DOMINO’S PIZZA STORES

Preamble
The resources of the company are crucial, however the epidemic has significantly disrupted the
global monetary landscape. The analysis is going to take at various sources of income while
taking into account the specific the business's economic situation. The research investigation will
additionally look into the investment formation theory and the dividend system model. Utilizing
the method for evaluating a business's earnings, the pertinent ratios for financial performance are
going to be computed. The research will examine the US-based DOMINO’S PIZZA Stores
company, which deals in merchandise for sale all over the entire globe.

Company’s Background

Domino's belongs to an international network of pizza restaurants established in Michigan. The

1960-founded franchise is run by CEO Russell Weiner and is controlled by Domino's Pizza, Inc.
The company has its corporate headquarters at the Domino's Farms Office Park in Detroit's Ann
Arbor Township, which is close to Ann Arbor, Michigan, and has its Delaware nationality.
Domino's had about 15,000 locations as of the year 2018, with 5,649 of them being in the US,
1,500 in India, and 1,249 in the UK. Domino's has locations throughout 5,701 cities and 83
countries.

At 507 Cross Street (now 301 West Cross Street) in Ypsilanti, Michigan, close to Eastern
Michigan University, Tom Monaghan with his brother James took inherited the management of
DomiNick's, an existing establishment of a small pizza business franchise that had previously
been operated by Dominick DeVarti. A $500 down payment clinched the purchase, and the
brothers then borrowed $900 to pay for the business. James was reluctant to give up his position
as a permanent the carrier to maintain current with the high standards of the new firm, so the
brothers intended to divide the work hours fairly. In less than a year, James gave Tom his share
of the company in exchange for the Volkswagen Beetle they used to transport pizza.

By 1965, Tom Monaghan had acquired two more pizzerias, bringing his total number of
establishments in the identical region to three. The initial proprietor barred Monaghan form using
the DomiNick's name, despite the fact that he intended the outlets to have the same identity. Jim
Kennedy, an employee, came up with the name "Domino's" one day after returning after
delivering pizza. Monaghan adopted the concept right away and named the company Domino's
Pizza, Inc. in 1965.
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Three circles were first used in the organization's logo in 1965 to symbolize the three shops.
Every time a new location opened, Monaghan intended to add a new dot, but since Domino's
expanded swiftly, this notion quickly lost steam. In 1967, Domino's Pizza launched its first
franchise unit; by 1978, the business had grown to 200 locations. The Domino Sugar
manufacturer, Amstar Corporation, filed a lawsuit against Domino's in 1975, alleging trademark
infringement and unfair competition. The Domino's Pizza case was decided in its favor by the
Fifth Circuit Court of Appeals in New Orleans on May 2, 1980.

Tom Monaghan, the creator of Domino's, declared that he was leaving in 1998, after 38 years as
the proprietor of the company. He then sold 93 percent of the business to Bain Capital, Inc. for
around $1 billion, and he stopped being engaged in the day-to-day management of the business.
The business appointed Dave Brandon as its CEO a year later.

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A.

Evolutionary variables may react positively or negatively to the firm depending on its nature and
mode of functioning. The following two variables related to development are presented and
discussed:

Brexit

The US economy was severely hit by Brexit. Economic rules, shipping expenses, export and
import levies, and emigration of labor and qualified employees have all changed as a result of
Brexit. Brexit has raised rates, resulting in an adverse effect upon the business since it makes it
tougher to purchase and sell components and manage the entire supply chain. Most of the cuisine
sold by DOMINO’S PIZZA Stores is used in the EU and the US. Due to Brexit, the cost of food
that comes from abroad has jumped by 40%.Brexit has a significant impact on DOMINO’S
PIZZA Stores' distribution network in the American alimentary industry since rising tariffs drive
up the cost of merchandise and labor. In order to prevent manufacturing costs from rising and to
continue selling items to consumers at affordable rates, DOMINO’S PIZZA Stores Plc looks for
nearby vendors for this reason.

By entering into partnerships with the American government to control terms with the American
food sector, DOMINO’S PIZZA Stores modifies their supply chain. For their sales to remain
stable and to be unaffected by Brexit, DOMINO’S PIZZA Stores makes significant expenditures
in study, development, and advertising (Sweney, 2019).

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 Fig. 1 DOMINO’S PIZZA Stores’s food consumption (Source: BBC, 2020)

Emergence of COVID 19

Covid had an effect on the global economy as a whole. It has both good and bad effects on the
manner in which every company performs. Companies engaged in e-commerce are unaffected
through the COVID19 epidemic, however other businesses are severely hit. Because additional
dietary supplements are bought by clients throughout the Covid 19 times, which boosts
DOMINO’S PIZZA Stores plc's sequence, from Covid 19 provides a favorable effect on the
company's operations. In August 2019, earnings before taxes for DOMINO’S PIZZA Stores Plc
climbed by 28.7%, which is approximately £557 million. It is the biggest shopping site in the
US, and more customers are making purchases online.

