Food for Friends Restaurant Financial Analysis

This assignment provides a detailed financial analysis of the restaurant chain 'Food for Friends'. The study includes an examination of the company's cash flow, profit, and return on investment. The results show that the restaurant is struggling to generate sufficient cash, resulting in a negative net present value and internal rate of return. Recommendations are provided to improve customer service, change location, or offer transportation services to attract more customers and increase income.

UNIT 6 BUSINESS DECISION MAKING
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Introduction
The main aim of this study is to understand business decision making properly. The
success of any organization depends on the proper planning and decision-making. Many factors
are involved in this process to render it more effective, accurate and efficient. In this study, these
factors are discussed to point out the possible results of business decision making. Information
was collected from the variety of resources, ranges of techniques are used to analyse data
effectively, and this information was reported in an appropriate format.
Task 1
Creating a plan for collecting primary and secondary data (AC1.1)
To draw a plan whether may be related to the business or personal, collecting data are the
first thing to be done. Further, this information could be collected from two sources, namely,
primary source and secondary source. Whereas primary source includes live feeds, which means
collecting data from those people who have experience and knowledge. In this kind of sources,
personal interviews are conducted to gain knowledge, experience, and feedback, questionnaire,
and surveys are conducted to gather a snapshot of the required information in a short run. On the
other hand, secondary data includes journals, books, news, online websites, etc. Which means
that information which is already collected could be used as a reference or secondary
information like research projects, scholarly articles, etc. However, for conducting data
collection to support this given article, the primary source of data collection has been used. Since
primary data and the raw information is required to make decision-making process for gaining
the customer preferences before establishing second restaurant in London. In addition, it is also
analyzed how Food and Friends use these methodologies or conduct such operations (Quinto et
al. 2013, p.767).
Presenting the survey methodology and used sampling frame (AC1.2)
Per Bruijne and Wijnant, (2014, p.955) primary source of collecting data requires
personal interviews with those who have an experience on a certain field. In order to gain public
response in a large-scale questionnaire have been developed to acquire feedback, because it
would not be possible to have one on one interview with every personnel due to the shortage of
time. Hence survey methodology has been developed to base upon the sampling frame to support
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the decision making process. With the help of this method statistical diagnosis could be done,
because survey based on questionnaire consists of concise and goal oriented question, which
could be answered either in yes or no or in any other flexible form. However, the sampling
method is based on the probability and non-probability sampling. Where in the probability
sampling random selection is done and in no probability sampling selected sample is taken to
conduct further research. In this research, Food and Friends have conducted open-ended
sampling survey, where questionnaire has been distributed to the customers to attain their
response. Moreover, non-probability sampling method has been chosen as a sampling technique
due to the difficulty in dealing with many people. Thus, only 80 customers were selected with an
intention of getting their feedback in details.
Designing questionnaire (AC1.3)
Questionnaire sample has been designed to developed understanding the customer response.
a) Do you frequently visit Food for Friends?
1. Yes
2. No
b) What do you think about the price of the foods?
1. Very costly
2. Reasonable
3. Pocket-friendly
c) How much satisfied are you with quality of the food?
1. Strongly satisfied
2. Satisfied
3. Neutral
4. Dissatisfied
5. Strongly dissatisfied
e) Do you think the price of the food justifies the quality of the food?
1. Yes
2. No
f) Are you happy with the current location of Food for Friends?
1. Yes
2. No
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g) What are the new food items that you would like to introduce in the restaurant?
1. Mushroom and ale pie
2. Sausage rolls and salads
3. Fried mushroom moose
4. Tofu Steak
h) What are the changes that you would make in the restaurant?
1. Improve the lightning
2. Encourage the playing of music
3. Introduce the facility of drinks
4. Make innovations in the sitting arrangements
i) On a scale of 1 to 5, how much will you rate Food for Friends after comparing it with
other vegetarian restaurants?
1. Five
2. Four
3. Three
4. Two
5. One
j) Would you recommend the restaurant to any of your other friends?
1. Yes
2. No
k) How far do you agree that Food for Friends serves its customers with customised food?
