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QUESTION Analyse the financial and non-financial position of both THSR and Village Fusion and comment on the performance of each of the restaurants. Points to consider • Calculate appropriate ratios for the two restaurants • Interpret the performance • Non-financial factors consist of qualitative factors

QUESTION Analyse the financial and non-financial position of both THSR and Village Fusion and comment on the performance of each of the restaurants. Points to consider • Calculate appropriate ratios for the two restaurants • Interpret the performance • Non-financial factors consist of qualitative factors

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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QUESTION

Analyse the financial and non-financial position of both THSR and Village Fusion and comment on the performance of each of the restaurants.

Points to consider

• Calculate appropriate ratios for the two restaurants

• Interpret the performance

• Non-financial factors consist of qualitative factors

Traditional Home-Style Restaurant (THSR) THSR currently has two restaurants in the Klang Valley catering for the local Chinese and Indian vegetarian population. Besides catering for in-house customers, THSR also does catering services for functions and events. Its catering services caters for both small and large functions, with orders for 50 to 1,000 pax. While the restaurant has become a household name amongst vegetarians, it is becoming challenging for the owner, Ryden, to sustain the quality of the food. This is mainly because of the high turnover of the kitchen staff (chefs) at THSR. Consequently, the quality of the food has not been consistent, resulting in declining sales. THSR has an effective front desk team who are courteous and provide efficient service. Nevertheless, the customer numbers have been falling in the past year. The average sales per day has fallen from RM2,000 to RM1,200. All in-house sales are on cash only basis. However, from his event catering services he collects a deposit and the balance is collected within five working days. Ryden is concerned and worried about future commitments and the financial challenges of continuing the restaurant business. He is, however, not ready to close down the restaurants. Ryden is keen to sell 50% of his share interest in THSR. Ryden has valued his current business at RM150,000. However, Sandhya feels that the business is overvalued. Moreover, she is unsure whether to acquire one of Ryden's restaurants or to consider a strategic alliance with THSR. Scanned with CamScanner Case 19 Business Growth Strategies at SM Holistic Living Academy Village Fusion Village Fusion is a relatively small semi-fine-dining restaurant located in the Klang Valley. The business is doing very well and on average the daily turnover is around RM3,000. This restaurant caters food to a number of otfices located around the restaurant. However, this service only operates for 25 working days in a month. The payment for this services is collected from the companies at the end of each month. Hence, 20% of monthly sales is on credit. Nathan, the restaurant owner, is getting old and is looking for a partner who will be able to manage the daily operations of the restaurant. He is keen to go on semi-retirement and wants to sell 50% of his business shares to the right investor. He is very conservative and wants to maintain the natural healthy eating vegetarian concept. Nathan values his current business at RM200,000. Nathan is an experienced accountant and therefore he has operated a very conservative policy in respect of the management of the restaurant's working capital and daily operational costs. He ensures that - there is no wastage of food at the end of each working day. He assembles the information about the company's forecast end-of-year financial outcomes. These are provided in Appendix 2.
Transcribed Image Text:Traditional Home-Style Restaurant (THSR) THSR currently has two restaurants in the Klang Valley catering for the local Chinese and Indian vegetarian population. Besides catering for in-house customers, THSR also does catering services for functions and events. Its catering services caters for both small and large functions, with orders for 50 to 1,000 pax. While the restaurant has become a household name amongst vegetarians, it is becoming challenging for the owner, Ryden, to sustain the quality of the food. This is mainly because of the high turnover of the kitchen staff (chefs) at THSR. Consequently, the quality of the food has not been consistent, resulting in declining sales. THSR has an effective front desk team who are courteous and provide efficient service. Nevertheless, the customer numbers have been falling in the past year. The average sales per day has fallen from RM2,000 to RM1,200. All in-house sales are on cash only basis. However, from his event catering services he collects a deposit and the balance is collected within five working days. Ryden is concerned and worried about future commitments and the financial challenges of continuing the restaurant business. He is, however, not ready to close down the restaurants. Ryden is keen to sell 50% of his share interest in THSR. Ryden has valued his current business at RM150,000. However, Sandhya feels that the business is overvalued. Moreover, she is unsure whether to acquire one of Ryden's restaurants or to consider a strategic alliance with THSR. Scanned with CamScanner Case 19 Business Growth Strategies at SM Holistic Living Academy Village Fusion Village Fusion is a relatively small semi-fine-dining restaurant located in the Klang Valley. The business is doing very well and on average the daily turnover is around RM3,000. This restaurant caters food to a number of otfices located around the restaurant. However, this service only operates for 25 working days in a month. The payment for this services is collected from the companies at the end of each month. Hence, 20% of monthly sales is on credit. Nathan, the restaurant owner, is getting old and is looking for a partner who will be able to manage the daily operations of the restaurant. He is keen to go on semi-retirement and wants to sell 50% of his business shares to the right investor. He is very conservative and wants to maintain the natural healthy eating vegetarian concept. Nathan values his current business at RM200,000. Nathan is an experienced accountant and therefore he has operated a very conservative policy in respect of the management of the restaurant's working capital and daily operational costs. He ensures that - there is no wastage of food at the end of each working day. He assembles the information about the company's forecast end-of-year financial outcomes. These are provided in Appendix 2.
Extracted financial information for Village Fusion Appendix 1 THSR Extracted financial information for THSR nd All figures in na RM 000 s Revenue 500 Cost of sales (350) Gross profit 150 Salaries (40) (60) (8) Other expenses Finance costs Profit before tax 42 Income tax expense (13) Profit for the year 29 Number of employees: 12 The company's year-end figures are as follows: Non-current assets 140,000 Current assets Receivables 1,500 Inventory 2,500 Cash in bank 3,000 Current liabilities 7,000 Non-current liabilities Capital 100,000 Long-term loans 40,000 Case 19 Business Growth Strategies at SM Holstic Lving Academy 109 Appendix 2 Village Fusion 2018 All figures in RM 850,000 Revenue Cost of sales Gross profit (425,000) 425,000 Salaries (55,000) (110,000) Other expenses Profit before tax 260,000 Income tax expense (65,000) Profit for the year 195,000 Number of employees: 12 The company's year-end figures are as follows: RM Current assets 7,200 Receivables 2,000 Inventory 15,000 Cash at bank 95,000 Non-current assets 4,500 Current liabilities
Transcribed Image Text:Extracted financial information for Village Fusion Appendix 1 THSR Extracted financial information for THSR nd All figures in na RM 000 s Revenue 500 Cost of sales (350) Gross profit 150 Salaries (40) (60) (8) Other expenses Finance costs Profit before tax 42 Income tax expense (13) Profit for the year 29 Number of employees: 12 The company's year-end figures are as follows: Non-current assets 140,000 Current assets Receivables 1,500 Inventory 2,500 Cash in bank 3,000 Current liabilities 7,000 Non-current liabilities Capital 100,000 Long-term loans 40,000 Case 19 Business Growth Strategies at SM Holstic Lving Academy 109 Appendix 2 Village Fusion 2018 All figures in RM 850,000 Revenue Cost of sales Gross profit (425,000) 425,000 Salaries (55,000) (110,000) Other expenses Profit before tax 260,000 Income tax expense (65,000) Profit for the year 195,000 Number of employees: 12 The company's year-end figures are as follows: RM Current assets 7,200 Receivables 2,000 Inventory 15,000 Cash at bank 95,000 Non-current assets 4,500 Current liabilities
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