The author of this business valuation report is engage of its service to conduct a study of purchasing the canteen business. Series of business study is put into the report to deliver a near accurate value. It is included as well some market research about the business at nearby places. Such report consists of internal and external environment analysis which contribute to the estimated selling value of the canteen business and pattern of past, present and future value of the business.
In addition, method of assets-based, market-based and income-based approach is being use to evaluate the business. Such method varies in study of coverage area and application advantage whereby it will assist the valuation of suggesting the most appropriate selling value. Certain specific assumption and limiting conditions is used and included in the report.
After learning the information given, the author suggests that a justifiable value range for ABC University canteen at date of January 15 2012 would be between RM 300,000 to RM 375,000. It is suggest that,
Most valuable selling price : RM 300,000
Reasonable selling price : RM 335,000
Maximum selling price : RM 375,000
Asking price : RM 500,000
Some of the method highlighted earlier, the market-based and income-based approach will be used to evaluate the canteen business selling price. On a side not, assets-based will only be suitable when a business purchase and assets in inventory is separately valued. About income-based, it is solely referring on the idea of real value of a business found based on the capacity to generate profit from time to time. While market-based particularly include similar business trend and its selling value in the current market demand and environment as it could varies to timing and other possible factor.
Method used is place on a fair balance of both ends where it covers a mutual selling value on the buyer as well as the seller side. Both part of method use will bring about an outcome of what is valuated as a fair selling price. In addition, to forecast a maximum selling value to acquire, minimum return of investment (ROI) must be place. The maximum selling price is RM 375,000 and minimum ROI of 16% is assumed. Hence any value above RM 375,000 will not be worth it as ROI is around 16%. It is then suggested that the initial asking price of RM 500,000 must be negotiated.
Based on the statistic and the finding analysis of the education industry which include in this report, it is discover that the education prospect in Malaysia is bright and ever growing for the time to come. It is deduce that canteen facility will have demand of its product and service which contribute to sustainable profit growth in the upcoming time. This imply that the canteen business is a worthwhile investment
Current observation by the author found that the business is running at a healthy level. This is due to the unique combination of product, service and environment at top level satisfaction. It is also make aware that the business shows huge potential growth in to the future. The author finding of the report is based on certain element as to restriction, assumptions and limiting conditions being discover and set on.
The assumptions and limiting conditions is set on by the author to assist in the making of this valuation report. It is placed in the appendix 1 under appendices section at the end of the document.
Since 1997, Mr. Bernard had been operating canteen business at ABC University and it is approximately 15 year to the record year of the evaluation studied. The canteen provides superb food product, hospitality service and comfortable environment to the university students and staffs. During 1997 when the university started, Mr. Bernard had been engage to run the canteen business due to experience of running canteen business before that. Initially the canteen only had four staffs including Mr. Bernard himself and roughly it had around 800 students. The canteen only covers a small indoor area and had limited choice of food as it only serve a few choice of readymade dish for its customer. Over the time, the university population grows and the student's amount hitting 10,000 people and the canteen permanent staff also increase to 10.
Hence, the condition of the canteen improves and expands which offer student better choice and comfort. It is discover that the canteen open more menu choice which include cuisines from different countries and ordering facility. It also expands in layout where it had indoor sitting with air-condition and outdoor sitting. The spacious sitting and the comfort while dining is vital and also the canteen is Wi-Fi equip, include electricity charging point outlet and environment theme and cleanliness that is kept refurbish and upkeep from time to time.
It is also made clear that within the range of 3 kilometers of the university, there is no competitor. As mention earlier the canteen grow better all the time with quality services. An added advantage would be the university itself whereby despite the crowd, it is still manage to be cope up with especially at peak hour. This is due to the availability of student part timer, where the students were able to learn and practice their hospitality and culinary art as part of the university program under Culinary Arts and Hospitality. As mention by (Jane, 2013) where one discovery took place, "The small changes we made to the dining room made a huge difference to our pupils and turned eating into a special occasion where the pupils took the time to sit down and really appreciate their food". Thus leading to sustainable and future growth is reality possible.
The university consists of both local and foreign student which lead the canteen to serve variety of cuisine from across the world to accommodate with the choice available of both area of students. It is such that many different kind of food and beverage serving ranging from breakfast, lunch, teatime and snacks such as local, western, Arabic, Italian, fruits, dessert, and wide range of drinks. All the material and ingredient use for food and beverage purpose is kept fresh and with quality whereby it is either purchase manually from local market or deliver by supplier throughout the day whenever and whichever needed. Following is a rough breakdown of menu made available throughout the day.
