Interpretation of Financial Statement

Business Essential
Advance

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1. Market Research on European Nation....................................................................................1
2. Marketing mix.........................................................................................................................2
3. Implication that are faced by Hank and Smith's coffee shop..................................................4
4. Interpretation of financial statement.......................................................................................5
5. Summary.................................................................................................................................7
CONCLUSION................................................................................................................................7
REFRENCES...................................................................................................................................9

INTRODUCTION
Business is an activity which emphasis on regular and continuous distribution and
production of goods and services for satisfying customers needs and wants. In other words, it
refers to sum total of all operations that are related to purchase products and services with the
goal to earn profits(Tyson, 2014). Hank and Smith are the business partners of food and catering
company and want to expand their business in other country. This report describes about the
factors that company must taken into consideration before expanding their business in France.
Along with this, it also discuss about interpretation of financial accounts and marketing mix.
TASK 1
1. Market Research on European Nation
As per the given case study, Hank and Smith are running business together of food and
catering sector from many years. After getting good experience in this sector, both want to open
their own coffee shop in south London. Regarding the coffee shop Hank and Smith spend 1 year
in research and planning. Choosing best location, figure out initial capital requirement, key
competitors, identify target market are included in their research.
After establishing their in London successfully, Hank and Smith want to expand their
business in European countries to generate high profit and increase the market share of company.
Both decided to open up their own coffee shop in France. As more number of people drink
coffee on regular basis which is beneficial for the firm(Sundareswaran, 2011). In France large
number of tourist are visiting that helps in increasing the market share of company as there are
various attractive tourist spots in country. After Germany and Italy, France is the third largest
coffee consumption country in Europe. According to the study in 2015, per capita coffee
consumption of France people is close to European average of 5.41 kg per year(Coffee in
France. 2018). There is great potential for growth and expansion of in coffee in this country as
there has less legal activities, company have to follow the European union legal requirements
that are applicable to coffee.
Facts based on culture, lifestyle and coffee drinkers of France
France people are big consumers of coffee as they do not get affected by the economic
condition of the country. People of country are ready to pay higher cost for getting good quality
of coffee. More than 50% of France people are willing spend money on coffee and 25 % of
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population which are aged between 18 to 35 years consider coffee machines at their home as a
status symbol marker. More than 23% France people consumes coffee in their daily routine and
27 % population are the social consumers which means drinking coffee is the moment of
relaxation with the friends, family and colleagues. The comparison of coffee lifestyle in France's
popular cities gives interesting trends(Coffee in France. 2018).
For instance, people of Paris seeks to try and taste different type of flavours in coffee. In
Strasbourg, people prefer to drink coffee in morning and consumers of Lyon drinks coffee in
afternoon.
According to the ethical consideration, Hank and Smith have to adopt fair trade coffee
standard that states coffee beans which are produced as per the fair trade standard. They must
also primarily taken into consideration to ensure staff welfare. Company should arrange training
and development program for employees of the firm and also provide high standard orientation
program to them.
There are various factors that must be taken into account before setting up own coffee
shop in France. Hank and Patty have to check convenient transport facility available for people
to reach at coffee shop(Hair, 2015). It is important reason for selecting shop location at the area
where company can seize the attention of customers and attracts more number of people.
Offering quality drinks and customer loyalty is the main aim of the company and in order to
achieve there goals, company must maintain it effectively by providing theme evening concept
which is recently in trend and it attracts the coffee drinkers. Hank and Smith get finest beans
from gutumindo coffee, it is the supplier in Uganda that focuses on encouraging farmers of
country to run their own farms and earn independent profits. So it is beneficial for company to
get coffee beans from them as it is affordable for the firm.
2. Marketing mix
This refers to the tactics and set of actions which firm uses to promote there brand,
products & services in the marketplace. Marketing mix is consist of 4P's that are price, product,
promotion and place these are as follows:
 Product: It is commodity which is produced to satisfy the needs and wants of the
consumers. It may be tangible and intangible in nature as it can be in the form of goods
and services. In this case, Hank and Smith want to establish their own coffee shop in
France. The reason of selecting France is there are large number of people drinks coffee
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in daily basis and this tends to be major advantage for the company. Firm uses finest
coffee beans from gutumindo coffee, supplier in Uganda that emphasis on enabling
farmers of country to earn an independent revenue and run their own farms. Company
provides different types of coffee and along with this some other refreshment also that are
cold drinks, doughnuts, snacks, sandwich and pastries(Guffey and Loewy, 2012).
Providing right product to the customers which leads to satisfying their needs and wants
in an effective and efficient way is the essential part of an enterprise's growth and
success.
