Kouros Brothers Ltd.
The following sections shows in detail that Kouros Brothers Ltd. will be profitable and will easily repay its new loan within six years.
7.1 Important Assumptions
The key underlying assumptions of our financial plan shown in the following general assumption table are:
- We assume access to the funding necessary to re-shape the company, and to provide adequate initial capitalization for a wider range of demonstration equipment.
- We assume realistic to minimum sales, against highest expenses.
- We assume that European funding for agriculture support and development will take place early in 2005 and that the Cyprus Government will release those funds, allowing the farmers and agriculture producers to buy a complete series for their equipment needs.
Other key business assumptions are:
- As we join the EU marketplace, small farms will find it increasingly hard to stay in business, and only the well organized and standardized units will survive. (Based on trends in other recently-added EU member-nations.)
- Steady economic growth in Agriculture and Livestock sector, as predicted by the Ministry of Economics once funding for equipment is released by Cyprus Government.
|Current Interest Rate||5.00%||5.00%||5.00%||5.00%||5.00%|
|Long-term Interest Rate||8.50%||8.50%||8.50%||8.50%||8.50%|
7.2 Break-even Analysis
Our Break-even Analysis is shown in the following table and chart.
We will monitor direct costs very closely, and maintain them at or below 65% by taking advantage of all promotions and discounts offered by authorized manufacturers as they have tentatively agreed to offer us “end column” pricing as a new dealer incentive. We anticipate surpassing our break-even point once local farmers begin to spend their new government grant money.
|Monthly Revenue Break-even||£15,893|
|Average Percent Variable Cost||62%|
|Estimated Monthly Fixed Cost||£6,065|
7.3 Projected Profit and Loss
The following table shows the projected Profit and Loss statement for the next five years. Our largest operating expenses are payroll-related, to cover necessary staff. We are adding a salesperson, and a welder/fitter and lathe man to work on repairs of existing equipment and to finish the in-house designed patented vegetable and cereal equipment.
Direct costs of goods reflects costs for purchasing inventory and having it delivered to our store. The third row shows additional direct costs for manufacturing our patented vegetable and cereal equipment.
Depreciation reflects the declining value of our long-term assets:
- £100,000 value of land and store, depreciated over 29 years (£3,400/year).
- £50,000 of new demo equipment depreciated over a term of 9 years (£5,556/year).
- In 2008 we will sell the depreciated demo equipment and buy £30,000 new assets, and depreciate that amount over 9 years (£3,333/year).
|Pro Forma Profit and Loss|
|Direct Cost of Sales||£169,567||£187,178||£203,403||£223,744||£246,118|
|Production Costs for Patented Planters||£8,850||£9,735||£10,709||£11,779||£12,957|
|Total Cost of Sales||£178,417||£196,913||£214,112||£235,523||£259,075|
|Gross Margin %||34.93%||34.71%||35.47%||35.47%||35.47%|
|Fuels and Transport Expenses||£3,100||£1,600||£1,700||£1,800||£1,900|
|Telex and Faxing||£4,500||£2,400||£2,400||£2,400||£2,400|
|Total Operating Expenses||£72,777||£69,352||£71,302||£72,083||£75,183|
|Profit Before Interest and Taxes||£23,006||£35,355||£46,368||£57,354||£67,198|
7.4 Projected Cash Flow
Cash flow reflects the seasonal purchasing of our customers. Our Cash Balance will increase as customers return to us for repeat sales, after their initial great experiences with us, based on the reasonable assumption of Funding support by Government, which is expected to be 256 millions for 2005-6. This agriculture development plan for 2004-2006 is supported by European Union for all its new members and this funding support will allow the Farmers and Agriculture crop producers to buy the neccessary equipments and to boost their sales and product quality.
The Cash Flow table shows the projected new long-term loan amount (£50,000), received in January, and the repayment of existing and new loans.
The table also shows how we will use this £50,000, to purchase a new, wider range of demonstration equipment, as long-term assets in January. This equipment is necessary to convince skeptical local farmers about the effectiveness of the new machines – we must have at least one model of each machine, which we can bring to their fields and demonstrate to them. Since this equipment is being used, we are depreciating it over nine years (see “Depreciation” in the Profit and Loss statement, above). We will sell this first round of demo equipment at the beginning of 2008, for its depreciated value, and buy another £30,000 of new demo equipment of the latest models, funded by cash flows from the business. This replacement equipment will also be depreciated over nine years.