1. Strongly agree
2. Agree
3. Neutral
4. Disagree
5. Strongly disagree
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TASK 2
Summarizing data for decision making with the help of representative values
(AC2.1)
With respect to the representative values and survey, questionnaire feedbacks of the
customers have been evaluated. The establishment of a restaurant and its running process is quite
complex, various research must be undertaken, including interviews, samplings, website
research, etc. However, in this study the researcher has taken the help of sampling technique to
understand customer preferences before opening second restaurant in London for Food and
Friends. Per the primary research 62% respondent has been visiting Food and Friends frequently,
around 44% of the customers found reasonable price of food items and very close percentage of
customers were standing against the price composition (Leys et al. 2013, p.764). This indicates
that people visiting Food and Friends do not have many issues related to the pricing system. On
the other hand, average number of people is satisfied with the quality of the food and with
respect to the quality of the food items, only 44% of the customers had voted justified price for
the standard of the food item, whereby only 56% of them have voted against of it.
From this scenario, it could be said that the restaurant has few issues related to the
quality and its price from the point of view of the users. If the discussion is done on the
preference of special food items, most the customers (50%) liked Tofu Steak, followed by the
percentage of people (24%) liked the only Mushroom and ale pie and rest liked Sausage rolls
and salads and Fried mushroom moose. Moreover, good number of customers is not satisfied
with the infrastructure and other indirect services of the restaurant, like lighting system, seating
capacity, etc. Based upon the review of sampling survey, a mixed opinion of the customers has
been attained. At one hand, customers are appreciating the services of Food and Friends on the
ground of quality and standards maintained for food items and the reasonable price system. On
the other hand, customers have faced issues related to the infrastructure of the restaurant. Thus, it
could be concluded that Food and Friends should focus on the required changes in the structure
of the restaurant and should include more food items in the menu list (Leys et al. 2013, p.765).
Q1. Do you frequently visit Food of Friends?
Options No. of responses Response (%)
Total
respondents
Yes 50 62.00% 80
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No 30 38.00% 80
Mean 40
Median 40
Mode 0
Q2. What do you think about the price of the foods?
Options No. of responses Response (%)
Total
respondents
Very costly 30 38.00% 80
Reasonable 35 44.00% 80
Pocket-friendly 15 19.00% 80
Mean 26.6667
Median 30
Mode 0
Q3. How much satisfied are you with quality of the food?
Options No. of responses Response (%)
Total
respondents
Strongly satisfied 25 31.00% 80
Satisfied 20 25.00% 80
Neutral 5 6.00% 80
Dissatisfied 15 19.00% 80
Strongly dissatisfied 10 19.00% 80
Mean 15
Median 15
Mode 5
Q4. Do you think the price of the food justifies the quality of the food?
Options No. of responses Response (%)
Total
respondents
Yes 45 56.00% 80
No 35 44.00% 80
Mean 40
Median 40
Mode 10
Q5. Are you happy with the current location of Food for Friends?
Options No. of responses Response (%)
Total
respondents
Yes 35 44.00% 80
No 45 56.00% 80
Mean 40
Median 40
Mode 35
Q6. What are the new food items that you would like to introduce in the restaurant?
Options No. of responses Response (%)
Total
respondents
Mushroom and ale pie 20 24.00% 80
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Sausage rolls and salads 10 13.00% 80
Fried mushroom moose 10 13.00% 80
Tofu Steak 40 50.00% 80
Mean 20
Median 15
Mode 10
Q7. What are the changes that you would make in the restaurant?
Options No. of responses Response (%)
Total
respondents
Improve the lightning 15 19.00% 80
Encourage the playing of music 10 13.00% 80
Introduce the facility of drinks 25 30.00% 80
Make innovations in the sitting
arrangements 30 38.00% 80
Mean 20
Median 20
Mode 10
Q8. On a scale of 1 to 5, how much will you rate Food for Friends after comparing it
with other vegetarian restaurants?
