Carmen Diaz (Starting a new Business) Harvard Case Solution & Analysis

Carmen Diaz (Starting a new Business) Case Solution

Background

Carmen Diaz is the lady who will like to start her own business in the field of ribbon supply store. Although she had not enough money to run the business activity. So she took help from two cousins, who managed to give her $10,000 of a loan with 6% of interest at one year of maturity to start a business. While Carmen took the amount from her cousins and added the amount of $1000 of her own from the bank account.

In April, she opened the bank account and deposit all the amount to manage the business activities through bank facilities. Additionally, she opened a credit card facilities to purchase the inventory on credit.

The opening inventory was 3300 and Carmen also purchased Computer systems from cash in a bank. In May, she also purchased the sewing machine to expand a business in a ribbon. Which costs $1,800 and want to increase the profit margin from it.

At the end of 30 June 2007, Carmen was unable to make desire profits from her business and also didn't give fixed interest rates to the loan provider. While she was confident that the business will run fast in the future. Which will recover all the overhead cost and losses from the past performance?

Many analysts tried to conclude the results of the business and the results were found negative as compared to Carmen's expectations. While the only possible way to judge the business is to go through the financial analysis and try to analyze the negative cost associated with the loss.

Exhibits

Income Statement
Sales 7720
Cost of sales 2100
Gross Margin 5620
Operating Expense:  
Employee Wages 1510
Carmen's Salary  
Rent 1800
Office Supplies 20
Miscellaneous Expense 1700
Total Operating Expense 5030
EBITDA 590
Depreciation 510
EBIT 80
Interest -1800
Net Loss -1720

The Exhibit 1 shows the results of income statement of 3 months for the business of Carmen Diaz. It is determined that the business is suffering from negative earnings. Which means that overhead cost is more associated with the losses. Also, it is indicated that the potential loss will also go to the shareholder as well as the owner of the company.

While operating expense is too high to manage the business and the interest rate is also not in the practice of the business because the business is unable to manage its earnings. If excluding the interest expense than the earrings of Carmen can be only $80 instead of her desire profit margins...........................

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