Financial Reporting and Analysis Project

Barbeque - Nation Hospitality Limited

21/09/2021

Submitted To: Submitted By: Group 1 -

Dr. Archana Patro Anagha Valsaraj (PGP12001)
Megha Aggarwal (PGP12004)
Mrinal trivedi (PGP12048)
Shreyasi Katiyar (PGP12005)
Subhadeep Roy (PGP12054)
Vaishnavi Jamdhade (PGP12025)
 Barbeque-Nation Hospitality Limited
Analysis of Financial statements

1. Comment upon the business model of the company. What are the primary (core) and secondary
activities that the firm is engaged into?
Ans -
‘Fine dining buffet’ restaurant with high quality food, top-notch table service and an ambient dining
experience. Barbeque Nation, one of India's biggest casual dining chains, started the concept of "over the table
barbeque". This unique feature has live grills inserted in dining tables, that allows diners to grill their own
barbecues right in front of them at their own tables. Barbeque Nation Restaurants' use a fixed price ‘all you can
eat' approach that offers guests the libearty to select a diverse eating palette of good food at a value-oriented
price in a gratifying and relaxed dining setting.

Business Model -

Cost Structure -

Revenue Model -

Primary (core) activities - High-end restaurants & hotels chain (hospitality sector).
Secondary activities - None.
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2. What do you think of the company’s management of inventories and receivables? Comment upon the
depreciation policy of the company
Ans - Inventories - Inventories are recorded at the lower of cost or net realisable value. Inventory costs are
calculated on a first-in, first-out basis. All costs incurred in bringing the inventories to their current location and
condition are included in the cost of inventories. Net realisable value is the estimated selling price for
inventories less all estimated completion costs and costs to complete the sale.
Receivables - The Group's business is primarily retail in nature and operates on a "cash and carry" basis,
with cash and credit card collections being the primary means of payment. Because such credit card collections
are primarily owned by card issuing banks, the credit risk is minimal. The Group also has corporate receivables
with credit terms of up to 60 days. The Group determines impairment loss on its trade receivable portfolio using
a provision matrix. The provision matrix is based on historical default rates over the expected life of the trade
receivable and is adjusted for forward-looking estimates. The historical observed default rates are updated at
each reporting date, and changes in forward-looking estimates are examined.

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 Depreciation policy - When a piece of property, plant, or equipment is sold or when no future economic
benefits are expected from its continued use, it is de-recognised. Any gain or loss resulting from the sale or
retirement of a piece of property, plant, or equipment is calculated as the difference between the sales proceeds
and the carrying amount of the asset and is recorded in the profit and loss statement.
The depreciable amount for assets is equal to the asset's cost less its estimated residual value. The
straight-line method has been used to calculate depreciation on tangible assets. At the end of each reporting
period, the estimated useful lives, residual values, and depreciation method are reviewed, with the effect of any
changes in estimate accounted for prospectively. The following are the useful lives of assets:

Leasehold improvements Amortised over the period of the lease (Years)

Furniture and fittings 10

Plant & machinery 15

Service equipments 10

Computer equipments 3-6

Vehicles 8

Acquired Intangible Assets - Separately acquired intangible assets with finite useful lives are carried at
cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated on a
straight-line basis over the estimated useful lives of the assets. At the end of each reporting period, the estimated
useful life and amortisation method are reviewed, and the effect of any changes in estimate is accounted for
prospectively. Separately acquired intangible assets with indefinite useful lives are carried at cost less
accumulated impairment losses.
Intangible assets acquired in a business combination and separately recognised from goodwill are
initially recorded at their fair value on the acquisition date (which is regarded as their cost). Intangible assets
acquired in a business combination are reported at cost less accumulated amortisation and accumulated
impairment losses after initial recognition, on the same basis as intangible assets acquired separately.
Liquor licenses with perpetual term purchased for restaurant chain business: Amortised over the lease
term of the respective restaurants:
● Software and other licenses - 3 Years
● Brand name - Indefinite useful life
When an intangible asset is disposed of, or when no future economic benefits are expected from its use or
disposal, it is derecognized. Gains or losses arising from the derecognition of an intangible asset, calculated as
the difference between the net disposal proceeds and the carrying amount of the asset, are recorded in the profit
and loss statement at the time the asset is derecognised.

