Keith's Sporting Goods will regularly monitor all financial statements because they have a direct correlation with the health of our business. We have forecasted into the future with a steady but moderate growth rate where sales will grow by 2% every month. All sales will be in cash leading to positive cash flows whenever asset acquisition is maintained. Profits will be reinvested into the business in hopes of future product and store expansions. If no appropriate investment opportunities present themselves excess cash will be placed into the market through a respected financial consultant.
7.1 Important Assumptions
Key assumptions:
Growth rate of 2% per month
Daily sales: shoes six per day @ $80 each, and apparel 24 items/day @ $25 each
Growth will be steady throughout the year.
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
7.2 Break-even Analysis
The following table and chart show our break-even point.
Break-even Analysis
Monthly Revenue Break-even
$32,540
Assumptions:
Average Percent Variable Cost
60%
Estimated Monthly Fixed Cost
$13,016
7.3 Projected Profit and Loss
Due to working with low overhead, we predict early profits in the life of our business. Depending on the accuracy of our forecasts, we will adjust the amounts spent on marketing and other long-term assets that will add value to our business.
Pro Forma Profit and Loss
Year 1
Year 2
Year 3
Sales
$434,552
$452,802
$471,316
Direct Cost of Sales
$260,731
$271,681
$282,790
Other
$0
$0
$0
Total Cost of Sales
$260,731
$271,681
$282,790
Gross Margin
$173,821
$181,121
$188,526
Gross Margin %
40.00%
40.00%
40.00%
Expenses
Payroll
$101,232
$105,000
$111,000
Sales and Marketing and Other Expenses
$21,600
$21,600
$21,600
Depreciation
$0
$0
$0
Utilities
$9,600
$9,600
$9,600
Rent
$23,760
$23,760
$23,760
Payroll Taxes
$0
$0
$0
Other
$0
$0
$0
Total Operating Expenses
$156,192
$159,960
$165,960
Profit Before Interest and Taxes
$17,629
$21,161
$22,566
EBITDA
$17,629
$21,161
$22,566
Interest Expense
$5,350
$4,200
$3,000
Taxes Incurred
$3,042
$4,240
$4,973
Net Profit
$9,236
$12,721
$14,593
Net Profit/Sales
2.13%
2.81%
3.10%
7.4 Projected Cash Flow
As a retailer, we do not sell on credit, but all of our invetory purchases are made on account. Our net cash outflows are largely a result of repaying the initial loan.
Pro Forma Cash Flow
Year 1
Year 2
Year 3
Cash Received
Cash from Operations
Cash Sales
$434,552
$452,802
$471,316
Subtotal Cash from Operations
$434,552
$452,802
$471,316
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
$434,552
$452,802
$471,316
Expenditures
Year 1
Year 2
Year 3
Expenditures from Operations
Cash Spending
$101,232
$105,000
$111,000
Bill Payments
$238,435
$337,901
$345,980
Subtotal Spent on Operations
$339,667
$442,901
$456,980
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out
$0
$0
$0
Principal Repayment of Current Borrowing
$0
$0
$0
Other Liabilities Principal Repayment
$0
$0
$0
Long-term Liabilities Principal Repayment
$12,000
$12,000
$12,000
Purchase Other Current Assets
$0
$0
$0
Purchase Long-term Assets
$0
$0
$0
Dividends
$0
$10,000
$10,000
Subtotal Cash Spent
$351,667
$464,901
$478,980
Net Cash Flow
$82,885
($12,099)
($7,664)
Cash Balance
$91,374
$79,275
$71,611
7.5 Projected Balance Sheet
Among the importance of monitoring liabilities and assets, cash will be of particular importance to our organization. We will monitor this section of the Balance Sheet constantly. Without cash we will be unable to react to market changes or survive through tough economic cycles. Our net worth will improve as we grow and pay off the initial loan.
Pro Forma Balance Sheet
Year 1
Year 2
Year 3
Assets
Current Assets
Cash
$91,374
$79,275
$71,611
Inventory
$26,588
$27,705
$28,838
Other Current Assets
$0
$0
$0
Total Current Assets
$117,962
$106,980
$100,449
Long-term Assets
Long-term Assets
$2,000
$2,000
$2,000
Accumulated Depreciation
$0
$0
$0
Total Long-term Assets
$2,000
$2,000
$2,000
Total Assets
$119,962
$108,980
$102,449
Liabilities and Capital
Year 1
Year 2
Year 3
Current Liabilities
Accounts Payable
$29,335
$27,633
$28,509
Current Borrowing
$0
$0
$0
Other Current Liabilities
$0
$0
$0
Subtotal Current Liabilities
$29,335
$27,633
$28,509
Long-term Liabilities
$48,000
$36,000
$24,000
Total Liabilities
$77,335
$63,633
$52,509
Paid-in Capital
$40,000
$40,000
$40,000
Retained Earnings
($6,610)
($7,374)
($4,653)
Earnings
$9,236
$12,721
$14,593
Total Capital
$42,626
$45,347
$49,940
Total Liabilities and Capital
$119,962
$108,980
$102,449
Net Worth
$42,626
$45,347
$49,940
7.6 Business Ratios
The table below contains important business ratios from the sporting goods shops industry (5491), as determined by the Standard Industry Classification (SIC) Index.
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