CPKCALIFORNIA PIZZA KITCHEN
CALIFORNIA PIZZA KITCHEN
The case we studied this time is CPK, which is a restaurant with creative menu, high quality of foods, nice dinning environment, good dinning atmosphere, convenient traffic location and etc. The case discussion this time was more focused on the numerical data instead of strategy analysis. Although it’s not so easy for me to catch up with all information that the present group show, I think it’s really interesting. The main problem we need to discuss is how to raise the declining CPK stock price which happened in 2007. There were several reasons that caused the price declining. One is the rising cost of everything, and second one is too many stock shares outstanding. As we can see from the Exhibit6, the stock price of CPK was almost higher than the average all the time. So maybe we can infer that the declining CPK price was not only caused by CPK itself, but also affected by the bad economy condition. Because there was no enough internal cash for CPK to repurchase outstanding shares, they needed to decide which leverage borrowing debt was the best choice. After calculating 10%, 20% and 30% D/A ratio with market value, we found them only about 3%, 5% and 10%. In other word, although CPK is afraid of the high risk that brought from high leverage, it’s useless for them once the repurchase didn’t work. In my opinion, CPK should choose the highest leverage which within the same rating range.
I was wondering, are there any other way to raise the stock price without repurchasing outstanding shares. According to the handout, there’s one thing that I’m interested in. The Kraft royalties had a 95% pretax high margin although presenting less than 1% of current revenue. Because being the same ingredient cost, frozen pizza is not necessary to pay the expense of cookers and servicers and so on. Furthermore, as we know, CPK was famous for its special flavors of pizza. And I think maybe it’s a good way borrowing money to expand the frozen pizza part, such
The case we studied this time is CPK, which is a restaurant with creative menu, high quality of foods, nice dinning environment, good dinning atmosphere, convenient traffic location and etc. The case discussion this time was more focused on the numerical data instead of strategy analysis. Although it’s not so easy for me to catch up with all information that the present group show, I think it’s really interesting. The main problem we need to discuss is how to raise the declining CPK stock price which happened in 2007. There were several reasons that caused the price declining. One is the rising cost of everything, and second one is too many stock shares outstanding. As we can see from the Exhibit6, the stock price of CPK was almost higher than the average all the time. So maybe we can infer that the declining CPK price was not only caused by CPK itself, but also affected by the bad economy condition. Because there was no enough internal cash for CPK to repurchase outstanding shares, they needed to decide which leverage borrowing debt was the best choice. After calculating 10%, 20% and 30% D/A ratio with market value, we found them only about 3%, 5% and 10%. In other word, although CPK is afraid of the high risk that brought from high leverage, it’s useless for them once the repurchase didn’t work. In my opinion, CPK should choose the highest leverage which within the same rating range.
I was wondering, are there any other way to raise the stock price without repurchasing outstanding shares. According to the handout, there’s one thing that I’m interested in. The Kraft royalties had a 95% pretax high margin although presenting less than 1% of current revenue. Because being the same ingredient cost, frozen pizza is not necessary to pay the expense of cookers and servicers and so on. Furthermore, as we know, CPK was famous for its special flavors of pizza. And I think maybe it’s a good way borrowing money to expand the frozen pizza part, such