Durango Gravel

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Gravel Rock Products Business Plan

Financial Plan

The most important element in the financial plan is the critical need for improving several of the key factors that impact cash flow:

  • We plan to finance our growth through a combination of long-term debt and cash flow. Purchase of the new asphalt plant and related equipment will require debt financing.
  • Additional technology and equipment will be financed with cash flow.
  • Inventory turnover is not a critical element to ensure profitability.

7.1 Important Assumptions

The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are:

  • We assume a slow-growth economy, without major recession.
  • We assume, of course, that there are no unforeseen changes in technology to make products immediately obsolete.
  • We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables.
General Assumptions
2001 2002 2003
Plan Month 1 2 3
Current Interest Rate 13.00% 13.00% 13.00%
Long-term Interest Rate 10.00% 10.00% 10.00%
Tax Rate 25.00% 25.00% 25.00%
Other 0 0 0

7.2 Key Financial Indicators

The most important factor to Durango Gravel, Inc.'s anticipated growth is the procurement of necessary financing for our asphalt plant. The following chart shows projected changes in key financial indicators:

  • Sales
  • Gross Margin
  • Operating Expenses
  • Collection Days
  • Inventory Turnover

7.3 Break-even Analysis

The following table and chart describe our estimated monthly break-even point. Based on our estimated sales and expenses, our monthly break-even point is shown below.

Break-even Analysis
Monthly Units Break-even 3,170
Monthly Revenue Break-even $44,704
Assumptions:
Average Per-Unit Revenue $14.10
Average Per-Unit Variable Cost $1.90
Estimated Monthly Fixed Cost $38,670

7.4 Projected Profit and Loss

We expect to close year 2001 with excellent sales and very respectable profits.

Pro Forma Profit and Loss
2001 2002 2003
Sales $2,696,400 $3,633,780 $4,694,100
Direct Cost of Sales $364,000 $488,000 $616,000
Production Payroll $161,900 $192,900 $201,800
Asphalt Plant Maintenance $226,590 $303,780 $383,460
Asphalt By-Product Additives $273,000 $36,600 $46,200
Other $0 $0 $0
Total Cost of Sales $1,025,490 $1,021,280 $1,247,460
Gross Margin $1,670,910 $2,612,500 $3,446,640
Gross Margin % 61.97% 71.89% 73.42%
Operating Expenses
Sales and Marketing Expenses
Sales and Marketing Payroll $21,000 $23,000 $25,000
Advertising/Promotion $6,000 $6,600 $7,200
Travel $1,200 $1,500 $1,800
Miscellaneous $2,400 $3,000 $3,600
Total Sales and Marketing Expenses $30,600 $34,100 $37,600
Sales and Marketing % 1.13% 0.94% 0.80%
General and Administrative Expenses
General and Administrative Payroll $28,000 $32,000 $37,000
Sales and Marketing and Other Expenses $0 $0 $0
Depreciation $18,000 $24,000 $30,000
Leased Equipment $124,800 $145,000 $145,000
Equipment Expense $18,000 $21,000 $25,000
Equipment Fuel $21,600 $33,500 $48,000
Utilities $9,000 $12,000 $15,000
Insurance $21,600 $24,000 $30,000
Office Expense $4,800 $6,000 $6,500
Miscellaneous $36,000 $42,000 $48,000
Pit Lease $120,000 $150,000 $180,000
Payroll Taxes $31,635 $37,185 $39,570
Other General and Administrative Expenses $0 $0 $0
Total General and Administrative Expenses $433,435 $526,685 $604,070
General and Administrative % 16.07% 14.49% 12.87%
Other Expenses:
Other Payroll $0 $0 $0
Consultants $0 $0 $0
Contract/Consultants $0 $0 $0
Total Other Expenses $0 $0 $0
Other % 0.00% 0.00% 0.00%
Total Operating Expenses $464,035 $560,785 $641,670
Profit Before Interest and Taxes $1,206,875 $2,051,715 $2,804,970
EBITDA $1,224,875 $2,075,715 $2,834,970
Interest Expense $68,669 $61,994 $58,394
Taxes Incurred $284,552 $497,430 $686,644
Net Profit $853,655 $1,492,291 $2,059,932
Net Profit/Sales 31.66% 41.07% 43.88%

7.5 Projected Cash Flow

The cash flow depends on assumptions for inventory turnover, payment days, and accounts receivable management. Our projected 60-day collection days is critical, and it is also reasonable. We need $110,000 in new financing (current borrowing and additional investment) in March to get through a cash flow dip as we build up for mid-year sales.

