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Burger King Financial Statement Reformulation Jake Peng. An overview of the QSR industry. Fast Food Hamburger Restaurants (FFHR) High competitive High volume, low margin Compete on cost leadership and market penetration. Restaurant industry ($1.75 trillion). Fine dining
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An overview of the QSR industry • Fast Food Hamburger Restaurants (FFHR) • High competitive • High volume, low margin • Compete on cost leadership and market penetration Restaurant industry ($1.75 trillion) Fine dining Quick service restaurant “Fast casual” Others
Overview of Burger King • World’s 2nd largest FFHR • 12,997 restaurants in 86 countries • 1.9 billion in revenues, 118 million net income (net margin 6.2%) • 12% of total FFHR consumer spending (2012) • Brief history • Started in 1950s; changed hands several times • Acquired from Diageo by a P/E consortium in 2002 and first went public in 2006 • Acquired by 3G Capital in 2010 and went public again 2012
Key features of business • Cash business • Cash balance (Dec 31, 2012) – 547 million (28% of total revenues) • Operating cash flow – 224 million (200% of net income) • Make no use of line of credit in 2012 • 2% of sales designated as operating
Key features of business (Cont’d) • Franchiser – A way to become “lighter” • 97% restaurants are franchised (80%+ for McDonald’s) • 871 (70%) owned restaurants re-franchised in 2012 • Save huge amount of resources (e.g., labor and capital) • More profitable than owned restaurants (Gross margin of BK: 11% vs. 86%)
Key features of business (Cont’d) • Lease • 1873 (15%) restaurant property under lease or sub-lease • Operating vs. Direct financing lease • “Triple Net” – Franchisees responsible for property tax, insurance and maintenance • Related accounts: Net investment in leased property Capital lease (liability) Favorable/unfavorable leases (included in Intangibles and Other liabilities)
Enterprise Assets: Split – 2% of sales Brand; franchise agreement Direct financing lease Prepaid expense and income tax
Enterprise liabilities: Accrued wages; tax payable Pension; unfavorable lease
Financial Assets: Split – 98% of sales
Reformulation of P/L FEAT
Schedule: Enterprise profit after tax (EPAT) Effective rate
Schedule: Financial expense after tax (FEAT) Effective rate