Comment on your financial analysis of CMG. Comment on CMG’s performance with regard to: sales growth, margins, profitability, liquidity, leverage (e. g. debt load) and activity ratios.Where are the company’s financial statements weak? Why? Can you pinpoint the causes of these weaknesses? Where is the company strong? What is your overall assessment of the financial structure and condition of CMG? CMG is experiencing a healthy growth rate (CAGR) of almost 20% over the period of last five years. As far as gross margin is concerned it is steadily growing and has risen 26. 74% for the same period. The high sales growth can be attributed to increasing SSS (same store sales) and also opening of new stores. The company is enjoying financial growth and high profitability as seen from ROS, ROA and ROE.All the ratios are showing an average upward trend and that too, over a period of several years. As far as liquidity is concerned, the company is extremely liquid and is enjoying a quick ratio of more than 2. So, it is able to easily meet its short term debt obligations and currently faces no financial difficulties. As far as inventory is concerned it is a very small part of the liquidity and thus does have any significant effect on liquidity. The D/A ratio are more or less stable for the period and only a quarter of total assets are financed by creditors.As far as D/E ratio, the company is careful to keep its interest expenses down and instead of pursuing an aggressive growth policy and putting everything at stake it is following a balanced approach by keeping it around 35% over the period. The company is highly effective more than thrice the amount of money locked up in Total Assets for 2012, which shows how efficient the company is and how effectively it is using its assets to generate sales. The company’s financial statements appear to be quite clear and strong as compared to the industry.Still the operating costs are high but average as compared with the industry. The reasons behind the prices might be the high cost of commodities, labor intensive business and high quality ingredients which CMG stands behind. The overall assessment of CMG is of a stable company which has great future prospects although the growth rate in the long run won’t be sustainable as the market will be saturated with time. Still it maintains a high liquidity ratio and feeds itself from cash inflows instead of raising high debts. Future prospects for CMG look bright for both company and the nvestors backing it up. (2) Analyze the five year (2007 to 2011) statements of CMG’s cash flows. Focus on three main lines in the statement: Net cash flows from Operating Activities Net cash flows from Investing Activities Net cash flows from Financing Activities Where is the cash flow for this company coming from? How is it being used? What has happened to CMG’s cash position over this time period? What, if any, significant changes have occurred to CMG’s cash flows during this time period? What is the company’s cash current position as of the end 2011? Why?Statement of cash flows is a good indicator of the distribution of cash among the three activities a business carries out. A company generates cash mainly from operations by making sales, finances its operations through debt or equity or both. Pays out dividends too sometimes which are always cash outflow. Then a firm also invests in short term or long term assets such as PP;amp;E to grow in future. All these factors in the cash flows s/t put some light on the future of the company and its future growth prospects. The company’s major cash is coming from sales with constitutes the major percentage of operating activities.The cash inflow from operating activities is used to purchase mainly leasehold land, property and equipment along with purchases of investments, which are part of investing activities. This is cash outflow as cash is used to buy assets. The major cash outflow for financing activities is acquisition of treasury stock. With time, the company has grown and as a result an increase in all the three activities has occurred. The company has generated more cash from investing and financing options and is able to sensibly utilize the cash in hand to generate profits while keep expanding.Cash flows have steadily increased as both assets and TSE has grown substantially while debt has been checked and not allowed to grow and thus interest expense is in check. The company has also been very smart in investing in short term assets to enjoy high liquidity and is able to meet all its short term obligations. The cash and cash equivalents at the end of 2011 were 401,243,000 dollars. The reason behind the cash position is by making sensible investing and financing decisions and keeping both investors and creditors happy along with the customers and suppliers. (3)What is CMG’s competitive strategy? Hint: Refer to Chapter 6 in the DeKluyver text). How does CMG execute this competitive strategy? Please list at least five specific ways in which CMG executes their competitive strategy. How successful has the company been using this competitive strategy? Why or why not? The competitive strategy could be traced back to the mission of the company-“Food with Integrity”. It follows a differentiation strategy in fast-casual segment of the industry by paying utmost importance to organic foods, suppliers from where food is bought and also among customers by promoting and rigorously practicing its motto.It went beyond its ingredient and also implemented sustainable energy in its restaurants and became first in its class to receive LEED (Leadership in Energy and Environmental Design) certification. CMG executes its competitive strategy of providing the highest quality product with operational excellence and with building consumer loyalty and awareness at reasonable price in a number of ways such as: – Buying organic ingredients from suppliers and local farms thus expanding and favoring local products and participation in local community and also reducing simultaneously transportation costs. Providing healthy menu to customers with an option to limit calories intake. – Being a leader in going green and caring for the environment by earning LEED certification and using sustainable energy sources. – Keeping the business in the family and not selling franchises, so it has an option to directly see who’s managing the business. – Spending less on advertisements and more on its core competency of being environmentally friendly and even lobbying for such causes. – Keeping the managers in the restaurant and making them work as an owner and let them provide an outstanding experience to customers.The company has been highly successful in implementing the strategy as the customers are satisfied which is seen in J. D Power and associates survey. Apart from that the financial statements like Income statement is a clear indicator of the successful implementation of the business model perceived by the founders of Chipotle. Within the past decade the company has made every effort to stand by what it believed in and meticulously formulate a strategy revolving around its core principles which has