Ruby Tuesday Inc. – CIK #0000068270 Ryan Griscom – Accounting ...

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Ruby Tuesday Inc.


CIK #0000068270

Ryan Griscom


Accounting 211



1

1.

General Information

a.

Through the EDGAR database, I found that Ruby Tuesday Inc. is located
at 150 W. Church Street, Maryville, TN 37801.

b.

Through the company’s 2009 10
-
K report, I found the company’s fiscal
year ends on June 2 of every year.

c.

The NYSE class
ifies Ruby Tuesday Inc. under
SIC 5812
-
Eating and
Drinking Places.

The company listed the following products (foods) that
they offer (serve):

1.


Salads

2.

Ribs

3.

Seafood

4.

Steaks

5.

Burgers

6.

Adult Beverages
1

d.

According to the investors’ page on
www.RubyTuesday.com


Ou
r annual
meetings are generally held in October. The fiscal year 2010 meeting date
will be announced in July.”
1


2.

Report of Independent External Auditor

a.

Ruby Tuesday Inc.’s external auditor is KPMG, LLP located in Louisville,
KY.

b.

KPMG, LLP believes the f
inancial statements were presented fairly, based
on the criteria established in the
Internal Control

Integrated Framework

issued by
COSO
. The external auditor submitted an unqualified opinion
(the financial statements fairly presented in accordance with GA
AP),
following the standards of the
Public Company Accounting Oversight
Board.


3.

The company presented complete balance sheets, income statements, and cash
flow statements for 15 years, from 1994


2009.


4.

Income Statement

a.

Restaurant sales decreased 8% b
etween 2008 and 2009.

i.

2009 Revenue:
$1,248,556,000


2008 Revenue:
$1,360,304,000


2008 Sales: $1,360,304,000

b.

Revenue recognized (found in 2009 10
-
K report):

i.

“Revenue from restaurant sales is recognized when food and
beverage product
s are sold.”
2

ii.

“We present sales net of sales tax and other sales
-
related taxes.
Deferred revenue
-
gift cards primarily represent our liability for gift
cards that have been sold, but not yet redeemed, and is recorded at
the expected redemption value. When
the gift cards are redeemed,



1

Ruby Tuesday Inc. Investor Website
-

http://www.rubytuesday.com/investors/info.asp

2

Ruby Tuesday Inc. 2009 10
-
K R
eport


=
(.08214
)

Ruby Tuesday Inc.


CIK #0000068270

Ryan Griscom


Accounting 211



2

we recognize restaurant sales and reduce the deferred revenue.”
1

c.

Ruby Tuesday Inc.’s cost of goods sold increased 7% between 2008 and
2009.
3

i.

Three ways to decrease a company’s cost of goods sold include:

1.

Simplify

products/ser
vices (higher production efficiency)

2.

Redesign

products/services to reduce unit costs

3.

Outsource

and buy or build your products/services through
an independent company (in some cases there will be lower
production costs and higher product/service quality)
4

ii.

As a result of improving these three areas, the company’s cost of
goods sold will decrease and their gross profit will increase,
because (Gross Profit = Total Revenue


Cost of Goods Sold).

d.

Between 2008 and 2009, there was an 8.2% decrease in revenue and a

7%
increase in cost of goods sold. The percentages are very close, and there is
only a 1.2% difference in the change in revenue and cost of goods sold.

e.

Net income decreased 32% ($8,459,000) between 2008 and 2009.

f.

The company uses the straight
-
line metho
d of depreciation. “The
estimated useful lives of depreciable assets generally range from three to
35 years for buildings and improvements and from three to 15 years for
restaurant and other equipment.”
1
The company reports no specific
reasoning for using
the straight
-
line method of depreciation.

g.

On the 2009 10
-
K, Ruby Tuesday Inc. reported a $
74,973,000
depreciation expense, in 2009 and paid for the full expense.

5.

Balance Sheet

a.

The company’s total assets decreased 11.6% ($147,741,000) between
2008 and 2009
; property and equipment represented 88% of the
company’s total assets.

b.

Property and equipment was reported at $
1,088,356,000 in 2008 and
decreased $103,257,000 into 2009, because [54 out of the 933 restaurants
closed.
5
] The only other account that substa
ntially changed the total assets
between 2008 and 2009 was “Other Assets” with a $12,450,000 decrease.
According to the 2009 10
-
K report, the company’s “Deferred
Compensation Plan” is accounted for in the “Other Assets” account. The
DCP

decreased from $20.
8 million in 2008 to $9.6 million in 2009


a
$11.2 million decrease.
1





3

Ruby Tuesday Inc. 2009 10
-
K Report

4

Jurgen Kluge Article


Reducing the cost of goods sold



1997

5

Wall Street Journal Market Watch


10
-
Q Analysis


Ruby Tuesday Inc.


CIK #0000068270

Ryan Griscom


Accounting 211



3


6.