DOMINO’S PIZZA Stores raises its delivery capacity to 1.5 million positions in a weaker during
covid 19 scenarios for this reason. There are 674000 clients it serves. However, as a result of the
Covid 19 company, sales of food and clothing grew by 17.2%, but consumer interest fell (BBC,
2020). About 50 000 freelancers were hired by DOMINO’S PIZZA Stores throughout the
COVID 19 epidemic, and 20 000 of these workers later became lifelong members of the
company. With the gasoline industry excluded, its overall sales climbed by 7%, while its internet
revenues in the US grew by 77% to reach roughly £6.3 billion. Stakeholders at DOMINO’S
PIZZA Stores are dissatisfied with the firm as a result of declining revenue and a 1.5% decline in
its stock price due to covid's adverse effects on the business's bottom line (business-standard,
2020).

Fig. 2 DOMINO’S PIZZA Store’s market share (Source: Perri, J. 2022.)

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B.

Source of finance

Any corporations may obtain funding from either internal or external sources. Equity as well as
debt are two types of financing that corporations use for their operations. Extended mortgages,
debt instruments, deeds of and numerous other forms of debt are considered debt. Equity
includes shares of stock and preferred stocks as well as profits retained. Risk is determined by
the financial makeup of the company and the amount of equity and debt that it has.

Stock and debt make up the financial arrangement for DOMINO’S PIZZA Stores.

Particular 2019 (£ million) 2018 (£ million)

Total Equity £14,834 £10,480
Short-term Debt £20,680 £19,233
Long-term Debt £13,533 £15,171
Equity Share Capital £490 £410
Retained Earnings £5,405 £4,250

Debt

Throughout 2020 and 2021, DOMINO’S PIZZA Stores Plc borrowed $5,673 million and £7,142
million, respectively.

Lending is connected to short-term financial obligations. 2020 will cost £1,599 million, whereas
2021 will cost £1,479 million.

Evaluating the business's assets to its debt is made easier by using the rate of gearing. Both types of
debt are included when calculating gearing ratio.

The proportion of gearing is equal to debt divided by equity.

Annual Evaluation Solution

2019 34213/(34213 +14,834) 0. 69
2018 34404/(34404 +10,480) 0. 76

The reality that DOMINO’S PIZZA Stores Plc's gearing percentage exceeds the recommended
threshold of 0.50 means the company is heavily leveraged. If a corporation has potential losses
and the costs of interest rise, the possibility of harm to the business is going to rise (Annual
report, 2021).

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The theory of capital structures as a cost reduction technique

Because it permits firms control the ratio of borrowing to fairness, the structure of capital theory
also aids in risk management. Four capital structure hypotheses exist:

Concept that is pertinent to capital structure: traditional theory

According to this idea, a business's indebtedness to shareholder equity ratio is crucial since it
determines the cost of financing for the firm. According to this notion, businesses should balance
their debt and equity levels as much as possible. Utilizing the right mix of both equity and debt
can assist reduce the business's average yearly cost of capital, which will raise the prevailing
price of the company. Changes within the financing structure are going to help a company
whenever the expenditure of equities is higher than the bare minimum of internal indebtedness
(Lobo, 2016).

The monetary capitalization of the firm is going to be at its apex whenever the median adjusted
cost of capital for its operations is at its lowest position. Once the firm achieves the optimal
proportion of debt to equity within the business, the rise in equity-related expenses will
ultimately have a detrimental effect on the total accumulated investment expenditures. This will
raise the firm's value and lower the average weighted cost of capital. This traditional approach
makes several assumptions, including that the cost of debt will remain the same for a set period
of time before increasing, that the anticipated rate of earnings from fairness will likewise stay the
power source same before increasing, and that the corporations will strive to have the best
possible debt-equity ratio. For these reasons, the average over a given period of time cost of
investment is expected to be at its the least point before increasing (McGuigan et al., 2017). By
using the subsequent diagram, it is clear.

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 Fig. 3 Traditional Strategy
(Smirti, 2021)
Theory of capital structure that is unrelated to net revenue from operations

The business's worth is not the main emphasis of the capital structure irrelevance hypothesis. It
claims a corporation's capital costs have no impact on the core principles of the enterprise.
According to the net operating revenue concept, changes in the company's share of either equity
or debt do not have an impact on the firm's value. The operational revenue of the business is the
main emphasis of this strategy since it determines the company's worth.

