1. To get an overall picture of each company's capital structure, it is helpful to look at a chart...

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1. To get an overall picture of each company's capital structure, it is helpful to look at a chart that summarizes the company's capital structure over the past decade. To obtain this chart, choose a company to start with and select FINANCIALS. Next, select MORE>THOMSON REPORTS & CHARTS>CAPITAL STRUCTURE. This should generate a chart that plots the company's total long-term debt, common equity, and total current liabilities over the past decade. What, if any, are the major trends that emerge when you're looking at these charts? Do these companies tend to have relatively high or relatively low levels of debt? Do these companies have significant levels of current liabilities? Have their capital structures changed over time? 2. To get more details about the companies capital structures over the past 5 years, select FINANCIALS>FINANCIAL RATIOS>THOMSON RATIOS. From here, you can select ANNUAL RATIOS and/or 5 YEAR AVERAGE RATIOS REPORT. In each case, you can scroll down and look for "Leverage Ratios." Here you will find a variety of leverage ratios for the past 5 years. (Notice that these two pages offer different information. The ANNUAL RATIOS page offers year-end leverage ratios, while the 5 YEAR AVERAGE RATIOS REPORT offers the average ratio over the previous 5 years for each calendar date. In other words, the 5 YEAR AVERAGE RATIOS REPORT smoothes the changes in capital structure over the reporting period.) Do these ratios suggest that the company has significantly changed its capital structure over the past 5 years? If so, what factors could possibly explain this shift? (Financial statements might be useful to detect any shifts that may have led to the company's changing capital structure. You may also consult the company's annual report to see if there is any discussion and/or explanation for these changes. Both the historical financial statements and annual report information can be found via Thomson ONE.) 3. Repeat this procedure for the other three companies. Do you find similar capital structures for each of the four companies? Do you find that the capital structures have moved in the same direction

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David · Accepted Answer

Executive Summary 
In the present case study we will analyze the capital structure of four companies operating in 
restaurant business namely Cheesecake Factory (CAKE), Chipotle Mexican Grill (CMG), Ruby 
Tuesday (RT), and O’Charley’s Inc. (CHUX). 
Capital structure can be defined as the combination of long term debt, short term debt, preferred 
stock and common stock of the company. It shows the way in which the firm finances its 
operations and growth by using various sources of funds. In the present case study we will 
analyze the data for the period of five years for each company which will include the analysis of 
the ratios and charts representing the change in capital structure over the period of time. 
Analysis of the chart and ratios (leverage) representing the capital 
structure of the companies over past few years 
Preparing charts and ratios for analysis purpose has always been very useful for its users; both of 
them are statistical techniques which help in analyzing set of information in an easy and simple 
manner. Ratio analysis is a technique where we compare two or more components of same 
organization. In the present case we have to analyze various leverage ratios and chart of all the 
companies and determine various prospects related to the company’s capital structure. 
Cheesecake Factory – We have analyzed the data for past twelve years and we come up with 
following results. The company is dependent majorly on its equity for first 6 years under 
analysis; the company has no long term debt for the first 6 years under analysis which shows that 
company does not want to carry any fixed interest bearing liability. The company has borrowed 
the long term debt for the first time in year 7 and in the same year company has also reduced its 
outstanding equity funds by purchasing the treasury stock which represents the change in capital 
structure of the company and the also it represents that company want to take the advantage of 
leverage by adding the debt in the capital structure. 
During year eight companies further reduced its equity funds and added more long term debt to 
its capital structure. By the end of year eight companies must have realized the pros and cons of 
using long term debt which make the company reduce its long term debt in next year i.e. year 
nine and totally removing the long term debt from the capital structure by the end of year ten.

1. To get an overall picture of each company's capital structure, it is helpful to look at a chart that summarizes the company's capital structure over the past decade. To obtain this chart, choose a...

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