FINANCIALS FOR 2015

Yalla Momos, which Goel had started with his small savings in 2012, generated AED504,000 in total sales and AED156,240 in revenue in 2015. The average meal was priced at AED20, including food and beverages; beverages accounted for approximately 20 per cent of revenue.

Goel was particular about the quality of the raw materials used, which included the white flour dough as well as the meat and/or vegetable and cheese fillings. No compromise was acceptable in terms of the quality of the food served. Apart from raw materials, other expenses included rent and utilities, administrative costs, and depreciation. The rent for all three locations was AED68,000 in 2015 and AED75,000 in 2016. Goel did not maintain very detailed financial records, but kept a rough estimate of overall expenses (see Exhibit 1). The owners did not pay themselves a salary, but shared in the profits of the business.

PROJECTIONS FOR 2016

Following expansion, Goel decided to use advertising to boost sales at the Dubai International city restaurant and the Bur Dubai kiosk. The cost of advertising would be AED8,000 for the three locations, and advertising was projected to increase overall sales by 10 per cent, from AED504,000 in 2015 to AED554,400 in 2016. Nevertheless, Goel had to keep strict control of expenses to stay competitive. He was keen to introduce new varieties of momos, but wanted to maintain the same quality and cost. Previously, he had sourced his raw materials from nearby supermarkets; he now planned to source his materials from special wholesale markets, from which he could obtain the same material at a lower price. Buying in bulk at wholesale prices would lower costs, but would require more storage facilities to keep the raw materials fresh.

FINANCIALS FOR 2016

Goel was thinking of opening one more outlet (the fourth) in Al Barsha. Al Barsha was a populated area with different nationalities and with lower rent than Karama or Bur Dubai. He thought he could capitalize on the growing demand for his product but knew that he would face stiff competition from the many cafs and quick-bite outlets already operating in Al Barsha. The central kitchen in Dubai International city was large enough to accommodate the additional cooking, but Goel would incur additional expenses if he decided to open a new kiosk (see Exhibit 2).

With four locations, Goels depreciation costs were estimated to be AED19,000 per year. Advertising costs, meanwhile, would increase to AED12,000 per year. Goel would continue using social media for marketing. Increased advertising could boost net revenues to AED727,200 per year. Goel had never engaged in aggressive marketing and was skeptical about its effectiveness. Worrying about both the competition and the costs associated with expansion, Goel nevertheless decided to give it his best shot.

EXHIBIT 1: YALLA MOMOS INCOME STATEMENT FOR THE YEAR ENDING 2015 (IN AED)
	Net Revenue	504,000
	Expenses
	Cost of food sales	151,200
	Rent	68,000
	Salaries	54,000
	Administrative costs	23,000
	Depreciation	30,200
	Utilities	13,000
	Miscellaneous expenses	15,800
	Advertising costs	0
	Interest	13,000
	Net Profit	135,800

EXHIBIT 2: YALLA MOMOS PROJECTIONS FOR THE YEAR 2016 (IN AED)
	Without expansion	With expansion
Rent	75,000	88,000
Salaries	61,400	75,000
Administrative costs	26,000	34,000
Depreciation	34,720	38,360
Utilities	14,000	19,000
Miscellaneous expenses	17,060	19,180
Advertising costs	8,000	12,000
Interest	13,000	16,000

Required:

Evaluate the current financial performance of Yalla Momos and compare his performance to the industry ratios.