Table 1: List of Food and Beverage's available for Breakfast, Lunch, Teatime and Snacks.
The method that the canteen operates is rather uniquely fast, flexible and efficient with the support of technology wise. It serve the food to the customer only in one way whereby there is a menu and ordering board where the order is being place based on selection and the total amount is mention. It will then require taking the ordering number to the payment counter to verify and to pay for the food. After the payment complete, the food will be ready for collection at the collection area within a few minutes which no longer than three minutes. This is due to the objective of Mr. Bernard management that fresh and quality food made and serves fast.
When education is concern and especially in develops country, it is discover that much emphasize put in the place of expenditure on education. This is seems important whereby citizen and government of modern and literate society today, take education as an serious matter with much effort and activity is being carry out to support and sustain this functional part. According to Figure 1, it shows that actual capital and current expenditure in the education sector is growing over the year. This focus on the tertiary education level is ever expanding with option for education choice.
Figure 1: Malaysia Expenditure for Educational Sector between years 2008 to 2011.
(Source: Quick Facts 2011-Malaysia Educational Statistics by MOHE)
Thus it is seen Malaysia education effort through the public and government play a great role. The private higher education in the education market environment is also playing a huge initiative by providing variety of programs. With a unique availability of education aid like scholarships and loan, student were able to enjoy education benefits. Some popular education aid in Malaysia would be National Higher Education Fund (PTPTN) and Public Service Department (PSD/JPA) Scholarship. As per current time, Ministry of Higher Education (MOHE) estimates nearly 2 million plus students had benefits from various education aid which estimates to be worth more than RM 50 billion since mid-90, thus allowing students to pursuit tertiary education dream in any available courses desires.
As illustrate in Figure 2 it is discover that the student growth rate in ABC University increases from 7005 to 10000 which indicate around 30% growth rate over the period of five years.
Figure 2: ABC University Student Enrollment Rate between years 2007 to 2011
At the same time with constant effort of marketing and promoting education with the collaborative effort of Ministry of Higher Education (MOHE) in event such as education talks and fair in the country and overseas, prove to be fruitful where it successfully attract more foreign student to study in Malaysia. This had seen that more effort had been put to promote Malaysia lifestyle and culture as well as a potential tertiary education destination. According to Figure 3, it is discover that ABC University had high enrolment rate and it is expected to grow with newer faculty to be set up and collaboration with overseas university over next ten years.
Figure 3: ABC University Overseas Student Enrollment Rate between years 2007 to 2011
Following Figure 4 also suggest that enrolment in Private Higher Learning (IPTS) for overseas student is way much higher than Public Higher Learning (IPTA).
Figure 4: International Student Enrollment in Malaysia Higher Education
(Source: Higher Education Ministry)
ABC University uses a rather uniquely fast, flexible and efficient (Figure 5) ala-carte ordering process with the support of technology wise. It serve the food to the customer only in one way whereby there is a menu and ordering board where the order is being place based on selection and the total amount is mention. It will then require taking the ordering number to the payment counter to verify and to pay for the food. After the payment complete, the food will be ready for collection at the collection area within a few minutes which no longer than three minutes.
Figure 5: Ala-Carte Ordering Steps.
It is understand that there are four possible categories of customers of ABC University canteen which is ABC University employees, local students, foreign student and others. As per Figure 6 showing customer distribution in a pie chart, it is known that around 55% foreign students, 28% local students, 12% employees and 5% visitors. Much foreign student prefers to dine at the canteen due to excellent food product, hospitality service and comfortable environment. While local student is lesser due to familiar with local area and available dining outlet despite require to travel. Employee such as admin staff, student service as well as academician and supporting worker also dine in. This also include temporary visitor which have dealing with the university respectively. All payment must be done upon ordering and it is only by cash.
Figure 6: ABC University's Canteen Customer Statistic Breakdown.
For ABC Canteen to operate, it requires stable chain of products and materials supplies. This is identified as supplier and there is a total of nine fixed supplier which carry different outstanding credit period. All order done in bulk to achieve benefits of discount. Payment transaction with supplier must clear either by cash, cheque or online payment transfer where applicable. Supplier engage carry HALAL certification on the product and materials supplied.
