Question

All projects (or businesses) go through three stages acquisition, operating, and disposition. Using Chipotle Mexican Grill as an example (ticker symbol CMG) please indicate what you believe to be the most important estimate, number or variable in estimating the cash flows of each stage of the opening, operating and disposition of a new restaurant. Put another way -- what do you believe is the most important estimate for Chipotle before opening the store, while operating the store, and in disposition of a store?

Answer 1

Before opening the restaurant:

At this stage, CMG should estimate all cash inflows and outflows of the restaurant. It should look for the feasibility of the project. This means whether the restaurant will generate cash inflows to generate sufficient profit or not. The cash flows should include estimate of cash inflows from customers along with cash outflows in the form of rent payment, depreciation, advertisement cost, salary payments, the food to be bought and any equipment being bought. This stage includes deciding the location of the restaurant to generate sufficient customer inflows.

Operating the restaurant:

During operating the restaurant, the owner should look for recovering all variable costs. If he/she recovers at least variable costs at this stage, then he will be able to run the business properly as in short run recovering variable costs are very important. The variable costs include the cost of food, electricity, telephone charges, the salary payments and other recurring costs. These help to run the store smoothly.

Disposition of the store:

During disposition of the store, the net realizable values are very important. It includes the estimates of receivables and paybles. Net realizable value should be estimates of all receivables through the assets, money receivable from the customers and others. Paybles includes the payment to creditors of business or suppliers of business or any other payment. Net of paybles and receivables are estimated to liquidate the store.