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
Success
Factors
External
Factors
Customers
Position
Internal
Factors
Product
Raise
Price
Solutions
Profits=
Price*Quantity-Cost
Increase
Quantity
Control
Cost
Operation
Performance
Comparison
Overall
Value
Business Value
Evaluation
Product
Environment
Competitors
Current
Situation
Service
Implemen
-tation
Industry Trend
Identify
Strategy
Financial performance
before change
Financial performance
after change
FCF Model
KPI
External Factors
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Industry
Trend
Internal
Position
External
Factors
Customers
Factors
Product
Competitors
Operation
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*.
There
Financial Ratios
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
Overall
Value
External Factors
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Industry
Trend
External
Factors
Customers
Competitors
Most people born after 70th are the only child in their families
and haven’t encountered any frustrations and barriers, resulting
in their fragile characteristics. These people are also the major
group who tolerate mortgage, so they have so much pressure
and negative emotions.
People aged from 21 to 40 are the major
customers for coffee shops.
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
**Survey of white-collar women’s need,
Women federation of Jiangsu province
People born after 70th stand
much pressure and spiritual emptiness.
Overall
Value
External Factors
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Industry
Trend
International
coffee chains
External
Factors
Customers
An Italian-style
restaurant
More attractive in
lunch & dinner
More attractive in Tea Break
& between-meal nibbles
Competitors
Direct
competitors
Indirect
competitors
Income Statement of Starbucks (part)
Locate at the same ground
floor of the apartment
An ice cream
cafe
Income Statement of Pudong (part)
Net earnings(loss)
31-Dec-09
31-Dec-08
% Change
(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.
Overall
Value
Current Position
Current
Position
Competitors
Direct
competitors
Indirect
competitors
Current
Situation
They have Same customer
base but no significant
difference in positioning,
which results in less
competitive in main meals
& between-meal nibbles
Huge gap in competence
and similar position leads
to disadvantage
in
competition.
A place offering
casual and relax
feeling
Solutions
P&Q&C
Most aged from 21 to 40
Competitive price is not the
key factor of coffee industry,
and customer base will not
significantly increase by
decreasing price.
Key Point
KPI
Customers
Not Pricesensitive
Competitive price
Customers base:
Local expats,
professionals
A place for leisure can’t
fulfill customers’ need for
enriching spirit.
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
Spiritual
Emptiness
Overall
Value
Internal Factors—Business process & product
Current
Situation
Drinks
Industry
Trend
 Bottled Drinks
 Brewed Coffee
 Cappuccino
Position
Factors
Product
Competitors
Operation
 Hot Breakfast
Muffin; Toast
 Lunch
Financial Ratios
Salads; Sandwiches;
Wraps; Pies
 Latte
 Evening foods
 Soft drinks
Overall
Value
Internal
 Espresso
 Mocha Teas
Key Point
KPI
Foods
External
Factors
Customers
Solutions
P&Q&C
Tiramisu; Chocolate;
Cakes
 Free Fruit and Biscuits
Offer the necessary kinds of products and no
value-added services;
Not competitive, unique and attractive
enough.
Internal Factors—Business process & product
Current
Situation
Industry
Trend
Internal
Position
External
Factors
Customers
Solutions
P&Q&C
Factors
Product
Competitors
Operation
Financial Ratios
Operating with simple business process makes it less possible to expand.
Key Point
KPI
Overall
Value
Internal Factors---Operation management
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Overall
Value
Cost control
Operating costs as % of total revenue in coffee shops
Expand in excess of 10%
Percentage of sales
31-Dec- 31-Dec31-Dec- 31-DecAverage
Change
09
08
09
08
100%
100%
915000 930000 100%
1.6%
Food and beverages(COGS)
389000 420000
40%
43%
45%
8.0%
Depreciation of tangible assets
82000
82000
5%
9%
9%
0
Wages and remuneration
110000 130000
20%
12%
14%
18.2%
Utilities(light and heat etc)
39000
48000
5%
4%
5%
23.1%
Advertising and promotions
25000
30000
5%
3%
3%
20%
Rental
200000 200000
20%
22%
22%
0
Gross profit
526000 510000
60%
57%
55%
-3.0%
Operating profit for year
70000
20000
5%
8%
2%
-71.4%
The speed of growth is extremely low
Should pay more attention to
COGS control, due to excess to
average and high increase.
Although these three expenses
have increased rapidly, they are all
below that of industry average, so
the rise is NORMAL.
Although rental expenses excess
that of industry average, there is
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=
Sales/365 days/per capita consumption= 930000/365/50=60
Capacity: 50 customers
Opening Hours: 13 hours
The space of coffee shop is not adequately used, and the quantity of customers is sufficient.
