Running head: RATIO ANALYSIS FOR CRACKER BARREL
Cracker Barrel: A Financial Analysis
Joel J. Utecht
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RATIO ANALYSIS FOR CRACKER BARREL
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Financial Statements and Ratios
The following is an analysis of key financial ratios for Cracker Barrel to examine the
companies overall financial strength. Financial information concerning the ratios used was
gathered from both gurufucus.com and finance.yahoo.com.
Liquidity
The three liquidity ratios discussed in this analysis are current ratio, liquidity ratio and
quick ratio. All three ratios help to determine a company’s ability repay it short term obligations.
The current ratio is a liquidity ratio that measures a company’s ability to pay short-term
obligations or those due within one year. It tells investors and analysts how a company can
maximize the current assets on its balance sheet to satisfy its current debt and other payables.
The quick ratio is an indicator of a company’s short-term liquidity position and measures a
company’s ability to meet its short-term obligations with its most liquid assets. Of the two ratio
the quick ratio is more conservative as is does not include as it does not include all a company’s
current assets when determining its ability to cover current liabilities. The cash conversion cycle
(CCC) is a metric that expresses the time (measured in days) it takes for a company to convert its
investments in inventory and other resources into cash flows from sales. Unlike the current and
quick ratio’s which focus on what is available to pay off debts the CCC instead examines how
long dollars in take to become available as cash that can be used. In short, the quick and current
ratios tell your ability to pay off short term debts and CCC tells you how efficiently you turn
money coming into money you can spend.
RATIO ANALYSIS FOR CRACKER BARREL
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Examining the Cracker Barrel’s liquidity trends there is a clear peak in all three ratios in
2020 however this peak was short term. In 2021 all ration declined to close to what they were in
2019. According to gurufocus.com the decline in continuing in 2022 as current and quick ratios
have fallen to 2019 levels and CCC has increased to 11.94 far above the 2019 level. Also,
according to gurufocus.com the current and quick ratios are worse than 80% and 95% of other
companies in their industry. The low ratios also indicate that it will be difficult or not possible
for Cracker Barrel to meet it current obligations. The high CCC is indicating that Cracker Barrel
is now less efficient and converting dollars in into cash it can use to meet its obligations. If
Cracker Barrel does not take steps to improve its liquidity it could be come a significant issue.
2019
Liquidity Ratios:
Current Ratio
Quick Ratio
Cash Conversion Cycle (CCC)
Table 1 - Liquidity Ratios
0.62
0.22
7.66
2020
1.43
1.12
9.35
Y-o-Y Change
2021
1.306451613
4.015591373
0.220626632
0.76
0.46
6.89
Y-o-Y Change
-0.468531469
-0.585842015
-0.263101604
Asset Management
Asset management ratio examine how well a company is at using it assets to generate
revenue. Inventory turnover ratio is the number of times a company has sold and replenished its
inventory over a specific amount of time. Days inventory outstanding (DIO) is a ratio that
measures the average number of days that a company holds inventory for before turning it into
sales. Days sales outstanding (DSO) is a measure of the average number of days that it takes a
company to collect payment for a sale. Total asset turnover is a ratio measures the value of a
company's sales or revenues relative to the value of its assets. In the asset management ratios
high turnover ratios and low days outstanding is desirable. Companies in this situation are
effectively managing inventory and quickly turning sales into revenue.
RATIO ANALYSIS FOR CRACKER BARREL
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Review the three-year trend Cracker Barrel’s asset management appear relatively stable.
In 2020 the ratios took a small downward trend showing decreased turnover ratios and increased
days outstanding ratio likely due to the COVID-19 pandemic. The ratios except TAT corrected
in 2021. According to gurufocus.com Cracker Barrel’s asset management ratios are in line with
the averages for its industry. The stability of the ratios and where they fall amongst its
competitors signals that Cracker Barrel is doing an acceptable job using its assets to generate
revenue.
