Financial Analysis of a Business in Germany

This assignment focuses on evaluating the financial performance of a hypothetical business seeking expansion in Germany. The analysis employs ratio analysis techniques to assess liquidity and profitability, crucial for successful growth. The assignment also explores marketing strategies suitable for promoting the business in the German market.

CASE STUDY

TABLE OF CONTENTS
1. Providing justification on selection of country for the purpose of expansion of business
overseas.......................................................................................................................................1
2. Providing Marketing Mix for Expansion plan........................................................................2
3. Implications of factors on the business operations of coffee shop..........................................4
4. Evaluation of their current profitability and liquidity position and its impact on their
decision.......................................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

1. Providing justification on selection of country for the purpose of expansion of business
overseas
As per the given case study of Hank Marvin and Patty Smith, they are running a business
in food and catering industry from past 12 months. There business is shown a great success in a
couple of months, due to which they are now dreaming of opening a new branch and expansion
of their business overseas in any of the European union Country. It is essential to determine and
assess various factors of a country where new branch of the business is to be opened (Igou and
Coe, 2016). Therefore, it requires to analyse and research about demographic information and
geographical information along with knowing the preferences of people of that country. For the
purpose of expansion of business in an overseas market, Marvin and smith can open a branch of
their coffee shop in Germany. Below is the justification of why Germany would be the best
country for the purpose of their expansion.
Geography and Climate of Germany
A business is highly influenced by geographical location and climate of the country in
which it is operating. As Marvin and smith are dealing under food and catering industry, mainly
a coffee shop that can be highly affected by the climate of country as it is perishable product.
However, Germany is suggested to both the partners due to the positive impact of Geographical
location and climate over their business (Geographical and climate conditions of Germany,
2017). Germany has the highest number of neighbours in overall Europe, this means it shares its
boundaries with the highest number of countries i.e. 9 countries. Having the highest number of
neighbour’s means large number of tourists to the place and more the tourists more will be
beneficial for the coffee shop.
Climate of Germany is moderate i.e. not too hot and not too cold. The demand of coffee
and coffee products usually decreases when the climate becomes hot as people shift to cold
drinks. However, other than hot climate demand of coffee and coffee products remains at peak.
Since the climate of Germany is moderate there will be always high demand of coffee products
which is a positive sign for both the partners. In the months when summer season is at its peak
i.e. in the month of July, the mean maximum temperature of Germany remains at 21.8 degree

while mean minimum temperature remains at 12.3 degrees and during January, temperature
reaches to minus degrees. The climate and geographical location of Germany is favourable for
the opening of coffee shop in and around its locations.
Demographic Conditions of Germany
Estimated population of Germany as per the latest census information is 80,722,792. This
means there is a great population that can be targeted as potential customers to business. More
population means more customers to business (Bai and Anderson, 2016). This is again a
favourable factor for partners to establish their business in the locations of Germany.
Legal Structure of country
Legal structure includes various policies, regulations and legislations of country. A start
up business is highly affected due to various policies that are to be adhered to mainly when the
business is an international business. In order to open a business in Germany, both the partners
had to consider various laws and policies of Germany along with the policies of London i.e. the
country where their business is currently operating. However, norms and policies of Germany for
start up business are not too harsh and are developed in a way that support smooth operation of
business. Hence, both the partners will not have to face issue regarding legal structure for
opening a branch in Germany.
All the above factors that are discussed in the context of Germany are in favour for
Marvin and Smith. Other than these factors, Germany is a place where there is easy availability
of coffee beans that is raw material for the business. This will also enable them in operating their
business successfully and hence, Germany would be the best country for their expansion.
2. Providing Marketing Mix for Expansion plan
The initial step for expansion of business is analysing market where the company wants
to expand its business and preparing a favourable market strategy. For this purpose, components
of marketing mix helps management and owners in determining the role of their product, price,
place and promotion in achieving its target objectives and goals (Armstrong And et.al., 2015).
Marketing Mix generally consists of 4 P's that are Product, price place and Promotion. These

