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					       PK FUN


Consulting Elites-------

Wang lingkai
Jiang yi
Liu wenwen
Yin xiaolin
Xu hua

From HSBC Business
School, Peking
University
                                            Logical Line

                                                                                        Appropriate
                                                                                         Position
                                                                             Strategy     Identify
                                                                                          Strategy
                                                           Success
                                                                                                      KPI
                                                           Factors                        Service
                           Industry Trend                                   Implemen
                                                                                          Product
            External                                                          -tation
                            Customers                                                   Environment
            Factors
                            Competitors                                        Raise
                                                                               Price
 Current                                                                     Increase
                              Position                   Solutions
Situation                                                                    Quantity
                                                     Profits=                Control
                              Product                Price*Quantity-Cost      Cost
            Internal
             Factors         Operation



                                                            Financial performance
                                     Performance                before change
                                     Comparison             Financial performance
                 Overall                                         after change
                 Value
                                    Business Value
                                                             FCF Model
                                      Evaluation
                                                  External Factors
                                                                                       Current    Solutions   Key Point   Overall
                                                                                      Situation    P&Q&C         KPI      Value




                      External                                   Position
                      Factors



                                                                    Compared with 6% increase in the whole world
                                                                    China’s coffee market increases by 30% per year,
                                                                    and it will reach 50 billion dollars till 2020*.


                                                        Financial Ratios
                                                                    There  is a huge gap between China’s drinking
                                                                    coffee amount and the other countries, varying
                                                                    from 140 to 1240.



                                                                     There is great growth potential in China’s
                                                                                  coffee industry.

Reference: *China coffee industry development’ in Sina Finance
           **Café ID of Australia
                                                       External Factors
                                                                                                    Current    Solutions   Key Point   Overall
                                                                                                   Situation   P&Q&C         KPI       Value




                                    External
                                    Factors




                                                                                 People aged from 21 to 40 are the major
     Most people born after 70th are the only child in their families
     and haven’t encountered any frustrations and barriers, resulting
                                                                                 customers for coffee shops.
     in their fragile characteristics. These people are also the major
     group who tolerate mortgage, so they have so much pressure
     and negative emotions.
                                                                                   Characteristics of people aged from21 to 40




                                                                         According to the survey, although
                                                                         female white-collar lack
                                                                         communication with others, more
                                                                         than 90% of them are eager to do
                                                                         so.



Reference:
*Survey by Jing Newspaper                          People born after 70th stand
**Survey of white-collar women’s need,
  Women federation of Jiangsu province
                                               much pressure and spiritual emptiness.
                                              External Factors
                                                                                            Current       Solutions   Key Point   Overall
                                                                                           Situation      P&Q&C         KPI       Value


                    Industry
                      Trend
                                                                       International
                   External                                            coffee chains
                   Factors
  Customers                      Competitors                   Indirect
                                                             competitors


                                                                          Income Statement of Starbucks (part)
       An Italian-style               Direct
         restaurant                 competitors
                               Locate at the same ground
      More attractive in       floor of the apartment
       lunch & dinner


More attractive in Tea Break       An ice cream
 & between-meal nibbles                 cafe                                Income Statement of Pudong (part)
                                                                                31-Dec-09              31-Dec-08      % Change
                                                           Net earnings(loss)   (13,710)               32,300         - 42.4%

          The two direct competitors have fulfilled customers’ daily need, which has
           significant impact on the Pudong coffee shop in current period.
          The international coffee chains will have more influence in the foreseeable future.
                                             Current Position
                                                                                      Current    Solutions   Key Point   Overall
                                                                                     Situation   P&Q&C         KPI       Value




                                                  Current
Competitors                                       Position                       Most aged from 21 to 40     Customers

                They have Same customer        A place offering
                base but no significant                               Competitive price is not the
                                               casual and relax       key factor of coffee industry,
                difference in positioning,
  Direct                                           feeling            and customer base will not         Not Price-
                which results in less
  competitors   competitive in main meals                             significantly increase by          sensitive
                & between-meal nibbles                                decreasing price.
                                               Competitive price
                Huge gap in competence
  Indirect                                                             A place for leisure can’t         Spiritual
                and similar position leads
  competitors                                                         fulfill customers’ need for        Emptiness
                to disadvantage         in     Customers base:        enriching spirit.
                competition.                     Local expats,
                                                professionals



                  As Pudong’s current position can’t fulfill customers’ particular need, it can’t
                                        achieve the core competency.



