Financial Decision Making in UK Coffee House Industry

FINANCIAL DECISION-
MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
CONCLUSION................................................................................................................................1
REFERENCES................................................................................................................................2

EXECUTIVE SUMMARY
The cafes have been an emerging sector in the economy of UK and the ease of operating
these businesses is becoming major attractive point for the company. The current report will
evaluate the existing coffee house market and industry in UK. The financial statements of the
Roast Ltd. Will be analysed and the interpretation of the Profit and loss statement, balance sheet
and the Cash Flow Statement of the company for the year 2017 and 2018 will be compared and
analysed accordingly. The report will also analyse and develop an investment appraisal for the
company so that appropriate decisions can be taken regarding the financing options for the
company. The report will also identify that what is the forecasted growth of the company and the
estimated regarding different figures of the Roast Ltd. will be made in the report. Different
investment appraisal technique will be identified and evaluated in the report where the future
investment financing option will be critically evaluated in the report and the Roast Ltd. Will be
recommended the best strategies that they can adopt in order to finance the company's
investment.
PART 1: INDUSTRY OVERVIEW
Current UK Coffee House Industry
The coffee shop industry in UK has always been a lucrative business for the economy where it is
easier to open and successfully operate a new coffee joint.
 In the economy of UK, after the Brexit, the industry has not been affected, and they are
still growing at the rate of 5.85% on an approximate basis even in the year 2018
(Robinson, 2020).
 In the market of UK, the major players in the coffee shop industry are Costa Ltd., Pret A
Manger Ltd., Starbucks and Caffe Nero. The overall revenue of this industry is estimated
to be £6 billion and since the year 2014, the industry has grown collectively by 6.1%
(Cafes & Coffee Shops in the UK - Market Research Report, 2019).
 After Brexit, the major challenges that have been faced by this industry I that the there is
a heavy reliance on obtaining the lower skilled workers because the wages are low and
there are no prominent risks involved as well.
 The majority of coffee shops in UK have lost the capability hire lower wage and lower
skilled employees as they have been separated in the form of division of EU and UK.
1

 Currently, UK is in free trade agreement with the EU where they have developed
negotiated tariffs but as soon as Brexit occurs, it will impact the way the industry is
operating.
 Apart from the challenges, there are many opportunities as well for the industry. There is
a high degree of innovative practices that can be adopted in this industry and this is the
most significant benefit that can be generated in the industry. This significantly helps in
the growth of the industry (Eng, Tian and Robert Yu, 2018).
 Another major opportunity is that the industry will never face any downward movement
or deflation in the economy and it is a highly prosperous business thus giving wider
access of expansion and development.
PART 2: BUSINESS PERFORMANCE ANALYSIS
2.1 Statement of Profit or loss
Based on the data given in the exhibit 1 and 2, following calculation can be done for the Roast
Ltd.:
Statement of Profit or Loss for Roast Ltd for the year ended 31 December
Particulars 2018 2017 2018 2018 2017
£'000 £'000 Evol'm % of Sales % of Sales
Revenue 2534 2022 25.32%
Cost of Sales 1990 1505 32.23% 78.53% 59.39%
Gross Profit 544 517 5.22% 21.47% 20.40%
Other operating
income 60 0 2.37% 0.00%
Operating
Expenses: 477 466 2.36% 18.82% 18.39%
Operating
Profit/(Loss) 127 51 149.02% 5.01% 2.01%
Finance costs 26 6 333.33% 1.03% 0.24%
Profit/(Loss)
before Tax 101 45 124.44% 3.99% 1.78%
Income Tax expense 20 9 122.22% 0.79% 0.36%
Profit/(Loss) for
the period 81 36 125.00% 3.20% 1.42%
2018 2017
Operating
Expenses £'000 £'000 Change
2