Panera Bread Company is a national bakery-cafe concept with 1,380 Company-owned and franchise-operated bakery-cafe locations in 40 states and in Ontario,Canada.The company has grown from serving approximately 60 customers a day at its first bakery-cafe to currently serving nearly six million customers a week system-wide,becoming one of the largest food service companies in the United States.Sara Lee Corporation is a global manufacturer and marketer of high-quality,brand-name products for consumers throughout the world focused primarily on the meats,bakery and beverage categories.Selected financial information about each company follows:
$1.181.79\begin{array}{lrr}&\text { Sara Lee }&\text { Panera Bread }\\\text { Sales } & \$ 10,793 \text { million } & \$ 1,353.5 \text { million } \\\text { Net Income } & \$ 527 \text { million } & \$ 86.8 \text { million } \\\text { Return on Assets (ROA) } & 8.32 \% & 11.55 \% \\\text { Profit margin } & 7.05 \% & 6.45 \% \\\text { Asset turnover } & 1.18 & 1.79\end{array}$
Required:
a.Why is Sara Lee less profitable than Panera Bread?
b.Return on assets and return on sales in the bakery industry are 4.85% and 8.16%,respectively.How do these two companies compare to their industry and what might explain any noted differences?

Question

Panera Bread Company is a national bakery-cafe concept with 1,380 Company-owned and franchise-operated bakery-cafe locations in 40 states and in Ontario,Canada.The company has grown from serving approximately 60 customers a day at its first bakery-cafe to currently serving nearly six million customers a week system-wide,becoming one of the largest food service companies in the United States.Sara Lee Corporation is a global manufacturer and marketer of high-quality,brand-name products for consumers throughout the world focused primarily on the meats,bakery and beverage categories.Selected financial information about each company follows:

1.181.79\begin{array}{lrr}&\text { Sara Lee }&\text { Panera Bread }\\\text { Sales } & \$ 10,793 \text { million } & \$ 1,353.5 \text { million } \\\text { Net Income } & \$ 527 \text { million } & \$ 86.8 \text { million } \\\text { Return on Assets (ROA) } & 8.32 \% & 11.55 \% \\\text { Profit margin } & 7.05 \% & 6.45 \% \\\text { Asset turnover } & 1.18 & 1.79\end{array}

Required:
a.Why is Sara Lee less profitable than Panera Bread?
b.Return on assets and return on sales in the bakery industry are 4.85% and 8.16%,respectively.How do these two companies compare to their industry and what might explain any noted differences?

Jeron Gallimore · Accepted Answer

Final Answer :

a.)Return on assets,the measure of profitability in this case,is a function of both profit margin and asset turnover.While Sara Lee has a slightly higher profit margin than Panera Bread (7.05% vs.6.45%),its asset turnover is much lower than Panera Bread's which explains the lower return on assets.b.)Neither beats the industry average profit margin,but both are quite a bit better with respect to ROA;thus,both must have asset turnovers that are significantly higher than the industry average.
Feedback:ROA = Profit margin × asset turnover.For example,for Sara Lee,8.32 = 7.05 × 1.18.

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