Topic Paper I: For the topic papers, you are to find a recent news story regarding a publicly traded company and relate it to the concepts discussed in the course (see the paper numbers and topics below). You will need to explain in depth how the concepts connect with the issue in the news story and/or could address the issue. The paper should be 5-6 pages in length with at least 3 scholarly references (the textbook is not a scholarly reference but can be used as an additional reference). Useful sources of information for this paper include: https://finance.yahoo.com/ , https://www.sec.gov/edgar.shtml, and the company's most recent quarterly report.

Include analysis of: a) One or more of the five principles that form the foundation of finance, and b) the balance sheet or income statement, as it relates to the company you selected.

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Here is a sample

RECENT FINANCIAL PERFORMANCE OF CHIPOTLE 2 Abstract The intent of this paper is to evaluate the financial performance of Chipotle Mexican Grill Inc. during the last 3 fiscal years to examine growth and evaluate risk. The goal is to determine how growth was achieved as well as the risks and opportunity costs of those decisions.RECENT FINANCIAL PERFORMANCE OF CHIPOTLE 3 Evaluating the Recent Financial Performance of Chipotle Mexican Grill Chipotle Mexican Grill (Chipotle) is considered a fast-casual restaurant chain that has more than two thousand locations and produced revenue of $5.5 billion in 2019. Each individual restaurant is company owned, rather than franchised, and the chain is headquartered in Newport Beach, California. Chipotle has shown signs of recent growth in the last three fiscal years under their current CEO and that trend is continuing upward in the start of this decade. With groundbreaking environmental initiatives and an emphasis on the healthiness of their foods' ingredients, the company is achieving the goal of maximizing shareholder wealth. Three Year Performance At the end of the fiscal year ending in 2016, Chipotle had a decrease in revenue from sales. That marks the only time that sales revenue did not increase from one year ending to the next looking back from 2014 onward (Chipotle, 2020 page 28). Chipotle has since achieved an increase in sales revenue for three straight fiscal years. While sales trending upward is usually a sign that a business is becoming more profitable, Chipotle saw only a modest increase in net income from 2017 to 2018 (Chipotle, 2020). Net income was also at an all-time low in 2016 due to the fallout from several health-related outbreaks that plagued the company in 2015. The potential of this threat to business has been identified by Chipotle as a risk in their annual reports since then (Chipotle, 2020). One of the most noteworthy trends to be observed from the end-of-year balance sheets is the increase in the cost of doing business. Nearly every operating expense has increased for Chipotle over the last few fiscal years (SEC, 2020, page 19). The cost of labor can easily be attributed to the increases in federal minimum wage. Operating expenses related to disposal can be accredited to the emphasis the company has placed on environmental responsibility. SupplyRECENT FINANCIAL PERFORMANCE OF CHIPOTLE chain issues for avocados also impacted the company's bottom line. Lucas (2019) reports, "rising avocado costs pushed the cost of food, beverage and packaging up 1.1%" (para. 1). Despite these increases in operating costs, the company has still achieved growth by maximizing sales opportunities, particularly with regard to digital sales. Increase in Digital Sales The increase in digital sales is a contributing factor in overcoming the increased operating costs. Chipotle first introduced a mobile application that allowed customers to place orders in advance back in 2009. Boulton (2019) writes, "But the app didn't incorporate mobile payment; consumers ordered in advance but waited in line to pay and pick up their food. Partly because of this friction, Chipotle's digital capabilities ultimately accounted for only 4 percent to 5 percent of total sales before Garner took the helm in 2015" (para. 4). By turning the application into a loyalty rewards program, Chipotle has tapped into a modern way of establishing repeat business from satisfied customers. As Lucas (2019) mentions, "digital sales grew 99.1% and made up 18.2% of sales for the quarter. In March, Chipotle launched a loyalty program as part of a broader strategy to build digital engagement. This marks the program's first full quarter since it began. Niccol told analysts that the program now has 5 million members, up from 3 million last quarter" (para. 9). Digital sales now comprise 18% of total revenue for Chipotle (SEC 2020, page 14). The restaurant chain is using data from the application and web transactions to personalize the offers they send to consumers, all of which is based on previous orders. Thanks to their new partnership with Google Analytics, even the timing of the offers is targeted toward the approximate timeframe that customers are about to place an order (Boulton, 2019). To further capitalize on the digital market, Chipotle built separate kitchens in many of theirRECENT FINANCIAL PERFORMANCE OF CHIPOTLE 5 restaurants that handle the digital orders exclusively. The app accounts for lead times based on current orders and even factors in delivery times to provide accurate wait time estimates. By expediting the sales transactions for one fifth or their orders, Chipotle has found a way to make the digital orders more rewarding in a growing market. Chipotle is also now partnering with DoorDash to offer delivery at 95% of its locations. By reinvesting in their digital platform, streamlining the ordering process, increasing prices, and offering delivery, the company has ensured