1.What three types of information provided by the Case are most important and influential in your conclusions and recommendations?

2. What critical information is missing that would help you be more insightful and impactful in your conclusions and recommendations?

3. Of the information that is not available, what information would be of the highest priority to obtain, and how might you obtain it if this were a real situation?

The case is "HABITUAL CHOCOLATE: EXPANSION OPPORTUNITIES"

Habitual Chocolate Illustrative Management Letter For the year ended December 31, 2013 July 27, 2020 To the Board of Directors Habitual Chocolate Management Letter for the year ended December 31, 2013 Thank you for giving me, a student in university, the opportunity to edit and predict the nancial statement, and make some analysis and recommendation. Introduction Habitual Chocolate (Habitual), located in London, Ontario, a artisanal chocolate manufacturing and retailing company which was proud of its simple ingredients products. Its owner and chocolatier Philippe Lehner was considering an expansion opportunity Within Southwestern Ontario. The reasons were its current shop didn't have enough space for expansion, also, this place might prohibit manufacturing within the next ve to 10 years. In the following section, I will analyze Habitual Chocolate's current situation and nancial statement and come up With the recommendation Whether it should expand to Woodstock or stay in London. Analysis and Findings Satisfied Trend of Income As we can see in the Exhibit 1. Statement of Earnings, the net income after tax has a significant increase in 2014 comparing with 2013. This change is because of its increased sales record (more than double) and decreased fixed cost. This is a satisfied trend meaning that Habitual has a wonderful sell and management strategy. Exhibit 1. Statement of Earnings REVENUE 2014 2013 Sales $ 80,000 100.0% $ 35,000 100.0% Variable costs 21,50 26.9% 12,210 34.9% Contribution 58,500 73.1% 22,790 65.1% FIXED COSTS Rent 4,020 5.0% 3,600 10.3% Supplies 3,250 4.1% 1.255 3.6% General and administration 725 0.9% 425 1.2% Advertising 850 1.1% 510 1.5% Salaries and wages 3,255 41.6% 15,600 44.6% Insurance 2,750 3.4 ).0% Depreciation, fixed assets* 3,100 3.9% 2,400 6.9% Total fixed costs $ 47.950 59.9% $ 23,790 68.0% Net income before taxes $ 10,550 13.2% $ (1,000) -2.9% Income taxes** 0.0% 0.0% Net income after taxes $ 10,550 13.2% $ (1,000) -2.9% Lack of Short-Term Payment liabilities Ability The current ratio in Exhibit 2. goes down to 0.6 in 2014 from 1.1 in 2013, which means that Habitual may have some problems to pay its short-term liabilities.Exhibit 2. HABITUAL CHOCOLATE Current ratio Debt to equity Retum on assets 128.6% Good Use of Asset The return on assets Exhibit 2. has an obvious increase from -1.8% to 12.9%, it is a 14.7% change. At the same period (2013-2014) the Canadian industry only increase 10.8% and even the Hersey CO., famous company which has a high income, raise only 15.4%. Habitual's increase rate is almost the same amount as Hersey CO.. This is a good news because Habitual creates much more prot than before by the same asset. The pros of Habitual: 1. Its customers have enough money to purchase its healthy but high-priced chocolate. 2. Its chocolate has rich and unique avor that other companies can not copy or replace. The Cons of Habitual: l. Habitual's produce efciency is lower when comparing with other mechanized production company. 2. Its chocolate doesn't have too much varieties which might cause the amount of customers be small. Prediction of 2015 (move to Woodstock) Exhibit 3. 2015 prediction (move to Woodstock) lowest highest Inows retail sales 80,000 100,000 Outows rent 18,000 18,000 rental savings -2,460 -2,460 utility 4,200 4,200 vehicle 10,500 10,500 administration 3,600 3,600 insurance 4,270 4,270 supply 2,700 2,700 wage expense 23,400 23,400 advertisement 500 500 variable cost 20,000 25,000 total outows 84,710 89,710 net income -4,710 10,290 investment advertisement 500 500 equipment 65,000 65,000 inventory 3,000 3,000 total investment 68,500 68,500 return on investment -6.9% 15.0% I create a nancial statement according to the data the owner provide. It shows that if Habitual can earn 100,000 dollars in its new shop in Woodstock, it could have a return on investment of 15% which means the return period is about 7 years. Prediction of financial statement of 2015-2017 (stay in London) I calculate the data of 2015 and then according to the increase rate (228%) in 2014 to 2015 I assume that the sales in 2016 will be 1.8 times of 2015 and the sales in 2017 will be 1.6 times of 2016. Habitual Chocolate ProForma For Scenario 1 (stay in London) 2015 2016 2017 Revenue sales 156,000 280,800 449,280 variable cost 39.000 70,200 1 12,320 contribution 117,000 210,600 336,960 fixed costs rent 12,690 18,000 18,000 supplies 5,950 8,100 8,100 administration 2,525 3,600 3,600 advertising ,500 1,000 1,000 