Question

Business Plan – toy merchandise sales

Invest $150,000 cash savings for capital equipment and "working capital. "

Buy Capital Equipment (vehicle of transportation, computer, storage unit) during organizing period for business $50,000

Buy toy units (1 type only) for cash on delivery - $3/unit after receiving bulk order for toy units

Additional variable cost per unit for fuel, labor, packaging, transportation, etc to deliver toys to retailer is $2/unit

Average time from order to delivery is 1 month

Rent, Utilities, Insurance, Bookkeeping, etc (fixed costs) - $12,000/month

Sell packaged, and delivered toy units to retailer for $9/unit

Average time from delivery until when retailer pays is 3 months (Typical "Net 90" Payment Terms)

Sales prediction:

Assume steady orders and sales of 1000 units per month, first sale in January, first delivery in February, first payment received in May, and so on.

Required:

Prepare monthly preliminary income statement and cash flow statement for the first year in spreadsheet (feel free to use any spreadsheets we developed during the class)

Determine if there are any external funding requirements

What are the business’s profit margin, return on assets, debt to assets, debt to equity, and asset to equity ratios?

According to the integrated reporting framework, what kind of capitals are the most relevant in this business context?

Calculate the sustainable growth rate for the business at the end of year 1

Recommend two dynamic metrics for this business and explain briefly why.

Answer 1

1. Monthly income statement
	January	Feburary	March	April	May	June	July	August	September	Octomber	November	December		For year
Incomes
Sales (1000*9)	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000		$108,000
Expences
Fixed cost	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)		($144,000)
Purchase cost (3*1000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)		($36,000)
Additional variable cost (2*1000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)		($24,000)
Profit/(Loss)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)		($96,000)
2. Cash flow statement
	January	Feburary	March	April	May	June	July	August	September	Octomber	November	December		For year
Cash inflows
Investment	$150,000													$150,000
money received from sales					$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000	$9,000		$72,000
Cash outflows
Buy capial eqipments	($50,000)													($50,000)
Fixed cost	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)	($12,000)		($144,000)
Cash pay on delivery		($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)	($3,000)		($33,000)
Variable cost for delivery		($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)	($2,000)		($22,000)
Net cash inflow/outflow	$88,000	($17,000)	($17,000)	($17,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)	($8,000)		($27,000)
2. Yes. Company need to facilitate loan fund. Because company Asset< Capital. Also company is runing in heavy loss thoughout the year and faced huge amount of cash deficit @ the year end.
3. Profit margin = (Net profit or loss / sales)*100 =( -96,000/108,000)*100 = -88.88%
return on asset = Net income / Total assets = -96,000/50,000+*36,000) = -1.12          *Here 36,000 mean Debtors. Money that should received from the debtors ( 9,000*4)
Debt to asset ratio = Debt /asset = 27,000+*3,000/50,000+36,000 = 0.35 here 3,000 mean creditors. Payment required for goods purchased.
debt to eqity ratio = Debt / Eqity = 30,000/ 150,000-96,000) = 0.55
Assdet to eqity ratio = Asst / Equity = 86,000/54,000 = 1.6
4. Working capitals are the more relevant type of capital is reqired for these type of business contest. Since this is merchandise company lot of sales and purchases need to be done in day to day. Therefore huge amount of working capital reqired to carry out business process efficently.