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华东地区半决赛第二名


The Pudong Coffee Shop

3Z

--from SHUFE
1

Outlines

? Balanced Scorecard

Case Overview Tactics

Financial Forecast

r />Conclusion

? Background
? Current Situation

2

Case
1

overview

The Pudong coffee shop is located in Pudong area which is surrounded by several large office buildings and a business school.

2

Li, the owner of the coffee shop, puts much attention on the quality of food and service, which he believes will lead to the consumers’ loyalty.

3

The coffee shop suffered a loss in 2009 even though it had a net cash inflow. And Li wants to find someone to help him to improve his coffee shop.
3

Current
1000000 800000 600000 400000 200000 915000 930000

situation
The revenue and net profit

2008 2009 32300

0 revenue -200000

-13710 net profit

1. The coffee shop’s revenue is 915,000 in 2008,and 930,000 in 2009, which is a slight increase. 2. But the net profit is totally different. It’s 32,300 in 2008 and -13710 in 2009. Conclusion: The revenue is not the only reason that affects the loss.

4

2008

operating profit, 61000, 7%

cost of sales
cost of sales, 389000, 43%

operating expenses operating profit

operating expenses, 465000, 50%

operating profit, 10000, 1% cost of sales, 420000, 45%

2009

operating expenses, 500000, 54%

cost of sales operating expenses operating profit

After a detailed analysis, we find that cost of sales increased a lot from 2008 to 2009, which caused a loss in the end.
5

The customer?s growth rate is below the average The large part of employees Text are parttime

The coffee shop?s customer?s growth rate is 1.64% which is lower than average rate of approximately 10% in China.

problems

There are only two full-time employees, others are part-time unskilled employees. This would impose a negative impact on the quality of service, which would eventually increase the customer attrition rate.

The inventorie s is in a high level

It has a inventories of 44000 in 2009,higher than that of 2008, which is too much as a coffee shop and causes a higher fee of garbage collection 6

Problem 1 customer?s growth rate is low
The text tells us that the average spend per customer is 50, thanks to the revenue, we can calculate the number of the customers in the whole year.

18,650 18,600 18,550 18,500 18,450 18,400 18,350 18,300 18,250 18,200 18,150

18,600

It can be seen that only 300 more customers in 2009, the growth rate is 1.64%. However, the coffee consumption in China is growing at a double-digital rate.

18,300 the number of customers
7

2008

2009

Compare the promotion costs as a % of the revenue between the local coffee shops and the Pudong coffee shop

Local coffee shop

5%

Conclusion: This indicates that comparing with other coffee shops, the Pudong coffee shop spend less in promotion. And this may explain why its customer?s expanding rate remains low.

Pudong coffee shop 2009

3.23%

promotion costs as % of the revenue

Pudong coffee shop 2008 0 2

2.73%

4

6

8

Problem 2

The service

Low wages and remuneratio n

The system of the recruitment

9

Problem 2

The service

EMPLOYMENT SYSTEM: Two full-time employees and several part-time employees would probably influence the quality of service.

Bad service will cause customer dissatisfaction and reduce the amount of the customers as well as destroying the reputation of the shop.

The increasing rate of losing customers would result a decline in revenue as well as profit.
10

Problem 3
45000 44000 43000 42000 41000 40000 39000 38000 37000 36000 35000

Too much inventory

44000

inventories 38000

Conclusion: As is shown in the chart ,the inventory increases in 2009, it’s unwise to keep such a high level of inventory, for as a coffee shop, the drink and the food need to stay fresh to ensure the quality.

2008

2009

11

Relationship among the 3 problems

Bad service

Low customer expanding rate

High level of inventor y

Low quality of the food and drink

12

Let’s see how to solve these problems.

