Business Report: Fantastic Food
Median and Inter-quartile
Correlation Coefficient staff head and weekly customers
Staff health and Weekly Sales
Staff head and Profitability
“Fast Food Facts: Where We Are Now
The present presentation seeks to overview potential opportunity for Fantastic Fast Food to expand its customer base in the stronger market.
Therefore, findings from short survey are discussed to seek potential opportunities to expand its outlets, size, location and restaurant chain to enhance its overall performance.
The survey data was taken for 20 outlets located in different localities in United Kingdom.
The mean values show that the average staff headcount in each outlets were 21.5
The average sales was 39990 but greater variance in the sales of each store was identified
The average number of weekly customers were 4092.95 to outlets which varied on the basis of location of each store
The average profitability of the stores was 7.25.
The highest staff headcount were in branch 19 followed by outlet 4 and 20
The lowest staff headcount was reported in branch 12 that is total number of 12 staff headcount
Average Weekly Sales
The highest average weekly sales was in 8th outlet that was 102,000
The lowest weekly sales was reported in outlet 13 that was 10,300
Average Weekly Customers
The highest average weekly customers were reported in 8 that was 8000
The lowest average weekly customers were reported outlet 3 and 13 that was 1800
Average Weekly Customers
The highest profitability reported were in outlet 1, 5, 8, 16 and 20 that was 10 percent
However the lowest profit margin was reported in 4, 10 and 15 that is 4 percent.
The results show that the staff headcount had weak relation with the average weekly customers. However, it is reported that the staff headcount would result in 12.7 percent change in average customer visit to outlet
On the contrary, it can be noted that profitability had greater relation with the staff headcount that was reported 25.6 percent change with increase of each staff head
It can also be noted that the average weekly customers have a positive but weak relation with staff headcount that was reported to 12.7 percent.
The gathered sample size, it collectively shows that overall sales of the outlets. However, if there would have been classification in the data on the basis of region. It would have been easier to understand prevailing trends
Also, pricing strategies and products being sold the most are not identified which can make it difficult to assess potential improvement that could be brought in the menus
It does not address demographic factors identified in the data such as gender, age and income that is the main thing to determine potential preference for the product and brand.
The robust sample for the potential customer is identified on the basis of median and inters quartiles. The visits in the outlets on weekly basis that is reported to be 3925 will be used to determine the performance of the company on every 6 month period. The other main decisions can be undertaken on the basis of inter quartile that is reported to 2612.5 customers on average on weekly basis in each of the outlet to identify potential visits to the store. It can also be done on the basis of staff headcount, average sales and profitability to make decisions to identify its potential customers. It should be ensured that the benchmarks are attained in each of the factor to ensure that the Fantastic Fast Food’s performance and profitability does not falls.
Median and Inter-quartile
The secondary source of information that could possibly improve the overall market research to identify its potential oppurntities is the market conditions. The company needs to identify social, economical, political, technological, legal and environmental factors that affect customer behaviors. Also, the use of information provided in the annual reports can be beneficial to identify the factors affecting the performance and sales of the company.
The survey methodology used for this paper is exploratory research. The motive behind selecting this methodology is to determine the preferences and market of the current and new customer. The research paper will examine whether the company has a potential chance to attract new customers to its new business expansion strategy. To gather information from the customers, questionnaire will be provided to the general visitors. The sampling frame is mainly young adults and children that are the main target market of the fast food restaurant. To reduce potential biases, the question will be in a proper manner and will be of a nature that does not influence the respondents. Likert scale questions will be used to reduce biasness as they provide more options to the respondents to be specific.
Section B: Monetary Risk
The section B of the assignment deals with the evaluation of the financial risk involved in the investment (capital intensive project). The Calculations are based on the financial projections provided by the Finance Director of Fantastic Fast Food (F3). The core objective of the evaluation process is to measure the worth of the project, and the calculations of Discounted Cash Flows (DCF) and Net Present Value (NPV) are the tools for the evaluation. The Finance Director provides the following information regarding the cash inflows and outflows in different years.
Discounted Cash Flows and Net Present Value
Discounted Cash Flows (DCF) is used to identify the potential for an investment project. If the value of DCF is greater than the cost of current investment, then the company must invest in the project to earn higher return/profits in the future. Net Present Value also known as the NPV is mostly used as a tool in Capital Budgeting process and its outcomes provide the level of profitability of the project/investment. If the value of NPV of inflows is negative (i.e. less than cash outflows) then the project must not be executed, if it is equal to zero, then the decision to invest depends on the decision makers (mostly companies do not invest in such investment projects). Finally, if the value of NPV is positive (i.e. greater than the value of cash outflows), the company must invest in the project.
