“THE KITCHEN SHOPS” FINANCIAL ANALYSIS

June 2011

Content

1. “The Kitchen Shops” Budget implementation analysis

2. “The Kitchen Shops” Financial ratios analysis

3. Shops profitability analysis

1. “The Kitchen Shops” Budget implementation analysis

Revenue - June

• In June the consolidated turnover indicators show higher results than planned in the budget (+8%);

• However, the turnover is higher only in two cities:• In London + 9.8%;

• In Bristol + 7.7%;

• But in Cardiff revenue is lower by 1.2% than was planned (the similar trend was also in previous month).

Revenue - June

• Gross profit indicators also show higher results than was planned in the budget, however, due to the lower than planned markups (250%), here difference is +4%;

• Average Mark-up differs in different cities:• It is higher in Bristol – 280%;

• In Cardiff – 220%;

• In Birmingham – 260%.

Gross Profit- June

Gross profit- June

• Net Profit is significantly higher than was planned in the budget (£22,262 vs. £11,185).

• Such high net profit is connected with significantly lower sales costs than was planned (-21%):

• Bonuses -20% (-£5,600);

• Gross salaries - 25% (-£3,200);

• Internal Training -7% (-£340);

• Etc. (logistics, depreciation).

Net profit- June

Net Profit - June

• However, administration costs are higher than was planned in the budget (+11%), which mainly is connected with unexpectedly high office staff travel expenses this month.

• Despite of the fact that sales costs are significantly lower this month, there are several positions that are overspended comparing to budget.

Top 10 of budget over-expenditure positions (by%)

Position % £

Place in Revenue

Chart

Transportation costs 1683% 1,324 2

Stationery 403% 989 4

Current repairs at shops 292% 338 8

Auto repairs and maintenance 266% 265 10

Corporate clothes 60% 90 17

Recruitment 56% 81 18

Marketing 38% 849 6

External training 28% 11 20

Utilities 28% 918 5

Rent 25% 2 100 1

Position £ %Place in %

Chart

Rent 2,100 25% 10

Transportation costs 1 324 1683% 1

Shop security 1 050 10% 16

Stationery 989 403% 2

Utilities 918 28% 9

Marketing 849 38% 7

Corporate events 389 17% 13

Current repairs at shops 338 292% 3

Card Fees 270 21% 12

Auto repairs and maintenance 265 266% 4

Top 10 of budget over-expenditure positions (by Revenue)

Net profit- June

Conclusions

• In June the consolidated turnover indicators show higher results than planned in the budget (+9%);

• However, due to lower than expected markups (250%) gross profit indicators show a difference of 6%;

• Net Profit this month is significantly higher than planned in the budget (£22,262 vs. £11,185);

• Such high net profit is connected with significantly lower sales costs than were expected (-21%).

2. “The Kitchen Shops” Financial ratios analysis

Balance Sheet Ratios

• Current ratio increased in June; a result of an increase in Current Assets, (+10.2%), that was higher than the increase in Current Liabilities (+1.5%);

• Such a rapid increase in Current Assets is primarily connected with:• Increase in Accounts Payable (+11.1%);

• Increase in Accounts Receivable (+9.9%);

• Liquid Assets to Sales ratio has not changed significantly this month and remains stable at an average level of 4.17% for the last three month.

Balance Sheet Ratios

• Gross Margin Ratio decreased from 40.5% in May to 39.7% in June and reached the lowest point in the last six month;

• This is a result of lower markups this month (250% vs. 258%);

• Such a low markups are associated with high discounts this month (average discount rate reaches 30.2%);

• However the Net Margin Ratio increased from 18.3% to 19.2%, due to a significant reduction in sales costs compared to May;

• Mostly due to decrease in marketing and logistics costs (-30% and -15%).

Income Statement Ratios

Income Statement Ratios

Operating and Financial Risk

• Lower markups this month affected Operating Leverage (OLE) negatively: OLE decreased from 2.88 to 2.79 this month;

• The Financial Leverage (FLE) number continued to hold, on average, higher than 1. However, due to significant repayment of debt during the last three months the ratio has had a tendency to decrease and in June it dropped from 1.23 to 1.20.

Operating and Financial Risk

3. “The Kitchen Shops” Shop Profitability Analysis

Revenue for the Shops

Place Shop Name & Location Revenue

1. “Palace “ London 450,563

2. “Plaza” Bristol 390,567

3. “Dream” Cambridge 380,675

4. “A.L.B” Birmingham 300,987

5. “Best” Cardiff 140,899

Gross Profit for the Shops

Place Shop Name & Location Revenue

1. “Palace “ London 220,563

2. “Plaza” Bristol 190,567

3. “Dream” Cambridge 180,675

4. “A.L.B” Birmingham 160,987

5. “Best” Cardiff 80,899

Average Mark-ups for the Shops

Place Shop Name & Location Avg. Mark ups

1. “Palace “ London 290%

2. “Plaza” Bristol 280%

3. “Dream” Cambridge 270%

4. “A.L.B” Birmingham 260%

5. “Best” Cardiff 220%

Revenue and Gross profit for the Shops• This month the highest revenue is in “Palace” (the same

as in May);• Intensive marketing campaigns and large discounts

significantly affected “Plaza” revenue in June and this month it is at second place in revenue;

• However, large discounts lowered mark-ups, hence in Gross profit, “Plaza” is only in third place;

• ‘”A.L.B” revenue is lower this month than usual, which is a result of reconstruction of the shop which took 1 week (06/21 -06/28);

• “Best” again has the lowest revenue and Gross Profit.

Net Profit for the Shops

Place Shop Name & Location Net Profit

1. “Palace “ London 150,563

2. “Plaza” Bristol 120,567

3. “Dream” Cambridge 110,675

4. “A.L.B” Birmingham 9,000

5. “Best” Cardiff -9,800

Net profit of the Shops

• “Palace” is in first place with a profit of – £150,563;

• “Dream” also showed high results;• “A.L.B” has a very low net profit resulting

from relatively low revenue this month;• “Best” again has a negative net profit.

Conclusions

• “Palace” is in first place in all charts;• Due to intensive marketing campaigns and large

discounts, “Plaza” is in second place in the revenue chart this month;

• But “Plaza” is only in third place in gross profits due to large discounts & lowered mark-ups;

• ‘”A.L.B” revenue and net profit is lower this month than usual which is a result of reconstruction at the shop which took 1 week (06/21 - 06/28);

• “Best” again shows poor performance.

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