1

Darden Restaurants, Inc. Financial Analysis Report

Industry: Restaurants
Martha Wong, Ketty Alvarado, Michael Robinson, Akash Vipani
Dr. Don Giacomino
May 5th, 2016

Statement of Purpose and Executive Summary:

The purpose of this report is to evaluate traditional ratios and perform a cash flow analysis in
order to determine if investors should invest in Darden Restaurants, Inc. (DRI) and if the firm is
a good candidate for a loan. Through the analysis, we do not recommend investing in DRI due to
the downward trending profit margins. We recommend lending to DRI because of ability to
generate enough cash to pay back the loan

TABLE OF CONTENTS

I.

COMPANY AND INDUSTRY OVERVIEW... 3

II.

TRADITIONAL RATIO ANALYSIS.... 3

III.

CASH FLOW ANALYSIS..... 10

IV.

TECHNICAL ANALYSIS..... 13

V.

RECOMMENDATION.. 15

VI.

REFERENCES........... 17

I.

Company and Industry Overview:

Darden Restaurants, Inc. (NYSE:DRI) is a company operating in the restaurant industry.
The main segments are Olive Garden, LongHorn Steakhouse, The Capital Grille, Yard House,
Bahama Breeze, Seasons 52, and Eddie Vs Prime Seafood. The firm as a whole owns and
operates over 1,500 restaurants throughout the United States and 6 in Canada along with another
34 franchises in other areas of the world. Revenues are generated through food and beverage
sales. In May 2014, Darden Restaurants, Inc. entered into an agreement to sell Red Lobster,
which had a significant impact on FY2015 earnings as a result of the $837.0 million pre-tax gain.
The restaurant industry is highly fragmented with low barriers to entry, which makes
competition intense. Other risks include rising labor costs, a socio-cultural trend toward fast
casual dining, instability in foreign countries where Darden operates, and a decrease in
discretionary income as result of poor economic conditions. Despite these challenges, Darden
Restaurants, Inc. stated in their 2015 Annual Report that it would drive supply chain advantages,
enhance the dining experience, and drive operating efficiencies.
II.
Traditional Ratio Analysis:
The traditional ratios of Darden Restaurants, Inc. were compared to Panera Bread and Brinker
International, Inc. After evaluating the ratios, they were each rated on a scale of 1 (weak) to 5
(strong) in order to aid in the decisions of investing in the companys stock and lending to the
company.
Liquidity Ratios- Liquidity refers to a companys ability to meet short-term obligations. It is the
ability to convert assets into cash or to obtain cash. A lack of liquidity can hurt a firms ability to
take advantage of discounts and engage in profitable investments.

Current
Current Ratio
Average
*Source Morningstar
Year

2012

2013

2014

2015

DRI

0.43

0.54

1.22

0.88

0.77

PNRA

1.73

1.00

1.15

1.26

1.29

EAT

0.55

0.49

0.51

0.45

0.50

Industry

0.90

0.68

0.96

0.86

0.85

Ratio - The current ratio is a measure of a firms current assets to current liabilities. It is a
relevant measure of current liability coverage, a buffer against losses, and a reserve of
liquid funds. It is limited because it is a static measure and does not have a causal relation
to future cash inflows. It can be thought of as a quick way to measure the financial health
of the firm. There is not an ideal benchmark for this ratio. This ratio is not always reliable
because it is easy to manage. If there is high profitability, the current ratio is understated.
DRIs current ratio has been trending upward with a small downturn form 2014 to 2015.
The current ratio increased by more than 2x from 2013 2014, indicating the firm
increased its buffer against losses, which is a good sign for the firm. As of 2015, the
current ratio is still below 1 though, which could indicate DRI will have trouble paying
back short-term liabilities. DRIs 2014 and 2015 current ratios are in line with the
industry average. Given PNRA and EATs large spread, this indicates the industry may

have a wide range of current ratios, meaning that some firms have enough current assets
to pay off current obligations, while some are struggling. Rating: 2
Days Sales in Receivable - Days Sales Outstanding - This measures the number of days a
Days Sales Outstanding
*Source Morningstar