                                     Position is the beginning of analyzing
                                     internal factors
                                            Internal Factors—Business process & product
                                                                                     Current       Solutions   Key Point   Overall
                                                                                     Situation     P&Q&C         KPI       Value




                      Industry
      Drinks           Trend
                                       Foods
                                                                                     Internal
                      External                               Position                Factors
                      Factors                                                                    Product

          Customers                  Competitors
                                                                                                 Operation

                                  Hot Breakfast
 Bottled Drinks
                                   Muffin; Toast
 Brewed Coffee                                    Financial Ratios
                                  Lunch
 Cappuccino
                                  Salads; Sandwiches;
 Espresso                       Wraps; Pies
 Latte                           Evening foods                        Offer the necessary kinds of products and no
 Mocha Teas                                                            value-added services;
                                  Tiramisu; Chocolate;
                                                                        Not competitive, unique and attractive
 Soft drinks                    Cakes                                  enough.
                                  Free Fruit and Biscuits
                              Internal Factors—Business process & product
                                                                    Current      Solutions   Key Point   Overall
                                                                    Situation    P&Q&C         KPI       Value


             Industry
              Trend
                                                                     Internal
            External                          Position               Factors
            Factors                                                             Product
Customers               Competitors
                                                                                Operation




                                      Financial Ratios




        Operating with simple business process makes it less possible to expand.
                                                                Internal Factors---Operation management
                                                                                                             Current         Solutions   Key Point   Overall
                                                                                                             Situation       P&Q&C         KPI       Value


            Cost control

                    Operating costs as % of total revenue in coffee shops                                                Expand in excess of 10%
                                            31-Dec- 31-Dec-         31-Dec- 31-Dec-
                                                            Average                 Change
                                              08      09              08      09
                                                                                                             The speed of growth is extremely low
   Percentage of sales                      915000 930000 100%       100%    100%    1.6%
   Food and beverages(COGS)                 389000 420000           40%        43%        45%        8.0%    Should pay more attention to
                                                                                                             COGS control, due to excess to
   Depreciation of tangible assets          82000       82000        5%         9%         9%          0
                                                                                                             average and high increase.
   Wages and remuneration                   110000 130000           20%        12%        14%       18.2%
                                                                                                             Although these three expenses
   Utilities(light and heat etc)            39000       48000        5%         4%         5%       23.1%    have increased rapidly, they are all
   Advertising and promotions               25000       30000        5%         3%         3%        20%     below that of industry average, so
                                                                                                             the rise is NORMAL.
   Rental                                   200000 200000           20%        22%        22%          0
                                                                                                              Although rental expenses excess
   Gross profit                             526000 510000           60%        57%        55%       -3.0%    that of industry average, there is
   Operating profit for year                70000       20000        5%         8%         2%       -71.4%   few room for improvement, due to
                                                                                                             the fixed rent terms.
Notes: To compared with the average level, we subtract Garbage collection expense from operating expense.


                                                                     The big loss results from extremely low growth of sales
                                                            rather than the increasing expense, which is still in the reasonable range.
            Attendance
            Current attendance per day=                                                                        Capacity: 50 customers
            Sales/365 days/per capita consumption= 930000/365/50=60                                           Opening Hours: 13 hours


        The space of coffee shop is not adequately used, and the quantity of customers is sufficient.
                                                           Financial Status
                                                                                             Current    Solutions   Key Point        Overall
                                                                                            Situation   P&Q&C         KPI            Value




                         Activity Analysis                                                 Liquidity Analysis

                           Table 1: Activity Analysis                                   Table2: Liquidity Analysis
                                                     31-Dec-09   31-Dec-08                              31-Dec-09 31-Dec-08
                                                          ¥         ¥
                                                                                                               ¥                ¥
 Short-term operating activities
                                                                              Operating cycle                  38               36
 Inventory Turnover                                      9.55      10.24
                                                                              Avg. No. days
 Average No. days Inventory in stock                      38        36
                                                                                                              171
                                                                              payables outstanding
 Long-term investment activities
                                                                              Cash cycle                    (133)
                                                                              Working Capital              35,000         43,000
 Total Assets Turnover                                   1.05       0.95
                                                                              Current Ratio                  1.17          1.23
                                                                              Quick Ratio                    0.96          1.03
                                                                              Cash Ratio                     0.49          1.55

   Total Assets Turnover is below                    Inventory turnover in
   the industry average 1.6 *, due                   2009 decreased by
   to inadequate investment in                       6.7%. The coffee shop    The industry average cash ratio is 5.3 *,
   assets.                                           should take measures     extremely outweigh Pudong’s. Pudong’s weak
                                                     to improve sales         profitability limited by CFO (decreased 65.54%)
                                                     revenue.                 caused troubles of repaying current liabilities,
                                                                              which may influenced the trade            credit
*Reference: Wind Database,2009, industry financial indicators                 provided by suppliers.
                                              Financial Status
                                                                                      Current    Solutions   Key Point     Overall
                                                                                     Situation   P&Q&C         KPI         Value


