Financial Planning & Forecasting (Restaurant

Industry)

Agriculture a Key Driver in Reducing Poverty in Bangladesh!

-“World Bank”

i
 Managerial Finance
COURSE CODE: FIN-602

Financial forecasting is the process by which a

company thinks about and prepares for the future.
Forecasting involves determining the expectations of
future results. On the other hand, financial modeling
is the act of taking a forecast's assumptions and
calculating the numbers using a company's financial
statements.

SUBMITTED TO: Dr. Md Mohan Uddin

Professor
School of Business & Economics
United International University

SUBMITTED BY : Amena Akter

ID: 112-193-045
Sec: B

Date of Submission: 20th December, 2019

ii
 Prepared by

S.L ID Name Remark

- 112 193 033 Md. Mostak Anwar 25%

- 112 193 045 Amena Akter 25%

- 112 191 034 Nahida Binti Newaz 25%

- 111 182 045 Md. Jahangir Alam 25%

Section: B

iii
Letter of Transmittal
December 20th, 2019
Dr. Md Mohan Uddin
Professor
School of Business & Economics
United International University

Subject: Submission of report on “Financial Planning & Forecasting (Restaurant Industry)”.

Dear Sir,

With due respect I, the undersigned students of “Managerial Finance”. Here is the report paper
that I assigned on the topic “Financial Planning & Forecasting (Restaurant Industry)”. The
report has been completed by the knowledge that I have gathered from the course “Managerial
Finance”. I am thankful to all those persons who provided me important information and gave us
valuable advices. I would be happy if you read the assignment and I will be trying to answer all
the questions that you have about the term paper.

I have tried my label best to complete the report meaningfully and correctly, as much as possible.
I believe that without your inspiring this report would have been an incomplete one.

I hope you find this term paper satisfactory.

Yours Sincerely,

…………………

Amena Akter

ID: 111-152-045

iv
 Acknowledgement

At first, I would like to express my gratefulness to the almighty Allah for being so kind to allow
me to work on this report successively.

Then my full of heart goes to United International University (UIU) where I have finished our
required course curriculum to be eligible to prepare a report. The education learnt from the teachers
and the whole infrastructure of our university, truly has amplified my level of competency and
thoughts during our learning period.

I would like to thanks our honorable faculty Dr. Md Mohan Uddin for his support and guideline
which has enabled me to form such a report.

Finally, I would like to thanks all that help me visibly and invisibly because he gives me the
opportunity of making such kind of term paper that will be very much helpful for my prospective
career.

v
 Table of Content

Title Page
Number
Letter of Transmittal iv
Acknowledgment vi
Executive Summary 1
CHAPTER-1: INTRODUCTION 2-4
1.1 Background of the Report 3
1.2 Objectives of the Report 4
1.3 Significance of the Study 4
CHAPTER-2: LITERATURE REVIEW 5-10
2.1 Financial Planning 6
2.2 Sales Forecast 6
2.3 Additional Fund Needed 7
2.4 Sustainable Growth Rate 8
2.5 Sensitivity Analysis 8
2.6 Financial Statements 8
2.7 Financial Forecasting 10
CHAPTER 3: METHODOLOGY 11-13
3.1 Selected Company and its Industry 12
3.2 Data Collection 12
3.3 Data Analysis 13
My Work Area [Domino’s Pizza]
CHAPTER 4: FINDINGS & DISCUSSION 14-16
4.1 Sales Forecast 15
4.2 Additional Fund Needed 15
4.3 Sustainable Growth Rate 16

vi
 4.4 Sensitivity Analysis 16
4.5 Financial Statements -
4.6 Financial Forecasting -
CHAPTER-5: RECOMMENDATIONS 17-18
CHAPTER-6: CONCLUSION 19-20

vii
 Executive Summary

The report on “Financial Planning and Forecasting” has been a very good experience. Every
company has to forecast its financial position for better decision making. An organization risks
can be reduced and the efficiency can be increased through efficient planning. At the same time
company needs to plan about its future investment to increase the productivity and profitability.

In a company, the inventories and debtors occupy large amount which are major components of
current assets. The efficient management of these components would increase the profitability and
flexibility of the firm.

