La Paloma Restaurant and Bar Financial Analysis Research
I want the same la paloma restaurant financial analysis you have on your site done for me but using the balance sheet I sent in and it should be compressed in ten pages. I am uploading the La Paloma paper on the website, as well as the balance sheet.
Hint
As you analyze the financials of La Paloma, don't under estimate the impact of the renovation and expansion of the facility. The financial statements reflect reality in operations. A major renovation or expansion will disrupt business. People don't want to eat surrounded by construction. In fact, it is not unusual for a business to actually close for a few weeks or months if the renovation is very disruptive. For example, a local restaurant repaved their parking lot a week ago. It took several days and parking was limited. They lost business because people couldn't park. This will be reflected in the financial statements.
A large portion of the expansion was financed with cash. This is not a problem. In fact, saving cash for investment in the business is a good idea. Having large cash balances in a business account is often unproductive unless needed to cover cash flow issue. The return on the cash investment in the business will be much greater than interest earned in a bank account. Don't just look a numbers or trends, but analyze what is happening in the business (i.e., the reality of the situation). Sometimes what looks like a problem really isn't.
When a business invests in assets for an expansion, it often takes time to fully utilize the new assets. You can't expand incrementally and short-term excess capacity is the norm. Therefore, the time it takes to expand the customer base to fully utilize new investments could make the financials look worse for a short time. If all goes as planned, however, the expansion should pay off in the future with increased business and profit.Remember, to address the issue of opening a new location as suggested in the business profile. Often this is the only way to really scale-up this type of business.
Remember, this is a restaurant. Use your common sense to analyze the numbers. What would be typical expectations for a restaurant? How does it work? How would the type of business impact the numbers? Just use your common sense to help.
La Paloma Restaurant and Bar Financial Analysis
Name:
Institution:
Date of submission
La Paloma Restaurant and Bar Financial Analysis
* Executive Summary
The La Paloma Restaurant and Bar Ltd is a fully operational food and drinks service establishment that was established by John and Skyler Surmosa as a Subchapter S Corporation in 2005. The restaurant is well known for a variety of cuisines such as the Mexican dishes, signature Italian cuisines, seafood, steaks and a full bar. The evening sessions comprise entrées that goes between $ 15 and $ 35. The operational periods include both the day and night shifts for seven days with opening time at 11:00 a.m. and closing time of 10:00 p.m. in the year 2014, the enterprise had 40 employees that were operating in both shifts. However, the number increased to 46 after its expansion. These employees received their payments at the competitive rate with the market-levels based on their training and experience. Also, the enterprise has three trained chefs. The premise has three managers of whom on operate at the lunch shift and the other tow at the busier evening shift with one manager acting as the general manager. However, both John and Skyler may work as managers during the busy periods.
John and Skyler used both a down payment mortgage from the local bank and SBA 7 (a) loan for the purchase of the building and equipment as well as a start-up for the enterprise respectively. As at the year 2010, the enterprise had a $ 450,000 renovation as well as an expansion that the owners managed through a bank loan of $ 300,000 and $ 150,000 in cash. However, the ultimate goal of the owners is to expand the enterprise through the opening at another business in another city. Therefore, the financial analysis of La Paloma Restaurant and bar will cover the year 2012 through 2016.
* Financial Health Assessment
La Paloma Restaurant and Bar has been performing well financially and net profit from the year 2012 except for the year 2015 where it registered a net gain of $ 6,947. Besides, there has been an increase in the Return on Owners Equity coupled with the Return on Assets above the industry standards. Similarly, the enterprise has been noting an increase in both contributed assets and efficiencies due to rising Net Sales compared to the Fixed Assets and the Owners Equity. These improvements are in the collections on credit sales indicated by the increasing trends in the receivables turnover. Regarding the control of the operating expenditure, the restaurant is performing at a fair level in all its departments except the advertisement and utilities. The liquidity is high compared to the industry standard with its interest expenses that are proportional to the sales amidst high debt assumption.
Irrespective of the good indicators of its performance, La Paloma Restaurant and Bar has indicated an increasing trend in the Inventory and Receivables which is high above the industry standards. The company's receivable collections are below the 30-day policy hence the receivables turnover becomes lower than the industry standard. This little trend is also exhibited on the Inventory Turnover with an increasing trend in the inventory levels compared to the sales proportion. There is also a reduction in the Gross profit as a result of the higher costs of goods sold amidst an increase in the net sales for the last five years.
Lastly, the cash levels of the enterprise indicate a lower value than the industry standards due to cash investment in the renovation. On the same note, the capital structure of La Paloma Restaurant and bar indicates more vulnerability and risk when a compared with the industry. The result is due to leveraging the finance from the bank to buy the building and equipment and with the ever reducing liquidity, the enterprise may fail to meet its debt obligations which have exhibit more uncertainty compared to other industries.
* Recommendations
The management of the La Paloma enterprise should set forth different proactive measures to ensure that the levels of inventory remain lowest through implementing effective better control of the inventory. For example, proper supplier reviews and purchases to note the source of increment in stock level as indicated in the raw balance sheet (Gertler & Kiyotaki, 2010).
