Java Culture will capitalize on the strong demand for high-quality gourmet coffee. The owners have provided the company with sufficient start-up capital. With successful management aimed at establishing and growing a loyal customer base, the company will see its net worth doubling in two years. Java Culture will maintain a healthy 65% gross margin, which combined with reasonable operating expenses, will provide enough cash to finance further growth.
General Assumptions | |||
Year 1 | Year 2 | Year 3 | |
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 |
As the chart and table below present, the company will maintain a healthy cash flow position, which will allow for timely debt servicing and funds available for future development.
Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $584,000 | $642,400 | $706,640 |
Subtotal Cash from Operations | $584,000 | $642,400 | $706,640 |
Additional Cash Received | |||
Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
New Current Borrowing | $0 | $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 | $584,000 | $642,400 | $706,640 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $124,600 | $143,800 | $155,144 |
Bill Payments | $327,865 | $388,715 | $420,945 |
Subtotal Spent on Operations | $452,465 | $532,515 | $576,089 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $3,300 | $3,300 | $3,300 |
Other Liabilities Principal Repayment | $0 | $0 | $0 |
Long-term Liabilities Principal Repayment | $0 | $3,585 | $3,961 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $2,000 | $2,000 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $455,765 | $541,400 | $585,350 |
Net Cash Flow | $128,235 | $101,000 | $121,290 |
Cash Balance | $195,358 | $296,358 | $417,648 |
With average monthly fixed costs of $20,300 in FY2001 and an average margin of 65%, Java Culture's break-even sales volume is around $31,300 per month. As shown further, the company is expected to generate such sales volume from the outstart.
Break-even Analysis | |
Monthly Revenue Break-even | $31,247 |
Assumptions: | |
Average Percent Variable Cost | 35% |
Estimated Monthly Fixed Cost | $20,311 |
Annual projected sales of $584,000 in FY2001 translate into $254.00 of sales per square foot, which is in line with the industry averages for this size of coffee bar. Overall, as the company gets established in the local market, its net profitability increases from 17.06% in FY2001 to 17.63% in FY2003. The table below outlines the projected Profit and Loss Statement for FY2001-2003.
Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $584,000 | $642,400 | $706,640 |
Direct Cost of Sales | $204,400 | $224,840 | $247,324 |
Other | $0 | $0 | $0 |
Total Cost of Sales | $204,400 | $224,840 | $247,324 |
Gross Margin | $379,600 | $417,560 | $459,316 |
Gross Margin % | 65.00% | 65.00% | 65.00% |
Expenses | |||
Payroll | $124,600 | $143,800 | $155,144 |
Sales and Marketing and Other Expenses | $25,800 | $27,600 | $31,000 |
Depreciation | $5,400 | $5,500 | $5,500 |
Rent | $48,400 | $52,800 | $52,800 |
Rent | $6,000 | $6,000 | $6,000 |
Maintenance | $5,840 | $6,424 | $7,066 |
Utilities/Phone | $9,000 | $9,500 | $10,000 |
Payroll Taxes | $18,690 | $21,570 | $23,272 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $243,730 | $273,194 | $290,782 |
Profit Before Interest and Taxes | $135,870 | $144,366 | $168,534 |
EBITDA | $141,270 | $149,866 | $174,034 |
Interest Expense | $2,821 | $2,326 | $1,618 |
Taxes Incurred | $33,740 | $35,510 | $42,424 |
Net Profit | $99,308 | $106,530 | $124,491 |
Net Profit/Sales | 17.00% | 16.58% | 17.62% |
The company's net worth is expected to increase from approximately $212,000 by the end of FY2001 to approximately $443,000 in FY2003. The table below summarizes the projected balance sheets for this period.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $195,358 | $296,358 | $417,648 |
Inventory | $21,175 | $23,293 | $25,622 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $216,533 | $319,651 | $443,270 |
Long-term Assets | |||
Long-term Assets | $59,170 | $61,170 | $63,170 |
Accumulated Depreciation | $5,400 | $10,900 | $16,400 |
Total Long-term Assets | $53,770 | $50,270 | $46,770 |
Total Assets | $270,303 | $369,921 | $490,040 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $31,974 | $31,947 | $34,836 |
Current Borrowing | $6,700 | $3,400 | $100 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $38,674 | $35,347 | $34,936 |
Long-term Liabilities | $20,000 | $16,415 | $12,454 |
Total Liabilities | $58,674 | $51,762 | $47,390 |
Paid-in Capital | $140,000 | $140,000 | $140,000 |
Retained Earnings | ($27,680) | $71,628 | $178,159 |
Earnings | $99,308 | $106,530 | $124,491 |
Total Capital | $211,628 | $318,159 | $442,650 |
Total Liabilities and Capital | $270,303 | $369,921 | $490,040 |
Net Worth | $211,628 | $318,159 | $442,650 |
The table below outlines the company's business ratios. The last column represents industry average business ratios for Specialty Eating Places (SIC 5812).
