Question
Pelican and Rotelli Restaurants (both rated two stars and are family owned) are putting up for sale. The asking price for Pelican Restaurant is $8.0
Pelican and Rotelli Restaurants (both rated two stars and are family owned) are putting up for sale. The asking price for Pelican Restaurant is $8.0 million while Rotelli is asking for $8.5 million. Assume that you are a financial analyst and was asked by your client, Mr. Robert J. Hayes to evaluate the two restaurants and to give a recommendation as to which one of the two restaurants to buy over. The true fact is that your client is already in the restaurant business and he is planning to acquire another one to expand his family business. Upon acquisition, your client is going to keep all existing employees that is, the restaurant will operate as usual except for the change in ownership. This is to assure the employees that their jobs are secured but they must work hard and be professional in their job. You took a visit to both the restaurants and talked to the present management and found the following facts: Pelican Rotelli Years of operation 15 35 Total number of full-time staff. 35 20 Average age of employees 28 35 Location............................................. outskirt downtown Parking area...................................... plenty town parking with fees Design of building............................. contemporary conventional (classic colonial building) Patron................................ mostly family working people & weekends tourists Business operation hours.. 10 am 11 p.m. 8 am 9 pm Mon Sun Mon - Sun ** Note: Currently, both restaurants have internship program for the HOTEL, FOOD & CATERING major students from a local university. Over a year, an average of 20-30 interns may pass through both restaurants and the number varies from 3 to 5 interns per semester (6 months). Each intern works 40 hours a week and paid an hourly rate of $8 besides the 3-hr course credit earned. Upon completion of their internship program, the restaurant manager would write a report to their professor on their performance. The comparative balance sheets and income statements for the past three (3) years from 2018 to 2019 were provided by the management of each restaurant and are attached with this case. However, they cannot provide the statement of cashflows because they never have one done before.
Required: Prepare a formal report to be submitted to the client as to your basis of selecting the restaurant you recommended. This is a comparison report; therefore, you are to present a report that contains all the facts to convince your client to acquire the respective restaurant. (You may already study this type of report presentation in your English class). Note: If you are not sure how the report should be written, search the INTERNET for guidance. For this coursework term project, you need to include a COVER PAGE with title of the assignment and your name (both) on your report. (Use Aerial font 11 single spacing) - see sample cover page that follows. Your formal report should consist of the following: TABLE OF CONTENTS Executive Summary Introduction The Analysis Methods and Their Limitations Discussion/Body Business Valuation Analysis i) Book value approach ii) Market value approach iii) Payback period approach iv) Net present value approach Vertical Analysis: Common size balance sheet Vertical Analysis: Common size income statement Horizontal Analysis Statement of Cash Flow Ratio Analysis i) Liquidity ratio ii) Management activity ratio iii) Profitability ratio iv) Leverage ratio v) Investment ratio Non-quantitative factors analysis Conclusion and Recommendations Appendix Calculation of ratios, Vertical analysis table of balance sheet and income statements, horizontal analysis table of both companies. References URL of additional research and facts of restaurant business. Page # # # # # # # # # # # # # # #
Executive Summary - A very important document that summarizes the pertinent or main reasons of your teams decision or recommendation on which restaurant to buy. Half to a page of summary is the maximum. (Check out from the Internet what is an Executive Summary). Number your report and include a Table of Content, as above Minimum 1,000 to maximum 1,500 to 2,000 words, excluding Appendix. Font: Aerial: 11. Hint: a) Prepare and analyze the statement of cash flows with respect to Operating, Investing and Financing activities of both the restaurants for the year 2019 and 2020. How is the cash flow position now and the future, investment prospect and how the restaurants are being financed? Project your cashflows to the future and determine the feasibility of your clients investment in either restaurant by comparing with the current asking price. b) Prepare a vertical analysis of the balance sheet and income statements and a horizontal analysis of income statement of both restaurants. Compare and discussion on the restaurants performance with respect to sales, cost, expenses and etc. Refer to Digital company for guidance. c) Work out the ratios (liquidity, asset management, debt leverage, profitability and investment ratio) for both restaurants and compare the findings. Discuss them in the report. d) Look at other non-quantitative factors such as location, patrons, students internship program, average age of employees, building, parking, operating hours and others to support your analysis to making the final recommendations. Discuss these factors in the report. e) Determine how to present the information to your client. How to organize and present the information on the report? Refer to Table of Content for guidance. (Remember: What is in the report is a reflection of you as a professional. Communication skills are highly required and ranked in todays working environment irrespective of any professions) f) State the assumptions if your plan to use in your analysis such as the rate of investment return. g) The different valuation methods or analysis used and what are their limitations.
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