Options No. of responses Response (%)
Total
respondents
Five 10 13.00% 80
Four 25 31.00% 80
Three 30 38.00% 80
Two 10 13.00% 80
One 5 6.00% 80
Mean 16
Median 10
Mode 10
Q9. Would you recommend the restaurant to any of your other friends?
Options No. of responses Response (%)
Total
respondents
Yes 50 62.00% 80
No 30 38.00% 80
Mean 40
Median 40
Mode 0
Q10. How far do you agree that Food for Friends serves its customers with customised
food?
Options No. of responses Response (%)
Total
respondents
Strongly agree 30 38.00% 80
Agree 20 25.00% 80
Neutral 10 13.00% 80
Disagree 5 6.00% 80
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Strongly disagree 15 19.00% 80
Mean 16
Median 15
Mode 5
Analyzing results for drawing valid conclusions (AC2.2)
According to the analysis of the sampling survey, it has been found that Food and
Friends has the capacity to retain existing customers and attract new customers because the
restaurant has maintained reasonable price for their quality service. Due to this, customers find
themselves quite satisfied with the service they enjoy on the ground of taste and price of the food
items. As per above it has been analysed that there are many factors that require special
consideration in the context of Foods for Friends to achieve sustainable growth. It is required to
make make expansion in overall business through achieving overall quality standards. On the
contrary, the restaurant has been facing the issue related to the location for the establishment of
second restaurant in London because the customers have found difficult to access the route to the
restaurant. Moreover, the targeted location will not yield much revenue due to the backwardness
of the area. Thus, it is advised that proper marketing strategies should be applied to be
acquainted with the economy of the London and its sub areas. Beside this promotion and
advertisement is significant factor which helps to attain target customers which create brand
value in long run. This would be useful to achieve more effective outcomes to analyse different
problems. It has been analyse that product and services are required in effective evaluation in
Food and Friends so company can apply most appropriate techniques in order to attain more
reliable results in coming years.
Analyzing data with the help of measures of dispersion (AC2.3)
Ratings R1 R2 R3 R4 R5
Standard
Deviation Variances
1 50 30 - - - 14.14214 200
2 30 35 15 5 - 13.76893 189.5833
3 25 20 5 15 10 7.90569 62.5
4 45 35 - - - 7.07107 50
5 35 45 - - - 7.07107 50
6 20 10 10 40 - 14.14214 200
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7 15 10 25 30 - 9.12871 83.3333
8 10 25 30 10 5 10.83974 117.5
9 50 30 - - - 14.14214 200
10 30 20 10 5 15 9.61769 92.5
The above table exhibits standard deviation of data of 80 respondents which helps to
determine risk level associated with each rating as used in questionnaire and evaluation of the
standard deviation, it has been calculated to understand the differences in the response of the
customers. It has been found that irrespective of the mixed opinion of the customers, people of
London are food lovers and they would love to try new items. If any new restaurant would be
established, customers would automatically be attracted to the newly established restaurant to try
out something new. In addition if the price of the food items of new restaurant are marked
reasonable, chances of getting more and more customers would rise (Kołacz and
Grzegorzewski, 2016, p.932).
Analysing the data using correlation coefficient in business context (AC2.4)
Quartiles: it refers to a statistical measure which classifies or make divisions of data or
observation into equal four intervals. This measure assist in analyse values in order to describe
effective median measure in central tendency.
Percentile: It is a statistical term which is describes value less than certain percentage of
total or entire observations under a specific group of concern observations lies. Such as 10th
percentile indicates value or score less than 10% of observations probably found. It is major term
which assist to calculate a certain percentage of aggregate values.
Correlation coefficient: It is a statistical tool to analyse or determine level of
relationship between tow variables. The range defined under this statistical measure generally
close to 1.0 on varies between -1.0 to 1.0. Above 1.0 and less than -1.0 correlation measurement
is incorrect. -1.0 represents a perfect negative correlation whereas 1.0 indicates a perfect positive
correlation and correlation of 0.0 represent no relationship between variables.
Quartiles and percentiles are the representative measures like standard deviation and
variation. It indicates the percentage of a value below a certain value; which means 3rd quartile
represents 75% of the observations are below a certain amount and the rest 25% are above.
