H2O Industries
Financial Plan
As of August 1999, stockholder equity stood at $112,000. Additional infusion of equity from new shareholders will boost the equity capital.
To complete the necessary planned additions to plant and equipment, a 5-year term loan will be required from a financial institution. The projected cash-flow is sufficient to repay this loan in quarterly installments. This term loan should be sufficient to cover the increases in accounts receivable, as well as to support growth in inventory of rental tanks.
7.1 Important Assumptions
Tax Rate:
Tax rate reflects the present sliding scale:
- $0 to $50,000 @ 15% Federal, plus 9.5% State tax
- $50 to $75,000 @ 25%
- $75 to $100,000 @ 34%
- $100 to $335,000 @ 39%
- $335,000 and up @ 34%
Inventory Turnover:
Since this is a service business, the only inventory is that of chemicals and some resin, both of which do not need to be stored more than two weeks. Average is one week (inventory turnover rate of 48).
| 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 | 2.50% | 0.00% | 2.50% |
| Other | 0 | 0 | 0 |
7.2 Break-even Analysis
The following table and chart show the Monthly Units and Monthly Revenue Break-even calculations based on the Average Per-Unit Revenue, Average Per-Unit Variable Costs and the Estimated Monthly Fixed Costs, as drawn from the other financial tables in this plan.
| Break-even Analysis | |
| Monthly Units Break-even | 119 |
| Monthly Revenue Break-even | $34,235 |
| Assumptions: | |
| Average Per-Unit Revenue | $287.08 |
| Average Per-Unit Variable Cost | $59.17 |
| Estimated Monthly Fixed Cost | $27,179 |
7.3 Projected Profit and Loss
The following table and charts give the yearly projected profit and loss statement for H20 Industries. For a monthly analysis, please see attached appendix.
| Pro Forma Profit and Loss | |||
| Year 1 | Year 2 | Year 3 | |
| Sales | $1,025,462 | $1,684,911 | $1,814,105 |
| Direct Cost of Sales | $211,347 | $348,769 | $375,852 |
| Production Payroll | $168,594 | $172,800 | $172,800 |
| Other | $0 | $0 | $0 |
| Total Cost of Sales | $379,941 | $521,569 | $548,652 |
| Gross Margin | $645,521 | $1,163,342 | $1,265,453 |
| Gross Margin % | 62.95% | 69.04% | 69.76% |
| Operating Expenses | |||
| Sales and Marketing Expenses | |||
| Sales and Marketing Payroll | $62,660 | $75,000 | $84,000 |
| Advertising/Promotion | $16,500 | $12,000 | $12,000 |
| Travel | $3,600 | $6,000 | $6,000 |
| Fuel/oil for Vehicles: | $11,520 | $12,000 | $12,500 |
| Vehicle Repair: | $20,004 | $20,000 | $20,000 |
| Uniforms | $1,200 | $1,200 | $1,200 |
| Miscellaneous | $10,800 | $10,800 | $10,800 |
| Total Sales and Marketing Expenses | $126,284 | $137,000 | $146,500 |
| Sales and Marketing % | 12.31% | 8.13% | 8.08% |
| General and Administrative Expenses | |||
| General and Administrative Payroll | $49,096 | $55,600 | $55,600 |
| Sales and Marketing and Other Expenses | $0 | $0 | $0 |
| Depreciation | $36,000 | $36,000 | $36,000 |
| Leased Equipment | $15,252 | $15,252 | $15,252 |
| Utilities | $2,250 | $2,250 | $2,250 |
| Insurance | $11,796 | $11,800 | $11,800 |
| Business Liab. Insurance: | $12,000 | $12,000 | $12,000 |
| Printing and Postage: | $3,600 | $3,600 | $3,600 |
| Telephone Expenses: | $8,004 | $8,000 | $8,000 |
| Auditing: | $2,400 | $2,400 | $2,400 |
| Rent | $24,000 | $24,000 | $24,000 |
| Payroll Taxes | $35,464 | $38,380 | $39,519 |
| Other General and Administrative Expenses | $0 | $0 | $0 |
| Total General and Administrative Expenses | $199,862 | $209,282 | $210,421 |
| General and Administrative % | 19.49% | 12.42% | 11.60% |
| 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 | $326,146 | $346,282 | $356,921 |
| Profit Before Interest and Taxes | $319,375 | $817,060 | $908,533 |
| EBITDA | $355,375 | $853,060 | $944,533 |
| Interest Expense | $19,755 | $12,323 | $9,948 |
| Taxes Incurred | ($4,643) | $0 | $22,465 |
| Net Profit | $304,263 | $804,737 | $876,120 |
| Net Profit/Sales | 29.67% | 47.76% | 48.29% |
7.4 Projected Cash Flow
Cash Flow is an intrinsic projection for H20 Industries. We must maintain a suitable cash balance in the bank in order to be successful. The chart and table below outline our basic cash flow assumptions.
