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Introduction This assignment is related to the manage the financial operations, which helps develop the financial management and monitor the financial procedures, financial performance of the business. Sushi bar was established there years ago , it has the freshest and finest sushi , and the owners want to sell the business, and it’s aiming at top-end corporate clientele. I will look at the financial information and do the ratio analysis, then I will decide whether to buy the business, if it would be a good investment. 1. You are investigating whether to buy Sushi Bar.
Discuss what sort of financial information you would be interested in and why it’s relevant. There are many types of financial information would be concerned whether to buy the Sushi Bar: Ratio analysis: It’s a tool used to evaluate the financial performance and position of a business, communicate financial performance that may not be apparent in P statement and balance sheet. It analyses Overall performance, Profitability, Turnover, Liquidity, Solvency and Leverage. It could provide me all the important warning indications of problems of Sushi Bar,
Income statement: Income statement provides the profit and loss information of the business, and it’s also called P&L statement. The income statement includes the information about the sales, Cost of goods, Gross profit, Labour cost, Overheads, and Net profit. It could show me whether the Sushi Bar made or lost money during the 3 years being reported. Balance sheet: It’s a summary of an organization’s balances, it prefers to financial position or condition, reports on a company’s assets, liabilities and owner’s equity.
It gives a point of business. It could set out the assets and liabilities to show me the net worth of the Sushi Bar. Cash flow statement: It’s a financial statement that shows how change in balance sheet and income accounts affect cash. It’s useful in determining the short-term viability of a company, particularly its ability to pay bills. It could help me to see the Sushi Bar’s cash flow activities, particularly its operating, investing and financing activities.
Retained earnings statement: It’s a basic financial statement that explains the changes in a company’s retained earnings over the reporting period. It breaks down changes affecting the account. It could show me the profit and loss of the Sushi Bar’s operations, and any other items charged or credited to retained earnings. Those statements are more understandable and relevant, realizable and comparable. These financial information that related to the Sushi Bar could help to make a decision property. 2.
You are required to do a comprehensive comparative ratio analysis for Sushi Bar and comment on the business in terms of overall performance, profitability, turnover, solvency and liquidity. Formulate your results into a table. |Area of analysis |Name of the Ratio |Formula |2006 |2007 |2008 | | |Return on |Net profit after tax/|12000 / 100000 |9448 / 185392 |11300 / 284521 | | |investment |average owners |*100=12% |*100=5. 12% |*100=3. 7% | |Overall performance | |equity* 100 | | | | | |Return on total |Net profit before |30500 / 346000 |27357 / 294383 |29248 / 333927 | | |assets |interest and tax/ |*100=8. 82% |*100=9. 29% |*100=8. 76% | | | |average total asset *| | | | | | |100 | | | | |Gross profit ratio|Gross profit/ sales* |245000 / 350000 |256560 / 394708 |348533 / 484073 | |Profitability | |100 |*100=70% |*100=65% |*100=72% | | |Net profit after |Net profit after tax/|12000 / 350000 |9448 / 394708 |11300 / 484073 | | |tax ratio |sales *100 |*100=3. 43% |*100=2. 9% |*100=2. 33% | |Turnover |Inventory turnover|Cost of good sold/ |115000 / 5846= |138148 / 9887= |135540 / 8273= | | |ratio |average stock |19. 7 times |14. 0 times |16. 4 times | | |Current ratio |Current assets/ |74000 / 42500= 1. 74 |53331 / 47601= |38174 / 20500= | | | |current liabilities |:1. 00 |1. 12 : 1. 00 |1. 6 : 1. 00 | |Liquidity | | | | | | | |Quick ratio |(Current assets – |(74000 – 5846) / |(53331 – 9887) / |(38174 – 8273) / | | | |prepayments and |42500= |47601= |20500= | | | |stock) / (current |1. 60 : 1. 00 |0. 91 : 1. 00 |1. 46 : 1. 0 | | | |liabilities – bank | | | | | | |overdraft) | | | | |Solvency |Solvency ratio |Total assets / total |346000 / 167500 |294383 / 196161 |333927 / 154154 | | | |liabilities |=2. 07 : 1. 00 |=1. 50 : 1. 00 |=2. 17 : 1. 00 | Comment:
For Overall performance ratio, the ROI (Return on investment ratio), 2006 is 12%, 2007 is 5. 12%, 2008 is 3. 97%, it’s decreasing rapidity. For the restaurant, the benchmark for the ROI is 10-12%, 2006 was good, but 07 and 08 are terrible. It may be the poor management performance or a highly conservative business approach. For the Return on total assets ratio, 2006 is 8. 82%, 2007 is 9. 29%, 2008 is 8. 76%, it was a little bit improve from 06 to 07, but decreased in 08, the benchmark for it: 6%-10% is average, so for the Sushi Bar, the results are ok, but still need to improve.