helps in providing a base or can be said a starting point for new establishments and start ups.
Below is the marketing mix strategy for Marvin and smith for the purpose of expansion of their
business:
Components of Marketing Mix Explanation
Product This helps in analysing whether the products of company
are meeting the demand in market or not. This section
provides products and services that are provided by an
entity in detail. Smith and Marvin need to list out products
and services that are willing to provide to their customers
and whose demand are high in the market. For the purpose
of expansion of business in Germany, they will continue to
sell and provide same products and services because their
business in south London expanded because of their
attractive services and products (Liu, Li, Chen and
Balachander, 2017). They need to maintain their level of
products and services in the initial stage of opening in
order to maintain same efficiency level. However, once
their business will set up, they will provide more products
and services to expand their market.
Price It is the second main component of marketing mix which
will help them in determining the best price of their
products and services in the market. For this purpose, they
can even use tools and techniques of management
accounting such as pricing techniques. However, in the
initial stage, it is important for the business to stand in the
market (Susanty and Kenny, 2015). For this purpose,
prices of their products will be at lower level in order to
attract more customers, and once their business will be set

up properly i.e. the demand of their products and services
will increase, then they will increase their price to nominal
rate and too much so that their customers may shift away.
Place It is that component of marketing mix that helps business
in choosing the best place for setting up their operations.
An entity should consider a place where it can be able to
reach more customers. For this purpose, Marvin and smith
will open a physical store in the prime location of
Germany along with providing their products and services
online as well. In online business they need to concentrate
upon using the optimum website along with other ancillary
services.
Promotion This component of marketing mix focuses on the
promotional strategies of business (Stratton, and Werner,
2013). In order to attract customers and promote products
and services, firm had to opt for various promotional
strategies such as promoting business by offering
discounts or gifts on first visit or providing services
understanding the basic needs of customers such as free
Wi-Fi and charging socket. Other than this, Marvin and
Smith can also use various advertising platforms such as
Television, newspaper, banners, social media sites, etc.
3. Implications of factors on the business operations of coffee shop
Geographical location of an organisation must be proper and appropriate so that, every
customer can easily reach up to there. On the other side, if company is not situated at easily
approachable place then demand of its products and services will affect to a greater level. While
expanding business in new market, there are several kinds of factors that affect to the company

either in positive or negative way (Goldmann, 2017). Due to change in geographic location,
some aspects also fluctuate due to which existing position of the firm affects. When Marvin and
Smith will expand their coffee shop in Germany then location will change. Due to this, income,
sales, business process, beliefs etc. will change up to higher extent. Further, some factor which
will affect to Marvin and Smith coffee shop in new market are analysed below:
Personnel and Managing staff issues:
When a business expansion plan is created, or when a business thinks to expand its
business in overseas, factor that highly impact to successful establishment of business is
managing personnel and staff issues in new branch. Establishing a new branch at another place
arises problem of having best staff there as well. A business can reach to a great success if it has
efficient employees (Hall and et.al., 2015). So, for Marvel and Smith, it is essential to employ
efficient and high skilled employees who are experienced in this field to their new coffee shop in
Germany to operate their business at current level or little less. However, as discussed above,
there is a great population in Germany so their business would not face many issues in recruiting
staff. But the main problem is, whether the new staff that will be recruited to new branch in
Germany will be as efficient as the staff of London branch.
However, as per the practices of Marvel and Smith, they ensure their staff are highly
skilled and trained to the highest standards. They also offer optimum wages and development
opportunities beyond and above their competitors. They need to carry out these practices in
Germany as well in order to attract and retain efficient employees and staff to their organisation.
Gaining Competitive Advantage
Marvin and smith coffee shop has gained a competitive advantage in south London i.e. in
their existing shops due to the following practices:
 Use of the finest coffee beans from Gumutindo coffee.
 Growing coffee beans in their own farms that helps them in ensuring to customers that
the best quality of raw material is being used by them.
 Use of high quality tea and herbal infusions.