3. What do you think of the size of the company’s cash and bank balances and investments?
Ans - Cash and cash equivalents (Amount in rupees millions)

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 Particulars As at March 31, 2021

Cash on hand 6.62

Balances with banks :

In current accounts 63.00

Earmarked balances with banks

In current accounts 2,043.69

In deposit accounts (having maturity less than 3 months) 341.63

Cash and cash equivalents as per Balance Sheet 2,454.94

Source : Barbeque Nation - Annual Report FY 21 (Note 12)

Investments:

Source : Barbeque Nation - Annual Report FY 21 (Note 45 F) i. )

4. Compare the company’s basic and diluted EPS and explain any difference with calculations.
Ans -
(𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 – 𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑)
Basic EPS = (𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔 𝐶𝑜𝑚𝑚𝑜𝑛 𝑆ℎ𝑎𝑟𝑒𝑠)
(𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 + 𝐶𝑜𝑛𝑣𝑒𝑟𝑡𝑖𝑏𝑙𝑒 𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 + 𝐷𝑒𝑏𝑡 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡)
Diluted EPS = (𝐴𝑙𝑙 𝐶𝑜𝑛𝑣𝑒𝑟𝑡𝑖𝑏𝑙𝑒 𝑆𝑒𝑐𝑢𝑟𝑖𝑡𝑖𝑒𝑠 𝑝𝑙𝑢𝑠 𝐶𝑜𝑚𝑚𝑜𝑛 𝑆ℎ𝑎𝑟𝑒𝑠)

EPS is a measure of a company's profit on a per-share basis. Basic EPS, unlike diluted EPS, does not
account for the dilutive effects of convertible securities on EPS. Diluted EPS is a fundamental analysis metric
used to assess a company's EPS quality after all convertible securities have been exercised. All outstanding
convertible preferred shares, convertible debt, equity options (primarily employer-based options), and warrants
are examples of convertible securities.

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 Basic EPS Diluted EPS

Basic earnings of the company per equity share Revenues of the company per convertible share

It is less significant to investors as it does not include More significant to investors

convertible shares

Helps to evaluate the profitability of a company Helps to assess profitability with convertible
securities

Common share included in the calculation Common shares, stock options, preferred shares,
warrants, debt all included in the calculation

Easy to use Comparatively more complex

(Amount in millions Rs.)

Source : Barbeque Nation - Annual Report FY 21 (Note 44)

5. Evaluate performance of the company’s segments (if any).

Ans - The company and its subsidiaries are only engaged in the setting up and managing restaurant services.
The company’s operations are in India and therefore no other secondary geographical segments. The economic
characteristics, nature of service provided, production and distribution process of the company and its
subsidiaries are similar. Therefore, we can see that the company operates as a single segment.

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Source : Barbeque Nation - Annual Report FY 21 (Note 43)

6. Explain how the information in the chairman’s statement and the directors’ report is useful in
understanding the information in the financial statements.
Ans - Managing Director’s message - Kayum Dhanani
1. His note on the public listing about the company mentions the debt-to-equity ratio (as on March
21) to be 0.63 (a significant reduction from the ratio of 41.41 in 2020), which shows a significant
reduction in consolidated debt due to the pre-IPO private placement funds (Jan 2021).
2. In late March 2020, due to the sudden announcement of lockdown, the impact on the dine-in
segment of the company can be seen from the cash flows and the liquidity position of the
company. But later on, they have come up with a new food delivery segment,
‘Barbeque-in-a-box’, which contributed to over 15% of the total revenue in 2021.
3. Due to the business model coupled with the value proposition of the company, micro-markets
potential was also recognised, being location independent, which helped in maintaining the rental
cost to revenue.
4. The recovery in dine-in business and expansion of delivery business helped to control the decline
in revenue in FY2021.
Chief Executive Officer and Whole time director’s message - Rahul Agrawal
He mentions some of the points which show the performance of the company for FY2021.
1. The consolidated revenue from operations and the total expenses, both reduced by 40% and 33%,
respectively.
2. EBITDA also reduced from ₹1,680.39 million in FY2020 to ₹924.31 million in FY2021.
3. With only 12% YoY growth in interest expenses, debts also reduced.
4. The pandemic caused a net loss of ₹918.85 million ,as against a loss of ₹329.28 million in
FY2020.
5. On standalone basis, net loss reduced from ₹926.65 million in FY2020 to ₹702.94 million in
FY2021.
6. Consolidated revenue from operations showed a growth of 19% in Q4 FY2021 over Q4 FY2020.
7. The new delivery segment expanded at a rate of 5.7x in Q4 FY2021 vs the corresponding quarter
in FY2020.
8. Consolidated gross margins in Q4 FY2021 improved by 261 basis points to 66.6%, compared to
Q4 FY2020, due to dine-in business’ recovery and increased operating efficiency.