While observing the data, it is found that the mean is between the 2nd quartile and 65% of the
percentile. Therefore, the company should charge the mean amount for its services. The quartiles
and percentiles help in the decision-making progress that helps company to analyse and decide
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the price structure. Correlation coefficient measures the strength of the linear equation between
two variables. The value of correlation coefficient should be between -1 and +1. This is also
helpful in decision making. From the statistical data of Food of Friends, it is seen that the
managers must mitigate the risk by providing quality food and services to customers or they can
introduce new food items. They must control the increment in prices; otherwise, they will lose
the customers (Quinto et al. 2013, p.768).
Task 3
Producing graphs and drawing conclusions (AC3.1)
A survey is conducted to collect the information about restaurants and the customer’s
opinions that will help the managers to take appropriate decisions.
Figure 1: Do you frequently visit Food for Friends?
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Figure 2: What do you think about the price of the foods?
Figure 3: How much satisfied are you with quality of the food?
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Figure 4: Do you think the price of the food justifies the quality of the food?
Figure 5: Are you happy with the current location of Food for Friends?
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Figure 6: What are the new food items that you would like to introduce in the restaurant?
Figure 7: What are the changes that you would make in the restaurant?
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Figure 8: On a scale of 1 to 5, how much will you rate Food for Friends after comparing it
with other
Figure 9: Would you recommend the restaurant to any of your other friends?
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Figure 10: How far do you agree that Food for Friends serves its customers with
customised food?
Creating trend lines that helps in forecasting (AC3.2)
Year Sales profit
2018 150000 40000
2019 200000 45000
2020 250000 52000
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1 2 3
0
50000
100000
150000
200000
250000
300000
150000
200000
250000
40000 45000 52000
Trend line
Sales
Linear (Sales )
profit
Linear (profit)
According to the above presented trend line, it is clear that there is steady increase in
total revenue or sales which leads to increase in profit margin in near future. At the level of sales
of 200000 Food for Friends company can earn profit of 45000. The linear line points out
towards sustainability in growth in subsequent year although sales line showing upward trend.
Prepare a business presentation (AC3.3)
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Producing a formal business report (AC3.4)
The manager
Food for Friends
Dated: 11th Feb 2019
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Subject: Need for changes and innovation in food and services.
There is a business expansion plan for evaluating need for changes and innovation in
foods and services offered by Foods for Friends. There are major aspects are also used as a
basis for such business plans. Main motive of analyse and produce data and information is
attain desired objectives and results as per customers feedback. Main reason behind making
changes and innovation in processes of food and services is increase revenue to enhance their
market share. Analysing previous trend provided information that innovation should be adopted
by organisation to enhance quality of foods and service while providing customer satisfaction.
As per the collected data and its analysis, customers visit Food for friends more than the other
restaurants but at the same moments most of the respondents find it expensive than the others.
The quality of the food is good as most of the respondents are strongly satisfied. The location of
the restaurant is not good and at a proper place. The customers find it difficult to reach at the
location. The restaurant's needs to make some changes and innovate its food and services as per
the result of survey. The ratings for the restaurant are average as most of the respondents rated
it 3 out of 5. Therefore, the managers should improve the quality of the services. It can be
concluded that customers are satisfied with the food but they want some new dishes and
location should be changed where it is reachable easily.
Task 4
Importance of type of various information system(AC4.1)
There are various kind of tools, methods and techniques to evaluate appropriate and
efficient vital decisions and plans which helps to develop innovative business ideas, processes
and tasks or project. These methodologies are applied under organisational context in order to
manage or organise effective business plans and difficult situations. It is vital for business entity
to obtain correct data or information that are associated with business expansion plans, process
and task or project. Plan to achieve sustainable growth is formulated under different levels and
stages. By using effective information systems managerial personnel can frame effective plans
and dynamic strategies to secure growth and development in near future of organisation. For
implementation of effective informative tool for accurately estimating and developing strategies,
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managers should contribute their expertise and skills related to use of these tools and methods.
