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HTM 455 DUE DILIGENCE

HTM 455 DUE DILIGENCE. Liz Liska Fileg Zere Kristine Marmolejo Yoohwan Lee Ngoc Khuc Gina Latino. Current state of company. SOLVENT BUT HEADING TOWARDS INSOLVENCY TOTAL ASSETS = $55,906,235 TOTAL LIABILITIES = $44,555,450 TOTAL STOCKHOLDERS EQUITY = $11,350,785 CURRENT RATIO = .74

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HTM 455 DUE DILIGENCE

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  1. HTM 455DUE DILIGENCE Liz Liska FilegZere Kristine Marmolejo Yoohwan Lee Ngoc Khuc Gina Latino

  2. Current state of company • SOLVENT BUT HEADING TOWARDS INSOLVENCY • TOTAL ASSETS = $55,906,235 • TOTAL LIABILITIES = $44,555,450 • TOTAL STOCKHOLDERS EQUITY = $11,350,785 • CURRENT RATIO = .74 • QUICK RATIO = .35 • DEBT EQUITY RATIO = 3.9

  3. Our proposal • ISSUES TO BE DISCUSSED & FIXED • CURRENT STATE OF THE UNITS • COMISSARY • MARKETING • EMPLOYEE MORALE • G&A EXPENSES • EXPANSION

  4. Current state of the units

  5. Refresher package & maintenance WHY IMPLEMENT: Refresher package will increase an average of 3.02% in sales. Repairs & maintenance are necessary to keep unit functioning long term. Repairs & maintenance will help boost productivity Boost in productivity may improve employee morale Higher employee morale better service quality increase sales

  6. Keeping the Commissary • PROS • Reduces labor at the retail unit • Ensures quality control & recipe compliance • CONS • Increases food cost by 1.2% DECISION: KEEP THE COMMISSARY  Higher food quality is worth the 1.2%. By cutting it we could potentially harm our consistency and customer expectations. We cannot save our way to prosperity.  Good numbers are the result of doing everything else really well, and keeping the commissary will reassure that we are continually doing just that.

  7. MARKETING • We are not inclined to go with the repositioning of the brand • Will increase marketing from 3%-4.5% for brand positioning • We want to target our efforts to reduce our current marketing costs back down to 2.5% • By eliminating couponing & discounting •  Will decrease food cost by .5% • However, we will attend the meeting with the advertising agency to hear what they have to say.

  8. Employee morale • Results of the employee attitude survey indicates: • Attitudes of hourly staff – deteriorated significantly over the last 4 quarters • Attitude of Unit General Management – seemed to have flattened out since 2011 survey. Hourly staff • Incentive programs (stock options) • Recognition programs • Training programs for development • Create programs for refocusing company General Management • Investigate management teams to oversee how things are being run and where things need to improve (hourly staff morale, labor management, G&A expenses)

  9. G&a • 201120122013 • Salaries $1,207,867 $1,313,500 $1,900,000 • Benefits $ 362,360 $ 394,050 $ 570,000 • Headcount 33 37 52HQ Occupancy $ 210,000 $ 210,000 $ 210,000Utilities $ 33,500 $ 35,600 $ 37,900Office Supplies $ 39,860 $ 41,000 $ 60,000 • Travel & Entertainment $ 200,500 $ 225,000 $ 350,000Outside Services a. Legal $ 175,000 $ 175,000 $ 175,000b. Public Relations $ 150,000 $ 150,000 $ 150,000c. Public Policy $ 150,000 $ 150,000 $ 150,000Equipment Rental $ 45,700 $ 50,000 $ 55,000Dues & Subscriptions $ 5,000 $ 5,000 $ 5,000Contributions $ 20,000 $ 25,000 $ 25,000 • Management Development $ 100,000 $ 100,000 $ 150,000Training $ 225,000 $ 250,000 $ 275,000 • R&D Center $ 350,000 $ 350,000 $ 375,000Commissary $ 400,000 $ 475,000 $ 574,900 Totals: $3,674,787 $3,949,150 $5,062,800

  10. Unit: 3

  11. Plans For Expansion • Projected to open 5 units in 2013 • In discussions with two lenders: • Bank One: 10million at 7.2% over 10 years • Covenant requirement: • must maintain a current ratio of 2.5 • Must achieve store-level EBITDA of 15.o% by final quarter 2013 • Wells Fargo: 10 million at 7.5% over 10 years • Covenant requirement: • No requirements ALL PLANS PUT ON HALT!!!

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