Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. NEW YORK ( TheStreet) -- Frisch's Restaurants (AMEX: FRS) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, poor profit margins and a generally disappointing performance in the stock itself.
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- FRS's debt-to-equity ratio is very low at 0.15 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.24 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 3.6%. Since the same quarter one year prior, revenues slightly dropped by 2.8%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
- The gross profit margin for FRISCH'S RESTAURANTS INC is rather low; currently it is at 17.90%. Regardless of FRS's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, FRS's net profit margin of 4.09% is significantly lower than the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 28.2% when compared to the same quarter one year ago, falling from $2.79 million to $2.00 million.
-- Written by a member of TheStreet Ratings Staff