Green Building Group specialises in a range of construction services including design services, shop and office fitouts, and recently developed environmental consulting services for architects and local government. Summarised statement of profit or loss and key performance metrics are provided below.

The CEO of Green Building Group, Sue Smith, is hoping to increase the resources devoted to the environmental consulting services. This is based on the increasing number of queries for this type of work as well as some industry data that suggest 25 per cent growth rates per year over the past few years. Industry experts predict these growth rates to continue. Moreover, the retail business has remained relatively constant over the past three years, while consulting has grown by about 10 per cent per year.

Sue was hoping to use some of the resources currently assigned to retail to the environmental consulting. Moreover, she knew she would have to hire an additional environmental science expert and engage in some targeted marketing of the environmental activity. Sue is interested to find out the impact of this likely switch in strategic emphasis on the key statement of profit or loss items and metrics for next year.

Required

(a) Based on the information available, make an estimate of revenue across the three areas of activity. Outline your assumptions.

(b) Complete an estimate of the other statement of profit or loss items and key metrics. Outline your assumptions.

(c) What recommendations would you make to Sue?

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Green Building Group Summarised statement of profit or loss to June 2019 Shop Design Environmental fitouts services consulting Total $600 000 $150 000 $400 000 $180 000 $60 000 $30 000 $1 060 000 $ 360 000 $ 225 000 Revenue Gross margin Selling, general and administrative expenses Operating income Profit margin $100 000 $110000 $15000 $ 50 000 $ 70000 $15 000 $ 135 000 8.3% 17.5% 25% 12.7% Total assets $1 000 000 Return on assets 13.5%