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Essay On Financial Analysis Of Chipotle

1423 Words6 Pages

Free Cash Flow Projections
Operating Income Projections The operating income projections aims to forecast Chipotle’s operating income, often also referred as earnings before interest and taxes (EBIT), from 2017 to 2021. The operating income is defined as the difference between the sales revenue and the total operating costs. Hence, the operating income projections focus both on projecting the sales revenue and the operating expenses. The final results of the operating income projections can be found in the section below.

Revenue Assumptions As discussed in the revenue analysis, the sales revenue of Chipotle depends both on the number of restaurant in operation and the average sales per restaurant. Thus, the revenue projections are devoted …show more content…

Chipotle’s annual report reveals that it is planning to open between 195 to 210 new restaurants during 2017 (CMG, 2017). While this clearly indicates Chipotle’s intention in expanding its presence in the market, the planned addition of 195 to 210 restaurants in 2017 is not as impressive as the addition of 240 restaurants in 2016, reflecting that Chipotle might have become more cautious in its store expansion plans. Considering also the possibility of relocations or closures of some existed restaurants, the openings of restaurants are cautiously forecasted to be 195 restaurants for 2017. Taking into account Chipotle’s store base of 2,050 restaurants in 2016, this addition of 195 restaurants implies a store growth rate of 8.7% in 2017. As the store base increases, the store growth rates are expected to slow down. From 2018 to 2021, the store growth rates are assumed to decrease, reaching to a store growth rate of 6% in 2021. In absolute numbers, from 2018 to 2021, the openings of restaurants are expected to be between 181 to 198 restaurants, which are in accordance with Chipotle’s plan for 2017 and its historical store …show more content…

According to Chipotle’s annual report, its comparable restaurant sales, a close proxy for average sales per restaurant, are expected to increase in high single digits for 2017 (CMG, 2017). Thus, Chipotle’s average revenue per restaurant are forecasted to increase by 7% in 2017, recovering moderately from the negative publicity of the E. coli outbreak. However, it is assumed that Chipotle would need some time to fully recover from the negative impacts of E. coli outbreak. From 2018 to 2021, the growth of the average sales per restaurant are expected to slow down. By 2021, the average sales per restaurant is expected have a growth rate of 3%, which is slightly higher than the U.S. targeted inflation rate of 2%. In absolute terms, this means that the average sales per restaurant are expected increase from $1.74 million in 2016 to $2.21 million in 2021. This increase also implies a compound annual growth rate of 5% from 2017 to

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