VitalJuice Ltd.
VitalJuice Ltd. is a family-owned juice company founded in 2018, specializing in premium health beverages. Their marquee product, “Elixir Vitality,” boasts a secret recipe of superfoods and is renowned for its extraordinary health benefits, including boosting immunity and energy levels. This flagship product, along with a range of organic juices, has earned VitalJuice a loyal customer base and a growing reputation in the health and wellness industry.
The company operates from a small production facility, sourcing organic fruits and vegetables from local farmers. Their streamlined operations emphasize sustainability and freshness, which aligns with their brand values. They distribute their products through health stores, online platforms, and select retail chains.
In the fiscal year 2023, VitalJuice achieved a remarkable sales revenue of $4,899,750, showcasing steady growth. The tax on profits in their country is 20%, which significantly impacts their financial strategy. The family owners are deliberating how to balance paying attractive dividends to reward their loyal shareholders while retaining sufficient profit to fund expansion initiatives, such as entering international markets and upgrading production facilities.
Below are key financial figures from VitalJuice Ltd’s operations in 2023:
|
Category |
Amount ($) |
|
Cost of sales |
(3,023,250) |
|
Expenses |
(975,450) |
|
Interest |
(56,625) |
|
Dividends |
(380,000) |
Questions for Students
Q1. Identify 3 items which would be included in cost of sales for VitalJuice.
Q2. Identify 3 items which would be included in expenses for VitalJuice.
Q3. Construct a fully labelled profit and loss account for VitalJuice for the financial year 2023.
Q4. Explain one way in which VitalJuice may decide to use the figure you have for retained profit from question 3.
Q5. Explain what type of business structure VitalJuice is.
A Bold Leap Forwards…
In 2024, VitalJuice Ltd made a bold leap forward by opening a new state-of-the-art production facility near a major port. This strategic move enabled the company to lower production and transportation costs while expanding their operations internationally. The new facility allowed them to efficiently ship their marquee product, “Elixir Vitality,” to global markets, increasing their brand presence in regions such as North America, Europe, and Asia.
To finance this ambitious expansion, VitalJuice took out a substantial loan, which increased their interest expenses significantly. Despite their success in almost doubling revenue to $9,525,000, the costs associated with scaling up operations were much higher than anticipated. Increased production costs, higher expenses for marketing in international markets, and interest payments on the loan put significant pressure on their finances. To add to their woes, corporation tax also increased to 25% after a more liberal and left-wing government was elected.
The family owners maintained their dividend payouts at a similar level to 2023, believing it was essential to reward loyal shareholders. However, they now face difficult decisions on how to navigate these financial challenges while positioning the business for long-term growth.
Below are the financial figures for VitalJuice Ltd in 2024:
Category | Amount ($) |
Sales revenue | 9,525,000 |
Cost of sales | (6,350,000) |
Expenses | (2,600,000) |
Interest | (225,000) |
Dividends | (262,500) |
Questions for Students
Q1. Construct a fully labelled profit and loss account for 2024.
Q2. Comment on your findings.
Q3. Explain what external economy of scale VitalJuice is taking advantage of by locating themselves next to a port.
Q4. Imagine that you are the CEO of VitalJuice Ltd. According to your business management knowledge and understanding, outline a 5-year plan for the company to achieve the following objectives:
* Increase annual sales revenue to $20,000,000
* Mitigate risk through diversification
* Position the company as a global leader in innovation and sustainable business practice
* Ensure a consistent annual dividend of at least 5% of total revenue