| Course | BU 106 Introduction to Business |
|---|---|
| Unit | Unit 6 |
| Paper type | Finance fundamentals exercise |
| Length | About 970 words, 6 pages |
| Format | APA 7 student paper |
| School | Herzing University |
| Program | BS in Business Management |
| Updated | October 2026 |
Free sample paper for BU 106 Unit 6
Chipotle in Five Ratios: A Finance Fundamentals Exercise on the 2025 and 2024 Statements, and Why Equity Fell While Profit Held
Student Name
Business, Herzing University
BU 106: Introduction to Business
Instructor Name
February 19, 2026
Chipotle in Five Ratios: A Finance Fundamentals Exercise on the 2025 and 2024 Statements, and Why Equity Fell While Profit Held
The Statements
Source: Chipotle Mexican Grill's annual report on Form 10-K for 2025, which presents 2024 for comparison (Chipotle Mexican Grill, 2026). All amounts are in millions of U.S. dollars, rounded to one decimal place.
Income statement, for the years ended December 31.
| Line | 2025 | 2024 |
|---|---|---|
| Revenue | $11,925.6 | $11,313.9 |
| Labor | $2,991.7 | $2,789.8 |
| Occupancy | $624.9 | $563.4 |
| Marketing and advertising | $364.2 | $286.0 |
| General and administrative | $652.0 | $697.5 |
| Depreciation and amortization | $361.4 | $335.0 |
| Food, beverage, packaging and all other operating costs | $4,995.7 | $4,725.8 |
| Income from operations | $1,935.8 | $1,916.3 |
| Net income | $1,535.8 | $1,534.1 |
Balance Sheet, at December 31
The balance sheet lines needed for the ratios below.
| Line | 2025 | 2024 |
|---|---|---|
| Cash and cash equivalents | $350.5 | $748.5 |
| Total current assets | $1,467.0 | $1,780.6 |
| Total assets | $8,994.5 | $9,204.4 |
| Total current liabilities | $1,188.1 | $1,168.8 |
| Operating lease liabilities, current and long-term | $5,075.8 | $4,540.6 |
| Total liabilities | $6,163.9 | $5,548.8 |
| Total shareholders' equity | $2,830.6 | $3,655.5 |
What Each Statement Does
The income statement covers a stretch of time: everything Chipotle earned and spent from January 1 to December 31. The balance sheet is a picture on a single date: what the company owned and owed at the close of business on December 31. Mixing the two, for example comparing a year's revenue with one day's cash, is the most common first-term error, and the ratios below are built to avoid it by pairing figures that belong together.
The Ratios, One at a Time
Net profit margin = net income ÷ revenue. 2025: $1,535.8 ÷ $11,925.6 = 12.9%. 2024: $1,534.1 ÷ $11,313.9 = 13.6%. Chipotle kept about 13 cents of every sales dollar as profit in both years, slightly less in 2025.
Operating margin = income from operations ÷ revenue. 2025: $1,935.8 ÷ $11,925.6 = 16.2%. 2024: $1,916.3 ÷ $11,313.9 = 16.9%. Running the restaurants became a little less profitable per dollar, as labor, occupancy and marketing grew faster than sales.
Current ratio = current assets ÷ current liabilities. 2025: $1,467.0 ÷ $1,188.1 = 1.23. 2024: $1,780.6 ÷ $1,168.8 = 1.52. Chipotle can still cover the bills due within a year, but with less room than a year earlier, mainly because cash fell by about $398 million.
Total liabilities to equity = total liabilities ÷ shareholders' equity. 2025: $6,163.9 ÷ $2,830.6 = 2.18. 2024: $5,548.8 ÷ $3,655.5 = 1.52. The company owes more than twice what its owners have invested, up from one and a half times.
Return on equity = net income ÷ shareholders' equity. 2025: $1,535.8 ÷ $2,830.6 = 54.3%. 2024: $1,534.1 ÷ $3,655.5 = 42.0%. Each dollar of owners' equity produced more profit in 2025, though profit barely changed; the ratio rose because equity shrank.
Reading the Pattern
Revenue grew 5.4% and net income was almost unchanged, yet cash fell, equity fell by about $825 million and the liabilities-to-equity ratio rose sharply. The explanation is in the cash flow statement: Chipotle spent about $2.43 billion buying back its own shares in 2025, up from about $1.00 billion in 2024 (Chipotle Mexican Grill, 2026). Buybacks return cash to shareholders and reduce equity, which makes return on equity look higher and the balance sheet look more indebted, even though the business itself did not change much.
The liabilities also need reading. Most of Chipotle's liabilities are not borrowed money but operating lease obligations for its restaurant sites, $5.08 billion of the $6.16 billion total. Since accounting rules adopted in 2016, companies record leases as liabilities on the balance sheet (Financial Accounting Standards Board [FASB], 2016). A chain that rents nearly 4,000 locations therefore shows large liabilities even with little or no bank debt. The liabilities-to-equity ratio mostly measures how much rent Chipotle has committed to, not how much it has borrowed.
What It Means for the Firm
Chipotle is consistently profitable, keeping about 13% of sales as profit. It chose in 2025 to return a large amount of cash to shareholders, which tightened its short-term liquidity and raised its reported debt burden. That is a deliberate financial choice rather than a sign of trouble, but it leaves less cash cushion if sales slow. The course text notes that ratios mean most when set against earlier years and against each other (Gitman et al., 2018); here, three ratios that moved in worrying-looking directions are explained by one decision about buybacks and one accounting rule about leases.
