pastry shop.pdf

7/24/2019 Pastry Shop.pdf

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AFC Consultants International

PASTRY SHOP

TABLE OF CONTENTS

1 EXECUTIVE SUMMARY...................................................................................... 2

2 PROJECT DESCRIPTION..................................................................................... 2

3 PRODUCT STRATEGY.......................................................................................... 3

4 MARKET ANALYSIS:............................................................................................ 3

4.1 LOCAL MARKET ................................................................................................... 3

4.2 MAIN COMPETITION............................................................................................. 4

4.3 TARGET MARKET ................................................................................................. 4

4.3.1 Pastry shop and Chocolate......................................................................... 4

4.3.2 Ice cream and Merry Cream....................................................................... 54.4 SWOTANALYSIS................................................................................................ 6

5 MARKETING PLAN............................................................................................... 7

5.1 PRICING ............................................................................................................... 7

5.2 SALES CHANNELS................................................................................................. 7

5.3 ADVERTISING AND PROMOTION ........................................................................... 7

6 FINANCIAL PLAN.................................................................................................. 8

6.1 INITIAL INVESTMENT........................................................................................... 8

6.2 MAJOR ASSUMPTIONS .......................................................................................... 9

6.3 PROJECTED INCOME STATEMENT....................................................................... 11

6.4 PROJECTED BALANCE SHEET............................................................................. 12

6.5 PROJECTEDCASH FLOWS................................................................................... 13

6.6 RATIO ANALYSIS:............................................................................................... 13

6.7 BREAK-EVEN ANALYSIS: ................................................................................... 14

6.8 SENSITIVITY ANALYSIS: ..................................................................................... 14

7 RECOMMENDATIONS AND KEY SUCCESS FACTORS............................. 15

8 ECONOMIC IMPACT EVALUATION.............................................................. 15


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LBN/B7-4100/IB/99/0225/JC20/0105 AFC Consultants International

Marjeyoun -Feasibility Study Pastry Shop 2

1 Executive Summary

The proposed project consists in establishing a pastry shop in Marjeyouncaza. The pastryshop will offer French pastries as well as chocolate, ice cream and merry cream.

The pastry shop will have three major target markets. First, it will target restaurants, hotelsand other pastry shops. The second aim consists in catering for special occasions such asweddings, births and religious events. Finally, there will be a typeof coffee shop where clientswill be able to consume any product in-house.

The total investment amounts to $127,285; it includes equipment with a total value of$89,395, other fixed assets (fixtures, furniture, office equipment and computers) amountingto $27,000, and working capital needs of $10,890.

The main financial assumptions take into consideration the socio-economic conditions in South

Lebanon, and are, therefore, relatively conservative. There is a very important gap betweenthe sales expected in the summer versus those expected during the nine other months.

The projections are taken over a period of 7 years. We expect average net income to be

around $11,887.

The pastry shop provides an internal rate of return (IRR) of 20% and a payback period of 6

years and 3 months. These results clearly show that this project is feasible and that it willprovide satisfactory results to its investors.

A worst-case scenario was developed assuming that slower sales growth. This scenariogavean IRR of 18% and a payback period of 6years and 7 months. A best-case scenario was alsodeveloped considering fastersales growth .In this case, the IRR is of 25% and the paybackperiod is of 5yearsand 4months.

According to our study, the project will provide good returns to the investors. More important,however, is the socio-economic impact of such a project. It will create 7 decent jobs with

respectable salaries. Moreover, the fact that certain jobs are reserved for women willcontribute in women empowerment in a region where huge gaps subsist between male andfemale unemployment. Furthermore, the staff that needs specific skills will be thoroughlytrained; as a result,their output will have a concrete value added.

2 Project description

The aim of this project is to develop a pastry shop in the caza of Marjeyoun. The pastry shopwill have three different lines of products.

French pastriesRegular chocolate and decorated chocolateIce cream and merry cream

The workshop will be divided into two main areas: On one hand, the kitchens and decorationarea in which all the production process will take place, and on the other a seating area forcustomers.


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3 Product strategy

The main strategic objective of the pastry shop will be to gain a substantive market share inMarjeyoun as well as the Mohafaza of Nabatieh, and eventually in the city of Tyre.

