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BUFFALO WILD WINGS CORPORATE ANALYSIS

Buffalo Wild Wings Inc. Corporate Analysis


Kori Sandberg, Crystal Taren, Laksmie Bunnarith, Marcus Pace
Strategy in Global Management Sect. 01 16FA
09/14/2016

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BUFFALO WILD WINGS CORPORATE ANALYSIS
To effectively analyze the financial position of Buffalo Wild Wings Inc. we have utilized their
financial statements to understand what the data indicates about the overall health of this
corporation. We will be examining the companys statements in various ways in order to observe
whether or not the company is indeed successful over time, and if they are in fact achieving their
financial goals and company vision. Specifically, the areas of this business we will be dissecting
include:

Liquidity
Growth over ten years
Debt and leverage
Profitability
Market Value

It should be known that all ratios and data used in this case were derived from figures found on
FactSet Research Systems and the MSN Money websites and are observed over a 10 year period.
We created a spreadsheet to simulate how one would arrive at these nominal figures in order to
better understand the data and support our claims. From these figures we will conclude with
recommendations.

Liquidity

The balance sheet considers the company's ability to meet current cash assets with current
liabilities. This business is successful at turning their assets into cash quickly, which is due to the
nature of this fast paced restaurant.

One way to check to see how much liquidity the assets have is to check the current ratio, which
is current assets divided by current liabilities, which measures how fast the assets pay for these
liabilities. By using a 10-year span to observe changes in this ratio shows that throughout the
years individually, the current ratio ranged from a high of 2.91 in 2006 to a low of .75 in 2015,
due to a rate of increasing current liabilities compared to the increasing assets. In B-Dubs Inc.
scenario, their average current ratio over the last 10 years according to the data on FactSet
Research Systems is 1.55, where the industry average is around 1.13 according to MSN Money.
Usually, a healthy company has a current ratio between 1.5 and 2, so according to these
parameters, B-Dubs Inc. has a healthy current ratio.

Another ratio used to observe the liquidity is the Quick Ratio or acid-test. This differs from the
current ratio in that it does not include inventories in the from current assets, over the last 10
years the average quick test ratio is 1.49, this means that a company has $1.49 of liquid assets
available to cover each $1 of current liabilities, the higher the ratio the better the companys
position. In 2015 the quick ratio for the year was .69, actually at its lowest point in the past 10
years. MSN Money states that the industry average for the acid test is .85 so comparatively B-
Dubs Inc isnt doing too badly in that area.

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BUFFALO WILD WINGS CORPORATE ANALYSIS
Growth Analysis

Sales Growth analysis over time helps measure the pace at which the organizations sales
revenue is increasing or decreasing, there are many ways to use the financial data to observe
growth rate by summarizing the observations made concerning B-Dubs growth in sales and
growth in net income.

Over the observed 10 year period, the sales growth for Buffalo Wild Wing Inc. increased at an
average rate of 24.23% per year. The sales growth appears to be very consistent and there is
always a positive change from year to year indicating the business is doing well and growing at a
continuous rate.

The net income shows approximately the same increase in earnings over time as the sales,
28.14% average growth. This makes sense as the company continues to expand and attract more
and more revenue that both the sales and net income growth would increase at around the same
rate.

Debt and Leverage Analysis

Concerning the debt-leverage of this company, one should investigate the overall debt to
equity ratio or leverage ratio. This will help determine if the company has the ability to meet its
financial obligations, and to what degree does the capital for this business come in the form of
debt.

The debt-to-equity ratio of B-Dubs Inc. was .65 in 2015 which is the highest it has been over the
observed time this means more than half the companys assets are financed by debt. This is a
desirable ratio considering anything higher that 2.0 is considered risky, and especially compared
to the industry average of 3.30, this is according to MSN Money.

Another way to see how much of this companys assets are financed by the shareholders is by
observing the equity multiplier a variation of the debt-to-equity ratio. The equity multiplier is
similar to the debt-to-equity ratio in that is provides a comparison to the companys total assets to
total stockholder equity, additionally, it shows the level of debt financing that is used to acquire
assets and maintain operations. For B-Dubs Inc. the multiplier is 1.636 in 2015, with a 10 year
average of 1.489, showing this is a relatively consistent figure. This means that shows a little
more than half of Buffalo Wild Wings Inc. assets are owned by creditors and not by investors.

Profitability Analysis

There are many ways to measure the profitability of a company. This is done in order to
evaluate the businesss ability to earn profits from operations compared to the incurred expenses
over time. Examining the net profit margin and gross profit margin, this will show how much of

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BUFFALO WILD WINGS CORPORATE ANALYSIS
the companys revenues are kept as net income after all operating expenses, interest and taxes are
deducted.

The net profit margin shows how much of each dollar in sales the company gets to keep as
earnings. For B-Dubs Inc., their net profit margin has increased steadily over the last 10 years,
increasing from 4.23% in 2005 to 5.24% last year. The gross profit margin measures how much
of every dollar is left after paying costs of goods sold, for B-Dubs Inc. it is very consistent over
the observed time period, oscillating around 20%, this is ideal for a company in this industry to
have a consistent gross profit margin. The higher the gross profit margin percentage the more a
company retains on each dollar of sales.

