Chipotle Mexican Grill Inc. (NYSE: CMG) had a tumultuous year in 2015. The company had performed well during the first three quarters of 2015, but suffered from the food-borne illness crisis starting in October. As a result, Chipotle experienced drastic swings in its total enterprise value. Although Chipotle does not utilize long-term debt financing, it still saw huge reductions in its stock price. This resulted in strategic maneuvers by management. The issues faced by Chipotle since December 2014 had a tremendous impact on its corporate financing structure and its total market capitalization, and the impact can still be seen in 2016.

Equity Capitalization

Chipotle hovered around 31 million issued shares from December 2014 to December 2015. The company reached its peak number of outstanding shares of common stock in June 2015 when 31.2 million shares were issued; six months later, the total number of shares dipped to 30.6 million. Chipotle had 1 million outstanding shares relating to stock compensation in December 2014. Twelve months later, only one-tenth the remaining shares remained. Chipotle intends to use stock compensation in the future as an incentive tied to company performance.

The most obvious change to Chipotle’s enterprise value since December 2014 relates to its market capitalization value of its common stock. At the end of 2014, Chipotle’s total market capitalization was $21.2 billion, or just over $685 per share of common stock. Although its stock’s performance wavered slightly in the first six months of 2015, Chipotle still had a total market capitalization of $18.8 billion, or approximately $604 per share.

Impact of Food-borne Illness Outbreak

Chipotle’s market capitalization peaked in September 2015 when it hit a value of $22.4 billion. This translated to a market capitalization per share of common stock of $718. In October 2015, numerous reports of food-borne illnesses were tied to Chipotle, and its stock took a hit. Total market capitalization of its stock plummeted to $14.7 billion in December 2015. Market capitalization per share of common stock dropped to $479. Chipotle made the best of the situation by spending $300 million to repurchase approximately 600,000 shares of its own stock. Still, the drop from September 2015 to December 2015 represented a loss of 34%.

Unique Debt Capitalization Strategy

Chipotle Mexican Grill does not utilize long-term debt financing to fund its operations. Utilizing cash, funds from its investment balance and cash flows from operations, Chipotle is able to operate without any debt obligations. This is due to, in large part, to the nature of the restaurant business, as customers pay with cash or credit cards, and Chipotle has a short receivable turnover. On the payable side, Chipotle’s vendors typically require payment within 10 days of receiving the ingredients. Again, because of the nature of the business, these fresh ingredients are utilized well within this timeframe, allowing the company to quickly turn the inventory into cash.

Cash Reserves

A key reason why Chipotle is able to operate without debt financing is because of its cash reserves. In December 2014, Chipotle held $758.1 million in cash and cash equivalents. This figure reached its peak in September 2015, when the company held on to $959.7 million in cash. However, from September 2015 to December 2015, Chipotle’s cash reserve decreased 30.9% and resulted in holdings of $663.2 million. This was due to its share buyback strategy.

Total Enterprise Value

At the end of 2014, Chipotle’s enterprise value was $21.13 billion. Nine months later, its value peaked at $22.11 billion. Unfortunately, because of the disastrous fourth quarter in 2015, Chipotle’s enterprise value ended the year at only $14.1 billion. The final value at the end of 2015 was 33.4% lower than the end of the previous year and 36.4% lower than its peak. Chipotle maintained $1 of cash for every $28.80 in common stock market capitalization at the end of 2014. At the end of 2015, it was maintaining $1 of cash for every $22.21 of common stock market capitalization.

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