Company description
Dunkin Brands Group is a Delaware corporation dealing in the business of ice creams, baked goods, bagels, muffins, breakfast sandwiches, and hot and cold coffee, among other products. It franchises quick service restaurants all over the world. The company was founded in 1989 when Allied Domeeq Quick Service Restaurants acquired Baskin Robbins and Dunkin Donuts and organized the two firms under one name, Dunkin Brands Group, Inc. (Dunkinbrands.com, 2015). The company operated more than 18,800 distribution points in about 60 countries as at December 27, 2014 (Dunkinbrands.com, 2015). The company operates through its four segments; Dunkin Donuts-US, Baskin Robbins US, Dunkin Donuts International and Baskin Robbins International.
Industry review
The company competes in the quick service restaurant sector. The Dunkin Donuts brand is predominant in the USA while the Baskin Robbins brand operates majorly in international markets. More than 67% of the total restaurants belonging to the Baskin Robbins brand are situated outside the USA (Dunkinbrands.com, 2015). The corporation faces stiff competition from other restaurants in the industry as its competitors continue to open new distribution points and increase their depth and breadth of products. The main competitors for Dunkin Brands Inc. include McDonalds, Dairy Queen, Panera Bread, Starbucks, Taco Bell, Cold Stone Creamery, among other firms.
Financial performance of the company
The section uses a range of financial ratios to assess the financial performance of Dunkin Brands Group for the two year period ended December 27, 2014.
Profitability
The corporation’s total revenue increased by 4.885% in the year 2014, indicating that its performance improved. The net profit margin for Dunkin Brands, Inc. was 23.55% in 2014 showing that it earned a net income of $0.2355 for every dollar of total revenue made during the year (Elliott & Elliott, 2008). The profit margin increased from 20.58% in the year 2013. This implies that the profitability of Dunkin Brands, Inc. improved in 2014. The ratio also shows that the company is profitable since 23.55% net profit margin is high. The net profit margin for Dunkin Brands Inc. was higher than that of Starbucks (about 14%) in 2014 although Starbuck’s total revenue was far much higher than that of Dunkin Brands, Inc.
Return on assets increased from 4.541% in 2013 to 5.55% in 2014. This indicates that the efficiency of the company to generate profits from the use of its assets increased in 2014. The positive return on assets is an indication that the company is profitable (Elliott & Elliott, 2008). In addition, the company’s return on equity was 47.93% in 2014 meaning that Dunkin’s shareholders earned a net income of $0.479 for every dollar of equity invested in the firm during the year. Dunkin’s return on equity was 36.06% implying that the company’s profitability increased in 2014.
Liquidity
In 2014, Dunkin’s current ratio was 1.24 indicating that it had current assets worth $1.24 for every dollar of current liability (Powers & Needles, 2011). This shows that tit had sufficient current assets to repay its short-term obligations when they become due. The firm’s current ratio was 1.34 in 2013 hence its liquidity declined in the year 2014. The cash ratio was 0.68 indicating that its cash and cash equivalents could pay up to 68% of its total short-term debt. The cash ratio also declined from 0.84 in 2013 indicating a fall in the liquidity of Dunkin’s Brands, Inc. However, the company does not face any cash flow challenges as its balance of cash and cash equivalents is positive. In addition, its net cash flow from operating activities was positive in both 2014 and 2013.
Solvency
Dunkin’s debt ratio for 2014 was 0.882 implying that it financed about 88% of its total assets through borrowing. This ratio is high and indicates a lower solvency of the company. It is more than 50% hence holders of the company’s debt securities have a larger claim on the assets than the claim of shareholders. The ratio increased from 0.8725 in 2013 to 0.882 in 2014 showing that the solvency of the company declined. The high debt-equity ratio also evidences the low solvency (Powers & Needles, 2011). The value of total debt is almost eight times that of total equity hence the company’s financial risk is high.
Investor ratios
Earnings per share ratio was $1.65 in 2014 showing that shareholders earned a net income of $1.65 for every share held in the company. The ratio was equal to that of Starbucks but less than that of Yum, Inc. However, it was more than the industry average of 0.34 indicating that Dunkin performed better the most firms in the industry. EPS was $1.38 in 2013. The company also paid dividends of $0.92 and $0.76 in 2014 and 2013 respectively. The increase in investor ratios in 2013 shows that shareholders’ return improved in 2014.
