INTEROFFICE MEMORANDUM

TO:
FROM:
SUBJECT:
DATE:

TO WHOM IT MAY CONCERN

SYDNEY HIEBER
FINANCIAL STANDINGS OF CHIPOTLE (CMG)
11/16.2014

Financial Standings
Looking at the years 2011-2013, gives a very clear snapshot of
the state of Chipotle. It boasts that it is one of the fastest growing
chains worldwide, which is very true. In 2011 Chipotle had 1,230
locations with only for of those being international. By 2013, there
were 1,595 locations, with 16 locations being international. By those
figures alone, it is clear to see that the company is booming, and
doing so at a rapid rate.
When investigating the 10-K, the numbers are no shortfall from
the previous assumptions. Over the course of the three years,
Chipotles debt ratio declined at a steady rate. This means that in the
time period of 2011-2013, Chipotle reduced its debt obligations
therefore paying less in interest. Also, the debt to net worth ratio was
at a steady decline from 2011-2013. Debt to net worth is a ratio that
compares the debt of the company to its net worth. Referencing the
attached spreadsheet, in 2011, the debt to net worth ratio was 0.365,
meaning that about 36% of Chipotle was financed by debt. Moving
forward to 2013, this ratio drop to 0.306, so now only 30% was
financed by debt.
The current ratio provides an idea of how a company can pay of
its short-term liabilities with short-term assets. Essentially, for all
three years in question, Chipotle could use short-term assets to cover
short-term liabilities three times over. As a side note, there was a
strange dip in this figure from 2011-2012; however, the figure did
normalize again in 2013. This could represent a use of short-term
assets to finance some of the new locations. Interestingly, Chipotle
had a very short average collection period. In 2011, the average
collection period was 1.3 days and in 2013 it was 2.7 days. This rise
could be due to the increasing use of credit and debt cards and the
process time associated with using cards.
Looking into Chipotles return on assets ratio, there is a strange
trend. From 2011-2012, there was a slight increase from 15%-17%;

however, it dipped to 16% in 2013. This ratio is a representation of

Chipotle is converting its assets into income. Although there was a
drop in percentage, it is not something alarming for it was only a 1%
drop, definitely something to keep an eye on. Lastly, we have the
return on equity ratio, which is a representation of the profitability of
Chipotle by showing how much money is generated based on net
worth. Referencing the attached spreadsheet, for the years 20112013, Chipotle was essentially generating anywhere from $0.20-$0.22
for every dollar of net worth. This is a fantastic position to be in.
Action Plan
For the next year, Chipotle should consider slowing its rapid
growth a center itself again. Having opened over 300 locations in the
short time frame from 2011-2013 is exciting but also alarming. The
rapid growth is great, but there needs to be time to go back to your
roots, focus on the stores you current have and make them even
better before opening more. I encourage the company to keep
decreasing its debt obligations. The best way to do so would be to
again, maybe not open as many new stores in 2014, pay of some of
the building debts and get that ratio down even further.
Something that I believe would be very beneficial for Chipotle
would be to spend some advertising dollars. Not as many people know
about the great message that Chipotle has. The company only
supports local, organic farmers and the best meat producers in the
nation. Its almost food with a purpose, and that purpose is to support
the local, small businesses and economies. This is something that has
shown increasing importance to the American people and it would be
wise for Chipotle to advertise those facts about their foods. You could
expect to see a rise in store revenue by getting this message out
because people would align with the message and become Chipotle
Fans. I would also encourage Chipotle to continue the trend of
increasing their return on equity. This can be done by driving store
revenues an avenue for that might include the previously listed
marketing scheme.
My last recommendation for Chipotle would be the forwardlooking thought of conceptualizing a new brand. The brand Chipotle
has been so successful and was essentially the creator of the fastcasual segment of dining. If they were able to expand their practice to
another form of food, say pizza, but still hold their same values and
mission, I believe that it would significantly increase revenues and be
extremely successful.

Barriers
Although the action plan seems great and logically sound, there
are some barriers. One specific barrier would include industry trends.
There are ways to predict the trends in industry, but there are always
variables that cannot be accounted for: stock market fluctuation,
wars, natural disasters, and anything that might have an efect on
markets, which is almost everything.
Another barrier would include breaking into another industry.
Chipotle is great because it is know for its Tex-Mex, Southwest
cuisine. Attempting to create another brand may be a struggle
because it pushes the company outside of its comfort zone while
requiring them to penetrate another market such as fast-casual pizza
or fast-casual Italian.
One last barrier would include breaking the habit of rapid
expansion. I believe that it is important to center yourself and as a
company; however, I do believe that it would be a significant
challenge to curb that enthusiasm to continue growing rapidly.