FINANCIAL ANALYST

Domino’s Pizza Enterprise

Student name:

ID Number:

Word count: 1,276

 Table of Contents

1. Introduction.........................................................................................................................................3

2. Financial Statements Analyst.............................................................................................................3

2.1. Financial Performance....................................................................................................................3

2.2. Financial Position...........................................................................................................................6

2.3. Cash Flow Analyst..........................................................................................................................8

3. Recommendation...............................................................................................................................10

4. Conclusion..........................................................................................................................................11

Reference................................................................................................................................................12

2
 1. Introduction

In 1960, Domino's Pizza was founded by Tom Monaghan as a small pizzeria in Michigan,

USA. 23 years since its establishment, Domino's Pizza opened its first store in the Australian; and the

chain quickly expanded throughout Brisbane, Sydney, and Perth. With the strategy of expanding

through M&A activities, after more than 40 years of development, this pizza manufacturer became the

largest pizza chain in Australia in terms of revenue and number of stores. It is also the largest

franchisee worldwide for the Domino's brand. The Group maintains the business through five core

values, including: be generous and provide joyful experiences, crush convention, invest to create

devotion, help people grow and prosper, and do the right thing because it’s the right thing to do

(Domino, 2023).

2. Financial Statements Analyst

Domino is a profit-oriented corporation with public interest via trading in the ASE under the

symbol “DMP”. The Group’s consolidated financial statements are presented in accordance with the

guideline from IASB and the AASB. The fiscal year of the Company lasts 52-53 weeks (Domino,

2023).

2.1. Financial Performance

Domino still maintains annual revenue growth. However, EBITDA and net profit has decreased

sharply from 2021 to 2023:

3
 Figure 1. Financial Performance from 2019 - 2023 (in AUD'000)
2,500,000 32.93% 2,380,546 40%
2,326,837
2,227,302
15.33% 20%
2,000,000 1,931,212
4.47% 2.31%
0%
1,500,000 1,452,843

-20%

1,000,000
-40%

500,000 416,656 395,589

338,064 -60%
230,174 271,524
138,483 184,477 158,716
115,912
40,570
- -80%
2019 2020 2021 2022 2023
Total Revenue EBITDA Net Profit
% Revenue Growth % Net Profit Growth

Although revenue has continued to grow over time, the growth rate has significantly dropped,

declining from 33% in 2020 to only 2% in 2023. This is due to the severe economic downturn in

Australia and on a global scale, which is the result of the prolonged COVID-19 pandemic and political

instability. However, in 2024, with the hope that the economy will gradually recover and grow, revenue

is expected to increase.

The decrease in profit is due to the increase in expenses, especially closure costs, which valued

at approximately AUD70 million. In the middle of economic challenges, the Group chose to optimise

costs. A series of inefficient stores that could not guarantee their committed sales and profits have been

closed. This has led to an increase in various costs, such as reduced asset values, reduced goodwill, and

other obligations related to contract termination.

Revenue is distributed in ANZ, Europe, and Asia regions at about 30-35% market share as

follows:

4
 Figure 2. The 2023 Revenue by Region (in AUD'000)

ASIA; 815123; ANZ; 800654;

35% 34%

EUROPE;
735709; 31%

The Group gains market share and enhances its brand awareness through global operation.

However, the Group is also exposed to certain risks related to exchange rates and interest rates. In case

the exchange rate fluctuates significantly, Domino may be in a disadvantaged position.

Besides, the Group's profit ratios have shown ineffectiveness over the past 3 years. Net profit

margin has decreased continuously, from 8.4% in 2021 to 1.7% in 2023. Correspondingly, the ROA

has decreased from 7.8% in 2021 to 1.7% in 2023.

Figure 3. Profitability Margin Ratio

9 8.4
8.1
8 7.3
8.1 7.0
7 7.8

6 6.5
5 5.6
4
3
2 1.7

1 1.4
0
2019 2020 2021 2022 2023

Net Profit Margin (%) ROA (%)

5
 Figure 4. The 2023 Comparative Profitability
18.4

3.6
1.7 0.9
6.7
3.4
1.4 0.9
in
o ald d. ite
d
on Lt
om ty im
D cD P sL
M lia od
rt a o
us ns
F
A lli
ods Co
e Fo
iv
tit
pe
m
Co

Net Profit Margin (%) ROA (%)

Furthermore, in the last 3 years from 2021 to 2023, the interest cover ratio gradually decreased

from 16.23 to 4.51. According to Budiman (2019), the higher interest cover ratio could ensure the

better financial position and solvency. The sharp decrease for 2 consecutive years also shows a poor

situation.

