Company Overview According to the Popeye’s chicken restaurant website (Our Company, 2002-2011), the company was founded in 1972 by Al Copeland in Arabi, Louisiana, just outside of New Orleans. The company grew relatively quickly with over 500 franchise restaurants in 1985 throughout the southern Unites States. The company relocated its headquarters to Atlanta, Georgia, around the time of the 1996 Olympics and opened its first international location in Toronto Canada. It expanded and formed America’s Favorite Chicken (AFC) enterprise. The market or industry in which AFC Enterprises operates can be considered the fast food service industry. AFC Enterprises, Inc. develops, operates, and franchises quick-service restaurants under the trade name Popeyes Chicken & Biscuits and Popeyes Louisiana Kitchen. According to Ho and Cho (1995), the fast food service industry operates on a just-in-time (JIT) theory, which indicates that the food product must be fresh and available just in time of the consumer order and most often have a drive through window for even speedier service. The Popeye’s marketing strategy has focused on this handmade concept in its “bonafied” hand battered products (Newman, 2008). Popeyes distinguishes itself with a unique "New Orleans" style menu that consists mainly of a variety of mild and spicy chicken products with some seafood and sandwich products, as well as regional products. Popeye’s is continuously ranked as one of the top preferred fried chicken restaurants.
Popeyes serves food the world craves and is continuing to expand its global reach (Our Company, 2002-2011). According to the 8-K form, globally Popeyes opened 106 restaurants and permanently closed 67 restaurants, resulting in 39 net openings, compared to 14 net openings in 2009. As of December 26, 2010, the company operated and franchised 1,977 compared to 1943 at the end of 2009. The restaurants are located in 45 states, the District of Columbia, Puerto Rico, Guam, the Cayman Islands and 26 foreign countries. Of the 1,542 domestic franchised restaurants, approximately 70% were concentrated in Texas, California, Louisiana, Florida, Illinois, Maryland, New York, Georgia, Virginia and Mississippi. Of the 397 international franchised restaurants, approximately 55% were located in Korea, Canada and Turkey (Our Company, 2002-2011). A presentation given to investors in March 2011 during a Sidoti & Company 15th Annual Emerging Growth Institutional Investor Forum held in New York, NY, (www.investor.afce.com) provided a breakdown of the countries and number of Popeyes restaurants in those countries which is illustrated in the graph below. The franchise restaurant sector has been the leading source of income for AFC Enterprises. Franchise restaurants provide a huge deal less risk and limit costs. By allowing franchisees to run their own restaurant, AFC Enterprises is able to keep away from operating costs. AFC Enterprises receives a majority of their revenues from franchises through royalty fees and development costs.
B. Ratio and Trend Analysis Financial ratios are an important and easy way to understand the numbers found in financial statements. The information obtained from the analysis of the financial data is relied on a great deal by investors and managers. Specific items listed on Popeyes’ 2009 and 2010 balance sheets produced the following ratios: current assets of 100; fixed assets of -1.8; current liabilities of -9.4; fixed liabilities of -16.7; sales revenue of -1.1, and earnings per share of 21.6, depicted in the chart below. Popeyes reported a $0.90 per share, compared to $0.74 per in 2009, an increase of 16 percent (Our Company, 2002-2011). Current ratio measures a company's ability to pay short-term debts and other current liabilities by comparing current assets to current liabilities. Current assets are cash and any assets expected to be converted into cash within the next year. The ratio illustrates a company's ability to remain in the black. Information gathered from Popeyes’ balance sheet showed a current ratio of 0.92 for the period ending December 2009, and 1.29 for the period ending December 2010, which means that Popeyes current assets were 0.92 times that of its liabilities in 2009 and 1.29 times that of its liabilities in 2010. The results of only financial ratios do not give managers a variety of observations regarding the financial health of the company. It is important that managers examine the trends displayed by the ratios. The ratio trend analysis evaluates a company's previous years’ performance to its current year performance and determines whether or not a company is improving or weakening and if possible why these changes are occurring. Popeyes should produce significant free cash flow given its insignificant capital expenses requirements. Based on the execution of the company’s strategic plan, Popeyes’ estimated adjusted earnings should be in the range of 91 cents to 95 cents per share over the next two years.
C. Stock Price Analysis A credit rating is Standard & Poor's opinion on the creditworthiness of an organization to repay a debt. The ratings on AFC Enterprises Inc. reflect its involvement in the extremely competitive chicken quick-service restaurant industry, its expected restricted sales and profit growth opportunities, and its aggressively leveraged capital structure. Popeyes’ use of the franchising business model creates somewhat stable, recurring revenue from a variety of customers, in addition to high free cash flow. In 2010, AFC increased its profits considerably, mostly through income from new franchised restaurants. It remains one of the most highly leveraged, regardless of its debt to total capital ratio. Although there are not enough liquid assets to satisfy current obligations, operating profits are more than sufficient to service the debt. It appears that the company has the possibility to produce an attractive return on invested capital over time. Compared to other companies in the same industry and the overall market, the company’s return on equity currently exceeds that of the industry average and the S&P 500.

References:

AFCE AFC Enterprises Popeyes 2011 Corporate Investor Presentation Slides. (March 2011). Retrieved on August 29, 2011 from http://www.investor.afce.com/events.cfm

Form8-K: AFC enterprises files current report. US Fed news Service. Retrieved on September 1,
2011 from Proquest database. Documents ID: 664779780.

Ho, Samuel K. M. and Cho, W. K. (1995). Manufacturing Excellence in Fast-food Chains. Total Quality Management; May95, Vol. 6, Issue 2.

Newman, E. (2008). Big chicken chains expand their range. Brandweek. 49. 13. 6. Retrieved on
August 23, 2011 from Proquest database. Documents ID: 218097147. www.popeyes.com/story. (2010).

Our Company. (2002-2011). Retrieved on August 23, 2011 from http://www.afce.com/our- company/