upGrad/Deakin Global MBA

MBG773 – Financing Your Strategy

Course 1 – Financing Your Strategy
Assignment 1

Chef’ Hat Inc

Chef’s Hat Inc, Financial Analysis and Planning

“All assessment has been carried out by myself excluding
some articles or paraphrased is acknowledge in the text.”

Joseph Robin Nalli

[email protected]
Contents

1. Executive Summary………………………………………………….3

2. Financial Analysis
2.1 Viability and Profitability Analysis………………..4
2.2 Liquidity………………………………5
2.3 Working Capital Management……………………………………….5
2.4 Solvency…………………………………...7
3. Financial Planning…………………………………….8
3.1 Cash Budget Q1 2023………………………………………
4. Strategy Review and Recommendation,,,,,,,,,,,,,,,,,,,,,,,,,,
5. Analysis as per the Insolvency and Bankruptcy code 2016 of Inda
6. Reference List

Joseph Robin Nalli

([email protected]) 2
Executive Summary

Chef’s Hat Inc is a leading meal kit delivery services operating from Denver
Colorado launched in 2012 and currently have operations across 38 states.
Chef hat Inc aim to provide restaurant quality to food to the home dinner
table. Chef hat Inc is also environment friendly as it provides a carbon neutral
meal kit and are pushing for everyone to be dietary wellness enthusiast. Chef’s
Hat Inc targeting the middle income families.

Chef’s Hat Inc is a publicly traded company with market capitalization of

$82.81 million. The report aims to give complete financial analysis and
planning as it is a specific interest for the board of directors. The Viability
analysis has been done for 2023 and the liquidity, Solvency and working capital
management has been for the year 2020 till 2022. At present Chef’s hat Inc
capital is not enough for the aggressive growth with existing capital invested in
US market and to enter the international market.

Joseph Robin Nalli

([email protected]) 3
2. Financial Analysis

2.1 Viability and Profitability

A) Viability

For every Firm to be viable every firm must break even as per the data given an after
the viability analysis and doing the breaking even analysis for 2023, we were able to
find that for Cheh Hat Inc to break even a minimum of 10,464 units must be sold in
2023.

After the analysis we were able the get the below data.

1 Revenue/unit $74/unit
2 Variable Cost / Unit $ 54
3 Fixed Cost $ 212,233
4 Break – Even – Units 10,464 units
5 Break – Even – Revenue $ 775180

The cost volume profit graph is plotted below

CVP Graph Profit Area

1200000

1000000
Break Even Point
800000
Revenue

600000

400000

200000

0
0 2000 4000 6000 8000 10000 12000 14000
No of Units

Total Revenue Total Cost Fixed Cost Varaible Cost

Joseph Robin Nalli

([email protected]) 4
 B) Profitability

2023 2022 2021 % of OI 2020 % of OI

Operating Income
Meal kits $428,981 $397,205 $377,699 82% $377,540 83%
Wines $79,441 $73,557 $64,485 14% $63,682 14%
Gifts $21,184 $19,615 $18,424 4% $13,646 3%
Total Operating Income (OI) $529606 $490,377 $460,608 $454,868
Cost of Sales
Meal kits $308886 $283,684 $224,428 $219,427
Wines $61170 $45,178 $38,317 $37,012
Gifts $15252 $12,048 $10,948 $7,931
Total Cost of Sales $385308 $340,910 $273,693 $264,370
$190,49
Gross Income $144,298 $149,467 $186,915 - -
8
EXPENSES
Operating Expenses
Accounting and Legal $2938.09 $2,909 $2,745 - $2,899 -
Advertising $73167.29 $72,086 $49,934 - $48,133 -
Depreciation $22314.01 $22,203 $24,503 - $31,200 -
Insurance $10,181 $10,181 $9,607 - $10,145 -
Maintenance and Repairs $11693.17 $11,635 $10,980 - $11,594 -
Office Supplies $13116.18 $13,090 $12,352 - $13,043 -
Rent $19285.14 $18,907 $17,842 - $18,840 -
Research and Development $9,454 $9,454 $8,921 - $9,420 -
Salaries and Wages $62918.58 $61,086 $41,173 - $43,478 -
Telephone $5,818 $5,818 $5,490 - $5,797 -
Travel $5,090 $5,090 $4,804 - $5,072 -
Utilities $5887.81 $5,818 $5,490 - $5,797 -
Web Hosting and Domains $732.81 $727 $686 - $725 -
Other $4,567 $3,571
Total Operating Expenses $242596.08 $239,004 $199,094 - $209,714 -
Other gains - -
Other loses $8,131 $7,548 - $8,943 -
EBIT -98,298.08 -97668 -$19,727 - -$28,159 -
Interest expense $7395 $4,762 $6,528
Income Tax Expense $13,160
-
NET INCOME -1,18,853.08 -$24,489 -$34,687
$102,783

Joseph Robin Nalli

([email protected]) 5
Gross Profit Margin

As per the Gross profit analysis from profit & Loss statement the gross profit has been
declining FY 2020 till FY 2023 as show in below graph. The Cheft’s Hat has declining
Gross profit margin this indicates the cash reserver are declining which will effect the future
lending for Chef’ Hat Inc

