Carswell Cinema Harvard Case Solution & Analysis

Carswell Cinema

Introduction:

The report presents a case about Carswell Cinema, a municipally owned movie theatre in Canada, which was planning its reopening for which the organization required sufficient funds to finance its renovation. The report contains a detailed analysis of the financial support that it would require to fund its strategy. Further, the report also includes projected profitability and cash flow statement in order to review the moments of funds.

Problem Statement

The management of the organization is concerned about the financial projections of the entity, so that the management requires monthly cash flow and profitability statement in order to evaluate its capability to repay the bank loan.

Case Analysis

The report contains a detailed analysis of the following issues

  • Ratio Analysis
  • Contribution Analysis
  • Break-evens, market size
  • Projected statements
  • Cash budgets
  • Implementation
  • Contingency plan

Ratio Analysis:

In order to facilitate better comparison, the ratios have been calculated for both the scenarios; the selling price for adults in opening week is $8 and for second week is $7.

Our analysis in Exhibit 1, based on the projected results of 2008 shows that in the case Carswell Cinema shows a movie on the opening week, then it will result in revenue of $65,000, which is around 43% of the total revenue of $151,938. On the other hand if movies are showed after the opening date, then it will result in a revenue of $60,000, which is almost 40% of its total revenue of $150,422.  Further, showing films in the opening week will require to pay royalties at higher rate of 50% to distributors, which amounts to $32,500 and represent almost 21% of the total revenue . Whereas, showing movies in the second week will require the company to pay royalties at 35%, which will result in an outflow of $21,000 that is around 14% of the total revenue.

Showing film in the first week will result in a gross profit of $106,621which is lower than showing films in a second week that will result in a total of $114,202. Further, the gross profit margin of opening week of 70% is comparatively lower than the gross profit margin of second week which accounts upto 76%.

Additionally, showing movies in the first week will result in a low net profit of $74,140 as compared to showing film in second week which will result in a net profit of $82,009. This will result in increased net profit margin of 55% which is higher as compared to net profit margin of second week which is around 49%.

Our analysis in Exhibit 2, based on the projected results of 2009 shows that in the case   Carswell Cinema shows a movie at the opening week, then it will result in revenue of $78,000, which is around 76% of the total revenue of $102,725. in contrast, if movies are showed after the opening date, then it will result in a revenue of $72,000, which is almost 71% of its total revenue of $100,907. Further, showing films in the opening week will require to pay royalties at the higher rate of 50% to distributors, which amounts to $39,000 that is almost 38% of the total revenue. On contrary, showing movies in the second week will require the company to pay royalties at 35%, which will result in an outflow of $25,200, which is around 25% of the total revenue.

Showing film in the first week will result in a gross profit of $48,986, which is lower than showing films in second week that will result in a total of $58,082. Further, the gross profit margin of opening week of 48% is comparatively lower than the gross profit margin of second week which shows 58%.

Additionally, showing movies in first week will result in a low net profit of $9,896 as compared to showing film in second week that will result in a net profit of $19,411, which will result in an increased net profit margin of 19%. this net profit margin is higher as compared to net profit margin of second week which is around 10%.

Contribution Analysis

Contribution analysis is an analysis technique, which is used in order to estimate the selling price and variable cost of a wide range of products that is offered by the company and also to calculate the contribution that will be used to cover its fixed cost and an ultimate contribution to net profit. Further, in this contribution analysis part, a rebuttable assumption has been made that insurance, hydro & water and miscellaneous expenses are considered as variable expenses and vary as there is a change in sales revenue.

Our analysis in Exhibit 1, based on the projected results of 2008 shows that if Carswell Cinema shows movie on the opening date then it will result in a contribution of $90,103; which is substantially lower than the contribution of $97,972 for films in second week. Further, showing films in the first week..........................

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