Customer Loyalty

To provide excellent service and achieve high customer satisfaction

Strategic Objectives
High Profitability To attain high profits, by increasing sales revenue and controlling costs

13

Balanced Scorecard
—From strategy to actions
· Gross/Net profit Margin · Operating expenses ratio · Increase in sales, COS etc · Inventory turnover period Financial Perspective

· Customer expanding rate · COS/Gross profit per customer · Customer satisfaction

· Customer waiting time · Wastage · Customer complaining times

Customer Perspective

Strategic Objectives

Internal Operations Perspective

Innovation and Leaning Perspective

· Employee satisfaction · Employee turnover · Training times

14

Financial perspective
Compared to the previous year
y/e 31 Dec 2009 y/e 31 Dec 2008

Low Profitability

Increase (decrease) -2.72% -0.27% 3% -5%

ROCE Gross Profit margin Operating Expenses ratio Net Profit margin

1.47% 5.48% 53.8% -1.47%

4.19% 5.75% 50.8% 3.53%

For the year ended 31 Dec 2009 · 2,000 cash inflow from Cash Flow Statement · 13,710 loss from Income Statement Why did the coffee shop generate cash inflow, but also suffered a loss?
15

Financial perspective
Why did the coffee shop generate cash inflow, but also suffered a loss?
1,000,000 425,000 420,000 800,000 415,000 410,000 600,000 405,000 Sales 400,000 400,000 395,000 200,000 390,000 385,000 0 2008 -200,000 2009 380,000 375,000 370,000 Operating expenses Gross margin Net Profit Cost of sales

ATTENTION: Control costs

Reason
Sales increase by 1.64%, COS (paid on credit) increase by 8%, operating expenses increase by 7.5% IS- Accrual basis CFS- Cash basis
16

Financial perspective
Cost Analysis
As a % of sales Cost of sales Utilities Depreciation 2008 42.5% 4.3% 9.0% 2009 45.2% 5.2% 8.8% Increase (decrease) 2.7% 0.9% -0.2%

Purchasing price increases and excess the average level.
Average in local regions 40% 5% 5% GAP (2009 vs. Average) 5.2% 0.2% 3.8%

Advertising and promotion

2.7%

3.2%

0.5%

5%

-1.8%

Need more promotion to attract more customers.

Be way above the average level. Need to better utilize the furniture and fittings.

17

Financial perspective
Cost control—Inventory Management
PROBLEM: Inventory turnover period(2009)=36 days
· Too long for a food service industry · Inventory may get obsolescence and go bad easily

SOLUTIONS
· Better relationship with suppliers - Obtain trade discount - Deliver in time · EOQ and JIT - Keep safety stock and order in time when the stock is down to that level - JIT purchase
18

Customer perspective
1.6% compared to the estimated expanding rate in China of 10%

Five-star service at fair price

Customer expanding rate

COS/Gros s profit per customer

Increase of 1.3%/Decrease of 1.1% compared to 2008

Customer satisfactio n
Customer return rate

19

Customer perspective
How to explore new customers?

Market segmentation
· Businessman— espresso · Office lady— non-fat coffee · Student— blended coffee

Take-away service
· Call order · Mail order

20

Customer perspective
How to improve customer return rate?

1

Quality of food

2

Quality of service

3

Various choices of food

21

Customer perspective
How to improve customer return rate?

Quality of food

Shorten purchasing period to make food more fresh

Develop featured Coffee

22

Customer perspective
How to improve customer return rate?
More full-time staff
Staff training

Quality of service

Provide intensivies
23

Customer perspective
How to improve customer return rate?
Special Coffee of the day

Variety of food
Promotion for particular food everyday
Various kinds of coffee to satisfy different customers‘ requirements
24

Internal operation perspective

1

Customer waiting time
Staff Training
-Economy -Efficiency -Effectiveness

2

Wastage

3

Customer complaining times

Also via training

25

Innovation and learning perspective
Employee satisfaction
·Provide bonus for good performance ·Offer rewards to “star of the month”

Employee turnover
· More full-time employees · Treat employees equally and equally

·Issue employee satisfaction
survey

Employees Training times
· Orientation Training · Frequent training per quarter
· Depth of training

26

Financial forecast
Pudong Coffee Shop

1 2

Income statement

Cash flow statement

3

Balance sheet

27

Financial forecast
Pudong Coffee Shop

Assumptions
1 2 3 4 5 6
Sales prices will increase by 3% Sales volume will increase by 5% Discretionary cash expenses increase by 4% Suppliers will extend trade credit by 4% Inventory turnover rate will be unchanged

No investing or additional financing activities
28

Income statement for 2010
Income Statement for year ended: 31st December 2010
?

524,527.5=485,000*(1+5%)*(1+3%) 481,267.5=445000*(1+5%)*(1+3%) 1,005,795=930,000*(1+5%)*(1+3%)

31st December 2009
?