Average

Year

2012

2013

2014

2015

DRI

3.12

3.35

3.62

2.33

3.11

PNRA

6.39

5.88

10.07

9.86

8.05

EAT

0.58

5.21

5.38

5.74

4.23

Industry

3.36

4.81

6.36

5.98

5.13

firm takes to collect revenues after a sale. If a firm cannot collect receivables quickly,
this could impact their own ability to pay outstanding bills. DRIs DSO values have remained
fairly consistent and ranged between 2.33 and 3.62 days. There is not much volatility, which
indicates the firm does an adequate job at collecting from customers. As a whole, DRI does
slightly better than peers in the industry when it comes to collecting. Their DSO value has been
lower than the average for the 4 years covered. Rating: 4
Accounts Payable Outstanding
*Source Morningstar

Average

Year

2012

2013

2014

2015

DRI

15.16

15.27

19.37

14.76

16.14

PNRA

2.83

2.67

3.41

3.36

3.07

EAT

14.85

15.34

15.27

14.85

15.08

Industry

10.95

11.09

12.68

10.99

11.43

Accounts Payable Turnover - This ratio indicates the speed at which a company pays for
purchases on account. The longer a firm takes to pay creditors, the more money they have
on hand for investments in working capital, but if they take a long time to pay off bills, it
may anger creditors. DRI saw a spike in this ratio in 2014 (increased from 15.27 to
19.37) but then a decrease in 2015 back to 14.76. Although there was the increase in
2014, there have not been significant swings, meaning that DRI has maintained a
consistent pay back of purchases on account. This is positive because a spike in this value
indicates the firm may be relying on credit and unable to pay for its purchases. It is
concerning that DRIs accounts payable turnover is about 5x PNRAs. Their ratio is also
higher than the industry average, which means that competitors are better at paying off
purchases on account. DRI may be losing out on getting discounts for paying back on
time or early. As long as the ratio stays consistent, this is a good sign for DRI. Rating: 2

Quick Ratio
*Source Morningstar

Average

Year

2012

2013

2014

2015

DRI

0.08

0.12

0.11

0.51

0.21

PNRA

1.38

0.69

0.86

0.9

0.96

EAT

0.31

0.26

0.26

0.23

0.27

Industry

0.59

0.36

0.41

0.55

0.48

Quick Ratio - This ratio provides a more stringent estimate of a firms ability to pay of
short-term obligations because it excludes inventory from current assets. DRIs quick
ratio was relatively flat for 2012-2014 but saw a significant increase in 2015 to 0.51 from
0.11. This is a good sign for the firm because it indicates that DRI is better able to pay off
short-term obligations than in prior years. In addition, the spike in 2015 brings DRI closer
to the industry average. Rating: 2
Long Term Solvency - The following ratios evaluate the firms capacity to meet its long-term
financial commitments.
Long-Term Debt to Total Assets A higher ratio indicates a higher degree of leverage,
Long-Term Debt to Total Assets
*Source Morningstar

Average

Year

2012

2013

2014

2015

DRI

25.37

36.74

35.68

25.10

30.72

PNRA

0.00

0.00

7.19

26.37

8.39

EAT

40.94

53.71

55.84

67.61

54.53

Industry

22.10

30.15

32.9

39.69

31.21

which increases the financial risk. DRI has been working to decrease its leverage and
brought its 2015 LT Debts to Total Assets ratio closer to the 2012 value after spiking
almost 10% from 2012 to 2013. Compared to the industry, DRI holds more debt than
PNRA but much less than EAT. This indicates that firms in the industry are split between
choosing to be rely on leverage. Due to DRIs relatively steady LT Debts to Total Assets
ratio, this shows that DRI is able to manage an appropriate level of risk that hovers
around the industry average. Rating: 3
Debt to Equity
*Source Morningstar