continued growth. Lucas (2019) shows, "The company reported same-store sales growth of 10%, topping analyst estimates of 8.33%. Transactions at stores open at least a year increased by nearly 7%. The average check jumped by 3.5%, helped by menu price increases put in place last year" (para. 15). Revenue from digital sales has been a driving factor in the company's ability to maintain financial solvency even with the increased operating expenses of recent years by focusing on improving the customer experience. It is revealing that same-store sales growth improved by 10% which is a strong indicator that the loyalty program is taking hold. Ratios as a Measure of Financial Competency According to their most recent 10-K filing with the SEC, Chipotle has mostly provided mixed results on many ratios used to determine financial success. In examining the current ratio as a measure of liquidity, the ratio of 1.61 in 2019 took a step back from the 1.81 achieved in 2018 and the 1.94 from 2017. However, according to the acid-test ratio, the company has increased liquidity from .66 in 2017 to .76 in 2019 (SEC, 2020 page 35). Asset management is a measure of how efficiently the firm's assets are being used to generate sales. Within that realm, operating return on assets is used to determine the rate or return being earned on the firm's assets. Chipotle achieved an ORA of 8.7% in 2019 comparedRECENT FINANCIAL PERFORMANCE OF CHIPOTLE 6 to the 11.4% in 2018 and 13.2% in 2017. It would seem that the company's return on the assets at their disposal is actually diminishing. This could be in part to the increase in assets from creating kitchens to accommodate digital sales. Clearly, the increase in assets is greater than the increase in income from operations. It would be interesting to examine this measurement in the coming fiscal years now that digital sales through the app are in place without the expense of investing in separate kitchens. For investors, this may signal an area of growth opportunity in the coming fiscal year. Chipotle's operating profit margins have moved from 6% in 2017, down to 5.3% in 2018, and up to 7.9% in 2019 (SEC, 2020). This ratio of operating income as a percentage of total sales is a good way to measure the fluctuation of operating costs and their effect on net income. The company identified supply chain variations for their food ingredients as a potential risk to operating profit margins. Climate changes and the resulting crop yield have a direct impact on supply and demand. As an investor, noting regional weather events that affect suppliers would be a savvy way to forecast potential increases in operating costs. Investment Risks vs. Rewards Cyber security is a significant risk identified by Chipotle in their most recent filing with the SEC. With the majority of in-store transactions taking place via credit or debit card and an increased reliability on digital sales from the app, this is certainly a factor to consider for investors. It does not make Chipotle uniquely risky from an investor perspective as most companies do business in this way in modern times, but it does signal new ground for Chipotle and investors would hope that they are proceeding cautiously with safeguards in place to protect user data.RECENT FINANCIAL PERFORMANCE OF CHIPOTLE 7 Foodborne illness is also a major risk, not just because it has plagued the company in the past, but because it causes both a decrease in sales as well as an increase in food preparation and disposal costs (SEC, 2020 page 8). It serves as a constant risk for companies in the restaurant business as even one outbreak can have a severely negative effect on the reputation of the brand. Incidents stemming from either of these risk factors may also have significant legal costs and liabilities. Despite these and other risks, investors have continued to be rewarded for buying into Chipotle as shares have gained in the last three fiscal years. Earnings per share have increased from $6.17 at year-end 2017, to $6.31 at year-end 2018, to almost doubling to $12.38 at the end of 2019. The decisions the company has made are clearly benefitting stockholders as the restaurant chain continues to find ways to build upon the customer experience. Conclusion Chipotle is growing as an organization. They have added new restaurants and generated sales through innovation and the incorporation of new technologies. So far, the risk assumed from an increased reliance on digital sales, the possibility of fallout from foodborne illness, and increases in cost of supplies has been negated by the chain's ability to establish and maintain repeated sales. Stock prices have reached an all-time high and value for investors has increased consistently during the last three fiscal years.RECENT FINANCIAL PERFORMANCE OF CHIPOTLE References Security Exchange Commission. (February 5, 2020). Filing Detail, Form 10-K. Retrieved from https://www.sec.gov/ix?doc=/Archives/edgar/data/1058090/000105809020000010/cmg- 20191231x10k.htm Chipotle Mexican Grill, Inc. (2020). Annual Reports. 2018. Retrieved from https://ir.chipotle.com/annual-reports Boulton, C. (November 12, 2019). Chipotle Doubles Digital Sales with Loyalty Program. CIO (Online), Retrieved from https://www.cio.com/article/3452887/chipotle-doubles-digital- sales-with-loyalty-app.html Lucas, A. (July 23, 2019). Chipotle's Stock Hits All-Time High After Earnings Top Estimates, Raises Sales Forecast. CNBC.com, Retrieved from https://www.cnbc.com/2019/07/23/chipotle-earnings-q2-2019.html Yahoo! Finance. (April 22, 2019). Chipotle Mexican Grill, Inc. (NYSE:CMG): Financial Strength Analysis. Yahoo! Finance, Retrieved from https://finance.yahoo.comews/chipotle-mexican-grill-inc-nyse-162911558.html Yahoo! Finance. (February 2-7, 2020). Income Statement. Yahoo! Finance, Retrieved from https://finance.yahoo.com/quote/CMG/financials/