Figure 6. Interest Cover Ratio from 2019 - 2023

350,000 18.00
16.23
15.33 16.00
300,000 286,638
265,159
12.98 14.00
250,000 11.68
212,566 12.00
200,000 10.00
167,389
150,000 8.00
120,601
6.00
100,000 4.51
4.00
50,000 26,747
18,204 17,656 17,292 2.00
12,892
- -
2019 2020 2021 2022 2023

PBIT Interest Expense Interest Cover Ratio

6
 2.2. Financial Position

In the last 5 years, non-current asset has been accounting for the majority of total assets at about

80%. After a notable increase by 70% from 2019 to 2020, the Group’s total assets have remained

relatively stable in the past 3 years.

Figure 7. Domino's Assets Structure from 2019 - 2023

100% 3,000,000
90% 265,307 522,399 454,754 411,278 590,050
2,500,000
80%
70%
2,000,000
60%
50% 1,500,000
40% 1,173,106 1,948,706 1,897,655 2,020,446 2,289,398
1,000,000
30%
20%
500,000
10%
0% 1,438,413 2,471,105 2,352,409 2,431,724 2,879,448 -
2019 2020 2021 2022 2023

Non-current Assets Current Assets Total Assets

The Group has a low level of inventory, only accounted for nearly 5-8% of current assets and

around 1% of total assets. This is rational since Domino's is an F&B organisation. Ensuring a low

inventory ratio helps the Group reduce expenses relating to storage and preservation, as well as

mitigate the risk of holding outdated products.

7
 Figure 8. Inventory Levels from 2019 - 2023
50,000 8% 9%
8% 7% 8%
40,000 43,120
7%
6% 6%
5%
30,000
30,861 5%
27,912
25,955 4%
20,000 22,110
3%

10,000 2% 1% 2%
1% 1% 1%
1%
- 0%
2019 2020 2021 2022 2023

Inventory % of current assets % of total assets

Figure 9. The Liquidity Ratio

700,000 1.20
1.08
600,000 0.98 0.99
1.00
0.99 0.84
500,000 0.92 0.92
0.80
0.80 0.64
400,000
0.60
300,000 0.59
0.40
200,000

100,000 0.20

- -
2019 2020 2021 2022 2023

Current Assets Current Liabilities Current Ratio Quick Ratio

However, a liquidity ratio below 1 could affect continued operations. Domino's current ratio is

lower than the benchmark of 1.2 to 2 (Johri & Maheshwari, 2015) or 1.5 to 2 (Wójtowicz, 2022).

Pandey (2010) and Chandra (2008) suggested the ideal current ratio is 2. In addition, in case the

liquidity ratio is used as a condition in commercial borrowing agreement, breaching covenants could

make the financial institute the right to change immediate repayment of long-term loans, thereby

impacting the Domino's cash flow. However, according to commitment from Executive Team, there is

no significant issue relating to the low liquidity.

8
 Capital structure describes the proportion of total debt and total equity (Sovaniski, 2020). The

gearing ratio from 2019 to 2023 is as follows:

Figure 10. Gearing Ratio

3,000,000 6.00
5.28
4.95 4.76
2,500,000 4.53 5.00
2,358,931
2,000,000 2,077,732 4.00
3.16 1,957,272 2,009,767
1,500,000 3.00

1,000,000 1,092,406 2.00

520,517
500,000 346,007 393,373 395,137 421,957 1.00

- -
2019 2020 2021 2022 2023

Total Liability Total Equity Gearing Ratio

For many years, Domino has had a high gearing ratio, which implies that the Group’s

operations rely heavily on debts. By doing so, the Group manages to maintain a lower WACC since the

cost of debt is generally lower than the cost of capital. This is suitable for investors with high-risk

appetite.

