U.S. Restaurant Firm Performance Check: An Examination of the Impact of the Recent Recession

ABSTRACT

This study empirically examines the impact of the current recession on U.S. restaurant firms. Using financial ratio analysis, this study compares 14 financial ratios in 2006, the pre-recession year, with the same ratios in 2008, the during-recession year, to assess different aspects of restaurant firms' financial performance and conditions. The findings of this study indicate that U.S. restaurant firms in all three sectors, namely full-service, economy/buffet, and fast-food, have suffered severe negative impacts from the recession in terms of liquidity, leverage, solvency, efficiency, and profitability. To survive through the current recession, U.S. restaurant firms must raise sales and operating income, improve accounts receivable and inventory turnover, and reduce their reliance on debt financing.