The main objectives for the production unit are:To use good quality inputsTo maintain quality control by enforcing strict hygiene standards on the personnel,Stress on the professionalism of the craft women and their value-added in the goodsproduced.

Taking into consideration the seasonality associated with the consumption of certain productsin pastry shops such as chocolate and ice cream, producing a diversity of sweets will allow thepastry shop to function all year round.

The main items that will be offeredare:French pastry (per piece, foret noire, blanche, fraisier,cake, clair)French pastry (croissant, muffins..)Cookies (Petits fours)Chocolate

Decorated chocolate

Gift itemsCandies

Ice cream (natural)Merry Cream

CoffeeFresh juice

Canned juice and sodas

4 Market Analysis:

The harsh socio-economic conditions in the region do not allow the households to spend muchon pastries and chocolate.

There are around 7 pastry shops in Marjeyoun and 3 in Hasbaya. These pastry shops areconsidered small and offerlow quality pastries and chocolate. The residents usually prefer topurchase their pastries from well-known pastry shops in Saida such as El-Baba Sweets and

PainDor,or from Beirut especially on occasions.

Nevertheless, we consider that a pastry shop would still be a successful venture in Marjeyoun,especially if the management is able to build a loyal and diverse clientele. The fact that theresidents are not satisfied with the quality of the currently offered pastries, presentsourpastry shop an advantage in gaining clients rapidly since it will be offering high qualitypastries, chocolate, ice-cream and merry-cream.

4.1 Local market

The population of South Lebanon is estimated at 30,000 residents and it varies greatly

between winter and summer because expatriates and those who work in Lebanons majorcitiestend to spend summersin their villages.

However, South Lebanons population in general and Marjeyounspecifically are among the

poorest in Lebanon. Therefore the production must be able to combine good standards ofquality and taste with prices that would be affordable to locals.


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4.2 Main competition

There are around 7 pastry shops in Marjeyoun and 3 in Hasbaya. The presence of these pastryshops will not pose a direct threat to our pastry shop since the residents are not satisfied withthe quality of pastries, chocolate, ice-cream and merry cream they offer.

Moreover, Arabic sweets could be considered as substitutes for French pastries and beconsidered as competition.

The most visited pastry shops in Marjeyoun are:Starsweet

Bulldoor

Well-known pastry shops in Saida such as El-Baba Sweets and Pain Dor and Taj el Molouk inBeirut might be considered also as competitors to the pastry shop. However, if the pastryshop offers high quality products at reasonable prices, then these pastry shops will not be

direct competition especially since they are outside the region.

4.3 Target market

The objective of the pastry shop is to reach three specific markets:First, the pastry shop will cater for events such as weddings and births, as well as

private parties taking place in South Lebanon.Second, it will distribute to main pastries, restaurants and hotels in the region.Third, there will be a point of sale with a terrace linked to the production unit, in orderto welcome directly customers.

4.3.1 Pastry sho p and Chocolate

The pastry shop could expect to sell relatively more pastries than chocolate, since there arevery few direct substitutes to a piece of French pastry, whereas chocolate can be consumed inmany different ways. On the other hand, the product that nevertheless competes with Frenchpastry is the Arab sweets, which are more anchored in Southerners habits. One of the

marketing goals of the pastry shop will therefore be to direct people to its products as moreoriginal and casual.

Here again, the clients are classified in three groups:

Other pastry shops, restaurants, hotels, supermarkets and groceries, to which theproduction unit will cater and deliver pastries.

Customersthat consume goods in the pastry shopTake-away pastries

Moreover, one major advantage of French pastry over chocolate or ice cream is that itsconsumption is less constrained by seasonality factors than the other two products.

Therefore, our expectation is that we could sell on average 50 pieces, as a start, throughoutthe targeted region on a daily basis.


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4.4 SWOT Analysis

STRENGTHS WEAKNESSES

The pastry shop will offer high qualitygoods. A professional quality team willsupervise the production; one of the majorstrengths will be the ability to build a solid

and loyal relationship with both local

customers (individuals, restaurants) andexpatriates who might ask for westernstandards.The price per quality will be very attractive;the pastry shop will offer discounts to key

clientsand for large orders.The production unit will produce a

diversified range of products, which can

help smooth out seasonality factors.There are a number of special occasionsand holidays that the pastry shop couldbenefit from:

Eid al Fitr

RamadanEid al Adha

Al Hejira

ChristmasEaster

ValentineFirst Communion

WeddingsBirthsand Birthday parties

Competition in the region is weak as thepastry shop quality is considered of low

quality and not appealing to Marjeyounresidents who usually purchase their pastryproducts from Saida and Beirut. .

