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Case Study: Impact of Regulatory Restrictions and Tax Policy on Breakeven Analysis and Risk Management

Author

Listed:
  • James Henry Dunne

    (School of Management, New York Institute of Technology, 1855 Broadway, New York, NY 10023, USA)

  • Peter Harris

    (School of Management, New York Institute of Technology, 1855 Broadway, New York, NY 10023, USA)

  • Katherine Kinkela

    (Department of Accounting, Iona University, 715 North Avenue, New Rochelle, NY 10801, USA)

Abstract

The objective of this case study is to enable students to analyze the financial impact of an unexpected catastrophic event on a retail business and how the strategic operational decisions made in response to regulatory restrictions and changes in tax policy impact the business’s risk tolerance and breakeven analysis. To provide students with a context for comparison, this case study provides students with the opportunity to analyze the financial statements of a retail business prior to the occurrence of an unexpected catastrophic event, how the catastrophic event impacted revenue and profitability, and how the risk reduction strategies the business employed contained the adverse impact of the factors brought on by that catastrophic event on breakeven. This case study addresses a core gap in the body of knowledge by analyzing a business in three distinct stages of the business life cycle: (1) in the start-up phase; (2) in pre-crisis operations mode; and (3) in crisis mode confronted with an unexpected catastrophic event amidst governmental shutdowns, state and federal regulatory restrictions, and emergency changes to the tax policy. Examining a fictitious restaurant (a composite of the sales statistics of three actual restaurants located in Long Island, New York from 2019 to 2021) in operation for one year prior to the COVID-19 pandemic, students are given the opportunity to think critically about how strategic operational decisions made to generate sales, to minimize risk, to comply with mandated state government policy, and to take advantage of federal tax relief policy, collectively changed the financial projections and impacted the breakeven analysis of that business. Students are able to evaluate business start-up costs, first year (pre-pandemic) sales and costs, and second year (during pandemic) sales and costs of a retail business. Students then evaluate how the United States’ federal PPP relief loan program, along with other pandemic relief programs for businesses and individuals, impacted profitability and business strategy. Students also assess risk, risk tolerance, and how the strategies employed to minimize risk impact a business. The motivation for this case study is to provide students with an illustrative example of an entity at various stages of the business life cycle, to explore the surrounding context of the impact of external environmental events, and to identify the effects of strategic operational responses to the various regulatory changes that were brought on by a catastrophic event. This case study is designed for use in courses that study revenue projection, tax, internal controls, breakeven analysis, and risk management. Teaching Note: While this case study uses a restaurant as a model, prior understanding of the restaurant industry is not necessary. Any student or instructor can use their practical knowledge and experience as a consumer to adequately analyze the issues presented.

Suggested Citation

  • James Henry Dunne & Peter Harris & Katherine Kinkela, 2023. "Case Study: Impact of Regulatory Restrictions and Tax Policy on Breakeven Analysis and Risk Management," JRFM, MDPI, vol. 16(3), pages 1-23, March.
    • Handle: RePEc:gam:jjrfmx:v:16:y:2023:i:3:p:179-:d:1090381
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    References listed on IDEAS

    as
    1. Malgorzata Zieba, 2021. "Knowledge and Knowledge Management," Knowledge Management and Organizational Learning, in: Understanding Knowledge-Intensive Business Services, chapter 1, pages 1-19, Springer.
    2. Anna Bera & Karolina Drela & Agnieszka Malkowska & Anna Tokarz-Kocik, 2020. "Mitigating Risk of the Tourism Sector in the European Union Member States During the COVID-19 Pandemic," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 107-122.
    3. James Henry Dunne & Peter Harris & Terrance Jalbert, 2021. "Mitigating Risk Amidst Catastrophic Events: A Focus On Shareholder And Operating Agreements," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 12(1), pages 69-78.
    4. Durst, Susanne & Hinteregger, Christoph & Zieba, Malgorzata, 2019. "The linkage between knowledge risk management and organizational performance," Journal of Business Research, Elsevier, vol. 105(C), pages 1-10.
    Full references (including those not matched with items on IDEAS)

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