Revenue (beverages/drinks)
Revenue (food sales ) 458,640=420000*(1+5%)*(1+4%) Total revenue (food and beverages) Cost of sales Gross profit

524,527.5
481,267.5 1,005,795 (458,640) 547,155
These 4 numbers are (1+4%) times of the numbers in 2009

485,000
445,000 930,000 (420,000) 510,000 (82,000) (130,000)

Less Operating expenses:
Wages and remuneration

Depreciation of tangible assets

(82,000) (135200)

Rental
Utilities (lighting and heating etc.) Garbage collection

(200,000)
(49,920) (10,400)

(200,000)
(48,000) (10,000)

Advertising and promotions
Total operating expenses Operating profit for year Interest payable on loans

(31,200)
(508,720) 38,435 (18,370)

(30,000)
(500,000) 10,000 (23,710)

Profit (loss) for year

20,065

(13,710)

29

Financial forecast
Pudong Coffee Shop
Bank loan’s computation process
Interest rate
7% 7% 28,700

Year
2008.01.01 2008.12.31

Interest payable

Bank loan payable
410,000 338,700

Repayment of loan including interest
100,000

2009.12.31
2010.12.31 2011.12.31 2012.12.31 Note:

7%
7% 7% 7%

23,710
18,370 12,650 6,570

262,410
180,780 93,430 0﹡

100,000
100,000 100,000 100,000

In order to rationalize the computational process, we assume that at the end of 2012, the balance of the bank loan payable is exactly 0.

30

Cash flow statement for 2010
Summarised cash Flow statement for year ended: Operating cash flow Operating profit (loss) for year Add: depreciation Changes in working capital: Less: Increase in inventories Add: Increase in trade payables Investing activities: Financing activities: Repayment of loan including interest = Overall cash flow (deficit) for year Add: Opening bank balance Equals: Closing bank balance (100,000) 37,935 198,000 235,935 (100,000) 2,000 196,000 198,000
31

31st December 2010
?

31st December 2009
?

38,435 82,000

10,000 82,000

120,435
(1,544)

92,000
(6,000) 16,000 102,000 NIL

No investment

19,044 137,935 NIL

Balance sheet for 2010
Summarised Balance Sheet at: Goodwill Furniture and fittings (net) Inventories Cash at bank Total assets
226,044=207,000*(1+5%)*(1+4%)

31st December 2010

31st December 2009

?
400,000 164,000 45,544 235,935 845,479

?
400,000 246,000 44,000 198,000 888,000

Owner’s equity Bank loan payable Trade payables Total liabilities and owner’s equity

438,655
180,780 226,044 845,479

418,590
262,410 207,000 888,000
32

Financial forecast
Pudong Coffee Shop
Inventory’s computation process
Take the inventory in 2010’s Balance sheet for example Formula: Inventory Turnover Rate = Cost of sales / Average inventory
Year Cost of sales Opening inventory Closing inventory Average 2010 458,640 44,000 X (44,000+X)/2 2009 420,000 38,000 44,000 41,000

458,640 / [( 44,000 + X ) / 2] = 420,000 / 41,000 X = 45,544
33

Break-even point
Pudong Coffee Shop
The average spend per customer 50 51.5 The average cost per customer Total expense s

Year 2009

Total revenue 930,000

The quantity Of customers 18,600 19,530

Cost of sales 420,000 458,640

Break-even point 19,100 18,814

22.58 523,710 23.48 527,090

2010 1,005,795

51.5=50*(1+3%)

23.48=22.58*(1+4%)=458640/1953 0

Analysis: In year 2009,The Pudong coffee shop had not reached the breakeven point, so it had a loss. According to the forecast, in year 2010, the Pudong coffee shop will reach the break-even point, and finally gets a profit.
34

Break-even point
Pudong Coffee Shop
Cost-volume-profit chart

2009 and 2010
cost
profit

cost
profit

FC

loss

FC

loss

0

18,600 19,100

the quantity of customers

0

18,814 19,530

the quantity of customers

2009 break-even point

2010 break-even point

However, still low profitability
35

Overall evaluation
Pudong Coffee Shop
Assumptions ? 1、We use the Enterprise's valuation model. ? 2、We use six assumptions in the financial forecast. ? 3、We use the loan interest rate 7% as the discount rate. ? 4、Because of the depreciation and bank loan payables, we can only get the data of year 2008 to 2012, so the period for evaluation is from 2010 to 2012.