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 9. Consolidated restaurant operating margins also increased from 9.7% in Q4 FY2020 to 20.5% in
Q4 FY2021 due to sales recovery, higher gross margins and other cost control measures.
10. In Q4 FY2021, EBITDA margin was reported to be 31.5%, with EBITDA to be ₹32 million in
Q4 FY2021,as against ₹10 million in Q4 FY2020.
11. The investment in digital assets increased from 20.1% in Q4 FY2020 to 24.7% in Q4 FY2021.

7. Does the company provide information that would enable investors and analysts to understand its long
term direction?
Ans - Yes, the company does provide information for potential investors.

Mar'21 Mar'20

Current assets 3165.25 672.92

Current liabilities 3850.2 2704.91

Current ratio 0.82 0.25

Liquidity Ratio Formula Mar'21

Current ratio Total current assets/Total liabilities 0.82

Quick ratio Quick assets/Current liabilities 0.72

Cash Ratio Cash & cash equivalents/current liabilities 0.64

Solvency Ratios Formula Mar'21

Long Term Debt Ratio Long term debt/Total assets 0.31

Long Term Debt to Equity Ratio Long term debt/Equity 0.40

Long Term Debt to Capitalisation Long term debt/Capitalisation 0.29

Debt to Equity Ratio Total liabilities/Equity 0.63

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 Efficiency Ratios Formula Ratio Mar'21

Inventory Ratio Cost of goods sold/Inventory 8.85

Total Asset Turnover Ratio Net sales/Total Assets 0.49

Fixed Assets Turnover ratio Net sales/Fixed assets 0.67

Coverage Ratio Formula Ratio Mar'21

Interest Coverage EBITDA/Interest Charges 1.46

Profitability Ratios Formula Ratio Mar'21

Gross Profit Margin Gross Profit/Net Sales 68%

Net Profit Margin Net Profit after taxes/ Net Sales -16.61%

Return on Investment Net Profit after taxes/ Total assets -8%

Return on Equity Net Profit after taxes/ shareholder's equity -38%

P/E ratio: The price to earning ratio(Current Market Price of the stock/Earnings per share) indicates how much
are the investors paying for their earnings and tells us if the firm is being overvalued or undervalued by the
market.
P/E for March 21 BBQ is 0, a low PE ratio indicating that the stocks are undervalued.
Price to book value ratio(P/BV)- the ratio compares a firm's market price to its book value.

Debt to equity ratio- This compares the debt involved in the firm to the owner's equity. A low ratio indicates
scope for expansion and that the firm has a moderate leverage and lower risk of credit defaults. Debt to equity
ratio for BBQ for the financial year 2021 is 0.63.
The investors and analysts must start with the 3 basic financial ratios - price to earnings, price to book value and
debt to equity. Potential investors might also be interested in knowing the return on capital employed for the
company.

