1. Make a business strategy plan

2. Comment more on the sustainability of profits generated by the company's strategy. (More based on numbers in financial analysis, not general strategy statements on the first pages of the report anymore)

Why do you think the firm's return on equity will or will not revert to its cost of capital?

Add anything you find necessary to my text.

3. Explanation for annual reports 2022 or 2023 for example and read something about the reason for these cash flows in the notes for Cash Flow Statement

4. Make an Accounting Analysis for CollinsFood (ASX:CKF)

** All data and information must be use from FactSet and must include references.

BUSINESS STRATEGY

1. Business Strategy: Briefly describe the industry and the company's position within the industry and, most importantly, the sustainability of profits generated by the company's strategy. Why do you think the firm's return on equity will or will not revert to its cost of capital? Please do not simply repeat the company overview from the company's website or Management Discussion and Analysis.

Collins Foods operates in the Quick-Service Restaurants (QSR) industry, which is recently gaining increasing popularity within the food industry mainly because of providing fast services and flexible delivery. The market size and share are expected to see significant growth over the following period. Consumer preferences are shifting towards innovative delivery methods, high-quality ingredients, vegan and healthy options, and appealing product appearances (Fortune Business Insights 2024).

In the recent period, Collins Foods addressed in its strategy lot of issues regarding changing customer preferences and quickly evolving innovative solutions in this industry. Its overall strategy focuses on running high-quality restaurants, expanding its footprint in all currently operated regions, improving the economic measures of Taco Bell, and pursuing KFC acquisitions (Collins Foods Limited 2023).

In the last 3 years, Collins Foods mainly focused on expansion and growth, exploring new acquisition possibilities, mostly in the Netherlands, supported by a new agreement signed with Yum! It additionally focused on investments in automation, new kiosk installations, and menu boards, as well as enhancing its transparency of its ESG strategy by introducing a separate report for those matters (Collins Foods Limited 2021). In 2022, the reduction in net debt enabled an even greater focus on the company's growth strategy, new acquisitions, more site openings, and increasing the number of sites in the Netherlands. The company placed greater emphasis on delivery channels, e-commerce, and innovation, including introducing the first drone delivery pilot in partnership with Wing and Yum! Brands (Collins Foods Limited 2022).

Most recently, the company showed a greater focus on customer experience. By stronger utilization of digital and delivery channels and investing in e-commerce, it responded to ongoing changes in customer expectation trends. Notably, there was increased availability through major aggregators, especially UberEats. Additionally, the company upgraded its digital software to ensure higher personalization through the app and renovated its sites through design changes, new music elements, separate entrances for delivery drivers, and waiting areas. To engage more with local customers, the company is creating more flavor profiles consistent with local tastes. Collins Foods is continuously working on raising awareness of Taco Bell restaurants by investing in marketing activities and expanding its presence (Collins Foods Limited 2023).

The company has experienced a positive revenue growth over these three years, moslty driven by its sites expansion, higher ticket sizes, high e-commerce growth, improving delivery channels and thier availability through partnerships like UberEats. It plans to continues pursuing its growth strategy by opening 13 to 18 new restaurants on the upcoming period, which is likely to further enhance its revenue figures, also considering the increasing size and share of the QSR market (Collins Foods Limited 2023). Focusing on e-commerce growth is likely to lead to higher revenues as its share in sales increases each year. Pursuing innovative strategies regarding technologies and enhancing customer experience secures the company's competitive position in the market, based on the industry analysis (KFC vegetarian options are very successful on the market as well). Morevoer, it is important to highlight company's high brand recognition and loyalty increasing over years, as Collins Foods invested a lot into promotion of its sites. However, in the recent years, company was also facing pressures from the increased prices of commodities and therefore increased COGS having negative impact on profits. The prices should have, nevertheless, achieved their peeks (as well as inflation). For all the mentioned reasons, we believe in sustainability of the company's profits in the upcoming years.

(overall positive trend of gross margin, net profit, also ebit, sales,...?)

ACCOUNTING ANALYSIS

Accounting Analysis: Assess the degree to which the firm's accounting reflects the underlying business reality. Identify accounting distortions and their impact on the sustainability of profits. For instance, R&D is sometimes expensed when incurred, but probably creates an economic asset. How will this affect your forecasts? You may also want to restate or rearrange the existing financial statements to make them easier to analyse and forecast.