| Pro Forma Cash Flow | |||
| Year 1 | Year 2 | Year 3 | |
| Cash Received | |||
| Cash from Operations | |||
| Cash Sales | $0 | $0 | $0 |
| Cash from Receivables | $774,831 | $1,523,736 | $1,782,529 |
| Subtotal Cash from Operations | $774,831 | $1,523,736 | $1,782,529 |
| Additional Cash Received | |||
| Sales Tax, VAT, HST/GST Received | $0 | $0 | $0 |
| New Current Borrowing | $50,000 | $6,250 | $6,250 |
| New Other Liabilities (interest-free) | $0 | $0 | $0 |
| New Long-term Liabilities | $0 | $0 | $0 |
| Sales of Other Current Assets | $50,000 | $0 | $0 |
| Sales of Long-term Assets | $0 | $0 | $0 |
| New Investment Received | $0 | $0 | $0 |
| Subtotal Cash Received | $874,831 | $1,529,986 | $1,788,779 |
| Expenditures | Year 1 | Year 2 | Year 3 |
| Expenditures from Operations | |||
| Cash Spending | $280,350 | $303,400 | $312,400 |
| Bill Payments | $439,684 | $559,027 | $590,514 |
| Subtotal Spent on Operations | $720,034 | $862,427 | $902,914 |
| Additional Cash Spent | |||
| Sales Tax, VAT, HST/GST Paid Out | $0 | $0 | $0 |
| Principal Repayment of Current Borrowing | $56,252 | $0 | $0 |
| Other Liabilities Principal Repayment | $16,810 | $0 | $0 |
| Long-term Liabilities Principal Repayment | $60,000 | $30,000 | $30,000 |
| Purchase Other Current Assets | $63,450 | $10,350 | $9,450 |
| Purchase Long-term Assets | $0 | $0 | $0 |
| Dividends | $0 | $0 | $0 |
| Subtotal Cash Spent | $916,546 | $902,777 | $942,364 |
| Net Cash Flow | ($41,715) | $627,209 | $846,415 |
| Cash Balance | $82,508 | $709,717 | $1,556,132 |
7.5 Projected Balance Sheet
The projected balance sheet for H20 Industries is presented below.
| Pro Forma Balance Sheet | |||
| Year 1 | Year 2 | Year 3 | |
| Assets | |||
| Current Assets | |||
| Cash | $82,508 | $709,717 | $1,556,132 |
| Accounts Receivable | $250,631 | $411,806 | $443,382 |
| Inventory | $28,886 | $47,669 | $51,370 |
| Other Current Assets | $103,450 | $113,800 | $123,250 |
| Total Current Assets | $465,476 | $1,282,992 | $2,174,135 |
| Long-term Assets | |||
| Long-term Assets | $220,000 | $220,000 | $220,000 |
| Accumulated Depreciation | $36,000 | $72,000 | $108,000 |
| Total Long-term Assets | $184,000 | $148,000 | $112,000 |
| Total Assets | $649,476 | $1,430,992 | $2,286,135 |
| Liabilities and Capital | Year 1 | Year 2 | Year 3 |
| Current Liabilities | |||
| Accounts Payable | $45,461 | $45,991 | $48,763 |
| Current Borrowing | $15,102 | $21,352 | $27,602 |
| Other Current Liabilities | $0 | $0 | $0 |
| Subtotal Current Liabilities | $60,563 | $67,343 | $76,365 |
| Long-term Liabilities | $120,000 | $90,000 | $60,000 |
| Total Liabilities | $180,563 | $157,343 | $136,365 |
| Paid-in Capital | $187,000 | $187,000 | $187,000 |
| Retained Earnings | ($22,350) | $281,913 | $1,086,650 |
| Earnings | $304,263 | $804,737 | $876,120 |
| Total Capital | $468,913 | $1,273,650 | $2,149,770 |
| Total Liabilities and Capital | $649,476 | $1,430,992 | $2,286,135 |
| Net Worth | $468,913 | $1,273,650 | $2,149,770 |
7.6 Business Ratios
The following table gives standard business ratios for the water treatment equipment manufacturer industry, as determined by the Standard Industry Classification (SIC) Index code 3589. The last column, Industry Profile, presents specific information and important ratios for this industry.