Inhabitants of rural areas, such as SouthLebanon are more used to Arabic sweets

than French pastries and may notconsider these products as valid

substitutes.

Given that the majority of people havelimited income, pastries and decorated

chocolate might be considered aluxurious item.Although the range of products

theoretically satisfies preferences at anytime during the year, the caza is much

less populated during the nine monthsoutside the summer and therefore theprofitability of the business will besqueezed during the off-season months.

OPPORTUNITIES THREATS

Labor, is cheaper in Marjeyoun than inmajor cities. Hence, the expected price

difference between the pastry shop

products produced in Marjeyoun and thosein main cities could open up new

opportunities to contract deals withdistributors in Beirut or other cities.

Another opportunity is possible byestablishingcontracts with clients such ashotels and restaurants.The pastry shop will take advantage of the

fact that during the summer months the

number of residents increasesconsiderably, especially to sell ice cream.

There is a risk that the turnoverachieved does not reach expectations

and therefore, the business would not

be able to cover its operatingexpenses.

In addition, there is a risk that the

economic condition in the region doesnot improve, or even gets worse; this

would definitely impede the profitabilityof the business.


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5 Marketing plan

The pastry shop will capitalize on several advantages in order to build up a solid, loyal and

diversified network of clients. It will therefore focus on the following objectives:

Cleanness and high quality of inputs used, as well as high quality standards of

production.Competitive pricingAttractive decorations for chocolates to please different tastesDelivery of chocolates, French pastries, and ice cream to various points of sales andpastry shops.

5.1 Pricing

The prices the pastry shop will charge are determined by the standards of living of thetargeted regions, by the production costs, and by the competition.

Items Price ($)

1 kg of chocolate 8.0

1kg of decorated chocolate 15.0

Gift items 10.0

Candies 4.0

1kg of ice cream (natural) 5.0

Merry Cream 0.7

French pastry (per piece, foret noire, blanche, fraisier,cake, clair) 1.0

French pastry (croissant, muffins..) 0.5

Petits fours (kg) 7.0

Coffee 1.0

Fresh juice 1.3

canned juice, sodas 0.5

The pastry shop will offer differentiated pricing according to the quantities purchased by thecustomers. The price list above is applied for retail selling.

5.2 Sales channels

The production unit will establish strategic alliances with the hotels, restaurants,

supermarkets, municipalities and other key clients to be the exclusive distributor of sweets forspecial occasions. This requires good quality services including timely delivery, freshness ofgoods etc to be competitive in order to attract and retain a large base of clients.

5.3 Advertising and promotion

On the launching day, the pastry shop will organize an open cocktail party to invite key clientsand the local residents to visit and taste the varieties to be offered.

Moreover, brochures will be distributed to potential key clients including hotels,

restaurants, and other pastry shops.


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6 Financial Plan

This section details the calculations, assumptions and methodology used as a basis for theprojection of the expected financial performance of the pastry shop.

6.1 Initial Investment

The following table shows the projected equipment and initial investment requirements. Thetotal investment required includes the cost of equipment, vehicles, as well as working capitalrequirements and amounts to $127,285.

` Initial Investment

Cost Items Quantity Unit cost Total cost

Merry cream

Merry-cream machine 1 3,500 3,500

Past ry

Planetary Mixer bowl capacity 12 lt. 1 2,572 2,572

Automatic Dough Mixer 1 6,130 6,130

Dough Sheeter 1 7,367 7,367

Baguette Moulder with Hopper 1 5,942 5,942

Rotary rack oven coming with rack 1 22,240 22,240

2 electric modular deck ovens 1 8,757 8,757

Prover 1 8,090 8,090

Pastry work top refrigerator 1 3,336 3,336

Beverages

Coffee Machine 1 348 348Orange Juice Squeezer 1 514 514

Milk shake blender 1 600 600

Fridges

Freezer 1 15,000 15,000Display fridges 1 5,000 5,000

Total equipment 89,395

Fixtures & installations 6,000

Furniture 4,000

Refrigerated Pick-up 1 12,000 12,000

Office equip, computers, software 3,000Establishment Costs 2,000

Total fixed assets 116,395

Working capital needs 10,890

Total initial investment 127,285

Source: Pro-Kitchen


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6.2 Major assumptions

Sales assumptions are conservative and are based on a clear-sighted understanding of thesocio-economic condition of the targeted region. Moreover, the proposed pricing of goods isbased on market price levels in the region.The pastry shop will have various products to sell with the following pricing:

