Financial Management - Analysis of Fictive Business

This report analyzes the financial management of a fictive business, including assumptions and estimates, break even analysis, profit and loss statement, balance sheet, and monthly cash flow. It provides recommendations for the new venture.

Financial Management –
Analysis of Fictive Business

Table of Contents
Executive Summary ........................................................................................................................3
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................2
Summary of assumption and estimate analysis with justification..........................................2
Break Even Analysis..............................................................................................................4
Profit ans Loss Statement.......................................................................................................5
Balance sheet end of the first year..........................................................................................6
Monthly cash flow for the first year of operation...................................................................8
Annual cash flow..................................................................................................................10
A clear Explanation..............................................................................................................11
Sensitivity Analysis..............................................................................................................14
CRITICAL REFELECTION.........................................................................................................15
CONCLUSION & RECCOMEDATION .....................................................................................16
REFERENCES..............................................................................................................................18

Executive Summary
Financial management is manage all the financial activities in systematic manner in order
to analysis financial position of business. There are prepared different types of statements that
examine operational activities of business in different manner and provide accurate results. All
the financial results are presented to internal as well as external stakeholders to helps in decision
making procedure. Along with they are providing sufficient recommendation in regard of the
business. This report based on the case study in which a person after his retirement wants to open
new venture of German handmade chocolate. For this prepare a financial plan in which involve
all the assumptions in regard of particular business. It helps to analysing of risk and take right
action in regard of business in proper manner. This report mainly focus on the profit & loss
statement, balance sheet, cash glow on monthly and annual basis to analysis acrual position of
business.

INTRODUCTION
Financial management is defined as a procedure of planning, organizing, controlling and
monitoring financial resources with a view of acquire organisational goals & objectives. It is
followed by the business to control all the financial activities like procurement of funds,
accounting, risk assessments, proper utilization of funds and every other things related to money.
In the general manner, financial management is the application of general principles in which
manage all the financial activities in proper manner (Ogiela, 2015). To analysis actual position of
business prepare different types of financial statements like Profit & loss statement, financial
position of statement that present the liquidity position as well as profitability of business. These
statements are presenting to outsider stakeholders after analysis they take decision in regard of
investment in business. If finance are not properly dealt with a business will face barriers that
may have various repercussions on its growth as well as development.
This report based on the case study in which a 60 year old uncle retire from their job and
wants to set up new business of German fine handmade chocolates in different flavours. Before
start his business wants to prepare financial plan where include all the cost of chocolates and
related expenditures. Isaac take chocolates from his friend who lives in Germany at 40%
discounts and cover shipping cost, refrigerator, maintain premium stock in specific room and
many other things. Along with also cover packaging and shipping, credit facility, website
designing and staff members who can conduct operational activities effectively. If necessary,
borrow up extra amount of 80,000 at 7% per annum. To understand actual position of business
prepare defined all the assumptions with proper justification. Additionally, calculate break even
analysis, profit & loss statement, monthly cash flow to analysis all the operational activities, after
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that annual cash flow, critical analysis to determine the attractiveness of new venture. At the end
of the report provide appropriate recommendations in regard of new venture and concluded that.
MAIN BODY
Summary of assumption and estimate analysis with justification
There are defined summary all the assumption in roper manner and estimate about the
different transactions in proper manner which are described below:
 Isaac take chocolates from the friend Alphen Choc an average of 120 Euro (€) per kg and
ready to sell them at a 40% discount to this price (Miotto and Parente, 2015).
 It is estimated that shipping from Alpen Choc by air freight about € 14 on average. These
order are receiving about in two weeks with the preparation and packaging time.
 To maintain minimum stock order on monthly basis to Alphen doc and asure about the
range of supply a suitable range of chocolates to customers.
 To stock all the chocolates purchase a refrigerator at a cost of CAD 15500 to keep in
good conditions. Additionally, take a room on rent at a cost of CAD 3500 per month
(which is payable in advance). Along with also deposit some amount of security deposits
for the rent.
 To sell out the chocolates in Canada use internet facility and design a website and for this
planning require to CAD 8500 with the development of e-commerce websites.
 For the market study spent about CAD 5000 and estimate demand about 750 Kg a month.
Although in the first year sales would start from the 50 Kg in first month before building
up slowly by the year to the full level at the end of a year (Ferguson and Morton-
Huddleston, 2016).
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 As per the analysis it is determined that average selling price in Canada of CAD 160 Kg
in which do not consist of sales tax because it does not influence.
 For the Packaging and shipping in Canada would average CAD 6 per Kg and for this not
charge by the customer.
 All the transactions of sales would be conducted on credit card and for this taking a 1.2%
fee per sale. It is remitting the monthly total to Isaac two weeks after the end of financial
month.