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 10.00% | 10.00% | 7.60% |
Percent of Total Assets | ||||
Inventory | 7.83% | 6.30% | 5.23% | 3.60% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 35.60% |
Total Current Assets | 80.11% | 86.41% | 90.46% | 43.70% |
Long-term Assets | 19.89% | 13.59% | 9.54% | 56.30% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 14.31% | 9.56% | 7.13% | 32.70% |
Long-term Liabilities | 7.40% | 4.44% | 2.54% | 28.50% |
Total Liabilities | 21.71% | 13.99% | 9.67% | 61.20% |
Net Worth | 78.29% | 86.01% | 90.33% | 38.80% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 65.00% | 65.00% | 65.00% | 60.50% |
Selling, General & Administrative Expenses | 47.94% | 48.47% | 47.37% | 39.80% |
Advertising Expenses | 2.26% | 2.18% | 2.26% | 3.20% |
Profit Before Interest and Taxes | 23.27% | 22.47% | 23.85% | 0.70% |
Main Ratios | ||||
Current | 5.60 | 9.04 | 12.69 | 0.98 |
Quick | 5.05 | 8.38 | 11.95 | 0.65 |
Total Debt to Total Assets | 21.71% | 13.99% | 9.67% | 61.20% |
Pre-tax Return on Net Worth | 62.87% | 44.64% | 37.71% | 1.70% |
Pre-tax Return on Assets | 49.22% | 38.40% | 34.06% | 4.30% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 17.00% | 16.58% | 17.62% | n.a |
Return on Equity | 46.93% | 33.48% | 28.12% | n.a |
Activity Ratios | ||||
Inventory Turnover | 10.91 | 10.11 | 10.11 | n.a |
Accounts Payable Turnover | 11.25 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 30 | 29 | n.a |
Total Asset Turnover | 2.16 | 1.74 | 1.44 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.28 | 0.16 | 0.11 | n.a |
Current Liab. to Liab. | 0.66 | 0.68 | 0.74 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $177,858 | $284,304 | $408,334 | n.a |
Interest Coverage | 48.16 | 62.07 | 104.13 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.46 | 0.58 | 0.69 | n.a |
Current Debt/Total Assets | 14% | 10% | 7% | n.a |
Acid Test | 5.05 | 8.38 | 11.95 | n.a |
Sales/Net Worth | 2.76 | 2.02 | 1.60 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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Market research reports for Eating And Drinking Places industry.
General Assumptions | |||
Year 1 | Year 2 | Year 3 | |
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 |
Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $584,000 | $642,400 | $706,640 |
Subtotal Cash from Operations | $584,000 | $642,400 | $706,640 |
Additional Cash Received | |||
Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
New Current Borrowing | $0 | $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 | $584,000 | $642,400 | $706,640 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $124,600 | $143,800 | $155,144 |
Bill Payments | $327,865 | $388,715 | $420,945 |
Subtotal Spent on Operations | $452,465 | $532,515 | $576,089 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $3,300 | $3,300 | $3,300 |
Other Liabilities Principal Repayment | $0 | $0 | $0 |
Long-term Liabilities Principal Repayment | $0 | $3,585 | $3,961 |
Purchase Other Current Assets | $0 | $0 | $0 |
Purchase Long-term Assets | $0 | $2,000 | $2,000 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $455,765 | $541,400 | $585,350 |
Net Cash Flow | $128,235 | $101,000 | $121,290 |
Cash Balance | $195,358 | $296,358 | $417,648 |
Break-even Analysis | |
Monthly Revenue Break-even | $31,247 |
Assumptions: | |
Average Percent Variable Cost | 35% |
Estimated Monthly Fixed Cost | $20,311 |
Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $584,000 | $642,400 | $706,640 |
Direct Cost of Sales | $204,400 | $224,840 | $247,324 |
Other | $0 | $0 | $0 |
Total Cost of Sales | $204,400 | $224,840 | $247,324 |
Gross Margin | $379,600 | $417,560 | $459,316 |
Gross Margin % | 65.00% | 65.00% | 65.00% |
Expenses | |||
Payroll | $124,600 | $143,800 | $155,144 |
