Question

Profit and Loss Statement 2018 Revenue 34,290 percent of growth 0.0% Gross Profit 34,290 Gross Margin 100% SGA Costs (2,500) EBITDA 31,790 EBITDA Margin 92.7% Depreciation (7,500) % of Sales -21.9% EBIT 24,290 EBIT Margin 70.8% Interest (2,500) % of Sales -7.3% EBIT 21,790 EBIT Margin 63.5% Net Income 21,790 Net Income Margin 63.5% Balance Sheet 2017 2018 Cash 9,000 12,000 Inventory 0 0 A/R    0 3,179 Current Assets    9,000 15,179 Fixed Assets 747,300 763,800 Total Assets    756,300 778,979 Liabilities A/P    16,800 14,460 Current Liabilities 16,800 16,800 Long Term Debt 499,652 468,000 Total Liabilities 516,452 482,460 Total Equity    239,848 296,519 Total Liabilities and Equity 756,300 778,979 Cash Flows 2018 EBIT 24,290 Depreciation 7,500 Interest (2,500) Working Capital (2,500) Operating Cash Flow 26,790 Capex (50,000) Investing Cash Flows (50,000) Long Term Debt 50,000 Financing Cash Flows 50,000 Cash Flow 26,790 Cash Overdraft 26,790

1. Question is to identify gaps in funding for my property rental business of10 years, using my financial statements 2.What area(s) do you notice a gap in funding (a shortfall in capital needed to fund future operations or projects)? Really evaluate, even if it’s $1,000 or $10,000; identify it. Evaluate those gaps to determine the cause of those gaps. Prioritize your funding needs. Priority for Funding Gap in Funding Example 1. Initial inventory Unsure ,Have not fully identified the amount of initial inventory needed. Example 2 Computer system $5,000 ,Do not have funding to cover this expense. 3 Submit matrix and a 2-page explanation for your prioritization. HOW DO I IDENTIFY FUNDING GAPS, ( A SHORTFALL IN CAPITAL TO FUND FUTURE OPERATIONS Larry I assume they are talking about gaps in working capital whn funding business cash flows.Larry

Answer 1

Step:-1=

1.) What is funding gap?

Ans. A funding gap is the amount of money needed to fund the ongoing operations or future development of a business or project that is not currently by cash, equity or debt. Funding gaps can be covered by investment from venture capital or angel investors, equity sales, or through debtt offerings and bank loans.

Step:-2=

1.) Identification of funding gap?

Ans. First of all check the debt-equity ratio that is whether this ratio is within prescribed limit or not. As per accounting standard concern the ratio must be equal to 2:1, That is Debt should not be more than twice of equity.

Check this ratio in given question as follows:-

S.no. Particulars 2017 2018

1. Long term debt 499652 468000

2. Equity 239848 296519

3. Ratio ( Debt / Equity) 2.08 1.58

Analysis:- As per above statement we can see that ratio is within limit of in 2018 but in 2017 the ratio is little bit more, as per above analysis we can easily find that whether we have to pay interest in more than our earning because interest of debt is burden on company to pay on recurring basis and its effect working capital in a company hence this ration should be in limit.

Step:-3= Cash Flow Statement:-

1.) As you see the cash flow statement and you will find that there is cash overdraft and there is also a major expenditure is done on the area of assets side or capital expenditure so these are the area of due to which funding gap is created.

Extra explanation for understanding Financial Gap:-
The Financial Gap forecasting section provides a tool to understand how a business’ growth (as
measured by its Sales on the Income Statement), can affect its need for additional assets (which are
measured and paid for on the Balance Sheet). The process involves first identifying which assets
and/or liabilities vary with sales. Variable Assets usually include cash, A/R, inventory, and equipment.
Variable Liabilities are usually accruals and A/P. These can vary with different companies.
Once we’ve identified the company’s variable assets and liabilities, we then develop a percentage of
sales relationship between the dollar amounts from the balance sheet of each variable asset and
liability to the sales that were produced during the year. These percentage of sales relationships will
be used to forecast what the balance sheet may look like in the future, based on different levels of
anticipated sales.