Maria Hernandez Case

Maria Hernandez Case

1. Introduction

        Maria Hernandez & Associates is a webpage design consultancy that opened for business on June 20, 2004. The only shareholder and director of the start-up is Maria Hernandez, a certified webpage designer who graduated from Massachusetts College of Art, holds four years of work experience and is specialized in advertising layout.^[1]

1. Business Model

        The following chapter focuses on the stability of the business model. More specifically, we identified and evaluated the strengths and opportunities as well as the weaknesses and threats of Maria Hernandez & Associates.

2.1. Strengths and Opportunities

        In general, Maria Hernandez & Associates appears to have a healthy and sustainable business model. Our financial analysis of the company reveals that Maria Hernandez did after all earn a profit of 4,600 USD (before taxes, excluding her own salary) in the first two months of operation. In a phase where the high majority of entrepreneurships generate losses due to initially high average fixed costs, Maria managed to set up a company which, even after taking out her own salary, was able to create excess profits to be retained for future investments. In addition, profitability is expected to increase further considering that depreciation expenses will subside within only 3 years. The fact that Maria Hernandez was even able to compensate for the unexpected reparation expenses demonstrates furthermore that the income statement is to a certain degree stress-resilient.

        Aside from the income statement, the balance sheet of Maria Hernandez & Associates also proves to be solid. The ratio of debt to equity of 0.58 suggests that there is a very low risk of insolvency, especially when considering the fact that her main creditor is her father with whom she seems to have a close personal relationship. Hence failing to meet interest payment will not result in legal actions or in worst-case, liquidation. With respect to the short-term liquidity, we calculated a working capital ratio of 4.2, which shows that the company is easily able to pay for its current liabilities with is current assets.^[2] Especially in the start-up phase, high liquidity (especially in form of cash) is essential in order to preempt unexpected expenses. The inability to maintain a certain level of liquidity is one of the most common reason why start-ups fail.^[3] The sudden decline of cash in the bank, however, can be ascribed to the additional investments in equipment and is to be expected in the start-up phase (excluding the investment, cash would have risen by 100 USD).