A) The amount of Net Income in the year 2001 is $26,920. The financial statements are a combination of different statements (Income Statement, Balance Sheet, Statement of Cash Flow, Statement of Changes in Equity) but the Net Income is, as the name implies, part of the Income statement which reflects how Landry Restaurant’s sales respond to the fixed and variable costs. From the Landry Restaurant’s perspective revenue has been generated significantly because of the opening of new outlets, which is the primary reason of the generation of higher revenue. It also provides the evidence that restaurant’s performance is highly commendable and customers have appreciated the restaurant’s food and service.
From the cost perspective, Landry Restaurant’s product cost is high in the year 2001 as a percentage of revenue. Restaurant’s labor cost has also risen because of the management acquisition program. The operating, marketing and advertising expenses have been high because the management has made efforts to publicize significantly their name and products and this has resulted in a cut-off in the revenues. High leveraged, depreciation and amortization signifies the fact that the restaurant has borrowed some debt to install more equipment and ensure that the customer’s needs, from the restaurant’s point of view, are catered to. The efforts of the management has led to net profits of 16.9% of the revenues in 2001.
This profit has also been reflected on the stocks, dividends and EPS of the Landry’s Restaurants.B) The Total Assets of Landry’s Restaurant in the year 2001 is $690,171.The information of Total Assets is provided in the Balance Sheet of the restaurant. The balance sheet gives an estimation of the restaurant’s overall performance, that includes opting for debt financing or equity financing or analyzing how useful or productive the restaurant’s assets are. As far as Landry’s Restaurants balance sheet is concerned the restaurant is spending money on future capital expenditure which is their business strategy to start expanding the business in order to achieve greater heights.Establishing long term borrowing the company will incur higher interest expense and that creates a financial distress in the future.
From the 2001 balance sheet it is evident that high leverage is also a source of concern for the restaurant. Working Capital is also negative in 2001 which is another source of distress for the organization. And if the profits aren’t high enough the restaurant will also be hesitant to pay dividends to its stockholders and this reflection also shows in the year 2000 when the company declared and paid dividends in the year 2001 of $0.10 per share.
The probability is that the restaurant will continue with the same dividend policy in 2001.C) The restaurant has purchased fixed assets in the year 2001. Its fixed assets are $15,458 more as compare to the year 2000. And this information is stated on the Statement of Cash Flow which reveals us the fact that due to the higher expansion program from the management, business requires more fixed assets in order to generate more revenues. Purchase of fixed assets requires some funding and restaurant is highly dependable on the debt financing and invested those funds in acquiring the fixed assets.
D) In my point of view there is no evidence of the fact that stock price options have been exercised by the restaurant. This information is acquired from the Income Statement and their related disclosures. Regardless of whether stock options are exercised or not, it is essential to take a closer look at the disclosures of the diluted EPS. It is also relevant to take a look at the expected option life and expected stock volatility in the income statement and its related disclosures of the Landry’s Restaurant.
