Your organization has a canteen, Tulip Refractory, serving hot meals, snacks and refreshments during the working day. At some weekends, the staff may do some catering at private functions.
There are no shareholders. The canteen is a department within your organization. The canteen was set up with an initial loan of £60,000 from the head office. Interest is payable on the loan.
Your organization does not intend that the canteen charge commercial prices. However, the plan is for sufficient profits to be made to repay the loan with interest as well as to provide for the replacement of equipment and fixtures as necessary.
The canteen has been making losses over the last five years. The head office loan installments have not been repaid for the last three years. The head office would have to provide a further loan if the canteen is to continue providing a service to the staff.
Your head office would like to continue offering this facility to its staff but is concerned that it has not been run efficiently, particularly as a sister organization, operating on a similar basis is making year-on-year profits with Café 88.
REQUIRED:
You have been provided with the accounts of Tulip Refractory and Café 88. Your Finance Director has asked you to conduct a financial analysis, giving possible explanations for your results and your recommendations. Your report will underpin your Finance Director's presentation to the main board for a further loan or for the sub-contracting of the catering to an outside company.