wages 49,175 54, 175 59,175 Insurance 4,270 7,320 7,320 Depreciation, fixed assets 5,750 5,750 5,750 utility 1,800 4,200 4,200 vehicle 1,500 0,500 0,500 insurance 3,660 7.320 7,320 interest , 750 3,500 7.000 Total fixed costs 91,820 119,965 124,965Net income before taxes 25,180 90,635 211,995 Income taxes 5,036 18,127 42,399 Net income after taxes 20,144 72,508 169,596 Habitual Chocolate ProForma For Scenario 1 (stay in London) 2015 2016 2017 Assets current assets cash 17,855 32,139 51,422 inventory 15,000 27,000 43,200 total current assets 32,855 59,139 94,622 xed assets production equipment production equipment 1 13,000 203,400 325,440 less: accumulated depreciation (10,360) (18,648) (29,837) xtures & funiture 27,000 48,600 77,760 less: accumulated depreciation (3,490) (6,282) (10,05 1) total fixed assets 126,150 227,070 363,312 Total assets 159,005 286,209 457,934 Liabilities & Stockholders equity Liabilities current liabilities accouts payable 455 819 1,310 income tax payable 5,030 9,054 14,486 interest payable 1,750 3,150 5,040 current portion of angel incestor loan 5,000 9,000 14,400 loan-re roasted coffee 26,000 46,800 74,880 Total current liabilities 38,235 68,823 1 10,1 17 Long-term liabilities: new angel investor loan 45,000 81,000 129,600 loans payableFire roasted coffee 20,626 37,127 59,403 Total long-term liabilities 65,626 I l8,l27 l89,003 Total liabilities 103,861 186,950 299,120 Stockholders' equity common stock 40,000 72,000 115,200 retained earning 15,144 27,259 43,615 total stockholders' equity 55,144 99,259 158,815 Total liabilities and stockholders' equity 159,005 286,209 457,934 Prediction of financial statement of 2015-2017 (move to Woodstock) I compute the data in 2015 according to the provided data and assume that the sales increase in 2016 and 2017 keep the trends from 2014-2015. But in the real situation I think it is hard to keep high increase rate in many years because the amount of customers and other resources are limited. Habitual Chocolate ProForma For Scenario 2 (move to Woodstock) 2015 2016 2017 Revenue sales 156,000 304,200 593,190 variable cost 39,000 76,050 148,298 contribution 1 17,000 228,150 444,893 fixed costs rent 12,690 18,000 18,000 supplies 5,950 3,100 3,100 administration 2,525 3,600 3,600 advertising 1,500 1,00 1,000 Salaries and wages 49,175 54,175 59,175 Insurance 4,270 7,320 7,320 Depreciation, fixed assets 5,750 5,750 5,750 utility 1,800 4,200 4,200vehicle 4,500 10,500 10,500 insurance 3,660 7,320 7,320 interest 1,750 3,500 7,000 Total fixed costs 91,820 19,965 124,965 Net income before taxes 25,180 108,185 319,928 Income taxes 5,036 21,637 13,986 Net income after taxes 20,144 86,548 255,942 Habitual Chocolate ProForma For Scenario 2 (move to Woodstock) 2015 2016 2017 Assets current asset cash 7,855 35,710 59,279 inventory 15,000 30,000 49,800 total current assets 32,855 65,710 109,079 fixed assets production equipment production equipment 113,000 1 13,000 187,580 less: accumulated depreciation 10,360) (20,720) (34,395) fixtures & funiture 27,000 54,000 89,640 less: accumulated depreciation (3,490) (6,980) (11,587) total fixed assets 126,150 252,300 418,818 Total assets 59,005 318,010 527,897 Liabilities & Stockholders equity Liabilities current liabilities accouts payable 455 910 1,511 income tax payable 5,030 10,060 16,700 interest payable 1,750 3,500 5,810 current portion of angel incestor loan 5,000 0,000 6,600 loan-fire roasted coffee 26,000 52,000 36,320 Total current liabilities 38,235 76,470 126,940 Long-term liabilities: new angel investor loan 45,000 90,000 149,400loans payable-Fire roasted coffee 20,626 41,252 68,478 Total long-term liabilities 65,626 131,252 217,878 Total liabilities 103,861 207,722 344,819 Stockholders' equity common stock 40,000 80,000 32,800 retained earning 15,144 30,288 50,278 total stockhol 55,144 110,288 183,078 Total liabilities and stockholders' equity 159,005 318,010 527,897 Recommendation Move to Woodstock According to the calculation and the current situation in London, I recommend Habitual to move to Woodstock. The most important reason is the market in London might prohibit manufacturing within the next five to 10 years. It is a dangerous and unpredictable element to Habitual, once it happen, Habitual will not have enough time to react. Adjust its flavor Because there are more retirees in Woodstock (35%) than London (15%), Habitual should adjust its chocolate flavor that more suitable for retirees.Add some dessert for hot season In some hot season like June and July, Habitual Will has less income because people like ozen dessert in these months. Thus, I think habitual could develop some new frozen chocolate dessert to keep its high income. Conclusion In conclusion, Habitual should move to Woodstock because of the unpredictable element in London. Before it moves, more inventory should be prepared because of its long-term produce process. After it moves, the manager should develop more new products for low-income season