The Leeds Livery
Autor: Jannisthomas • May 8, 2018 • 1,434 Words (6 Pages) • 655 Views
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Hugh then consulted with his bank manager, who was noticeably less enthusiastic about the pub as an investment. He confirmed that the bank would loan Hugh the funds needed to buy the pub; however, the bank manager pointed out that this was a very competitive and high-risk industry. He suggested that Hugh consider carefully whether a man his age should go that far into debt. The bank manager also pointed out that Hugh could invest his savings with the bank at a guaranteed annual interest rates of 5%, and thus earn another $3,000 per year rather than pay about $6,000 annually in interest on a loan. He observed that, together with Hugh’s pension, this would provide him with a secure income for his retirement years.
Finally, Hugh comes to you for advice. What would you suggest?
On the following page are the income statements for:
- 2003, the last year the pub was owned by Henry Montagu
- 2008, the most recent year of operation under the ownership of Barry Bilkmore.
The Leeds Livery
Income Statement
2003 2008
($000) (%) ($000) (%)
Sales $500 100.0 $425 100.0
Cost of Goods Sold 200 40.0 183 43.1
Gross Profit 300 60.0 242 56.9
Expenses:
Management Salaries 24 4.8 39 9.2
Labour: Wages 115 23.0 89 20.9
Payroll taxes 10 2.0 8 1.9
Rent 40 8.0 45 10.6
Common Area 3 0.6 3 0.7
Promotion 25 5.0 8 1.9
Insurance 4 0.8 5 1.2
Hydro 7 .1.4 7 1.6
Natural Gas 8 1.6 8 1.9
Telephone 1 0.2 1 0.2
Depreciation 6 1.2 4 0.9
Miscellaneous 1 0.2 1 0.2
Total Expenses $244 48.8 $218 51.3
Operating Profit 56 11.2 24 5.6
Other Income 0 0.0 12 2.8
Other Expenses 0 0.0 6 1.4
Net profit before tax $56 11.2 $30 7.1
Notes:
- “Other income” of $12,000 in 2008 is the rent on the apartment. Expenses related to this income are in the “Miscellaneous Expenses” line.
- “Management salaries”: in 2003, Montagu paid himself a salary of $24,000 as owner/manager; in 2008, a salary of $35,000 was paid to the hired manager (plus 1% of gross sales).
- Rent: 2,000 square feet at $20 per square foot in 2003 and $22.50 in 2008.
- “Common area costs” refer to upkeep, snow removal, etc.
LeedsCase
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