This report is a sincere effort to plan, forecast and analyze the financial position of restaurant
industry (McDonald's, Domino's Pizza, Yum! Brands, Restaurant Brands International) for the
future period. The report paper is executed in an efficient manner. The preparation of forecasted
financial statements has undergone a various hard-hitting process to arrive at the amount of each
item of financial statements.

1
 Chapter-1

Introduction

CHAPTER OVERVIEW
SERIAL
DESCRIPTION PAGE NUMBER
NUMBER
1.1 Background of the Report 3
1.2 Objective of the Report 4
1.3 Significance of the Study 4

2
1.1 Background of the report

The following documentation is a report paper completed based on reviewing and analyzing

company’s accounting reports (financial statements). In order to gauge its past, present or projected

future performance we analyzed the impact of sales forecast, Additional Fund Needed, Sustainable

Growth Rate, Sensitivity analysis and Forecasted Income Statement & Balance Sheet.

Revenue Is Vanity, Profit Is Sanity, Cash Is King. Unlock your blind spots
and Improve cash flow & grow the value of your business.
-Corporate Executive & Public Speaker!

3
1.2 Objective of the report

The primary purpose of the report is the fulfillment of the course requirement. The main objectives

of the report are as follows:

 To meet the course requirement.

 To estimating future sales.
 To measure how much external financing needed.
 To measure sustainable growth rate.
 To give suggestions for the growth & perspective of the company.

1.3 Significance of the Study

The main significance of the study is to make transparent knowledge about restaurant industry to

people, make clear thoughts about restaurant industry some of which are enlisted in the New York

Stock Exchange. Financial statement analysis allows to review operating data and evaluate

periodic business performance. There are also various methods of financial statement analysis

where a company may review financial statements for specific information to assess performance.

The best way to determine the orientation, patterns and direction of the future trends by making

effective use of the historical data is called as the financial forecasting. Most of the business

organizations make use of the forecasting and planning of the finances to allocate their budgets

and their plans for the expenses within a fixed duration of time. Financial Planning and Forecasting

Assignment Help us in gaining mastery over the subject in very less duration of time.

4
 Chapter-2

Literature Review

CHAPTER OVERVIEW
SERIAL
DESCRIPTION PAGE NUMBER
NUMBER
2.1 Financial Planning 6
2.2 Sales Forecast 6
2.3 Additional Fund Needed 7
2.4 Sustainable Growth Rate 8
2.5 Sensitivity Analysis 8
2.6 Financial Statements 8
2.7 Financial Forecasting 10

5
2.1 Financial Planning

Financial planning is important in ensuring that corporate investment is financed appropriately, as

well as seeing to it that money is spent in worthwhile investments. Achieving the goals of corporate

finance requires that any corporate investment be financed appropriately. The sources of financing

are capital self-generated by the firm and capital from external sources, obtained by issuing new

debt and equity. The financing mix will impact the valuation of the firm (as well as the other long-

term financial management decisions).

2.2 Sales Forecast

Sales forecasting is the process of estimating future sales. Accurate sales forecasts enable

companies to make informed business decisions and predict short-term and long-term

performance. Companies can base their forecasts on past sales data, industry-wide comparisons,

and economic trends. It is easier for established companies to predict future sales based on years

of past business data. Newly founded companies have to base their forecasts on less-verified

information, such as market research and competitive intelligence to forecast their future business.

Sales forecasting gives insight into how a company should manage its workforce, cash flow, and

resources. In addition to helping a company allocate its internal resources effectively, predictive

sales data is important for businesses when looking to acquire investment capital.

Sales forecasting allows companies to:

 Predict achievable sales revenue;

 Efficiently allocate resources;

 Plan for future growth.

6
2.3 Additional Fund Needed
AFN stands for "additional funds needed. AFN is a way of calculating how much new funding

will be required, so that the firm can realistically look at whether or not they will be able to generate

the additional funding and therefore be able to achieve the higher sales level. Determining the

amount of external funding needed is a key part of calculating AFN. This can be determined by

mathematical formulas which use inputs that can be found in a company's financial statements.

The simplified formula is:

AFN = Projected increase in assets – spontaneous increase in liabilities – any increase in retained

earnings.

If this value is negative, this means the action or project which is being undertaken will generate

extra income for the company, which can be invested elsewhere.

