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西安交通大学 skywalker. C on t ent. Ⅰ. Problem identification Ⅱ. Analysis and recommendations Ⅲ. Summary of action plan Ⅳ.Other issues. Problem. When. Where. Who. Ⅰ. Problem Identification– Case overview. - PowerPoint PPT Presentation
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Ⅰ. Problem identification
Ⅱ. Analysis and recommendations
Ⅲ. Summary of action plan
Ⅳ.Other issues
Content
西安交通大学
skywalker
Ⅰ. Problem Identification– Case overview
Li Wang, manager of the shop
Shortly after FY2009
Pudong,Shanghai
When
Who
Problem
Loss in 2009Profitability problem
Where
•China—
Prosperous future for coffee shop industry
•Shanghai—
Financial and commercial hub of China
Competitors
Private business school
Office buildings
Residential department
Ⅰ. Problem Identification– SWOT Analysis
strength
weakness
threats
opportunities•Good customer experience: non-smoking ample magazines provided free fruit and biscuit in the afternoon•Customer loyalty
• Loss in 2009• Not attractive to new customers• negligible take-away business • Price limited by nearby competitors
•Growing coffee-drinking culture•Two-digit growth in domestic• market •Customers requiring high qulity •service and product•Take-away business•Offer growth potential
• Liquidity problems if not performing well • Rent costs expected to grow after 2015 • Potential new entry for high growth & Low entry barrier
Ⅰ. Problem Identification– Financial Analysis
2008 2009
ROCE 0.079 0.017
ROE 0.075 -0.033
2008 2009BMK
(Average)
Net Profit Margin 0.035 -0.015 0.050Profits dropped significantly from last year. And this coffee shop’s profits are generally lower than the average.
If the coffee shop’s profitability remains constant, it will take tens of years for the owner to recover his investment. Unfortunately, the case is the profitability is actually deteriorating!!
2008 2009 BMK(empirical value)
Ratio of cash to current liabilities 0.715 0.717 1.00 or higher
The cash balances at both year ends are too slim to cover the payables, indicating some liquidity problems. Therefore, it is urgent to generate more cash to mitigate the situation. Liquidity
2008 2009 BMK(empirical value)
Interest cover 2.215 0.422 1.00 or higher
Solvency
The interest cover drops substantially from the last year. The slim profit renders the company extremely difficult to pay the due interest.
Ⅰ. Problem Identification– Financial Analysis
11
5. 62
29. 2
0
5
10
15
20
25
30
average 2008 2009
operating leverage
The operating leverage rocketed to 29.2 this year, indicating some potentially high operating risks.
3 strategic objectives3 strategic objectives
To reverse this trend, we should …
% change in operating income
% change in sales
% change in operating income
% change in sales
% change in operating income
Due to the high DOL (degree of operating leverage), a minor change in sales can bring a significant one in operating income.
Thus we can boost the operating income by way of increasing sales volume.
Sales Volume
3 strategic objectives3 strategic objectives
Sales Volume
Demand curve and price elasticity analysis
P(RMB)
Q (Demand)
50
47.6
19215(Y2008)
18600(Y2009)
Based on data of 2008 and 2009, the price elasticity is calculated to be -0.66, indicating a rigid demand. So, increasing price will lead to a rise in total revenue.
Further calculation shows revenue will continue to rise until the increase in price reaches 25.8%.
So increasing sales price is acceptable.Price
Ⅰ. Problem Identification– Financial Analysis
Ⅰ. Problem Identification– Financial Analysis
Operating Costs as % of Total Revenue in Coffee Shops
2008 2009BMK
(average)
Food & beverages
42 45 40
Wages & remuneratio
n12 14 20
Rental 22 22 20
Utilities 4 5 5
Depreciation 9 9 5
Advertising &
promotions3 3 5
>>
Therefore, we should promote the efficient, effective and economic use of resources, including fixed assets & intangible ones, by refining the internal process.
Value for Money
>>
Sales Volume
Price
3 strategic objectives3 strategic objectives
Long-term
Short-term
Ⅰ.Strategic Goals
Maximize value for equity
Profitability
Revenue increase
Value formoney
Differentiation
Market development
Price
Salesvolume
Efficiency
Economy
Effectiveness
Ⅱ. Analysis and recommendations—CSF&KPI
Perspective CSF KPI
Financial SalesProfitabilityLiquidity
Sales increaseROE , Net profit margin Gearing
Customer Customer loyaltyHigh quality service
Market shareCustomer satisfaction rateNumber of new customersAmbience and facilities
Internal process
Value for moneyBrand management
Waste, expenseInventory turnoverAdvertisements, surveys
Learning& Growth
Staff trainingStaff competenceEmployee satisfaction
Training cost Average order processing timeEmployee turnover, reward
KKey
PPerformance
IIndicator
Customer loyalty high sustain
Number of new customer small To be decided
Customer complaint rate low sustain
Customer waiting time unknown To be decided
Seat occupation rate 17/50* Over 35/50
* customer number per day ×sales percentage at lunch time.