Items Price ($)

1 kg of chocolate 8.0

1kg of decorated chocolate 15.0

Gift items 10.0

Candies 4.0

1kg of ice cream (natural) 5.0

Merry Cream 0.7

French pastry (per piece, foret noire, blanche, fraisier,cake, clair) 1.0

French pastry (croissant, muffins..) 0.5

Petits fours (kg) 7.0

Coffee 1.0Fresh juice 1.3

canned juice, sodas 0.5

The sales quantities for one year are expected to be as follows:Quantity sold per year Quantity

1 kg of chocolate 2,5001kg of decorated chocolate 840Gift items 720

Candies 2,5201kg of ice cream (natural) 2,250Merry Cream 13,200French Pastries (all kinds) 18,750

Petits fours (kg) 3,600Coffee 3,600Fresh Juice, Canned Juices, Sodas 7,200

Because there exists a seasonality associated with the goods produced, and the regiontargeted is much more populated in summer than in winter, the assumptions are split insummer and winterseason sales:

2,500 kgs of chocolate with an average of 4 kgs per day for 250 days a yearand 1.5times more for the weekends.840kgs of decorated chocolate with an average of 7kgs per day for 120days a year.720 gift items are expected to be sold annually with an average of 2 gifts per day for360 days.2,520 candies are expected to be sold annually with an average of 7 Kgs per day for

300 days a year.2,250 kgs of ice-cream are expected to be sold annaually with an average of 20 kgsper day for the 3 summer months, and an average of 7.5 kgs for a period of 60 daysafter the summer season and before the summer season.13,200 cones of Merry cream distributed as follows: 60 cones per day for 5 months,and an average of 20 cones per day for the 7 remaining months that precede and

follow the three summer months.Approximately 18,750 pieces of pastries will be sold annually with an average of 30

pieces per day over 8 regular months and 60 pieces per day over 4 seasonal months.Approximately 3,600 kgs of petits fours will be sold annually with an average of 10kgs per day over 360 days.3,600 cups of coffee are expected to be sold: i.e.10 cups per day over a period of 360days.

As for fresh orange juice,canned juice and sodas

it is estimated that 20 glasses willbe sold daily over a period of 360 days.


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Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Increase in chocolate sales & candies 5% 5% 3% 2% 2% 1% It is assumed that sales will increase by 5% during the 2ndand 3rdyear of exercise, by 3%during the 4th, by 2% during the 5thand 6thyears, and 1% by the 7thyear.

The pastry shop is expected to have a capacity of 20 seats. The table below shows theaverage check and average coversper day.Other Assumptions Seats Average Occupancy Average covers / day Average Check (USD)Customers 20 30% 6 3

The table below displays the increase in customers over the 7 projected years.

Growth in Customers Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Customers 10% 8% 5% 5% 3% 1%

The following table shows the main assumptions for the income statement. It is assumed thatgeneral expenses will grow by 2% annually. Maintenance expenses of equipment, fixtures andinstallations are estimated at 1% of sales. On the personnel side, wages are expected toincrease by 2% annually and the income tax rate is 15%.

The table also shows the cost of good sold for every item that will be sold in the pastry shop.In addition, the pastry shop will have around 2% ofsales of packaging expenses, 5% ofsalesof waste, and 3.5% ofsales of transport expenses. Rental expenses are expected to increaseby 5% every 3 years.

