ASIA PACIFIC UNIVERSITY OF TECHNOLOGY AND INNOVATION

LEVEL 3INDIVIDUAL ASSIGNMENTENTREPRENUERSHIPBM019-3-3-ENTREBYSHAKTI VARMANTP025787UC3F1407IT (NC)

Lecturer: TEH KOON CHING Due Date: 25TH MARCH 2015

1. Contents1. Contents22. Executive Summary33. Opinion of value44. Assumptions and Limiting Conditions55. Business Overview:65.1. History of company65.2. Services provided75.3. Education industry analysis and its impact on canteen business115.4. Production process13 5.4.1.Self-service13 5.4.2.Take away13 5.4.3.Delivery135.5. Customers analysis145.6. Suppliers175.7. Human Resources185.8. Description of facilities205.9. Furniture and Fitting235.10. Equipment and Machine246. Financial Analysis:256.1. Asset valuation: Book value method256.2. Market valuation method: The going market rate method266.3. Income-based business valuation: Return on investment (ROI) method276.4. Cash Flow Statement286.5. Break Even Analysis297. Conclusion308. References319. Appendices32Appendix A: Assumptions and Limiting Conditions32

2. Executive SummaryThis document comprises the business valuation report of the ABC University cafe currently owned and run by Mr. Bernard. It has been operating successfully for the past 15 years on the site. As a result of receiving his permanent residence status from the Australian government, Mr. Bernard has decided to relinquish the canteen business by selling it off to suitors and migrate to Australia in order to stay there with his family.This report is mainly broke down to three vital parts. Part 1 contains the assumptions and limiting condition. Part 2 includes a summary of the company history, services provided, education industry analysis and its impact on the canteen business, the production process, customers analysis, canteens human resource status, facilities available in the canteen with furniture, fittings and other equipments. Part 3 is the financial analysis of the canteen in respective to asset valuation with book value method, market valuation method and income based business valuation based on the Return on Investment (ROI) method. This section also provides the break even analysis and the cash flow statement.

3. Opinion of valueAfter concluding the research and review of the canteen, the researcher have apparently surfaced with a range of opinion values for the canteen in ABC University as of 1st April 2015.

Figure 1 Recommended Selling PriceThrough the evaluation of the business and in-depth financial research, the researcher is confident with the prospect of entrusting to procure Mr. Bernards business. This belief is supported by plenty of reasons which poise all arguments. Following listed below are some of the reasons: Malaysias Education Industry is swiftly growing locally and internationally with recognition. The furniture and fittings are less than 5 years old and still in good condition. The permanent staffs working under Mr. Bernard are willing to work with a new owner. Effectively a six year rental contract with the university remains whether the owner of the business changes. No nearby rivals within a 3 km radius of the establishment which has steady available services of Wi-Fi, water, electricity, security guards and gardeners. The ROI value is within a reasonable purchase range of the business with the offered price.The researcher opinion of values are subjected to the assumptions and limiting conditions set forth in this report.

4. Assumptions and Limiting ConditionsPlease refer to appendix A of Appendices for the attachment of this section. Thank you.

5. Business Overview:5.1. History of companyDuring the initial founding of ABC University, the institute had a base structure were an in-house campus canteen was briefly ran by management but was not favorably. Hence, plans were in motion to lease the cafeteria business. At which time, Mr. Bernard approached the ABC University management and negotiated the opportunity for him take over and run the business. A short trial period, gave insight to positive reviews through which promoted ABC University and Mr. Bernard to sign a three year lease for the caf business that further extended. Mr. Bernard had full control, given sole charge of operating and servicing the establishment which was only over seen by the university. The caf started with only five staff under Mr. Bernard management but has increased over the years to ten permanent staffs and additional part time workers. Mr. Bernards caf is renowned for providing reasonable quality halal nourishment well suited for his diverse customers and is also praised for heart-warming service which is mainly responsible due to his well-mannered business conduct.Over the course of his given term, ABC University has been recognized both locally and overseas as reputable higher learning institution and dignified by receiving plenty of appraisals as well as awards. Hence giving hospitable credit to his establishment growth from catering mere 3,000 students to exceeding 10,000 students from different geographical location that include internationals but nonetheless majority being local students over a spell of 15 years.