This theory contends that modifications in the debt-to-equity ratio have no effect on the
cumulative aggregate expense of investment. The adjusted cost of assets won't alter. DOMINO’S
PIZZA Stores Plc is utilizing an accounting system regarded as customary in order to lower
volatility plus raise the overall worth of the company's assets. In order to keep its expenses of
borrowing as low as possible, DOMINO’S PIZZA Stores plc continually attempts to preserve an
outstanding debt to equity ratio of between 60% to 40% (Domino's 2021).

Income policy

A business's policy on dividends is based on its profits from the prior year and its earnings. The
company might choose to give dividends to its shareholders or reinvest them. Below, we explore
some models connected to dividend policy.

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According to Walter's concept, a business's dividend policy has an impact on the value of the
company. According to this concept, there is a relationship among the business's IRR and cost of
capital, which influences its dividend policy and boosts shareholder value. The group will share
all profits or reinvestment dividends back into the company. According to the Gordon model, a
company is free to decide whether to pay its shareholders dividends or invest its profits when its
expenses of capital and shareholders' rate of return are equal. When the cost of capital is lower
than the company's IRR, the share price will fall, and the opposite is true (Salawudeen et al.,
2020).

According to Modigliani and Miller's dividend policy, the company's payout policy has no
impact on the wealth of its shareholders. A company may offer fresh shares to the market using
this technique. Because DOMINO’S PIZZA Stores plc is oblivious to paying dividends or
reinvesting in the business, it maintained certain earnings and did both, paying dividends to
investors as well as maintaining the optimal debt to equity ratio that keeps the corporation’s
weighted average cost of capital constant (Domino's 2021).

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C.
The comparison of ratios for DOMINO’S PIZZA Stores Plc for 2020 and 2021 is shown below.

Ratios 2019 2018

Net Profit Ratio 1.67% 10.61%
Gross Profit Ratio 7.05% 6.85%
Current Ratio 0.74 0.67
Quick Ratio 0.61 0.54
Debtors Turnover Ratio 41.61 times 45.83 times
Fixed Asset Turnover Ratio 1.48 times 1.65 times
Earnings per Share 9.99P 63.80 P
Return on Equity 7.27% 49.87%

Assessment

Because DOMINO’S PIZZA Stores plc's year-to-date net ratio is rising, the firm is doing well.
The ratio of net profit to revenue of the business should always be greater. However, despite an
increase in net earnings, revenue from sales is falling. The firm's substantial earnings from
ceasing operations in 2021 are contributing factors why net profits are rising. Because of this, the
net profit ratio is increasing quickly compared to the previous year (DOMINO’S PIZZA, 2021).
The DOMINO’S PIZZA Stores Plc's declining ratio of gross profit is not healthy for the
business. This demonstrates that while the corporation’s cost of production is not rising, sales
income is falling, which has an impact on the corporation’s gross profits.

The optimum current ratio is 2:1; however, DOMINO’S PIZZA Stores plc's current ratio is less
than this, which is bad for the firm. However, the fact that the ratio declined from the previous
year indicates that the corporations is having trouble paying its short-term obligations to outside
parties. The optimum fast ratio is 1:1, demonstrating that the company can promptly pay its
short-term obligations whenever they emerge in the course of operations. Because DOMINO’S
PIZZA Stores Plc's liquidity is below the desired level, it is clear that the company cannot make
immediate payment on all of its debts. Low debtor turnover indicates that a firm carefully
adheres to its credit policy and promptly recovers its receivables, which is excellent.

Because DOMINO’S PIZZA Stores Plc's ratio is so high, it is clear that the company offers its
clients cheap credit, which is bad for business. The current year ratio rises, indicating that

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 DOMINO’S PIZZA Stores would have a delayed 2022 collection of receivables (Inc, D.P. n.d.).
A greater fixed asset turnover ratio is beneficial to the firm. When compared to the prior year,
DOMINO’S PIZZA Stores Plc's ratio is rising, indicating that its assets are being fully utilized
this time around. The revenue ratio has grown, which is positive for the company and its
stockholders, but the cause for the rise in the ratio is the high earnings and profits from ceasing
commercial activities. Higher ratios are desirable, nevertheless DOMINO’S PIZZA Stores Plc's
ratio is rising, which is positive for the company but boosts earnings. While growing equity is the
cause, earnings are rising because of operations that are being discontinued that do not occur
every year (Inc, D.P. n.d.).

Conclusion
The growth elements that had an influence on DOMINO’S PIZZA Stores Plc are covered in the final
section of the report, along with the company's sources of funding. The DOMINO’S PIZZA Stores
Plc model and other dividend policy models are included in the paper. The success of the firm is also
shown by the ratio analysis of DOMINO’S PIZZA Stores Plc for the years 2020 and 2021, which is
covered in the study.

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 d350071d10k.htm.

Appendix

Bilan of DOMINO’S PIZZA Stores Plc Group

(annual report, 2021)

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Revenue statement for DOMINO’S PIZZA Stores Plc as a whole

(annual report, 2021)

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