2019
Asset Management Ratios:
Inventory Turnover Ratio
Days Inventory Outstanding (DIO)
Days Sales Outstanding (DSO)
Total Asset Turnover (TAT)
Table 2 - Asset Management
12.92
28.26
2.51
1.98
2020
11.60
31.48
3.10
1.22
Y-o-Y Change
2021
Y-o-Y Change
-0.102167183
0.113941967
0.235059761
-0.383838384
13.33
27.39
3.07
1.14
0.149137931
-0.129923761
-0.009677419
-0.06557377
Debt Management
The debt management ratios strive to assess how well a company is positioned manage it
current outstanding debt. The debt ratio measures the amount of leverage used by a company in
terms of total debt to total assets. The debt-to-equity (D/E) ratio is a measure of the degree to
which a company is financing its operations through debt versus wholly owned funds. Days
payable outstanding (DPO) is a financial ratio that indicates the average time (in days) that a
company takes to pay its bills and invoices. The interest coverage ratio is a measure of how
easily a company can pay the interest on its outstanding debt. Debt management ratios are good
indicators of risk level in a company. I highly leveraged company is typically seen as higher
risk. Risk in and of itself is neither good or bad but how it is managed can be good or bad.
Debt ratios vary widely across different industries so to analyze Cracker Barrel’s ratios
they mush be compared to its past and its competitors. Cracker Barrel’s debt ratio all trended in
RATIO ANALYSIS FOR CRACKER BARREL
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the wrong direction in 2020 most likely due to the COVID-19 pandemic. In 2021 all ratios
except interest coverage returned to similar levels as in 2019 and according to gurufocus.com
this is just slightly higher than industry averages. Interest coverage however remains
significantly lower than industry average supporting earlier concern about Cracker Barrel’s
ability meet its current obligations.
2019
Debt Management Ratios:
Debt Ratio
Debt to Equity
Days Payables Outstanding (DPO)
Interest Coverage (Times Interest Earned)
Table 3 - Debt Management
0.62
.66
23.11
17.15
2020
0.84
3.88
25.23
2.52
Y-o-Y Change
2021
0.352976033 0.72
4.878787879 1.70
0.09173518 23.57
-0.853100083 2.65
Y-o-Y Change
-0.13537243
-0.56185567
-0.065794689
0.051587302
Profitability
Profitability ratios attempt to quantify a company’s ability to generate earnings. Profit
margin on sales gauges what percentage of sales has turned into profits. Gross margin is the
amount of money a company retains after incurring the direct costs associated with producing the
goods it sells and the services it provides. Basic earing power is a measure of the company's
efficiency at producing earnings relative to its assets. Return on assets indicates how profitable a
company is in relation to its total assets. Return on equity is considered a gauge of a
corporation's profitability and how efficient it is in generating profits.
Again, there is a negative trend in all ratio’s during the pandemic year of 2020 that
rebounds in 2021. This indicates that Cracker Barrel’s profitability is remaining steady
compared to recent years. According to gurufocus.com Cracker Barrel’s profitability ratios are
in line the industry averages. The takeaway from this is that Cracker Barrel’s profitability has
recovered from the pandemic downturn to an acceptable but not strong level.
RATIO ANALYSIS FOR CRACKER BARREL
2019
Profitability Ratios:
Profit Margin on Sales
Gross Margin
Basic Earning Power
Return on Assets (ROA)
Return on Equity (ROE)
Table 4 - Profitability
7%
35%
18%
14%
38%
2020
-1%
32%
4%
-2%
-6%
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Y-o-Y Change
-1.177009627
-0.062356981
-0.772337543
-1.109255393
-1.168613914
2021
9%
34%
15%
10%
47%
Y-o-Y Change
8.007624473
0.063828131
2.764115959
7.566878981
8.407874016
Financial Statement Overview
In summary Cracker Barrel financial strength took a large hit during 2020 but has since
rebounded nicely. The large concern for the company is that it is highly leveraged and may be
unable to meet its obligations.
RATIO ANALYSIS FOR CRACKER BARREL
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References
Investopedia. (n.d.). Investopedia. Retrieved July 13, 2022, from https://www.investopedia.com/
Market insight of investment gurus. Value Investing. (n.d.). Retrieved July 13, 2022, from
https://www.gurufocus.com/
Yahoo! (n.d.). Yahoo Finance - Stock Market Live, quotes, Business & Finance News. Yahoo!
Finance. Retrieved July 13, 2022, from https://finance.yahoo.com/