5.2. Services providedThe caf humbly acts as a canteen for ABC University students and staff. Generally, the caf is food service provider with limited number of dishes which were customarily local cuisine but progressed over its stints into adding more different type of dishes. The following are services provided by the caf as listed below: Dine-in cafeteria Take-away services Plug point for charging Wi-Fi hotspot services Membership discount for staff Delivery services for the staffs in the office-Catering services for events held within ABC UniversityCurrently, the caf includes food ranging from variety of cooking which is typically Eastern and some Western. Primarily, it focus consist commonly of local foods from Malay, Chinese and Indian. Some additional type of foods taken in comprises of Middle East and European. Strictly only providing halal food in respect for Muslim customers. The cafs operational hours are from 7.00 a.m. to 7:00 p.m. during the university working days with their menu structurally divided into three meal categories which are Breakfast, Lunch and Evening Tea. During the breakfast and lunch time, a buffet is setup for the wider assortments to choose from.

Figure 2 Drinks Menu

Figure 3 Breakfast Set

Figure 4 Lunch Set

Figure 4 Evening Tea Set

5.3. Education industry analysis and its impact on canteen businessMalaysia is placed eleventh in the world for preferred study destination by United Nations Educational, Scientific and Cultural Organization (UNESCO) Global Statistic. It is widely known within the Education Industries as a progressive and moderate tropical Islamic country that is home to different ethnic groups which provides equitable higher education at a lower cost subsidized by the government for all (Chen, T. and Ling, S., 2012).Using this established reputation, Malaysia is seeking to be the regional hub for higher education for students from across Asia and the rest of the world in efforts to becoming the sixth largest education exporter by 2020 (Chi, 2011). Evident in their external partnership with Australia and United Kingdom educations by collaborating in providing colleges with recognized level of qualified standardization as well as promoting either new or advance specialization in different fields across the country.The Education and Food industries are both closely related to each other as it is an essential requirement for every person with its demand being never ending, similar to Healthcare. However, civilized man need knowledge to survive but humans will always need substance to live. Therefore, all managements of universities and offices must provide break time or lunch time within their daily schedules and provide places or facilities which serve or sell food for their staff and students. Thus, all industry especially in this case universities or offices are required to safeguard their customer needs and employee rights. They are required to take precaution in making sure that their staff and students are supplied with variety of nourishments or meals for them to perform optimally which in return does benefit the institution. Hence, the best conceivable way would be to in-house a cafeteria where they can serve food and beverages within their premises that is available entirely during the operational hours for everyone to relax while energize themselves to carry on functioning throughout the day. Furthermore, universities are prime example were globalization takes place. It can be seen with the multiple mix of cultural and social background from which students or staffs have been gathered respectively within the ABC campus (Zainal, N., Mohd Aminuddin, Z. and Zainol, M., 2013). Since ABC University and other universities across Malaysia have been attracting a lot of internationals over the past few years which enables the correlation with locals in classrooms and administration leading them to learn about each other customs in simultaneous conjunction introducing Malaysian culture to the outside world. It is believed that the business of in-house cafeteria will drastically increase over the years within colleges, as it will also ease the transition of foreign students or staffs to Malaysian food and habits. On other hand, allowing exposure for locals to other country dishes and first-hand perspective into international etiquette.

Figure 6 Total Number of Enrolments in Malaysia (Kiasutrader, 2010)

Figure 7 Number of Enrolments over the years (Ministry of Higher Education Malaysia, 2013).

