Financial Analysis of The Diners Park Restaurant - Essay Example

Revenue/turnover is one of the most important criteria of performance for any company.  For a company, this is the total amount of money received by the company for services provided during a certain period. It also includes all net sales, exchange of assets; interest and any other increase in owner's equity and is calculated before any expenses are subtracted.  In simple words, for a manufacturing company XYZ which is selling only a single product ‘A’ at a price of ‘P’ the revenue is defined as: Revenuer for XYZ = P* N, Where N is the number of products sold in a particular financial year.

There are rules specifying when revenue should be recognized in different situations for companies using different accounting methods, such as cash basis and accrual basis.

Every factor that corresponds to a liability in the balance sheet of the employer is termed cost. In simple words, it is the sum of all the expenditures that the company has to undergo in a particular financial year.

Total Cost is calculated as Total Cost = Fixed Costs + Variable Costs.

Staff Costs Represent wages paid to employees and officers of the company. One effective way of controlling fluctuating staffing costs is to choose mature service providers who operate in multiple locations and have the capability of putting together an appropriate blend of experienced and entry-level resources.

The most important criterion to judge any business in the world is Profit. Net Profit = Total Revenue – Total Costs.

Most businesses also take interest in consideration while presenting the net profits; in that case, net profit is calculated as Net Profit = Total Revenue – Total Costs – Total interest on the Capital Employed. The return on capital Employed (ROCE) is seen as Net Profit/Capital Employed * 100.

I will present a brief idea on ‘The Diners Park’ and a short estimation of net profit and ROCE.

The seating capacity of Diner’s Park is 80 people at a time. The restaurant is open for 5 hours in the evening from 7 p.m. to 12 p.m. and 3 hours in the afternoon from 12 a.m. to 3 p.m. In the evening of any weekend, the restaurant is most of the time completely packed for four hours and is occupied by around 25 people in the last hour. On average a group spend around 1 hour on dinner. The bill generated is approx. 10$ per person at any given point in time. In the afternoon of the weekends generally, 25 people can be seen at any particular hour. For the normal days, the occupancy is around 25 people in the evening at any point in time and around 10 people in the afternoon.  So the estimated revenue in FY08-09 is:
Estimated Expected Revenue = (Revenue in a week in the evenings + Revenue in a week in the afternoon) * 4 *12 (as there are 4 weeks in a month and 12 months in a year)
Expected Revenue in a week in the evenings = (80*4*2*10$ + 25*1*2*10$ + 5*25*5*10$)
Expected Revenue in a week in the afternoon= (50*3*2*10$ + 5*10*3*10$)
Expected Total Revenue in FY08-09 = $ 847,200