Income Statement Assumptions

COGS - Chocolate 63% on sales

COGS-Decorated chocolate 51% on sales

COGS-Gift items 40% on sales

COGS-Candies 50% on sales

COGS- Ice cream 40% on salesCOGS-Merry Cream 14% on sales

COGS-Pastries 43% on sales

COGS-Petits fours 43% on sales

COGS-Beverages 25% on sales

Waste 5% on sales

Packaging Expenses 2% on sales

Maintenance expenses 1% of sales

Transport expenses 3.5% of sales

Electricity & energy expenses 0.5% of sales

Annual increase in general expenses 2.0%

Annual increase in salaries 2%

Increase in rental expenses 5% every 3 yearsIncome Tax Rate 2%

The following table shows the balance sheet assumptions: Accounts receivable are estimatedat 0.25 months of sales(i.e. 1 week of sales). Inventories are estimated at 1 month of cost ofmaterials. The accounts payable are based on 1 month of cost of materials.

Balance Sheet Assumptions

Accounts Receivable 0.25 month of sales

Inventories 1 month of consumables

Accounts payable 1 month of COGS

Expenses payable 5% of general expenses


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The depreciation rates used in the following table follow international accounting standards:

DEPRECIATION RATES

Equipment 10%

Fixtures&Installations 10%

Furniture 7.5%Vehicles 12%

Computers and office 20%Establishment Costs 33%

The pastry shop will have an area of 100 square meters. According to professionals in thecaza, the rental costs for such a venture will need a budget of around $4,000 per year.

Shop rentalShop area in square meters 100

Annual rent 4,000

Staff structure:

Regarding the administrative staff, the pastry shop will hire a pastry shop manager, and a

presentable and friendly salesperson. On the production side, the pastry shop will have a chef,an attendant, and 1 craftswoman, whowill receive training in order to acquire the required

skills.

Staff selection and training is crucial; the team must be as efficient and motivated as possiblein order to ensure high quality products and services.

STAFF STRUCTURE

Number ofemployees

MANAGEMENT / ADMINISTRATIVE

Pastry shop manager 1

Salesperson 1

Driver 1

Janitor 1

Total Management 4

PRODUCTION

Chef 1

Attendant 1

Craft-women 1

Total production 3

TOTAL STAFF 7

The total number of employees is 7; however, seasonal workers are hiredin high seasons thatareestimated at around 3 months.

6.3 Projected Income Statement

The following income statement is based on expected market levels for revenues and costs.

The income statement shows reasonable income levels with average net income of $11,887annually and an average net profit margin of 8%.


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6.4 Projected Balance Sheet

The balance sheet shows the projected assets and liabilities of the company.

Pastry Shop

Projected Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Cash & Equivalents 2,315 15,681 29,308 42,513 35,897 49,810 63,733

Accounts Receivable 2,604 2,740 2,881 2,970 3,034 3,097 3,127

Inventory 4,676 4,910 5,155 5,310 5,416 5,524 5,580Current Assets 9,594 23,331 37,344 50,794 44,348 58,431 72,440Equipment 89,395 89,395 89,395 89,395 99,395 99,395 99,395

Fixtures&Installations 6,000 6,000 6,000 6,000 16,000 16,000 16,000

Furniture 4,000 4,000 4,000 4,000 4,000 4,000 4,000

Vehicles 12,000 12,000 12,000 12,000 12,000 12,000 12,000

Computers and office equipment 3,000 3,000 3,000 3,000 4,000 4,000 4,000

Establishment Costs 2,000 2,000 2,000 2,000 2,000 2,000 2,000Accumulated Depreciation 12,546 25,092 37,638 49,518 62,597 75,077 87,556

Net Fixed Assets 103,849 91,303 78,757 66,877 74,798 62,318 49,839

Total Assets 113,443 114,634 116,101 117,671 119,145 120,749 122,279

Accounts payable 4,676 4,910 5,155 5,310 5,416 5,524 5,580Expenses payables 2,178 2,218 2,258 2,309 2,351 2,394 2,448

Current Liabilities 6,854 7,127 7,413 7,619 7,767 7,918 8,028

Total Liabilities 6,854 7,127 7,413 7,619 7,767 7,918 8,028

Invested Capital 100,000 100,000 100,000 100,000 100,000 100,000 100,000

Owners' Equity 6,590 7,507 8,688 10,052 11,378 12,831 14,252Owners' Equity 106,590 107,507 108,688 110,052 111,378 112,831 114,252

Total Liab. & Shrholders Equity 113,443 114,634 116,101 117,671 119,145 120,749 122,279

Owners' Equity Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Begin. Owners' Equity 6,590 7,507 8,688 10,052 11,378 12,831Net income 6,590 9,171 11,810 13,644 13,264 14,528 14,203

Owners' Withdrawals 8,254 10,629 12,279 11,937 13,076 12,783Ending Retained Earnings 6,590 7,507 8,688 10,052 11,378 12,831 14,252

The owners will be able to start withdrawing cash by the 2ndyear.


