Financial Analysis and Planning for Sweet Menu Restaurant Expansion

This report provides a comprehensive financial analysis of Sweet Menu Restaurant, focusing on its expansion plans. It begins by identifying internal and external sources of finance, such as retained earnings, personal savings, bank loans, and issuing shares, along with their implications. The report then delves into the costs associated with each financing source and the importance of financial planning for the restaurant's new project, assessing the information needs of different decision-makers like shareholders and business managers. Furthermore, it examines the impact of finance on the company's financial statements. The analysis extends to the cash budget, unit cost calculations, and the viability of expansion proposals using investment appraisal techniques. Finally, the report covers the main financial statements, compares their formats across different organization types, and interprets the financial statements of Sweet Menu Restaurant and Blue Island restaurant using ratio analysis, concluding with recommendations based on the findings.

MFRD

Table of Contents
MFRD..............................................................................................................................................1
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Sources of finance available to Sweet Menu Restaurant......................................................1
1.2 Implications of the above identified sources of finance........................................................2
1.3 Stating the suitable source of finance to Sweet Menu for expansion...................................3
TASK 2............................................................................................................................................4
2.1 Analyzing the cost of different sources of finance for Sweet Menu Restaurant...................4
2.2 Importance of financial planning for Sweet Menu Restaurant with reference to new project
.....................................................................................................................................................4
2.3 Assessment of the information which is needed by the different decision makers..............5
2.4 Impact of finance on the financial statements of Sweet Menu Restaurant..........................5
Task 3...............................................................................................................................................6
3.1 Analyse of cash budget and various decisions based upon it................................................6
3.2 calculation of Unit cost.........................................................................................................6
3.3 Viability of two proposal by using investment appraisal techniques...................................8
Task 4.............................................................................................................................................11
4.1 Main financial statements ..................................................................................................11
4.2 Comparing the financial statements format of different types of organisation...................11
4.3 Interpreting the financial statements of Sweet menu restaurant and Blue Island restaurant
using ratio analysis....................................................................................................................12
Conclusion.....................................................................................................................................13
References......................................................................................................................................14
REFERENCES..............................................................................................................................14
1

INTRODUCTION
Growth and development of the firm is highly dependent upon the fund within are
available within the business enterprises. Company can attain success in the competitive business
environment when it makes optimum utilization of their financial resources. Financial strategies
and policies which are framed by the firm plays a vital role in implementing the business plan
within the suitable time frame. This report will examine the sources which Sweet menu can
undertake to fulfil its financial needs for the expansion of restaurant in Central London and
Croydon. Sweet menu is the reputable restaurant of London which is found the three students in
Giant Hills. This report will help in determining the viability of such expansion plan through
investment appraisal techniques. Besides this, the present will also shed light on the financial
health and position of the firm with the help of ratio analysis. This aspects provides deeper
insight to the business organization about the suitability or profitability of expansion plan.
TASK 1
1.1 Sources of finance available to Sweet Menu Restaurant
Finance is the essential source which help the business to take into account the various
aspects that are essential to start up from the new stage (Hill, 2014). Sweet Menu Restaurant
have categorized the sources which are available to start up the business and divided into two
form within the business.
Internal Sources: These are the sources which is obtained internally in the form of finance to
allocate the resources to start up the new business. There are various sources which are discussed
below:
Types of Internal Sources Description
Retained Earning They are present in the form of the liquid
assets which is the proportion of the net
income of the company that is not distributed
in form of dividend. All the cooperation's make
the reinvestment of the retained earnings to
provide finance to for the purpose of expansion
of Sweet Menu Restaurant (Al-Bakri, Matar

and Nour, 2014.).
2

Personal Savings They are the major sources of finance which
are contributed by the owner to fulfill the
expansion of the business unit (Batt, 2002).
With this the business unit is able to meet the
short term and the long term financing of
Sweet Menu Restaurant.
External Sources: These are the sources which help the business to find the finance form the
outside sources to start-up the new business. This will provide the effective funds to manage the
entire functioning.
Types of External Sources Description
Bank Loan They are those form of finance which are
provided by the bank by agreeing to pay the
certain part of fixed installment over the fixed
period of time (Guest, 2011). Bank loans helps
Sweet Menu Restaurant to meet the need of
short-term and long term financing.
Issue of shares With the issue of share the business unit is able
to acquire the finance form the investors who
make the purchase of the share (Guerrero,
Maas and Hogland, 2013). Through this,
certain amount of ownership is being
transferred to the investors.
1.2 Implications of the above identified sources of finance
The implication of the internal sources and the external sources helps to define the
negative and the positive aspects. In this proper evaluation is being done to determine the various
operations for which these sources are identified.
Internal source of finance Implications
Retained Earning This will help Sweet Menu Restaurant to make
3