Who Would Care About Which Ratio
Different readers of the same statements would focus on different results. A lender deciding whether to extend a line of credit would look first at the current ratio, which fell from 1.52 to 1.23, and at cash, which fell by more than half. Neither is alarming for a company that generates cash from its restaurants every day, but a lender would ask whether buybacks will continue at the 2025 pace. A landlord offering Chipotle a new site would care about the lease obligations, which rose by about $535 million as the chain signed leases for new restaurants, and would take comfort from steady operating income that covers rent many times over. An investor would focus on profit margins and return on equity, and would note that the rise in return on equity came from a smaller equity base rather than from higher profit.
A restaurant general manager would care about none of these directly, but would feel the operating margin. The fall from 16.9% to 16.2% reflects costs that managers see every week: wages, rent and marketing growing faster than sales. That is the ratio most connected to decisions made inside a restaurant.
Questions a Manager Would Ask Next
The ratios raise three questions the statements alone cannot answer. First, did sales grow because customers visited more often or because prices rose? The answer determines whether the small drop in margin is temporary. Second, will buybacks continue at $2.4 billion a year? If so, cash and equity will keep falling and the current ratio could drop closer to 1. Third, how much of the growth in labor cost came from new restaurants and how much from higher wages at existing ones, such as the California increase discussed earlier in the course? Each question points to information in the notes to the statements or in the company's quarterly reports, which is where the next step of analysis would go.
References
Chipotle Mexican Grill, Inc. (2026). Form 10-K for the fiscal year ended December 31, 2025. U.S. Securities and Exchange Commission. https://www.sec.gov/Archives/edgar/data/1058090/000105809026000009/cmg-20251231.htm
Financial Accounting Standards Board. (2016). Accounting Standards Update No. 2016-02: Leases (Topic 842).
Gitman, L. J., McDaniel, C., Shah, A., Reece, M., Koffel, L., Talsma, B., & Hyatt, J. C. (2018). Introduction to business. OpenStax. https://openstax.org/details/books/introduction-business
Reading the BU 106 Unit 6 instructions
Unit 6 asks you to calculate and interpret basic financial ratios for a company. Expect to name the source, present the needed figures, explain what each statement does, calculate each ratio with its formula and inputs, read the overall pattern, explain what it means for the firm, identify who would care about each ratio and raise follow-up questions. Students often ask which ratios to choose. Pick ones that cover profitability, liquidity and debt. Show the formula and the numbers for both years, so changes are visible. When ratios move in surprising directions, look to the cash flow statement for the cause, such as share buybacks. Explain each result in a plain sentence.
How the BU 106 Unit 6 example is put together
The exercise opens with the filing and units. A table lists revenue, net income, operating income, current assets and liabilities, total liabilities and equity for both years. A short section explains what each of the three statements shows, in a sentence or two apiece. The ratio section calculates five ratios for both years, each followed by a plain reading. The pattern section explains that revenue grew 5.4% and profit stayed flat, while cash and equity fell because the company spent heavily on repurchasing shares. The meaning section notes tighter liquidity and heavier reliance on debt. The audience section matches lenders to the current ratio and investors to return on equity. Three questions for managers close it.
BU 106 Unit 6 rubric: what full points look like
Herzing's rubric for a finance fundamentals exercise typically covers the source, figures, statement explanations, ratio calculations, interpretation and audiences. Correct calculations with formulas and inputs shown carry the largest share, since every interpretation rests on the numbers. Source points reward the company's filing and units. Figure criteria look for the exact lines used. Explanation credit goes to plain descriptions of each statement. Interpretation points reward finding the cause behind surprising changes, such as buybacks lowering equity. Audience points reward matching ratios to the people who use them. Follow-up questions are often credited. Figures come from the 2025 annual filing, with ratio definitions from the Introduction to Business textbook and FASB's reporting standard.
Common BU 106 Unit 6 mistakes, and how to avoid them
Finance exercises in BU 106 Unit 6 commonly lose points by reporting a ratio as a bare percentage nobody can check. Calculating only one year is another common gap. Students often read a rising return on equity as pure good news, missing that lower equity drove it. The cash flow statement is ignored. Ratios are interpreted with jargon instead of plain sentences. Units are mixed. Who uses each ratio is not discussed. Rounding is inconsistent, so totals do not match. Comparisons with a competitor are missing, though one peer would show whether the pattern is unusual. Finally, ask why a ratio moved, because graders reward an exercise that explains the business decision behind the numbers rather than only the numbers themselves.
Get a BU 106 Unit 6 example written to your instructions
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BU 106 Unit 6 questions, answered
Which ratios should the exercise include?
Whichever ones the instructions specify. Where that is left to you, pick a small set covering different questions: one on liquidity, one on debt, one on profitability. Three explained well score better than eight listed. Say why each was chosen for the firm in front of you, since a lender and a supplier look at different things and the selection is part of the answer.
Do I need real company statements?
Only if the assignment says so. Public companies publish theirs and they are entirely usable with a citation, but the figures are large and the statements carry items a first term exercise does not need. A composite set built for the assignment is often clearer, provided the totals balance and you state that the firm is constructed. Either way, print what you used.
How much arithmetic should be shown?
All of it for each ratio: the formula, the substituted figures and the result. Sections differ on whether a spreadsheet is accepted, and where one is, keep those three lines visible rather than pasting an answer cell. A marker who can see the substitution can award partial credit for a method when a single input came off the wrong line.
Where can I find a free BU 106 Unit 6 sample paper?
Read the complete BU 106 Unit 6 finance fundamentals exercise here at no charge, five ratios from Chipotle's statements with formulas and a plain explanation. Ask for a custom exercise on another company.
Why would a company's equity fall when profit stays the same?
Large share repurchases or dividends can reduce equity faster than profit adds to it. This sample shows that pattern in Chipotle's 2025 statements.