Question

After having taken an MBA a friend of yours is planning to open a cafeteria in a well-known Pyrenees ski resort. In order to prepare the forecasted financial expenses for a potential investor he has asked you some help in order to double check the financial statements of the business.

The cafeteria would only be opened for 6 months (180 days), starting the 1^st of November and until the 30^th of April, so you must consider all the financial statements on a semester basis.

Expected sales in average:

• Breakfasts served: 25 breakfast per day at an average price of 10€ each
• Lunch: 50 breakfast per day at an average price of 20€ each
• Coffee: 3.000 cups per month at 2€ each
• Sandwiches: estimated 1.000 per month at an average price of 4€
• Soups: estimated 375 per month at an average price of 6€

During the season, the cafeteria will host 2 private events for special guests of the resort:

• New Year’s dinner party consisting in 100 menus at 100€ (includes dinner and open bar), with an expected margin of 40%, which will be collected 30 days after its celebration (30^th January).
• Easter’s special lunch consisting in 100 menus at 50€, with an expected margin of 30%, which will be collected 30 days after its celebration (end May)

Additionally, there will be extra revenues by selling souvenirs as postcards and fridge magnets. The forecast is to sell an equivalent of the 10% of the total revenues (excluding the private events). The cost of the souvenirs is barely the 10% of its price with collecting & payment conditions being the same as the rest of the cafeteria products.

The direct cost of the ingredients of every meal or food/beverage served is as following (over price):

• Breakfast: 30%
• Lunch: 35%
• Coffee: 20%
• Sandwiches: 50%
• Soup: 25%

The costs related to the goods sold (food, beverages, special events, souvenirs) will pe paid in average 30 days after its consumption.

You expect to have a stable headcount of the following positions:

• Waiters: 3 persons, with a gross salary of 1.000€ per month (only during the 6 months season) plus a 30% of Social Security taxes.
• Cooker: 2 persons, with a gross salary of 2.000€ per month (only during the 6 months season) plus a 30% of Social Security taxes
• Business manager with a gross salary of 5.000€ per month (which applies for all year) plus a 30% of Social Security taxes

Salaries will be paid at the end of the month while SS taxes at the end of every calendar quarter.

Consumption of water, power and heat are expected to amount 3.000€ per month. Since the payments is usually in 60 days, at the end of the season 1/3 of the utilities will remain unpaid.

As part of the agreement with the ski resort, cafeteria will have to liquidate and pay a royalty of an equivalent of the 10% of the total semester revenues (to be paid the month after the season ends).

Additionally, it has been calculated that other general expenses, as alarms, cleaning, kitchen tools, etc. will amount a 3% of the revenues, all of them paid within the season period.

The cafeteria will have to invest 60,000€ in order to purchase some necessary assets for the operation, as chairs, tables, shelves, a fridge, an oven and cutlery. All those elements will be sold after the season at a 50% of its price value. All of them are expected to be paid during the first 3 months, while the collection of the end-season sale will be expected 60 days after the closing.

With the purpose to face the initial investment payment for the assets acquired, contemplate to get a bank loan with a 6 months maturity, repaid (principal plus interests) on the 30^th April with a 6% annual compound interest rate.

Consider that 50% of the total revenues (including souvenirs and special events) are paid with credit card which results in a 1,5% financial cost for the cafeteria. The rest is being paid upfront.

Estimated tax provision is 25%, to be paid 60 days after the closing balance of the season.

The Balance sheet at the beginning of the period (1^st November) only contained 10.000€ of Cash and 10.000€ of Capital stock.

1. Please elaborate the 2021-22 semester (Nov-April) Income statement and Cash-Flow Statement, showing in this case the 3 standard categories (Operational, Investing, Financial). Also complete the 31^st April 2022 Balance Sheet and identify in it the differences between the Net Income and the Free Cash-Flow of the period. Comment all the results shown. (85 points: 25pts IS, 25pts CF, 25pts BS and 10pts for explaining and showing the differences).
2. If you were a potential investor what aspects would, you consider according the financial information seen above. Does the fact of being a seasonal business would affect your decision on investing or not? If the forecast was contemplating, 12 months rather than 6 would the financials change? Explain (15 points)

Answer 1

Opening Balance Sheet
ASSETS
Cash	10000
EQUITY AND LIABILITIES
Capital Stock	10000

Income Statement
For the Period ending April 30,2022 (180 Days)
Revenue from Operations:
Breakfasts Served	45,000
Lunch	180,000
Coffee	36,000
Sandwiches	24,000
Soups	13,500
Private Events:
New Year's Dinner Party	10,000
Easter's Special Lunch	5,000
Souveniers and Postcards and Fridge Magnets	29,850
TOTAL REVENUE	343,350
Direct Costs:
Breakfasts	13,500
Lunch	63,000
Coffee	7,200
Sandwiches	12,000
Soups	3,375
New Year's Party	6,000
Easter's Special Lunch	3,500
Souveniers and Postcards and Fridge Magnets	2,985
TOTAL DIRECT COSTS	111,560
Salaries:
Waiters	18,000
Cooker	24,000
Business Manager	30,000
Social Security Taxes	21,600
TOTAL SALARIES	93,600
Other Indirect Costs:
Water, Power and Heat	18,000
Royalty	34,335
General Expenses	10,301
Credit Card Charges	2,575
Depreciation on Assets	30,000
Interest on Bank Loan	1,800
TOTAL OTHER INDIRECT COSTS	97,011
NET INCOME BEFORE TAX	41,179
Tax @ 25%	10,295
NET INCOME AFTER TAX	30,885

Balance Sheet
For the Period ended April 30,2022
ASSETS
Cash	78,708
Accounts Receivable	5,000
Receivable for Sale of Assets	30,000
Total Assets	113,708
EQUITY AND LIABILITIES
Accounts Payable	72,823
Capital Stock	10,000
Retained Earnings	30,885
Total Equity and Liabilities	113,708

Cash
Opening Balance	10,000
Revenue	338,350
COGS	(92,967)
Social Security Taxes	(18,000)
Salaries	(72,000)
Utilities	(12,000)
General Expenses	(10,301)
Credit Card Charges	(2,575)
Bank Loan Payment	(61,800)
Cash Balance at End	78,707

Cash Flow Statement (Indirect Method)
Net Income		30,885
Adjustments For:
Depreciation	30,000
Interest on Bank Loan	1,800
		62,685
Increase in Accounts Receivables	(5,000)
Increase in Accounts Payables	72,823
Cash Generated from Operations		130,508
Cash Flows from Investing Activities
Purchase of Assets	(60,000)
Net Cash used in Investing Activities		(60,000)
Cash Flows from Financing Activities
Proceeds from Bank Loan	60,000
Repayment of Bank Loan	(61,800)
Net Cash used in Investing Activities		(1,800)
Net Increase in Cash		68,708
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