Average

Year

2012

2013

2014

2015

DRI

0.82

1.24

1.17

0.62

0.96

PNRA

0.14

0.78

0.23

EAT

1.15

1.9

5.22

13.19

5.37

Industry

0.66

1.05

2.18

4.86

2.19

Asset Turnover
*Source Morningstar

Average

Year

2012

2013

2014

2015

DRI

1.40x

1.33x

0.90x

1.03x

1.17x

PNRA

1.86x

1.95x

1.97x

1.87x

1.91x

EAT

1.93x

1.97x

1.97x

2.05x

1.98x

Industry

1.90x

1.96x

1.97x

1.96x

1.95x

Debt to Equity - This ratio compares the

amount suppliers and creditors have
supplied to the firm compared to the
amount shareholders have contributed. It
measures the amount of financial
leverage that is being utilized. DRIs
debt to equity ratio increased in 2013
then showed a slight decrease in 2014 and an even larger decrease in 2015. This trend
shows that DRI sometimes is more financed by debt and is sometimes more financed by
equity stakeholders. Their D/E ratios are lower than the industry average largely due to
EATs highly levered capital structure. Rating: 4
Efficiency Ratios- The following ratios evaluate the efficiency of the firm in terms of utilizing
assets to generate revenues and collect cash.
Asset Turnover - Analyzing the dollar amount of revenue accumulated for every dollar of
sales shows how efficient the company is at utilizing its resources. In all cases, a higher
asset turnover ratio indicates that a firm is using its assets more efficiently. Generally, it is
best when asset turnover becomes larger because that means the company is generating
more sales per dollar of assets. In essence, its assets are becoming more efficient. Within
this group, Darden had the lowest asset turnover levels compared to the industry average
in 2015. Most of these firms regressed slightly in 2012, but have since followed a very
gradual increase over the last three years. Only Dardens assets have become less
efficient relative to its total revenue. Additionally, DRIs asset turnover decreased in 2014
due to its negative sales growth. DRI holds more assets but clearly does not use them as
efficiently since it lags behind EAT in terms of sales dollars. Rating: 2

Accounts Receivable Turnover - This measures a firms ability in collecting credit

revenue. A higher number indicates a firms ability to extend credit and collect it
efficiently. A low ratio may indicate a firm is inadequate at collecting receivables or that
it has unreliable customers. Comparing Darden to its peer group, the company has fairly
high ratios from 2012 through 2015, resulting in very high efficiency. The average figure
for this industry is approximately 45.79x, and DRI is above that benchmark. The fact that
DRI can stay above the industrys range signals the companys strength. Rating: 4
Accounts Receivable Turnover
*Source Morningstar

Average

Profitability
ratios - An
DRI
116.90x 109.10x 74.30x 83.60x 95.98x
analysis of the
overall efficiency
PNRA
30.22x 27.92x 26.45x 24.11x 27.18x
of the company to
generate more
EAT
64.68x 65.27x 64.12x 63.58x 64.41x
money.
These ratios
evaluate the
performance of the
Industr 47.45x 46.60x 45.29x 43.85x 45.79x
firm in terms
of turning a profit
y
and
generating value.
ROI- This ratio is applicable to measuring managerial effectiveness, profitability, and
planning and control. A high ROI means the investment gains compare favorably to the
cost of making such investments. However, Darden achieved an average return on
investment of 8.26% from 2012 to 2015. Compared to its peer competitors, DRIs ROI is
the lowest, meaning that the company has not been profitable for the last four years.
Rating: 2
Year