2.3. Cash Flow Analyst

Despite economic downturns, Domino has always maintained a positive cash flow for the last 5

years. As a result of the challenging economic climate and rising expenses, the Company experienced a

consistent decline in cash flow from 2020 to 2022. In an effort to ensure business continuity, Domino’s

successfully doubled its cash flow in 2023.

9
 Figure 11. Cash level from 2019 - 2023
300,000 47% 50%
45%
250,000 38% 38% 40%
245,678
35%
200,000
27% 30%
150,000 174,689 25%
159,891
19% 20%
100,000
101,404 15%
10%
7% 7% 76,877 10%
50,000 6%
3% 5%
- 0%
2019 2020 2021 2022 2023

Cash % of current assets % of total assets

In the fiscal year ending 02 July 2023, the Group showed the following cash flow fluctuations:

In 2023, the Group’s cash balance has doubled comparing to the previous year’s figures. This

might be the result of the Group’s ability to generate more revenue from customers than the amount

paid to suppliers. At the same time, Domino's has issued more than AUD 160 million equity shares and

increased its borrowing balance by over AUD 300 million to support its business development. A

10
dividend payout of around AUD 120 million was made by the Group in 2023. During the year, the

company invested a large portion of its funds in expanding operations through acquiring subsidiaries.

3. Recommendation

Firstly, the Executive Team should improve the liquidity ratio and make a change in the

Group’s financial position structure. Domino needs to adjust its resource components and ensure that

the liquidity ratio is always greater than 1. It can be conducted by increasing capital finance instead of

using borrowing finance or enhance the efficiency and effectiveness in monitoring AR and AP balance.

The management can also consider using a part of the Group’s cash to settle some loans.

Secondly, the Group should focus on optimising the expenses. Cost of sales can be reduced by

improving operational efficiency, minimising abnormal expenses, and negotiating with suppliers to get

a better price. During negotiations with vendors, Domino can take advantage of being one of the largest

pizza corporations in Australia and purchase in large quantities or sign long-term contracts.

Furthermore, in the context of constantly developing information technology, the application of AI or

modern technology features can be considered.

Thirdly, the management should carefully consider before any dividend payment. While paying

dividends can enhance investors’ confidence, it can also decrease the cash flow and impact on the

Group’s operations. Therefore, Domino needs to evaluate financial requirements and identify an

appropriate amount for dividend, ensuring that sufficient money for operations in the coming period.

Furthermore, in the context that Domino is a multinational corporation, the impact of exchange

rate can be significant to the overall financial performance. Then, the suitable hedging instrument

should be put in the financial strategy. The great hedging tool can create the safeguard to Domino

against substantial losses resulting from unexpected market fluctuations.

11
 4. Conclusion

In the context of a general economic recession worldwide following the COVID-19 pandemic,

Domino's operations have encountered many difficulties, affecting its overall financial performance.

With the expectation that the economy in general and the F&B industry in particular will recover and

grow in the coming years, the Management Team needs to prepare resources and implement

appropriate business strategies to improve its performance and meet the expectations of shareholders,

thereby ensuring the interests of relevant stakeholders.

12
 Reference

Budiman, R. (2019). Rahasia Analisis Fundamental Saham. Jakarta: PT Elex Media

Komputindo Kelompok Gramedia

Chandra, P. (2008). Financial management theory and practice. Tata McGraw Hill Publish

Company Limited, New Delhi

Domino (2023). Annual Report 2023. Domino’s Pizza Enterprises Limited.

https://static1.squarespace.com/static/5bd052c7c46f6d0e23b11afb/t/

64e53baeee6f873f233b91a9/1692744670271/Confirmation+of+Release+-+DMP+-

+FY23+Appendix+4E++Annual+Report.pdf

Johri, S., & Maheshwari, T. (2015). An empirical study on the practical efficacy of ideal

financial ratios. Pranjana: The Journal of Management Awareness, 18(1), 41.

https://doi.org/10.5958/0974-0945.2015.00005.9

Pandey, I.M. (2010). Financial management, Vikas publishing house, New Delhi.

Sovaniski, T. (2020). Capital structure impact on financial performance of Kurdistan

Manufacturing Firms. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3679202

Wójtowicz, P. (2022). Questing benchmarks for the current ratio: An analysis of the warsaw

stock exchange firms. International Entrepreneurship Review, 8(4), 83–97.

https://doi.org/10.15678/ier.2022.0804.06

13