Restaurant Finance

Pressure-Test Your P&L

Every restaurant bleeds — it’s simply a question of where and how much. Just as banks and governments occasionally conduct stress tests to model scenarios and validate the stability of their systems under pressure, restaurant chains (and their investors) should endeavor to objectively pressure test their P&L — with increasing

Restaurant CAPEX Spend Goes Hand-in-Hand with Revenue Growth

Capital is cheaper and more available than ever, and at least in the U.S. corporate profits are at record levels. Many organizations are using this opportunity to make strategic acquisitions or to increase stock prices by buying back shares and paying out larger dividends. But the strong correlation between CAPEX

Some Chains Use Almost a Third of Cash Flow to Cover Rising Restaurant Interest Rates

Since the 2008 financial crash, restaurant loans have slowly started to increase. While there are risks to lending to restaurant companies — relatively few barriers to entry and hard-to-protect intellectual property — the size of the global restaurant industry ($2.7t) makes foodservice an appealing market for bank loans and credit lines. At

5 Key Benchmarks from Publicly Traded Restaurant Companies’ Income Statements

As a central element of any company’s regular reporting, restaurant income statements can be sliced a variety of ways to quickly uncover inefficiencies. These ratios also demonstrate the very different business models of heavily and lightly franchised systems. Median Revenue per Employee in Public Restaurant Companies $61.3k Compared to other

Top-Quartile Restaurants More Than Double the Median Return on Assets

Investors and managers use return on assets (ROA) — the percentage profit (after tax) being earned on all of a company’s assets — to gauge how efficiently an operation uses its resources to generate returns. It is calculated using the following expression: Net profit is derived from the income statement

3 Reasons to Invest in CAPEX — Plus 1 Reason to Be Cautious

Restaurant executives have to decide whether they want to be a tortoise or a hare. In the age-old fable, the tortoise moves ploddingly down the race course — slow and steady — eventually surpassing the hare, whose off-the-blocks speed can’t make up for his overconfident blundering. In Aesop, the choice

Refined Focus & Franchising Help Build Operating Margins

It’s no secret that the operating margin is thinner in foodservice than almost anywhere else, owing to the fierce competition in the industry. However, some chains have achieved impressive results. Companies with a defined focus that differentiates them from other operations have better operating margins than those organizations that try

Lean Labor Can Boost Gross Margins

Gross margins consider the relationship between how much money a restaurant makes and how much money it took to generate that revenue in direct costs. High ratios indicate a lower cost of goods sold (COGS); a low gross margin indicates that the organization isn’t benefiting from high markups on its

Strong Operational Models & Low Debt Help Increase Profit Margin

Unlike gross and operating margins, a restaurant’s profit margin considers every cost that affects the organization’s bottom line, including line items — like tax, depreciation, and debt payments — that aren’t directly related to operations. A company with a lower profit margin compared to its peers may be unable to

3 Key Figures to Assess Restaurant Performance

How profitable are the most successful restaurant operations? The answer to that question will change based on the margins used to measure the organization’s performance. In this series, we examine three metrics that investors and managers use to gauge a foodservice operation’s profitability: gross margin, operating margin, and profit margin.