 Price: It is the important element of marketing mix as it is the amount of the product and
service which is paid to customer. This is also related to choosing appropriate pricing
strategy for particular goods and services. Hank and Patty is taking advantage of the
habits of France people that is they are ready to pay high for quality coffee. So Marvin
and Patty coffee shop uses premium pricing strategy which means setting high price of
products compared to the similar product. So this helps in maintaining high brand image
and also increase the goodwill of the company.
 Promotion: It includes all the activities which helps in making product and services well
known to users and customers. Promotion is comprised of various components such as
advertisement, press reports, incentives, word of mouth etc. As Hank and Smith coffee
shop is new in the France so it is very necessary to pay more attention towards promoting
their products. They must take use social media, electronic media and print media to
stimulate more number of people and also distribute pamphlets in local areas of France
which increases the awareness of coffee shop among people of the country. They also
offer theme based evening that easily seize the attention of customers.
 Place: It is the another important component of marketing mix which means position and
distribution of product and services at the place which is accessible to potential
customers. In this case, Hank ans Smith wants to expand their business in European
market by opening up new coffee shop in France to increase the market share in overseas
market and to generate higher profits. From the research it is analysed that more than
23% of people drinks coffee in regular basis and 28% of population are social consumers
which means consuming coffee is the moment of relaxation with family, friends and
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colleagues(Coffee in France. 2018). France is the third largest country after Germany and
Italy in coffee consumption.
3. Implication that are faced by Hank and Smith's coffee shop
There are number of issues and obstacles that are faced by company while expanding
their business. So followings are the implication that help organisation in growing their business
successfully.
 Organisation Culture: This is consist of company's experiences, expectations,
philosophy as well as the values which directs the member's behaviour. It also express the
employees self image, inner working, interaction with outside world and future
expectations(Burke and Friedman, 2011). This is typically based on shared beliefs,
customs, attitudes and written & unwritten rules which have been prepared over the time.
Culture involves the organisation's vision, norms, values, system, language,
assumptions, beliefs, habits and symbols. These factors play vital role in developing valuable
factors that an individual or staff member are serving best quality of products and services. The
organisation culture of firm decides the manner in which employees are interacting with each
other. The work culture gives the identity of the company and it also assist in creating good
brand image of the company.
Hank and Smith started new coffee shop in France with the objective of providing good
quality of coffee to their customers. Company utilises finest coffee beans which helps in gaining
the maximum market share. As firm has good experience in food and catering so they know the
fact that employee satisfaction is very important in the organisation to achieve their set goals and
objectives. So it is necessary to engage their customers in decision making process and also
provide them better training and development to them which increases the motivation of
employees and they feel more satisfied that results in attaining target on time. Organisation must
provide fair wages to their staff member and also offers bonuses & incentives when workers
perform well. Employees also help customers in themed evening by playing short board games
with them when they are alone or no one to play. Company also have effective communication
system which aids to remove culture barriers if found in different country.
 Gaining high competitive edge: In recent time, every firm has goal that is to achieve
competitive advantage over the rivals. After achieving success in foods and catering,
Hank and smith spent 1 year for planning and researching of the details of essentials
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elements which need to be taken into consideration before launching coffee
shop(Anderson, Sweeney and Williams, 2011). Both firstly set their coffee shop in South
London and after getting positive response and increasing their market share gradually.
They want to expand business in European country that is France. Firm do the market
research and get the information related to their present competitors(Anthony and Garner,
2016).
They have the advantage as they know fact that there are large number of people who
drinks coffee on regular basis as well as consumers also pay more for the quality coffee which
helps in increasing market shares in international marketplace. 23% of population of France
drinks coffee on daily & regular basis and 27% of people are social consumers, this is the reason
by which company want to expand their business in France only. Because of this there are large
number of coffee shop in this country. Therefore, Hank and Smith have to offer such products
and services which provides the competitive advantage over the edge. The firm decided to
prepare coffee with best and finest coffee beans so it will help in providing high quality of coffee
to their customers.
Company also involves their employees in their business operations that is in the themed
evening, customers who are alone or no one with them to play game than staff members join
them and play with them. It helps in motivating employees and customers.
To achieve competitive advantage over the rivals, firm uses premium pricing strategy
which means offering high prices of products and good quality that helps in increasing brand
image of the organisation and goodwill.
4. Interpretation of financial statement
As per the given scenario, Hank and Smith wanted to launch new coffee shop in France.
It is very important to evaluate that is company is getting profit or not. So both decided to
interpret their financial statement which provides proper information about introducing new
coffee shop in France is good decision or not for them(Baron, 2014). By analysing these
statements, they know about their overall performance of the whole year. Liquidity ratio and
profitability is easily calculated in the effective way on the basis of given income statements and
balance sheet.
