The primary objective of businesses and business owners is usually maximizing profits. However, to achieve this goal, compromises have to be made with regards to certain aspects of the organization. In this paper, we shall analyze a small salon that has a sole proprietor who doubles as its only employee. We shall consider a few areas where the proprietor can tweak a few details that will result in sound profit margins.
The first ratio that the company shall monitor is the quick ratio. The salon anticipates a ratio of higher than 1.2 by the end of the second year. The target will be reducing the debt owed by the company. Also, as the revenue of the firm increases by the second year, the quick ratio will also improve signifying a more profitable company.
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Another ratio that is of particular concern to the firm is the Net Profit Margin. These margins are expected to be maintained above 5% by the end of the second year. Because the salon has one employee, the expenses due to salaries payable are small and these results in higher net profit margins. Also, the salaries payable can be maintained at a fixed value, therefore, any increased income is channeled directly as profit.
The total Debt to Total Assets ratio is also critical to the company. Initially, this ratio stands at 89% and the aim is to reduce it to levels of around 50%. This objective can be achieved by increasing the total assets of the company. As more revenue is obtained, a lot of the funds are plowed back into the salon. The funds will be used to acquire better equipment that should improve the quality of service offered to clients. As the quality of service improves, the clients will be required to pay more contributing to even better profit margins.
Reference
Herr, A., & Hottenrott, H. (2016). Higher prices, higher quality? Evidence from German nursing homes. Health policy , 120 (2), 179-189.