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6.5 Projected Cash Flows

The following table shows the projected cash flows of the pastry shop.

Pastry ShopSTATEMENT OF CASH FLOWS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Net income 6,590 9,171 11,810 13,644 13,264 14,528 14,203

Adjustments to reconc i le net income

to cash p rov ided by opera t ing act i v i t i es

Depreciation 12,546 12,546 12,546 11,880 13,080 12,480 12,480

Changes in receivables (2,604) (136) (141) (89) (64) (62) (31)

Changes in inventories (4,676) (234) (245) (155) (106) (108) (55)

Changes in accounts payable 4,676 234 245 155 106 108 55

Change in expenses payables 2,178 40 40 51 42 43 54

Total Adjustm ents 12,120 12,449 12,446 11,841 13,058 12,460 12,503

Cash provided by operating activities 18,710 21,620 24,256 25,485 26,321 26,988 26,706

Cash Flow from Investing Activities

Capi tal expendi turesInvestment in fixed assets (116,395) - - - (21,000) - -

Net cash used in investing activit ies (116,395) - - - (21,000) - -

Cash flow from financing activities

Changes in invested capital 100,000 - - - - - -

Owners' Withdrawals - (8,254) (10,629) (12,279) (11,937) (13,076) (12,783)

Cash provided by financing activit ies 100,000 (8,254) (10,629) (12,279) (11,937) (13,076) (12,783)

Cash at beginning of year - 2,315 15,681 29,308 42,513 35,897 49,810

Changes in cash 2,315 13,367 13,627 13,206 (6,616) 13,913 13,923

Cash at end of year 2,315 15,681 29,308 42,513 35,897 49,810 63,733

The projected cash flows statement shows the initial net investment in fixed assets and

projected capital expenditure over a period of 7 years. The owners will be able to startwithdrawing cash by the 2ndyear.

6.6 Ratio analysis:

The following table shows the main financial ratios for the pastry shop.

Ratio Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Average

Liquidity Ratios

Current Ratio 1.40 3.27 5.04 6.67 5.71 7.38 9.02 5.50

Quick Ratio 0.72 2.58 4.34 5.97 5.01 6.68 8.33 4.81

Working Capital 2,740 16,204 29,931 43,175 36,581 50,513 64,413 34,794Profitability Ratios

Gross Profit Margin 29% 30% 31% 31% 31% 31% 31% 31%

Operating Profit Margin 5% 7% 9% 10% 9% 10% 10% 9%

Net Profit Margin 5% 7% 9% 10% 9% 10% 9% 8%Financial Strength

Total Debt to Owners' Equity 0.064 0.066 0.068 0.069 0.070 0.070 0.070 0.07Management Effectiveness

Return on Assets=ROA 6% 8% 10% 12% 11% 12% 12% 10%

Return on Equity=ROE 6% 9% 11% 12% 12% 13% 12% 11%

Return on Investment = ROI 6% 10% 15% 20% 18% 23% 28% 17%

Sales / Business Days (360) 347 365 384 396 405 413 417 389.59Asset Management (Efficiency)

Total Assets Turnover: Sales/tot assets 110% 115% 119% 121% 122% 123% 123% 119%

Total Debt to Total Assets 6% 6% 6% 6% 7% 7% 7% 6%Working Capital Cycle

Days Sales Outstanding 8 8 8 8 8 8 8 8

Days of Inventory 30 30 30 30 30 30 30 30

Days of payables 26 26 26 26 26 26 26 26

Working Capital Turnover=Sales/Working Capital 45.6 8.1 4.6 3.3 4.0 2.9 2.3 10.13


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The current ratio, which is computed by dividing current assets by current liabilities, witnessesa major increase over the years led by higher levels of inventories.

