Paper II

Reading and Understanding Financial Statements

The purpose of this paper is to apply and illustrate what you have learned this semester, by submitting a full financial synopsis based on a hypothetical fast food restaurant.Below is a mock financial report indicating actual sales and expenses versus budgeted sales and expenses for a one year period of time.Review the report and create a financial review of this business incorporating the following areas:

Part I:Analysis (Sections 1 - 3)

Sub-divide your analysis into three distinct sections: 1) Revenue, 2) Expenses, and 3) Profitability

For each section, review the financial statement below and comment on:

• Current status, apply vertical analysis to both Actual Results and Budgeted Results.
• Determine and comment on the variance as it applies to each section.Ask yourself things like:
  • How did management perform against what was budgeted?
  • What are the strengths and weaknesses of this operation per section based on your variance analysis?
• Create graphs or charts to illustrate and help clarify your synopsis

Part II:Recommendations & Budgeting (Sections 4 and 5)

After your financial analysis in sections 1 - 3, add two more sections; 4) Recommendations and 5) Budgeting.

• Section 4:Based on your synopsis in sections 1 - 3, what recommendations would you make to upper management that would reduce expenses and increase revenues.For example:
• Talk about your thoughts on product mix.Where should they focus their marketing dollars next year in order to increase profit margin?
• How will your recommendation affect food cost?
• What other recommendations would you make based on this year's performance?
• Consider doing some outside research of current fast food chains, compare how they perform versus this operation to support your recommendations

• Section 5:Prepare next year's budget
  • Create next year's budget based on what it would look like if upper management accepted your recommendations
  • Consider doing some outside research of current fast food chains, compare how they perform versus this operation to support your recommendations

For year ending December 31, 2010
Performance ReportStore #: 100	Actual Results	Budgeted Results	Variance
Percent of Sales	Totals	Percent of Sales	Totals
Revenue:
Burgers		1,000,000		1,100,000
Fries		600,000		550,000
Drinks		900,000		875,000
Total Sales		2,500,000		2,525,000
Less:Variable Expenses
Food Cost:
Burgers		232,750		242,500
Fries		151,000		155,000
Drinks		87,500		94,000
Other Variable Costs:		175,000		200,000
Total Variable Expenses		646,250		691,500
Contribution Margin		1,853,750		1,833,500
Less:Fixed Costs		1,100,000		1,100,000
Profit Margin		753,750		733,500