Finance Flexible Budget for Yum Brands Inc. Case Study

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Finance

Flexible Budget for Yum Brands Inc.

Flexible budgeting allows a firm to look at different potential scenarios, often this may be undertaken for an optimistic, pessimistic and most likely scenario. Firms will often undertake forecasting exercises; these may be based on complex approaches to assess likely demand, for example, considering past patterns of sales, the impact advertising they will have and other factors such as the influence of the economic climate, competition and social factors. However, forecasts are unlikely to be fully accurate, the development of a flexible budget allows the firm to look at different scenarios, and create a more flexible approach towards planning. This can be particularly important when the firm is planning for a longer period of time, such as a full financial year, this can be seen by preparing a flexible budget for a well-known company. Yum! Brands is a large corporation which develops, operates and franchises a wide range of restaurants, including KFC, Taco Bell and Pizza Hut. The firm may be argued as particularly sensitive to economic influences as the products and services sold are subject to discretionary spending, and heavily influenced by the level of disposable income, and social fashions and trends and the actions of competitors.

Looking at Yum Brands to prepare a flexible budget one may first look at the sales patterns.

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With revenues (all figures are in millions) of $11,343 for 2010, $12,626 for 2011 and $13,633 there is a pattern of growth. The average growth for the last the years has been 7.95%, this was reflected in the 2012 figure, which saw growth of 7.98% year in year. However, not all years have been so consistent; 2010 saw only a 4.68% increase on the previous year and 2011 was an increase of 11.21% on 2010. For a flexible budget the average of the last three years may give a most likely scenario, assuming an increase in line wit that average. Yum Brands is a firm that is committed to growth, and investment is being made to trey and increase sales. An optimistic approach may be to take the 11.31% as a base line for the highest growth expected. For the pessimistic growth one may look at the most recent quarter, where the firm has recorded a 2.89% decrease in revenues. The firm may have a good history of growth, but in some difficult years there has been a decline, the latest quarter has not been the only period of declining revenues, in 2008 ( a year of the recession) there was a decline of 3.93% on the previous year. For the pessimistic budget the current decline will.....

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