                                                     Activity Analysis
     Long-term debt and Solvency Analysis of generating CFO
                                   Weak ability                                Profitability Analysis


                                                                          Table 4: Profitability Analysis
                                                                                           31-Dec-09            31-Dec-08
      Table3: Analysis and
   GeneralLong-term debt and Solvency analysis                                                   ¥                 ¥
                          31-Dec-09      31-Dec-08       Return on sales
   relationships
                              ¥               ¥          Gross margin ratio                     0.55                0.57
                                                  Profitability
                                                         Operating margin ratio                 0.01                0.07
Debt to total Capital        0.53            0.55   Analysis
                                                         Profit margin ratio                   -0.01                0.04
Debt to Equity               0.63            0.78
                                                         Return on investments
Times interest earned        0.42            2.13
                                                         ROA(return on assets)                  0.01                0.06
                                                                       Long-term
                                    Liquidity                             equity)
                                                         ROE(return ondebt &                   -0.03                0.07
                                    Analysis             Operating leverage
                                                                        solvency                0.55                0.57
                                                                         Analysis
                                                         Financial leverage
                                                   Unsatisfied                                 -0.73                1.89
                                                       performance
                Weak in repaying                                                Difficult  to pay interests
                                                            of
  As Pudong is weak inliabilities revenues and
                current generating                                                 of long-term liabilities
                                                                              All the ratios related to
                                                        generating
  controlling costs, the times interest earned and net    profits             profitability decreased.
  income were threatened seriously.                                           Deteriorated profitability must
                                                                              be improved!
                                            Bottleneck
                                                                                     Current     Solutions   Key Point   Overall
                                                                                    Situation    P&Q&C         KPI       Value




Simple business process , normal products without value-added services
limit the profitability.



The big loss results from extremely low sales growth rather than the
increasing expense, which is still in the reasonable range..                                           Inadequate
                                                                                                         Profits
Four types of financial ratios are all related to weak ability of generating CFO,
which is the most effective way to gain profits.



We use the basic mathematic equation of profit- Profits= P × Q — C - to analyze each factor thoroughly, and
get a comprehensive, convictive suggestion. By improving price, quantity and cost, profit will increase
involuntarily.


  Cash Inflow                                Cash Outflow                              Returns

 Price * Quantity                                      Cost                                     Profits
                             Step 1: Increase Q                    Current     Solutions   Key Point   Overall
                                                                   Situation    P&Q&C        KPI       Value


                                 How to increase Q?
 1 Necessary                  Establish differentiation advantage among coffee shops by
     Management               taking necessary management and differentiation
• Product & Service           management in product and service within Pudong coffee shop.
                              Adopt promotion to convey the differentiation advantage of
• Operation
                              Pudong Coffee to target customers successfully.

 2 Differentiation           4                         5                              6
     management
                            Differentiation             Customer                      Increase in Q
• Theme                     Advantage
• Product & Service
• Operation               • In order to establish
                            differentiation        •   Touched by the     • Q can be increased by
                            advantage, Pudong          differentiated       customers’
 3
     Promotion              should create unique       product and          recognition towards
                            theme and take             service, customers   differentiation
• Stories & Cards           necessary and              become more          advantage.
• Memory wall               differentiation
                                                       willing to come to • With increase in Q,
• Experience Nobility &     management.
                                                       Pudong, treat        consumption and
  Classicality            • By popularizing
                            promotion, Pudong can      here a second        profit will also
• Online Group buying                                  home, go back to     increase.
                            convey differentiation
• Topic sharing salon       advantage to               themselves.
• Launch multi-level        customers.
  membership card
                                                           Step 1: Increase Q---Necessary Management
                                                                                                         Current     Solutions   Key Point   Overall
                                                                                                         Situation    P&Q&C        KPI       Value


         Q                            Necessary Management                         Operation Management