Sr No Years Gross Margin

1 2023 27%
2 2022 30%
3 2021 41%
4 2020 42%

Gross Profit Margin

41% 42%

30%
% Gross

27%

1 2 3 4
Years

Net Profit Margin

As per the profit loss statement of Chef’s Hat Inc we carried net profit margin
which indicated that company is in losses years by year and during FY 2022 its
was -21% and FY 2023 -22% as per net profit margin analysis

Sr. No. Year Net Profit

1 2023 -22%
2 2022 -21%
3 2021 -5%
4 2020 -8%

Joseph Robin Nalli

([email protected]) 6
 Net Profit Margin
0% -5%

% Net profit
-5% 1 2 3 -8%
4
-10%
-15%
-20% -22% -21%
-25%
Years

As per the above graph we can clearly make out Chef’s Hat Inc is not able to
manage its operating expenses which is resulting in negative profit. As this will
affect the credit rating which banks take as reference to provide loan for any
firm.

2.2 Liquidity

Chef’s Hat Inc liquidity analysis was conducted by using Current ratio and quick
ratio analysis Every firm should be in a good liquidity position to mange or pay
its short liability. The current ratio and Quick ration were analysed by using
balance sheet given in the Chef’s Hat inc prospectus.

Current Ratio

As per the Current ratio analysis done for the FY 2019 till FY 2022, please find
the details in the below table and graph.

Sr. No, Year Current Ratio

1 2019 1.39
2 2020 1.24
3 2021 1.48
4 2022 1.23

Joseph Robin Nalli

([email protected]) 7
 Current Ratio
1.48
1.39
1.24 1.23

2019 2020 2021 2022

As per the current ratio its clearly indicates that FY 2022 the Chef’s Hats Inc
have 1.2 times more of current assets then current liabilities, but as per the
graph its does show the current ratio has declined in FY2022 from which gives
an idea the current assets are more utilised to pay its current liabilities.

Quick Ratio

As per the Quick ratio analysis done for Chef’s Hat Inc for the FY 2019 till FY
2022, the data as shown below.

Sr. No. Year Quick Ratio

1 2019 0.99
2 2020 0.82
3 2021 0.97
4 2022 0.63

Quick Ratio

0.99 0.97
0.82
0.63

2019 2020 2021 2022

Joseph Robin Nalli

([email protected]) 8
As per Quick ratio analysis FY 2022 quick ratio is 0.63 which indicates the
Chef’s Hat Inc does not have sufficient liquid assets to cover its short-term
liabilities. Any sunder market crash or pandemic like situation could put Chef’s
Hat Inc in a position where it will not be able to meet pay it short term
obligations and will also affect the working capital management.

2.3 Working Capital Management

After conducting the working capital analysis where all the current assets of
the organisation are subtracted from current liabilities of the organisation.

As per the analysis we are able get the below data and graphical
representation of working capital management.

Sr No. Year WCM

1 2019 28665
2 2020 14291
3 2021 38016
4 2022 25759

WCM
38016
28665
25759
Capital

14291

2019 2020 2021 2022

Years

The analysis was conducted for FY 2019 till FY 2022 we can clearly see from the
above the working capital declined from FY 2021 to FY 2022 which $25759, this
indicates that Chef’s Inc are not able manage its liquidity and the operating
expenses and short debts borrowings are increasing, but we can also find the
positive net working capital indicates that Chef’s Hat Inc indicates that the
current assets is higher than the current liabilities which indicates that Chef

Joseph Robin Nalli

([email protected]) 9
Hat's can will be able to meet short-term obligations and meets its daily cash
requirements.

2.4 Solvency

We have done the Solvency analysis using the Debt-to-Equity ratio, Debt to
Asset Ratio for FY 2019 till 2022 and interest coverage ratio for FY 2020 till
2022.

Debt to Equity Ratio

The debt-to-equity ratio is used to determine the relationship between debt

financing and equity financing we have carried out the debt to ratio for FY
2019 till FY 2022 please find the analysis as below.

Sr. No. Year DER

1 2019 1.27
2 2020 1.22
3 2021 1.33
4 2022 1.35

Debt to Equity Ratio

1.35
1.33
DER

1.27
1.22

2019 2020 2021 2022

Years

As per the Debt-to-equity ratio as increased from FY 2020 till FY 2022 which
indicates that Chef’s Hat Inc is increasing the debt financing which puts Chef’s
Hat at risk to default which also indicates an increase in interest expense. As
per the debt equity ration of FY 2022 indicates Chef’s Hat Inc will use more
debt for long term for carry out the projects planned.

Joseph Robin Nalli

([email protected]) 10
Debt to Asset Ratio

Similarly, Debt to Asset ratio was carried out for FY 2019 till FY 2020 and find
the find the analysis as below

Sr. No. Year DAR

1 2019 0.79
2 2020 0.82
3 2021 0.75
4 2022 0.74

Debt to Asset Ratio

0.82

0.79

0.75
0.74

2019 2020 2021 2022

As per the above analysis we can make out that Chef’s Hat assets value is
financed 74% by debt and 26% by equity and as you see the value of debt to
asset ratio is below 1 the Chef’s Inc is solvent.