Financial Status
Activity Analysis
31-Dec-09
31-Dec-08
￥
￥
9.55
10.24
38
36
Long-term investment activities
Total Assets Turnover
Total Assets Turnover is below
the industry average 1.6 *, due
to inadequate investment in
assets.
Key Point
KPI
Overall
Value
Table2: Liquidity Analysis
Short-term operating activities
Average No. days Inventory in stock
Solutions
P&Q&C
Liquidity Analysis
Table 1: Activity Analysis
Inventory Turnover
Current
Situation
1.05
0.95
Inventory turnover in
2009 decreased by
6.7%. The coffee shop
should take measures
to improve sales
revenue.
*Reference: Wind Database,2009, industry financial indicators
31-Dec-09 31-Dec-08
Operating cycle
Avg. No. days
payables outstanding
Cash cycle
Working Capital
Current Ratio
Quick Ratio
Cash Ratio
￥
38
￥
36
171
(133)
35,000
1.17
0.96
0.49
43,000
1.23
1.03
1.55
The industry average cash ratio is 5.3 *,
extremely outweigh Pudong’s. Pudong’s weak
profitability limited by CFO (decreased 65.54%)
caused troubles of repaying current liabilities,
which may influenced the trade
credit
provided by suppliers.
Financial Status
Activity Analysis
Long-term debt and Solvency Analysis
Weak ability of generating CFO
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Profitability Analysis
Table 4: Profitability Analysis
31-Dec-09
Table3: Long-term
￥
General
Analysisdebt
andand Solvency analysis
Return on sales
31-Dec-09
31-Dec-08
relationships
Gross margin ratio
0.55
￥
￥
Profitability
Operating margin ratio
0.01
Debt to total Capital
0.53
0.55
Analysis
Profit margin ratio
-0.01
Debt to Equity
0.63
0.78
Return on investments
Times interest earned
0.42
2.13
ROA(return on assets)
0.01
Long-term
ROE(return ondebt
equity)
-0.03
Liquidity
&
Operating leverage
0.55
solvency
Analysis
Analysis
Financial leverage
-0.73
Unsatisfied
performance
of
generating
controlling costs, the times interest earned and net
profits
income were threatened seriously.
Weak in repaying
current
As Pudong is weak
inliabilities
generating revenues and
Overall
Value
31-Dec-08
￥
0.57
0.07
0.04
0.06
0.07
0.57
1.89
 Difficult
to pay interests
of long-term
liabilities
All the
ratios related
to
profitability decreased.
Deteriorated profitability must
be improved!
Bottleneck
Current
Situation
Solutions
P&Q&C
Key Point
KPI
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
Price * Quantity
Cash Outflow
Cost
Returns
Profits
Overall
Value
Step 1: Increase Q
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Overall
Value
How to increase Q?
1 Necessary
Management
• Product & Service
• Operation
2 Differentiation
management
• Theme
• Product & Service
• Operation
3
Promotion
• Stories & Cards
• Memory wall
• Experience Nobility &
Classicality
• Online Group buying
• Topic sharing salon
• Launch multi-level
membership card
Establish differentiation advantage among coffee shops by
taking necessary management and differentiation
management in product and service within Pudong coffee shop.
Adopt promotion to convey the differentiation advantage of
Pudong Coffee to target customers successfully.
4
5
6
Differentiation
Advantage
Customer
Increase in Q
• In order to establish
•
differentiation
advantage, Pudong
should create unique
theme and take
necessary and
differentiation
management.
• By popularizing
promotion, Pudong can
convey differentiation
advantage to
customers.
Touched by the
• Q can be increased by
differentiated
customers’
product and
recognition towards
service, customers
differentiation
become more
advantage.
willing to come to • With increase in Q,
Pudong, treat
consumption and
here a second
profit will also
home, go back to
increase.
themselves.
Step 1: Increase Q---Necessary Management
Current
Situation
Q
Necessary Management
• Standardize product quality
- Make integrated quailty standard to grantee that
customers can get highest-quality food and
beverage.
- Such as :serve hot coffee within 3 minutes , serve
fresh-made cakes.
• 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.*
50%
40%
40%
35%
Overall
Value
Operation Management
Example
Steps taken to Encourage/improve Business
60%
Key Point
KPI
• Random customer survey
-Get feedback of product and service in detail, such as
whether customers are satisfied with the sofa,
music and smile of waiter.
• Standardize service process, set it clear, professional and
fixed, such as:
-when customers come in or leave, waiters must say
“Welcome”;
-What one waiter should do daily in order.
Product & Service
70%
Solutions
P&Q&C
30%
•Open the door with the key
•Turn on the light and examine the abnormality
•Open the monitor, play the music according to
different time slot.
•Open the POS, check the imprest
•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
Situation
Differentiation
Management
Q
• Redecoration
-To better express the theme, Pudong should
redecorate and redesign the whole atmosphere,
including visual, hearing, feeling and smelling.
- 70% coffee shops in local region take this measure to