   Product & Service                                                                • Random customer survey
                                                                                           -Get feedback of product and service in detail, such as
   • Standardize product quality                                                              whether customers are satisfied with the sofa,
         - Make integrated quailty standard to grantee that                                   music and smile of waiter.
           customers can get highest-quality food and                               • Standardize service process, set it clear, professional and
           beverage.                                                                  fixed, such as:
         - Such as :serve hot coffee within 3 minutes , serve                               -when customers come in or leave, waiters must say
           fresh-made cakes.                                                                  “Welcome”;
                                                                                           -What one waiter should do daily in order.
   • Extend opening hour
         - 8 am to 9 pm now, not long enough.
         - 50% of coffee shops in local region take this
           measure to encourage business growth.*                                     Example
                                                                                         •Open the door with the key
                                                                                         •Turn on the light and examine the abnormality
                  Steps taken to Encourage/improve Business
                                                                                         •Open the monitor, play the music according to
            70%
                      60%                                                                different time slot.
                                50%
                                          40%       40%                                  •Open the POS, check the imprest
                                                              35%       30%              •Check the sales record and financial data of previous
                                                                                         day
                                                                                         •Check the working logs of the previous group
                                                                                         •Check whether the Espresso can work or not by making a
                                                                                         cup of single Espresso
                                                                                         •Fill the Espresso grinding machine with the coffee bean
                                                                                         •Begin to prepare today’s fresh brewed coffee, hang the
                                                                                         tag on the heat-preserving container
                                                                                         •………………
*Reference: Table 2D-Steps taken to encourage/Improve Business in Coffee Shops %
                                                            Step 1: Increase Q---Differentiation
                                                                                                     Current     Solutions   Key Point   Overall
                                                                                                     Situation    P&Q&C        KPI       Value




            Q                                Differentiation                        Theme & culture
                                             Management
   Product & Service                                                                   Back to you!
• Theme Coffee shop- Back to You!                                                         ---Coffee life, Your life.
     - Emphasize the theme that customers can enjoy the
                                                                                       An intimate space for you to sit down,
       most relaxed, natural themselves in Pudong.
                                                                                       slow down, recall and think about who
• Redecoration                                                                         you are and what you want .
     -To better express the theme, Pudong should
        redecorate and redesign the whole atmosphere,
        including visual, hearing, feeling and smelling.                            Operation
     - 70% coffee shops in local region take this measure to
        encourage business growth. *                                                • Li should change his role from employee to manager
                                                                                      and entrepreneur, take more time to communicate
                                                                                      with customers, especially who come for the first
                                                                                      time, to get feedback of product and service.
                    Steps taken to Encourage/improve Business                       • Only more monetary reward is not enough for
              70%
                        60%                                                           employees, Li should pay more attention to form
                                  50%                                                 friendly, comfortable organizational culture and
                                            40%       40%       35%       30%         enhance employee commitment.
                                                                                    • Employees with high commitment will care customers
                                                                                      more, thus enhance customer commitment.
                                                                                    • Li and all employees should take more efforts to
                                                                                      make friends with customers, make them feel free
                                                                                      and relaxed here.


* Reference: Table 2D-Steps taken to encourage/Improve Business in Coffee Shops %
                                            Step 1: Increase Q---Promotion
                                                                             Current       Solutions   Key Point   Overall
                                                                             Situation      P&Q&C        KPI       Value




                                                              Online
                                        Topic
                                                              Group
                                     sharing bar                                                 Online Group
                                                              Buying
                                                                                                     Purchase

   Topic sharing bar                                                                                 Cards &
                                                                                         Cooperate with some
                                                                                         infusive group buying
                                                                                         Website.
                                                                                                 Memories
Attract traveling lovers,
                             Experience                           Multi-level               Customers write
Hikers, Backpackers to get                                                               Provide favorable combo
together, Experience
                             Nobility &                           Membership                cards , Pudong will
            sharing and      Classicality                           Card                 from 2pm to 5pm during
organizing Nobility &
             outing                                                                         help them to send
                                                                                         certain period.
activities. Classicality                                                                    cards to anyone at
                                                                                                        Multi-level
                                                                                            a specific future
                                                                                            date.
Make Different groups such                          Cards &                                  Membership Card
as musicals, composers
   Exhibit pure, classical                         Memories                              Offer membership card with
and singers to find to                                                                       Pudong        offers
                                                                                         more discount to old customers
   coffee machines
confidant and feast.
   offer visual
                                                                                             memory wall collect
                                                                                         before redecoration tofor
themselves                                                                                   customers to write
                                                                                         advances from customers.
                                                                                            memories, feeling
  Make your own coffee                                                                   Offer membership card with less
                                                                                             or wishes..
Use Douban to                                                                            discount to new customers to
  according to your
advertise.                                                                               attract customers.
  flavor
                                                                                             Exchange stories
                                               Step 2: Increase P
                                                                                          Current      Solutions   Key Point    Overall
                                                                                          Situation     P&Q&C        KPI        Value




