[Case Study: Gary Hart]

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Case Study: Gary Hart

Introduction

As oxygen is the lifeline to human, cash is the lifeline of business. So in cash required for running day to day operations is called working capital. Thus, working capital is the measure of financial efficiency of the firm in the short term. It tells the owners how much deficiency or extra cash is there in the short term. The Working capital is calculated by Current Assets - Current Liabilities of the business. Thus, Gary Hart has a restaurant on the Margate Sea. He is planning to calculate the working capital for the firm. He will do an analysis of the restaurant one-year financial position. This will help him know the working capital requirement of the firm. If the working capital is positive that is Current asset - Current liability is positive than it means that the business does not need any extra cash for meeting the short term liabilities , but in the other case if the working capital is negative than the company can go for extra financing through banks.

The specification of the restaurant is that it has 24 tables, which are meant for two people each. The restaurant will be open for 6 days a week. It is assumed that the restaurant will be occupied 75 % of the daily capacity and every seat will be occupied three times on daily basis on average. The income generated form each table would be around 60 pounds this is for both the person on the table. Fifty percent of the restaurant customers will pay through cash and the rest through credit card. The Cash from the debit card will be debited after 4 weeks or one month. The cost of goods sold will be 17 pounds per table, the payment for it will be made after two weeks of the receiving of receipt.

The owner of company will not include his salary in the business expenses. His kitchen staff will cost around 57200 pounds, waiter's will cost 13728 pounds and social security cost will amount to 20,800 pounds per annum. The cost of this will be paid after one month. The Utilities will cost around 2600 pound per quarter, this will be paid after one week of that quarter. The council tax and rent will cost around £ 8000 and £ 40000 per quarter respectively. The payment for this will be done in the beginning of that quarter or in other words, it will be a prepaid expense. The business is located in an area where there are plenty of other restaurants, thus the restaurant owner will have to spend in the advertisement to bring his business into light. Therefore, the first 6 months advertisement expense will cost £ 12,000 and then every quarter it will have to pay £ 1000 per quarter. SO now, we are going to calculate the cash budget for the company one-year performance.

Year Trading Cash Budget by Quarter

 

Year Cash Budget By Quarter

 

 

 

 

 

 

 

 

 

Q1

Q2

Q3

Q4

 

 

Total

Total

Total

Total

 

 

0

0

0

0

Beginning Balance

€ ...