- Qualitative description of report contents/problems addressed
Write this after you have a clear understanding of the content of your report.
There is no word limit, just ensure you have explained what the report will contain. As a guideline, one or two paragraphs will be sufficient.
Report Body
Traders Financials
Describe in 1-2 sentences the aim of the analysis in this section.
Populate Table 1 with the ratios (Appendix 1(a)) and Table 2 with the relative percentage changes in the ratios of successful upsells to total interactions (Appendix 1(b)). Alongside each relative percentage change, include either a red or green arrow as appropriate (e.g. if the change is positive, use the green arrow and vice versa, and blank for no change). 2 marks
Populate Table 3 with the results from Appendix 1(c) – you are welcome to customise the tables including colour, fonts, font colour etc. if you wish.
New Fit-out Financial Viability
Loss of Marks! will occur if you use the words: amortisation, number of compounding periods or any variant thereof, in the discussion below. Use everyday language to explain this analysis.
Describe in 1-2 sentences, the aim of the analysis in this section including the two options under consideration. State how much the repayments will be for each loan of $500,000? (Appendix 2(a), (b)). Populate Table 4 with the total interest being paid and the total amount each loan will cost Q! – Traders (Appendix 2 (a), (b)). You are welcome to customise the table if you wish.
Discuss which loan option Q! – Traders should choose and include comments around the mixed repayment loan option (Appendix 2 (d)) (1-2 sentences). Provide your explanation in terms of dollars and compounding periods.
Traders Financial Forecast
will occur if you use words such as ‘contribution margin’ or any variant thereof, in the discussion below. Use everyday language to explain this analysis.
Describe in 2-3 sentences, the aim of the analysis in this section.
Discuss the number of guests needed for break-even and the break-even revenue, given the fixed, variable and price associated to each guest. (Appendix 3(a)) Discuss the profit/loss to Q!-Traders if it achieves the target number of guests per month (Appendix 3(b)). What will be the new variable cost in three years’ time? What is the new number of guests required to reach the same desired profit amount in Appendix 3(b) when there is an increase of 10% in variable costs? (Appendix 3(c)). Without using the phrase “contribution margin” (or any variant thereof) and without showing calculations (although do quote final answers), summarise the discussion given in Appendix 3(d) here in non-technical, everyday language. Based on your calculations and the relative percentage change in Appendix 3(c), do you think Traders can maintain the profit target they desire after 3 years? Explain your decision.
Conclusions
Do not use direct quotes. Indicate whether the report fulfilled the purpose as stated in the introduction. Recommendation: Base these on your conclusion. Do not introduce new information in the recommendation. Present options for resolving the issue (purpose) presented in the introduction. Be brief – use dot points.
Traders: Improve your listing
They hired pairing specialists to improve guest experiences by recommending wine/coffee pairings and upsells. These specialists receive:
- Base Award salary of $75,000/year
- 5% commission on upsold revenue
- A bonus of 20% of the relative percentage increase in successful sales conversions year-on-year.
The data across 2022–2024 shows an upward trend in successful upsells, increasing from 60 to 81, despite a small dip in overall interactions in 2023. The total revenue followed a similar pattern which demonstrates to them that the initiative produces a return on investment and appears to be both financially and operationally beneficial, but they still need you to do the calculations. The most recent financial data (Table 1) will help you determine whether the initiative insights and financial success.
- Calculate the ratio of successful upsells to total interactions for each financial year (Table 1).
- An important indicator capturing if this initiative has been successful is an increase in the relative percentage change in the ratio of successful upsells to total interactions each year. Using the relevant information from part (a), calculate the relative percentage change in the ratio of successful Upsells to total interactions, over each financial year from 2022 to 2024, e. from 2022 to 2023, etc.
- You need to calculate the total annual salary of a Pairing Specialist. The Human Resources manager advises that the award salary is $75,000 per annum, a base commission of 5% of upsold revenue and a bonus commission of 20% of the relative percentage change in successful upsells of the revenue per year if applicable. Using the relative percentage change from (b), calculate the total annual salary of a Pairing Specialist for the years 2023 and 2024. The revenue summary is given in Table 2.
- Using Excel, create a Sparkline for Ratio of Interactions, Upsells and the Revenue per year calculated in part (a) and (c) for the years 2022-2024. For full marks, use the Sparkline options to mark if there are any negative values and include a horizontal axis to easily visualise changes. The sparkline should be included here and you will also use it in the report body text.
To support growth, the business partners are exploring two financing options for a $500,000 investment into their café fit-out and wine storage facilities. The first loan option involves monthly repayments with compounding interest, while the second loan option offers quarterly repayments. Both loan options carry the same annual interest rate of 4% pa, but the timing of compounding and loan duration leads to different total repayment amounts and interest costs over the years.
All calculations for this appendix will need to be performed in Excel.
- Loan option 1 has an interest rate of 4% per annum compounded monthly for a term of 4 years. Calculate the size of the monthly repayments and the total interest paid after 4 years.
- Loan option 2 is offering the same interest rate however with quarterly compounding over 5 years. Calculate the size of the quarterly repayments and the total interest paid after 5 years.
EXCEL Instructions for full marks: show your model set-up, the formula used (Excel cell references are OK) and the calculations and ensure you include your initials as shown in the example below. You can summarise the answer with a written statement in either the Excel spreadsheet or by typing it here in Word. The image below shows you the layout you need to recreate in Excel for this calculation.
Use EXCEL to calculate the repayment amount for the proposed loan.
- The full spreadsheet with all completed entries. Also show how you entered the repayment formula, opening balance, interest paid, principal amount and the closing balance.
