Question

1. Nicole Englezakis manages a South African restaurant in a large southern city. The owner wants to know how well Nicole did this year at generating sales, controlling expenses, and providing a profit. Complete Nicole's P&L using vertical analysis. Nicole's P&L Last Year % This Year SALES: $3,706,381 $647,555 $3,746,245 1,255,358 1,282,656 1,611,630 162,231 145,607 Food Beverage Total Sales COST OF SALES: Food Beverage Total Cost of Sales GROSS PROFIT: Food Beverage Total Gross Profit OPERATING EXPENSES: Salaries and Wages Employee Benefits Direct Operating Expenses Music and Entertainment Marketing Utility Services Repairs and Maintenance 2,423,725 501,948 2,134,615 1,093,127 1,230,910 1,256,779 196,790 232,571 13,418 190,394 234,670 4,427 84,126 141,688 66,416 111,813 156,538 62,616

Answer 1

Nicole's P&L
	Last year	%	This year	%
Sales:
Food	$      3,706,381	85.12714	$3,746,245	$    74.90
Beverage	$         647,555	$    14.87	$1,255,358	$    25.10
Total sales	$      4,353,936	$ 100.00	$5,001,603	$ 100.00
Cost Of sales
Food	$      1,282,656	$    29.46	$1,611,630	$    32.22
Beverage	$         145,607	$      3.34	$    162,231	$      3.24
Total cost of sales	$      1,428,263	$    32.80	$1,773,861	$    35.47
Gross Profit
Food	$      2,423,725	$    55.67	$2,134,615	$    42.68
Beverage	$         501,948	$    11.53	$1,093,127	$    21.86
Total Gross Profit	$      2,925,673	$    67.20	$3,227,742	$    64.53
Operating Expense
Salaries and wages	$      1,230,910	$    28.27	$1,256,779	$    25.13
Employee Benefits	$         190,394	$      4.37	$    196,790	$      3.93
Direct Operating Expenses	$         234,670	$      5.39	$    232,571	$      4.65
Music and Entertainments	$             4,427	$      0.10	$      13,418	$      0.27
Marketing	$           84,126	$      1.93	$    111,813	$      2.24
Utility services	$         141,688	$      3.25	$    156,538	$      3.13
Repair and Maintenance	$           66,416	$      1.53	$      62,616	$      1.25
Administrative and General	$         128,403	$      2.95	$    125,230	$      2.50
Occupancy	$         230,400	$      5.29	$    211,200	$      4.22
Depreciation	$           79,699	$      1.83	$      98,397	$      1.97
Total Operating Expenses	$         438,502	$    10.07	$    434,827	$      8.69
Operating Income	$         534,540	$    12.28	$    762,390	$    15.24
interest	$         166,560	$      3.83	$    149,405	$      2.99
Income Before income taxes	$         367,980	$      8.45	$    612,985	$    12.26
income taxes	$         147,192	$      3.38	$    245,194	$      4.90
Net income	$         220,788	$      5.07	$    367,791	$      7.35

Note: To calculate the percent for Vertical analysis we should calculate percent of that item in the table to the total sale, so in the table if you see it shows 100% for total sales.

Once we calculate the percent it is very easy for us to determine where does our business is moving in term of financial strength for Example interest expense percent is decreased this year which also means that company might go debt free in sometime in the future or the impact of interest expense is decreasing

A) This year was higher than last year

b) This years marketing expense was higher in percentage terms compare to last year

c)If we assume that growth in sales was driven by marketing then it as impacted positively but if we assume that growth was driven by demand then we can analyze that it has impacted negatively since the percent of spending on marketing is increased

d)This year the salary and wages expenses was higher compare to last year in dollars term

e) This year the percent of salaries and wages was lower compare to last year

f) The salaries and wages expenses this year as positively impacted the Net Profit since the decrease in percent of salaries and wages , increase in revenue shows that the productivity as been increased

g) Since the Net profit percent is increased from 5.07 to 7.35 , that is increase of 2.29 in profit margin she should receive the raise