Case Study To Explain The Benefit Of Franchising Finance Essay

This study purpose to explicate the benefit of franchising, and how mothercare has benefited signifier mothercare international, an analysis on the international and mothercare UK we be looked into, and besides some of import ratio will be usage to analyze the fiscal statement of mothercare to better understand its fiscal place and public presentation

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2.2. Franchise

This is an administration that has already succeeded with its merchandises and services in a peculiar market ( the franchisor ) decided to come in into a contractual understanding with another administration called the franchisee, the franchisor allows the franchisee to run under its trade name, with the counsel of the franchisor, with an initial payment and hence regular payment/royalty as a per centum signifier gross revenues gross.

3.3. Analysis of Mothercare International

Between 2007 and 2009 international shops has increased to 381 in 12 states, [ see appendix 2 ] with an external gross revenues addition in figure ( 1000000s ) and percentages signifier 2007, 2008 and 2009 by ?87.1m ( +27.9 % ) , ?111.8m ( +28.4 % ) and ?144.8m ( +29.5 % ) severally see [ appendix 1and 1a ] , of which franchising accounted for 17 % ( 2007 ) , 17 % ( 2008 ) and 20 % ( 2009 ) of female parent group entire gross, these per centum growing in net income that comes from franchising can be accounted for to be the addition in market portion and gross revenues that are achieved without attaching the cost that are usually attached to growing, like

The care of the stores

The employment of staff

Supervision

The direction

Without these associated cost it was made possible to achieve an addition in the net income border for every per unit of gross revenues. This can farther be seen by looking into the history of mothercare, during the twelvemonth 2007 and 2008 the gross net income was 3.8 % and 0.7 % severally for morther attention UK, while the gross net income for mothercare International for 2007 and 2008 was 9.3 % and 8.6 % severally. From these it is seen that mothercare derive much benefit from franchise trading than merchandising signifier organic growing.

4.4 Analysis of mothercare ‘s fiscal statements

4.1. Profitableness ratio

Gross border

Gross net income border ( GPM ) explains to the stakeholder how the company has been profitable with its different cost. The gross net income border for mothercare for the twelvemonth 2007, 2008 and 2009 was 9.6 % , 9.5 % and 12.0 % severally, these depicts an addition in the GPM, the besides show that the hole cost has been managed efficaciously to do net income. ( The higher the GPM, the more liquid the company ‘s hard currency flow is, which finally leads to more money for the company to utilize for future disbursals )

Tax return on investing ( ROI )

This is the per centum of return on fund invested in the concern by its proprietors ( www.bizmove.com ) the ROI for the twelvemonth 2007, 2008 and 2009 were 12.5 % , 21.2 % and 22.7 % severally, this show an addition in the ROI, which means that the attempt of the stakeholder in the concern is worthwhile.

Working capital ratio

Current ratio

This depicts the ability of the company to pay back its short term liabilities with its short term assets ( www.investopedia.com ) the current ratio for 2007,2008 and 2009 were 3.7 % , 1.5 % and 1.2 % severally, these shows that there has been a lessening from 2008 to 2009 over the old ages, this is as a consequence of the lessening in the current assets and current liabilities over the old ages. But the ratio for 2009 is still high and can still be able to countervail its duty, because a ratio that is lesser than 1 is suggested that company can non countervail their duty ( www.investopedia.com )

Investing public presentation ratio

Dividend screen

This explains how a concern can easy from its net income wage its stockholders ( dividend ) . The dividend screen for the twelvemonth 2007, 2008 and 2009 were 2.8 % , 0.01 % and 2.2 % , the ROI in 2008 lessening by 2.7 % as against the old twelvemonth, this was due to the revenue enhancement of 4.4million.

Part B

From

Decision

Mention and Bibliography

Leopold.A. Bernstein ( 1993 ) Analysis of fiscal statements 4th edition. U.S.A.

Ciaran Walsh ( 2006 ) Key Management Ratios. 4th edition. Bell & A ; Bain Limited. Glasgow.

Michael Jones ( 2002 ) Accounting for non-specialists. John Wiley & A ; Son Ltd. West Sussex, England.

hypertext transfer protocol: //math.about.com/library/weekly/aa061502a.htm

hypertext transfer protocol: //www.investopedia.com/terms/c/currentratio.asp

hypertext transfer protocol: //www.bizmove.com/finance/m3b3.htm

Figures gotten from mothercare one-year study of the 2007/08/09 ‘s segmental information and per centum increase/decrease calculated

2009 External Gross saless

2008 External Gross saless

2007 External Gross saless

% Increase in 2009

%

Addition in 2008

% Increase in 2007

U.K MOTHERCARE

578.8

565.0

411.4

2.4 %

+36.2 %

-0.72 %

International

( FRANCHISE )

144.8

111.8

87.1

+29.5 %

+28.4 %

+27.9 %

Entire Gross

723.6

676.8

498.5

Calculations of per centum addition in external gross revenues [ Revenue ] for Mothercare UK/International

International gross revenues addition in 2007 by 27.9 % to ?87.1 million ( 2006: ?68.1 million ) [ beginnings from public presentation high spot of mothercare plc one-year study and history, 2007. page 1 ]

Mothercare UK external gross revenues for 2007

International gross revenues addition in 2008 by 28.4 % to ?111.8 million ( 2007: ?87.1 million ) [ beginnings from segmented information of mothercare plc one-year study and history, 2008. Page 49 ]

Mothercare UK external gross revenues for 2008

International gross revenues addition in 2009 by 29.5 % to ?144.8 million ( 2008: ?111.8 ) [ beginnings from segmented information of mothercare plc one-year study and history, 2009, page 49 ]

%

Mothercare UK external gross revenues for 2009

x

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