Comprehensive Financial Analysis of a Geodes Business Plan: Report

This report presents a comprehensive financial analysis of a proposed Geodes business venture. It begins with an introduction outlining the importance of financial planning for new businesses and the methodologies used in the analysis. The report details key assumptions, including funding sources and pricing strategies. It then delves into the financial statements, including a profit and loss statement, balance sheet, and a detailed monthly cash flow statement, along with forecasted annual cash flows for three years. The analysis incorporates a break-even analysis for different business models (internet sales and cabinet sales), sensitivity analysis, and discounted cash flow calculations to assess the venture's viability. Furthermore, financial ratio analysis is conducted to interpret the business's financial performance. The report concludes with recommendations and a critical reflection on the business plan, providing a comprehensive overview of the financial aspects of the Geodes business.

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
4

BEP 200
(35 – 6.04)
BEP in cabinet 5.21
BEP in amount 234.56
OTHER FINANCIAL DETAILS
Profit and Loss Statement for 1st year of operation
Profit and Loss Year 1
Revenues
Internet Sales 176750
Cabinet sales 4860
181610
Cost of Goods Sold
Purchases 18850
(5800*3.25)
Less: Closing Stock 2437.5
16412.5
Cabinet Accessories 504
Freight 19604
(5800*3.38)
36520.5
Gross Profit 145089.5
Credit Card Commission @ 1.2% 2121
(5800*3.25)
Salary 18000
Packaging & Shipping
(5050+108)*5.5 28369
Salary for cabinet 2400
50890
Interest on borrowings (40000*7%) 2800
Profit before tax 40509.5
Tax @28% 11342.66
5

Net Profit 29166.84
Balance sheet
Balance Sheet
Particulars Amount Amount
Assets
Non-current assets
Property, plant and equipment 120000
Financial assets 80000
Investments 110000
Loans 55000
Other financial assets 74000
Deferred tax assets, net 42000
Other non-current assets 18000
Total non-current assets 499000
Current assets
Inventories 70000
Financial assets 14000
Investments 50000
Trade receivables 25000
Cash and cash equivalents 38000
Bank balance 40000
Loans 30000
Other financial assets 12000
Other current assets 15000
Total current assets 294000
Total assets 793000
Equity and Liabilities
Liabilities
Non-current liabilities
Financial liabilities 100000
Borrowings 40000
Provisions 25000
Total non-current liabilities 165000
Current liabilities
Financial liabilities 30000
Borrowings 70000
Trade payables 41000
Other financial liabilities 12000
Other current liabilities 25000
Provisions 32000
Current tax liabilities 14500
Total current liabilities 224500
6

Total liabilities 389500
Equity
Equity share capital 120000
Other equity reserve 60000
Other Reserves 38534
Profit reserve 29166
Accumulated losses 131123
Equity attributable to owners of the parent 12555
Non-controlling interests 12122
Total Equity 403500
Total Equity and Liabilities 793000
Notes:
 The calculation which are shown above in the preparation of the balance sheet is based
on the relevant standards which is being stated by the General Accepted accounting
principles (GAPP).
 It is also important to note that there is an additional potential for the debtors and trade
payables as the business undertaken by Hattie is mainly involved into the credit purchase
and sales. This is mainly because of huge amount of transaction.
 All the accumulated losses is being described under the equity head of the balance sheet.
The financial statements highlights the crucial information pertaining to the performance of the
business entity or the start-up. This can be effectively done through the help of the application of
the financial ratios in association with the long run stability of the business. In addition to this, it
is helpful in revealing the areas which more attention is required to be put on, for further
developing it in order to attain better outcomes. It is being assumed that the financial
performance of the business can be analysed in a better way in regard to the amount which is
being displayed in the financial statements. Therefore, the financial statement analysis of the
business is carried out of the current business scenario:
MONTHLY CASH FLOW STATEMENT
PROJECTED CASH FLOW STATEMENT for 1st year of operation
Particulars JAN FEB MAR
APRI
L MAY
JUN
E
JUL
Y AUG SEP OCT NOV DEC Total
Sales 2155 3905 9155 12655 12655 14405 16155 17905 19655 21405 24905 26655
18161
0
Internet Sales 1750 3500 8750 12250 12250 14000 15750 17500 19250 21000 24500 26250
17675
0
Cabinet sales 405 405 405 405 405 405 405 405 405 405 405 405 4860
7