 Isaac believes that to conduct operational activates require two part time students at a
total cost of CAD 2500 per month.
 In future require any additional amount which will available CAD 80000 at 7% per
annum.
 To compute overall activities require to apply marginal tax at 25% payable one year in
arrears.
 To sell out decorated chocolate boxes to friend require to wrapping all the boxes which
cost CAD 8 per box and machine CAD 2200 (Altman, and et. al, 2017).
 The another friend of Isaac give contracts to purchase one hundred chocolate box (each
containing 250 gm of chocolates) from him per month at the price of CAD 45 each.
 For effectively work Isaac add amount of social charges which is CAD 500 per month.
At the end provide justification for all the activities that to ready for financial disaster
require to follow all the activities in systematic manner. So Isaac prepare a financial plan in
which record all the amounts of all the transactions that can be happen in future. Most of the
transactions are based on the assumption because many time actual and standard activities are
not matching with each other.
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Break Even Analysis
A break even analysis is a financial tool that apply by the business to analysis of different
phases in an organisation in regard of new product & service, will be profitable. In other words,
all the calculations are based on the additional number of commodities which sell by the
company to cover costs. The tool apply by the Isaac to examine the margin of safety that
depended on the revenues that related with the costs (Engel and et. al, 2016). With the help of
this tool determine various pricing levels which is linked with the levels of demand a business
utilisation, break even analysis to cover the fixed cost of business.
Particular Amount
Sales 231000
- Variable cost 12872
Contribution 218128
-Fixed cost 93700
Profit 124428
Break even analysis
Formula = Fixed cost / PV ratio
PV ratio = Contribution / Sales
*100
218128 / 231000*100 = 94
%
BEP sales amount = 99680
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Interpretation: As per the above table it has been analysed that estimated sales of the
Isaac new venture is 231000, from the amount of sales less amount of variable cost and get result
of contribution is 218128. From the amount of contribution less amount of fixed cost and get
amount of the profit 124428. To calculate this apply appropriate formula and get results in sales
amount is 99680. The PV ratio of new venture is 94%.
Profit ans Loss Statement
It is one of the important part of financial statements in which mention all the expenditure
and income for particular financial year. Profit and loss statement is prepared by the organisation
to analysis the ability to generate sales, manage all the expenditure and create profits. All the
recorded transactions are depended on the accounting principles that consist of revenue
recognition, matching and accruals that makes it different from the cash flow statement
(Hepworth, 2015). In broad manner, Profit & loss accounts presents all the relevant information
of an organisation like income & expenditure and these are categorise into four main sections
such as, cost of goods sold, financial expenses, revenues as well as operating expenses. Each
section carry out various aspects that has been compacted as per the previous to have an
overview of a business's profit margin. This statements provides opportunity to focus on the
various levels of business. With the help of this statement calculate financial ratio in order to
analysis of outcomes of an organization effectively.
Profit & loss statement for the first year operation of business
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Particular Amount
Sales 50 kg @160 per kg 12 per month 96000
Sales 250 gram chocolate per month @ 45 CAD 135000
Purchase chocolate 50 kg @ 72 (€) 3600
Rent 12 * 3500 42000
Research expenses 5000
Employer expenses 30000
Employer Cost 500 Canadian DOLLER * 12 6000
Decorative Paper cost 8 *100 800
Cost of air freight 14*50 K 700
Packaging Expenses 50 KG @6 PER KG *12 3600
Credit card expenses 2772
Total 94472
Profit 136528
Interpretation: From the above table it has been determined that there is classified all
the income and expenditure. All the operational activities related to one year transactions in
which consist of research expenses, cost of air freight, employer expenses, employer cost,
packaging expenses and many others. The business have sales 231000, from this amount less all
the expenses and get amount of profit is 136528.
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Balance sheet end of the first year
A balance sheet is a part of financial statements which is prepare by the organisation to
present actual position of business. It is categorised into two parts in which mention total assets
and liabilities of company in specific financial year. Along with it offers a basis for calculating
rates of return and analysing its capital structure (Tang and Baker, 2016). With the help of this
financial statement presents a snapshot of a business that owns and owes the invested amount by
shareholders. To prepare of this statement follow a particular formula Assets = Liabilities +
Shareholder's equity. Liabilities are debts or responsibility of an organisation which is owned by
creditors. These are categorised into two parts, current and non current liabilities. There is
another essential head which is shareholders equity. Along with Assets are equal to total
liabilities as well as owner's equity. It is mainly utilised by an organisation for the sole
proprietorship and shareholder's equity is utilised by an organisation. This terms is known as the
book value of an organisation. There are presenting balance sheet of Isaac for the new venture
such as:
Particulars Detail Amount
Equity and Liabilities
Shareholder fund
(a) Capital 800000
(B) Net profit 12396
Non current liabilities Nil
Current liabilities Nil
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Total 902396
Assets
Non current assets
(a) Fixed assets
Refrigerator 15500
Wrapping machine 2200 17700
(b) Intangible assets
Website 8500
Current assets
Cash 876196
Total 902396
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Interpretation: From the above table it has been analysed that firstly calculate equity
and liabilities of business in which consist of shareholder equity like capital (800000) & Net
profit (12396). For the new venture Isaac have not any current and non current liabilities. After
that calculate assets which is classified into current and non current assets. In non current assets
consist of Refrigerator (15500) and wrapping machine (2200) and in current assets include cash
(876196). At the end calculate total of liabilities and assets which are coming equal 902396.
