# Evaluating Expansion at a Restaurant Corporation

1. How much food and beverage revenue should be expected for each of the first five years of operation? Assume 365 operating days per year.

The restaurant expects an average check of \$50 during its first year of operation, and this is expected to increase by \$5 in each of the second and third years and \$7 during each succeeding year.

For the first year, the check will amount to \$50 x 365= \$ 18,250

For the second year, the food and beverage revenue will be \$55 x365= \$20,075

For the third year, the food and beverage revenue will amount to \$60 x 365= \$ 21,900

For the fourth year, the food and beverage revenue will amount to \$67 x 365= \$ 24,455

For the fifth year, the food and beverage revenue will amount to \$74 x 365= \$ 27,010

1. What operating ratios and related statistical information might benefit the Eaton Restaurant Corporation management team in its continuous review of new restaurant development?

There are various operating ratios and related statistical information that might benefit the Eaton Restaurant Corporation management as it continuously reviews the restaurant development. These include liquidity ratios and profitability rations. Liquidity ratios measure the ability of an organization to pay its obligations. One such ratio is the quick ratio that is calculated as: (Cash and Cash Equivalents + Short-Term Investments + Accounts Receivable) ÷ Current Liabilities. This ratio will enable the restaurant management to review their cash position and their ability to make any purchases and payments that might arise.

Profitability ratios will enable the restaurant to identify its ability to generate revenue from sales, assets and equity. The most important profitability ratio for the restaurant would be the gross profit margin ratio. This is calculated as: Gross Profit ÷ Sales, whereby Gross Profit = Sales – Cost of Goods Sold. This ratio will enable the restaurant’s management to measure the profitability of the restaurant beyond the cost of goods sold as well as whether any money would be left for current and future expenses. This ratio would also enable the starting up restaurant to forecast the short term impacts of selling below or above expectations.

Other related statistical information that would be beneficial includes income statement and cash flow statement. The restaurant should always keep track of its costs and expenses.

1. Create a SWOT analysis for the new restaurant location in New Bethel for their first year of operation based on the data you have available from the case study. Feel free to make relevant assumptions in your SWOT analysis.

From the data and information provided in the case study, the new restaurant location in New Bethel has various strengths. These include:

• Eaton Restaurant Corporation has successfully opened three restaurants in similar cities in the past year and hence this new restaurant is also likely to succeed.
• The restaurant is good at management as it has been successful in opening a similar restaurant before.
• Since the restaurant corporation has operated successfully in the past, it has a good reputation.

Some of the weaknesses that the new restaurant might encounter include:

• Competition from other restaurant.
• Low margin of food and beverage revenue for the first year of operation.

Some of the opportunities for the new restaurant include:

• The city has a stable economy with an influx of successful business development and industrial investment which is a healthy environment for restaurant business.
• The city is fast growing, and this provides a number of opportunities for the restaurant growth.
• The restaurant can expand its services and dining experiences.
• The restaurant could also find ways of generating more traffic like promoting takeaway foods or offering delivery services.
• The restaurant can take advantage of online bookings and services to reach more clients.

Some of the possible threats include:

• New restaurant opening within the vicinity
• Potential increase in the cost of certain food materials.
• Competing restaurants that provide similar services for lower prices.