Figure 8 ABC University Students

5.4. Production processThe caf staffs begin working at morning 7:00 a.m., quickly getting ready for breakfast before 8:00 am when the buffet opens. Upon arrival, the staffs clean up the floor area and arrange the chair which were taken up during closing at the night. Concurrently, the kitchen staff prepare breakfast meals and ingredients which is served. After ending breakfast, the kitchen staff proceed to prepare the cutting and chopping of ingredient required for lunch. Then, complete on schedule the meals to be served. Every day at closing time, the entire canteen area is cleaned especially under the tables, cash register corners, and kitchen. All utensils and dishes are thoroughly washed as well as the wastes thrown into the garbage disposal. Also daily needs and fresh ingredients like vegetables, fruits and meats are supplied or purchased accordingly in the morning as early as possible. Mostly the services provided are self-service other than take away and deliver service which the staffs have roles to play.5.4.1. Self-service

Diagram 1 Process of Self-Service5.4.2. Take away

Diagram 2 Process of Take away5.4.3. Delivery Diagram 3 Process of Delivery

5.5. Customers analysisThe cafs main customers are ABC Universitys students and employees. Both the target customers can be further categories based on their origin. Moreover, students current and future can be categorized into international and local. Different customers have different preferences to types of food according to their culture. The categories which require the canteens awareness in terms of food services is highlighted using the below pie charts. It is necessary for the caf to be equipped in serving all these type of customers. Common age group of customers are between 18 to 45 old years (Students and Staffs) Gender both Male and Female Income Low for Student but Medium and High for Staffs

Figure 9 No of customers in category

Figure 10 International Students division

Figure 11 Local students division

The below pie chart shows result of a survey conducted in ABC University on the subject of the reason why customers are not eating from the canteen.

Figure 12 Reason for not eating from the canteen

5.6. SuppliersMr. Bernard has done his utmost to make sure that everyday necessities and fresh product are supplied or delivered consistently on a daily basis with payments done accordingly. Mr. Bernard has a long term relationship and mutual understanding with most of his regular suppliers which gives the caf some leverage in terms of discounts, promotion or credit. However, if he feels whether pricing is increasing and quality or services is declining. He is not hesitant to change the supplier to another who is cheaper with similar or better standards. Items such as rice and oil which are essential stored for longer periods, are bought in bulk from wholesalers to reduce both procurement and production costs.The below table shows Mr. Bernards current suppliers and their agreed payment methods. Figure 13 List of Caf Suppliers

5.7. Human Resources

Figure 14 Organization Chart

Figure 15.1 Caf Staffs

Figure 15.2 Caf Staffs

5.8. Description of facilitiesThe ABC University Caf is located at the ground floor of the building. With two Main Entrance to the caf via lift and stair. There is two Back Entrance to the kitchen for loading or unloading supplies. The caf is 5000 square feet and can accommodate up to 500 students at a time. The caf has been decorated with art work providing some elegance and plants add greenery to scenery. The caf radiates with mild blue color which soothes the viewers eyes and reminisce of cloudy day. The cleaning of the kitchen and floor area makes it seem like it is been polished which ensure the hygiene level. The environment of the caf is always lively with customers. Since the caf is underground, no natural light source enters so it requires the use of lights but ventilation and air-conditioning is done by the university making it quite cooling. There is special corner booths and some sittings nearby the walls which have electricity power outlets. There is also access to Internet which is courtesy of the university within the caf as customers can enjoy their meals while placing their devices there for them to work as well. The canteen has two LED TV but for broadcasting of college bulletins and marketing purposes only. Although the canteen extremely spacious but the drawback is the placing of the caf. It is position at the other end from the main entrances. For this reason, staffs find it difficult to walk there and buy food so they prefer to use the delivery services which is more convenient to them. During peak hours the caf has about a maximum of 400 to 450 customers but if seating arrangements is better adjusted, enables accommodating another 100 customers. As a result of limited seating, customers usually purchase for take-away and bring their food with them. This is focus issue which the new owner look into improve. Another issue would be to inform customers of their food being ready which is not favorably because if they sit far back there unable to know whether their order prepared. Hence waiters help relieve this matter by serving their food exactly to their table numbers. But maybe the new owner can add a system to display orders and speakers at the back for spreading information to customers. Toilets are cleaned by college cleaners but they also assist in cleaning the canteen floor during peak hours.