| Ratio Analysis | ||||
| Year 1 | Year 2 | Year 3 | Industry Profile | |
| Sales Growth | 0.00% | 64.31% | 7.67% | 8.10% |
| Percent of Total Assets | ||||
| Accounts Receivable | 38.59% | 28.78% | 19.39% | 25.10% |
| Inventory | 4.45% | 3.33% | 2.25% | 21.60% |
| Other Current Assets | 15.93% | 7.95% | 5.39% | 25.80% |
| Total Current Assets | 71.67% | 89.66% | 95.10% | 72.50% |
| Long-term Assets | 28.33% | 10.34% | 4.90% | 27.50% |
| Total Assets | 100.00% | 100.00% | 100.00% | 100.00% |
| Current Liabilities | 9.32% | 4.71% | 3.34% | 35.50% |
| Long-term Liabilities | 18.48% | 6.29% | 2.62% | 21.30% |
| Total Liabilities | 27.80% | 11.00% | 5.96% | 56.80% |
| Net Worth | 72.20% | 89.00% | 94.04% | 43.20% |
| Percent of Sales | ||||
| Sales | 100.00% | 100.00% | 100.00% | 100.00% |
| Gross Margin | 62.95% | 69.04% | 69.76% | 32.10% |
| Selling, General & Administrative Expenses | 33.28% | 21.28% | 20.22% | 17.80% |
| Advertising Expenses | 1.61% | 0.71% | 0.66% | 0.90% |
| Profit Before Interest and Taxes | 31.14% | 48.49% | 50.08% | 3.40% |
| Main Ratios | ||||
| Current | 7.69 | 19.05 | 28.47 | 2.12 |
| Quick | 7.21 | 18.34 | 27.80 | 1.20 |
| Total Debt to Total Assets | 27.80% | 11.00% | 5.96% | 56.80% |
| Pre-tax Return on Net Worth | 63.90% | 63.18% | 41.80% | 4.50% |
| Pre-tax Return on Assets | 46.13% | 56.24% | 39.31% | 10.40% |
| Additional Ratios | Year 1 | Year 2 | Year 3 | |
| Net Profit Margin | 29.67% | 47.76% | 48.29% | n.a |
| Return on Equity | 64.89% | 63.18% | 40.75% | n.a |
| Activity Ratios | ||||
| Accounts Receivable Turnover | 4.09 | 4.09 | 4.09 | n.a |
| Collection Days | 56 | 72 | 86 | n.a |
| Inventory Turnover | 10.91 | 9.11 | 7.59 | n.a |
| Accounts Payable Turnover | 9.32 | 12.17 | 12.17 | n.a |
| Payment Days | 31 | 30 | 29 | n.a |
| Total Asset Turnover | 1.58 | 1.18 | 0.79 | n.a |
| Debt Ratios | ||||
| Debt to Net Worth | 0.39 | 0.12 | 0.06 | n.a |
| Current Liab. to Liab. | 0.34 | 0.43 | 0.56 | n.a |
| Liquidity Ratios | ||||
| Net Working Capital | $404,913 | $1,215,650 | $2,097,770 | n.a |
| Interest Coverage | 16.17 | 66.31 | 91.33 | n.a |
| Additional Ratios | ||||
| Assets to Sales | 0.63 | 0.85 | 1.26 | n.a |
| Current Debt/Total Assets | 9% | 5% | 3% | n.a |
| Acid Test | 3.07 | 12.23 | 21.99 | n.a |
| Sales/Net Worth | 2.19 | 1.32 | 0.84 | n.a |
| Dividend Payout | 0.00 | 0.00 | 0.00 | n.a |
By 
