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

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 cafés 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, Goel’s 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.

Required:

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