 Offering a relaxing environment and East African feel to their customers along with
providing them their practical needs.
Due to all the above factors, they have gained competitive advantage in their existing
business. Here, Marvin and Smith will face issue of having same competitive advantage in
Germany. A business becomes successful if and only if it has something unique to provide to its
customers (Barney, 2014). All such unique features were there with Marvin and Smith in South
London, but it would take them some time to create competitive advantage in Germany. For this
purpose they have to employ a good amount of capital to their new branch and also there will be
high risk. Both the partners had to make circumstances or conditions that put their business in a
superior or favourable position. This means for establishing their new branch successfully they
had to start all over again from the scratch. It is also not necessary that factors that enabled them
in gaining competitive advantage will be favourable for them in Germany too. They need to
make research regarding preferences and choices of their target market in Germany in order to
achieve desired business goals and objectives.
4. Evaluation of their current profitability and liquidity position and its impact on their decision
Evaluating Profitability of business:
While running a small business or in order to expand existing business, it is necessary for
a business person to determine profitability of its firm (Innocent, Mary and Matthew, 2013).
Profitability of the firm depends upon how much business is capable of generating net profit
earnings in a financial year that can be either distributed to owners or can be re-invested in
business for the purpose of expansion. Without having a profitable business, entrepreneur or
partners cannot think of expanding their business, doing so will lead them to solvency position.
Here, for the purpose of determining profitability of Marvin and Smith coffee shop profitability
ratios are being calculated below:
Profitability ratios:
PARTICULARS Formula Amount/ Ratio

Gross Earnings 2,08,000
Net earnings 26800
revenues 3,60,000
Gross profit Margin (GPR) GP/ net sales * 100 57.78%
Net profit Margin (NPR) Net profit / net sales * 100 7.44%
Interpretation: It has been determined that Gross earning capability of coffee shop is 57.78%
while, net earning capacity of coffee shop is 7.44%. for the purpose of expansion, Net profit
capacity will be considered because this is the net profit that can be invested for expansion. It can
be said that after deducting all the expenses, there remains enough of profit that will help Marvin
and Smith in opening their new branch in Germany.
Efficiency ratios:
PARTICULARS Formula Amount/ ratio
Net profit 26800
Capital employed (total assets – current liabilities) 106800* (113000-6200)
Return on capital employed
(ROCE)
Net profit / Capital employed *
100 25.09%
Evaluating liquidity of business:
Evaluating liquidity position of a business is also essential as it provides knowledge regarding
whether the business have enough cash reserves or reserves that can be easily converted into
cash (Babalol and Abiola, 2013). Assessing liquidity is also essential so as to determine whether

firm will be able to pay off its short-term liability and the amount that has been owed to the
business on time or not. For this purpose, liquidity ratios are calculated for Marvin and Smith
coffee shop.
PARTICULARS Formula Amount/ ratio
Current assets (CA) 35400
Current liabilities (CL) 6200
stock 8000
Current ratio (CR) Current assets / current liabilities 5.71:1
Acid test ratio (QR)
Current assets – (stock + prepaid
expenses) / current liabilities
4.42:1
Note: there no prepaid expenses of the business therefore, not considered
Interpretation: from above calculation it can be said that, liquidity position of business is too
strong. As per the standards, ideal current ratio is 2:1 and ideal acid test ratio is 1:1. This means
business must be in the position where it has it 1 liquid asset for its 1 liability. It has been
analysed that, liabilities of business are less and it has enough of liquid resources that can be
invested. These resources can be invested by both the partners in their new venture.
CONCLUSION
The above case study is based on a coffee shop business that is owned and managed by two
business partners that are Hank Marvin and Patty Smith. Both were working together for years in
food and catering industry and were having a dream of having their own business and so they
opened a coffee shop in Wandsworth in south London establishing a competitive advantage after
spending 12 months of research and planning. In order to stand out from other coffee shops they
developed some strategies such as growing coffee beans in their own farms, etc. which helped

them in succeeding their business very well. Now they are planning of expanding their business
overseas for which this report mainly is about. For this purpose, Germany has been advised to
them based on its geographical, demographic and legal structure that all are favourable for their
new business expansion. All such factors are explained above in the context that will provide
benefits to their coffee shop. Further aspects of marketing mix are provided for their new branch
which discusses about what place and products will be best suitable for them and what
promotional strategies they can use to promote their business in Germany. Further, for the
purpose of expansion, determining liquidity and profitability condition of business is necessary,
the same has been determined using ratio analysis technique.

REFERENCES
Books and Journals
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