Franchise fees and royalties form a substantial part of Collins Foods Ltd's revenue stream, reflecting the company's business model that involves franchising well-known brands. Proper

FINANCIAL ANALYSIS

Financial Analysis: Use ratio analysis and cash flow analysis to evaluate the current and past performance of the business and assess its sustainability. You should definitely compare your company to some peers in the same industry. Focus on ratios that are important in describing the performance of your company and explain why those ratios are important.

Ratios

In order to get a comprehensive view of Collins Food's financial health, operational efficiency, profitability, liquidity, solvency, and market valuation, the 4 key ratios: profitability, liquidity, efficiency, and leverage ratios have been used to assess company's current performance. To ensure consistency and accuracy in the formula and calculation, the data from FactSet has been utilised throughout the entire report. We chose Restaurant Brands International (RBI) and Yum! Brands as two main competitors we want to compare Collins Food's financial outcomes with. The choice was made due to the similar nature of their businesses in terms of business model, market segment, and size of the companies. For all the companies, we were mostly looking at average values from the past 6 years to also look at pre-Covid values.

Profitability Ratio

Firstly, the gross margin ratio measures the percentage of revenue that surpasses COGS. It assesses the company's efficiency in managing its production costs. This ratio is very important for Collins to monitor its expenses so that they can always control production costs. For the past 6 years, Collins has been able to keep its gross margin steady with very minor fluctuations. This suggests that Collins Food operates efficiently as after deducting COGS, it keeps more than 0.50 cents for every dollar it generates annually. McDonald's is somewhat more proficient in controlling their production costs, with an average gross margin of 53.48%. The larger profit margin obtained by McDonald suggests that it has a strong competitive position in terms of cost control and pricing power. However, Collins Food still perform well, but it needs to enhance its pricing strategy.

Secondly, the net profit margin is crucial in determining the portion of revenue after deducting various costs, including interest, taxes, and operational expenses. Over the past few years, Collins Food has maintained a steady profit margin, with the highest recorded during 2022 at 4.58%, which indicates that the company was able to sustain 4.58 cents for every dollar of revenue it received. However, the ratio in 2022 was remarkably low, suggesting that a large amount of money has been spent on many types of expenses. Collins' average net profit margin was 3.40%, far less than that of McDonald's at 28.86% and Domino's Pizza at 11.26%. Collins's poor net profit margin may result from excessive operating expenses and ineffective cost control.

Thirdly, the ROE assesses how well a business makes use of its equity to generate profit. A higher ROE means that Collins Food is more efficient at turning equity financing into profit. The ROE was falling from 2019 to 2022, before rising again to 14.30% in 2022, marking the highest point in the previous 5 years. However, the ROE in 2023 was very low, at just 2.9%, making it less attractive to investors and suggests that the management might not be utilising the company's equity as efficiently as possible to generate profit. This year, Collins achieved strong profitability, with 13.7 cents in net profit for every dollar of shareholder's equity. Collins outperforms Mc Donald's and Domino's Pizza since both of them have negative ROE.

Finally, ROA plays a crucial role in profitability by revealing whether the business efficiently use of its assets to generate profit. When a company uses its assets more profitably, its return on assets will increase. The average ROA for Collins Food is 0.03, indicating that the company earns 3 cents in profit for every dollar of assets it owns. Meanwhile, McDonald's is generating 14.03 cents, while Domino's is generating 32.92 cents for each dollar they receive. These competitors have extremely high ROA, indicating a strong financial situation. Collins should therefore enhance asset utilisation and make wise investments in order to raise ROA.

Liquidity Ratios

The current ratio is crucial to evaluating the company's capability to pay its current liabilities with its current assets. Collins' average current ratio over a six-year period is 0.76, indicating that the company may be experiencing liquidity problems due to a larger amount of current liabilities than current assets. In contrast, McDonald's and Domino's Pizza demonstrate that they possess adequate liquidity to meet their short-term obligations, as seen by their respective average ratios of 1.29 and 1.58.

