CAREER CLUSTER Finance CAREER PATHWAY Corporate Finance INSTRUCTIONAL AREA Financial Analysis BUSINESS FINANCE SERIES EVENT PARTICIPANT INSTRUCTIONS PROCEDURES 1. The event will be presented to you through your reading of these instructions, including the Performance Indicators and Event Situation. You will have up to 10 minutes to review this information to determine how you will handle the role-play situation and demonstrate the performance indicators of this event. During the preparation period, you may make notes to use during the role-play situation. 2. You will have up to 10 minutes to role-play your situation with a judge (you may have more than one judge). 3. You will be evaluated on how well you meet the performance indicators of this event. 4. Turn in all your notes and event materials when you have completed the role-play. PERFORMANCE INDICATORS 1. Calculate gross revenue. 2. Explain the nature of business taxation. 3. Discuss the financial planning process. 4. Determine financial strengths/weaknesses of a business. 5. Make decisions. Published 2014 by DECA Related Materials. Copyright 2014 by DECA Inc. No part of this publication may be reproduced for resale without written permission from the publisher. Printed in the United States of America.
EVENT SITUATION You are to assume the role of a financial analyst temporarily contracted to THE TIME PIECE, a retail clock store. The owner (judge) has asked for your analysis and recommendation regarding the hiring of an additional employee. THE TIME PIECE is a retail clock shop which sells and services grandfather clocks, desk and wall clocks, mantle clocks, watches, and novelty items. Located in a large retirement community of 87,000, the store has provided customers with old-fashioned personal service since it first opened its doors in 1973. Today, the store employs two full-time service technicians along with two fulltime and six part-time sales associates. Revenue growth for THE TIME PIECE has been stagnant for the past several years. Last month the store ran a one week coupon offer where they would replace and install any watch battery for $2.25. While the store is only breaking even on the battery replacement, 290 customers redeemed the coupon and sales revenue increased by 4.1% for the week. The owner would like to make the $2.25 watch battery replacement a permanent everyday special by promoting it in the store s advertising, on the website and with in-store signage. If the promotion continues to draw traffic, an extra part-time employee would be needed to help serve the additional customers. The current sales associates are not in a position to absorb any extra hours. Average weekly sales for THE TIME PIECE were $20,360 prior to the watch battery promotion. The store uses a gross margin of 45%. Assuming sales continue to maintain the 4.1% increase, the owner wants to know if the business would be justified in bringing on an additional part-time associate to work 16 hours a week at $8.25 an hour. In addition to the hourly wage, the business would also be responsible for its portion of Social Security and Medicare (7.65%), and unemployment taxes of 8.3% on the first $7,000 an employee earns. The owner (judge) has requested a meeting with you to obtain your analysis and recommendation on hiring an additional part-time sales associate. Your presentation to the owner must include the following: Calculate the projected weekly sales revenue increase and compare it to the weekly cost of hiring the additional part-time sales associate. Is it financially feasible for THE TIME PIECE to hire the additional associate? Are there any other factors that should be considered because of their potential impact on either the projected sales or the cost of the additional employee? What is your recommendation regarding making the watch battery promotion permanent and hiring the additional sales associate? You will present your analysis to the owner (judge) in a role-play to take place in the owner s (judge s) office. The owner (judge) will begin the role-play by greeting you and asking to hear your ideas. After you have presented and have answered the owner s (judge s) questions, the owner (judge) will conclude the role-play by thanking you for your work. 2
JUDGE S INSTRUCTIONS DIRECTIONS, PROCEDURES AND JUDGE S ROLE In preparation for this event, you should review the following information with your event manager and other judges: 1. Procedures 2. Performance Indicators 3. Event Situation 4. Judge Role-play Characterization Participants may conduct a slightly different type of meeting and/or discussion with you each time; however, it is important that the information you provide and the questions you ask be uniform for every participant. 5. Judge s Evaluation Instructions 6. Judge s Evaluation Form Please use a critical and consistent eye in rating each participant. JUDGE ROLE-PLAY CHARACTERIZATION You are to assume the role of owner of THE TIME PIECE, a retail clock store. You have asked your financial analyst (participant) for an analysis and recommendation regarding the hiring of an additional employee. THE TIME PIECE is a retail clock shop which sells and services grandfather clocks, desk and wall clocks, mantle clocks, watches, and novelty items. Located in a large retirement community of 87,000, the store has provided customers with old-fashioned personal service since it first opened its doors in 1973. Today, the store employs two full-time service technicians along with two fulltime and six part-time sales associates. Revenue growth for THE TIME PIECE has been stagnant for the past several years. Last month the store ran a one week coupon offer where they would replace and install any watch battery for $2.25. While the store is only breaking even on the battery replacement, 290 customers redeemed the coupon and sales revenue increased by 4.1% for the week. You would like to make the $2.25 watch battery replacement a permanent everyday special by promoting it in the store s advertising, on the website and with in-store signage. If the promotion continues to draw traffic, an extra part-time employee would be needed to help serve the additional customers. The current sales associates are not in a position to absorb any extra hours. 3