The quick ratio, which is the same as the current ratio except that it excludes inventories

increases rapidly over the years as accounts receivable increase. The current and quick ratiosdemonstrate the capability of the company to quickly meet its short term liabilities.

The return on average assets, which is computed by dividing net profits by total assets, showshow much profit the company is able to achieve from the use of its assets. This ratio increasesand reaches of 12%in year 7.

The total assets turnover shows how well the management is making use of its assets. Theassets turnover is computed by dividing sales over total assets. It is expected to increase withthe growth in sales to reach 123% in year 7.

The gross profit margin fluctuates around an average of 31%. The operating margins and thenet profit margins improve over the years with the growth in sales.

The return on average equity shows healthy levels fueled by the growth in profitability. Alsothe return on investment shows increasingly high levels that reach 28% in year 7.

The internal rate of return is 20% and the payback period, which is the period necessary topay back the investment, is 6years 3months.

6.7 Break-even analysis:

The following table shows the minimum annual revenue levels needed for the pastry shop tobreak-even. Thus, an average of USD 114,567per year is a minimum level of revenue for thepastry shop to stay in business.

Pastry ShopBREAK-EVEN ANALYSIS Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Total Revenues 124,988 131,525 138,292 142,577 145,644 148,633 150,119

Total Variable Costs 62,158 65,270 68,536 70,594 72,010 73,451 74,185

Total Fixed Costs 56,106 56,897 57,704 58,061 60,101 60,357 61,441

Break-even revenues 111,612 112,948 114,400 115,002 118,875 119,324 121,466

6.8 Sensitivity analysis:

A worst-case scenariois taken by assuming a slower sales growth.

In this case, the pastry shop will have an average profitability of $10,113 annually. The

internal rate of return is 18%. The payback period is 6yearsand 7months.

A best-case scenariois developed considering faster sales growth.

This scenario gives an average profitability of $16,955annually. The internal rate of return is25% and the payback period is 5yearsand4months.

Worst-case Most likely Best-case

Average Yearly Sales 136,478 140,254 151,041

Average net income 10,113 11,887 16,955

Average net profit margin 7% 8% 11%

Internal rate of return 18% 20% 25%

Payback period in years 6 years 7 months 6 years 3 months 5 years 4 months


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7 Recommendations and key success factorsIn order to achieve satisfactory results, there are some key success factors that should behighlighted:

All the personnel of the pastry shop must be very qualified. The craft women, the

chef, the cookand the sales person will receive all the necessary training in order toperform according to high standards. The managerial personnel and the chef will beselected according to theirmerits and previous experience.As a first stage the pastry shop should follow a policy of market penetration, trying toseize any opportunity in order to get a wide array of clients.The pastry shop will make full use of its marketing resources in order to market itselfas a destination and as the most competent pastry producer in the region and in orderto capture a market share from the Arabic sweets producers.After a certain period of functioning, the pastry shop would have acquired some keyclients, on which it will focus as the primary target market.

The pastry shop should try to differentiate itself from other French pastries building upon its main assets: quality, cleanness and affordable prices.Regarding the decorated chocolate, the manager should take into consideration thelife cycle of certain models, and will make sure to introduce new models once themarket for specific products has attained the maturity stage.The shop seating area ought to be as pleasant as possible, in order to attract visitingexpatriates and tourists.Finally, we need to stress one more time the importance of cleanness, high standardsof production and good quality of inputs.

8 Economic impact evaluation

Establishing this pastry shop in the caza of Marjeyoun will have several positive repercussionson the socio-economic state of the region:

Building up such a craft shop will allow for an economic diversification in a regionwhere agriculture and other low-skilled jobs are predominant.The pastry shop will create 7 full-time jobs; it will offer new career opportunities toyoung people, especially women in Marjeyoun.Creating jobs for women will empower them; it will help them to increase thehousehold income in a very positive and comfortable way.Furthermore, the creation of these jobs will ensure to employees respectable wagesand thus helps to lift up the standard of living of the concerned households.The production of pastries and especially of fresh juice has backward linkages that willbe beneficial to the whole region, mainly through the use of fresh fruits, milk, andflour, producedin the area.

Moreover, the training the employees will have received will equip them with valuableskills for future job opportunities.Finally, the pastry shop will be seen as a new attraction, and as one of the reasons tospend some additional time in Marjeyoun.

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