 EconomicsThe original why could we charge more from the customs?
Economy
condition:           price is almost
 Better
 The original same as the
                     the price
rapid economy decoration
 analysis: elasticity
growth in
 Economy the around  outlets
 is
 with the the district.
Area almost
Pudong New

 of demand is rapid Above200
 condition: of                                                                       According to the chart it is obvious that
 same as the
 escalation                                    Economy target customs are those majority of consumers prefer to pay ¥31 to
 smaller growth
 economythan 1 in 151-200
                     Economics                       Our               The original
 Pudongprice Layout
 outletsNew Area  around
 ambience;analysis:of
Better
                                               condition: willing toprice is almost 100 for one cup of coffee, 39% consumers
 when
decoration with
the escalation of
                     elasticity                      who’re             pay relatively high
 redesign demandthan 1
 the district. is
ambience;            smaller
                                     101-150   rapid price to get different experience.willing to pay ¥31 to 50 and 28.6% are
                                                     economy index the same as the
                                                             CPI                     are
 changes. when price
Layout redesign                              400
                                               growth in                             willing to pay ¥51 to 100.
             changes.       51-100                                   outlets around
                                      300
                                        Pudong New                   the district.
                            31-50     200
                                        Area                                                As CPI is also increasing
                           Below 31   100                                                   during recent years. The price
                                        0                                                   original be which is ¥30 to
                                                                                         Theshouldpriceadjusted, too. 40.
                                      0.00%   10.00%     20.00%   30.00%   40.00%
                                                       Elasticity of demand 〈 1           relatively low when we aim to offer
                                                                       Economics          middle and high end coffee service
                                          Story cards
                                       Better                               Memory Wall
                                                                     analysis:
                                       decoration with            elasticity of
                                       the escalation of          demand is
                                       ambience;
                                       20                         smaller than 1
                                       Layout redesign
                                       15                         when price            Disposable income in
                                       10                            Main
                                                                  changes. price strategy
                                                                                        Shanghai always ranks first
                                              Topic bar style layout redesign average in China.
                                                                        ¥50
                                        5
                                              such as memory wall could
                                        0     create a special, peaceful and
                                              enjoyable ambiance for customs
                                                Step 2: Increase P- Price strategy
                                                                                         Current     Solutions    Key Point    Overall
                                                                                         Situation    P&Q&C         KPI        Value




              Price discrimination
                                                                ¥30 to 50: offering high Capability/price Ratio experience
$/Q           P* :Normal customs
Pmax
             A
                                                         1   For previous customs, we could offer membership card to them
                          PC: Price-sensitive Customs        before the redecoration, The membership card also provide cash
 P*
                           B                                 flow. In order to get the card, they have to first deposit no less than
                                                             ¥100.
                                          MC
 PC
                                                         2   Online group-buying customs are more cash sensitive, so they are
                                          D                  willing to buy the ultra-discounted tickets with endearing effort and
                                                             time. Students and other cash sensitive customs have a higher
                                                             demand elasticity than common customs.
                        MR
                 Q*            QC Quantity               3   Special price(¥30-40) everyday aims to promote sales during
                                                             afternoon.(fewest customs according to the table 2F)

                                                                          The No. of customers of every operating period


       Above ¥50: offering high quality                                                                      Morning (8am to 11am)
       coffee and fresh experience
                                                                                                             Lunch-time (11am to
                                                                                                             2pm)
       For people who pursue various life experience in Pudong, we                                           Afternoon (2 pm to
       provide them with high quality of service and charge more.                                            5pm)
                                                                                                             Tea-time and early
                                                                                                             evening (5pm to 9pm)
                                                Step 3: Control C                            Current                Solutions    Key Point           Overall
                                                                                             Situation               P&Q&C         KPI               Value



                                                                                             T
                                                                          TC (k )   { ( M it  Lit  Tit  U it )eit pvit }
                                                                                            t 1     ik


                                                                                                                                      
                                                                                mi imit nt1 f1 /(1  f i )  li ilit yit nt1 gi 1  g i  
                                                                                                                                             
                                                                          Cit   M                                                           eit pvit  cit 1
                                         S&G&A                                     sim isit d mt  ui iuit  vi ivit nt                  
                                                                                 m1                                                         
                                          control
  Encourage Take-out
                                                                                                     nt
• Take-out beverage or food           Promotion costs                     Pit  pi ipit  n fi dn
                                                                                                    0
  can provide much more
  convenience to customers,           Communication                                                        tn
  which     can      enhance                                              Ci t  Ci iCit yit  n g t dn
                                      costs                                                                0
  customer loyalty
• Take-out business can help
                                                                                       M
  the shop decrease
  expense, since it won’t
                                      Training costs                      Tit       s
                                                                                     m 1
                                                                                               im   isit d mt
  take spaces in the shop
  and save human resource             Utility costs                       U it  (ui iuit  vi ivit )nt
  cost.



     Average costs will increase as we redecorate to a new style, but our objective is to main its increasing rate at the
     previous level, even below.
                                                            Key point
                                                                                        Current     Solutions   Key Point   Overall
                                                                                        Situation   P&Q&C         KPI       Value




                                                  Strategy              Establish the appropriate position,
          Key success                                                   atmosphere, value of shop based on
            factor                                                      customer’s demand and current resources.
                                              Implementation            Manager and employees all identify with
                                                                        the position and value of Pudong.