2012

Return on Investment
*Source FactSet

Ave
rage

Year 201
2

201
3

201
4

201
5

DRI

14.
12
%

10.
37
%

3.9
4%

4.6
1%

8.26
%

PN
RA

23.
49
%

25.
78
%

23.
34
%

17.
34
%

22.4
9%

EAT

16.
45

17.
88

16.
88

22.
00

18.3
0%

2013

2014

2015

Ind
ustr
y

19.
97
%

21.
83
%

20.
11
%

19.
67
%

20.4
0%

ROA - This ratio shows how profitable a company is relative to its total assets. ROA gives
an idea as to how efficient management is at using its assets to generate earnings.
Companies that require large initial investments will generally have a lower ROA. If
sales are increasing but the ROA is decreasing, then managers will slow down growth as
they are becoming less profitable. In general, a higher ROA is best. DRIs ROA has
consistently decreased to the point where its most recent year falls 5% below its 2012
level. This continual decrease signals that DRI is not extracting enough profits from
assets year after year. Additionally, within Dardens peer group, Brinker emerged as a
clear front-runner with an average ROA over the four-year time period of 13.44%, which
could signal a shift in consumer preferences. Rating: 2
Return on Asset
*Source FactSet

Average

Year

2012

2013

2014

2015

DRI

8.35%

6.41%

2.61%

3.00%

5.09%

PNRA

15.11%

16.02%

13.94%

10.42%

13.87%

EAT

10.36%

11.31%

10.47%

13.44%

11.40%

Industry

12.74%

13.67%

12.21%

11.93%

12.63%

ROE - This ratio is the amount of net income returned as a percentage of shareholders
equity. ROE measures a corporations profitability by revealing how much profit a
company generates with the money shareholders have invested. An increasing ROE
represents more effective use of the shareholders equity. As evidenced below, DRI and
EAT have exhibited drastic volatility in ROE. Darden, for instance, exhibited the most
volatility from 2012 to 2015 as their ROE decreased from 21.15% in 2013, to 8.75% in
2015. On the other hand, EATs ROE showed exponential growth from 2012 to 2014,
signaling that the firm has been employing its shareholders equity more wisely. Rating:
2
Return on Equity
*Source FactSet

Average

Year

2012

2013

2014

2015

DRI

25.22%

21.15%

8.69%

8.75%

15.95%

PNRA

23.49%

25.78%

24.97%

24.21%

24.61%

EAT

40.39%

71.14%

145.01%

N/A

85.51%

Industry

31.94%

48.46%

84.99%

24.21%

47.40%

Profit Margin (EBIT margin) - This ratio measures

how much out of every dollar of sales a company
can actually keep in earnings. Profit margin also
helps evaluate how a company has grown over
time. In 2014, many of these operating profit margins clustered in the ten percent range;
however, DRI generated less operating profit because the company stopped restructuring
its franchising model. The other firms within this peer group have maintained steady
operating margins of around ten percent. Rating: 2
Profit Margin
*Source FactSet

Average

Year

2012

2013

2014

2015

DRI

9.22%

7.65%

5.27%

6.72%

7.22%

PNRA

13.29%

13.02%

10.95%

9.65%

11.73%

EAT

8.54%

9.58%

10.02%

10.52%

9.67%

Industry

10.92%

11.30%

10.49%

10.09%

10.70%

Capital Structure
Price-to-Earnings Ratio - This ratio essentially indicates the amount an investor will pay
per dollar of earnings. A higher P/E indicates that investors expect higher earnings growth
than firms with a lower P/E ratio. Leverage has the ability to skew this ratio. PNRA leads
its average industry in terms of this price multiple, which signals that investors expect
higher earnings growth in the future. Furthermore, DRI has experienced growth with its
P/E figure over the past 3 years, which shows continued optimism for the earnings of the
company. Rating: 3