encourage business growth. *
Operation
Steps taken to Encourage/improve Business
50%
40%
40%
35%
Overall
Value
Back to you!
---Coffee life, Your life.
An intimate space for you to sit down,
slow down, recall and think about who
you are and what you want .
• Theme Coffee shop- Back to You!
- Emphasize the theme that customers can enjoy the
most relaxed, natural themselves in Pudong.
60%
Key Point
KPI
Theme & culture
Product & Service
70%
Solutions
P&Q&C
30%
* Reference: Table 2D-Steps taken to encourage/Improve Business in Coffee Shops %
• 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.
• Only more monetary reward is not enough for
employees, Li should pay more attention to form
friendly, comfortable organizational culture and
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.
Step 1: Increase Q---Promotion
Current
Situation
Online
Group
Buying
Topic
sharing bar
Make Different groups such
as musicals,
composers
Exhibit pure,
classical
andcoffee
singersmachines
to find to
confidant
and feast.
offer visual
themselves
Make your own coffee
Use Douban to
according to your
advertise.
flavor
Key Point
KPI
Overall
Value
Online Group
Purchase
Cards
Cooperate with
some&
infusive group buying
Memories
Website.
Topic sharing bar
Attract traveling lovers,
Hikers, Backpackers to get
together, Experience
sharing and
&
organizing Nobility
outing
activities. Classicality
Solutions
P&Q&C
Experience
Nobility &
Classicality
Multi-level
Membership
Card
Cards &
Memories
Customers write
Provide favorable combo
cards , Pudong will
from 2pm to 5pm during
help them to send
certain period.
cards to anyone at
a specific future
Multi-level
date.
Membership Card
Offer membership card with
offers
morePudong
discount to old
customers
memory
wall tofor
before
redecoration
collect
customers
to
write
advances from customers.
memories, feeling
Offer
ormembership
wishes.. card with less
discount to new customers to
attract customers.
Exchange stories
Step 2: Increase P
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Overall
Value
The original
why could we charge more from the customs?
Economics
price is almost
rapid
economy
Better
The
original
decoration
price
the same
as the
growth in
outlets around
analysis:
elasticity
Pudong
New
Economy
the district.
with
is
almost
the the
Area
of
demand
is
Above200
condition:
According to the chart it is obvious that
escalation
same
as the
of rapid
Economy
economy
growth
Our target customs
are those majority of consumers prefer to pay ￥31 to
Economics
smaller than
1 in 151-200
The original
Better
analysis:
ambience;
outlets
around
Layout
Pudong
New
Area
100 for one cup of coffee, 39% consumers
decoration with
condition:
elasticity of
who’re willing toprice
pay isrelatively
when
almost high
the
escalation price
of
demand is
101-150
are willing to pay ￥31 to 50 and 28.6% are
redesign
the
district.
ambience;
rapid price
economy
smaller than 1
index
the same
as thewilling to pay ￥51 to 100.
toCPIget
different
experience.
Layout
redesign
changes.
when price
400
growth in
Economy
condition:
changes.
51-100
31-50
Below 31
outlets around
the district.
300
Pudong New
200
Area
100
0
0.00%
10.00%
20.00%
Better
Story cards
decoration with
the escalation of
20
ambience;
Layout redesign
15
10
5
0
30.00%
40.00%
Elasticity of demand
〈1
Economics
As CPI is also increasing
during recent years. The price
be adjusted,
too.
Theshould
original price
which is ￥30
to 40.
relatively low when we aim to offer
middle and high end coffee service
analysis:
Memory Wall
elasticity of
demand is
smaller than 1
when price
Disposable income in
Main price strategyShanghai always ranks first
changes.
Topic bar style layout redesign
￥50 average in China.
such as memory wall could
create a special, peaceful and
enjoyable ambiance for customs
Step 2: Increase P- Price strategy
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Overall
Value
Price discrimination
$/Q
Pmax
￥30 to 50: offering high Capability/price Ratio experience
P* :Normal customs
A
1
For previous customs, we could offer membership card to them
before the redecoration, The membership card also provide cash
flow. In order to get the card, they have to first deposit no less than
￥100.
2
Online group-buying customs are more cash sensitive, so they are
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.
3
Special price(￥30-40) everyday aims to promote sales during
afternoon.(fewest customs according to the table 2F)
PC: Price-sensitive Customs
P*
B
MC
PC
D
MR
Q*
QC Quantity
The No. of customers of every operating period
Above ￥50: offering high quality
coffee and fresh experience
For people who pursue various life experience in Pudong, we
provide them with high quality of service and charge more.
Morning (8am to 11am)
Lunch-time (11am to
2pm)
Afternoon (2 pm to
5pm)
Tea-time and early
evening (5pm to 9pm)
Step 3: Control C
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Overall
Value
T
TC (k )   { ( M it  Lit  Tit  U it )eit pvit }
t 1
ik
 