                                                                           1   Environment
                                                                               • Decor, temperature and noise level
                                          1                                    • Free Wi-Fi
                                                                               • Cleanliness and overall hygiene
                                  Environment                                  • Availability of space

                                                                           2   Service
                                                                               • Friendly staff
                               Implementation                                  • Excellent customer service

                       3                                   2
                                                                           3   Product
                                                                               • Beverages/food provided must be good
                  Product                                Service
                                                                                 quality
                                                                               • Presentation of food and food offering


*Reference: Table 1-Judging criteria for Coffee shops.
                                                 Key Performance Indicator
                                                                                           Current     Solutions   Key Point      Overall
                                                                                           Situation   P&Q&C         KPI          Value


CATAGORY                    INDICATOR                             DEFINATION                                OBJECTIVE
             The amount of new membership card         During certain period, the added      Measure membership card promotion
                                                       amount of new membership card         effect
             The amount of customers coming to topic   The actual amount of customers        Measure topic sharing salon effect
             sharing salon                             compared to the estimated one
             The amount of customers taking part in    The actual amount of customers        Measure postcard sending service
             postcards and memory wall service         compared to the estimated one         effect
   Result
             The amount of customers coming during                                           Measure additional opening decision
 indicator
             the additional opening hours                                                    effect
             The number of customers coming due to     Customers use favorable combo         Measure group buying effect
             group buying                              from cooperated website
             Cost of main operation                    Cost of product sold                  Measure cost control effect
             Gross profit margin                       Calculated based on financial         Measure the operation efficiency and
                                                       statement                             promotion effect
             Satisfaction of customers                 Calculated by random customer         Measure the whole impression of
                                                       survey results                        customers toward product, service and
                                                                                             theme
             The amount of returned customer                                                 Measure customer loyalty and
                                                                                             customer management effect.
             Food/beverage service quality             Example: employee should finish a     Conduct the behavior of employees
                                                       cup of coffee/sandwich within
  Action                                               certain minutes with high quality
 indicator
             Polite term standardization               Set unified tongue for employees      Conduct the behavior of employees
                                                       used during each
             The responsiveness of employees towards                                         Measure the organizational culture
             shop’s activities                                                               building effect
                                                   Compare Break-even point
                                                                                          Current     Solutions   Key Point      Overall
                                                                                          Situation   P&Q&C         KPI          Value



                                             Break-even point calculation
                                          2010(before
                              2009                         2,010          2011         2012          2013           2014
                                         adjustments)
Variable Cost (COGS)       420,000 45.7% 436,800 46.2% 588,000 50.0% 646,800 56.0% 711,480 57.7% 782,628 63.3% 860,891 64.7%
Fixed Cost(operating
                           500,000 54.3% 508,720 53.8% 588,200 50.0% 508,596 44.0% 521,871 42.3% 454,097 36.7% 469,356 35.3%
expenses)
                                                                             1,155,3   1,233,3        1,236,72        1,330,24
Break-even point revenue   920,000       945,520       1,176,200
                                                                                 96        51                5               7
Forecast or actual sales                1,005,79                             1,656,2   1,821,8        2,004,08        2,204,49
                           930,000                     1,505,700
revenue                                        5                                 70        97                7               5

2,500,000                                                        150.0%
2,000,000
                                                                 100.0%
1,500,000
1,000,000
                                                                     50.0%
                                                      Break-even
  500,000                                             point
        0                                             revenue    0.0%

                                                                                                                              Fixed Cost
                                                      Forecast or
                                                      actual sales
                                                      revenue                                                                 Variable Cost




     The ability of generating profits will be stronger and stronger, mainly due to the increase of variable
     cost, which decreases the operating leverage.
                                                             Financial forecast & contrast                    Current     Solutions      Key Point      Overall
                                                                                                              Situation   P&Q&C            KPI          Value