Year

Price-to-Earnings
*Source FactSet
Price-to-Book
2012 *Source2013
FactSet

Average
2014

2015

Average

DRI
Year

12.10x
2012

17.70x
2013

20.50x
2014

20.20x
2015

17.63x

PNRA
DRI

27.00x
3.72x

26.60x
3.34x

26.80x
3.04x

31.40x
3.56x

27.95x
3.42x

EAT
PNRA

14.40x
5.70x

18.30x
6.99x

20.20x
6.37x

14.50x
9.80x

16.85x
7.22x

Industry
EAT

20.70x
7.31x

22.45x
17.44x

23.50x
52.07x

22.95x
N/A

22.40x
25.61x

Industry

6.51x

12.22x

29.22x

9.80x

14.44x

10

Price-to-Book Ratio - This ratio indicates how much an investor is willing to pay for the
stock compared to its book value. A low ratio may indicate that a stock is undervalued,
but it may also indicate that investors are placing a discount on the stock. DRI hovers
below the industry average, which could indicate that investors do not anticipate
management to create value from the companys assets. Rating: 2

PEG - This ratio is a more accurate measure of predicting the true earnings power of a
firm. Investors usually have flexibility in determining the period of growth used in the
denominator. Thus, the PEG ratio varies depending on the source of the data, so multiple
data sites were used in comparing DRI to its two main competitors. A higher figure
indicates that the stock price is higher than the earnings growth, and is therefore
potentially overvalued. On the other hand, a lower PEG ratio signals that investors pay
less for future growth, meaning the stock is undervalued. DRIs PEG ratio is the lowest
compared with its peers, with PNRA having the highest PEG ratio. Overall, while DRIs
low PEG could be a positive sign, it could also be a detriment if it cannot meet growth
expectations in the future. Rating: 3
Price/Earnings to Growth
*Source FactSet

Avera
ge

2012

2013

2014

2015

DRI

10.00
%

13.00
%

16.00
%

13.00
%

13.00
%

PNRA

17.00
%

17.00
%

17.00
%

20.00
%

17.75
%

EAT

13.00
%

14.00
%

15.00
%

15.00
%

14.25
%

Indust
ry

15.00
%

15.50
%

16.00
%

17.50
%

16.00
%

III.
Cash Flow Analysis:
Cash From Operating Activities
Darden Incs Cash from Operating
Activities in 2015 was +874.2 M, driving
the business and contributing to the Cash
from Investing Activities. On their Cash
Flow statement, net income was adjusted
in the following ways:
Depreciation, depletion, and amortization:
increased CFO 319.3, meaning that they
depreciated $319.3 M on their equipment.
D&A. Depreciation has been relatively

constant, increasing every year.

Earnings from discontinued operations: decreased CFO by $513.1M. This was from the sale of
Red Lobster.
Deferred expenses: Darden deferred $22M in rent expense and $42 M in income tax expense,
increasing CFO by $64M, because Net Income was expensed but no cash left their business. The
deferred rent expense is due to the loss of Red Lobster. Darden no longer has to expense their
prepaid rent on the Red Lobster spaces.

11

Goodwill: decreased by $36M from 2014 to 2015. Increasing CFO by the same amount. This is
due to the amortization expense of an intangible good, not affecting the cash from Darden.
Impairment and disposal of assets: Darden suffered impairment losses of $62.1M, increasing
CFO by the same amount. This is due to the carrying value of their assets exceeding their fair
market value. This increases CFO because the losses dont affect the Income Statement.
Cash Flow Ratio Analysis:
Cash Flow Adequacy =
Cash from operations
Long term debt paid + asset purchases + dividend paid
The cash flow adequacy ratio measures a
companys ability to generate cash sufficient to
pay its debt, reinvest in its operations and pay
dividend. A value of 1 over several years shows
that the company has the ability to cover these
cash requirements. Darden does seem to have a
problem in generating cash to cover their debt,
plowback, and dividends. They are the lowest of
the group almost every year. Rating: 1