Figure 16 Cafe Floor Plan. Source: self-made using Smart Draw application

Figure 17 Legend to Cafe Floor

5.9. Furniture and FittingThe cafs furniture and fitting were purchased less than 5 years ago. They still remain in style and are very durable including the extras which are kept aside.

Figure 18 Furniture and Fitting

5.10. Equipment and MachineThe cafs equipment and machines were just replaced less than 5 years ago and it remains in very good condition. Due to success of the business, Mr. Bernard had invested substantial amount of money for the canteen to acquire top grade equipment and high quality machines.

Figure 19 Equipment and Machines

6. Financial Analysis:6.1. Asset valuation: Book value methodThe overall value of the business after settling all the outstanding debts and sold off all the assets is represented in Book Value. In simple terms, its the value of total assets (tangible and intangible) minus total liabilities (Little, K., 2015).The total tangible assets value in Mr. Bernard caf at the time of purchase is RM 300,000. To calculate the value which it is worth now depreciation should be considered. The equipment have an average total depreciation 10 years. Since all the equipment was purchased 5 years ago, the total depreciation will be at 50% of its original value.

Figure 20 Depreciation Calculation for 5 years

Figure 21 Book Value Calculation

6.2. Market valuation method: The going market rate methodThe estimation of the business value based on the comparisons either the quality or quantity to goods, services or business bought and sold in the open market at a given time is referred to Market valuation method. This method distinguishes the price a willing buyer would pay and willing seller would accept through negotiation and mutual agreement (Wilson, J., 2009).

Figure 22 Market Value of ComparableBased on the above illustration, the value of Mr. Bernards caf to per student of other universities is shown under.

Figure 23 the Cafs Market Value based on Comparable According to the going market rate method, the average selling price of Mr. Bernard canteen is around RM 400,000 to 500,000. These values were obtained from the calculated figures of the two canteens which were sold last year. Owing to the buying power of the customers, wan caf was not included since the canteen business operates in a building where their customers income will range around Medium or High.

6.3. Income-based business valuation: Return on investment (ROI) methodThe ROI method is intended for income based businesses like restaurants or cafes, with plenty of different ways to calculate it and used for determining whether it is efficient to buy or compare the business with others. In this instance, the method is used to evaluate the business purchase value (What's Your Business Worth?., 2007).

Figure 24 Cafe turnover and net profit for the last 5 years

Figure 25 Formula for calculating ROI

Figure 26 Calculations of Average Net Profit of 5 years

Figure 27 Calculation of Best Selling price for the canteenThe reason why its 18% is chosen as the ROI is that it gives a more accurate and suitable price for purchasing this business. If the business purchases is invested with a bank loan and equity invested the interest rate for a bank loan is about 5% and equity for interest can be determined at about 10% which is the return the buyer want for the investment. Apart from this a risk factor percentage should be included as well which could be about 3%. 6.4. Cash Flow StatementA cash flow statement displays the flowing of cash transaction within a business which point out the financial stability of the business.

Figure 28 Cash Flow for 3 yearsFrom the above cash flow statement of three years which assess that the business has purchased changes in fixed equipments and properties as well as done improvement to the quality of services provided. Through which the cash flow estimate shows the caf invest in new equipment and managerial increase in the wages.

6.5. Break Even Analysis

Figure 29 Breakeven Analysis Chart

7. ConclusionThrough the financial analysis, it was understood that plenty of strategy exist in terms of business valuation method. However in this occasion, the intended focus was conducted using Asset based valuation, Market based valuation and Income based valuation. The researchers findings highlight that the most appropriate method was Income based business valuation, ROI method. Since the business assets is not for sale and the value is to determine the purchases of the whole canteen by using Asset based evaluation was unable to obtain proper business valuation. Similar with Market based evaluation, due to circumstantial changes caused by market irregularity and economy fluctuation which results in inappropriate valuation for this kind of business. It was concluded through reviewing that the Income based business evaluation using the ROI method is ideal. Since it is very much based on the income generated from the business and can determine the income from the business which enables suitable valuation of the business.