Next, the quick ratio also measures the liquidity of the business by excluding inventory. Collins quick ratio fluctuates every year with an average of 0.71, which is below 1, signalling that it has difficulty meeting its short-term liabilities, leading to huge financial risk. McDonald's and Domino's Pizza have a quick ratio of 1.23 and 1.45, respectively, indicating that they can use their most liquid assets to cover their current liabilities. In conclusion, McDonald's and Domino's Pizza are more financially stable in managing their working capital compared to Collins Food after considering the liquidity ratios.

Efficiency Ratios

Efficiency ratios help us to understand how effectively the company utilises its assets and runs it operations. We have firstly calculated asset turnover which explains how effectively the company uses its assets to generate sales. On 6-year average, Collins Foods generates $0.95 for every dollar of assets. Compared to its competitors, Yum! Brands achieves average value of $1.14/dollar of asset, while on the other hand, RBI on average achieved only $0.26. Collins Foods therefore takes a middle position among its competitors, although there is still room for some improvement. Inventory turnover, on the other hand, is a very important ratio in Quick Food Industry as high turnover indicates freshness and better quality of food or better waste management. Compared to RBI which achieves on 6-y average a turnover of 25.58, Collins Foods reached a higher value of 41.35. That means that the company, on average, turns over inventory 41.35 times a year, representing a highly efficient inventory management.

Solvency Ratios

Solvency ratios are crucial as they define the company's financial stability and ability to meet long-term obligations. To again get a comprehensive view, we decided to look at company's capital structure and financial risk by calculating debt/equity ratio, together with its current ability to repay the outstanding debt by calculating interest coverage ratio. Collins Foods shows positive figures compared to its competitors that either achieved negative equity values or much higher debt/equity ratio. Lower debt/equity ratio is a positive aspect of financial stability of the company, lower risk of bankruptcy and more attractive for investors. However, it is always important to look at other aspects such as that the debt might be overall less expensive than equity, ect. Moreover, Collins Foods achieves the highest average interest coverage ratio among the competition indicating a strong ability to pay for its interest obligations.

Cash Flow Analysis

Looking at the CF Statement, for Collins Foods, Operating Cash Flow is increasing over time while also staying positive since 2019. (Again our 6 years tracking period)

• That is a good sign cause operating cash flow indicates how well the company is able to pay for its core operating expenses. On the other hand, we also calculated Operating cash flow ratio (operating cash flow/current liabilities) which over the 6 years period only exceeded 1 only once. Therefore most of the time, the company is not about to repay its current liabilities with operating cash flow
• Very similar trend can be seen at competitors = also positive and mostly increasing over time

Investing

• Negative over the whole period
• 2022 and 2023 visible higher investment

Free Cash flow

• The values are definitely fluctuating over the years but overall achieve generally positive trend and in those 6 years almost doubled from 2019 to 2024 indicating company is making positive progress in generating free cash flow. Free cash flow is important as it is cash available to the company for further investment and enables company to return value to shareholders for example thrugh dividends
• Yum rather decreasing trend over the years and RBI much more fluctuating and decreased from 2019 to 2024

To DO: Would be needed to still look into some annual reports 2022 or 2023 for example and read something about the reason for these cash flows in the notes for CF Statement

FORECASTING

Forecasting: Forecast the firm's future income statements and balance sheets. This is the heart of the project so provide specific justification for each major component of your forecasts. Is the forecast based on past trends, comparisons with other firms in the industry, an industry report, or your gut feel? How does your forecast for the next few years compare with analyst forecasts? Finding relevant data from outside the firm's own financial statements to guide your forecasts is particularly valuable here, but please only access publicly-available data; do not use inside information that you may have gathered from personal contacts in the company. You should show your key forecasts in the project report itself (i.e., don't just state that the reader "should refer to the excel spreadsheet').

VALUATION

Valuation: Use either the residual income (i.e. abnormal earnings) model or a discounted free cash flow to equity model to produce an estimate of firm value. Focus on the value per share of equity in the company and compare your valuation to the market valuation, providing possible explanations for any differences. You should also conduct a sensitivity analysis by varying your discount rate and other crucial assumptions. You should include a summary of your valuation in the report, and not just in your excel file.

INVESTMENT RECOMMENDATION

Investment recommendation: state whether you would recommend a buy, hold, or sell for your company. Assume that you are advising a long-term investor with an existing portfolio that is well-diversified.