The financial and economic report analysis is essential in making informed decisions since it highlights the areas of the company that offers the best Return on investment (ROI). A financial statement or report provides general information about the operational results of cash flows and the company’s financial position. As a hired financial and economic analyst, I will prepare and submit the financial and economic report about a coffee kiosk in Bondi Beach, Sydney, one unit of the Jamaica Blue café. The report will mostly focus on the commercial aspect of a coffee shop project.
Economic and Financial Information About the Project
The Jamaica Blue Café will be the premier marketer retailer and roaster of coffee around in Bondi beach, Sydney. The company will have around 182,000 employees to manage and make significant decisions regarding the coffee shop. The cafe competes and operates in the retail snacks and coffee industry. The demand for the snacks products and premium coffee will be drive by the per capita coffee assumption, the disposable income, world pricing of the coffee, the attitudes towards health, and the demographics. The management and decision s of the shop will be susceptible to macroeconomics’ factors that would affect household growth. The increase in disposable income will mainly be driven by the rise in the consumption of coffee, leading to a positive effect on market revenue, thus improving the per capita coffee consumption. Alternatively, Jamaica Blue café will effectively leverage the differentiation of cornerstone product strategies by offering a premium mix of snacks and high-quality coffee beverages. The coffee shop’s brand equity will be built on the sale of quality coffee and other products, as well as clean and supreme customer service and well-maintained and managed hotels that make consumer loyalty.
Assumptions for Modelling and Analysis
The assumptions made in the modeling and analysis of the Jamaica blue café is that the primary duties and activities of the owners will lie within technical feasibility studies and concept identification. In the feasibility study phase, the owners and the developers of the café must identify the source of capital or the finance either externally, their equity, or both. The project technical complexity will mainly focus on developing the coffee project, although the difficulties financial assurance will not be underestimated. The financial analysis will document a reasonable and expected investment return to the coffee shop’s prospective investors. On the other hand, the economic report documents the net benefit of the project to the general society significant in public investment. The interest rates will be the central element in economic and financial analysis of the coffee kiosk. It involves the capital opportunity cost, the expected Return on investment. The Return on investment will be compared to the alternative Return if the money could be invested elsewhere. It means that that the appropriate rate of discount used in financial assessment becomes the weighted average cost of capital WACC.
WACC= cost of equity × share of equity ×after tax costs of debt +share of Debt.
Here, the cost of Debt deducts the corporate tax shield.
The economic rate of discount for the coffee shop wil is the Rate of Return for the entire café, the opportunity cost of the shop’s capital. Similarly, the wax calculation will be mainly based on the value of Debt and equity on a single investor. In this case, the rate of economic discount will be lower compared to that of WACC.
Risks of the Coffee Project
Different uncertainties may expose the project to potential failures in the achievement of its goals. The re is a need for evaluating, identifying, and treating various risks to improve the project results by reducing, avoiding, and transferring multiple risks. However, some of the dangers are uncontrollable, for instance, scope creeps. The coffee project could be attempted based on best effort, thereby neglecting rigorous control and management of various changes in the coffee project. Budget risk is another challenge that could affect the project; for instance, the cost overruns. Generally, the budget estimates are typically based on forward-looking ratings that realistically involve a certain degree of uncertainty. Resistance to change could be risky for the coffee shop project in Sydney.
The individuals could defend their status quo, thereby resisting organizational or project change. Also, schedule risks that incorporate a certain significant degree of uncertainty, such as forward-looking assumptions and estimates, could affect the coffee project. Other related risks could involve project assumptions risks, the skills risks, disputes, sponsor support, architectural operational, and stakeholders risks.
Sensitivity Analysis
The sensitivity analysis tends to develop and assess the impacts of uncertainty or risks by varying a single or more uncertain parameter at a specific time. It becomes easier to identify the primary source of the project risk by observing the effects and variations of the economic and financial analysis results. Some of the main parameters that could affect the coffee café project involve the investment costs, the operating costs, and the coffee price. All these parameters become the scenarios for risks. For example, the investment cost could be incurred in the sale of the coffee, the construction cost of the shop, the development, and the operating costs that could risk that could be hard to estimates. Besides, the running costs, for example, the expenses associated with the administration and maintenance on the day to day coffee shop. The café risks the value of the coffee and snacks sold, the total overhead costs, and the operating expenses. The total running cost could be deducted from the calculated revenue to determine the coffee kiosk’s operating income.
Selection of Best Alternative
In a real sense, every company has to keep track of its total operating costs and the cost that is associated with interest rates on loans. These costs are accounted for differently in the company’s books for the analysts to identify and determine how these costs associates with revenue. In our case, the coffee shop will seek to maximize its profit since the profit of the café will be determined by the income earned by the shop and the amount spent on its operation; the company will, therefore, increase its revenue through reducing its operating costs. The alternative is more accessible and more comfortable, and it seeks to maintain the business’s ability to maximize its sales.
Recommendation
The Jamaica blue café has excellent opportunities for growth in the coffee beverage. However, the management should build the product or the restaurant along the same line as other core products of coffee. Since the consumer preferences and taste shifts towards more beverage and snack options, the coffee shop should expand its menu to offer more health offering to its consumers. Furthermore, the coffee shop should take advantage of other emerging markets such as India, Brazil, Mexico, and China for it to serve more consumers and generally increase financial and economic incomes at the end of the trading period.