8. How is the corporate governance report useful? What additional information would be useful?
Ans -
Corporate governance reports provide stakeholders with the mechanisms that ensure firms are dedicated
to excellent corporate governance and are in compliance with all applicable laws and regulations. Corporate
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governance is the foundation of any successful business. It includes the methods, techniques, and policies that a
company uses to make formal decisions and run the business. The goal of corporate governance is to help
develop the trust, openness, and accountability required for long-term investment, financial stability, and
commercial integrity, resulting in stronger growth and more inclusive societies.
Strong and effective corporate governance contributes to the development of an integrity-driven
company culture, which leads to improved performance and a more sustainable corporation overall. Essentially,
it exists to raise the accountability of all individuals and teams within your firm, striving to prevent mistakes
from occurring in the first place. When a firm has strong corporate governance, it communicates to the market
that the organisation is well-managed and that management's interests are aligned with those of external
stakeholders. As a result, it might give your organisation a significant competitive advantage.
The beneficial effects that emerge when risks are controlled and organisational procedures are
streamlined and consistent demonstrate the relevance of corporate governance. Good corporate governance can
provide numerous immediate benefits to organisations, including -
● Processes that are efficient are those that are repeatable and consistent in their execution
● Error Visibility - This repeatability and consistency aids in promptly identifying nonconformities in
processes
● Reduced Costs - By streamlining tasks, businesses may decrease waste from scrap, rework, and other
costly inefficiencies
● Smoother–Running Operations – As operation specifics become either ‘conform' or ‘non-conform,'
regular disturbances from inconsistent procedures are eliminated.
● Compliance - A corporate governance-supporting culture permits a product to reach the market while
matching its intended specifications and functioning properly

Source - https://doi.org/10.1016/j.rdf.2012.04.001

Along with the corporate governance report, the physical and institutional infrastructures and IFR enhances the
transparency and market efficiency, which financial reporting and the disclosures also do.
Due to increased globalization, external finances can also be sourced both domestically as well as
internationally. IFR serves as a medium to deliver the publicly listed firms’ material information to foreign
investors. Some of the internet reports of the companies also provide software which allows for interactive
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financial analyses at a relatively low cost to the internet users. Therefore in a way, it facilitates the equal access
of the information to all the users reducing the advantages which some institutional investors can have over
others.

9. What additional disclosures would you recommend to the company’s management? What are the pros
and cons of providing these disclosures?
Ans - There is a ₹370 crore listing of “other long term liabilities” which aren’t explained in detail in the balance
sheet. There is another mention of other current liabilities worth ₹207 crores again not broken down in detail.
Another mention of other liabilities of ₹204.7 crores does not contain a breakdown.
The inventory expense is listed at ₹20.1 crores but this is made up of ₹2.6 crore worth “Store and Spare”
but ₹17.5 crores worth “other inventories” which are not further explained. There is also a mention of other
current assets worth ₹27.9 crores not further broken down in detail.
The pros of mentioning these would be better decision making for investors, however the cons of doing
so would mean more scrutiny on the entrepreneurial decisions taken by the management.
Additional disclosures about receivables policy, how they intend to deploy shareholder funds, and what
other perks they are providing to top management. In addition, information about any impact on business
caused by a new policy or a change in government policies will be created in the future.

10. Does the company follow the direct method or indirect method for reporting net cash flow from
operating activities?
Ans - In an indirect method of cash flow, net income before tax is reconciled with cash from operations by
removing non-cash items from income and including additional cash flows that are not in net income. Since it
can be clearly seen that the cash flow statement shown below has an indirect method of cash flow displayed,
therefore, an indirect method has been used for reporting of the net cash flow from operating activities.

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 Source : Barbeque Nation - Annual Report FY 21 ( Cash Flow Statement )

11. How much does the company generate from or use in operating, investing and financing activities?
Ans - Net cash flow from Operating activities - ₹679.26 millions

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Source : Barbeque Nation - Annual Report FY 21 ( Cash Flow Statement )

Net cash flow from or used in Investing activities - ₹71.76 millions

Source : Barbeque Nation - Annual Report FY 21 ( Cash Flow Statement )

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Net cash from Financing activities - ₹1700.48 millions

Source : Barbeque Nation - Annual Report FY 21 ( Cash Flow Statement )