The more formal equation for AFN is-

AFN = (A*/S0) ΔS – (L*/S0) ΔS – MS1(RR)

A- Assets tied directly to sales

L-spontaneous liabilities that are affected by sales

S0=the previous year's sales

S1=total projected sales for next year

ΔS=the change in sales between S0 and S1

M=profit margin

MS1=projected net income

7
 RR=the retention ratio from net income (equal to 1 minus the dividend payout ratio;

disregard if dividends are not declared).

2.4 Sustainable Growth Rate

The sustainable growth rate is the rate of growth that a company can expect to see in the long term.

Often referred to as G, the sustainable growth rate can be calculated by multiplying a company’s

earnings retention rate by its return on equity. The growth rate can be calculated on a historical

basis and averaged in order to determine the company’s average growth rate since its inception.

The growth ratio can also be used by creditors to determine the likelihood of a company defaulting

on its loans. A high growth rate may indicate the company is focusing on investing in R&D and

NPV-positive projects, which may delay the repayment of debt. A high growth rate company is

generally considered riskier, as it likely sees greater earnings volatility from period to period.

2.5 Sensitivity Analysis

A sensitivity analysis determines how different values of an independent variable affect a

particular dependent variable under a given set of assumptions. In other words, sensitivity analyses

study how various sources of uncertainty in a mathematical model contribute to the model's overall

uncertainty. This technique is used within specific boundaries that depend on one or more input

variables. Sensitivity analysis is used in the business world and in the field of economics. It is

commonly used by financial analysts and economists, and is also known as a what-if analysis.

2.6 Financial Statements

Financial statements are reports prepared by a company’s management to present the financial

performance and position at a point in time. A general-purpose set of financial statements usually

includes a balance sheet, income statements, statement of owner’s equity, and statement of cash

8
flows. These statements are prepared to give users outside of the company, like investors and

creditors, more information about the company’s financial positions. Publicly traded companies

are also required to present these statements along with others to regulatory agencies in a timely

manner.

Balance Sheet: The balance sheet a summary of the company position on one day at a certain

point in time. The balance sheet lists the assets, liabilities, and owners’ equity on one specific date.

In a sense, the balance sheet is a picture of the company on that date. Investors and creditors can

use the balance sheet to analyze how companies are funding capital assets and operations as well

as current investor information.

Income Statement: The income statement shows the revenue and expenses of the company over

a period of time. Most companies issue annual income statement, but quarterly and semi-annual

income statements are also common. Users can analyze the income statement to see if companies

are operating efficiently and producing enough profit to fund their current operations and growth.

Owner’s Equity Statement: The statement of owner’s capital summarizes all owner investments

and withdrawals from the company during a period. It also reports the current income or loss

recorded in retained earnings. The purpose of the financial forecast is to evaluate current and future

fiscal conditions to guide policy and programmatic decisions. A financial forecast is a fiscal

management tool that presents estimated information based on past, current, and projected

financial conditions. This will help identify future revenue and expenditure trends that may have

an immediate or long-term influence on government policies, strategic goals, or community

services. The forecast is an integral part of the annual budget process. An effective forecast allows

for improved decision-making in maintaining fiscal discipline and delivering essential community

services.

9
2.7 Financial Forecasting

Financial forecasting is the process by which a company thinks about and prepares for the future.

Forecasting involves determining the expectations of future results.

When a company conducts its financial forecasts, it seeks to provide the means for the expression

of its goals and priorities to ensure they are internally consistent. Forecasts can also help a company

identify the assets or debt needed to achieve its goals and priorities.

A common example of a financial forecast is forecasting a company's sales. Since most financial

statement accounts are related to or tied to sales, forecasting sales can help a company make other

financial decisions that support achieving its goals. However, if sales are to increase, the resulting

expenses to produce the additional sales would also increase. Each forecast results in an impact on

the company's overall financial position.

Forecasting helps a company's executive management determine where the company is headed.

Calculating the financial impact of those forecasts is where financial modeling comes into play.

10
 Chapter-3

Methodology

CHAPTER OVERVIEW
SERIAL
DESCRIPTION PAGE NUMBER
NUMBER
3.1 Selected Company & its Industry 12
3.2 Data Collection 12
3.3 Data Analysis 13

11
3.1 Selected Company & its Industry

The food service business is one of the third largest industries in the country. It accounts for more

than $240 billion sales annually. The independent restaurant accounts for 15% of that total.