Average weekly sales for THE TIME PIECE were $20,360 prior to the watch battery promotion. The store uses a gross margin of 45%. Assuming sales continue to maintain the 4.1% increase, you want to know if the business would be justified in bringing on an additional part-time associate to work 16 hours a week at $8.25 an hour. In addition to the hourly wage, the business would also be responsible for its portion of Social Security and Medicare (7.65%), and unemployment taxes of 8.3% on the first $7,000 an employee earns. You have requested a meeting with your financial analyst (participant) to obtain his/her analysis and recommendation on hiring an additional part-time sales associate. The presentation must include the following: Calculate the projected weekly sales revenue increase and compare it to the weekly cost of hiring the additional part-time sales associate. Is it financially feasible for THE TIME PIECE to hire the additional associate? Are there any other factors that should be considered because of their potential impact on either the projected sales or the cost of the additional employee? What is your recommendation regarding making the watch battery promotion permanent and hiring the additional sales associate? The financial analyst (participant) will present an analysis to you in a role-play to take place in your office. You will begin the role-play by greeting the analyst (participant) and asking to hear about his/her ideas. During the course of the role-play you are to ask the following questions of each participant: 1. What is a possible explanation as to why revenue at THE TIME PIECE has been flat for the past several years? 2. What are some things sales associates can do to take advantage of the many additional customers entering THE TIME PIECE every week? Once the financial analyst (participant) has presented the analysis and has answered your questions, you will conclude the role-play by thanking the analyst (participant) for the work. You are not to make any comments after the event is over except to thank the participant. 4
Calculations: Projected Weekly Sales: $20,360 prior to promotion X 4.1% sales increase = $21,195 Additional weekly revenue = $835 ($21,195 $20,360) Gross Margin from extra revenue = $835 extra revenue X 45% margin = $375.75 Cost of Additional Employee: 16 hours/week X $8.25 per hour = $132.00 in wages $132 wages per week X 7.65% Social Security and Medicare = $10.10 $132 wages per week X 8.3% unemployment tax rate = $10.96 Total additional cost per week of additional employee = $153.06 Since additional weekly gross margin of $375.75 is greater than the additional weekly cost of the additional employee of $153.06 the proposal is financially feasible, at least in the short-term. If the additional employee worked 16 hours per week for 52 weeks at $8.25 per hour the total paid in unemployment tax would be $6,864, just slightly under the annual cap of $7,000. Sustainability of Making Promotion Permanent: 290 watch battery replacements per week X 52 weeks = 15,080 additional customers/year. 15,080 from a surrounding community of 87,000 equal 17.3% of the market coming in for watch battery replacements every year. Whether or not the watch battery promotion is sustainable throughout the year depends on other factors the participant may consider. 5
Evaluation Form Information JUDGE S EVALUATION INSTRUCTIONS The participants are to be evaluated on their ability to perform the specific performance indicators stated on the cover sheet of this event and restated on the Judge s Evaluation Form. Although you may see other performance indicators being demonstrated by the participants, those listed in the Performance Indicators section are the critical ones you are measuring for this particular event. Evaluation Form Interpretation The evaluation levels listed below and the evaluation rating procedures should be discussed thoroughly with your event chairperson and the other judges to ensure complete and common understanding for judging consistency. Level of Evaluation Exceeds Expectations Meets Expectations Below Expectations Little/No Value Interpretation Level Participant demonstrated the performance indicator in an extremely professional manner; greatly exceeds business standards; would rank in the top 10% of business personnel performing this performance indicator. Participant demonstrated the performance indicator in an acceptable and effective manner; meets at least minimal business standards; there would be no need for additional formalized training at this time; would rank in the 70-89 th percentile of business personnel performing this performance indicator. Participant demonstrated the performance indicator with limited effectiveness; performance generally fell below minimal business standards; additional training would be required to improve knowledge, attitude and/or skills; would rank in the 50-69 th percentile of business personnel performing this performance indicator. Participant demonstrated the performance indicator with little or no effectiveness; a great deal of formal training would be needed immediately; perhaps this person should seek other employment; would rank in the 0-49 th percentile of business personnel performing this performance indicator. 6
BUSINESS FINANCE SERIES, 2014 JUDGE S EVALUATION FORM SAMPLE EVENT Participant: I.D. Number: INSTRUCTIONAL AREA: Financial Analysis Did the participant: Little/No Value Below Expectations Meets Expectations Exceeds Expectations Judged Score PERFORMANCE INDICATORS 1. Calculate gross revenue? 0-1-2-3-4-5 6-7-8-9 10-11-12-13 14-15-16 2. Explain the nature of business taxation? 0-1-2-3-4-5 6-7-8-9 10-11-12-13 14-15-16 3. Discuss the financial planning process? 0-1-2-3-4-5 6-7-8-9 10-11-12-13 14-15-16 4. Determine financial strengths/weaknesses of a business? 0-1-2-3-4-5 6-7-8-9 10-11-12-13 14-15-16 5. Make decisions? 0-1-2-3-4-5 6-7-8-9 10-11-12-13 14-15-16 6. 7. Reason effectively, use systems thinking, make judgments and decisions, and solve problems? Overall impression and responses to the judge s questions 0-1-2-3 4-5-6 7-8 9-10 0-1-2-3 4-5-6 7-8 9-10 TOTAL SCORE 7