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8. ReferencesChapter 25 Return on Investment and Residual Income., 2015. In: 1st ed. [Online] University of North Florida. Available at: http://www.unf.edu/~dtanner/dtch/dt_ch25.htm [Accessed 13 Mar. 2015].Chen, T. and Ling, S., 2012. The rationale of international students in choosing the Private Higher Education Institution in Malaysia.2012 International Conference on Innovation Management and Technology Research.Chi, M., 2011. Goverment aims to attract 200,000 international students by 2020. [Online] Available at: http://www.themalaysianinsider.com/malaysia/article/government-aims-to-attract-200000-international-students-by-2020[Accessed 10 Mar. 2015].Kiasutrader, 2010. Education - International Student Visa Woes Persist. [Online] Available at: http://klse.i3investor.com/blogs/rhb/28624.jsp[Accessed 10 Mar. 2015].Little, K., 2015.How to Know if a Company is Viable. [Online] About.com Money. Available at: http://stocks.about.com/od/evaluatingstocks/a/bv.htm [Accessed 13 Mar. 2015].Ministry of Higher Education Malaysia, 2013. National Education Statistics: Higher Education Sector 2012. First ed. s.l.:Ministry of Higher Education Malaysia.Sec.gov, 2008.Snyder Valuation. [Online] Available at: http://www.sec.gov/Archives/edgar/data/908652/000119312508201030/dex991c7 [Accessed 15 Mar. 2015].What's Your Business Worth?., 2007. 1st ed. [Ebook] Business Resource Services. Available at: http://www.brs-seattle.com/companyvalue.pdf [Accessed 13 Mar. 2015].Wilson, J., 2009.American law yearbook 2008. Detroit, Mich.: Gale.Zainal, N., Mohd Aminuddin, Z. and Zainol, M., 2013. Higher Education Socioeconomic Index and the socioeconomic composition of student population in public and private higher education institutions.2013 IEEE Business Engineering and Industrial Applications Colloquium (BEIAC).

9. AppendicesAppendix A: Assumptions and Limiting Conditionsi. Information, estimates and opinions contained in this report have been obtained from sources considered reliable. However, researcher have not independently verified such information.ii. All facts and data set forth in this report are true and accurate to the best of researchers knowledge. Anything withheld or omitted from the report which might affect researchers opinions, conclusion, recommendations or estimate of value is unknowingly.iii. No investigation of titles to property or any claims concerning ownership of property by any individuals or company has been undertaken. Unless otherwise stated in this report, title has been assumed to be clear and free of encumbrances and as provided to researcher.iv. The estimates of value presented in this report apply to this analysis only and may not be used out of the presented herein.v. It should be specifically noted that this analysis assumes the business will be competently managed and maintained by financially sound owners over the expected period of ownership. Researchers engagement entails a limited evaluation of managements effectiveness; however, we are not responsible for future marketing efforts and other management or ownership actions upon which actual results will depend.vi. No opinion is intended to be expressed for matters which require legal, income tax or other specialized expertise, investigation or knowledge. vii. It is assumed that there were no regulation of any government entity, which controlled or restricted use of the underlying assets, unless specifically referred to in this report. It was also assumed that underlying assets were not operated in violation of application government regulations, codes, ordinances or statues.viii. The researcher has no present or prospective interest in the property that is the subject of this report and no personal interest or bias in with respect to the parties involved.ix. The researchers engagement in this report was not contingent upon developing or reporting predetermined results or direction in value that favors the cause of the client, the amount of the value opinion, the attainment of a stipulated result, or the occurrence of a subsequent event directly related to the intended use of this appraisal.