the availability of the finance internally and
does not require to borrow it from the external
sources (Poston and Grabski, 2001).
Personal Savings They are the convenient form through which
Sweet Menu Restaurant can make the easily
availability of the finance as no other costs is
associated with it(Horngren and et.al., 2002) .
External source of finance Implications
Bank Loan This will help Sweet Menu Restaurant to make
the easy accessibility to the finance for the
purpose of expansion (Chang and et.al., 2014).
This will provide Sweet Menu Restaurant
several tax benefits.
Issue of shares This will make the availability of finance
which is required by Sweet Menu Restaurant to
expand with the less interest rate (Epstein and
Buhovac, 2014). Thus, it is a complete
diversify source of finance.
1.3 Stating the suitable source of finance to Sweet Menu for expansion
Sweet Menu Restaurant focuses on the various sources of finance to make the proper
evaluation of the cost and benefits which are associated with it. As per the analysis of the sources
of finance,it can be understood that the retained earnings and personal savings are the best form
through which the finance can be made available for Sweet Menu Restaurant (AO'Brien and
et.al., 2006). The major aspect which is associated with the determination of these sources of
finance to be suitable for the business as outer cost is not incurred over it. These are those
sources which are present within the company over the regular basis. Moreover, Sweet Menu
Restaurant has good market position which will help them to generate more funds without
incurring the external cost.
On the contrary, Bank loan is the best source of finance for Sweet Menu Restaurant as it
makes the funds available to the business to start-up with the low interest rate (Kaplan and
4

Atkinson, 2015). Moreover, it helps Sweet Menu Restaurant to easily access the finance
requirement for the purpose of expansion. This will help Sweet Menu Restaurant to diversify
and receive the funds through which they can obtain the larger profits without any other cost.
TASK 2
2.1 Analyzing the cost of different sources of finance for Sweet Menu Restaurant
Cost is the major element which is associated with the business in form of purchasing or
the selling cost. All the cost which is associated with the sources of finance are considered to
analyze them in an proper form (Batt, 2002). Retained earning is the earning which is associated
with the opportunity cost. It is the cost which is not recorded in the accounting statements as it is
the intangible cost which is measured in order to select the best option. Where as, Personal
savings is the cost which is associated with the owner's capital as it is being used to provide
funds to the business. Over the other hand, Bank loan carries the interest rate which is associated
with it and it is deducted from the total revenue of Sweet Menu Restaurant (Koppenjan and
Klijn, 2004). This is the cost which has to be beard by Sweet Menu Restaurant over the longer
duration of time till the final payment of the bank loan. Issue of share is that source of finance for
the business which the high dividend cost is associated as the investors need to paid the certain
part of profits which is made by Sweet Menu Restaurant.
2.2 Importance of financial planning for Sweet Menu Restaurant with reference to new project
Financial planning for Sweet Menu Restaurant refers to the anticipation of the entire
business functioning which are related to the significance of the business objectives that are
associated with the reference to the new project. With the proper financial planning (Hill, 2014),
Sweet Menu Restaurant can enable the entire functioning to achieve the goals which minimizes
the cost and enhance the profitability index. Likewise, Sweet Menu Restaurant undertake the
financial planning for the purpose to deal with the uncertainty in an effective manner. This will
help Sweet Menu Restaurant to assist in taking the long term decisions which are associated to
the launching of the new project (Markus, Tanis and Van Fenema, 2000). Thus, Sweet Menu
Restaurant will be able to anticipate the future and meet the future opportunities which refers to
the new project. Proper financial planning will help Sweet Menu Restaurant to effectively
manage the financial risk which is associated with it and can be reduced with the proper
management of the entire business activities.
5

