The Mission of Chipotle Mexican Grill - Lab Report Example

Finance and Accounting research Answer Section Introduction Chipotle Mexican Grill, Inc. is a chain of restaurants based in USA. It also operates in UK, France, Canada and Germany. It specially offers tacos, burritos and salads which are made by fresh ingredients. It has opened its first store in 1993 with a simple idea of serving the food fast but didn’t have to be an experience of having fast food. It uses high quality and fresh raw materials, special cooking methods and unique interior design which can be frequently found in fine dining throughout world. In the span of 20 years it has opened more than 1600 restaurants in various countries (Chipotle, 2013). It is listed in New York Stock Exchange. Current stock price of the company is $659.54 per share (Bloomberg, 2014). Answer Section 2. Firm Prognosis The mission of the company is to change the thinking process of people about the fast food. Chipotle holds two commitments behind this goal. Their special food culture comes from the constant effort of finding more sustainable and higher quality raw materials and classic cooking technique to make most possible tasty food. In the year 2013, it has opened 185 new restaurants and earned revenue of $3.21 billion which has increased 17.7% than the previous year. In 2013 the company has also made progress in various areas from where it sources the food. The most important step taken by the company in March 2013 is it has become the first national restaurant which have voluntarily disclosed the GMOs (Genetically Modified Orgasms) in the raw materials they use (Chipotle, 2013). Answer Section 3. Analysts Report According to the analysts, investors can buy the shares of Chipotle and mean price target is 716.55, median is 717.50, maximum target is 800 and minimum target for price is 630 (Yahoofinance, 2014). According to Guru’s recommendation, as per JamesO’Shaughnessy method CMG has earned 50% rating in growth per value customer, As per Motley Fool’s method CMG gets 72% rating in small cap growth investor and as per Martin Zweig method CMG has earned 77% rating in growth per value investor (Nasdaq, 2014). According to the analyst of gurufocus, in recent years from the end of 2011 Chipotle Mexican Grill has earned substantial growth by providing the customers higher quality food products than what is typically found in normal fast food restaurants. Unlike Taco Bell which is the largest Mexican chain of restaurants for fast food had earned negative growth since many years but CMG has earned significant growth in these years. It can be seen that comparable store sales of CMG benefit the company by 2.5% per year as the company is opening large number of stores each year which is helping to increase the volume of the company. But as Taco bell is already a mature chain of restaurants thus it sales from existing stores is not helping the growth of the company (Gurufocus, 2013). Answer Section 4. Free Cash Flow 2013 2012 2011 2010 2009 116.242 149.077 78.164 46.821 9.938 From the above table it can be seen that the free cash flow has shown an increment in the cash flows over the years. It indicates that profitability and liquidity of the company has increased over the years. It measures the financial performance of the company and states the ability of the company to generate cash after paying the expenses it requires for expansion or maintaining the business. Thus here it can be seen that the ability of the company in generating cash has increased over the years. Growth Rate N Year Revenues Change (%) 1 2004 470.721   2 2005 627.695 33.35% 3 2006 822.93 31.10% 4 2007 1085.782 31.94% 5 2008 1331.968 22.67% 6 2009 1518.417 14.00% 7 2010 1835.922 20.91% 8 2011 2269.548 23.62% 9 2012 2731.224 20.34% 10 2013 3214.591 17.70% Arithmetic average     23.96% Geometric Average     23.80% Standard deviation     6.76% From the above table it can be seen that the company has earned highest revenue in 2013 and the growth rate of revenue is 17.7% from 2012. The arithmetic mean of the percent change in revenues is 23.96%, the geometric mean is 23.80% and the standard deviation of the percent change in revenues is 6.76%. N Year EBITDA Change (%) 1 2004 76.615   2 2005 116.074 51.50% 3 2006 172.249 48.40% 4 2007 242.569 40.82% 5 2008 286.927 18.29% 6 2009 378.519 31.92% 7 2010 489.405 29.29% 8 2011 589.227 20.40% 9 2012 740.34 25.65% 10 2013 854.769 15.46% Arithmetic average     31.30% Geometric Average     30.74% Standard deviation     13.07% From the above table it can be seen that the earnings before interest, tax and depreciation is highest in 2013 and the growth in EBITDA is 15.46% in 2013 from the year 2012. The arithmetic average of the return is 31.30%, the geometric return is 30.74% and the standard deviation of percent change in EBITDA is 13.07%. N Year EBIT Change (%) 1 2004 7.784   2 2005 34.113 338.25% 3 2006 65.934 93.28% 4 2007 114.351 73.43% 5 2008 133.378 16.64% 6 2009 209.661 57.19% 7 2010 294.127 40.29% 8 2011 356.368 21.16% 9 2012 460.892 29.33% 10 2013 539.471 17.05% Arithmetic average     76.29% Geometric Average     60.15% Standard deviation     101.79% From the above table it can be seen that the EBIT of the company is highest in 2013 and it has grown by 17.05% in 2013 from 2012. The arithmetic mean of percent change in EBIT is 76.29%, the geometric mean of percent change in EBIT is 60.15% and standard deviation of percent change in EBIT is 101.79%. N Year Net Income Change (%) 1 2004 6.126   2 2005 37.696 515.34% 3 2006 41.423 9.89% 4 2007 70.563 70.35% 5 2008 78.202 10.83% 6 2009 126.845 62.20% 7 2010 178.981 41.10% 8 2011 214.945 20.09% 9 2012 278 29.34% 10 2013 327.438 17.78% Arithmetic average     86.32% Geometric Average     55.59% Standard deviation     162.33% From the above table