Small Business Management: Analysis of Decision of Business Location and Financial Ratios

This article discusses the analysis of decision of business location and financial ratios for small business management. It covers profitability, solvency and efficiency ratios. The article also includes tables showing the computation of key financial ratios of Frank’s All-American Barbeque. The location of the restaurant is favorable and can be easily be accessible by families who want to have dine in services as well pick up orders from the restaurants.

Running head: SMALL BUSINESS MANAGEMENT
Small Business Management
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SMALL BUSINESS MANAGEMENT
Table of Contents
Analysis of Decision of Business Location.....................................................................................1
Analysis of Financial Ratios............................................................................................................2
Reference.........................................................................................................................................4

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SMALL BUSINESS MANAGEMENT
Analysis of Decision of Business Location
As per the business plan which is shown in the assessment shows the analysis of the best
possible locations for Frank’s All-American Barbeque. The basic advantage for establishing a
restaurant in Connecticut is that the restaurant has already established a name and reputation for
the business in the locality. The business is known for its excellent food and also known for
ambience in this part of the country and therefore this is the most suitable place for the
management to establish the restaurant. The management of the business has considered several
factors such as population density, preference pattern of the consumers, income ratio of the
people which can analyze the decision of the business (Carraher and Van Auken 2013). In
addition to this, the location of the restaurant is favorable and can be easily be accessible by
families who want to have dine in services as well pick up orders from the restaurants.
The management should consider the taste and preference of the people in the locality so
as to ensure that the business is successful in the locality. In addition, the business also needs to
consider the supply of raw materials, available infrastructure, transport services that is home
delivery services.

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SMALL BUSINESS MANAGEMENT
Analysis of Financial Ratios
Particulars 2008 2009 2010
in $ in $ in $
Total Revenue 1,637,610.00$ 1,696,564.00$ 1,793,268.00$
Materials & Consumables Used 542,080.00$ 577,315.00$ 600,408.00$
Gross Profit 851,557.00$ 909,358.00$ 943,259.00$
Total Assets 1,095,999.00$ 939,372.00$ 1,004,625.00$
Total equity 468,577.00$ 403,194.00$ 474,975.00$
Gross Profit Margin 0.520 0.536 0.526
Return on Assets 0.777 0.968 0.939
Return on Equity 1.817 2.255 1.986
Profitability Ratios
Particulars 2008 2009 2010
Total Assets 1,095,999.00$ 939,372.00$ 1,004,625.00$
Total equity 468,577.00$ 403,194.00$ 474,975.00$
Total Liabilities 627,422.00$ 536,178.00$ 529,650.00$
Current Assets 772,275.00$ 686,291.00$ 726,715.00$
Current Liabilities 407,422.00$ 346,178.00$ 354,650.00$
Current Ratio 1.896 1.982 2.049
Debt-to-Equity Ratio 1.339 1.330 1.115
Debt Ratio 0.572 0.571 0.527
Equity Ratio 0.428 0.429 0.473
Solvency Ratio
Particulars 2008 2009 2010
Inventory 391,238.00$ 331,045.00$ 345,678.00$
Trade Receivables 278,372.00$ 230,074.00$ 278,372.00$
Trade Payables 155,534.00$ 132,206.00$ 145,321.00$
Cost of Goods Sold 542,080.00$ 577,315.00$ 600,408.00$
Sales Revenue 1,637,610.00$ 1,696,564.00$ 1,793,268.00$
Inventory Turnover Ratio 1.386 1.744 1.737
Payables Turnover Ratio 3.485 4.367 4.132
Receivables Turnover Ratio 5.883 7.374 6.442
Efficiency Ratio

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SMALL BUSINESS MANAGEMENT
As per the tables which is shown above shows the computation of key financial ratios of
Frank’s All-American Barbeque shows ratios relating to profitability, solvency and efficiency.
As per the profitability ratios which mainly shows gross profit margin, return on assets and
return on equity. The gross profit margin of the company has increased in 2009 from the 2008
analysis which is clearly shown and as per 2010 analysis shows a slight decrease in the gross
profit margin of the business (Ongore and Kusa 2013). This signifies that there is a problem in
the operational activities of the business. The return on assets of the business has increased as
shown in the computation and the return on equity has decreased which shows that the business
offers lesser amount of dividend to the shareholders of the company. The current ratio of
business shows that the liquidity of the business has improved over the year considering the
results from 2008 to 2010. The current ratio of the business for the year 2010 shows 2.049. The
debt ratio of the company shows a decrease in the debts of the company which suggest that the
management of the business is trying to reduce the overall debt capital of the business
(Weygandt, Kimmel and Kieso 2015). This also suggest that the management is trying to make
changes in the capital structure of the company. The equity ratio of the business shows that the
company uses more of equity capital in the capital mix of the business (Tayeh, Al-Jarrah and
Tarhini 2015). The inventory turnover ratio of the business shows that there has improvement in
the estimates as per 2010 results which is a favorable factor and the receivable turnover ratio of
the business also shows an increase which is a positive factor of the business.

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SMALL BUSINESS MANAGEMENT
Reference
Carraher, S. and Van Auken, H., 2013. The use of financial statements for decision making by
small firms. Journal of Small Business & Entrepreneurship, 26(3), pp.323-336.
Ongore, V.O. and Kusa, G.B., 2013. Determinants of financial performance of commercial banks
in Kenya. International Journal of Economics and Financial Issues, 3(1), pp.237-252.
Tayeh, M., Al-Jarrah, I.M. and Tarhini, A., 2015. Accounting vs. market-based measures of firm
performance related to information technology investments. International Review of Social
Sciences and Humanities, 9(1), pp.129-145.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E., 2015. Financial & managerial accounting. John
Wiley & Sons.