7 Profitability planning. WestWood Leisure is a rapidly growing company which owns a number of health clubs and leisure centres. Presented below is summary financial information for the current year for WestWood together with management’s financial plan for the next three years. The company has an issued share capital of 1 million ordinary shares and this is not expected to change during the planning period.

The managing director has declared that two key financial objectives over the period are: (1) to at least maintain current rates of return on investment, and (2) to achieve growth in earnings per share of at least 10 per cent per year.

As an assistant to the financial manager you are required to carry out whatever financial calculations you consider necessary to determine if management’s plans will achieve the managing director’s objectives. Comment on your findings.

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West Wood Leisure Forecast Year Current 1 2 3 000 000 000 000 Turnover 2,562 3,074 3.689 4,427 Cost of sales 1,409 1,691 2.029 2,435 Gross profit 1.153 1,384 1,660 1,992 Administrative expenses 438 592 798 1,077 Operating profit 715 792 862 915 Interest payable 34 70 109 109 681 722 753 806 Taxation 211 224 233 250 Profit after tax 470 498 520 556 Investment 3,575 3.933 4,326 4,542