Forum Archive Index - September 2003

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

I have run the ruler over Restaurant Brands debt profile, comparing the 
term debt with the after tax profit (excluding abnormals) over five 
years.   If you divide the first figure by the second you get the number 
of years that RBD would take to pay back their term debt if all the 
profits were diverted to doing just that.

Here are the figures

FY2003: $30.377m/$11.014m= 2.75years
FYmar2002: $31.610m/$12.160m= 2.60years
FYnov2001: $76.425m/$12.200m= 6.26years
FY2000: $79.182m/$12.600m= 6.28years
FY1999: $51.050m/$13.100m= 3.90years
FY1998: $55.550/$8.1m= 6.85years

This shows that at the year ended February 2003 the debt position of 
RBD was quite conservative on an historical basis.   Put another way, 
the RBD profit could halve in FY2004 and the banks wouldn't blink.

I have previously identified an issue with goodwill, which I believe is 
overstated in the RBD accounts after the Eagle Boys purchase.   If we 
take the difference between the original Pizza Hutt goodwill per store 
and the goodwill associated with the ex-Eagle Boy outlets (all 53 of 
them) then we can get a measure of how much 'extra goodwill' is on 
the books.

($437,736-$271,621)x53= $8.8m

However, and this is the important point, if such an adjustment were 
made to the accounts it will have *no effect at all* on the above 
payback periods I have calculated.   The reason for this is that writing 
off an intangible asset makes no difference to a company's debt.  The 
debt remains unchanged, exactly as it was before.

Now, if instead. we use a more traditional measure of debt, the debt 
ratio (Long Term Debt/Common Shareholders Equity), a slightly 
different picture emerges:

FY2003(debt ratio)=$30.377m/$52.013m= 58%

And now the adjusted version where $8.8m in goodwill is written off:

(debt ratio adjusted)=$30.377m/($52.013m-$8.8m)=70%

Traditionalists may find that an alarming deterioration in financial 
position.    However, Winner69 has suggested that RBD is a strong 
cash flow business, and I suggest that  doesn't have large capital 
expenditure requirements.  By implication Winner suggests that any 
deterioration in the traditional debt statistics should be ignored.  I tend 
to agree with him.

SNOOPY






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