Table 2: List of Food and Beverage's Supplier Details.
ABC University Canteen currently had twenty employees which is working around actively at times as shown in Table 3. Total of eleven permanent employees and nine student part-timers is found from the current owner. It is made clear in Table 3 that it had three chefs, three assistant chef, three cleaners waiters and waitress, and as well as one cashier. While currently Mr. Bernard is the owner as well as manager responsible for maintaining the operation of the canteen thoroughly. All the chef and assistant chef equip with excellent cooking skill and able to work swiftly upon orders received. According to the employee, the staff turnover rate is low where almost 80% had been working for more than five years due to the unique working environment and higher earnings ratio compare to the average of industry. Even at peak of work load, there will be at least about nine part time worker/student will work to assist the permanent staff in various way. Currently part time employee work nearly in all area of cook assistant, cleaner waiter/waitress and as well as cashier at times.
Table 3: List of Position and Number of Employee at ABC University Canteen.
Figure 7: ABC University's Canteen Floor Plan (Up to Date).
Figure 8 is the canteen facility floor plan layout. As describe earlier, it is spacious and well planned. All the current available and supporting employee are able to work efficiently and effective under the facilities layout. Respond from the people describe the canteen as excellent in all aspect and condition.
ABC University canteen furniture and fitting after simple auditing found out the result display in Table 4 as follow.
Table 4: List of Furniture and Fitting at ABC University Canteen.
ABC University canteen equipment and machine after simple auditing found out the result display in Table 5 as follow.
Table 5: List of Equipment and Machine of Employee at ABC University Canteen.
Asset-based valuation approach is use in this case scenario to forecast the selling value of the business itself. It is a common method that targeted on a business net asset value or fair market value where total assets possess subtracting total liabilities. It is an approach of projection of what would cost to establish a business. Interpretation of assets approach includes deciding the business assets and liabilities to review and how it should be calculated (Susan, 2012). Following is the Book Value Method formula:
* Selling Price = Tangible Assets + Intangible Assets - Liabilities
The report author found that the canteen neither has intangible assets nor liability as there is no debt as well as prolong outstanding payment. It is then suggested that the selling price would be equal to the tangible assets available which RM 300,000 book value at time of purchased. Johnson (2012) mention that tangible assets cover from old and new variety of assets in possession. Despite possible depreciation over time, most of the assets maintenance being upkeep at tip top condition whereby major overhaul is not necessary at all. Thus omitting shelf life depreciation value as an exact figure is not possible for this case scenario. In conclusion at base the estimate selling value of the canteen is RM 300,000 through book value method.
Susan (2012) also discusses on the market value approaches to the business valuation study whereby the value of the business is review by comparing with similar business that have recently transacted. This method will only be a successful indicator when only there are a number of samples of similar business to compare and contrast with. This is one of a projected starting point to understand the business value in market.
Some information discovers showing similar business transacted and many factor involve such as business operation and management strength and weakness. Following is some of the going market rate in the last one year:
Table 6: List of Similar Company Business and Transacted Selling Price.
Hence formula for Market Valuation would be:
* Selling Price = Similar Business Transacted Price
While selling price formula and calculation as follow:
Such figure is just an estimation guide and it is not necessary to follow it directly as a final value.
Syrett (2007) point that ROI method will be the most acceptable valuation approach as it precision and standard is widely recognize. ROI simply dynamic and will be able to accommodate with variety of business valuated available. While risk is often link to profit return is rather usual. ROI formula as follow:
* Selling Price = Net Annual Profit x (100 / ROI)
With all the finding and study found above in the report, it lead to the idea that such canteen business is a profitable venture. Following is the turnover and net profit discover.
Table 7: ABC University Canteen's Turnover and Net Profit Last 5 Years.
Hence the author suggests that for such kind of business, a value of 16% ROI will be consider acceptable. Following is the ROI calculation:
Through ROI calculation, the selling value noted is RM 375,000. Despite huge challenge and risk in business 16% is deemed appropriate whereby some effort, wastage and projected sustainable profit involve in such kind business. It is also noted of active six year contract remaining where monthly will require commitment of RM 6,000. While the market rate in Malaysia for average return growth rate for the current moment forecasted at 4.1% by investment and financial house (ZenithROI, 2013).
