CORPORATE DOSSIER ON FRISCH'S RESTAURANT

Corporate Dossier on Frisch's Restaurant

Corporate Dossier on Frisch's Restaurant

Chapter 3: Financial Analysis

Financial condition

While we stand by our ratings methodology for long term value investors, sometimes smaller companies will be more. Frisch's Restaurants, Inc. (FRS) has volatile stock in terms of revenue, cash earnings, and other fundamental factors. Because many micro-caps are lightly traded their stock price fluctuates because of a single large trade(www.reuters.com).

Comparable to the analysis of Sales and Cash Earnings per share, the dividend yields from FRS against the historic high and low levels over an available data range. Because FRS has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In FRS's case, the estimated annual dividend is $0.48 producing a current dividend yield of 1.56%. The highest dividend yield from FRS in recent history was 3.30% while the lowest dividend yield was 0.96%. It is never a good sign for a company to pay significantly lower dividends, in this case 26.76% below the median yield. Although, dividends are a relatively small portion of our analysis framework, we still see this as a negative factor.

Indicators and Ratios

Price to sales ratio

FRS the high and low end of the Price to Sales per share ratios are 0.58x and 0.35x respectively(www.reuters.com).

FRS's current Price to Sales per share ratio is 0.52x, which is somewhat above its historical average. As such, the current Price to Sales ratio suggests a neutral share price forecast. In order for us to become more positive about FRS we would need to see a drop in the Price to Sales ratio of 12% given current sales per share levels in order to return to its historical weighted average(www.reuters.com).

Price to Cash Earnings ratio

FRS as significantly above its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for FRS to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 7.55 and a 4.49 low over the same period.

Therefore, at the current price of $30.75 and a Price to Cash Earnings ratio of 7.54, FRS is significantly overvalued. (www.reuters.com) This diminishes the attractiveness of FRS until we see either a significant increase in cash earnings or a decline in price. A decline of the Price to Cash Earnings ratio of 25% is needed just to return to the historical cash earnings multiple.

Operating Margin

Frisch Operating Margin for Past 5-Years is -6.0% whereas the Industry average is -12.0%. (www.reuters.com)

Operating margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. When looking at operating margin to determine the quality of a company, it is best to look at the ...