For Profitability ratio, the Gross profit ratio, the figures of 3 years are 70%, 65%, 72%. The benchmark for the ratio in generally is around 70%, so 06 and 08 are satisfied, and in 07, it fell down, maybe some problems with suppliers, purchasing systems, and goods wastage. Then it increased in 08, it’s a good phenomenon, For the Net profit ratio (After tax), 2006 is 3. 43%, 2007 is 2. 39%, 2008 is 2. 33%, it deteriorated. Generally, the net profit (after tax) should be 7% of the sales. But the numbers of Sushi Bar are quite low and terrible. It should be some problems with the management, or some operating expense are too high.
For Turnover ratio, the Inventory turnover ratio, from 06 to 07, it was 5 times decrease, and in 08 it’s a little improve to 16. 4 times. Compare to the benchmark for the restaurant, it’s below the satisfactory. Possible reasons could be inefficient purchasing systems and many unwanted stock. For Liquidity ratio, the Current ratio, from 06 to 07, it deteriorated, and from 07 to 08, it improved to 1. 86 :1. 00. For the restaurant, the generally acceptable is 2 :1, so after a few improvement, it’s just ok. The manager should think about paying some debts, refinancing current debt by taking out long-term loans, and so on.
For Quick ratio, there are few fluctuations, from 1. 60 :1. 00 to 0. 91: 1. 00 to 1. 46 :1. 00. 1:1 is considered satisfactory for the restaurant, but higher is better and more satisfactory. So for Sushi bar, the ratio just ok , but decreases, it may be more liabilities , more loads and bank overdraft. For Solvency, the Solvency ratio, the benchmark of the restaurant, 1. 0 :1. 0 is poor, 1. 5 :1. 0 is safe, and 2. 0 :1. 0 is good. For Sushi bar, it’s improving, in 2008 it’s 2. 17 : 1. 00, it is quite good, it means they have the ability to pay back the long-term borrowing of the business. It is because the increasing of the total assets. . With your ratio analysis complete, summaries the status of the business and decide whether this would be a good investment or not. According to the ratio analysis shown above, Look at the overall performance ratio, for the return on investment ratio, it could me one of the most important financial information for the investor, it’s used for evaluating an investment, the figures of the Sushi Bar is far below the standards and deteriorated. For the return on total assets ratio, it could measure how efficiently profits are being generated form the assets, the ratios of the Sushi Bar is in the average level.
Look at the profitability ratios. The sales of the Sushi Bar is increasing every year, that’s good. For the gross profit ratio, the gross profit of 2008 increases fast to 72%, and more than the accepted profit rate, but it’s not stable. For the net profit ratio after tax, it measures net profit as a proportion of sales, the net profit decreased every year, so the ratio is very low, terrible. It must be some problems with the wastage, management. Look at the inventory turnover ratio, it indicates efficiency of firm to sell its products, the figures of the Sushi Bar are serious under the standard of the benchmark.
It’s an important information what I need to look at. The Sushi Bar has badly management of the stock control, and purchasing system. Look at the liquidity ratio, it indicates the ease of turning assets into cash. For the current ratio, it could measure the financial strength of a business. The current assets of Sushi Bar decreases gradually, so the ratio just ok, but under the acceptable. For the quick ratio, they are unsatisfied either, although the total current liabilities goes down in 2008, the ratio just ok.
For the solvency ratio, it shows the business ability to pay its debt obligations, such as the long-term borrowing. The total liabilities of Sushi Bar are decreasing every year, and the figures are quite good. So the Sushi Bar has the ability to pay back Long-term borrowing. After looking the ratio analysis and other financial information, I think it’s not wise to invest the Sushi Bar, so finally I decide not to invest the Sushi Bar. Conclusion The Sushi Bar is aiming at top-end corporate clientele in the Sydney CBD, but after looking through the Ratio analysis and other financial information, I will not invest the Sushi Bar.
The financial analysis tool—ratio analysis could helps for the pricing and management decision making.. The financial figures and information could help and assist us of the financial management, especially in the investment decisions, management decisions and management decisions. The financial analysis tool—ratio analysis could helps for the pricing and management decision making.. Reference list Sai Yeung Foo, Stage 8, 2009, Class notes distributed in the unit THHGLE15B, “Manage financial operations “, Carrick Institute of Education, Sydney campus on 20th April, 2009.
According to Van Der Wagen and Goonetilleke(2008), “It’s a tool used…solvency, leverage”, Van Der Wagen, L and Goonetilleke, A, (2008), Hospitality Management: Strategies and Operations, 2nd , Pearson Education, Australia, P 420. “Income statement” [online], available from Internet: http://en. wikipedia. org/wiki/Income_statement Accessed by 1st May, 2009 “Statement of retained earnings” [online], available from Internet: http://en. wikipedia. org/wiki/Statement_of_retained_earnings Accessed by 1st May, 2009