Based on our projections, we feel a loan to our company is a sound investment. In order to proceed, we are requesting a loan of $150,000. The funds will be used for manufacturing and production, marketing, and to cover initial operating expenses. The company is planning on going public within the next 12 to 18 months and this will provide additional funds to repay the loan. We can provide an exit for this loan immediately after going public by a recapitalization of funds.
7.1 Business Ratios
The following table contains important ratios from the Tobacco and Tobacco Products industry (SIC 5194), as determined by the Standard Industry Classification (SIC) Index.
Ratio Analysis
2000
2001
2002
Industry Profile
Sales Growth
38.89%
220.00%
63.13%
8.50%
Percent of Total Assets
Accounts Receivable
22.85%
18.42%
13.18%
29.90%
Inventory
0.68%
0.64%
0.30%
27.70%
Other Current Assets
2.01%
0.51%
0.22%
24.50%
Total Current Assets
95.75%
97.63%
98.26%
82.10%
Long-term Assets
4.25%
2.37%
1.74%
17.90%
Total Assets
100.00%
100.00%
100.00%
100.00%
Current Liabilities
13.71%
3.97%
2.39%
46.30%
Long-term Liabilities
4.92%
0.98%
0.30%
10.90%
Total Liabilities
18.64%
4.95%
2.70%
57.20%
Net Worth
81.36%
95.05%
97.30%
42.80%
Percent of Sales
Sales
100.00%
100.00%
100.00%
100.00%
Gross Margin
95.80%
95.25%
96.86%
22.90%
Selling, General & Administrative Expenses
40.46%
30.77%
28.99%
16.20%
Advertising Expenses
2.00%
1.25%
0.77%
0.70%
Profit Before Interest and Taxes
75.16%
86.19%
90.28%
1.30%
Main Ratios
Current
6.98
24.61
41.08
1.72
Quick
6.93
24.45
40.96
0.95
Total Debt to Total Assets
18.64%
4.95%
2.70%
57.20%
Pre-tax Return on Net Worth
130.79%
104.58%
76.65%
3.30%
Pre-tax Return on Assets
106.41%
99.40%
74.59%
7.70%
Additional Ratios
2000
2001
2002
Net Profit Margin
55.53%
64.47%
67.26%
n.a
Return on Equity
97.88%
78.43%
57.17%
n.a
Activity Ratios
Accounts Receivable Turnover
4.71
4.71
4.71
n.a
Collection Days
57
51
63
n.a
Inventory Turnover
10.91
13.25
8.75
n.a
Accounts Payable Turnover
9.80
12.17
12.17
n.a
Payment Days
28
22
25
n.a
Total Asset Turnover
1.43
1.16
0.83
n.a
Debt Ratios
Debt to Net Worth
0.23
0.05
0.03
n.a
Current Liab. to Liab.
0.74
0.80
0.89
n.a
Liquidity Ratios
Net Working Capital
$1,429,924
$6,479,464
$15,127,078
n.a
Interest Coverage
77.36
367.18
931.63
n.a
Additional Ratios
Assets to Sales
0.70
0.86
1.21
n.a
Current Debt/Total Assets
14%
4%
2%
n.a
Acid Test
5.27
19.81
35.45
n.a
Sales/Net Worth
1.76
1.22
0.85
n.a
Dividend Payout
0.00
0.00
0.00
n.a
7.2 Important Assumptions
The table below shows the assumptions that are important to the success of Cigar World.
General Assumptions
2000
2001
2002
Plan Month
1
2
3
Current Interest Rate
10.00%
10.00%
10.00%
Long-term Interest Rate
10.00%
10.00%
10.00%
Tax Rate
25.42%
25.00%
25.42%
Other
0
0
0
7.3 Break-even Analysis
As the table below shows, Cigar World's margins provide enough resources to break-even.
Break-even Analysis
Monthly Revenue Break-even
$44,792
Assumptions:
Average Percent Variable Cost
4%
Estimated Monthly Fixed Cost
$43,000
7.4 Projected Profit and Loss
The table below shows our projected income statement.
Pro Forma Profit and Loss
2000
2001
2002
Sales
$2,500,000
$8,000,000
$13,050,000
Direct Cost of Sales
$100,000
$370,000
$400,000
Other
$5,000
$10,000
$10,000
Total Cost of Sales
$105,000
$380,000
$410,000
Gross Margin
$2,395,000
$7,620,000
$12,640,000
Gross Margin %
95.80%
95.25%
96.86%
Expenses
Payroll
$240,000
$401,100
$466,000
Sales and Marketing and Other Expenses
$218,000
$230,000
$295,000
Depreciation
$6,000
$10,000
$10,000
Utilities
$2,000
$3,500
$4,000
Insurance
$10,000
$15,000
$15,000
Rent
$2,500
$5,000
$5,000
Payroll Taxes
$37,500
$60,000
$63,750
Other
$0
$0
$0
Total Operating Expenses
$516,000
$724,600
$858,750
Profit Before Interest and Taxes
$1,879,000
$6,895,400
$11,781,250
EBITDA
$1,885,000
$6,905,400
$11,791,250
Interest Expense
$24,290
$18,780
$12,646
Taxes Incurred
$466,585
$1,719,155
$2,991,187
Net Profit
$1,388,125
$5,157,465
$8,777,417
Net Profit/Sales
55.53%
64.47%
67.26%
7.5 Projected Cash Flow
The company's cash reserves are sufficient for everyday operations and investments.
Pro Forma Cash Flow
2000
2001
2002
Cash Received
Cash from Operations
Cash Sales
$625,000
$2,000,000
$3,262,500
Cash from Receivables
$1,526,750
$5,123,850
$8,983,035
Subtotal Cash from Operations
$2,151,750
$7,123,850
$12,245,535
Additional Cash Received
Sales Tax, VAT, HST/GST Received
$0
$0
$0
New Current Borrowing
$150,000
$0
$0
New Other Liabilities (interest-free)
$0
$0
$0
New Long-term Liabilities
$0
$0
$0
Sales of Other Current Assets
$0
$0
$0
Sales of Long-term Assets
$0
$0
$0
New Investment Received
$0
$0
$0
Subtotal Cash Received
$2,301,750
$7,123,850
$12,245,535
Expenditures
2000
2001
2002
Expenditures from Operations
Cash Spending
$240,000
$401,100
$466,000
Bill Payments
$803,720
$2,350,065
$3,690,286
Subtotal Spent on Operations
$1,043,720
$2,751,165
$4,156,286
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out
$0
$0
$0
Principal Repayment of Current Borrowing
$0
$78,081
$6,864
Other Liabilities Principal Repayment
$0
$0
$0
Long-term Liabilities Principal Repayment
$14,201
$17,926
$19,803
Purchase Other Current Assets
$0
$0
$0
Purchase Long-term Assets
$60,000
$100,000
$120,000
Dividends
$0
$0
$0
Subtotal Cash Spent
$1,117,921
$2,947,172
$4,302,953
Net Cash Flow
$1,183,829
$4,176,678
$7,942,582
Cash Balance
$1,223,829
$5,400,507
$13,343,089
7.6 Projected Balance Sheet
The company's projected balance sheets for fiscal year 2000-2002 are provided below.
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