According to a survey the average American spends 15% of his/her income on meals eating away

from home. This number has been increasing for the past seven years. In the last five years the

restaurant industry has out-performed the national GNP by more than 40%. Due to the change in

people lifestyles, economic climate, and due to the increase in the variety of products there are

more than 600 restaurants opening every month and over 200 more needed to keep pace with

increasing demand. This report is a sincere effort to plan, forecast and analyze the financial

position of restaurant industry (McDonald's, Domino's Pizza, Yum! Brands, Restaurant Brands

International) for the future period.

3.2 Data collection

 Source of data

We would like to make sure that we have all the necessary data required to come up with effective
result. Therefore, we have combined both primary and secondary data collection method. All data
related to this study is attached with the appendix.

 Primary source of data:

 Group Discussion

 Secondary source of data:

 Text books
 Annual reports of selected company
 Academic Reports
 Newspaper archive
 New York Stock Exchange website

12
3.3Data Analysis

Data analysis is usually used to count key core indicators, such as the company’s annual operating
income, annual consumption costs, and annual net profit, which are often the data that decision
makers are most concerned about. Data are analyzed from the selected companies Financial
Statements & annual reports.

13
 Chapter-4

Findings & Discussion

DOMINOS PIZZA INC

NYSE: DPZ

CHAPTER OVERVIEW
SERIAL
DESCRIPTION PAGE NUMBER
NUMBER
4.1 Sales Forecast 15
4.2 Additional Fund Needed 15
4.3 Sustainable Growth Rate 16
4.4 Sensitivity Analysis 16
4.5 Forecasted Income Statements -
4.6 Forecasted Balance Sheet -

14
4.1 Sales Forecast

Year Sales Growth rate

2014 $1,993.83 N/A

2015 $2,216.53 11%

2016 $2,472.63 12%

2017 $2,787.98 13%

2018 $3,432.87 23%

2019 $3,615.62

It is easier for established companies to predict future sales based on years of past business data.

Domino’s Pizza Inc. also has estimated sales forecasting based on historical data about next year's

sales which is $3616 million.

4.2Additional Funds Needed

Additional Funds Needed

= Increase in Assets - Spontaneous Increase in Liabilities -Increase in Retained Earnings

= $209 million – $209 million − $559 million

= ($559) million

Domino’s Pizza Inc. need not to raise $559 million to finance the increased level of sales. This is

because the organization already has huge amount of retained earnings available. As a result, there

is no need to borrow fund externally. It can make the best use of its internal funds after paying its

dividend to its shareholder. This is basically indicating that surplus of capital is forecasted.
15
4.3Sustainable Growth Rate

Set Cell ($559)

To Value 0

By Changing Cell (g) 23%

Result -100%

As sales of Domino’s Pizza Inc. has increased per year which leads to increase its additional fund

requirement and its growth rate also has increased as well. But as the organization wants to avoid

additional fund requirement externally, its maximum growth rate will be -100%. And this is the

sustainable growth rate.

4.4Sensitivity Analysis
In sensitivity analysis we basically identify to observe the impact of independent by changing the

dependent variable. Here dependent variable is retention ratio which is assumed to be increased

and the independent variable is the growth rate we calculated based on historical sales. In our

sensitivity analysis, we have found negative AFN which refers, no need to raise additional fund.

This is because the company's sales are decreasing slowly which in turn crates slowly decrease in

assets. As a result, retained earning has become a large amount which indicating surplus of capital

is forecasted.

16
 Chapter-5

Recommendations

17
Recommendations
 Domino’s Pizza Inc. has a large amount of retained earnings which should be reduced.

 It can invest some of its retained earnings such as in Marketable securities.

 Its excess fund can be used to retire debt and raise dividend.

 Its surplus capital can also be used to repurchase it shares.

 The organization should carry on its sales as well as growth rate.

18
Chapter-6

Conclusion

19
Domino’s Pizza Inc. has been considered as the second largest pizza chain in the United States

according to Forbes Magazine. Now it wants to give concentration on its optimal use of retained

earnings so that it can best use of its resources. In addition to the organization has tried to carry

out or retain its growth rate as well as its sales.

20