Following are the major information tools, as follows:
 Transaction processing system (TPS): Operational, Middle and higher level are
considered as three significant parts of organisational structure. Providing information at
each and every level is very complex and difficult task for organisation. TPS system
defines a systematic path for significant information to various stages or levels of
organisation. TPS is normally preferred by business organisation to classify their
different task or projects into specific sections.
 Management information system (MIS): MIS is effective system that assist in
providing systematic information specially financial information to managerial
personnels. It provides a framework for decision making by providing summarised
information for quick asses to managers. MIS is concerned with computer presentation
which enhance its importance for management.
 Decision support system (DSS): DSS is a system that assist in taking significant
decisions and formation of effective plan. Outputs of this system provide information that
is used by management to analyse appropriateness of business plans, process, tasks or
projects. Under this system also Information and data are presented in computerised
format or structure. This system is applied by managerial personnels to resolve huge or
wide data and information.
Identifying the business activities (AC4.2)
The activities should be arranged and decide by managers at the beginning. This helps in
smooth running of business without ant hindrance and confusion. Some of the activities are:
 Consult the finance and restaurant professional for cost management
 Prepare a budget with their help
 Prepare legal documents and agreements
 Prepare a blueprint plan
 Select the target customer and market
 Appoint managers and staffs
 Follow the actions as per the plan
 Hire a marketing team for the promotions and advertisement
 Contact with suppliers for materials
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................1+3+5+6+9+10 = 34 days
.................1+4+8+5+6+7+9+10 +50 days
On the basis of above analysis there are few critical path are determined that are framed
in order to execute task or project effectively. The critical path effectively assit in determining
significant aspect realted to defineing final deadline and period scheduled to each of the task.
Using financial tools for decision making (AC4.3)
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Statement of
Calculation of
NPV
year cash inflow discounting factor present cash flow
1 50000 0.892857143 44642.85714
2 64000 0.797193878 51020.40816
3 58000 0.711780248 41283.25437
4 70000 0.635518078 44486.26549
Total present cash flow 1
8
1
4
3
2
.
7
8
5
2
less: Initial Investment 1
9
0
0
0
0
Net Present Value (NPV) -
8
5
6
7
.
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2
1
4
8
3
2
Table 1: Net Present Value
(Source: Self developed)
statement of
calculation of
IRR
year cash Inflow present cash inflow
0 -190000
1 50000 44643
2 64000 51020
3 58000 41283
4 70000 44486
IRR -2%
Figure 2: Internal Rate of Return
(Source: Self developed)
The net present value of the restaurant is -8567.215 which is negative. A negative NPV
shows that the company is not able to generate profit. Its initial investment is more than the total
present cash flow and that is good for the restaurant. When a company is not able to generate
sufficient profit than it can survive in the market for long. The continuous loss may lead the
company to loss its customers and employees as in that case it will not be able to provide good
customer services (Petković, 2015, p.20).
The internal rate of return (IRR) is also negative because the initial cost is higher than the cash
flow. The IRR is directly influenced by the NPV that is why the IRR is negative. As the rate of
return is negative, the company is not able to generate sufficient cash for its growth and survival.
Therefore, it is recommended that the restaurant should generate more cash flow and earn profit
to survive in the market and retain its customers (Magni, 2013, p.74).
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Conclusion
Based on the above study it is recommended that Food for Friends should improve its
customers service and food quality to attract more number of customers. The location of the
restaurant should be changed or they can provide some transportation facility to customers for
their convenience. The negative NPV and IRR shows that the restaurant is lacking in some areas
therefore failed to generate sufficient cash. They are advised to attract new customers to improve
customer satisfaction that help to increase income.
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Bibliography
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mobile web surveys. Public Opinion Quarterly, 78(4), pp.951-962.
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data. European Journal of Operational Research, 251(3), pp.930-937.
Leys, C., Ley, C., Klein, O., Bernard, P. and Licata, L., 2013. Detecting outliers: Do not use
standard deviation around the mean, use absolute deviation around the median. Journal of
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