Capital Structure and Financial Leverage

CAPITAL STRUCTURE AND FINANCIAL LEVERAGE

        In analyzing Panera Bread ‘s capital structure I’ve found that their long term debt has increased significantly over the past twelve months by $100 million dollars for the quarter that ended in June 2015. The increase of the long term debt is partially offset by capital expenditures of $224.2 million and the use of $159.5 million to repurchase shares of our Class A common stock. Panera finances its activities through cash flow generated through operations and term loan borrowings.  Long term debt to total assets is a measurement representing the percentage of a corporation’s assets that are financed with loans and financial obligations lasting more than one year. The ratio provides a general measure of the financial position of the company, including its ability to meet financial requirements for outstanding loans. It is calculated as a company’s long term debt divided by its total assets.

         Panera Bread Co. Inc.’s total assets for the quarter that ended in June 2015 were $1,286 million.  Panera Bread Co. Inc.’s long term debt to total assets ratio declined from June 2014 (0.08) to June 2015 (0.08).  It may mean that Panera Bread Co. Inc. is becoming less dependent on debit to grow their business.   Usually a company will issue long term debt to pay for its capital expenditures. Panera Bread Co. Inc.’s account payable increased by nearly $50 million primarily due to the timing of payments. There was a slight increase in accrued expenses due to unredeemed gift cards. Panera Bread Co. Inc. records landlord allowances and incentives as deferred rent.  Deferred rent increased because it is amortized on a straight-line basis over the reasonably assured lease term a reduction of rent expense.  The company made additional payments and was reimbursed by the landlord for improvements.  Deferred income taxes moved primarily because of corporate cash and cash equivalents and unallocated assets.  In accordance with the accounting guidance for asset retirement obligation Panera Bread complies with lease obligations at the end of the lease as it relates to tangible long-lived assets.  The liability for 2014 and 2013 was $19.8 million and $10.2 million, respectively and is included in other long term liabilities.  Now that we have looked at the capital structure of Panera Bread Co. Inc., let’s analyze their financial leverage.

FINANCIAL LEVERAGE

        An interest coverage ratio is a measure of a company’s ability to meet its financial obligations.  Panera Bread’s interest coverage ratio was 169.58 in 2014 and 173.84 in 2013. Panera Bread will be able to be the interest expenses on outstanding debt.  The fixed charge coverage ratio is a measure of a firm’s ability to pay all of its fixed charges or expenses with its income before interest and income taxes.  Panera Bread Co. Inc.’s fixed charge coverage ratio is