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Non-Tech : BJ's Restaurants Inc.
BJRI 36.77+1.6%3:59 PM EST
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To: Lhn5 who wrote (119)3/27/1998 8:14:00 PM
From: Wowzer  Read Replies (1) of 865
 
Most restaurant stocks have negative working capital due to the cash nature of their business. (Working capital = current assets - current liabilities). Check out BREW UNO OSSI even MCD all have negative working capital, or a current ratio of less than 1, where current liabilities exceed current assets. CHGO's was positive due to the funds received from the IPO. However as the cash is used to fund expansion and conversions, this short term asset of cash is converted into longer term assets such as leasehold improvements or paid out in conversion related expenses.

Thus bringing CHGO's working capital ratio more in line with its industry. Your statement that the $1.9 million is earmarked for AP is not necessarily true. If we stopped business today and settled up and used current assets pay off current liabilities then we would have $232K left over. However CHGO is an ongoing concern and you must factor in their positive cash flow which currently is sufficient to cover operations (including accounts payable) as well as long term debt service. Therefore the $1.9 million in cash can still be used to fund conversions and expansions leaving its operating cash flow to pay accounts payable, debt service, etc.

In the near term (rest of 1998) I don't think management foresees they will have to acquire additional debt to fund their conversions and expansions. Debt is a double edge sword, while it doesn't dilute shareholders interest, it exaggerates your ROI both positively and negatively. The same way buying stock on margin does.

Rory
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