The information provides the description that the initial investment for the first (base year – 0year) is £12,000,000 which means that the investment is required to initiate the project. The cash outflows represent the value of money spent on day to day expenditures during the life of the project (i.e. from 1-5years). The cash inflows account for the amount of savings/earnings for the project for every year. The first step to calculate the DCF and NPV is to determine the Net Cash Flows (NCF) for the project for all the years. NCF is the difference of the total inflows and outflows of cash for different years and is referred as the change in the balance of money, and the explanation is provided in the cash flow statement of any enterprise.
The value for NCF is the difference of the cash inflows and cash outflows (Inflows – Outflows).
The payback period of five years is put forward by the Finance Director which means that the cost of the project will be collected after five years of consistent and efficient operation of the project. The valuation of the payback period is done with the forecasted Cash Flows for five years of operations. The company will be able to earn profits after the fifth year, and all the costs will be collected in that year.
Discounted Cash Flow
The calculation for the DCF is most appropriate to measure and estimate attractiveness and the worth of overall investment in the business. The process/calculation includes a detail of net cash flows and the discounting rate (i.e. 9% WACC provided by the Finance Director). All the NCF for the years are discounted to the base year, and the sum of the DCF is £30,272,107. It is also noted that the company faces a loss due to the higher value of outflows than inflows for the year (i.e. year 1). The result of the evaluation shows that the savings/earnings are greater than the expenditures of the business for the five years (i.e. 1-5). The results show that the opportunity available to the management (Board of Directors) to invest in the project is a good one, and they must invest in the project. The results of the DCF are provided in the Appendix so that the reader (Board Members) can have a look at the calculations .
Net Present Value
The NPV is calculated by firstly determining the current values of all the inflows by discounting them using given the weighted cost of capital (WACC). The formula for NPV is subtracting the present value of cash outflows from the current value of inflows (i.e. PV of Inflows – PV of Outflows). The current calculation is done using the Excel formula for NPV, and the present value of inflows is calculated after the deduction of outflows and then discounting it to the base year (i.e. year zero (0)).
The core objective of calculating the NPV is to gather the information regarding the profitability of the project with the help of future speculated cash inflows . The value of NPV for the evaluation is £16,763,402 with a positive sign (presented in the Appendix, under the heading Net Present Value - NPV). The positive value shows that the Net Present Value of the project/inflows for Fantastic Fast Food is greater than the initial investment (i.e. outflows of cash), which means that the investment is fruitful for the business. The investment must be made to the project as the company is expected to earn higher returns over the next five years .
The analysis reveals that the investment in the project is satisfactory, and the company must decide to invest in it. The decision is based on the results of the payback period (i.e. the company will be able to earn profits after five years of the initial launch of the project). Secondly, the DCF model also shows the value of inflows is greater that represents a higher chance of profitability. Finally, NPV shows that the investment is profitable in the long run, and the company must execute the project.
Reasonability of the project
The aim of the investment is to set new standards for the operations to attract a new round of customers who are not priced sensitive and belong to middle and upper class of the society. Therefore, it is required to improve the market knowledge, setting new outlets at different new locations, identifying the best possible delivery vehicles and other initial and primary activities.
Time for the Project
The main aim and strategy of the business are to develop new outlets and improve the current structures and services of the modern stores. The Time management is the most crucial aspect of the project and therefore, a work breakdown structure is developed to understand the use of time in an efficient manner. The first part of the project execution is to study the market and to analyse the trends in demands. Once the company’s professional are done with the research, the other activities are followed in the below-mentioned sequence.
Sourcing new Outlets,
Acquiring new Vehicles for delivery and promotional purposes,
Outlet Design and Make-Over,
Kitting out vehicles in new Livery,
Staff Training and finally,
Promoting the new Outlets, Menus, and Delivery Services.
Cost of the Project
The decision about the expenses is undertaken by the professional of the company, and an initial investment of £12,000,000 is set to undertake the activities mentioned above.
Work Break Down Structure
List of References
Graham, J. & Smart, S. B., 2012. Introduction to Corporate Finance: What Companies Do. 3rd ed. Mason: Cengage Learning.
Kruschwitz, L. & Loeffler, A., 2006. Discounted Cash Flow: A Theory of the Valuation of Firms. Hoboken: John Wiley & Sons.
Discounted Cash Flows- DCF
Net Present Value - NPV