Entrepreneurship: Financial Plan, Ratio Analysis and Role of Financial Information in Business Strategy

Running head: ENTREPRENEURESHIP
Entrepreneurship
Name of the student
Name of the university
Student ID
Author note

1ENTREPRENEURSHIP
Table of Contents
Financial plan.............................................................................................................................2
Source of investment..................................................................................................................2
Crucial assumptions...................................................................................................................2
Ratio analysis.............................................................................................................................3
Role of financial information in business strategy.....................................................................3
References..................................................................................................................................5

2ENTREPRENEURSHIP
Financial plan
Source of investment
The company will require AED 5,00,000 initially for start-up expenses and
investment in the business. The business is expected to earn profit from 5th months of
operation. However, initially it will able to earn very lower amount of profit and at the end of
the 1st year it is expected to earn only AED 43,000 as profit. Initial requirement of ARD
500,000 will be required for purchasing capital assets like plant and equipment, machinery,
furniture and fixtures. Out of total requirement of AED 500,000, amount of AED 200,000
will be contributed by the founder and partners of the business (Verbeke 2013). Their
contribution will be invested in common stock. On the other hand, balance requirement that is
AED 300,000 will be obtained through bank loan and loan from financial institutes. 60% that
is (300000 *60%) = 180,000 will be borrowed from bank and balance AED 120,000 will be
borrowed from financial institutes. Both the borrowings are expected to be repaid in a period
of 5 years. Therefore, the source of investment will be as follows –
Source Amount Percentage
Owner’s capital AED 200,000 40%
Bank borrowing AED 180,000 36%
Borrowing from financial institutes AED 120,000 24%
Total investment requirement AED 500,000 100%
Crucial assumptions
The financial plan has been prepared based on some crucial assumptions regarding the
sales, interest rate, payment period and various expenses. The assumptions are as follows –
 Sales for the 1st year will be for AED 12,00,000. For the next 2 years it will increase
at the rate of 20%
 Cost of goods sold will be 40% of the sales for all the 3 years
 Salary to the employees will be increased at 10% from 2nd year
 Rent for the 1st year will be AED 2,000 per month and will increase by AED 1000 per
month in each year.