Analysing the Financial Performance of a Business Practice Questions

Item A: Quarrendon Audio plc

Quarrendon Audio plc designs wireless headphones and portable speakers. It was founded in 2011 and now sells its products in 22 countries through electrical retailers and through its own website. Its products are assembled in a factory in Vietnam and it employs 2 000 people worldwide.

In Year 2, Quarrendon Audio plc launched a new range of speakers and its sales revenue rose by £12 million. However, the prices it pays for the batteries and microchips used in its products rose by 15%, and the cost of shipping finished goods from Vietnam also increased.

Quarrendon Audio plc decided not to increase the selling price of its headphones, because two low-cost rivals had entered the market and were advertising heavily. The directors are now considering whether to increase the selling price of its headphones.

Table 1 – Quarrendon Audio plc financial performance

	Year 1	Year 2
Sales revenue	£84 000 000	£96 000 000
Cost of sales	£50 400 000	£62 400 000
Expenses	£21 600 000	£23 520 000

Item A: Nordhaus Living

Nordhaus Living sells flat-pack furniture online to customers in nine European countries. It has no stores; orders are packed and delivered from two warehouses, one in the Netherlands and one in Poland. Its best-selling two-seater sofa sells for £320, and its cost of sales includes timber, fabric and the delivery charges paid to courier firms.

Nordhaus has grown quickly, but its finance director, Lena Vogt, is worried that costs are rising faster than revenue. Fuel prices have pushed up delivery charges and the business has spent heavily on online advertising to compete with Casavia, the largest seller in the market.

Lena has bought a market research report that gives the information in Table 1. She wants to use it to help the board decide whether Nordhaus should cut its advertising spending or raise the price of its sofas.

Table 1 – European online furniture market, last year

Business	Market share (%)	Net profit margin (%)
Casavia	28	4
Nordhaus Living	22	6
Fjordhem	15	9
All other businesses	35	Not available

Item A: Tamberlo Coffee Ltd

Tamberlo Coffee Ltd manufactures bean-to-cup coffee machines for hotels and offices. It was founded in Leeds by Daniel Asante and now exports to 14 countries, assembling machines at plants in the UK and Malaysia. Its best-selling machine is sold to business customers for £1 450.

In 2023 Tamberlo won contracts to supply two large hotel chains and sales revenue grew strongly. To complete the orders on time, Tamberlo paid overtime rates to its assembly workers, rented an extra unit close to its Leeds plant and employed more after-sales service engineers. The price of the steel and electronic components Tamberlo buys from its suppliers also rose during the year.

Daniel was pleased with the growth in sales revenue. However, Tamberlo's accountant has told him to look closely at the figures in Table 1 before he decides whether to accept a third hotel contract.

Table 1 – Tamberlo Coffee Ltd financial information

	2022	2023
Revenue	£8 000 000	£9 600 000
Cost of sales	£4 800 000	£6 048 000
Net profit	£800 000	£768 000

Item A: Harvest Grove plc

Harvest Grove plc manufactures frozen ready meals and frozen vegetables. It supplies supermarkets in 14 countries from four factories in the UK and one factory in Poland. It employs 3 800 people.

Last year Harvest Grove plc had sales revenue of £312 million and cost of sales of £221 million. Its net profit was £17.2 million, giving a net profit margin of 5.5%. Two years ago its net profit margin was 8%. Energy prices and wages at the UK factories have risen, and the price of the potatoes and chicken used in its ready meals has also increased.

Item B: Harvest Grove plc

The directors have been told by shareholders that the net profit margin must improve. They are considering two options.

Option 1: Move production of the ready meal range to the factory in Poland. This would cost £6 million to set up and is expected to reduce cost of sales by £14 million each year. 240 UK jobs would be lost.

Option 2: Increase the prices charged to supermarkets by 4%. One supermarket customer, which provides 11% of Harvest Grove plc's sales revenue, has warned that it may buy from a rival supplier instead.