36

Overall evaluation
Pudong Coffee Shop

Balance sheet of three years? forecast
Year Goodwill Furniture and fittings (net) Inventories Cash at bank Total assets Owner’s equity Bank loan payable 2010 400000 164000 45544 2011 400000 82000 51300 2012 400000 0 53435

235935
845479 438655 180780 226044 845479

306934
840234 499964 93430 246840 840234

422263
875698 606149 0 269549 875698

Trade payables
Total liabilities and owner’s equity

37

Overall evaluation
Pudong Coffee Shop

Income statements of three years? forecast
Year
Revenue (beverages/drinks) Revenue (food sales ) Total revenue (food and beverages) Cost of sales Gross profit Less Operating expenses: Depreciation of tangible assets Wages and remuneration Rental Utilities (lighting and heating etc.) Garbage collection Advertising and promotions Total operating expenses Operating profit for year Interest payable on loans Profit (loss) for year (82,000) (135,200) (82,000) (140,608 ) (82,000) (146,232)

2010
524,527.5 481,267.5

2011
567,276 520,491

2012
613,510 562,911

1,005,795
(458,640) 547,155

1,087,767
(496,019) 591,748

1,176,420
(536,445) 639,976

(200,000)
(49,920) (10,400)

(200,000)
(51,917) (10,816)

(20,0000)
(53,993) (11,249)

(31,200)
(508,720) 38,435

(32,448)
(517,789) 73,959

(33,746)
(527,220) 112,755

(18,370)
20,065

(12,650)
61,309

(6,570)
106,185 38

Overall evaluation
Pudong Coffee Shop

Cash flow statements of three years? forecast
Year
Operating cash flow Operating profit (loss) for year Add: depreciation Changes in working capital: Less: Increase in inventories Add: Increase in trade payables Investing activities Financing activities: Repayment of loan including interest = Overall cash flow (deficit) for year Add: Opening bank balance Equals: Closing bank balance (100,000) 37,935 198,000 235,935 (100,000) 70,999 235,935 306,934 (100,000) 115,329 306,934 422,263 39 (1,544) 19,044 137,935 Nil (5,756) 20,796 170,999 Nil (2,135) 22,709 215,329 Nil 38,435 82,000 120,435 73,959 82,000 155,959 112,755 82,000 194,755

2010

2011

2012

Enterprise's valuation model From the cash flow statements of
2010, 2011 and 2012. Year Total cash flow Discount rate Discount factor Expected present value Perpetual growth rate Present value for year ended Overall value
Note: Perpetual Growth Rate 4.15% = (1+5%)*(1+3%)-1-4% Final value 4,046,632 = 115,329 / (7%-4.15%)

Base period 7%

2010 2011 37,935 70,999 0.9346 0.8734 35,454 62,011

2012 115,329 0.8163 94,143 4.15%﹡ 4,046,632﹡

191,608
3,303,266﹡ 3,494,874﹡

3,303,266 = 4046632 * 0.8163
3,494,874 = 3,303,266 + 191,608
40

Action Plans
Objectives hierarchy

Expand to other areas Three-year

Achieve average customer growth rate

One year

Three months

Reverse loss and attain profit

41

Action Plans
1. Control costs

Three-year · Better relationship with suppliers - Obtain trade discount - Deliver in time · EOQ and JIT One year - Keep safety stock and order in time when the stock is down to that level - JIT purchase Three months

42

Action Plans
2. Market Segmentation & Take-away service
Three-year Market segmentation · Businessman— Espresso for most successful businessmen. · Office lady— Non-fat coffee for office ladies who care more about their One year slimness. · Student— Blended coffee for the students who love multiplied tastes. Take-away service · Call order Provide discounts Three months for both. · Mail order

43

Action Plans
3. Improve quality of food
Three-year

· Shorten purchasing period to make One year food more fresh · Develop featured coffee and special coffee of the day · Provide various kinds of coffee to satisfy different customers? requirements Three months

44

Action Plans
4. Improve quality of service
Three-year

· More staff training, including orientation training and frequent training per One year quarter. · Offer rewards to the “star of the month”. · Employee more full-time employees to enhance loyalty and decrease employee turnover rate. Three months

45

Thank you !

46


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