Denny's Corporation - Analysis on 2011 Annual Report - Research Paper Example

These executives are mainly involved in the decision making process in the company and decide about the expansion or franchising projects that the company undertakes. (Denny's, 2012) The company also has a very catching title that says, ‘America’s diner is always open’, showing their great commitment towards serving their customers. (Denny's, 2012) The company’s profitability ratios indicate that the return on assets is substantially positive, 33.93%, giving a good indication that the company is making money out of its current assets very effectively.

Nevertheless, the ROE gives a very bleak picture for its investors with a negative value of 198%. This is not a good sign for its equity holders who are not being repaid for their capital that they have invested in the company and are probably suffering in the form of stuck capital. It can also be said that the company is finding it hard to attract new investors as its image as a profitable investment has been badly tarnished. The company’s current ratio is very high compared to industry standards, 70.

2, indicating a strong control over the short term assets with which it can finance its day to day operations or pay off its debts. The working capital indicates that the company requires excessive amount of money on a daily basis to keep the operations running. As the business consists of high variable costs due to its ongoing purchase of raw materials, it requires plenty of short term cash to finance these costs. The difference between the current and acid-test ratio shows why inventories form such a big part of the current assets of the company, contributing around 60% of total current assets of the company.

The company’s activity ratios show signs of a promising growth as the inventory is converted into finished goods 96 times in one year. On the other hand, the company receives back its credit within an average of 10.9 days, showing there isn’t much delay between the transaction and the inflow of cash. This is a good sign for Denny’s Corporation as it requires great sums of money in the short term to finance its inventories of raw materials. By maintaining such low Accounts Receivable Turnover that company ensures it keeps on getting cash from its customers to further fund its operations in the future.

The company didn’t pay out any dividend to its shareholders indicating why it isn’t a great investment for investors and not a good opportunity for growth in the long run. Although the company has a respectable price to earnings ratio of 3.72, meaning that for every dollar the company earned, the price that the investor has to pay for the company’s share was 3.72. Keeping this in mind, the company still didn’t offer any dividends to its equity holders and instead resorted to retaining the profits within the company either for purpose of expansion or funding the operations of the company.

The company’s leverage ratio portrays a risky picture. The company has roughly 1.02 units of debt for every 1 unit of asset, making it highly volatile and prone to huge burden and failure to pay the interest payments. The company has high financial leverage and can use it to their advantage if it carefully monitors the progress of the company. At the moment, the debt to equity ratio is 37.22, which is substantially higher than a safe level. This can be