Question & Answer: Access the financial statements for Wingstop, Inc. for the year ending December 31, 2017 using the "Filings" tab on the Securities and Exchange Commis…..

Access the financial statements for Wingstop, Inc. for the year ending December 31, 2017 using the Filings tab on the Securities and Exchange Commissions web site: http://www.sec.gov. The financial statements are contained in Item 8 of the Form 10-K. Required: Use the most recent financial statements for Wingstop and Buffalo Wild Wings to answer the following questions: 1. Calculate the current ratio for the past two years for both firms. Do you notice any significant differences? Calculate the gross profit percentage for the past two years both firms. Do you notice any trends? Calculate return on assets for the most recent year for both firms. Which company earned the highest return on assets? Decompose return on assets into net profit margin and total asset turnover. What insights does ROA profit driver analysis provide into the relative performance of the two companies? 2. 3. 4. 5.

**Links to 10-K forms

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https://www.sec.gov/Archives/edgar/data/1636222/000163622217000011/a10-k2016.htm#s2F5DFD461877585086D7EDA369C84A42

https://www.sec.gov/Archives/edgar/data/1062449/000106244917000013/bwld2016122510-k.htm#sE110BD1D28E554A8B34673259E72A995

Access the financial statements for Wingstop, Inc. for the year ending December 31, 2017 using the “Filings” tab on the Securities and Exchange Commission’s web site: http://www.sec.gov. The financial statements are contained in Item 8 of the Form 10-K. Required: Use the most recent financial statements for Wingstop and Buffalo Wild Wings to answer the following questions: 1. Calculate the current ratio for the past two years for both firms. Do you notice any significant differences? Calculate the gross profit percentage for the past two years both firms. Do you notice any trends? Calculate return on assets for the most recent year for both firms. Which company earned the highest return on assets? Decompose return on assets into net profit margin and total asset turnover. What insights does ROA profit driver analysis provide into the relative performance of the two companies? 2. 3. 4. 5.

Expert Answer

Ratios Wingstop Buffalo Wild Wings
2016 2015 2016 2015
a Current Assets 11116 19620 176587 197751
b Current Liabilities 16732 12570 241969 263623
c Gross profit 57519 44019 1422106 1304910
d Revenue 91359 77369 1986793 1812722
e Net Income 15434 10106 94745 95069
f Total Assets 111800 120650 1047219 1072382
1 Current Ratio a/b 0.66 1.56 0.73 0.75
2 Gross prfit margin c/d 62.96% 56.89% 71.58% 71.99%
3 Return on assets e/f 13.81% 8.38% 9.05% 8.87%
4 Asset Turnover d/f 0.82 0.64 1.90 1.69
5 Net Profit margin e/d 16.89% 13.06% 4.77% 5.24%
From the analysis of the ratios we can note the following:
1.   Current ratio for both the companies for the latest year as around the same, with
     Buffalo Wild Wings marginally better than Wingtop. But Wingstop is not well placed
     when compared with its own ratio for the last year(1.56) and has come down drastically
     to 0.66.Both the copmanies are not doing well on the liquidity front as the ratio is
     very much below the 1.0 mark which is considered a good ratio.
2.    Gross profit margin for Buffalo is better than Wingstop indicating that the operations of Buffalo
        are better managed than Wingstop. But Wingstop has shown improvement in the ratio
        over the previous year, which if continued will improve its operational efficiency.
3.   Return on assets for Wingstop is better than Buffalo , which means that the assets are being
      used better by Wingstop than Buffalo. But if we decompose this ROA, into Assets turnover
      and net profit margin, we can see that actually the assets turnover is less for Winstop is less than
      Buffalo , but since the net profit margin is very higher for Wingstop it is giving a better ROA.
      This shows that even though assets usage is better for Buffalo , they have to improve the net profit
       margin, to get the full benefit of the higher assets turnover ratio.

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