12. Verify that the sum of net cash from or used in operating, investing and financing activities equal the
change in cash and cash equivalents over the reporting period.
Ans -
From the cash flow statement mentioned in the annual report of BBQ,
● Net Cash Flow from Operating Activities (2020-21) = Rs. 679.26 million
● Net Cash Flow used in Investing Activities (2020-21) = Rs. 71.76 million
● Net Cash Flow from financing activities (2020-21) = Rs. 1700.48 million
Therefore,
Net cash flow from Operating, financing and investing activities
= Net cash flow from Operating + Net cash flow used in Investing + Net Cash flow from Financing
activities
= 679.26 - 71.76 + 1700.48
= Rs. 2307.98 million for financial year 2020-21
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Source : Barbeque Nation - Annual Report FY 21 ( Cash Flow Statement )

The change in cash and cash equivalents for financial year 2020-21 can be seen directly from the balance sheet
in the current asset section. Therefore,
Change in Cash and cash equivalents from financial year 2019-20 to financial year 2020-21 = 2454.94 - 146.96
= Rs.2307.98 million

Source : Barbeque Nation - Annual Report FY 21

Hence, it is verified that the sum of net cash from or used in operating, investing and financing activities equal
the change in cash and cash equivalents over the reporting period.
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13. Are there any non-cash items in the net cash flow from operating activities? How would you deal with
them in your analysis?
Ans - Yes.

Source - AY2021 BBQ Nation Hosp. Ltd.

Depreciation and amortisation - Depreciation charges can help a company's tax bill since they can be deducted
as an expense, lowering the company's taxable revenue. This is advantageous since, in addition to maximising
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earnings, businesses desire to avoid taxes. The net income is then used to calculate a company's operating cash
flow. Net income is used to calculate operating cash flow, which is then multiplied by
depreciation/amortization, net change in operating working capital, and other operating cash flow adjustments.
As a result, depreciation is added back into operating cash flow, resulting in more cash on the cash flow
statement.
Net (gain)/loss relating to restaurant units closed/relocated - This is an estimated amount that taken up due to
relocation and closing down of restaurants (all locations combined)
Impairment of goodwill - Goodwill impairment is an accounting charge made when the fair value of goodwill
falls below its previously recorded value at the time of purchase. When a corporation agrees to pay more than
book value for an asset, the value of that asset drops. This is referred to as goodwill impairment.
Rent Concession due to COVID 19 - Due to the COVID19 pandemic, many restaurants got concessions on the
rent expenses but there is no actual transfer of cash.
Employee stock option scheme - Employee Stock Option Plans (ESOPs) are a type of employee benefit plan. It
is issued by the corporation to its employees in order to promote employee ownership in the company. Thus, an
ESOP is a strategy in which a company offers to enhance its subscribed share capital by issuing additional
shares at a fixed rate to its employees.
Offer document filing fees written off - It is again a sort of concession given by writing off the fees and no true
cash transfer has taken place.
Provision no longer required, Provision for doubtful receivables and advances, Non-current provision, Current
provision - Provisions are added back to cash flow being non-cash adjustments/provisions.

14. Depreciation is not a source of cash, but it is added to net profit. Why?
Ans - The process of attributing the cost of a fixed item to expense over time is known as depreciation. When
this charge is made, the depreciation expense account is debited and the accumulated depreciation account is
credited. Depreciation is classified as a noncash item because it does not affect the cash balance. Depreciation,
from this standpoint, is not a source of funds. However, the expense reduces the amount of taxable income that
a company reports, lowering the amount of income tax that it must pay. Depreciation, from this vantage point, is
an indirect source of funds. Because it was a non-cash transaction, depreciation expense was added back to net
income (net income was reduced, but there was no cash outflow for depreciation).

15. Does the amount of interest income equal interest received? Why or why not?
Ans - Interest received is Rs. 3.1 crore. However, there is an interest accrued but not due worth Rs. 40 lakh. The
interest accrued or due on investments, debentures and loans as mentioned in the income statement is 0. Hence,
barring a difference of Rs. 40 lakh, the amount of interest income equals interest received.

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Source : Barbeque Nation - Annual Report FY 21 (Consolidated Cash Flow Statement)
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16. Does the amount of dividend income equal dividend received? Why or why not?
Ans - The company did not pay any dividend due to the loss they incurred in the FY2021, hence both dividend
income and dividend received are not applicable.

