Mambourin Enterprises Incorporated: Financial Analysis

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Mambourin Enterprises Incorporated was established in the year 1975 with an aim to provide support services including employment, education, and training to disabled individuals. It works closely with the Australian government and local bodies to offer services to individuals with disabilities and their parents or guardian to deal with the adversities of life in a much better way (Mambourin 2008).

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Mambourin Enterprises has recently been incurring losses in relation to its Café and Sensory Gardens. Despite numerous management attempts to pull these segments out of losses, the firm has failed to do so. The Board of Directors is currently faced with a decision whether to close down either or both of these segments (Braddy 2010).

In this report, the financial performance of both business segments is reviewed based on the firm’s financial statements for the period from 2007 to 2009. These financial statements use business segment format therefore relevant financial figures are extracted to carry out the analysis.

The horizontal analysis takes the form of a descriptive assessment of the financial performance of the organizations’ different offices located at different locations in Australia. From this analysis, important conclusions are drawn regarding the financial problems that the company may be facing. This report also includes certain recommendations put forth in light of these problems.

Mambourin Café and Sensory Gardens were established in 1997 and they offer great relaxing and cultural opportunities for guests to enjoy (Mambourin 2008). Both these business segments are presently facing problems with the generation of sufficient income and managing operational costs. The following table provides a summary of the financial results of Café and Sensory Gardens both external and internal:

2007-08 2008-09 Jul-10
2008-09 Budget Actual Variance Budget Actual Variance
Café
Income 277,980 264,728 (13,252) 271,735 195,244 (76,491) $7,183
Exps 260,028 269,627 (9,599) 279,615 265,388 14,227 ($12,162)
BALANCE $17,952 ($4,898) ($22,850) ($7,880) ($70,144) ($62,264) ($4,980)
Return on Income -1.90% -35.90%
Sensory Garden
Income 440,628 396,631 (43,997) 261,005 316,706 55,701 $10,794
Exps 502,926 507,600 (4,674) 291,644 410,397 (118,752) ($17,336)
BALANCE ($62,298) ($110,969) ($48,671) ($30,639) ($93,690) ($63,051) ($6,542)
Return on Income -28.00% -29.60%

Table 1: Summary of Financial Results for Café and Sensory Gardens.

The above table clearly suggests that both business segments Café and Sensory Gardens have not been able to generate profits over the last few accounting periods. It could be clearly seen that both these segments have lower income in 2008-09 as compared to the financial year 2007-09. Actual income has declined by 26.24% and 20.15% in 2008 for both Café and Sensory Gardens.

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Despite of the company’s measures to curtail its expenses by changing its strategies and attempts to manage the operations more efficiently both segments have not been able to control their expenses as compared to their income. In both years the expense to revenue ratio has been more than 1 and it has worsened in the year 2008 which implies that the management of the firm is not able to achieve their expected goals of managing these segments profitably.

Comparison of actual figures with budgeted amounts shows great variations in both income and expense level for these segments. Income generated from both business centers is less than the budgeted amounts whereas expenses exceed budgeted figures. These variations have increased significantly in the year 2008. The outcome of such poor financial performance has been the negative return on income that has declined significantly in the year 2008-09. Café has a negative return on the income of -35.90% in 2008 as compared to -1.90% in 2007.

While on the other hand, Sensory Gardens has a negative return of -29.60% in 2008 as compared to -28.00% in 2007 (Table1). This further implies that the steps undertaken by the management of the firm have resulted in better control of the activities of Sensory Garden that has prevented a further sharp decline its return.

Although the financial report of the financial year 2009-10 is not available the financial figures for the month July 2010 suggests similar trends and both Café and Sensory Gardens have not been able to revive their business and could be considered as a major problem for the firm. Café has incurred a loss of $4,980 and Sensory Gardens made a loss of $6,542 in the month of July 2010 (Mambourin 2010). This further suggests that the financial position of Sensory Gardens is deteriorating faster than that of Café.

From this analysis, it could be inferred that if such similar results are observed in the coming months then the firm is surely going to face greater financial difficulties as these segments add to the corporate losses.

The continuing downward trend in the ability to generate revenues and curb expenses is surely raising major concerns regarding the financial viability of these two segments. The problems at present are far from over. The company can face major issues such as funding of these segments from the company’s resources that would further increase the financial cost of operating these segments.

Overall the company is operating at low-profit margins and ailing business segments could limit the company’s ability to remain profitable. One of the poor financial indicators is that of the company’s current ratio that is presently lower than the firm’s target and its value of 0.9. This ratio assists to evaluate the firm’s ability to meet its short-term obligations from its current assets. This is an important value as it is considered by stakeholders including suppliers, banks, and other lenders to determine whether the firm would be able to make due payments.

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This concern is in line with the increasing financial costs of running the two business centers. It may become difficult for the company to raise equity from external sources. Another problem that could arise from this situation is that the company will have to redirect its resources from its presently profitable centers which could actually lead to lower returns from these centers in the coming months. Therefore, the company is faced with a decision over whether to continue with these two business segments or remove them from its portfolio.

In light of the above financial analysis and concerns of the management it is suggested that the firm makes an exit from both these segments and sell its assets to interested parties. This way the company will avoid occurrence of losses as the report to board suggests that different initiatives have been undertaken by the company to improve working of these segments however these decisions are just merely aimed at minimizing the losses incurring by these segments and so far no possibility of profit generation has aroused from the decisions made by the management of the company.

List of References

Braddy, R., 2010. Cafe and Sensory Gardens. Board Paper. Werribee, VIC: Mambourin.

Mambourin, 2008. Financial Report FY2007-08. Financial. Werribee, VIC: Mambourin Enterprises Incorporated.

Mambourin, 2008. Mambourin Enterprises. Web.

Mambourin, 2008. Welcome to the Sensory Garden and Cafe. Web.

Mambourin, 2009. Financial Report FY 2008-09. Financial. Werribee VIC: Mambourin Enteprises Incorporated.

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Mambourin, 2010. Financial Report 2010. Werribee, VIC: Mambourin Enteprises Incoporated.

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