Running head: A FINANCIAL REVIEW OF PAPA JOHN’S PIZZA, INC. 1

A Financial Review of Papa John’s Pizza, Inc.

Has Business Thrived Since Their Founding?

Jeremy Heady

Brown Mackie College

Author Note

This paper was prepared for Principles of Finance BUS2250, taught by Instructor

Johnette Grant.

A FINANCIAL REVIEW OF PAPA JOHN’S PIZZA, inc. 2

A Financial Review of Papa John’s Pizza, Inc.

Has Business Thrived Since Their Founding?

History of Papa John’s Pizza

John “Papa John” Shnatter was only fifteen years old when he came up with the idea for

Papa John’s pizza. He worked at local pizza eatery by the name of “Rocky’s” washing dishes,

but he occasionally made pizzas during the busy time as well. The pizza making station was

directly next to the dish washing station and John noticed that if the product was good, the plates

would be completely emptied when they returned. During this time, he honed his skills as a

pizza maker and transferred that knowledge into his current business. After attending Ball State

University, John came back to Jeffersonville, Indiana to work at his father’s tavern. He sold his

prized possession, his 1972 Camaro, to help the bar stay afloat and decided to start his pizza

business out of a broom closet in the back of the bar. Shortly after, he opened up his own

location next to the bar and made $9000 in sales the first year while other pizza chains in the area

only made $6000. This is when John knew that his business was going to take the world by

storm and started franchising. Years later, he tracked down the same Camaro he sold and bought

it back for $250,000. He keeps it on display to remind him that dreams do come true. (Clifford,

2014)

Financial Status

The symbol for Papa John’s International on the stock exchange is PZZA on Nasdaq.

They did $1,598,149,000 in revenue at the end of 2014 which is up from $1,439,022,000 the year

before. The first quarter of 2015 saw an increase in revenue as well, but the second and third

quarter fell sharply. The most likely reason for this drop was probably due to a large settlement

paid out to 19,000 drivers in the case of Perrin vs. Papa John’s International Inc. The drivers

A FINANCIAL REVIEW OF PAPA JOHN’S PIZZA, inc. 3

alleged that Papa John’s was not reimbursing the drivers in accordance with the Fair Labor

Standards Act (Tucker, 2015)

Financial Ratios

The current operating profit margin is 7.36% which is calculated by dividing the

operating income by total revenue. The quick ratio, determined by calculating the current assets

minus the inventory by the current liabilities, is at 1.2. The debt ratio, which determines how

much debt the company is in, is 65.76%. The return on sales, which is similar to the operating

profit margin except the net income is used rather than the operating income, is at 4.59%. The

debt to equity ratio, which determines how much equity is securing the debt, is 2.67. The

average collection period for accounts receivables is approximately 18 days. (Yahoo Finance,

2015)

Conclusion

In conclusion, Papa John’s has enjoyed a lot of success over the years, but they may be

headed for trouble really soon. With the debt ratio so high, it seems they do not have the

flexibility to adjust costs or raise wages for workers. When I started working for Papa John’s in

1995, many things were done differently than when I was recently an assistant manager into the

first quarter of 2015. One thing I noticed is the drop to minimum wage for all workers not in

management. They also introduced a concept known as “split pay” where drivers made the

server wage while actually driving on deliveries. One of the biggest problems I noticed also is

that the cost of revenue is extremely high compared to sales. If Papa John’s Pizza really is the

best quality pizza chain, they should be perfectly justified in charging slightly more than the

competition. With the return on sales only being 4.59%, something needs to change. Papa

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John’s Pizza needs to return to the high quality pizza chain people learned to love in the early

days of the company.

A FINANCIAL REVIEW OF PAPA JOHN’S PIZZA, inc. 5

References

Clifford, C. (2014, June 20). Papa John's Founder: 'I Am the American Dream' Retrieved

November 23, 2015, from http://www.entrepreneur.com/article/235040

Tucker, L. (2015, Aug 4). Papa John's Announces Second Quarter 2015 Results. Retrieved

November 23, 2015, from

http://www.franchising.com/news/20150805_papa_johns_announces_second_quarter_20

15_results.html

Yahoo Finance - Business Finance, Stock Market, Quotes, News. (2015, Nov 10). Retrieved

November 23, 2015, from http://finance.yahoo.com/