Receipts
Receipt from
debtors
1077.
5 3030 6530 10905 12655 13530 15280 17030 18780 20530 23155 25780
16828
2.5
Total (A)
1077.
5 3030 6530 10905 12655 13530 15280 17030 18780 20530 23155 25780
16828
2.5
Payments
Purchases 162.5 325 812.5
1137.
5
1137.
5 1300
1462.
5 1625
1787.
5 1950 2275
2437.
5
16412
.5
Additional
purchase 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 126.8
Cabinet
Accessories 42 42 42 42 42 42 42 42 42 42 42 42 504
Credit Card
Commission
@ 1.2% 21 42 105 147 147 168 189 210 231 252 294 315 2121
Rent 300 300 300 300 300 300 300 300 300 300 300 300 3600
Salary for part
time assistant 200 200 200 200 200 200 200 200 200 200 200 200 2400
Salary for two
part time
students 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 1500 18000
Loan charge
233.3
3
233.3
3
233.3
3
233.3
3
233.3
3
233.3
3
233.3
3
233.3
3
233.3
3
233.3
3
233.3
3
233.3
3 2800
Total (B) 2469 2653 3203 3570 3570 3754 3937 4121 4304 4488 4855 5038 45964
Cash
balances
Cash flow (A-
B)
-
1391.
90
377.1
0
3326.
60
7334.
60
9084.
60
9776.
10
11342
.60
12909
.10
14475
.60
16042
.10
18300
.10
20741
.60
12231
8.25
FORECASTED ANNUAL CASH FLOW FOR THREE YEARS
Assumptions:
 In regard to the receipts it is being assumed that the receipts from customers will increase
by 10% in the year 2021 and 20% in 2022.
 In addition to this, the salary of the part time assistant is expect to increase at the rate of
5% in the year 2021 and 2022.
 Also, the pay to two part time students is also increasing at the same rate of 5% each
year.
 The proceeds from the capital contribution is expected to increase at the rate of 12% in
the year 2021 and 2022.
CASH FLOW STATEMENT
PARTICULARS 2020 2021 2022
Cash flow from operating activities
8

Receipts from customers 181610 199771 239725.2
Inventory cash purchase (Four week
stock) 2448.10 2692.91 3231.49
Cabinet Accessories 7200 8000 8400
Credit Card Commission @ 1.2% 2179.32 2397.252 2876.7024
Rent 3600 3600 3600
Salary for part time assistant 2400 2520 2646
Salary for two part time students 18000 18900 19845
Loan charge 2800 2800 2800
Income Tax 11342.66 12476.926 14972.3112
Net cash flow from operating
activities (A) 131639.92 146383.91 181353.69
Cash flow from investing activities
Cash from selling of property 100000 120000 100000
Investment securities sales 5000 6000 10000
Purchase of property 2000 2500 6000
Investment in tools 15000 20000 30000
Investment in machinery 100000 120000 150000
Investment in drill 35000 45000 55000
Purchase of other investments 13000 13500 14000
Net cash flow from investing
activities (B) -60000 -75000 -145000
Cash flow from financial activities
Proceeds from capital contribution 80000 89600 100352
Cash receipt from borrowings 30000 60000 80000
Drawings during the year 40000 47000 3000
Repayment of long term loans 20000 25000 35000
Dividends 15000 16000 18000
Net cash flow from financial
activities (C) 35000 61600 124352
Net increase/(decrease) in cash
(A+B+C) 106639.92 132983.91 160705.69
9

Overall cash flow analysis:
From the monthly cash flow statement, it can be summarized that the option is seemed to
be fairly profitable but at the initial stage of the start-up, the cost would exceed the cash inflows
which will result into making of the negative balance for the new venture business. On the other
hand, the operation of the following month will assist in covering up the loss which is being
incurred during the first month (Chen and et.al., 2021). From the actual cash flow, it has been
estimated that the operation will be profitable in the long run starting from 2020 to 2021. This
will result into increase in the cost and the revenue pertaining to the business which will
consequently lead to making the company profitable. Apart from this, it has been assumed that
the receipt from the customers will rise by 10% and 20% in the year 2021 and 2022 respectively
(Dhole and et.al., 2021). This rate is expected to continue for the next 5 years of the business
operation as the supplier will expand gradually after which the revenue will be stick at a certain
point. For the first month sale, only 50 units of Geodes will be sold.
REQUIRED CAPITAL TO START THE VENTURE
Particulars Amount Amount
Supplier cost of Geodes supply 29896 5.92
(Less) Discount @45% 13453.2 2.664
Price to be paid to supplier 16442.8 3.256
Freight 19609.8 3.381
Price to be paid to supplier 4977.75
Geodes in business for first month @50 units 248887.5
Special jig and tools 3500
Market research 3000
Room rent for operations 300
Website design 4000
Packing and shipping per geodes @5.5 per kg 4125
Salary for part time assistant 200
Salary for two part time students 1500
Total capital required to start the business 265512.5
10