- The Excel formula for finding the total interest paid and the total amount paid on the loan (showing the calculation via the Excel function SUM and Excel cell references is OK). Excel instructions are over the page.
Comparing Q! –Traders
The Q!-Traders have assessed the sustainability of their premium wine tasting events, priced at $85 per guest. After accounting for all fixed and variable costs, they want to hit a target of 400 guests monthly, so they stand to make a healthy profit. However, if variable costs are bound to increase by 20% over the next three years due to supplier pricing or staffing, so they are wondering, what is the best approach moving forward? Currently, the monthly fixed and variable costs of Q!-Traders in Table 2:
- (5 marks) Using the above information calculate:
- The break-even number of stays per month for Q! – Traders.
- The monthly revenue at break-even in AUD.
Show all working out including the modelling and solution steps.
- (5 marks) The marketing team at Q! – Traders is forecasting a total of 400 guests per month. Calculate the monthly profit or loss for this number of guests. Present your answer in AUD and show all working out including the modelling and solution steps.
- (6 marks) The financial team at Q! – Traders has informed pinot that all variable costs will increase by 20% in three years’ time. If the Dan and him wants to charge guests, the same amount of $85 then calculate the number of guests needed to maintain the profit from (b) after 3 years. What is the relative percentage change in guests over this 3-year period?
- (3 marks) What effect does the change in variable costs in part (c) have on the contribution margin as compared to part (b)? Explain and support your justification by calculating both contribution margins.
- (5 marks) In Excel, produce a break-even graph for Q-Traders and include it here – you will also include a copy in the infographic where requested.
There will be 3 lines on the Q-Traders Break-Even graph: One representing the total revenue, and two representing the original and adjusted new total cost for Q-Traders.
Understanding Financial Analysis and Planning
The purpose of this report is to provide a detailed financial analysis and planning strategy for Q! – Traders, a premium café and wine tasting business. This report examines their current operations, evaluates financial ratios, assesses new café fit-out loan options, forecasts profits, and identifies key factors impacting revenue and cost management. It offers students a structured approach to understanding real-world business finance scenarios while applying practical calculation techniques. The report focuses on analyzing upsell performance, evaluating loan repayment strategies, and projecting profitability under varying cost conditions. By following this report, readers can gain a clear understanding of how to approach financial decision-making in small businesses, including loan selection, revenue optimization, and staffing incentives.
Report Contents Overview
This report contains the following main sections:
- Traders Financials:
- Objective: Assess the success of upselling initiatives and staff incentive schemes.
- Includes calculation of ratios for successful upsells, percentage changes over years, and the total annual salary of pairing specialists including base pay, commissions, and bonuses.
- Provides visual representation using Sparklines to track trends in interactions, upsells, and revenue.
- New Fit-Out Financial Viability:
- Objective: Evaluate two loan options for a $500,000 investment in café fit-out and wine storage.
- Compare monthly vs. quarterly repayment schedules, interest costs, and total loan expenditure.
- Assess mixed repayment options to determine the most cost-effective choice for the business.
- Traders Financial Forecast:
- Objective: Project profitability, break-even points, and revenue sustainability.
- Estimate the number of guests required to reach the break-even revenue.
- Examine profit/loss scenarios for targeted guest numbers and assess future variable cost increases.
- Provide recommendations for maintaining desired profit levels over a 3-year horizon.
- Conclusions and Recommendations:
- Summarize whether the report fulfilled its purpose.
- Offer actionable suggestions for improving operational and financial performance.
- Highlight opportunities for maintaining profitability and making informed loan decisions.
Assessment Approach
1. Traders Financials
The initial step involves analyzing the performance of pairing specialists hired to improve upsell revenue. Each specialist receives a base salary of $75,000/year, a 5% commission on upsold revenue, and a 20% bonus on relative percentage increases in upsells.
Steps Followed:
- Calculated the ratio of successful upsells to total interactions for 2022–2024.
- Determined relative percentage changes year-on-year.
- Computed total annual salary for pairing specialists based on performance incentives.
- Created Sparklines in Excel to visually represent trends, marking negative changes in red and positive in green.
Outcome:
The analysis indicated a consistent increase in successful upsells, demonstrating that the initiative is financially beneficial and operationally effective.
New Fit-Out Financial Viability
Q! – Traders plans to invest $500,000 in new café facilities. Two loan options were analyzed:
- Loan Option 1: Monthly repayments over 4 years at 4% annual interest.
- Loan Option 2: Quarterly repayments over 5 years at the same annual rate.
Steps Followed:
- Calculated monthly and quarterly repayment amounts using Excel.
- Computed total interest paid and overall repayment amounts for each loan.
- Evaluated mixed repayment options to determine the most cost-effective solution.
Outcome:
The analysis provided clear recommendations on the loan option with the least financial burden, ensuring Q! – Traders can make informed decisions without overcomplicating terms.
3. Traders Financial Forecast
The forecast examined the business's ability to achieve profitability under current pricing and cost structures:
Steps Followed:
- Calculated the break-even number of guests per month.
- Determined monthly revenue at the break-even point.
- Evaluated profits for the target 400 guests/month.
- Projected the impact of a 20% increase in variable costs over three years and recalculated the number of guests required to maintain profits.
- Interpreted results in everyday language without using technical terms such as “contribution margin.”
Outcome:
The forecast highlighted the importance of cost management and strategic planning to maintain profitability even under increasing operational costs.
Learning Objectives Covered
- Understanding the importance of financial ratios in operational decision-making.
- Applying Excel tools such as formulas and Sparklines for data visualization.
- Evaluating financing options and loan sustainability.