Effective financial planning will help Sweet Menu Restaurant to attain higher sales return
by investing into the new project (The Importance of Personal Financial Planning. 2015). This
will help in long term sustainability of Sweet Menu Restaurant with the assessment of the future
financial planning.
2.3 Assessment of the information which is needed by the different decision makers
The entire functioning of the business unit is monitored with the help of the various
decision makers that are assessed in an proper form (Managing Financial Resources and
Decisions. 2013). The decision makers are categorized into different groups in order to assess the
entire information in an effective form. The different decision makers are as follow:
Shareholders: In today's context, shareholders influences the entire operations which are related
to the share prices and the other aspects which will make the shareholders connect with the
business and access the information in an effective manner (Campbell, Wollenberg and
Edmunds, 2002). This will help them to make the decisions regarding the investment and fulfill
the corporate responsibilities by enhancing the business performance. This will influence the
entire information which is related to the operations.
Business managers: It comprises of the different managers that assess the information in an
effective manner to make the decisions regarding the introduction of the new project into the
market. Therefore this will help the business managers to assess all the information in an
systematic manner. This will enforce the entire business operations in a proper form.
2.4 Impact of finance on the financial statements of Sweet Menu Restaurant
Finance to large extent affects the financial statements of the firm. Whether, firm take a
equity or debt in every condition its income statement and balance sheet will get affected. This is
because fund raised through these sources of finance are recorded in the company balance sheet
(Batta, Ganguly and Rosett, 2014). On other hand, finance cost is always shown in the company
income statement. Thus, it fix that fund raising will certainly affect the company both financial
statement.
Suppose Sweet Menu Restaurant takes a loan of 50,000 then this amount will be recorded
under the head short term loan in the liability side of the balance sheet. At the end of the year
firm needs to pay interest on same and it is finance cost for the firm. The interest amount will be
shown in the income statement and by the same amount profit of the firm will reduced (Baum
and Crosby, 2014). Sweet Menu Restaurant issue shares worth 1,00,000 then its shareholder
6

equity will get increased on the liability side of the balance sheet. On the other hand, if firm pay
a dividend at the end of the financial year then same corpus will be shown in the income
statement and like interest amount will be deducted from the gross profit. In this way both source
of finance affects firm financial statements.
Task 3
3.1 Analyse of cash budget and various decisions based upon it
In accordance to the given cash budget it can be concluded that financial position of the
company is not. Its flow of cash is constantly fluctuating. In is found out that in September
payment made by the company was 40850 is high than its income earned which was only 15000.
Payment is almost double than that of its income. While on the hand Blue was able to reduce its
expenses in October and November which was 11630 and 13230 respectively as compared to its
income which was 15500 and 18000. But again in December its expenses increase by 24280
than its income which was 20000. The reason behind this be that company is not able to plan all
its financial activities in a effective manner. They are not focusing much on the formation of its
strategies. Thus, in order to overcome the problem of surplus and deficit company should start
conducting research and should plan its financial activities in advance.
3.2 calculation of Unit cost
Unit cost:- It is cost that is subject by the company while they are manufacturing a finished
goods.
Pricing decision:- It is the sum total of the cost and the fixed amount of profit earned by the
company.
Unit cost = Direct cost per unit +Indirect cost per unit
direct costs or variable cost=
streak(s) = 3
vegetables(v) = 1.5
labour(l) = 3.5
(S+V+L = 8)
Indirect cost or fix cost=2 (overhead)
Mark-up =40%
7

Cost = 100%
Mark up = 40%
Selling price = 140%
Name of Items Costs (In £)
Steak(direct) 3
Vegetables and other ingredients(direct) 1.5
labour(direct) 3.5
Overheads (indirect) 2
Total Costs 10
Mark Up (40%) 4
VAT (20%) 2.8
Price to charge customer 16.8
Currently changing 16
VAT
Price exclusive VAT (Net) = 100%
VAT = 20%
Selling price inclusive (gross) =120%
Food cost percentage= Total costs of ingredients/sales price
Food cost percentage = Total costs of ingredients/Sale prices
Food cost percentage = 10£/16.8 £*100
8

Food cost percentage = 59.52%
Loss percentage on sales = Loss/sales prices*100
Loss percentage on sales = 6.8£/16.8£*100
loss percentage on sales =40.47%
On the basis of the above calculation it can be interpreted that total cost of the company
along with VAT and Mark up value is £16.8 but Blue restaurant is selling at £16 only, which
means that company is facing loss of £0.8 for per customer on per meal. In addition to which
cost of food percentage is 59.52% and loss percentage incurred by the company is 40.47%.
3.3 Viability of two proposal by using investment appraisal techniques
Investment appraisal techniques is the instrument that is used by the company to
identify the time period after which they will be able to require the amount of money that is
invested by them. This is one of the widely used tool by the company to find out the viability of
the company.
Calculation of Net Present Value:
Proposal 1:
Year Inflow
PV Factor
@10% Discounted inflow
1 £800 0.909 £727
2 £600 0.826 £496
3 £400 0.751 £300
4 £200 0.683 £137
5 £50 0.62 £31
Residual value £0.00 0.62 £0.00
Total Discounted £1,691.00
9