Cash Flow Adequacy

*Source FactSet
2012

2013

2014

2015

DRI

0.88

0.73

0.79

0.53

PNRA

1.90

1.81

1.49

1.38

EAT

1.56

0.58

1.43

0.92

Cash Flow to Sales = Cash from operations

Sales
Cash flow to sales ratio shows the percentage of each sales dollar realized in the cash flow from
operations. This will then approximate the companys return on sales. This ratio is important
because it measures the ability of the company to turn its sales into cash inflows. A company can
increase their sales by loosening or extending their credit terms boosting A/R but actually never
realize the cash. There should be a parallel increase in operating cash flows and sales and the
higher this ratio is the better because it means the company is realizing more cash flow. Darden
was superior in the industry in generating cash from Operations in from their sales.
Rating: 5

12

Cash Flow to Sales

*Source FactSet
2012

2013

2014

2015

DRI

10%

11%

9%

13%

PNRA

14%

15%

13%

12%

EAT

11%

10%

12%

12%

Operations Index =
Cash from operations
Income from continuing operations
The Operations Index compares cash from operations to
income from continuing operations. This shows how
much cash is generated from their continuing
operations. This is similar to the previous ratio in that it
looks at how much of its cash flow from operations is
attributed from their income in continuing operations. A
company can have a lot of cash inflows but it doesnt
necessarily have to come from income from continuing operations. This makes sense because a
company can generate cash inflows from below their top line. Darden has been collecting more
of their receivables. This increase to 192% means that they generated more cash inflows in total
but less from income from continuing operations. Rating: 5
Operations Index
*Source FactSet
2012

2013

2014

2015

DRI

103%

145%

168%

192%

PNRA

102%

112%

121%

123%

EAT

126%

107%

124%

117%

Cash Flow Return on Assets =

Cash From operations

Total assets
Cash flow return on assets measures the return that the company generates on assets based on
their cash generation instead of income generation. Similar to calculating a Return on Assets,
which measures how efficient a company is on generating a return from its assets, this looks at
actual operating cash flow instead of earnings, which can be manipulated. Darden had a boost in
their CFROA because of the large decrease in their total assets. This is from a loss of almost $1B
in PPE and a loss of $100 M in intangible assets. Both of these losses are due to the selling off of
Red Lobster and the loss of the brand name. Rating: 3

13

CFROA
*Source FactSet
2012

2013

2014

2015

DRI

13%

14%

8%

15%

PNRA

23%

30%

24%

22%

EAT

21%

20%

24%

26%

Cash from Investing Activities

Over the past eight years, Darden has had constant net outflows of Investing Cash Flow
except for in FY2015. The large inflow of $1.57 billion is due to the selloff of their Red Lobster
brand restaurants. Besides this large shrinkage in the business, their growth over the past eight
years has been due to PPE expansion. The addition of new restaurants has fueled their company
and created additional revenues each year. The fact that capital expenditures have outpaced their
depreciation and amortization every year except 2015 also speaks to this growth being organic
and not through acquisitions. In 2015, depreciation continued to increase but there was a large
decrease of $100M in CAPEX because they did not purchase as much capital equipment, due to
loss of Red Lobster from their business.
Cash from Financing Activities
Darden Restaurants had a pretty significant year in cash outflows compared to previous years
given its sale of Red Lobster. Net cash flows used in financing activities were $1.78 billion in
fiscal 2015, which is a dramatic increase from 179.2 million in 2014. The reason for this is
because utilizing the proceeds from the sale of Red Lobster; they retired about $1.01 billion of
their long-term debt leaving a significant cash outflow under financing. Other than the changes
in debt payments, there hasnt been any major change Y/Y on the way the firm finances its
operations.
In Fiscal 2015, the company received proceeds from the issuance of common stock upon the
exercise of stock options of $159.7, an increase from $58.1 million. Furthermore, the company
engaged in a share-repurchase program, which increased to $502.2 million from $0.5 million.
The reason the company bought back shares is to prevent its equity from getting too diluted
given there was a sharp increase in number of options exercised in the previous year.
IV. Technical Analysis
Technical analysis indicates when to buy a stock. It involves using charts and volumes.
Figure 1 plots the percentage change in price against time. The chart presents information over
the last year. Based on Figure 1, DRI, PNRA, and EAT did not have much volatility in stock
price a year ago but began having more volatile swings in the past 6 months. PNRA has seen the
most favorable changes through an increase of about 15% while EAT has struggled and
decreased about 20% over the past year. DRI saw a significant decrease in stock price about 6
months ago but has since recovered. Based on Figure 1, PNRA has been trending upward at a
much faster rate than its competitors. EAT has been trending downward. DRI was trending up
then subsequently decreased but looks to be in a recovery period recently.
All three of these companies have unique, predominantly trending prices. Yet of the four,
PNRA has the most consistency. This can be attribute to the long-term trending nature of its price