Cash Flow Statement

a.

According to the
Statement of Cash Flows
, in 2009, there was a
$1
02,569,000

inflow of cash from operating activities. The following
accounts created the inflow o
f cash:

1.

Depreciation and amortization

2.

Amortization of intangibles

3.

Provision of bas debts

4.

Loss on impairments, including disposition of assets

5.

Goodwill impairment

6.

Share
-
based compensation expense

7.

Receivables

8.

Inventory

9.

Prepaid and other assets
6


b.

Accordin
g to the
Statement of Cash Flows
, in 2009, there was a
$3,195,000 inflow of cash from investing activities. The largest investing
activity was spending
$17,186
,000 on the purchase of property and
equipment.
1

c.

According to the
Statement of Cash Flows
, in 20
09, there was a
$
112,036,000

outflow
of cash from financing activities. The largest
financing activity was spending
$95,300
,000 on “
net (payments)/proceeds
on revolving credit facility”
1

7.

Profitability Ratios

a.

Asset Turnover Ratio =

2009 Sales Revenue:
$1,
248,556,000





2009 Average Total Assets:
$1,124,196,000

i.

The asset turnover ratio represents the amount of sales that were
generated from each dollar of assets. This is a strength, because the
1.11 ratio represents an effective use of
assets to generate revenue.

b.

Net Profit Margin Ratio= Net Income / Total Sales Revenue

i.

2007: $91,668,000 / $1,410,227,000 =
.0650

ii.

2008: $26,377,000 / $1,360,304,000 =
.0194


iii.

2009: $17,918,000 / $1,248,556,000 =
.0144

The net profit margin ratio represent
s the amount of money a company profits for
every one dollar generated in revenue. Over the past three years, Ruby Tuesday
Inc.’s net profit margin ratio has dramatically decreased due to a shrinking net
income. This ratio is a weakness to the company, bec
ause it represents that the



6

Ruby Tuesday Inc. 2009 10
-
K Report

= 1.11

Ruby Tuesday Inc.


CIK #0000068270

Ryan Griscom


Accounting 211



4

company’s expenses are very high, and they are only profiting one cent off of every
dollar they generate in revenue!

c.

Gross Profit Percentage = (Net Sales


COGS) / Net Sales x 100

i.

2007: ($1,866,800,000
-
$375,836,000) / $1,866,80
0,000 x 100
=79.87%

ii.

2008: ($1,758,700,000
-
$370,693,000) / $1,758,700,000 x 100
=78.92%

iii.

2009: ($1,622,800,000
-
$349,362,000) / $1,622,800,000 x 100
=78.47%

“Gross profit percentage is a ratio indicating the percentage of profit earned
on each dollar of sales
, after considering the cost of products sold.”
7

There is
a slight decrease in the company’s gross profit percentage between from
2007
-
2009. The slight decrease is not a major weakness, because the
company is 78% gross profit on every revenue dollar earned
.

d.

Return on Equity (ROE) = Net Income / Average Stockholders’ Equity

i.

2007: $91,668,000 / $439,326,000 =
.209

ii.

2008: $26,377,000 / $431,518,000 =
.061

iii.

2009: $17,918,000 / $416,366,000 =
.043

“The REO ratio relates net income to the average dollars of stockh
older
investment and earnings reinvested in the company.”
1

In “layman’s terms”,
REO represents the amount of income earned for each dollar of stockholders’
equity, and the higher the ratio is, the more likely a company will see greater
returns. The REO fo
r Ruby Tuesday Inc. has significantly decreased from
2007
-
2009. This is a weakness, because the company is earning four cents on
every dollar invested in the company.

e.

Over the past three years, Ruby Tuesday Inc. has not improved its ability to
generate a
profit. The net profit margin ratio, gross profit percentage, and
return on equity have all dropped significantly over the past three years. The
company’s 10
-
K report accredits the decreased profitability results from:

i.

U.S. economic crisis

a.

As a result, m
ost of the company’s business comes
from loyal, patron customers, and many of those
customers are not eating
-
out as much because of a
lower disposable income.

b.

The perceived wealth of customers has a also
decreased due to increased job
-
layoffs, etc. and th
e
company may want to begin offering cost
-
effective
discounts to increase their customer base.

f.

The basic earnings per share for continuing operations for the past two years
are presented below:

1.

2008:
$0.51

2.

2009:
($0.38)

ii.

There is no indication in the inco
me statement that dividends or
average outstanding shares are presented, therefore I am unable to



7

Fundamentals of Financial Accounting


2
nd

Edition (Phill
ips, Libby & Libby)


Page 255

Ruby Tuesday Inc.


CIK #0000068270

Ryan Griscom


Accounting 211



5

conclude the affect of the numerator/denominator on the earnings per
share. There is a significant decrease between 2008 and 2009; in fact,
the EPS was at a $
0.38 loss in 2009.