Encourage Take-out
• Take-out beverage or food
can provide much more
convenience to customers,
which
can
enhance
customer loyalty
• Take-out business can help
the shop decrease
expense, since it won’t
take spaces in the shop
and save human resource
cost.
S&G&A
control
Promotion costs

 

miimit nt1 f1 /(1  f i )  liilit yit nt1 gi 1  gi  


Cit   M
eit pvit  cit 1



s
is
d

u
iu

v
iv
n
  im it mt i it i it t

 m1

nt
Pit  pi ipit  n fi dn
0
Communication
costs
Training costs
tn
Ci t  Ci iCit yit  n gt dn
0
M
Tit   simis it d mt
m 1
Utility costs
U it  (ui iuit  vi ivit )nt
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
Strategy
Key success
factor
Implementation
Current
Situation
Environment
• Decor, temperature and noise level
• Free Wi-Fi
• Cleanliness and overall hygiene
• Availability of space
2
Service
• Friendly staff
• Excellent customer service
3
Product
• Beverages/food provided must be good
quality
• Presentation of food and food offering
Implementation
Product
Service
*Reference: Table 1-Judging criteria for Coffee shops.
Overall
Value
1
Environment
2
Key Point
KPI
Establish the appropriate position,
atmosphere, value of shop based on
customer’s demand and current resources.
Manager and employees all identify with
the position and value of Pudong.
1
3
Solutions
P&Q&C
Key Performance Indicator
CATAGORY
Result
indicator
INDICATOR
DEFINATION
Solutions
P&Q&C
Key Point
KPI
Overall
Value
OBJECTIVE
The amount of new membership card
During certain period, the added
amount of new membership card
Measure membership card promotion
effect
The amount of customers coming to topic
sharing salon
The actual amount of customers
compared to the estimated one
Measure topic sharing salon effect
The amount of customers taking part in
postcards and memory wall service
The actual amount of customers
compared to the estimated one
Measure postcard sending service
effect
The amount of customers coming during
the additional opening hours
Measure additional opening decision
effect
The number of customers coming due to
group buying
Customers use favorable combo
from cooperated website
Measure group buying effect
Cost of main operation
Cost of product sold
Measure cost control effect
Gross profit margin
Calculated based on financial
statement
Measure the operation efficiency and
promotion effect
Satisfaction of customers
Calculated by random customer
survey results
Measure the whole impression of
customers toward product, service and
theme
The amount of returned customer
Action
indicator
Current
Situation
Measure customer loyalty and
customer management effect.
Food/beverage service quality
Example: employee should finish a
cup of coffee/sandwich within
certain minutes with high quality
Conduct the behavior of employees
Polite term standardization
Set unified tongue for employees
used during each
Conduct the behavior of employees
The responsiveness of employees towards
shop’s activities
Measure the organizational culture
building effect
Compare Break-even point
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Overall
Value
Break-even point calculation
2010(before
2,010
2011
2012
2013
2014
adjustments)
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%
2009
Variable Cost （COGS）
Fixed Cost（operating
expenses）
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%
Break-even point revenue
920,000
945,520
1,176,200
1,155,3
96
1,233,3
51
1,236,72
5
1,330,24
7
Forecast or actual sales
revenue
930,000
1,005,79
5
1,505,700
1,656,2
70
1,821,8
97
2,004,08
7
2,204,49
5
2,500,000
150.0%
2,000,000
1,500,000
100.0%
1,000,000
500,000
0
50.0%
Break-even
point
0.0%
revenue
Forecast or
actual sales
revenue
Fixed Cost
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
Financial forecast for 2010 before renovation
Current
Situation
The Pudong Coffee Shop
Income Statement for year ended (forecast)
31 Dec 2010 ￥
No adjustments
Revenue(beverages/drinks)
524,528
Revenue(food sales)
481,268
Total Revenue (food and beverages)
1,005,795
Cost of sales
(436,800)
Gross profits
568,995
Less Operating expenses:
Depreciation of tangible assets
(82,000)
Wages and remuneration
(135,200)
Rental
(200,000)
