Panera Bread Ratio Essay

Profitability ratios are a category of financial tools that are utilized to evaluate a company’s capability to produce revenue as associated to its expenditures and costs suffered during a specific timeframe. Profitability ratios present numerous gauges of the achievements of a company’s ability to produce revenue. For most of these ratios, having a greater figure in relation to a competitor or previous timeframe is suggestive that the business is flourishing. Common profitability ratios are profit margin, return on assets, and return on equity.

Profit margin is a ratio of prosperity computed as net income divided by revenues. Profit margin is shown as a percentage. Exploration of just the income of a business frequently does not reveal all the facts. Improved income is great, but a growth does not necessitate that the profit margin of a business is improving. For example, if a business has expenditures that have gotten bigger more than the rate of sales it will result in a lesser profit margin and may signify that expenditures need to be managed better. Profit margin will gauge out of each dollar of sales how much a business

retains in income. A greater profit margin designates a more lucrative business that has superior command over its expenses.
Panera Bread’s profit margin for the 2014 fiscal year was 7.09% compared to the 2013 fiscal year profit margin of 8.23%. Panera Bread saw a reduction in profit margin in 2014 to levels similar to its 2010 profit margins. A review of competitors showed that while Panera Bread’s profits declined, both Chipotle Mexican Grill and Starbucks Corp. saw profit margins remain steady around 10.84% and 12.57% respectively. With the deterioration in profit margin in 2014, Panera Bread executed worse than the industry average which is at 11.8%. The first and third quarters of 2014 created the biggest impact with profit margins of 7.0% and 6.3% respectively. Revenues increased while both gross margin and net income declined in 2014, due to investing in enhancement of operating resources, technical assets, and customer encounters.
Return on assets (ROA) is a gauge of how efficiently the business's assets are being utilized to produce income. It is a display of how lucrative a business is compared with its total assets. It is analyzed by dividing a business' annual income by its total assets, and is shown as a percentage. The assets of the business are consisting of debt and equity. The greater the ROA amount, the better, since the business is producing more cash on less capital spending.
Panera Bread’s return on assets ratio for the 2014 fiscal year was 13.46%, compared to their 2013 fiscal year ending ratio of 16.02%.

The return on assets ratio for 2014 were similar to those Panera Bread had for the 2011 fiscal year signifying a decline. When compared to its competitors, Panera Bread had a lower return on assets ratio that both Starbucks Corp. and Chipotle Mexican Grill who were at 18.57% and 19.55% respectfully. Over the last 5 years, Panera Bread’s asset revenue has been an average of a 13.7% profit. The industry profit on assets has produced a lesser ratio of 12.02%. Panera Bread has been increasing its return on assets over the last five years except for 2014, where Panera Bread had a fall in net income. This signifies that compared to the industry Panera Bread is superior at translating its assets into

earnings.
Return on equity (ROE) is the end product ratio for the stockholders, gauging the earnings for each dollar spent in the company's stock. Return on equity is the sum of net income kept as a proportion to stockholders equity. It gauges a business' success by exposing how much income a business produces with the cash stockholders have financed. Contrasting the ROA, this ratio concentrates exclusively on the shareholders equity and does not take into account debt. Return on equity is computed as net income divided by its average shareholder equity. The ROE is valuable for relating the success of a business to others in the industry.
Panera Bread’s return on equity ratio for the 2014 fiscal year was 24.97%, compared to their 2013 fiscal year ending ratio of 25.78%. For Panera Bread’s stockholders they have averaged a profit of 24.97% for every dollar spent. Panera Bread’s competitors, Starbucks Corp and Chipotle Mexican Grill, had a 2014 return on equity of 42.41% and 25.09% respectfully. Over the last 5 years, Panera Bread’s assets have averaged a profit return of 22.9%. The industry return on equity has a 30.7% rate of return, outperforming Panera Bread. Panera Bread has been enhancing its return on equity over the last five years except for 2014. The decline in ROE for 2014 was not because of a reduction in shareholder equity, but rather a drop in net income. An explanation as to why Panera Bread’s ROE has improved almost every year is due to the fact that they retain earnings with the purpose of reinvesting to develop and expand the business.