The Cheesecake Factory Incorporated (NASDAQ: CAKE) operates over 200 restaurants and two bakeries in the United States. In its two bakeries, it bakes and prepares more than 70 desserts, both for its own use in its restaurants and for sale to a wide variety of wholesalers and retailers. The Cheesecake Factory’s inventories consist of restaurant food and supplies, bakery raw materials, and bakery finished goods. To account for its inventory, the company uses the average-cost method at its restaurants and the FIFO method at its bakeries. The Cheesecake Factory Incorporated’s financial statements from its 2016 Form 10-K are as follows:

The preceding financial statements have been condensed and adapted for educational use and should not be used for investment decisions.

Requirements

1. Give an example of an item that could be found in each of the following types of inventory for The Cheesecake Factory:

a. Restaurant food and supplies

b. Bakery finished goods and work in progress inventory

c. Bakery raw materials and supplies

2. In which financial statement is The Cheesecake Factory’s inventory found? What is the balance of the company’s inventory at January 3, 2017? At December 29, 2015?

3. In which financial statement is The Cheesecake Factory’s cost of sales found? What is its cost of sales for fiscal year ended January 3, 2017? For fiscal year ended December 29, 2015? For fiscal year ended December 30, 2014?

4. Calculate The Cheesecake Factory’s gross profit percentages for 2016 and 2015. Did its gross profit percentage improve or deteriorate from 2015 to 2016?

5. Calculate The Cheesecake Factory’s inventory turnover for 2016 and 2015. (The Cheesecake Factory’s inventory balance as of December 30, 2014, was $33,255 thousand.) Did the company’s inventory turnover speed up or slow down from 2015 to 2016?

6. Next, calculate the days’ inventory outstanding for 2016 and 2015. Do the number of days’ inventory outstanding make sense for The Cheesecake Factory? Why or why not?

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A1 The Cheesecake Factory Incorporated Consolidated Balance Sheets: Condensed and adapted for educational use (in thousands, except share data) December 29, 2015 January 3, 2017 Assets 3 Current assets: Cash and cash equivalents Accounts receivable Income tax receivable Other receivables Inventories Prepaid expenses Total current assets 53,839 15,632 43,854 14,159 18,739 72,658 34,010 41,976 225,396 892,191 64,592 34,926 52,438 221,427 910,134 10 11 12 Property and equipment, net 13 Other assets: 14 Intangible assets, net Prepaid rent Other assets Total other assets Total assets 23,054 42,162 96,542 161,758 1,293,319 21,972 46,881 46,906 115,759 1,233,346 15 16 17 18 19 Liabilities and Stockholders' Equity 20 21 Current liabilities: 22 23 Accounts payable Other accrued expenses Total current liabilities 41,564 $4 334,962 376,526 313,586 47,770 302,456 350,226 294,581 24 25 Noncurrent liabilities 26 Stockholders' equity: Preferred stock Common stock Additional paid-in-capital Retained earnings Treasury stock 27 28 29 947 931 774,137 1,238,012 (1,409,889) 603,207 1,293,319 710,242 1,140,788 (1,263,422) 588,539 1,233,346 30 31 32 33 Total stockholders' equity Total liabilities and stockholders' equity 34 35 Note: Financial information presented here should not be used for investment decisions. 36 A1 The Cheesecake Factory Incorporated Consolidated Statements of Income: Condensed and adapted for educational use (in thousands) 3 2016 2,275,719 | $ Fiscal Year 2015 2,100,609 $ 2014 1,976,624 4 Revenues Costs and expenses: Cost of sales Labor expenses Depreciation and amortization expense Other expenses Total costs and expenses 526,628 759,998 88,010 700,090 2,074,726 200,993 (9,225) 191,768 52,274 139,494 $ 504,031 684,818 85,563 660,951 1,935,363 165,246 490,306 646,102 82,835 612,650 1,831,893 144,731 (6,187) 138,544 37,268 101,276 10 11 12 Income from operations 13 Interest and other expense, net 14 Income before income taxes 15 Income tax expense 16 Net income (5,894) 159,352 42,829 116,523 $ 17 18 Note: Financial information presented here should not be used for investment decisions. 19