Another way of gauging profitability is by calculating the return on assets, or ROA. This gives
an idea of how profitable a company is compared to the total assets, and how efficiently it uses
assets to render profits. The ROA for B-Dubs was the lowest it has been over the observed time
at 9.87% for 2015, at its highest in 2014 at 12.07%. It makes sense that the higher ROA the
better because it shows that a business is managing its assets in full production economically
speaking, to produce more income.

Return on equity, or ROE, is a measure of how expeditiously a company uses investments to


yield profits. The ROE for B-Dubs Inc. in 2015 was 15.47%, the lowest it has been since 2007.
On average ROE has been 14.87% over the last 10 years, this means on average, B-Dubs Inc.
generated a 15% profit on every dollar invested by shareholders.

Market Value

The share price for Buffalo Wild Wings Inc. reported on NASDAQ today was $156.54.
NASDAQ summary states that over the last year the high was $205.83 and the low was $122.25
indicating a huge fluctuation in share price. The chart for the last year shows the $205.83 as the
high last year in October, falling to the low throughout the year in 2016 hitting the lowest in
May, so for the last 5 months, the share price and the overall market value has been steadily
increasing, which is good news for the company and its shareholders alike. With 18.3 Million
shares outstanding according to Yahoo finance, the market value of Buffalo Wild Wings Inc. is
around 2.86 Billion dollars.

Used in corporate valuation, Price/earnings ratio or the P/E ratio, measures the current share
price against its per-share earnings. In this case for B-Dubs, the P/E ratio for 2015 was 31.65
meaning investors are willing to pay $31.65 for every $1 of current earnings. Compared to the
industry average as stated on NASDAQ.com, which is 26.97 comparatively, Buffalo Wild Wings
Inc. has the favorable figure on this scale.

Conclusion

Through the analysis of the liquidity, growth, leverage, profitability, and market value of
Buffalo Wild Wings Inc. we found that overall this company is flourishing. Compared to the

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BUFFALO WILD WINGS CORPORATE ANALYSIS
industry averages, the business is on par with the current and acid tests being at a competitive
ratio; in terms of liquidity, although both at their lowest figure in the last 10 years.

Sales growth and net income growth have been steadily increasing over the 10 year period, this
indicating expansion and consistent positive revenues, this company is definitely profitable. Debt
analysis yields some leverage, and suggests the company exhibits the highest debt-to-equity ratio
it has had over the 10 year period. More than half of B-Dubs assets are owned by creditors and
not by shareholders.

The vision statement for B-Dubs Inc. states one way they will escalate their strategy is to
increase same-store sales, average unit volumes, and profitability. This financial analysis we just
presented suggests that the companys goals fit with the strategy they are employing.

Recommendations

Through our analysis we observed several areas of Buffalo Wild Wings Inc. all of which
appear to be relatively healthy with no alarming results; however, any company could always do
better, both financially and operationally. These are a few ideas we have to improve on the
company as a whole:

We recommend perhaps buying back some of the companys stock, this not only increases the
return on equity but lets the company, in turn, own more of itself for the time being. This could
cause the overall market value to increase shareholder equity.

Other basic recommendations to help the company grow in sales, attract new clients, and retain
existing clients within current stores would be to offer a frequent diner program. This could be a
5% rewards program that customers sign up for that would accumulate with each of their
purchases. Once customers have accumulated five dollars of rewards they can begin to spend
them the same as cash towards any company food, beverage or merchandise desired. In addition
offer a referral program for customers who bring in new guests not part of the frequent diner
program already. Another idea would be a punch card, where customers order 10 dozen wings
and get the next dozen free. They could also offer a small complimentary dessert with some of
the higher priced menu items to make them stand out and more mentally satiating to customers.

Another recommendation would be to offer a seasonal menu that include specialty crafted in-
house made items. This is appealing to customers at all times of year to come and enjoy not only
the classic desired menu items and a few new things that complement the best of each seasons
change of appetite.

Encourage managers and servers to focus on being more personable with their guests. Make the
every table, every time rule for the manager, where during the diners experience the manager
should personally come see how everything is. This may mean the company needs to schedule
more than one front of house manager on busy shift to ensure overall guest satisfaction. This
makes the guest feel important, and that the company actually cares about their dining
experience.

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Another way to increase sales and customer interest would be to invest more on advertising.
Spreading the word through commercials, radio, and fliers. Perhaps purchase an App where
customers can order food To-Go food and include a 2 mile diameter delivery service on Friday
and Saturday nights. This encourages guests near and far to come and enjoy what B-Dubs has to
offer.

Since the company is obviously thriving the idea would be to purchase, open, and operate more
locations. This will increase the companys revenues on a bigger scale as well as create jobs and
job security for the communities in which they operate.