Current Expectation
Ⅱ. Analysis and recommendations—Customer
We should focus on breakfast supply
We should attract campus students under 20 years
Ⅱ. Analysis and recommendations—Customer
Local proffesionals Expats
•Make signpost to maitain nonsmoking environment•Issue vip card•Individual cup•Customer satisifaction
People-oriented service to maintain existing customers
White-collar Students
•Reduce waiting time•Issue discount card•Price discrimination at different time period•Theme day activity
new customer attraction to enlargemarket share
Ⅱ. Analysis and recommendations—Internal Process
Variance Analysis Material cost: unfavorableLabour cost: favorableUtilities expense: unfavorableAdvertising: favorable
Need to improve cost control and emphasize promotion
And according to surveys online, food profit margin >drinks profit margin.
Need to boos
t food sale
s
Ⅱ. Analysis and recommendations—Internal Process
*Assumptions: After implementing the strategies, price of food and drinks will increase by 5% and 7%respectively.Also, the sales volume of food and drinks will rise by 40% and 10% seperately.
KKey
PPerformance
IIndicator
Percentage of revenue from food 47.8% 53.4%*
Types of food available abundant sustain
Advertising expense (as a % of sales) 3.2% 5%
Utilities expense (as a % of sales) 5.2% <5%
Ingredient waste rate unknown low
Inventory turnover period 38 days shortened
Current Expected
Ⅱ. Analysis and recommendations—Internal Process
Action plan
DifferentiationDifferentiationPlay soft music at certain time
Improve food presentation
Picturesque menu
Design a new decoration style (in the near future)
Update reading material
Market developmenMarket developmentt
Advertise in office buildings
Start from7am to increase breakfast supply
Open a take-away window
Boost food sales
Value for moneyValue for moneyEfficient use of facilities
and ingredients
Keep a clean and cozy
environment
Provide high quality
food and drinks
Set reward and incentive schemeTrain employees Leader takes management coursesCompetence and courtesy contestEnroll university student as part time workers
*according to financial expectation figureAction plan
KKey
PPerformance
IIndicator
Employee turnover low sustain
Employee satisfaction unknown high
Training cost (as a % of sales) unknown To be decided
Reward expense unknown To be decided
Customers processed per full-time employee hour
1.31 1.52*
Current Expected
Ⅱ. Analysis and recommendations—Leaning & Growth
long term objective
• Customer loyalty• Attract new customer• Customer satisfaction
Customer
• Create brand image• Boost food sales• Cost reduction and quality control
InternalProcess
• Manager and employee training• Employee satisfaction• Incentive scheme
Learning and
Growth
• Cost of sales• Operating expenses• Price• Sales volume
Financial
Ⅱ. Analysis and recommendations—Strategy Map
Forecasted Financial Statements Forecasted Financial Statements for the Year ended 2010for the Year ended 2010
Income Statement for the Year ended 31st December 2010 (forecasted)
Revenue (beverages/drinks) 524,527.50
Revenue (food sales ) 481,267.50
Total revenue (food and beverages) 1,005,795.00
Cost of sales (458,640.00)
Gross profit 547,155.00
Less Operating expenses:
Depreciation of tangible assets (82,000.00)
Wages and remuneration (135,200.00)
Rental (200,000.00)
Utilities (lighting and heating etc.) (49,920.00)
Garbage collection (10,400.00)
Advertising and promotions (31,200.00)
Total operating expenses (508,720.00)
Operating profit for year 38,435.00Interest payable on loans (18,368.00)
Profit (loss) for year 20,067.00
Statement of Financial Position as at 31st December 2010 (forecasted)
Goodwill 400,000
Furniture and fittings (net) 164,000
Inventories 47,586
Cash at bank 232,189
Total assets 843,775
Owner’s equity 438,657
Bank loan payable 180,778
Trade payables 224,340
Total liabilities and owner’s equity 843,775
Statement of Cash Flow for the Year ended 31st December 2010 (forecasted)
Operating cash flow:
Operating profit (loss) for year 38,435
Add: depreciation 82,000
120,435
Changes in working capital:
Less: Increase in inventories (3,586)
Add: Increase in trade payables 17,340
134,189
Investing activities: Nil
Financing activities:
Repayment of loan including interest (100,000)Overall cash flow (deficit) for year 34,189
Add: Opening bank balance 198,000
Equals: Closing bank balance 232,189
Other issues
year as customer No. as revenue current/forecast safety margin
2009 17,963 ¥898,151 ¥930,000 3.5%
2010 15,936 ¥820,713 ¥1,005,795 22.6%
breakeven point analysis
*Assume only rental & depreciation are fixed cost.
• Safety margin is enlarged and business risk is remarkably lower in 2010.
• So, consider efficient use of net cash flow in near future
Wears out in about 5 yearsSo new investment in replacing non-current asset will be needed
Furnitures & equipment
Need additional fund to redecorate and change the image
Decoration style
After 2015, rental may increase since generous terms will expire Negotiate again; or look for a new site
Rent terms
西安交通大学
skywalker