|Pro Forma Cash Flow|
|Cash from Operations|
|Cash from Receivables||£64,079||£74,958||£82,454||£90,699||£99,769|
|Subtotal Cash from Operations||£269,729||£301,173||£331,290||£364,419||£400,861|
|Additional Cash Received|
|Sales Tax, VAT, HST/GST Received||£0||£0||£0||£0||£0|
|New Current Borrowing||£0||£0||£0||£0||£0|
|New Other Liabilities (interest-free)||£0||£0||£0||£0||£0|
|New Long-term Liabilities||£35,000||£0||£0||£0||£0|
|Sales of Other Current Assets||£0||£0||£0||£0||£0|
|Sales of Long-term Assets||£0||£0||£0||£27,003||£0|
|New Investment Received||£0||£0||£0||£0||£0|
|Subtotal Cash Received||£304,729||£301,173||£331,290||£391,422||£400,861|
|Expenditures from Operations|
|Subtotal Spent on Operations||£239,427||£260,307||£284,670||£309,193||£335,990|
|Additional Cash Spent|
|Sales Tax, VAT, HST/GST Paid Out||£0||£0||£0||£0||£0|
|Principal Repayment of Current Borrowing||£7,800||£7,800||£7,800||£7,800||£7,800|
|Other Liabilities Principal Repayment||£3,372||£3,375||£3,375||£3,379||£0|
|Long-term Liabilities Principal Repayment||£7,351||£7,500||£7,500||£7,500||£7,500|
|Purchase Other Current Assets||£500||£500||£500||£500||£500|
|Purchase Long-term Assets||£50,000||£0||£0||£30,000||£0|
|Subtotal Cash Spent||£308,450||£279,482||£303,845||£358,372||£351,790|
|Net Cash Flow||(£3,721)||£21,691||£27,446||£33,051||£49,071|
7.5 Projected Balance Sheet
Estimated balance sheets for the years 2005-2009 are provided below. The demonstration equipment we plan to buy shows up under long-term assets, bought in January of 2005, depreciated, sold in 2008, and replaced with £30,000 of new demo equipment. We project an increasing net worth.
|Pro Forma Balance Sheet|
|Other Current Assets||£14,480||£14,980||£15,480||£15,980||£16,480|
|Total Current Assets||£49,682||£73,523||£103,069||£138,550||£190,244|
|Total Long-term Assets||£138,003||£129,051||£120,099||£116,363||£109,630|
|Liabilities and Capital||2005||2006||2007||2008||2009|
|Other Current Liabilities||£10,129||£6,754||£3,379||£0||£0|
|Subtotal Current Liabilities||£65,559||£60,781||£50,991||£41,660||£35,871|
|Total Liabilities and Capital||£187,685||£202,574||£223,168||£254,912||£299,874|
7.6 Business Ratios
The table below presents common business ratios as a reference. Our business is part of the planting, haying, harvesting and processing machinery Industry (SIC Code 3523.01). Industry Profile Ratios are shown in the final column for comparison.
|Percent of Total Assets|
|Other Current Assets||7.72%||7.39%||6.94%||6.27%||5.50%||14.34%|
|Total Current Assets||26.47%||36.29%||46.18%||54.35%||63.44%||81.16%|
|Percent of Sales|
|Selling, General & Administrative Expenses||29.35%||25.71%||24.05%||22.16%||20.96%||14.62%|
|Profit Before Interest and Taxes||8.39%||11.72%||13.98%||15.72%||16.74%||3.82%|
|Total Debt to Total Assets||54.99%||44.89%||33.00%||22.29%||14.51%||51.13%|
|Pre-tax Return on Net Worth||20.35%||27.34%||28.47%||27.55%||25.53%||5.77%|
|Pre-tax Return on Assets||9.16%||15.07%||19.07%||21.41%||21.83%||11.81%|
|Net Profit Margin||5.58%||9.01%||11.42%||13.31%||14.51%||n.a|
|Return on Equity||18.11%||24.33%||25.34%||24.52%||22.72%||n.a|
|Accounts Receivable Turnover||15.33||15.33||15.33||15.33||15.33||n.a|
|Accounts Payable Turnover||17.03||12.17||12.17||12.17||12.17||n.a|
|Total Asset Turnover||1.46||1.49||1.49||1.43||1.34||n.a|
|Debt to Net Worth||1.22||0.81||0.49||0.29||0.17||n.a|
|Current Liab. to Liab.||0.64||0.67||0.69||0.73||0.82||n.a|
|Net Working Capital||(£15,877)||£12,742||£52,078||£96,890||£154,374||n.a|
|Assets to Sales||0.68||0.67||0.67||0.70||0.75||n.a|
|Current Debt/Total Assets||35%||30%||23%||16%||12%||n.a|