficiency.

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References
Ehiedu, V.C., (2014) The impact of liquidity on profitability of some selected companies: The
financial statement analysis (FSA) approach. Research Journal of Finance and Accounting, 5(5),
pp.81-90.
Gitman, L.J., Juchau, R. and Flanagan, J. (2015). Principles of managerial finance. Australia:
Pearson Higher Education AU.
Isard, W., Azis, I.J., Drennan, M.P., Miller, R.E., Saltzman, S. and Thorbecke, E., 2017. Methods
of interregional and regional analysis. Routledge.
Jenter, D. and Lewellen, K. (2015).CEO preferences and acquisitions.The Journal of Finance,
70(6), 2813-2852.
Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.
Laitinen, E.K., (2017) Profitability Ratios in the Early Stages of a Startup. The Journal of
Entrepreneurial Finance, 19(2), pp.1-28.
Loughran, T. and McDonald, B., 2016. Textual analysis in accounting and finance: A
survey. Journal of Accounting Research, 54(4), pp.1187-1230.
Morning Star, (2018) Domino's Pizza Inc [Online] Available from
https://www.morningstar.com/stocks/xnys/dpz/quote.html [Accessed on 22nd December 2018]
Nimtrakoon, S., (2015) The relationship between intellectual capital, firms’ market value and
financial performance: Empirical evidence from the ASEAN. Journal of Intellectual
Capital, 16(3), pp.587-618.

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Öztürk, H. and Karabulut, T.A., (2017) The Relationship between Earnings-to-Price, Current
Ratio, Profit Margin and Return: An Empirical Analysis on Istanbul Stock Exchange. Accounting
and Finance Research, 7(1), p.109.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John
Wiley & Sons.