                                                                                                           The Pudong Coffee Shop
  Financial forecast for 2010 before renovation                              Balance Sheet as at                                      31 Dec 2010
                                                                                                                                      No adjustments
     Li’s assumptions:                                                                                                                ¥           ¥
     Prices increase by 3%; sales volume will increase                       Goodwill                                                     400,000
     by 5%; Inflation 4%; Other factors unchanged                            Furniture and Fittings(net)                                  164,000
                                                                             Inventories                                                   43,360
                                                                             Cash at bank                                                 241,966
                             The Pudong Coffee Shop
                                                                             Total Assets                                                               849,326
                    Income Statement for year ended (forecast)
                                           31 Dec 2010 ¥
                                                                   2009 ¥ Owner's Equity                                            460,496
                                             No adjustments
                                                                           Bank loan payable                                        184,715
Revenue(beverages/drinks)                            524,528       485,000
                                                                           Trade payables(8.4%)                                     204,115
Revenue(food sales)                                  481,268       445,000
                                                                           Total liabilities and owner's equity                               849,326
Total Revenue (food and beverages)                 1,005,795       930,000
                                                                                                        The Pudong Coffee Shop
Cost of sales                                      (436,800)     (420,000)
                                                                             Cash flow statements for year ended       31 Dec 2010 ¥ 31 Dec 2009 ¥
Gross profits                                        568,995       510,000
                                                                             Operating cash flow
Less Operating expenses:
 Depreciation of tangible assets                     (82,000)     (82,000)     operating profit(loss) for year                      41,906             10,000
 Wages and remuneration                            (135,200)     (130,000)     Add: depreciation                                    82,000             82,000
 Rental                                            (200,000)     (200,000)                                                       123,906               92,000
 Utilities(lighting and heating etc.)                (49,920)     (48,000)     Changes in working capital:
 Decoration expense                                                            Less: increase in inventories                          2,720             6,000
 Garbage collection                                  (10,400)     (10,000)
                                                                               Add: increase in trade payables                      17,340             16,000
 Advertising and promotions                          (31,200)     (30,000)
Total Operating Expenses                           (508,720)     (500,000)                                                       143,966              102,000
Operating Profit for year                              60,275       10,000     Investing activities                                     Nil
Interest payable on loans                            (18,369)     (23,710)     Financing activities:
Profit(loss) for year                                  41,906     (13,710)
                                                                               repayment of loan including interest            (100,000)             (100,000)

                                                                               =Overal cash flow (deficit) for year                 43,966              2,000
                                                                                                                                 198,000              196,000
                                                                               Equals: Closing bank balance                      241,966              198,000
                                                         Financial forecast & contrast                  Current      Solutions    Key Point      Overall
                                                                                                        Situation    P&Q&C          KPI          Value


                                                                                               The Pudong Coffee Shop
                                                                         Balance Sheet as at                     31 Dec 2010
Financial forecast for 2010 after renovation                                                                            Adjusted
                     The Pudong Coffee Shop(Adjusted)                                       The Pudong Coffee Shop(No adjustments)
                                                                                                                              ¥                ¥
Income Statement for year ended                                          Goodwill
                                                                         Income Statement for year ended                 400,000
                                      31 Dec 2010 ¥                 ¥                                             31 Dec 2010 ¥                2009 ¥
(forecast)                                                               Furniture
                                                                         (forecast) and Fittings(net)                    164,000
Revenue(beverages/drinks)                    882,700                     Inventories
                                                                         Revenue(beverages/drinks)
                                                        Profitability Analysis for 2010                                    74,240
                                                                                                                            524,528            485,000
                                                                         Cash at bank                                    611,040
Revenue(food sales)                          623,000                     Revenue(food sales)           31-Dec-10            481,268            445,000
                                               31-Dec-08                 Total
                                                                  31-Dec-09 Assets                                                       1,249,280
Total Revenue (food and beverages)                          1,505,700 Total Revenue (food and beverages)
                                                                                     Without adjustment                   1,005,795
                                                                                                                After adjustment               930,000

              Return on sales                                            Owner's Equity
                                                             (588,000) Cost of sales                                     817,066
                                                                                                                          (436,800)           (420,000)
                                                                         Bank loan payable                               184,715
Gross profits      Gross margin ratio            57.5%         917,700 Gross profits
                                                                    54.8%                    56.6%                    60.9%568,995             510,000
                                                                         Trade payables(8.4%)                            247,499
Less Operating expenses: margin ratio
                   Profit                        3.5%                    Less Operating expenses:
                                                                     -1.5%
                                                                         Total liabilities and4.2%
                                                                                               owner's equity         23.7%              1,249,280
Depreciation of tangible assets
             Return on investments           (82,000)                    Depreciation of tangible assets                     (82,000)          (82,000)
Wages and remuneration                      (182,000)                                              The Pudong Coffee Shop
                    ROA(return on assets)         6.3%                   Wages and remuneration
                                                                      1.1%                     7.1%                          (135,200)
                                                                                                                         29.6%                (130,000)
                                                                                           Cash flow statements for year ended           31 Dec 2010
Rental                                      (200,000)                    Rental                                              (200,000)        (200,000)
                    ROE(return on equity)         7.5%               -3.3%                     9.1%                      42.0%               Adjusted
Utilities(lighting and heating etc.)(10%)    (52,800)                     Operating cash flow
                                                                         Utilities(lighting and heating etc.)                 (49,920)         (48,000)
Decoration expense                                                         operating profit(loss) for year                                    369,500
                                                                         Decoration expense
                                                                           Add: depreciation                                                    82,000
Garbage collection(10%)                      (11,000)                    Garbage collection                                   (10,400)         (10,000)
                                                                                                                                              451,500
Advertising and promotions                   (20,400)                     Changes in working capital:
                                                                         Advertising and promotions                           (31,200)         (30,000)
                                                                           Less: increase in inventories                                        30,240
Total Operating Expenses                                      (548,200) Total Operating Expenses                             (508,720)        (500,000)
                                                                           Add: increase in trade payables                                      40,499
Operating Profit for year(EBIT)                                 369,500 Operating Profit for year                               60,275           10,000
Interest payable on loans                                                 Investing activities
                                                               (26,004) Interest payable on loans                             (18,369)          (23,710)
                                                                          Decoration Expenditure                                              (40,000)
Profit(loss) for year                                           343,496 Profit(loss) for year
                                                                          Financing activities:                                 41,906          (13,710)
                                                                           Repayment of loan including interest                               (28,700)
                                                                          =Overall cash flow (deficit) for year                               413,040
                                                                          Opening bank balance                                                198,000
                                                                          Equals: Closing bank balance                                        611,040
                                     Value Evaluation
                                                                    Current     Solutions   Key Point   Overall
                                                                    Situation   P&Q&C         KPI       Value