Monthly cash flow for the first year of operation
It is a financial statement that presents all the cash transactions like cash inflow and
outflows in particular year. Inflows consist of all the ongoing operations that receive by company
and external investment source. The outflow includes pay for business activities and investment
during a particular period of time (Haryono, 2015). For the new venture firstly analysis all the
transactions on monthly basis after that prepare annual cash flow for the business. The cash flow
of an organisation has been classified into three categories such as, operation activities, financial
and investing activities. In operating activities consist of all cash related activities like sales and
purchase of an assets by an organisation. In investing cash flow includes purchase of capital
assets and for generate profit invest money into different business venture. The last financial
activities involves all income and gains from issuing shared and debts and pay to all creditors of
an organisation. The positive cash flow presents that in an organisation require to adding cash,
reinvest into business, reserve and clear all the dividends of shareholders and adjust all the
following debt payments.
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Cash flow of Isaac new venture on monthly basis
Particular Amount Total amount
Cash flow from operating activities
Cash from sale 11250
Cash from sale 8000
Purchases 3600
Tax 25 % 4812
Net cash flow from operating activities 10838
Cash flow from investing activities Nil
Cash from financing activities
Credit card expense 231 231
Cash and cash equivalent activities on 10607
Interpretation: From the above calculation calculate amount of month for the new
venture of Isaac. There are categorised all the transactions into different categories where consist
of cash & cash equivalents. There are charging tax (25%) and get sum of operating activities
which is 10838 and there are consisting of different aspects such as, cash from sales and
purchase. From the investing activities do not get any amount and from the financing activities
calculate total 231. at the end from the three activities get amount of 10607.
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Annual cash flow
The financial viability analysis is defined as ability to earned enough income in which
consist of operating payments, debt commitments and all the applicable activities that helps in
growth due to maintain services levels. The initial cost of financial viability evaluation is the
audited as per the statement of the previous financial year. There are preparing annual cash flow
in order to analysis different cash flow activities such as:
Particular Amount Total Amount
Cash flow from operating activities
Net profit 136528
Tax 25 % 34132
Net cash flow from operating activities 102396
Cash flow from investing activities
Purchasing refrigerator 15500
Purchasing web design 8500
Wrapping machine 2200
Net cash generates from investing activities -26200
Cash flow from financing activities
Capital amount 800000
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Net Cash generates from financing
activities 800000
Cash and cash equivalent activities 876196
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Interpretation: In order to analysis all the activities of cash flow record all the
transaction in appropriate way in which classified all the transactions according to their nature.
In operating activities consist of Net profit (136528), Tax (25%) so total from this activity
102396. In the investing activities involves various aspects such as, purchasing refrigerator
(15500), Purchasing web design (8500) and wrapping machine (2200) so at the end total of
26200. There are in financial activities consist of capital amount (800000) and sum of 800000. so
at the end from three activities get total of 876196.
A clear Explanation
To start a new venture require about the CAD 800000 to 1000000 to Isaac. This capital
amount helps to conduct all the business activities and operate various operations in effective
manner. There is prepared a marketing budget in which mention all the activities according to
requirement and in which section require to invest and how much profit gain by an organisation
at the end of year. In the starting Isaac estimate that sell out about 750 kg part in first month sell
out only 50 kg in their new venture.
Marketing Budget
Particulars 1 year 2 year 3 year 4 year 5 year
Initial money 8000 16800 27000 27720 35280
Investment 23000 24000 53680 63000 30940
Total 31000 40800 80680 90720 66220
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Marketing Outlay
Particulars 1 year 2 year 3 year 4 year 5 year
Promotions 6500 3200 4480 3500 3450
Sales publicity 3000 1590 3600 1700 1100
Direct selling 1780 1150 4780 2540 5600
Total 11280 5940 12860 7740 10150
CAD in millions Budgets
Particulars 2020 2021 2022 2023 2024 2025 2026 2027 2028
Cash Flows From Investing
Activities
Investments in property,
plant, and equipment -2233 -2239 -1899 -1681 -1815 -1997 -2196 -2416 -2657
Property, plant, and
equipment reductions 1017 687 563 653 606 667 733 807 887
Acquisitions, net 2605 -215 -747 923 534 587 646 711 782
Purchases of investments -437 -131 -49 -2
Sales/Maturities of
investments 54 17 19 21 23 25
Other investing charges
Net cash used for investing
activities 952 -1898 -2132 -53 -658 -724 -796 -876 -963
Cash Flows From Financing
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Activities
Long-term debt issued 888 930 2360 220 688 757 832 916 1007
Long-term debt repayment -1591 -722 -1424 -1994 -1905 -2096 -2305 -2536 -2789
Common stock issued 4 4 1 1
Repurchases of treasury stock -585 -864
Cash dividends paid -2160 -2597 -2270 -1998 -2528 -2781 -3059 -3365 -3701
Other financing activities -7 -8 -8 -9 -10
Net cash provided by (used
for) financing activities -3444 -3249 -1333 -3771 -3752 -4127 -4540 -4994 -5493
Net change in cash -2492 -5147 -3465 -3824 -4410 -4851 -5336 -5870 -6457
Cash at beginning of period 1333 2067 711 611 1013 1114 1226 1348 1483
Cash at end of period -1159 -3080 -2754 -3213 -3397 -3737 -4110 -4521 -4974
Free Cash Flow
Capital expenditure -2233 -2239 -1899 -1681 -1815 -1997 -2196 -2416 -2657
Free cash flow 993 1552 1466 2545 2265 2492 2741 3015 3316
Supplemental schedule of
cash flow data
Cash paid for income taxes 1172 1102 1009 951 1308 1439 1583 1741 1915
Cash paid for interest 344 283 288 234 195 215 236 260 285
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Sensitivity Analysis
A sensitivity analysis based on the various types of values in which consider of different
types of independent variables that impact on the dependent variable as per the specific
assumption that set by the business entity. In broad manner, this analysis examine that how
different sources of uncertainty in a mathematical model in which consist of overall uncertainty.
It is mainly utilised by business for particular limitation which is based on the one or more input
variables. In business world, most of the organisation apply this analysis in the field of
economics. It is mainly utilised by business for final analyst that known as what if analysis.
There is not identified sensitivity analysis so there is not conducted this analysis.
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CRITICAL REFELECTION
As per the above analysis it is reflected that this report prepare to present effective
financial plan in proper manner in which presents all the financial statements that categorised
into three different manner such as: profit & loss statement, cash flow statements and balance
sheet. These statements are presenting actual position of business in proper manner. When
analysis all the operational activities of this new venture and properly record all the transactions
so it is getting that business get success in future. Along with all the activities are manage in
proper manner. For this require to time to time handle all essential activities which is impact on
business in negative manner. According to situation apply effective tool that helps to analysis
associated risk. From the profit & loss statement get result in positive manner which is 136528.
If Isaac manage all the transactions properly so accordingly get success and growth in future.
This report prepare by him to aware from the financial disaster and keep safe invested amount.
The attractiveness has been analysed of this venture on basis of new venture idea which is
carried out by Isaac. Before start of the venture analysis the financial plan in which involves all
the analysis that based on the financial activities. To financial analysis of this business compare
using these analysis because it provides better way to understand the position of business in
appropriate manner.
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CONCLUSION & RECCOMEDATION
As per the above report it has been analysed that all the the term of financial management
helps to Isaac in regard of all financial activities that conduct by them in effective manner. For
this require to focus on all the transactions. To prepare effective financial plan in which prepare
different types of statements that present actual financial position of business. As per the overall
analysis it is recommanded that Isaac can expend their business by applying specific strategies
and plans in their running business organization, these are mention below:
 Isaac can manufacture chocolates in their own units. It will help them to reduce their cost
of imported chocolate from Germany.
 Isaac will be uses various marketing strategies to increase their product value in market
place by applying effective promotional strategies.
 To increase sales volume they can sell their products on electronic platform as well as
physical market place.
 For grow business they can invest additional capital to their running organization.
 To attract customer, they must choose their target market are and then uses discounted
policies by one get one free polices, attractive gift offer for their potential customers.
 For enhancing profitability level of their small enterprises they can deal with small
vendors and brokers to promote their products within the market place.
 They can sustain heir business for long period in market place by providing best qualities
of chocolates to their customers.
 Have passion and responsibility in regard of their work.
 Meet with different types of people to establish good relation.
 Leverage expertise
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 Explain all the brand activities properly and mention all the specification at the time of
advertisement other wise it impact in negative manner.
 Conduct proper market analysis and know their interest in regard of particular products &
services in proper manner.
 Fulfil the demand of customer.
 Select a effective name for the new venture that influence people.
 Take right step as per the financial plan.
 Take suggestion from financial analyst in order to get long term success.
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