Profitability ratios: This ratio is utilised by company to identify the overall efficiency and
performance throughout the year. It includes:
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Gross profit margin: This ratio is used for comparing gross profit of the firm to its sales revenue.
It determines how much business get profit is taken into account and the needed costs to prepare
goods and services. Higher gross profits shows higher efficiency of core business activities that
refers firm is still getting net earning covering fixed cost, depreciating, operating costs and
dividends also(McBride and Tietze, 2015). On the other side, lower margin of profit depicts low
sales, wrong selling policies and stiff market competition. This ratio represents that how well
enterprise is controlling and managing its cost of inventory.
Net profit margin: This represents the profit that is left after deducting all expenses and
expenditure from sales. Net profit margin shows the amount of revenue that firm may taken from
its total sales figures. Higher net profit ratio depicts that enterprise is yielding higher profits.
Gross Profit 208,000
Net Profit 26,800
Sale 360,000
Ratios Formula Results
Gross profit
Margin
Gross profit / Total Sales *100 208000/360000*100
= 57.8%
Net profit Net incomes / Total Sales *100 26800/360000*100
=7.4%
From the above table, it can be concluded that firm is able to maintain its effective position in
marketplace and also getting sufficient amount of profit and revenue.
Liquidity ratio: Hank and Smith utilises this ratio to determine the ability to their debt obligation.
It provides indication whether company's current asset are enough to meet the firm's obligation
when they become due. This includes:
Current ratio: It ratio shows the ability of Hank and Patty's coffee shop to pay back its
capabilities with their assets(Pearson, 2017). Ideal current ratio is 2:1.
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Liquid ratio: This ratio is used to measure the enterprise's ability to use quick assets to retire their
current liabilities. Ideal acid test ratio is 1:1.
Current Asset 35,400
Current Liability 6,200
Liquidity ratio:
Current ratio Current assets / Current liabilities 35400/6200= 5.7
Liquid ratio Liquid assets / Current liabilities 35400-8000/6200=4.4
ROCE Operating expenses /Capital
employed *100
(26800/ 106800)*100 = 25%
From the above ratio, it is concluded that, the liquidity of Marvin and Patty's coffee shop
is highly effective in comparison to other rivals. This shows that they are efficiently utilising
their current assets.
5. Summary
This report is basically based on expanding business activities in European country that is
France. Hank and Smith are the business partner who are working together in food and catering
and after getting positive response, they decided to launch own coffee shop in South London and
become successful. So now they wanted to expand their business in another country that is
France where large number of people drinks coffee on daily basis. There are various factors that
must be taken into consideration before expanding business in another country such as location,
capital requirement, resources, transportation facilities and competitors are the factors that taken
into account while expansion of business action in overseas market(Simon, 2014). Company has
sufficient amount of resources and capital that helps in setting up new coffee shop in France.
Firm can achieve higher competitive advantage in France market by using premium pricing
strategy and unique promotional tools.
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CONCLUSION
From the above report, it is concluded that, company must consider various factors while
expanding their business in other country which helps in development and growth of the
business. It is very necessary that firm has good organisational culture that assist in attaining
organisational goals and objectives. Hank and Smith also gaining competitive advantage over the
rivals as they are offering premium pricing strategy and good quality of coffee. For motivating
there employees company engaging workers in decision making process which encourage
workers to work more effectively and efficiently.
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REFRENCES
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Baron, R. A., 2014. Essentials of entrepreneurship: Evidence and practice. Edward Elgar
Publishing.
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Jones & Bartlett Learning.
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Hair, J. F., 2015. Essentials of business research methods. ME Sharpe.
McBride, S. and Tietze, M., 2015. Nursing informatics for the advanced practice nurse: Patient
safety, quality, outcomes, and interprofessionalism. Springer Publishing Company.
Pearson, R., 2017. Business ethics as communication ethics: Public relations practice and the
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Simon, A., 2014. Enterprise Business Intelligence and Data Warehousing: Program
Management Essentials. Morgan Kaufmann.
Sundareswaran, S. D., 2011. Essentials of Managing Stress in the Era of Globalization-An
Organizational Perspective. Journal of Contemporary Research in Management. 6(3).
p.67.
Sungur, C. T., and et. al., 2014, September. Informal process essentials. In 2014 IEEE 18th
International Enterprise Distributed Object Computing Conference (EDOC 2014) (pp.
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Tyson, S., 2014. Essentials of human resource management. Routledge.
Online
Coffee in France. 2018 [Online] Available through <http://www.euromonitor.com/coffee-in-
france>./
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