Secondly, there is a need for the company to reduce its receivables to the manageable level as indicated in the past three years. It is critical for the enterprise to manage its liquidity through active collection practices effectively. Also, it is also important to control expenses such as advertisement and other marketing plans (Gertler & Kiyotaki, 2010).
* Financial Data Calculations
* Raw Data
Balance Sheets for the Years Ended:
2012
2013
2014
2015
2016
(Dec. 31)
(All values are in dollars)
Current Assets
Cash
182,250
185,300
192,272
142,242
118,600
Accounts Receivable (1)
18,525
27,500
27,350
27,450
61,500
Inventory
81,000
125,268
170,882
187,970
226,328
Investments
324,000
346,108
313,744
213,744
186,000
Total Current assets
605,775
684,176
704,248
571,406
592,428
Fixed Assets
Building (less depreciation
972,000
938,250
925,250
1,325,250
1,285,250
Equipment (less Depreciation)
303,750
325,850
330,950
380,970
372,700
Total Fixed Assets
1,275,750
1,264,100
1,256,200
1,706,220
1,657,950
Total Assets
1,881,525
1,948,276
1,960,448
2,277,626
2,250,378
Liabilities and Owner's Equity
Current Liabilities
Accounts Payable
218,700
223,500
234,956
330,222
285,250
Current portion of long-term debt
79,000
77,000
75,000
73,000
120,000
Other short-term loans, lines of credit, etc.
135,700
130,500
140,000
197059
154,472
Total Current Liabilities
433,400
431,000
449,956
600,281
559,722
Long-Term Liabilities
Mortgage
571,000
561,300
554,300
828,300
788,300
Bank Loans
210,000
216,000
222,264
250,000
226,500
Total Long-Term Liabilities
781,000
777,300
776,564
1,078,300
1,014,800
Net Owner's Equity Including Retained Earnings
667,125
739,976
733,928
599,045
675,856
Total Liabilities and Owner's Equity
1,881,525
1,948,276
1,960,448
2,277,626
2,250,378
(1) The sales per day are 80% cash or credit card and 20% credit.
The collection term for the credit sales is a balance due in 30 days.
Income Statements for Years:
2012
2013
2014
2015
2016
(All values are in dollars)
Net Sales
1,350,000
1,512,000
1,587,600
1,714,608
2,057,530
Costs of Goods Sold
573,750
655,280
682,688
771,534
884,738
Gross Profit
776,250
856,720
904,912
943,074
1,172,792
Operations
Wages including payroll taxes
348,300
400,680
428,652
514,382
576,108
Rent (equipment)
13,500
14,000
14,288
15,000
15,600
Advertising
27,000
30,240
39,690
51,438
57,611
Insurance
20,250
22,275
23,000
25,000
25,600
Supplies
21,600
24,192
22,000
24,500
25,500
Interest
67,500
69,552
71,000
99,000
101,000
Utilities
74,250
85,000
96,256
114,307
120,000
Depreciation
33,750
34,776
34,927
46,250
48,250
Misc (including property taxes)
48,600
47,485
43,328
46,250
47,650
Total Operating Expenses
654,750
728,200
773,141
936,127
1,017,319
Net Profit
121,500
128,520
131,771
6,947
155,473
* Vertical Common-sized Statements
Vertical / Common Size Balance Sheet
Balance Sheets for the Years Ended:
2012
2013
2014
2015
2016
(Dec. 31)
All values in %
Current Assets
Cash
9.69
9.51
9.81
6.25
5.27
Accounts Receivable (1)
0.98
1.41
1.4
1.21
2.73
Inventory
4.31
6.43
8.72
8.25
10.1
Investments
17.2
17.8
16
9.38
8.27
Total Current assets
32.2
35.1
35.9
25.1
26.3
Fixed Assets
Building (less depreciation
51.7
48.2
47.2
58.2
57.1
Equipment (less Depreciation)
16.1
16.7
16.9
16.7
16.6
Total Fixed Assets
67.8
64.9
64.1
74.9
73.7
Total Assets
100
100
100
100
100
Liabilities and Owner's Equity
Current Liabilities
Accounts Payable
11.6
11.5
12
14.5
12.7
Current portion of long-term debt
4.2
3.95
3.83
3.21
5.33
Other short-term loans, lines of credit, etc.
7.21
6.7
7.14
8.65
6.86
Total Current Liabilities
23
22.1
23
26.4
24.9
Long-Term Liabilities
Mortgage
30.3
28.8
28.3
36.4
35
Bank Loans
11.2
11.1
11.3
11
10.1
Total Long-Term Liabilities
41.5
39.9
39.6
47.3
45.1
Net Owner's Equity Including Retained Earnings
35.5
38
37.4
26.3
30
Total Liabilities and Owner's Equity
100
100
100
100
100
(Investopedia, 2017).
Vertical / Common Size Income Statement