Interest Coverage Ratio

The interest ratio gives the ability of the company to pay of its interest expense
please the interest coverage ratio as below

Sr. No. Year ICR

1 2020 -4.31

2 2021 -4.41

3 2022 -19.09

Joseph Robin Nalli

([email protected]) 11
 Interest Coverage Ratio
2020 2021 2022

-4.31 -4.41

-19.09

As per the analysis done, we can see the interest coverage ratio has decreased
from -4.41in FY 2021 to -19.09 in FY2022. The interest coverage area is
negative for FY 2020 till FY 2022 which indicates that Chef’s Hat Inc. is not able
to pay of their interest expense. This not good indication as it will be result in
getting further short term or long-term debt for future expansion.

Peer to Peer Analysis (Liquidity, Solvency & Working Capital)

Joseph Robin Nalli

([email protected]) 12
As per the below analysis and comparing with Halo Fresh for Solvency &
Liquidity.

Liquidity

Current Ratio

Current Rati o
1.7
1.77
1.3 1.48 1.4
1.24 1.23
0.9
0.94
0.5
0.1
2020 2021 2022
Chef's Hat CR 1.24 1.48 1.23
Halofresh CR 1.77 1.4 0.94

As per the analysis with Halofresh we can make that there has increase in
operating expenses for FY 2022 where the current ratio has decreased for
Chef’s Hat and Halofresh for the FY 2023 Chef’s Has had better current assets
compared to Halofresh.

Quick Ratio

Quick Ratio
2.25
1.75 1.98
1.25 1.45
0.75 0.97
0.82
0.63 0.59
0.25
2020 2021 2022
Chef's QR 0.82 0.97 0.63
Halofresh QR 1.45 1.98 0.59

When comparing the quick ratio with Halofresh it clearly indicates that
halofresh has better liquid assets as compared to Chef’s Hat and are well
placed for manage the short-term obligation as per the FY2022.

Joseph Robin Nalli

([email protected]) 13
Working Capital Management

Working Capital M anagme nt

450000 402200
350000 327800

250000
150000
14291 38016 25759
50000
-50000 2020 2021 2022
Chef's WCM 14291 38016 -58300
25759
Halofresh WCM 402200 327800 -58300

After analysis the working capital for FY2022 we see that there cash for
Halofresh has become negative and while Chef’s Has the capital for the day to
day activity. Chef’s Hat has to manage the expense wisely to create surplus
fund to grown its operations overseas

Solvency

Debt to Equity Ratio

Debt Equity Ratio

1.7
1.64
1.3 1.45
1.33 1.33 1.35
1.22
0.9
0.5
0.1
2020 2021 2022
Chef's DER 1.22 1.33 1.35
Halofresh DER 1.33 1.45 1.64

As per the Debt-Equity ratio both Halo fresh and Chef’s Hat Inc. has higher
ratio and both have high financing and have high risk default but Halofresh has
better liquidity as compared to Chef’s Hat where they will be able to manage
the debt for upcoming project.

Debt-to-Asset Ratio

Joseph Robin Nalli

([email protected]) 14
 Debt to Asset Rati o
0.85
0.75 0.82
0.75 0.74
0.65 0.69
0.55 0.62
0.57
0.45
0.35
0.25
0.15
0.05
2020 2021 2022
Chef's DAR 0.82 0.75 0.74
Halofresh DER 0.57 0.69 0.62

As per the above we clearly make out the debt to asset ratio FY2022 that
financing for Chef’s Hat is 74% debt and 16% Equity and in case halofresh
Financing is 62% debt and 38% Equity.

Interest Coverage Ratio

Interest Coverage Ratio

45
40.58
35

25

15 19.54

5 8.25
-4.31 -4.41
-5 2020 2021 2022
Chef's ICR -4.31 -4.41 -19.09
Halofresh -15
ICR 40.58 19.54 -19.098.25

-25

As per the above graph its clear that as compared to Chef’s Hat Inc. Halofresh
is in a better position to pay the interest expense where in case of Chef’s Hat
there are not able to pay there interest expense.

Conclusion:
Joseph Robin Nalli
([email protected]) 15
As per the comparison with competitor we can have insight that market they
are in has a high operating expenses where they require a high capital income
and has good operating cash cycle has halofresh has better liquidity and
solvency they can manage the working capital in case of Chef’s Hat the
negative interest coverage ration suggest they are not able pay their interest
expense which will affect to avail any new long tern or short debts.

3. Financial Planning

3.1 Cash Budget Q1 2023

Joseph Robin Nalli

([email protected]) 16
Reference:

1. Yahoofinance.com, Financial Report May 17th 2024,

https://finance.yahoo.com/quote/HFG.DE/financials?p=HFG.DE .
accessed on 19th May 2024.

Joseph Robin Nalli

([email protected]) 17