led to the successful growth both in revenues and the number of stores opened in recent years all across the US and now even argeting European markets. (4)Who are CMG’s main competitors? How does CMG measure up against these competitors? How has CMG positioned its restaurants and menu to stay competitive with these companies? CMG has mainly three competitors- * Panera Bread * Qdoba Mexican Grill * Pei Wei Panera Bread is Chipotle’s largest competitor having more stores and even has stepped into Canada. Although the stores are a mix of company owned and franchises, the annual sales are still less compared to Chipotle. Qdoba Mexican Grill is another competitor with sales less than half the number of restaurants than Chipotle and a growth rate of mere 2. % (SSS) for 2010 although it started in 1995. It serves more or less what Chipotle does “traditional Mexican food”. Pei Wei is the new guy on the block with operations starting in 2000 and serving Asian cuisine in fast casual (FSR) and a full service offering (QSR). It also has a narrow range of alcohol beverages which are known to have significant margin but only constitutes for 2% of sales. It also has developed a new sales concept of LTOs on its menu to keep menu fresh and customers anxious. So far, the company CMG has proven to be sharp and far ahead of the game.It might be attributed to the strategy and business model the company follows. The “food for integrity” Motto itself distinguishes it from the competitors and its all authentic Mexican food made from best ingredients and state of the art technology for the restaurants makes it stand out of the bunch. The combo it offers under its name is difficult to get at any other place. The numbers because of customer loyalty and exceptional product do the talking itself. With the highest growth rate (SSS) and market share among its competitors over several years make it position quite strong. They say what they do, and do what they say.Just following the mission and implementing it through the supply chain, they have kept the menu natural, fresh and healthy. The customers are offered high quality food at reasonable prices with their own ingredient options and in a significant less amount of time with open kitchen concept. The menu is simple and at the same time vibrant with different options of ingredients. People enjoy the taste of the ingredient and the ability of a single burrito or veg bowl to satisfy the hunger is what makes it stand out. Keeping the basics right and delivering the right quality of products puts it ahead. (5) What are some strengths of CMG?Please list and explain five internal strengths of CMG. What are some weaknesses of CMG? Please list and explain at least three internal weaknesses of CMG. The strengths of CMG can be the following- 1. Strong financials/The Company’s high liquidity and keeping debt low. CMG has very strong financial statements and has been able to maintain high sales and also growth rate. The operating cash flows have been thoughtfully used for financing and investing activities, keeping the financials in check and able to sail smoothly even through rough times and having a strong foundation to keep going forward. . 100% ownership of Restaurants. The company believes in a policy to have a tighter control over the quality of products it serves and by keeping it in the family and not going for franchises, it has been able to achieve remarkable quality. 3. Supply chain management. It has a very vast network of suppliers providing high quality ingredients that too most of them grown locally and do not depend on a single supplier to replenish its inventory. This way it also reduces transportation cost and also builds a strong image within the local community. . Providing healthier, natural products in restaurants with LEED certification. The company is doing differentiation at a competitive price with providing quality products in sustainable restaurants/ eco-friendly. This is a big internal strength on which company has relied for so many years and able to keep customer loyalty. A Mexican restaurant of such a caliber is hard to find around with the same name everywhere. 5. Keeping S, G ;amp; A costs down. The company hardly spends any money on marketing and thus keeps advertising costs checked.Instead of spending on marketing it has based its strategy on product differentiation and its core competency of providing exceptional quality of food with outstanding services. The three internal weaknesses are:- 1. Rising commodity and labor costs- For this particular industry these costs constitute the bulk of expenses. The prices are rising and because of it margin is lessening and a higher price might lead to drop in sales. In a way it is walking on a two edge sword trying to balance revenues with expenses keeping a healthy margin. 2.Unknown territories across the world- Lately CMG has opened its outlets in Europe and thus is exposed to stepping in new markets with less market research and vulnerable to exchange rates and local culture and eating habits. 3. Limited range of drinks served- It is clear that liquor is not served as it might not go well with Mexican food. But a lack of options for even soft drinks and some seasonal shakes and smoothies might help to bring down that spicy oomph factor and less sweating during summers. (6) Is CMG’s high market share and rapid growth going to continue?What is your evaluation of CMG’s potential for future success? Please explain your reasoning behind this evaluation. No company can keep on going indiscriminately at high growth rates as new competitors will enter and eventually the market will saturate and market share will be limited. The high market share might be maintained but is very hard to keep on growing and that too is evident from its policy for trying overseas market as it might have observed the local market and less room for expansion and also the competitors with some amount of market share.As long as CMG has a sustainable growth strategy and competitors not able to imitate and keeps the supply chain in control, the economies of scale will favor Chipotle, and there is always backward integration possible as a means of growing and thus having much control over prices, but that is way ahead in pipeline. Future is all about forecasting and speculation and the policies of the management will be the decisive factor in driving Chipotle’s growth. If the fluke for overseas market works it can enjoy success of some of its industry giants like McDonalds and KFC.From the point of view of investors the growth rate will slow as the sales will grow at a lesser pace but if the management can try some growth in different regions and sectors with enough cash on hand, the market is very dynamic and volatile and does not always behave according to forecasts. The similarity of European markets with American market is a plus point for CMG but if it decides to enter the lucrative markets of Asia it might somewhat have to alter its mission itself which might not be ethically correct. So there are various permutations and combinations to take place and the management has the power to decide the future of CMG.