This report is to compare the financial situations of two companies in the restaurant industry, Darden Restaurants Inc. of Florida and Brinker International Inc. of Texas. The report will provide a detailed analysis and summary of several things including financial analysis, industry history and analysis, both companies history and analysis, vertical and horizontal analysis, and the creditworthiness of each company.
These analysis' that we are going to conduct will provide us with a myriad of information about the two companies and how they compare to each other.
In comparing the companies to each other it is important to take into account the liquidity or ability of a firm to meet its current obligations, and solvency analysis, which is a firm's ability to meet interest payments and other financial long term obligations. Profitability is also very important to gauge along with the activity ratio's which give us insight into how a company is managing its assets and running its business in general. (Accounting Text and Cases, 10th Edition, By Anthony, Hawkins
and Merchant. New York: Irwin/McGraw-Hill, Inc., 1999. This report will give us in depth analysis on the two companies financial position and will help in determining which company is healthier financially.
History and Development
Restaurant Industry History
The restaurant industry historically has been an increasingly competitive industry and a widespread industry as well. Companies in this industry can compete on a variety of different things including taste of food, quality, service, timeliness of food, atmosphere or different food products.
Darden Restaurants Inc.
Darden Restaurants is the world's biggest restaurant operator. The company is in the business of restaurant dining for customers who enjoy somewhat "relaxed" dining, and eating Italian and seafood in the United States and Canada. (99 Darden Restaurants 1999 Annual Report.) This is evident because as far as customers are concerned they generally dress down when they go out to restaurants such as the Olive Garden or Red Lobster. It is the kind of atmosphere in those Darden restaurants that is not very upscale but you couldn't go in there with a bathing suit on either. It is sort of in between.
As far as product is concerned it is seafood because that is generally what red lobster serves and Italian because that is what Olive Garden serves.
Geographic area is considered the United States because these restaurants are all over the states with 1094 total between Red Lobster and Olive Garden. They also have
a Bahama Breeze restaurant in six locations throughout the United States. Darden is also present in Canada with 39 restaurants. (99 Darden Restaurants 1999 Annual Report.
Brinker International Inc.
Brinker has a similar market to Darden in that it competes in the Italian foods industry with their Macaroni Grill restaurant and Maggiano's Little Italy Italian
Restaurant. (Brinker International Annual Report) These two restaurants are direct competitors of Darden's Olive Garden. The markets are similar and also the atmosphere for each is casual much in the same way that Olive Garden's atmosphere is.
As far as Brinker their market is very close to that of Darden because they compete with Olive Garden with their own Italian restaurants. As far as Italian food goes, these two companies compete not only in the same product but the same type of atmosphere for customers who are looking for the same thing. Brinker also offers customers a choice of Mexican food with their Chili's restaurants in certain markets this product offering is different from Darden because Darden does not offer Mexican.
Liquidity is the measure of a company's ability to meet its current obligations. It is normally measured using the company's current and quick ratio's. The current ratio is measured in terms of current assets/current liabilities...