Page
  1. 1
    1
  2. 2
    2
  3. 3
    3
  4. 4
    4
  5. 5
    5
  6. 6
    6
  7. 7
    7

Profitability and possible success of a mobile phone shop at a new location

Extracts from this essay...

Introduction

Title: Profitability and possible success of a mobile phone shop at a new location To: Paco Bravo, Manager of Feria Fone SA From: Dennis Kirpensteijn Date: 14 July 2002 * Introduction This report is to advise Mr. Paco Bravo make a vital decision concerning his company. He owns various mobile phone shops in the south of Spain, in Estepona, the town centre of Malaga, etc. He is now considering the opening of another shop in the area between Malaga and Fuengirola, in Torremolinos, a town full of foreigners that move to Spain with a possible need to purchase a new mobile phone. The outcome of this report will show if it would be profitable to open the shop in that area, considering financial but also non-financial factors such as the existence of similar shops in the area, population, location of the shop, etc. The financial factors will be analysed by putting the financial information that is known already or has been predicted through a thorough ratio analyses process. * Research Question: Is a new shop in the Torremolinos area likely going to be successful and profitable?

Middle

multiplied by 100, = 41, 7%= 42% Liquidity Ratios * Current Ratio: this basically shows what relationship there will be in between the current assets and the current liabilities. Current Ratio- Current assets divided by current liabilities, =2, 38 =2, 4 * Acid Test Ratio: this analyses the relationship between current assets and current liabilities not including stock as an asset, giving more reliable data than the current ratio. Acid Test Ratio- (Current Asset minus Stock) divided by Current Liabilities, = = 1, 19= 1, 2 Payback Period In order for the shop to be efficient, the payback period should not exceed an overall period of 4 years. The total amount invested in the shop is of 31,450,000 pesetas, and the expected average income every year is of 17,200,000 pesetas the first year; 17,400,000 pesetas the second year; 17,600,000 pesetas the third year and 17,800,000 pesetas the fourth year. Year 1: 31,450,000-17,200,000 = 14,250,000 Year 2: 14,250,000-17,400,000 = (1,350,000) As you can see, the shop is likely to be very efficient and successful, as the amount of money invested will be recovered in less than two years.

Conclusion

The different ways are either, renting, buying or leasing the new location. Generally, the best way would be to rent the place with the option of buying it. This is therefore recommendable as, when the shop works well, then the location can be bought and counted as sure income with minimum expenditure on premises. If the business turns out not be profitable then the shop can simply be closed again and without having to carry the burden of trying to sell and maintain a property or fulfil a minimum leasing term, spending money in a useless project. It is also highly recommendable to consider the opening of the shop as soon as possible, taking the opportunity of the brilliant location of the shop. In order to fight and possibly decrease liquidity problems the solution would be to stock less phones and aim to keep the stock level at its minimum practising a JIT system of stocking, which would also be useful when considering the fast rate of change of technology where a completely new phone today might be worthless tomorrow. Really this is the only answer to Paco Bravo's problem, who would loose out by not setting up the shop, gaining not only money but also new clients and the satisfaction of current clients.

The above preview is unformatted text

Found what you're looking for?

  • Start learning 29% faster today
  • Over 150,000 essays available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Over 180,000 student essays
  • Every subject and level covered
  • Thousands of essays marked by teachers

See related essaysSee related essays

Related University Degree Finance essays

  1. Merchant Banking-100 marks project

    deed of assignment of lease in the case of leasehold properties, or deed of assignment for patent rights, trademarks or copy rights, title to motor vehicles, etc. be drafted for finalization. c) Settlement documents for retrenchment or unemployment compensation. d)

  2. Real Estate Market in Spain

    That is on of the factors which explain the increase of demand during the last 10 years. Because even if prices where increasing more and more, households could manage to repay finance costs. However, there is no guarantee that buying capability will be able to offset the raising of prices

  1. Financial Analysis

    DRC seems not to be allright in this area. Their quick ratio of less than 1 means that they don't have enough liquid assets to cover a unexpected drawdown of liabilities (people wanting their money now). Companies with ratios of less than 1 can not pay their current liabilities and should be looked at with extreme care.

  2. OUTLINE OF BUSINESS PLAN - opening a caf.

    Some useful sandwich facts for my café, * In 2001 value of sales in the sandwich shop market was £730 million, an increase of 836% since 1996. As sales are increasing this means there is an increase in potential customers, which will increase revenue for the business and result into increasing profits.

  1. Discuss arguments for and against the UK's minimum wage policy. Under what conditions is ...

    However it could also be argued that the increase in wages amongst the entry-level earners will have little to no effect on the unemployment rates as far as income and substitution effects are concerned. The income effect says that when individuals earn more, they are better off and so they work fewer hours, which in turn decreases the labour markets.

  2. The aim of this investigation is to explore the feasibility of opening a designer ...

    * Differentiation: This is where a business tries to make a product or provide a service that is seen as unique by customers. For example, a business may add special features or USP's to their products to give the goods or services a distinctive identity.

  1. Study of the venture capital sector in India. Most of the success stories of ...

    also Financial and strategic planning Recruitment of key personnel Obtain bank and other debt financing Access to international markets and technology Introduction to strategic partners and acquisition targets in the region Regional expansion of manufacturing and marketing operations Obtain a public listing Difference between Venture Finance & Debt Finance Venture

  2. Development of new financial instruments

    3 Group 4 Group 5 Notes receivable, for the calculation Bonds do not have a quoted market price Preferred shares of other issuers with the terms of the mandatory redemption, no market quotations available for sale Funds in foreign currency accounts in authorized banks for sale Loans, eligibility requirements, which are more likely to be suspended.

  • Over 180,000 essays
    written by students
  • Annotated by
    experienced teachers
  • Ideas and feedback to write
    your own great essays

Marked by a teacher

This essay has been marked by one of our great teachers. You can read the full teachers notes when you download the essay.

Peer reviewed

This essay has been reviewed by one of our specialist student essay reviewing squad. Read the full review on the essay page.

Peer reviewed

This essay has been reviewed by one of our specialist student essay reviewing squad. Read the full review under the essay preview on this page.