Analysis of “Eat at My Restaurant †Cash Flow” Essay

Understanding the merge of hard currency within an presidency is vital to knowing the health of an organization. Without this understanding, a business may run into a situation where even though they ar profit able, they may not sport enough notes on hand to meet their obligations. This paper will look at the sideslip study Eat at My Restaurant coin Flow (Gibson, 2013) and will analyze the difference between send away hard cash provided by run activities and net income and determine which a give way indicator of long-term favorableness is. It will then provide an analysis of the cash fertilize ratios for severally of the firms contained in the solecism study. Finally, this paper will conclude with a termination of if one of the companies in the case study has a cash arise problem. Net Cash versus Net IncomeNet income is derived from the Income Statement, which is based on the assemblage regularity of accounting. Under the aggregation method, revenue is recogn ized when earned and expenses are recognized when incurred. Net cash provided by operational activities uses the cash method of accounting where cash and expenses are recognized when received and paid. For example, under the accrual method, which net income is based on, a comp whatever would recognize revenue for work delivered based on the delivery of services instead of when a guest actually founders the invoice for these services. This is an principal(prenominal) distinction because from an income perspective, the company will lastly receive that money, the company will not actually fetch that cash in-hand to pay expenses or restore investments until receipt of payment from their customer.This could create a situation where although the company looks profitable, in reality they cannot eviscerate their short-term commitments. When considering whether net cash provided by direct activities or net income is a better indicator of long-term profit efficiency, the writer feels that the words long-term are critical to that decision. While net cash iscritical to determine the top executive of the organization to meet its immediate requirements, the non-cash factors that are included in the net income advisement portray a more accurate view of the long-term profitability. overly because of the timing differences between when revenue and expenses are recognized, the accrual method croupe the net income model will produce visibility that is more accurate. For example, a month that produces low hoi polloi of sales and a high volume of receivable could produce a positive cash fall d stimulate when in reality that low sales volume will negatively light upon the subsequent months. This variance would be visible in the net income precisely would not be visible in net cash. Case think over Company ComparisonYum Brands, Inc.In the two years presented in the case study (2009-2010), Yum Brands, Inc. saw a significant decline in its run cash flow/ flowing mat urities of long-term debt and current notes payable. This indicates that they are little able to meet their current debt obligation. However, when looking at operating cash flow/ tote up debt, there is an improver of 7.3% present that Yum Brands, Inc. is more able to cover its debt with operating cash. A review of the operating cash flow per portion shows an increase of $1.14 showing an procession in its ability to make capital expense decisions and pay dividends to its shareholders. Finally, Yum Brands, Inc. a .9 increase in operating cash flow/cash dividends. This shows that they are more able to pay dividends with its yearly operating cash. Panera slitDuring the same two-year period (2009-2010), Panera excoriation did not have any long-term debt mature or have any current notes payable. They did however have 17.27% decrease in their ability to meet their total debt burden with operating cash. Panera borecole did show an increase of $0.74 in operating cash flow per share i ndicating an improved ability to make capital purchase decisions and pay dividends to its shareholders. Panera Bread did not make any dividend payments in either year. StarbucksIn 2009 and 2010, Starbuck also did not have any long-term debt mature or have any current notes payable. However, they did show a 7.94% increase in their operating cash flow/total debt ratio. This indicates an improvedability to cover their total debt with operating cash flow. During this same period, Starbucks had an increase of $0.37 in operating cash flow per share indicating an improved ability to make capital purchase decisions and pay dividends to its shareholders. Although they did not pay any dividends in 2009, they did show an increase of 9.97 in operating cash flow/cash dividends in 2010. This shows that they are more able to pay dividends with yearly operating cash. Cash Flow WoesWhile Panera Bread does show an increase of 28.5% in net income-including noncontrolling interest, they are only showin g an increase of 10.6% in net cash provided by operating activities. This feature with a 17.27% decrease in their operating cash flow/total debt ratio could indicate potential challenges meeting debt. Furthermore, although Panera Bread does show an improvement of $0.74 in operating cash flow per share, they have not issued any dividends. This could indicate that Panera Bread is trying to invest in growth or potentially they are having difficulty meeting cash obligations. For these reasons, the writer believes Panera Bread may be experiencing a cash flow problem however, a deeper look into their financial statements, balance sheets and cash flow statements over a broader timeframe would be required to assess their true position. ConclusionNet Cash and Net Income are both critical elements allowing a view to the health of an organization. While it is imperative that a business has visibility to the cash getable to pay debt, make investments, make capital purchases and pay its shareh olders, it is equally important to have visibility to all revenue and expenses. While each tells their own story, in the end it is when used together that they bring the most value.ReferencesGibson, C. H. (2013). fiscal Reporting & Analysis. Mason South-Western Cengage Learning.