Tucson Electronics
Financial Plan
The following sections outline the financial plan for Tucson Electronics.
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 | 30.00% | 30.00% | 30.00% |
Other | 0 | 0 | 0 |
8.1 Break-even Analysis
The company’s break-even analysis is based on an average company’s running costs within this industry, including payroll, and its fixed costs for such things as rent, utilities, etc. As Tucson Electronics operates as a job-shop, with each task a unique, customized service, it is difficult to estimate revenue per unit and variable costs. The reader must understand that there is a high degree of variance within these estimates.
The reader will also note that the company is not expected to reach its break-even point until the last three months of sales of the first year.

Break-even Analysis | |
Monthly Revenue Break-even | $17,844 |
Assumptions: | |
Average Percent Variable Cost | 10% |
Estimated Monthly Fixed Cost | $16,059 |
8.2 Projected Profit and Loss
The following table and charts are the projected profit and loss for Tucson Electronics.




Pro Forma Profit and Loss | |||
Year 1 | Year 2 | Year 3 | |
Sales | $197,950 | $287,573 | $308,566 |
Direct Cost of Sales | $19,795 | $36,000 | $36,000 |
Other Production Expenses | $0 | $0 | $0 |
Total Cost of Sales | $19,795 | $36,000 | $36,000 |
Gross Margin | $178,155 | $251,573 | $272,566 |
Gross Margin % | 90.00% | 87.48% | 88.33% |
Expenses | |||
Payroll | $88,800 | $135,000 | $139,000 |
Sales and Marketing and Other Expenses | $28,600 | $36,000 | $26,000 |
Depreciation | $1,992 | $2,000 | $2,000 |
Leased Equipment | $6,000 | $2,000 | $2,000 |
Utilities | $4,800 | $5,000 | $5,000 |
Insurance | $7,200 | $7,400 | $7,400 |
Rent | $42,000 | $44,000 | $44,000 |
Payroll Taxes | $13,320 | $20,250 | $20,850 |
Other | $0 | $0 | $0 |
Total Operating Expenses | $192,712 | $251,650 | $246,250 |
Profit Before Interest and Taxes | ($14,557) | ($77) | $26,316 |
EBITDA | ($12,565) | $1,923 | $28,316 |
Interest Expense | $1,370 | $1,000 | $640 |
Taxes Incurred | $0 | $0 | $7,703 |
Net Profit | ($15,927) | ($1,077) | $17,973 |
Net Profit/Sales | -8.05% | -0.37% | 5.82% |
8.3 Projected Cash Flow
The following chart and table is the projected cash flow for Tucson Electronics.