8.

Liquidity

a.

Current Ratio = Current Assets / Current Liabilities

i.

2008: $
104,909,000 / $115,153,000 =
0.911

ii.

2009: $92,973,000 / $
113,999,000 =
0.816

The current ratio measures to see if a company’s current assets can pay off
the current l
iabilities. The higher the ratio is, the greater ability the company
has to pay off its current liabilities. The ratio is not sufficient, because the
liabilities outweigh the assets.

b.

Receivables Turnover Ratio = Net Sales Revenue / Average Net Receivables

i.

2008: $
1,758,700,000 / $10,515,000 =
167.256

ii.

2009: $
1,622,800,000

/ $8,095,000 =
200.469

The receivables turnover ratio calculates assesses how many times, on
average, receivables are sold and collected, over and over during an
accounting period. The high
er the ratio, the higher the turnover; the
receivables turnover ratio is a strength for Ruby Tuesday Inc., because they
have a very high ratio that has increased between 2008 and 2009.

c.

There is no information regarding inventory, because the company relie
s on
third
-
party distributors to restock inventory, “
We cannot make assurances
regarding the continued supply of our inventory since we do not have control
over the businesses of our suppliers. Should our inventories lack in supply,
our business could suff
er, as we may be unable to meet customer
demands.

These disruptions may also force us to purchase food supplies
from suppliers at higher costs.”
8

d.

Inventory Turnover Ratio
-

N/A

e.

The company does not specify which inventory costing method they use.
There
is no information in any other resources to find this information for the
company. I can only assume that they use the straight
-
line method, because
that is the costing method that they use for rent expense, property
depreciation, trade and service marks,
and franchise rights.

9.

Solvency Ratios

a.

Debt
-
to
-
Asset Ratio = Total Liabilities / Total Assets

i.

2008: $840,419,000 / $1,271,937,000 =
0.661

ii.

2009: $707,830,000 / $1,124,196,000 =
0.630

The debt
-
to
-
asset ratio compares total liabilities to total assets. This

ratio shows a
proportion of how much assets are financed through debts. This ratio is important,
because companies need to pay off their debts no matter how well they are doing.
The debt position of the company decreased 3.1% between 2008 and 2009 due to
a
$132,589,000 decrease in total liabilities. Investors would rather lend money to a
company with a lower debt
-
to
-
asset ratio, because there is less investment risk with
lower debt.





8

Ruby Tuesday Inc. 2009 10
-
K Report

Ruby Tuesday Inc.


CIK #0000068270

Ryan Griscom


Accounting 211



6

b.

Times Interest Earned Ratio = (Net Income + Interest Expense + Income T
ax
Expense) / Interest Expense

i.

2008: (
$26,377,000 + $31,352,000 +
$2,678,000) /
$31,352,000

= 1.927

ii.

2009: (
$17,918,000 + $33,940,000 + $24,948,000) / $33,940,000

= 2.263

The times interest earned ratio shows if sufficient resources are generated to cove
r a
company’s interest costs. The higher the ratio, the better a company is able to cover
interest. Ruby Tuesday Inc.’s times interest earned ratio increased between 2008 and
2009, therefore the company has a greater ability to cover its interest expenses.


10.

I would not invest in Ruby Tuesday Inc. Over the past two years, the following
statistics of value have decreased (negative for investing):

1.

Revenue


2.

Cost of Goods Sold


3.

Expenses


4.

Assets


5.

Net Income


6.

Inflow of Cash


7.

Net Profit Margin Ratio


8.

Gross
Profit Percentage


9.

Return on Equity


10.

Basic Earning per Share


11.

Current Ratio


The only piece of evidence I have to sell someone on investing in Ruby Tuesday Inc.
is the chart below from
MSN MoneyCentral
:


Over the past five years, Ruby Tuesday Inc. sto
cks were selling at $32 per share, and were
down to about $1 per share in January of 2009. The trends are showing a steady increase (at
$13 per share in April 2010), so an investor can still “buy low” and expect a decent return
on investment within three t
o four years.

Ruby Tuesday Inc.


CIK #0000068270

Ryan Griscom


Accounting 211



7

11.

I would not lend money to Ruby Tuesday Inc. for the following reasons:

1.

The current liabilities are greater than current assets

2.

The reasons listed in question 10

3.

The current status of the global economy is poor

ii.

Although
, the company’s debt
-
to
-
asset ratio is greater than one, so
they are able to cover their liabilities.



Percent Change in Revenues

(8%)

Percent Change in Cost of Goods Sold

7%

Percent Change in Income

(32%)

Percent Change in Assets

(11%)

Asset Turnover

1.11

Net Profit Ma
rgin

.0144

Gross Profit Percentage

78%

Return on Equity

.043

Current Ratio

.816

Receivable Turnover

200.469

Inventory Turnover

N/A