Selected data from the 2007 annual report of Frisch’s Restaurants, Inc., follow:

FRISCH’S RESTAURANTS, INC., AND SUBSIDIARIES*   CONSOLIDATED BALANCE SHEET   May 29, 2007 and May 30, 2006
ASSETS	2007	2006
Current   Assets
Cash	$321,200	$815,346
Trade   and other receivables	1,405,892	1,538,024
Inventories	6,376,059	4,791,898
Prepaid   expenses and sundry deposits	984,132	2,795,444
Prepaid   and deferred income taxes	1,930,701	2,122,544
Total   current assets	11,017,984	12,063,256
Property   and Equipment
Land and   improvements	64,518,917	60,691,775
Buildings	85,805,775	84,830,307
Equipment   and fixtures	87,948,798	89,151,961
Leasehold   improvements and buildings on leased land	29,153,070	28,171,132
Capitalized   leases	5,054,200	5,257,019
Construction   in progress	7,435,071	2,211,659
	279,915,831	270,313,853
Less   accumulated depreciation and amortization	120,629,146	115,943,839
Net   property and equipment	159,286,685	154,370,014
Other   Assets
Goodwill	740,644	740,644
Other   intangible assets	1,216,620	1,383,729
Investments   in land	2,249,890	2,272,405
Property   held for sale	1,470,920	805,784
Other	3,275,811	3,646,989
Total   other assets	8,953,885	8,849,551
Total   assets	$179,258,554	$175,282,821

 

FRISCH’S RESTAURANTS, INC., AND SUBSIDIARIES   CONSOLIDATED BALANCE SHEET   May 29, 2007 and May 30, 2006   Liabilities and Shareholders’ Equity
	2007	2006
Current   Liabilities
Long-term   obligations due within one year
Long-term   debt	$11,774,604	$8,926,194
Obligations   under capitalized leases	2,480,419	388,222
Self   insurance	716,443	856,962
Accounts   payable	12,353,968	10,330,378
Accrued   expenses	9,235,002	9,639,747
Income   taxes	290,010	441,045
Total   current liabilities	36,850,446	30,582,548
Long-Term   Obligations
Long-term   debt	25,009,540	30,991,636
Obligations   under capitalized leases	880,451	3,125,742
Self   insurance	1,133,606	1,549,499
Deferred   income taxes	3,457,714	4,496,802
Deferred   compensation and other	4,057,022	3,855,158
Total   long-term obligations	34,538,333	44,018,837
Commitments
Shareholders’   Equity
Capital   stock
Preferred   stock—authorized, 3,000,000 shares without par value; none issued
Common   stock—authorized, 12,000,000 shares without par value; issued 7,568,680 and 7,521,930   shares—stated value—$1	7,568,680	7,521,930
Additional   contributed capital	63,838,824	62,531,311
	71,407,504	70,053,241
Accumulated   other comprehensive loss	1,214,704	—
Retained   earnings	70,448,512	63,420,622
	69,233,808	63,420,622
Less   cost of treasury stock (2,445,764 and 2,447,323 shares)	32,771,537	32,792,427
Total   shareholders’ equity	107,869,775	100,681,436
Total   liabilities and shareholders’ equity	$179,258,554	$175,282,821

 

FRISCH’S RESTAURANTS, INC., AND SUBSIDIARIES   CONSOLIDATED STATEMENT OF EARNINGS   Three years ended May 29, 2007
	2007	2006*	2005
Sales	$289,934,367	$290,967,866	$279,247,122
Cost of   sales
Food and   paper	101,401,056	102,105,847	98,569,774
Payroll   and related	95,500,491	96,097,853	92,351,759
Other   operating costs	64,043,426	64,337,677	57,800,494
	260,944,973	262,541,377	248,722,027
Gross   profit	28,989,394	28,426,489	30,525,095
Administrative   and advertising	14,301,277	13,976,020	13,928,712
Franchise   fees and other revenue	1,253,398	1,249,771	1,351,967
Gains on   sale of assets	250,069	567,987	86,921
Operating   profit	16,191,584	16,268,227	18,035,271
Other   expense (income)
Interest   expense	2,672,171	2,771,342	2,820,449
Life insurance   benefits in excess of cash   surrender value	—	—	4,440,000
Earnings   before income taxes	13,519,413	13,496,885	19,654,822
Income   taxes
Current
Federal	5,482,285	4,616,461	4,226,844
Less tax   credits	782,886	601,779	785,855
State   and municipal	657,528	579,205	757,698
Deferred	1,105,070	256,767	715,310
Total   income taxes	4,251,857	4,337,120	4,913,997
NET   EARNINGS	$9,267,556	$9,159,765	$14,740,825
Earnings   per share (EPS) of common stock:
Basic   net earnings per share	$1.82	$1.81	$2.92
Diluted   net earnings per share	$1.78	$1.78	$2.86

Other selected data:

Year Ended
29-May-07	30-May-06
$31.95	$25.70
$2,239,666	$2,229,327
$0.44	$0.44

Required

a. Compute the following for 2007 and 2006:

1. Degree of financial leverage

2. Price/earnings ratio

3. Percentage of earnings retained

4. Dividend yield

5. Book value per share

b. Comment on the ratios computed under (a).

c. 1. Identify special items on the income statement for each of the years 2007, 2006, and 2005.

2. What would be the net earnings for 2007, 2006, and 2005, with the special item(s) removed?

d. 1. Prepare a vertical common-size analysis for 2007, 2006, and 2005 for gross profit and operating profit. Use sales as the base.

2. Comment on(1).