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Answered Same DayAug 31, 2022

Answer To: Chartered Professional Accountants of Canada, CPA Canada, CPA are trademarks and/or certification...

Sandeep answered on Sep 01 2022
75 Votes
Performance Management of case study         14
PERFORMANCE MANAGEMENT OF CASE STUDY
Performance Management
    In the early stages of the business, it is very important to keep close tab on the Overheads, Cost overruns, offering groceries at reasonable price to garner big chunk of the prospective customers and offering quality service which distinguishes it from the competitors and larger players thereby build an army of robust base of loyal clients. While there are many ways to manage the overheads by scaling operation gradually and not launching full-fledged operations without studying the length and breadth of the markets and its residents/o
ccupants? ZSF stands apart from its competitors in the segment on account of following:
Keeping store size small to offer clients a unique boutique shopping experience
Small store size facilitates shopper’s efficiency.
Meet the growing demand for local and organic products in the vicinity.
ZSF is now staring at competition from the big market players who with better infrastructure, technology and connectivity are able offer discount and lower price to take battle to ZSF’s camp to take advantage of price consciousness of customers.
ZSF is witnessing downward trend due to following reasons:
Net Income is not growing in proportion to Sales
Profits decline is worse than expected and reason is more than competition alone.
Company’s loyalty programme losing steam, leading to decline in repeat customers visit and orders.
Rift amongst the Store managers due to mutual distrust.
Reconstruct Performance evaluation and appraisal system to motivate and incentivize managers to work hard towards KSF.
ZSF’s key Success Factors identified as follows:
    Key Success Factors
    Location
    Carstairs
    Didsbury
    Olds
    Industry Average
    
    
    
    
    
    Net Income Ratio
    1.89%
    1.70%
    2.21%
    2.33%
    Net Income per capita
    $12.27
    $10.90
    $9.73
    -
    Profit per m2 of space
    $39.98
    $31.98
    $56.23
    $69.90
    Sales per capita
    $650
    $640
    $440
    -
    Sales per m2 of Retail space (Space efficiency )
    $2,118.47
    $1,877.76
    $2,539.47
    $3,000.00
    Inventory Turnover
    17.99
    15.57
    13.56
    18.24
    Fixed Indirect Cost Variance
    (1,199)
    (1,543)
    1,443
    425
    Employee Turnover
    54%
    49%
    23%
    30%
Let’s discuss in details all of the key success factors:
Net Income Ratio –
     In simple words it means that how much profit or income is generated by company for each $1 of sales achieved. Net Income ratio reveals part of the earning left with company after meeting the necessary expenses related to the business and furthering the cause of the enterprise. It happens to be the most significant Financial metric which aids investors in evaluating the whether the company is accumulating adequate profit from its sales and if the operating cost and overhead are under control. It is the single most indicator of company’s financial health. The Net income does not reflect the actual cash flow. Net Income approach merely incorporates Non-cash expenses and working capital. The Net Income margin Formula is as under:
Net Income = Revenue – COGS – O Exp. – Depreciation/Amortization – Int. – Tax
Where COGS = Cost of Goods Sold
    O Exp. = Operating Expenses
    Int. = Interest Expenses
    Tax = Tax Expenses
Net Income Ratio = Net Profit / Revenue
In our assignment we see that Industry average of Net Income is higher than the each individual Stores profits. In fact Stores at Carstairs and Olds are performing very poorly compared to Industry average while the Didsbury is still lot better these 2 stores. My assessment is that even though the 3 stores are generating profits < Industry Average. This could be attributed to scale of business at since the Industry is composed all large, medium and small industries as well ZSF is not operating at its maximum capacity yet.
Whereas if we talk about the Net Income Ratio which is indicator of overall financial health. Every investor wants to know about this ratio to see whether the company is managing its cost and overhead sensibly to keep bottom line stress free. Any stress on bottom-line will send signal to investor or general community that company is unable to manage its cash flows wisely thereby draining it’s precious resources and might soon need to revert to borrowing to meet working capital needs which will further strain it’s bottom-line. Usually the new start-ups will tend to have higher expenses in the initial years when it’s setting up its operation and infrastructure. But it can manage it by automating its processes and securing blanket orders for year etc.
A higher Net income doesn’t necessarily translate into huge cash flows with company or higher market share of entity.
Net Income per capita –
    This is another important financial metric which gives peep into whether the profit generated by the company if distributed amongst the total population in surrounding location will translate into per head income accrued .It’s a very important measure for determining whether it’s economically and monetarily feasible to set up business in and around the location basis this metric to know whether people are able to afford the product offered and whether population command any purchasing power basis their discretionary income .It represents the amount of money earned by each resident of that area . Hence the store with highest Net Income per capita will attract more competitors and investors in that region for exploring business possibilities. The more entrants the more competition and thus lower the price better quality manufacturing. From the table it’s clear that “Carstairs” store is doing much better than the other 2 stores, however the other 2 stores are fast catching up as well.
Profit per m2 of space –
    As we all how crucial the retail space is and it commands huge premium when it’s in scarcity. Hence measuring the Profit in terms of the commercial space available to continue the business become very relevant in today’s times when the rentals are on upswing. As we can see that Industry average of Profit accrued per Sq. Mtrs of the retail space is $ 69.90 per Sq. mtr which is impressive whereas Olds Stores come closest to the average with $56.23 per Sq. mtr. , while the other 2 stores are way below the average .This also reflects the whether all of the retails space is being profitably utilised and none of units remains unoccupied.
Sales per Capita –
    This metric indicate the...
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