Pro Forma Cash Flow
2001 2002 2003
Cash Received
Cash from Operations
Cash Sales $134,820 $181,689 $234,705
Cash from Receivables $2,589,881 $3,432,952 $4,437,746
Subtotal Cash from Operations $2,724,701 $3,614,641 $4,672,451
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $60,000 $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 $50,000 $0 $0
Subtotal Cash Received $2,834,701 $3,614,641 $4,672,451
Expenditures 2001 2002 2003
Expenditures from Operations
Cash Spending $210,900 $247,900 $263,800
Bill Payments $1,238,771 $1,545,801 $2,301,964
Subtotal Spent on Operations $1,449,671 $1,793,701 $2,565,764
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $60,000 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $36,000 $36,000 $36,000
Purchase Other Current Assets $0 $0 $0
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $1,545,671 $1,829,701 $2,601,764
Net Cash Flow $1,289,031 $1,784,941 $2,070,688
Cash Balance $1,290,410 $3,075,351 $5,146,039

7.6 Projected Balance Sheet

The Projected Balance Sheet is quite positive. We do not project any real trouble meeting our debt obligations--as long as we can achieve our specific objectives.

Pro Forma Balance Sheet
2001 2002 2003
Assets
Current Assets
Cash $1,290,410 $3,075,351 $5,146,039
Accounts Receivable $55,052 $74,191 $95,840
Inventory $293,640 $75,636 $95,475
Other Current Assets $0 $0 $0
Total Current Assets $1,639,102 $3,225,178 $5,337,353
Long-term Assets
Long-term Assets $1,056,350 $1,056,350 $1,056,350
Accumulated Depreciation $18,000 $42,000 $72,000
Total Long-term Assets $1,038,350 $1,014,350 $984,350
Total Assets $2,677,452 $4,239,528 $6,321,703
Liabilities and Capital 2001 2002 2003
Current Liabilities
Accounts Payable $29,963 $135,747 $193,990
Current Borrowing $0 $0 $0
Other Current Liabilities $10,835 $10,835 $10,835
Subtotal Current Liabilities $40,798 $146,582 $204,825
Long-term Liabilities $637,936 $601,936 $565,936
Total Liabilities $678,734 $748,518 $770,761
Paid-in Capital $1,134,896 $1,134,896 $1,134,896
Retained Earnings $10,168 $863,823 $2,356,114
Earnings $853,655 $1,492,291 $2,059,932
Total Capital $1,998,719 $3,491,010 $5,550,942
Total Liabilities and Capital $2,677,452 $4,239,528 $6,321,703
Net Worth $1,998,719 $3,491,010 $5,550,942

7.7 Business Ratios

The table follows with our main business ratios. We do intend to improve gross margin and collection days. Industry profile ratios based on the Standard Industrial Classification (SIC) code 1442, Construction Sand and Gravel, are shown for comparison.

Ratio Analysis
2001 2002 2003 Industry Profile
Sales Growth 978.28% 34.76% 29.18% 11.10%
Percent of Total Assets
Accounts Receivable 2.06% 1.75% 1.52% 14.30%
Inventory 10.97% 1.78% 1.51% 6.70%
Other Current Assets 0.00% 0.00% 0.00% 32.60%
Total Current Assets 61.22% 76.07% 84.43% 53.60%
Long-term Assets 38.78% 23.93% 15.57% 46.40%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 1.52% 3.46% 3.24% 31.90%
Long-term Liabilities 23.83% 14.20% 8.95% 26.20%
Total Liabilities 25.35% 17.66% 12.19% 58.10%
Net Worth 74.65% 82.34% 87.81% 41.90%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 61.97% 71.89% 73.42% 39.10%
Selling, General & Administrative Expenses 30.36% 30.94% 29.69% 19.60%
Advertising Expenses 0.22% 0.18% 0.15% 0.10%
Profit Before Interest and Taxes 44.76% 56.46% 59.76% 3.70%
Main Ratios
Current 40.18 22.00 26.06 1.68
Quick 32.98 21.49 25.59 1.22
Total Debt to Total Assets 25.35% 17.66% 12.19% 58.10%
Pre-tax Return on Net Worth 56.95% 57.00% 49.48% 3.70%
Pre-tax Return on Assets 42.51% 46.93% 43.45% 8.80%
Additional Ratios 2001 2002 2003
Net Profit Margin 31.66% 41.07% 43.88% n.a
Return on Equity 42.71% 42.75% 37.11% n.a
Activity Ratios
Accounts Receivable Turnover 46.53 46.53 46.53 n.a
Collection Days 60 7 7 n.a
Inventory Turnover 0.77 2.64 7.20 n.a
Accounts Payable Turnover 41.71 12.17 12.17 n.a
Payment Days 28 18 25 n.a
Total Asset Turnover 1.01 0.86 0.74 n.a
Debt Ratios
Debt to Net Worth 0.34 0.21 0.14 n.a
Current Liab. to Liab. 0.06 0.20 0.27 n.a
Liquidity Ratios
Net Working Capital $1,598,305 $3,078,596 $5,132,528 n.a
Interest Coverage 17.58 33.10 48.04 n.a
Additional Ratios
Assets to Sales 0.99 1.17 1.35 n.a
Current Debt/Total Assets 2% 3% 3% n.a
Acid Test 31.63 20.98 25.12 n.a
Sales/Net Worth 1.35 1.04 0.85 n.a
Dividend Payout 0.00 0.00 0.00 n.a