Based Model
  ----FCFF Model
                                                 Vo   FCFF i
                                                           n


                                                      i 1 1  r i
   Reasons for choice
    Issues related to differences
     in accounting policies and of
     income versus cash flows
     disappear
    Easy to distinguish operating            •FCFF---the free cash flow equals cash from
     and investment items.                    deducts capitalization expenditure
                                              •n---the No. of the period
    Any cash held within the
                                              •r---WACC=Interest rate of debt*(1-tax
     firm is needed as operating
                                              rate)*Long-term debt/ Total liability and
     working capital
                                              Equity +capital cost rate*owner’s equity/
    Reported earnings are                    Total liability and Equity
     readily available
                                                         Value Evaluation
                                                                                                        Current      Solutions    Key Point   Overall
                                                                                                        Situation    P&Q&C          KPI       Value


                             FCFF for Pudong Coffee Shop(No adjustment)
                                               2009      2010 2011     2012        2013       2014
EBIT                                          10,000    60,275 73,966 88,205     103,013    118,413
Plus: Depreciation                            82000     82000 82000 82000         82000      82000
Tax Rate                                                           25%
                                                                                (410,000.
Capitalization Expenditure
                                                                                       0)

                                                                 155,96         (224,987.
FCFF                                          92,000   142,275          170,205             200,413
                                                                      6                2)
WACC                                           6.27%
Value at the end of 2014                 ¥449,108.18


                                  FCFF for Pudong Coffee Shop(Adjusted)

                                             2010        2011        2012   2013         2014                  Notes:
EBIT                                       329,500     500,874    588,546 629,841      672,878
Plus Depreciation                           82,000      82,000     82,000 82,000        82,000        Interest Rate for long-term debt           7%
Tax Rate                                                         25%                                  Tax Rate                                  25%
                                                                                                      Long-term debt/ Total liability and
Capitalization Expenditure                 (40000)                        (410000)                                                            29.55%
                                                                                                      Equity
                                                                                                      Cost rate for Owner's equity             10.0%
                                             2010        2011       2012    2013         2014         Owner's equity/Total liability and
                                                                                                                                              47.14%
Free cash flow                             371,500     418,874    506,546 137,841      590,878        Equity
WACC                                         6.27%
Value at the end of 2014             ¥1,686,815.20


       Conclusion:
       After effective measures, the current value of Pudong Coffee Shop is almost four times
       compared with the that in 2010 without adjustments
                                                 Logical Line

                                                                                         Appropriate
                                                                                          Position
                                                                             Strategy      Identify
                                                                                           Strategy
                                                            Success
                                                                                                       KPI
                                                            Factors                        Service
                                Industry Trend                               Implemen
                                                                                           Product
               External                                                        -tation
                                  Customers                                              Environment
               Factors
                                 Competitors                                   Raise
                                                                               Price
 Current                                                                     Increase
                                   Position                Solutions
Situation                                                                    Quantity
                                                      Profits=                Control
                                   Product            Price*Quantity-Cost      Cost
               Internal
                Factors           Operation



                                                     Financial performance
                          Performance                    before change
                          Comparison                 Financial performance
     Overall                                              after change
     Value
                          Business Value
                            Evaluation               FCF Model
                  PK FUN

Consulting elites--------

Wang lingkai, Jiang yi, Liu wenwen, Yin
xiaolin, Xu hua

From HSBC Business School, Peking
University

				
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