Durango Gravel
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 |
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