Financial Statements Analysis, Landry's Restaurants

1088 words - 4 pages

Fundamentals of Financial Accounting 1st ed., by Phillips, Libby, and LibbyEarnings per share - is the net income per share of stock. Investors want to know how much net income is earned per share owned. Investors will find this information positive because it predicts an increase for future dividends and stock prices.In 2003 the earnings per share for Landry's Restaurants was $1.66 compared to $1.60 in 2002. The 6¢change accounts for a 3.75% increase, which is positive to investors because it shows an increase in possible dividend payouts and price of stock. It is important to know that this increase is in part due to Landry's buying back shares and not completely from net income.Return on assets - measures the effectiveness of the business assets being used to generate profits. Creditors and investors want to know how much net income will be generated for each dollar invested in assets.Landry's return on assets (ROA) in 2003 was .042 or 4.2%, which was a decrease from .045 or 4.5% in 2002. This means that although minimal (.003 or .3%), the company is not converting the investment monies into profit as well as the previous year, which could be attributed to the Other, net subcategory in the Other Expense (Income) category of the Landry's Consolidated Statements of Income in 2002 being $(886,657) (Phillips, Libby, & Libby, 2006, p. 626).Current ratio - shows the dollar amount of assets per each dollar of liabilities, or "whether the company has enough assets to pay what it currently owes" (Phillips et al, p. 432); the higher the ratio, the better the position to pay its short-term debts. A ratio less than 1 is usually considered a concern.The current ratio for Landry's in 2003 is .76 and could be cause for concern, but when taking into account that the ratio for 2002 was .62, they are showing improvement. Another reason for not viewing this as a significant concern is that Landry's is in the food/service industry and cannot keep current assets (food) in stock for long due to the nature of its freshness; plus1.The company collects the majority of its revenues in cash as soon as its goods are sold.2.The company sells its complete inventory of goods, on average, within 50 days of purchase, which is less than the 60 days of credit that suppliers typically offer.3.Over the years, the company has consistently generated significant positive cash flows from operations, and4.Landry's has arranged a line of credit with banks to cover times when the company is temporarily short on cash. (Phillips et al., p. 582).Times interest earned - measures a company's ability to meet its interest obligations with resources generated from its profit-making activities (Phillips, et al., p. 439).Landry's TIE for 2003 is 7.00. Although it is a decline from 13.04 in 2002, they are still in a favorable position because they are making more than enough income to cover the interest expense.Asset turnover - tells how much money from sales is made for every dollar...

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