In a nutshell, the performance of Dunkin Inc. improved in the year 2014. Its profitability is high and increased in 2014. Its sales, return on equity and return on assets grew by 4.885% in 2014. Furthermore, the return to shareholders increased as shown by the increase in earnings per share and dividends per share. The company’s stock is, therefore, a good investment because the return is very high. They high return is attributable to the profitability of the company as well the low amount of equity in the firm’s capital structure. An area of concern is the low solvency of the company as indicated by the solvency ratios. The solvency declined in the 2014. However, this can be justified by the high return on equity. The return on assets is positive hence high leverage increases the return on equity (Powers & Needles, 2011). The high return on equity is partly due to the efficient use of leverage by the company.
Options traded on the company
Dunkin has both call and put options trading in the market. There are several options with maturity dates on May 15, 2015, September 19, 2015, and September, 18, 2015, December 18, 2015, January 15th, 2016 and January 20th, 2017 (Finance.yahoo.com, 2015). The call option with the highest open interest is the option with a strike price of $52.50. Its maturity is May 15, 2015 and the open interest is 15,988 while its volume is 2,208. The last sale for this option was valued at $2.5 (Finance.yahoo.com, 2015). The implied volatility for this option is 0%. Another call option trading is one with a strike price of $50 and an expiration date of May 15, 2015. The option has an open interest of 1,993 with a volume of 224 and an implied volatility of 0.0%. The last sale value was $4.18. There are other options trading with strike prices ranging between $40 and $60.
The company also had about nine different put options maturing on May 15, 2015. The strike prices for these put options range between $35 and $57.50. The put option with the highest open interest has a strike price of $45 with a total of 2,454 open interests. The implied volatility of the put is 25%, and its volume is 31 (Finance.yahoo.com, 2015). The put with the highest volume (380) has a strike price of $52.50 with an implied volatility of 3.13%. The put option has 71 open interests.
Dividend History
A study of the company’s historical dividends indicates that it has consistently paid dividends to shareholders in the last three years. In the year 2014, the company paid a total dividend of $0.92 (Finance.yahoo.com, 2015). This amount was paid in terms of quarterly dividends of $.23 each. The payment dates were in March, May, August, and November. In 2013, the company also paid quarterly dividends of $0.19 in the months of March, May, August, and November (Finance.yahoo.com, 2015). The total dividend for the year 2013 was $.76. It also paid quarterly dividends in the same months above in the year 2012. The dividend for each quarter was $0.15 hence it paid an annual dividend of $0.60. The dividend history indicates that Dunkin Brands, Inc. is consistent in paying its dividends to shareholders hence it is a good investment even for investors with a shorter time horizon.
Conclusion
Dunkin Donuts performed well in 2014 and improved in all aspects except solvency and liquidity. The company is highly profitable and offers a great return on investment. The dividend history also shows that it consistently pays dividends to shareholders. Therefore, buying the stock of Dunkin would be a good investment. An investor can use the many options of Dunkin that are currently trading.
References
Dunkinbrands.com,. (2015). About U | Dunkin' Brands. Retrieved 27 April 2015, from http://dunkinbrands.com/about
Elliott, B., & Elliott, J. (2008). Financial accounting and reporting. Harlow: Financial Times Prentice Hall.
Finance.yahoo.com,. (2015). DNKN Historical Prices | Dunkin' Brands Group, Inc. Stock - Yahoo! Finance. Retrieved 27 April 2015, from http://finance.yahoo.com/q/hp?s=DNKN&a=06&b=27&c=2011&d=03&e=27&f=2015&g=v
Finance.yahoo.com,. (2015). DNKN Option Chain | Yahoo! Inc. Stock - Yahoo! Finance. Retrieved 27 April 2015, from http://finance.yahoo.com/q/op?s=DNKN+Options
Powers, M., & Needles, B. (2011). Financial accounting principles. Australia: South-Western Cengage Learning.