Pro Forma Cash Flow | |||
Year 1 | Year 2 | Year 3 | |
Cash Received | |||
Cash from Operations | |||
Cash Sales | $197,950 | $287,573 | $308,566 |
Subtotal Cash from Operations | $197,950 | $287,573 | $308,566 |
Additional Cash Received | |||
Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
New Current Borrowing | $1,000 | $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 | $3,000 | $0 |
Subtotal Cash Received | $198,950 | $290,573 | $308,566 |
Expenditures | Year 1 | Year 2 | Year 3 |
Expenditures from Operations | |||
Cash Spending | $88,800 | $135,000 | $139,000 |
Bill Payments | $111,148 | $153,016 | $149,950 |
Subtotal Spent on Operations | $199,948 | $288,016 | $288,950 |
Additional Cash Spent | |||
Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
Principal Repayment of Current Borrowing | $1,000 | $0 | $0 |
Other Liabilities Principal Repayment | $3,600 | $3,600 | $3,600 |
Long-term Liabilities Principal Repayment | $3,600 | $3,600 | $3,600 |
Purchase Other Current Assets | $0 | $2,000 | $3,000 |
Purchase Long-term Assets | $0 | $5,000 | $5,000 |
Dividends | $0 | $0 | $0 |
Subtotal Cash Spent | $208,148 | $302,216 | $304,150 |
Net Cash Flow | ($9,198) | ($11,643) | $4,416 |
Cash Balance | $27,002 | $15,359 | $19,775 |
8.4 Projected Balance Sheet
The following table is the projected balance sheet for Tucson Electronics.
Pro Forma Balance Sheet | |||
Year 1 | Year 2 | Year 3 | |
Assets | |||
Current Assets | |||
Cash | $27,002 | $15,359 | $19,775 |
Inventory | $2,794 | $5,081 | $5,081 |
Other Current Assets | $8,000 | $10,000 | $13,000 |
Total Current Assets | $37,796 | $30,440 | $37,856 |
Long-term Assets | |||
Long-term Assets | $4,000 | $9,000 | $14,000 |
Accumulated Depreciation | $1,992 | $3,992 | $5,992 |
Total Long-term Assets | $2,008 | $5,008 | $8,008 |
Total Assets | $39,804 | $35,448 | $45,864 |
Liabilities and Capital | Year 1 | Year 2 | Year 3 |
Current Liabilities | |||
Accounts Payable | $11,731 | $12,652 | $12,295 |
Current Borrowing | $0 | $0 | $0 |
Other Current Liabilities | $10,000 | $6,400 | $2,800 |
Subtotal Current Liabilities | $21,731 | $19,052 | $15,095 |
Long-term Liabilities | $11,800 | $8,200 | $4,600 |
Total Liabilities | $33,531 | $27,252 | $19,695 |
Paid-in Capital | $48,500 | $51,500 | $51,500 |
Retained Earnings | ($26,300) | ($42,227) | ($43,304) |
Earnings | ($15,927) | ($1,077) | $17,973 |
Total Capital | $6,273 | $8,196 | $26,169 |
Total Liabilities and Capital | $39,804 | $35,448 | $45,864 |
Net Worth | $6,273 | $8,196 | $26,169 |
8.5 Business Ratios
The Business ratios give an overall idea of how profitable, and at what risk level, Tucson Electronics will operate at. The ratio table gives both time series analysis and cross-sectional analysis by including industry average ratios. Industry Profile ratios are based on Standard Industrial Classification (SIC) code 7622, Radio and Television Repair. As can be seen from the comparison between industry standards and Tucson Electronics own ratios, there are some differences. Most of these are due to the fact that there is a very large variance in assets, liabilities, financing, and net income between companies in this industry due to the vast differences in company size. The reader will also note that there is a fair amount of variability between the various years. This is due to the fact that the company is expected to grow quickly and have a large variance in profitability from year to year at first.
Overall the company’s projections show a company that faces the usual risks of companies in this industry and one that will be profitable in the long-run. The company shows that it has higher advertising and start-up costs than other competitors, however management has deliberately overstated costs and minimized profits in order to create a “safe” or “buffer” zone in case of hard times or other unforeseeable problems. Pre-tax return on net worth and pre-tax return on assets appears to be very high, especially within the first two years, however again this is due to the fact that the company will be facing highly variable revenue and costs over the first few years.
Ratio Analysis | ||||
Year 1 | Year 2 | Year 3 | Industry Profile | |
Sales Growth | 0.00% | 45.28% | 7.30% | 6.10% |
Percent of Total Assets | ||||
Inventory | 7.02% | 14.33% | 11.08% | 19.00% |
Other Current Assets | 20.10% | 28.21% | 28.34% | 27.50% |
Total Current Assets | 94.96% | 85.87% | 82.54% | 76.90% |
Long-term Assets | 5.04% | 14.13% | 17.46% | 23.10% |
Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
Current Liabilities | 54.59% | 53.75% | 32.91% | 36.90% |
Long-term Liabilities | 29.65% | 23.13% | 10.03% | 15.80% |
Total Liabilities | 84.24% | 76.88% | 42.94% | 52.70% |
Net Worth | 15.76% | 23.12% | 57.06% | 47.30% |
Percent of Sales | ||||
Sales | 100.00% | 100.00% | 100.00% | 100.00% |
Gross Margin | 90.00% | 87.48% | 88.33% | 0.00% |
Selling, General & Administrative Expenses | 97.70% | 87.54% | 82.32% | 83.50% |
Advertising Expenses | 7.07% | 8.69% | 4.86% | 0.50% |
Profit Before Interest and Taxes | -7.35% | -0.03% | 8.53% | 3.10% |
Main Ratios | ||||
Current | 1.74 | 1.60 | 2.51 | 2.26 |
Quick | 1.61 | 1.33 | 2.17 | 1.47 |
Total Debt to Total Assets | 84.24% | 76.88% | 42.94% | 52.70% |
Pre-tax Return on Net Worth | -253.90% | -13.14% | 98.12% | 7.00% |
Pre-tax Return on Assets | -40.01% | -3.04% | 55.98% | 14.70% |
Additional Ratios | Year 1 | Year 2 | Year 3 | |
Net Profit Margin | -8.05% | -0.37% | 5.82% | n.a |
Return on Equity | -253.90% | -13.14% | 68.68% | n.a |
Activity Ratios | ||||
Inventory Turnover | 10.71 | 9.14 | 7.08 | n.a |
Accounts Payable Turnover | 10.47 | 12.17 | 12.17 | n.a |
Payment Days | 27 | 29 | 30 | n.a |
Total Asset Turnover | 4.97 | 8.11 | 6.73 | n.a |
Debt Ratios | ||||
Debt to Net Worth | 5.35 | 3.33 | 0.75 | n.a |
Current Liab. to Liab. | 0.65 | 0.70 | 0.77 | n.a |
Liquidity Ratios | ||||
Net Working Capital | $16,065 | $11,388 | $22,761 | n.a |
Interest Coverage | -10.63 | -0.08 | 41.12 | n.a |
Additional Ratios | ||||
Assets to Sales | 0.20 | 0.12 | 0.15 | n.a |
Current Debt/Total Assets | 55% | 54% | 33% | n.a |
Acid Test | 1.61 | 1.33 | 2.17 | n.a |
Sales/Net Worth | 31.56 | 35.09 | 11.79 | n.a |
Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |