Financial Analysis of Geodes Business Plan

FINANCE MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Summary of assumptions and estimates for analysis including the justifications for the same. .1
OTHER FINANCIAL DETAILS....................................................................................................5
MONTHLY CASH FLOW STATEMENT.....................................................................................7
FORECASTED ANNUAL CASH FLOW FOR THREE YEARS.................................................8
REQUIRED CAPITAL TO START THE VENTURE.................................................................10
SENSITIVITY ANALYSIS..........................................................................................................11
DISCOUNTED CASH FLOW......................................................................................................12
FINANCIAL RATIO ANALYSIS................................................................................................13
Interpretation of financial result on the basis of ratio calculation- ...........................................14
CONCLUSION..............................................................................................................................17
RECOMMENDATION.................................................................................................................17
CRITICAL REFLECTION............................................................................................................19
REFERENCES..............................................................................................................................21

INTRODUCTION
Starting a new business is not an easy task as it involves extensive planning. It is
accompanied by the plan which provides a direction and guidelines in regard to the operations to
be carried out. This is therefore, very essential to conduct a proper analysis of the plan which has
been set up mainly for the purpose of the initiating a new business. Thus, financial analysis of
the business plan pertaining to the new venture should be properly analysed, which assist in
determining the viability of the overall business plan in respect to the future earnings. In this
context, this business report is being prepared which analysis the business plan being proposed
pertaining to the Geodes business.
In order to make the analysis effective various tools and approaches are being utilized. It
involves the break-even point analysis, preparation of the cash flow statement along with the
other financial statement which is considered to be important for the new business venture plan.
This will result in better and effective analysis of the plan developed along with understanding
the viability of the business for the long run is also measured and monitored. Along with this,
certain estimations and assumptions have been made in regard to preparation of the financial
statement of the business. It will also assist in framing certain recommendations in respect to the
business plan based upon the information provided. At last, the critical reflection of the report is
presented which will be provided to Hattie in order to make the project a success.
Summary of assumptions and estimates for analysis including the justifications for the same
Sources of Funding
 It is being clear from the case study, that Hattie has already received a lump sum amount
of 450,000 pounds after leaving the company. Therefore, this amount can be utilized by
the Hattie pertaining to the business operation of the Geodes.
 In terms of requirement of additional funds, Hattie is willing to take 40,000 pounds as
loan at the rate of 7% interest.
 In addition to this, it is also assumed that the company can also borrow funds from the
capital market pertaining to the business operation of Geodes.
 The last option which is available to to Hattie is to add partners to the venture who will
bring in their share of capital to the business and will also have a share in the profits of
the company. This will help in decreasing the financial burden of Hattie to a great extend.
Profit and Loss Items
1

Purchase of Geodes
Hattie will purchase geodes from established supplier in Uruguay Colado Geodes. It will
be purchased at U$ 350/kg and it will receive a discount of 45% on this price. As this in
Uruguayan peso it has to be converted into GBP (Aggelopoulos and Georgopoulos, 2017). The
exchange rate is taken as £1 = U$ 59.15 from London stock exchange. On conversion the
purchase price will be:
Calculation of purchase price
1 ￡= 59.15
Purchase price /kg of geodes 350/59.15
5.92
Discount of 45% 2.66
Purchase price 3.25
Purchase quantity
Based on the sales assumption over the year it is assumed that it will be able to sell the
quantity purchased from the seller. As provided that it will be keeping one month stock at the
end of month the stock for January next year will also be purchased by them in December.
Total quantity purchased = 5050 + 750 = 5800
Discount
Supplier is also allowing discount of 45% to Hattie on purchase of the geodes/kg. The
discount is calculated as
Purchase price 5.92
Discount of 45% 2.66
Purchase price 3.25
The final purchase price per kg of Geodes for Hattie will be £3.25 and it is calculated after
converting the purchase price.
Freight
As it is imported from other country it will have to bear the freight cost of U$ 200. The
goods will be stored for four weeks including packaging (Naoum and Papanastasopoulos, 2020).
The above cost also needs to be converted into GBP on the above exchange rate as:
Freight 200/59.15
3.381
The freight costs are higher than the cost of geodes to Hattie.
Selling price
2

The selling price for one kg of geodes is kept at £35 excluding the packaging and
shipping. Selling prices has been kept after making proper analysis of the market demand and
prices. The price is only limited to internet sales. The selling price per cabinet relating to venture
is different which is £45 per cabinet which includes 1.5 kg of geodes. This is being provided to
Ian at discount as selling price of 1.5 kg geodes is 52.5 (35+17.5).
Sales
As provided the demand in 1st month will be 50 kg for year and it will reach the target
level of 750 kg per month by end of December. It is assumed that it will incur marketing and
promotion of the business over internet to increase the sales (Bidabad, 2019). Based on it, the
sales assumption are made for every month for internet sales are as follows:
Month Sales
1 50
2 100
3 250
4 350
5 350
6 400
7 450
8 500
9 550
10 600
11 700
12 750
Total 5050
The sales total amounts to 5050 from internet sales and if it adopt the venture with Ian it
will be able to sell 108 kg more with cabinet sales. That will amount to 108kg for the year. The
total sales in kg are 5158. However the selling price of both internet and cabinet sales are
different.
Break Even Analysis
From the case scenario, it is very clear that the Hattie will undertake a new venture into
the Geodes which is different from the conventional business. She also plans to sell cabinets for
the Geodes which will be also a part of the business. Thus, the break even point analysis (BEP)
has been carried out for both the ventures which Hattie is willing to establish.
Cost Statement
3

Cost statement
Hattie
Selling price /kg of geodes 35
Variable cost
Geodes 3.25
Freight 3.38
Variable cost 6.63
Fixed Cost
Rent 300
Wages 1500
Total Cost 1800
Break Even Calculation per kg
Selling Price 35
Variable cost 6.63
Fixed Cost 1800
BEP 1800
(35 – 6.63)
BEP in kgs 63.45
BEP in amount 2220.66
Venture with Ian
Venture with Ian
Selling price per cabinet 45
Variable cost
Geodes 3.25
Freight 3.38
Total Cost 6.63
Fixed Cost
Salary/ month 200
Break Even Calculation per cabinet
Selling Price 45
Variable cost 6.63
Fixed Cost 200
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