Utilities(lighting and heating etc.)
(49,920)
Decoration expense
Garbage collection
(10,400)
Advertising and promotions
(31,200)
Total Operating Expenses
(508,720)
Operating Profit for year
60,275
Interest payable on loans
(18,369)
Profit(loss) for year
41,906
Key Point
KPI
Overall
Value
The Pudong Coffee Shop
Balance Sheet as at
Li’s assumptions:
Prices increase by 3%; sales volume will increase
by 5%; Inflation 4%; Other factors unchanged
Solutions
P&Q&C
Goodwill
Furniture and Fittings(net)
Inventories
Cash at bank
Total Assets
31 Dec 2010
No adjustments
￥
￥
400,000
164,000
43,360
241,966
849,326
460,496
2009 ￥ Owner's Equity
Bank loan payable
184,715
485,000
Trade payables（8.4%）
204,115
445,000
Total liabilities and owner's equity
849,326
930,000
The Pudong Coffee Shop
(420,000)
Cash flow statements for year ended
31 Dec 2010 ￥ 31 Dec 2009 ￥
510,000
Operating cash flow
(82,000)
(130,000)
(200,000)
(48,000)
(10,000)
(30,000)
(500,000)
10,000
(23,710)
(13,710)
operating profit(loss) for year
41,906
10,000
Add: depreciation
82,000
82,000
123,906
92,000
2,720
6,000
17,340
16,000
143,966
102,000
Changes in working capital:
Less： increase in inventories
Add: increase in trade payables
Investing activities
Nil
Financing activities:
repayment of loan including interest
=Overal cash flow (deficit) for year
Equals: Closing bank balance
(100,000)
(100,000)
43,966
2,000
198,000
196,000
241,966
198,000
Financial forecast & contrast
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Overall
Value
The Pudong Coffee Shop
31 Dec 2010
Adjusted
The Pudong Coffee Shop(Adjusted)
The Pudong Coffee Shop(No adjustments)
￥
Goodwill
400,000
Income Statement for year ended
Income
Statement for year ended
31 Dec 2010 ￥
￥
31 Dec 2010 ￥
(forecast)
(forecast)
Furniture and Fittings(net)
164,000
Inventories
74,240
Revenue(beverages/drinks)
882,700
Revenue(beverages/drinks)
524,528
Profitability Analysis
for 2010
Cash at bank
611,040
Revenue(food sales)
623,000
Revenue(food sales)
481,268
31-Dec-10
Total Assets
31-Dec-08
31-Dec-09
(food and
beverages)
1,005,795
Without
adjustment
After adjustment
Total Revenue (food and beverages)
1,505,700 Total Revenue
Owner's
Equity
817,066
of sales
(436,800)
Return on sales
(588,000) Cost
Bank loan payable
184,715
Gross profits
Gross profits
917,700
Gross margin ratio
57.5%
54.8%
56.6%
60.9%568,995
Trade payables（8.4%）
247,499
Less
Operating
expenses:
Less Operating expenses:
Profit margin ratio
3.5%
-1.5%
23.7%
Total liabilities and4.2%
owner's equity
Financial forecast for 2010 after renovation
Depreciation of
tangible
Return
onassets
investments
(82,000)
Wages and remuneration
ROA(return on assets)
Rental
ROE(return on equity)
Utilities(lighting and heating etc.)(10%)
(182,000)
6.3%
(200,000)
7.5%
(52,800)
Decoration expense
Garbage collection(10%)
(11,000)
Advertising and promotions
(20,400)
Total Operating Expenses
Operating Profit for year(EBIT)
Interest payable on loans
Profit(loss) for year
Balance Sheet as at
Depreciation of tangible assets
(82,000)
The Pudong Coffee Shop
(135,200)
1.1%Wages and remuneration
29.6%
Cash7.1%
flow statements for year ended
Rental
(200,000)
-3.3%
9.1%
42.0%
Operating cash and
flowheating etc.)
Utilities(lighting
(49,920)
operating profit(loss) for year
Decoration expense
Add: depreciation
Garbage collection
(10,400)
Changes in and
working
capital:
Advertising
promotions
Less： increase in inventories
(548,200) Total Operating Expenses
Add: increase in trade payables
369,500 Operating Profit for year
Investing
activities
(26,004) Interest
payable
on loans
Decoration Expenditure
year
343,496 Profit(loss)
Financing for
activities:
Repayment of loan including interest
=Overall cash flow (deficit) for year
Opening bank balance
Equals: Closing bank balance
(31,200)
(508,720)
60,275
(18,369)
41,906
￥
2009 ￥
485,000
445,000
1,249,280
930,000
(420,000)
510,000
1,249,280
(82,000)
(130,000)
31 Dec 2010
(200,000)
Adjusted
(48,000)
369,500
82,000
(10,000)
451,500
(30,000)
30,240
(500,000)
40,499
10,000
(23,710)
(40,000)
(13,710)
(28,700)
413,040
198,000
611,040
Value Evaluation
Based Model
----FCFF Model
Current
Situation
Solutions
P&Q&C
Key Point
KPI
i
Vo   FCFF
i


