DOMINO’S PIZZA

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Table of Contents
Preamble..............................................................................................................................................3

Company’s Background......................................................................................................................3

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:.............................................................................................................................................5

Emergence of COVID 19....................................................................................................................6

Source of finance.................................................................................................................................7

Debt.....................................................................................................................................................7

Concept that is pertinent to capital structure: traditional theory.........................................................8

Income policy....................................................................................................................................10

The comparison of ratios for Domino’s Pizza Stores Plc for 2020 and 2021 is shown below.........11

Assessment........................................................................................................................................11

Conclusion.........................................................................................................................................12

REFERENCES..................................................................................................................................13

Appendix...........................................................................................................................................14

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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 company, which
deals in merchandise for sale all over the entire globe.

Company’s Background
An multinational chain of pizzerias founded in Michigan includes Domino's. Russell Weiner, the
CEO, is in charge of the 1960-founded business, which is under the ownership of Domino's
Pizza, Inc. The firm, that is based in Detroit's Ann Arbor Township also maintains Delaware
ethnic background, maintains its corporate offices there. Ann Arbor, Michigan is nearby. In
2018, there were around 15,000 Domino's outlets, 5,649 of which were in the US, 1,500 in India,
and 1,249 within the UK. In 5,701 municipalities and 83 nations, there are Domino's restaurants.

Near Eastern Michigan University in Ypsilanti, Michigan, at 507 Cross Street (now 301 West
Cross Street), Tom Monaghan and his brother James assumed the leadership of Dominick's, the
current home of a small pizza operations authorization which used to be run by Dominick
DeVarti. The pair of brothers secured the deal with a $500 payment as a deposit and withdrew
$900 to finish financing the deal. The siblings sought to split their labor hours equitably since
James were hesitant to leave his role as a professional messenger in order to uphold the stringent
requirements of the newly established company. James traded Tom the ownership of the business
for the Volkswagen Beetle they utilized to deliver pizza in a matter of months.

Throughout 1965, Tom Monaghan discovered a further two pizzerias within his collection,
increasing the overall amount of businesses in the same area to 3. Even though he planned
created the retail locations to share the similar belonging, the original owner forbade Monaghan
from utilizing the DomiNick's moniker. A worker identified Jim Kennedy emerged to propose
the concept for "Domino's" a few days upon arriving upon a pizza delivery. In 1965, Monaghan
immediately embraced the idea and gave the business the name Domino's Pizza, Inc.

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The corporation's logo initially had a trio of circles in 1965 to represent its three businesses.
Monaghan planned to add a new dot whenever a new restaurant emerged, but Domino's rapidly
grew, thus this idea rapidly lost traction. Domino's Pizza opened its initial independent shop in
1967, and by 1978, the company had 200 outlets. Domino's was sued in 1975 on grounds of
infringement of trademarks and unfair rivalry by the company that makes Domino Sugar, Amstar
Corporation. On May 2, 1980, the Fifth Circuit Court of Appeals in New Orleans rendered a
decision in against Domino's Pizza.

Following thirty-eight years as the organization's owner, Domino's originator Tom Monaghan
announced his resignation in 1998. After doing so, he ceased managing the company on a day-
to-day basis and sold 93 of the shares in it to Bain Capital, Inc. for almost $1 billion. Twelve
months later, the company named Dave Brandon as its CEO.

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 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).

Fig. 1 Domino’s Pizza Stores’s food consumption (Source: BBC, 2020)

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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).

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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.

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 techniqueDomino's Pizza Stores plc, which is unaware of whether to pay dividends or
reinvest in the company, maintained certain earnings and did both, paying dividends to investors
and maintaining the ideal debt to equity ratio that maintains the company's weighted average cost
of capital constant (Domino's 2021).

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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
The company is performing well since Domino's Pizza Stores plc's year-to-date net ratio is
increasing. The business's net profit to revenue ratio should always be higher. 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. It is obvious that
Domino's Pizza Stores Plc cannot pay off all of its debts right away because its liquidity is below
the acceptable level. Low debtor turnover is beneficial since it shows that the company properly
follows its credit policy and rapidly recovers its receivables.

Domino's Pizza Stores Plc's high ratio makes it obvious that it provides its customers with cheap
loans, which is terrible for business. The current year ratio rises, indicating that 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
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 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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Domino's (2021). Our Purpose and Values. [online] biz.dominos.com. Available at:
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Cengage Learning.
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Lobão, J. 2016. Behavioural Corporate Finance. United Kingdom: Cambridge Scholars
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Perri, J. (2022). Domino’s grabs the biggest slice of pizza chain market share. [online] Bloomberg
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growth-strategy-qsr-pizza-chain-market-share/.
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in all Subjects in Multi Languages, Gujarat, India.
Sweney, M. (2019). Sainsbury’s falls behind Domino’s Pizza to become US’s third biggest
supermarket chain. [online] the Guardian. Available at:
https://www.theguardian.com/business/2019/apr/02/sainsburys-Domino’s Pizza-US-
supermarket-aldi-lidl.
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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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