it can be seen that the net income is highest in 2013 and it has increased by 17.78% in 2013 from 2012. The arithmetic mean of percent change in net income is 86.32%, the geometric mean of percent change in net income is 55.59% and the standard deviation of percent change in net income is 162.33%. WACC   Value of category (mil) Proportion Cost (%) (dividend & interest) Cost (CAPM) % Common Capital 9527.44 100.00% 0 19.80% Preferred stocks 0 0 0 0 Debt 0 0 0 0   9527.44 WACC 0 19.80% From the above table it can be seen that the company does not pay any common or preferred dividend or interest thus its WACC is 0%. But if we use equity to calculate cost of equity and rate of equity then the WACC will be 19.80%. Terminal Value Terminal value of a security or an asset can be defined as its anticipated value for a specific date in future. Here we have used the formula terminal value= (Cash Flow)/ (Cost of equity – growth rate). Cost of equity = Risk free rate of return + Beta * (Expected market return - risk free rate of return)                   = 19.80%                                       Risk free rate of return = 52 week bank discount rate     = 12%         Beta = 0.98                 Expected Market return = 19.95%                 Growth in dividend 0 Terminal Value 1632.705 From the above table it can be seen that cost of equity of the company is 19.80%. The growth rate of dividend is 0 because the company does not pay any dividend and closing cash balance of the company in 2013 $ 323.203 million. Thus the Terminal value of the company is 1632.705. Answer Section 5. Equity Value per Share Particulars 2013 2012 2011 Book value per share 48.0715 38.93519 32.63206 It is also known as the book value per share. It can be calculated by dividing the total shareholder’s equity by the no of outstanding shares of the company. Here we have calculated the equity value or book value per share for three years and it can be seen that the equity value or book value per share has increased over the years from 2011 to 2013. The current equity value per share is $48.0715. According to the calculation of gurufocus.com for value per share, it can be seen that the tangible book value or equity value per share is $60.34 as of September, 2014. It has been calculated by the tangible equity of the company divided by the no of shares outstanding. The book value per share for the financial year 2013 was 48.87 and it has increased to 60.34 by September, 2014 (Gurufocus, 2014). From the above chart it can be seen the stock price of Chipotle Mexican Grill Inc for the last six months. The stock price has increased from June to July and then in August it was in the level of $680 to $695 per share. It has decreased to some extent in October and then it has again increased in the current month November. The next graph is showing the share trading volume for the company for last six months and it can be seen that the highest tradings have been doen in mid of July and mid of October. Answer Section 6. PE and Earnings per Share Particulars 2013 2012 2011 EPS 10.58 8.82 6.89 P/E 62.33837 74.77778 95.72424 From the above table it can be seen that the earnings per share of the company is 10.58 in 2013 and it has increased over the years from 2011. The price earnings ratio is 62.33 which have decreased over the years. EPS indicates the portion of profit allocated by the company to each share. It states the profitability of the company. Thus it shows that the company allots EPS of 10.58 for each outstanding share. Price earnings ratio is the ratio of current share price of the company and its EPS. Here the price earnings ratio has decreased but still it is quite high which indicates investors of the company are expecting higher growth in revenue in future. Recommendation From the above study it can be said that the profitability, net income, EBITDA, EBIT and revenue of the company has increased over the years. The company has earned highest EBITDA, EBIT and net income in 20134 and the share price of the company has also increased. According to analysts the company will be able to maintain its growth rate in the coming years as it is opening larger number of new stores in every year. Apart from this, the company is also offering high quality food menu to the customers which will help it to grow in future. The EPS of the company has also increased which indicates that the company is able to earn more net income available to equity share holders than the previous years. Thu it can be recommended from the above study that investors should buy the stocks of the company and it will be profitable for them as the stock will increase in near future. References Bloomberg. 2014. Chipotle Mexican Grill Inc. Retrieved from: http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=CMG. Nasdaq. 2014. Chipotle Mexican Grill, Inc. Guru Stock Analysis. Retrieved from: http://www.nasdaq.com/symbol/cmg/guru-analysis. Yahoofinance. 2014. Chipotle Mexican Grill, Inc. (CMG). Retrieved from: https://in.finance.yahoo.com/q/ao?s=CMG. Chipotle.com. 2014. 2013 Annual Report and Proxy Statement. Retrieved from: http://ir.chipotle.com/phoenix.zhtml?c=194775&p=irol-reportsAnnual. Nasdaq. 2014. Chipotle Mexican Grill, Inc. Stock Chart. Retrieved from: http://www.nasdaq.com/symbol/cmg/stock-chart?intraday=off&timeframe=6m&charttype=line&splits=off&earnings=off&movingaverage=None&lowerstudy=volume&comparison=off&index=&drilldown=off&sDefault=true. Gurufocus. 2014. Chipotle Mexican Grill Inc (NYSE:CMG) Tangible Book Value Per Share. Retrieved from: http://www.gurufocus.com/term/Tangibles_book_per_share/CMG/Tangible%252BBook%252Bper%252Bshare/Chipotle%2BMexican%2BGrill%2BInc. Gurufocus. 2013. Guru Investment Theses on Chipotle Mexican Grill Inc. Retrieved from: http://www.gurufocus.com/stock/CMG&summary. Read More