Sales and Marketing and Other Expenses | $25,800 | $27,600 | $31,000 |
Depreciation | $5,400 | $5,500 | $5,500 |
Rent | $48,400 | $52,800 | $52,800 |
Rent | $6,000 | $6,000 | $6,000 |
Maintenance | $5,840 | $6,424 | $7,066 |
Utilities/Phone | $9,000 | $9,500 | $10,000 |
Payroll Taxes | $18,690 | $21,570 | $23,272 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $243,730 | $273,194 | $290,782 |
Profit Before Interest and Taxes | $135,870 | $144,366 | $168,534 |
EBITDA | $141,270 | $149,866 | $174,034 |
Interest Expense | $2,821 | $2,326 | $1,618 |
Taxes Incurred | $33,740 | $35,510 | $42,424 |
Net Profit | $99,308 | $106,530 | $124,491 |
Net Profit/Sales | 17.00% | 16.58% | 17.62% |
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $195,358 | $296,358 | $417,648 |
Inventory | $21,175 | $23,293 | $25,622 |
Other Current Assets | $0 | $0 | $0 |
Total Current Assets | $216,533 | $319,651 | $443,270 |
Long-term Assets | |||
Long-term Assets | $59,170 | $61,170 | $63,170 |
Accumulated Depreciation | $5,400 | $10,900 | $16,400 |
Total Long-term Assets | $53,770 | $50,270 | $46,770 |
Total Assets | $270,303 | $369,921 | $490,040 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $31,974 | $31,947 | $34,836 |
Current Borrowing | $6,700 | $3,400 | $100 |
Other Current Liabilities | $0 | $0 | $0 |
Subtotal Current Liabilities | $38,674 | $35,347 | $34,936 |
Long-term Liabilities | $20,000 | $16,415 | $12,454 |
Total Liabilities | $58,674 | $51,762 | $47,390 |
Paid-in Capital | $140,000 | $140,000 | $140,000 |
Retained Earnings | ($27,680) | $71,628 | $178,159 |
Earnings | $99,308 | $106,530 | $124,491 |
Total Capital | $211,628 | $318,159 | $442,650 |
Total Liabilities and Capital | $270,303 | $369,921 | $490,040 |
Net Worth | $211,628 | $318,159 | $442,650 |
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 10.00% | 10.00% | 7.60% |
Percent of Total Assets | ||||
Inventory | 7.83% | 6.30% | 5.23% | 3.60% |
Other Current Assets | 0.00% | 0.00% | 0.00% | 35.60% |
Total Current Assets | 80.11% | 86.41% | 90.46% | 43.70% |
Long-term Assets | 19.89% | 13.59% | 9.54% | 56.30% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 14.31% | 9.56% | 7.13% | 32.70% |
Long-term Liabilities | 7.40% | 4.44% | 2.54% | 28.50% |
Total Liabilities | 21.71% | 13.99% | 9.67% | 61.20% |
Net Worth | 78.29% | 86.01% | 90.33% | 38.80% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 65.00% | 65.00% | 65.00% | 60.50% |
Selling, General & Administrative Expenses | 47.94% | 48.47% | 47.37% | 39.80% |
Advertising Expenses | 2.26% | 2.18% | 2.26% | 3.20% |
Profit Before Interest and Taxes | 23.27% | 22.47% | 23.85% | 0.70% |
Main Ratios | ||||
Current | 5.60 | 9.04 | 12.69 | 0.98 |
Quick | 5.05 | 8.38 | 11.95 | 0.65 |
Total Debt to Total Assets | 21.71% | 13.99% | 9.67% | 61.20% |
Pre-tax Return on Net Worth | 62.87% | 44.64% | 37.71% | 1.70% |
Pre-tax Return on Assets | 49.22% | 38.40% | 34.06% | 4.30% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | 17.00% | 16.58% | 17.62% | n.a |
Return on Equity | 46.93% | 33.48% | 28.12% | n.a |
Activity Ratios | ||||
Inventory Turnover | 10.91 | 10.11 | 10.11 | n.a |
Accounts Payable Turnover | 11.25 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 30 | 29 | n.a |
Total Asset Turnover | 2.16 | 1.74 | 1.44 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 0.28 | 0.16 | 0.11 | n.a |
Current Liab. to Liab. | 0.66 | 0.68 | 0.74 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $177,858 | $284,304 | $408,334 | n.a |
Interest Coverage | 48.16 | 62.07 | 104.13 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.46 | 0.58 | 0.69 | n.a |
Current Debt/Total Assets | 14% | 10% | 7% | n.a |
Acid Test | 5.05 | 8.38 | 11.95 | n.a |
Sales/Net Worth | 2.76 | 2.02 | 1.60 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
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