1

r
i 1
n
Reasons for choice
 Issues related to differences
in accounting policies and of
income versus cash flows
disappear
 Easy to distinguish operating
and investment items.
 Any cash held within the
firm is needed as operating
working capital
 Reported earnings are
readily available
•FCFF---the free cash flow equals cash from
deducts capitalization expenditure
•n---the No. of the period
•r---WACC=Interest rate of debt*(1-tax
rate)*Long-term debt/ Total liability and
Equity +capital cost rate*owner’s equity/
Total liability and Equity
Overall
Value
Value Evaluation
Current
Situation
Solutions
P&Q&C
Key Point
KPI
Overall
Value
FCFF for Pudong Coffee Shop(No adjustment)
EBIT
Plus: Depreciation
Tax Rate
2009
10,000
82000
2010 2011
2012
60,275 73,966 88,205
82000 82000 82000
25%
92,000
WACC
Value at the end of 2014
2014
118,413
82000
(410,000.
0)
Capitalization Expenditure
FCFF
2013
103,013
82000
142,275
155,96
(224,987.
170,205
6
2)
200,413
6.27%
¥449,108.18
FCFF for Pudong Coffee Shop(Adjusted)
EBIT
Plus Depreciation
Tax Rate
Capitalization Expenditure
2010
329,500
82,000
2011
500,874
82,000
(40000)
2012
2013
588,546 629,841
82,000 82,000
25%
2014
672,878
82,000
(410000)
Notes:
Interest Rate for long-term debt
Tax Rate
Long-term debt/ Total liability and
Equity
Cost rate for Owner's equity
Free cash flow
WACC
2010
371,500
2011
418,874
2012
2013
506,546 137,841
2014
590,878
Owner's equity/Total liability and
Equity
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
7%
25%
29.55%
10.0%
47.14%
Logical Line
Appropriate
Position
Strategy
Success
Factors
External
Factors
Customers
Position
Internal
Factors
Product
Raise
Price
Solutions
Profits=
Price*Quantity-Cost
Operation
Performance
Comparison
Overall
Value
Business Value
Evaluation
Product
Environment
Competitors
Current
Situation
Service
Implemen
-tation
Industry Trend
Identify
Strategy
Financial performance
before change
Financial performance
after change
FCF Model
Increase
Quantity
Control
Cost
KPI
PK FUN
Consulting elites-------Wang lingkai, Jiang yi, Liu wenwen, Yin
xiaolin, Xu hua
From HSBC Business School, Peking
University