Source : Barbeque Nation - Annual Report FY 21 ( Consolidated Cash Flow Statement)

17. Does the amount of interest expense equal interest paid? Why or why not?
Ans - Interest expense and interest paid on investments, debentures and loans as mentioned in the income
statement is 0. Hence, it follows that the entry of interest paid in the cash flow statement is also not present. The
amounts are equal as they equal 0.

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Source : Barbeque Nation - Annual Report FY 21 ( Note 33)

Source : Barbeque Nation - Annual Report FY 21 ( Consolidated Cash Flow Statement)

18. Try to reconcile the change in working capital items with the information on these items in the
balance sheet.

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Ans - Total current assets are Rs. 316.5 crores and total current liabilities are Rs. 385.0 crores. The difference
between them is Rs. 68.5 crores, which is the working capital. The changes in working capital are reported as
Rs. 24.3 crores in the cash flow statement as of March 2021. A negative working capital means the company
usually has made expenses which will be found in the assets on the balance sheet. Seeing the assets, we observe
that the difference in working capital can primarily be attributed to the purchase of inventories for Rs. 20.1
crore. However, the rest of the difference between the current liabilities and current assets can be found by a
large accumulation of cash that Barbecue Nation has not converted to expenses.

19. What do you learn from the difference between profit and cash flow from operating activities?
Ans - Net income indicates the amount of money left over after all expenses have been paid and is calculated
by subtracting the cost of sales, operational expenses, depreciation, interest, amortization, and taxes from total
revenue. Also called accounting profit, net income is included in the income statement along with all revenues
and expenses. Net income is a key metric of profitability and is a major driver of stock prices and bond
valuations.

Cash Flow from operations includes day-to-day, core activities within a business that generate cash
inflows and outflows. Cash flows from operating activities make adjustments to net income and exclude
non-cash items like depreciation and amortization, which can misrepresent a company's actual financial
position. A company with strong operating cash flows has more cash coming in than going out.Still, the net
income is the bottom-line profit that a company makes and even if a company has positive operating cash flows,
it can still lose money.

The firm here is incurring a net loss of Rs. 918.85 millions and a positive net cash flow of Rs. 679.26 millions.

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Source : Barbeque Nation - Annual Report FY 21 (Note 1)

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Source : Barbeque Nation - Annual Report FY 21 ( Consolidated Cash Flow Statement )

20. Calculate the company’s free cash flow. What does it tell you about the company?
Ans - Free cash flow = Operating cash flow - cash for capital expenditures
Here,
Operating Cash flow = Rs. 679.26 million
Capital Expenditure = Fixed Asset in current year - Fixed asset in previous year + Depreciation in current year
= (PPE 2020-21) - (PPE 2019-20) + 599.53
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 = (2924.27) - (3321.93) + 599.53
= Rs. 201.87 million
Free Cash Flow = 679.26 - 201.87 = 477.39 million

Free cash flow indicates the amount left with the company after paying the cost to run its business. This cash is
usually used by the company to pay dividends to its shareholders or investing in the growth of the company
through acquisitions.
Since this company has a positive free cash flow, it implies that they can use this free cash flow to further invest
in the company in some new ideas to improve their sales or it can be used to reduce their debts.

21. As you know the statement of Profit and loss, balance sheet and cash flow statement are interrelated.
Prepare a statement explaining changes in balance sheet items using the information in the statement of
profit and loss and cash flow statement.
Ans -

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● Property, Plant and Equipment - Depreciation is included in the profit and loss statement, as well as the
purchase and sale of fixed assets in the cash flow statement
● Inventory - Changes in finished goods inventory, work in progress, and stock-in-trade purchases are
reflected in the profit and loss statement
● Intangible Assets - Because of the amortisation expense in the profit and loss statement
● Cash and Cash Equivalents - Cash flow from operations, investment, and financing activities (net cash
inflow/used)
● Other Equity - By incorporating the company's net income earnings into the equation

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References

[1] studiousguy.com/barbeque-nation-business-model/#Business_Model_of_Barbeque_Nation

[2] About Barbeque Nation

[3] Overview

[4] Internet financial reporting, infrastructures and corporate governance: An international analysis -
ScienceDirect

[5] The investor page

NOTE - The annual report 2021 of Barbeque Nation Hospitality Limited is attached as “Annexure A”.

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