14

and the steady trading volumes. DRI shows a more volatile up and down pattern compared to its
peer, but the stock's total return is expected to be in line with the average total return of the
industrys coverage, on a risk-adjusted basis, over the next 12-18 months.

Figure 1

*Source Yahoo! Finance

Figure 2

15

*Source Dan Geigler, Morgan Stanley

Figure 3

16

*Source Dan Geigler, Morgan Stanley

V. Recommendation
For Investing:
We are looking at Darden from an earnings standpoint to determine whether or not we
will buy the stock. Darden looks like a good stock to invest in because theyve had a relatively
constant dividend yield, which currently stands at 3.1% according to FactSet. Their ROI
increased after the sell-off of Red Lobster, showing that the sale was positive for the companys
future. Their ROA also increased a small amount after the sell-off, showing that the sell off of
assets was lower than the losses that they were incurring from Red Lobster. Getting rid of Red
Lobster improved their overall returns because it cleansed the balance sheet of the
underperforming asset. Furthermore, Darden may not be a good stock to invest in because their
profit margins are lower than their competitors. The Price-to-Earnings ratio is lower than their
peers and unchanged from the sell-off, so the stock is relatively cheap and its growth prospects
are not seen by the market.
We have decided to not invest in Darden Restaurants because the sell off of Red Lobster
means that the future of the company is still very volatile and it would not be a good time to buy.
Although their ROI and ROA slightly increased from 2014-2015, the values are largely
depressed since 2013. The low profit margins in the corporation does not install faith in the us or
the market. In addition, Raymond James has a SELL rating on this stock while multiple other
analysts such as Piper Jaffray, Morningstar, RBC, Jefferies, and Stephens Inc rate this stock a
HOLD. These ratings do not give us confidence.
For Lending:
We are deciding to lend to Darden from the standpoint of a lender. In deciding whether to
lend to Darden or not, we looked at several ratios. Their Accounts Payable Outstanding is
decreasing, meaning they pay back loans quicker than previous years, which indicates that they
are generating enough cash to pay back their short-term borrowings. Their Days Sales
Outstanding is also decreasing, meaning that they are collecting on their loans faster as well

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meaning greater cash inflows. Lastly, after they sold Red Lobster, their LT Debt to Total Assets
increased. This shows that their PPE decreased more than their debt decreased. This means that
they were using their debt to finance their continuing operations from other restaurant segments
more than Red Lobster and will still need to borrow more making it an attractive space to lend
in. The company has also had substantial increases in their operating index (cash from
operations/income from continuing operations) meaning that they are collecting cash more cash
from operations than operating income. Furthermore, their cash flow/sales ratio has increased
from last year, which is good for debt holders because it means theyre realizing cash from their
sales on account. We would lend to DRI because we have confidence in their ability to pay back
the loan.

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Sources
Darden Restaurant, Inc. (2015, December 20). Form 10-K. Retrieved from FactSet database.
FactSet Research Systems. (n.d.). Darden Restaurant, Inc.: Ratio Analysis. Retrieved April 26,
2016, from FactSet database.
Morningstar. (n.d.). Darden Restaurant, Inc.: Key ratios. Retrieved April 28, 2016, from
Morningstar Investment Research database.