Financial Ratios for Landry Restaurants

Financial Ratios for Landry Restaurants in 2003 and 2002 Are as Follows: EPS ROA Current ratio Asset turnover Debt to total assets Current cash debt coverage Cash debt coverage Times interest earned Free cash flow -$68,401,000 -$163,276,000 These ratios hint that Landry's financial performance has been mixed over the past couple of years. The company is still spending money to expand its operations, as evidenced by the negative free cash flow supported by a stock issue in 2002 and an increase in debt in 2003.

These moves have resulted in some mixed signals being sent to investors with respect to the company's finances. For example, the current ratio improved, which means that Landry's liquidity has improved. However, the times interest earned declined, which shows that the company is having more difficult covering its obligations. This hints that while the interest burden is increasing as the debt level increases, little of this debt is due in the next year. However, it is worth considering that the company's financial performance remained little changed for its new investments.

The revenues increased, but overall the EPS only increased slightly and the ROA decreased. The latter could reflect new assets being brought on board that are not at full capacity yet. However, it could also mean that Landry's is expanding into less desirable properties. If that is the case, their continued expansion plans could be of concern for investors. Overall, Landry's financial condition is moderate. The company has no immediately areas of difficulty, but its financial performance has little to celebrate, either.

The company persists with modest profits, modest liquidity and is able to meet its obligations, while at no point delivering to investors impressive earnings. Above all else, Landry's is going further into debt to finance its expansion plans and this could represent a challenge for the future, if those investments do not have the same returns as the company's current asset base. II. I believe that in order to understand the quantitative aspects of a company's performance, the qualitative issues do need to be understood.

There are a couple of reasons for this. The first is that the qualitative understanding can help to put the external environment in perspective. A firm may appear on the surface to have had a downturn in performance, but that performance, in the context of the macroeconomic environment, may have been excellent. Also, the firm's internal circumstances are also relevant. The company could have doubled its revenues, but if that occurred as the result of purchasing a competitor, the result is less impressive than if that doubling represented organic growth.

Therefore, I do believe that qualitative research is necessary. The financial statements can reveal much, but there are definitely instances in which the financial statements require contextual understanding for proper interpretation. Without this understanding, the firm's numbers may only reveal raw data. Raw data can be interpreted any number of different ways, so it is essential that qualitative analysis be conducted in order to place the numbers within a framework that will make understanding easier.

For example, Landry's is taking on debt, but we know from the company's statements that this is to finance expansion and that hopefully when those properties are open, the returns will begin to improve. How the firm makes money is an important consideration. This can help to not only place past performance into perspective but also to provide greater understanding of the firm's future prospects as well. Competitive advantages can be derived sometimes from the financial statements, but they are typically non-financial factors that are best understood through qualitative analysis.

Policies on ethics and corporate governance are less important. While in vogue in recent years, governance is ill-defined and outside of a handful of high profile catastrophes involving criminal behavior (Enron, WorldCom), there is little evidence that "governance" has changed of late or that these changes have a direct impact on the bottom line. While there has been an increase in explicit policies, the actual functioning of governance has changed little, and a written commitment.