Asset Recognition

MAJOR ASSETS

The image below shows a vertical analysis for Denny's since 2017; analyzing each major asset category as a percentage of Total Assets. The major asset accounts displayed below describes the five major components: Total Cash & Short Term Investments, Total Current Assets, Net Property/Plant/Equipment, and Total Assets.

Cash/Liquidity Ratios

A Cash Ratio measures a company's ability to cover short-term obligations using only cash. It is measured by (current assets - inventory) divided by current liabilities. Denny's cash ratio remained relatively consistent from 2017 to 2020, maintaining a percentage less than 10% for those years; when compared with competitors CAKE and DRI, these are low calculations, as Denny's has historically not kept much cash out. However, in fiscal year 2021 Denny's saw a jump from a cash ratio of 8% to 34%; this occurred as reported in the annual 10-k report which explained that the corporation has taken on more debt and is maintaining more liquidity in assets to cover indebtedness. Cheesecake Factory saw a spike in their cash ratio in 2021 as well, but Darden Restaurants in comparison experienced a large drop, decreasing their cash ratio by over half.

A Current Ratio is similar to a Cash Ratio in that it indicates a company's ability to to pay short-term obligations, but it includes inventory and is not just relating to cash. It is measured by current assets divided by current liabilities. Denny's has had a consistently increasing current ratio since fiscal year 2017, and it has increased by roughly 63% in the past five years. To compare to competitors, CAKE had a decreasing current ratio until fiscal year 2020 during which it shot up to a higher percent than in 2017, 58%. DRI has similar numbers, except a discrepancy of a 101% current ratio in 2020. This indicates that the company had very high short-term liquidity at the time, and that the book value of their assets was almost exactly the same as the book value of current liabilities.

Accounts Receivables Ratios

Accounts receivable as a percent of total assets is a liquidity ratio that measures how much of a company's sales occur on credit. As Denny's and its competitors reside in the Consumer Discretionary sector and are restaurants, it's expected to see low ratios. However, it is surprising to see that fiscal year 2020 actually had lower percentages during COVID; this is the opposite of what was happening in other market sectors, which were seeing increases in the use of credit. As of the end of 2021, Denny's Accounts Receivable as a percentage of Total Assets was at 4.05%, still less than the percentage five years ago. Competitors saw similar trends, with a dip in 2020 then a slight increase in the following year.

Days Sales Outstanding is a measure of the average number of days it takes for a company to collect payment after a sale is made. Typically an amount under 45 is considered good and acceptable for most businesses. As expected, Denny's saw a spike in this measurement in 2020 due to COVID; defaults on payments was much more common with large parts of the labor force out of work. With gradual increases between 2017 and 2019 and then an increase of almost 5 days in 2020, Denny's recovered in the past year and returned to roughly 16 days sales outstanding. Compared to CAKE, which has had slightly lower numbers but a huge jump in 2019 as opposed to 2020. DRI, on the other hand, has very low number of days, indicating that the company is getting its payments in very quickly, which is healthy.

Accounts Payables Ratio

Days Payable Outstanding ratio determines the average time that a company takes to pay its bills and invoices to creditors (suppliers, vendors, financiers). The ratio is calculated by dividing accounts payable by the cost of goods sold. As compared to other companies in the industry, Denny's has a relatively high DPO ratio. On average it has been decreasing in the past five years, with the ratio amounting to 37 days in 2017 but has now decreased to about 24.5 days. In general this high ratio is not always bad; it can indicate not only that the corporation takes more time to pay their bills, but also that there is extra cash on hand usable for short-term investments, which would make sense according to Denny's cash ratios.

Cash Collection Cycle (CCC)

The Cash Collection Cycle (CCC) is a measure of management effectiveness by evaluating how fast a company can convert their cash on hand, or the number of days it takes to collect accounts receivable. Notice that Denny's as well as its competitors have negative amounts; in general, the lower the CCC calculation the better it is for the company. As of 2017, each company had very low negative amounts of CCC ratios. This indicates that the companies' inventory is being sold before they have to pay for it, so the vendors are financing business operations. In 2020 Denny's CCC amount increased to be about 0, while Cheesecake Factory kept increasing even further and had a day cycle of over 7 and increased to 13 in the most recent fiscal year 2021. Competitor Darden Restaurants has maintained extremely low CCC ratios over the past five years, a healthy indicator.

Long-term (Fixed) Assets Ratio

PPE, or Fixed Asset Turnover, is the ratio of sales to the value of fixed assets. It measures how efficient a company is at generating revenue from fixed assets, and is calculated by dividing net sales by total PPE. Denny's had an average PPE Turnover from 2017 to 2021 of 2.656; while the Turnover ratio was decreasing from 2018 to 2020, on average turnover was much higher than competitors, indicating that Denny's is utilizing its assets very efficiently and that a greater amount of sales are earned using smaller portions of assets.