financial analysis

Accounting report Hot pot is a classical dishes, which has thousands of years history and still very welcome and popular around the world. The classical hot pot restaurants in Melbourne always run a greatly busy business and sometimes customer need to book in advance, which means the market of hot pot is booming and profitable. Therefore, I would like to open a hot pot restaurant that named “Original taste” and locate in the heart of Melbourne. The slogan of the restaurant is “ Taste a exquisite and original flavor”. At the beginning of the business, proprietary companies would be the most suitable business structure in my opinion. This decision is based on three main reasons in terms of no mutual agency, capital scale and regulation. First of all, no mutual agency means that the rights and power was respectively concentrate on the director of company that can exert a positive impact for a new business. Secondly, the target capital to run this restaurant is approximately between 2 million and 3 million dollars. It might be an enormous burden and high risk for sole trader and partnership, but it is not difficult for company to access more capital. Finally, the regulation from government in proprietary companies is less than listed public companies. Because proprietary companies is not listed on the stock exchange, so it does not governed by their rules, which create a more flexible environment for company. For my perspective, the start-up money to run this restaurant is about 2 or 2.5 million dollars. The utilization of the funding will be explained in the next paragraph. The target customers of restaurant are middle-class in Australians because the competitor will be less in this area, which means the price would be expensive and the profit will be enlarged of each dishes, to some extent. I think I will get the original money by offering some ordinary shares to my wealthy friends or some venture capital firms that I trust. I will hold at least 50% of ordinary shares at the same times, in other word, I will contribute to half of start-up money by myself. Borrowing money from venture capital firms is much more beneficial than bank loan, because venture capital firms will afford part of the risk in business and they regard their money as investment so I do not need to pay interest. The venture capitalists now control billions of idle funds in society and what venture capitalists looking for are the profitable and creative ideas. So the optimal situation is seeking fund from venture capital firms. Non-current assets Price For rent Price Furniture $1,000*50=$50,000 300m^2 $100,000 per annum $15,000 deposit Tableware $150*200=$300,000 Total: $115,000 Hot pot $250*50=$12,500 Hiring labor: Per annum salaries Kitchen equipment $10,000 -Waiter $40,000*15=$600,000 Air-conditioner $1000*5=$5,000 -Cook $70,000*4=$280,000 Cash registers $500*4=$2,000 -Cleaner $40,000*4=$160,000 Computers $1,000*3=$3,000 -Manager $80,000*1=$80,000 Total: $382,500 Total: $1,120,000 Total: $1,617,500 As can be seen in the above diagram, the non-current assets of my business include the Furniture, tableware, hot pot, kitchen equipment, air-conditioner, cash registers and Computers. These equipments are necessary to run a restaurant. The restaurant will create 50-table place for at least 200 customers at the same time and prepare high-quality tableware and hot pot for them. The cost of labor in Australia is expensive, so every waiter needs to take charge of 3 or 4 tables. Because the restaurant is located on the heart of Melbourne, so the rent money and deposit is about 115,000 dollars per year. After outline the basic expenses in business, the different types of financial reports are also important to run a restaurant. Firstly, the balance sheet and income statement is necessary. The balance sheet not only includes the information about the change in assets, liabilities and equity but also reflect the nature and security of investment. Income statement reports the company’s financial performance in terms of net profits or loss over a specified period. It also indicates the effectiveness of management’s use of resources. These two reports can make manager better understand the financial health of the business. Secondly, the cash reports are needed. Some raw material was purchased by cash and a portion of customers would like to checkout by cash in restaurant, so the cash reports are important. Cash reports represent cash flow from purchase to sell and can help manager realize pilferage and damage of some inventories. In terms of period that business would require reports, I think monthly, quarterly and annual reports is needed. Because monthly reports can help decision maker analysis the peak and bottom mouth about flow of customers and both quarterly reports and yearly reports is to show a long term financial health of the company. Horizontal analysis focuses on the magnitude and % change from one period to the following period and analysis can be performed on any periodic financial statement. Trend analysis is a horizontal study of change, in a date item, over a longer time period than two years. In my opinion, all of the horizontal analysis, vertical analysis and trend analysis are useful for manager to form a clear picture of the business performance. But the vertical analysis is more suitable for a short-term analysis of financial health of business, to some extent. As for vertical analysis, it focuses on one period of data, expressing individual items as a percentage of the total or base figure (net sales/assets/liabilities), which reflect the percentage and important degree of each component in income statement and balance sheet. It reveals the change of percentage of component among different years. Liquidity is defined, as the ability of the business to settle its liabilities as and when they are due, which reflect the health of cash flow in firm. Profitability is a methods or ratio to measure the ability of a company in earning profits or profit strength. Liquidity and profitability of a company also help director better understand the financial performance. Firstly, Acid text Ratio equal to (Cash+Marketable securities+Accounts receivable)/ (Current liability). It is a good methods to measures the short-term liquidity and the ability to pay current liability. It assumes that business need to maintain inventory to remain in business and prepayments are not refundable in cash. Secondly, inventory turnover ratio is important. To calculate inventory turnover, we need to divide cost of goods sold by the average inventory for the period. Calculating this ratio is to evaluate the ability to sell inventory in restaurant and how long the restaurant can turn its inventory over. Thirdly, Profit margin equal to (net profit/net sales), and shows the percentage of each net sales dollar earned as profit. The higher the profit margin, the more sales dollars end up as profit. BIBLIOGRAPHY Horngren et.al. (2013) Accounting, 7th Edition, Pearson Australia, Frenchs Forest, NSW. Beck, Casasayas, Zafirakis (2015) Accounting Handbook, Trinity College Pathways Program, Trinity College, Melbourne University, Parkville, Victoria. http://www.realestate.com.au/rent http://www.ikea.com/ http://findtherightjob.com.au/?gclid=CM-9r7fE-scCFUWXvQodAQ0MLQ