Finance Report: Financial Analysis of Best Nuts Venture in Italy

This report provides a comprehensive financial analysis of the 'Best Nuts' venture, assisting Chiara in assessing a new business opportunity importing and selling coated nuts in Italy. The analysis includes several key components: an introduction outlining the venture's context and assumptions, a break-even point analysis to determine the sales volume needed to cover costs, a profit and loss statement analysis to evaluate profitability, a monthly and annual cash flow statement to assess liquidity, a discounted cash flow statement analysis to determine the present value of future cash flows, and a sensitivity analysis to assess the impact of various factors on the business plan. The report utilizes financial statements, including income statements and balance sheets, and makes specific assumptions regarding currency exchange rates, depreciation, and sales prices. The goal is to provide Chiara with the financial insights needed to make informed decisions about the venture's viability and potential for success.

Running head: FINANCE
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Name of the student:
Name of the university:
Author Note:

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Table of Contents
Introduction:...............................................................................................................................2
Assumption made during the process........................................................................................2
Break Even Point Analysis.........................................................................................................3
Profit or loss statement Analysis:...............................................................................................6
Monthly and annual Cash Flow Statement of the company:...................................................10
Discounted Cash Flow Statement Analysis.............................................................................12
Sensitivity analysis of the business plan..................................................................................14
Conclusion................................................................................................................................15
References................................................................................................................................17

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Introduction:
The aim of assignment is to provide assistance to a 57 year old aunt named Chiara for
the purpose of acquiring a new venture named Best Nuts. The company has been established
by the US producers of the coated nuts consisting the unusual and innovative flavours. The
products of the company are produced and sold in Italy for a period of four years for the
purpose of exchanging the upfront in the payment as per the rights. The financial statement of
the firm is prepared based on the certain parameters by which the business of the company is
conducted accordingly. The entire report is based on the preparation of the income statement,
break even analysis and balance sheet in the first year of business operation. Apart from that
the monthly cash flow statement of the company is conducted along with the annual cash
flow during the first year of operation of the firm. The invested capital in the business has
been are further depicted in the balance sheet of the firm for the purpose of understanding the
amount of assets obtained by the company.
The sensitivity analysis of the company have been performed based on the set of
activities or information’s which are provided by the company (Addison 2017). The monthly
cash flow in the first year of observation gives the entire picture regarding the current
performance of the company along with the predicting the future aspects of the business. The
profitability of the business can be identified by the process of evaluation based on the
information provided by Chiara.
Assumption made during the process
 The significant assumption made during the process is setting up the enterprise known
as the Best Nuts which have the rights to sell the products in Italy for a period of four
years period an exchange rate of the upfront payment for rights.

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 It is assumed that the average cost of the retail nuts in the USA is an average of the
$27.5 per pound (Ib) and further best nuts is prepare to sell the requirements to
Chiara.
 It is assumed that the conversion rate in the currency which is taken in this case is
0.89 and further evaluation is done based on the initial investments.
 In case of the depreciation and amortization of the firm the assumption which is made
is regarding the non-current assets. As the minimum estimated life of the depreciation
and amortization of the 5 years and for that reason in case of evaluation it is taken on
the basis of 5 years based on the straight line value of the firm (Palley 2016).
 It is also assumed as per the given information is that demand is as per the overall
business prospect of the company. Further assumption is made regarding the average
selling price of the company in Italy is €90per kg of nuts and shipping in Italy
consisting and average of €3.0per kg.
 The other important thing is at the time of credit card sale the company is charging
about 1.5% per sale and remittance monthly total made for a period of fifteen days to
Chiara (Bailey 2017).
 The assumption regarding tax which is made about 4% per annum and investment is
made accordingly.
Break Even Point Analysis
Breakeven point analysis further helps to identify the level of breakeven situation of
the company. The breakeven situation of the company is referred as the no profit or loss
situation based on a particular level of production. The elements in the break even cost of the
company consists of the variable cost per unit of sales, fixed cost and revenue in terms of
sales of the company (Fracassi 2016). The payback period of the company is related to the
investment process of the company. The breakeven analysis for the company is particularly

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based on determining the level of production or a desired level of sales mix. Initially with the
gradual increase in the production of the company, the company is able to meet the breakeven
point accordingly. Enhancing the production of the business will automatically enhance the
warehousing and transaction based on the short term transaction (Dang, Li and Yang 2018).
Break-Even Analysis:
Particulars Fixed Variable TOTAL
Sales Volume 360 1365 1725
Estimated Sales Revenue
15,000.00
€
122,850.00
€
137,850.00
€
Variable Expenses:
Cost of Material
13,562.12
€ 51,423.03 € 64,985.14 €
Packaging & Shipping Cost 1,080.00 € 4,095.00 € 5,175.00 €
Credit Card Charges 1,842.75 € 1,842.75 €
Packaging Cost for Boxes 288.00 € 288.00 €
Total Variable Expenses
14,930.12
€ 57,360.78 € 72,290.89 €
Contribution Margin 69.88 € 65,489.22 € 65,559.11 €
Average Contribution Margin p.u. 38.01 €
Fixed Expenses:
Rent for Industrial Room 6,600.00 €

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Employee's Salary 23,000.00 €
Labor Cost for Packaging 3,600.00 €
Depreciation of Refrigerator 1,187.50 €
Deferred Revenue Expenditure- Market Research 1,250.00 €
Amortization of Website Designing 2,000.00 €
Amortization of Distribution Right 11,250.00 €
Total Fixed Expenses 48,887.50 €
Break Even Sales in Unit 1 1285 1286
Break Even Sales in CHF 57.13 €
115,646.69
€
115,703.83
€
Interpretation of the above table:
The break even analysis of the company have been conducted from the following
information provided by Chiara. The break even analysis of the company is evaluated for the
purpose in order to understand the pace related to the growth of the company (Cochrane
2017). The breakeven point of the company is a situation where the company will be in a no
profit or loss situation. It is significant to evaluate the breakeven point to further provide
report to the management for the purpose of taking investment decisions. Adopting the proper
pricing strategy will help of analyzing the breakeven point of the company. The breakeven
unit of the company is 1286 which means that by selling that particular number of unit, the
company will be able to achieve the breakeven point (Cochrane 2017). And selling more than
the breakeven unit the company will be able to achieve profit after reaching the breakeven
point of the company.
The projected sales volume of the company have been evaluated for 12 months
where the fixed cost of the company will remain constant at the level of 30 per kg (Zingales
2015). On the other hand the volume of the variable cost have been increasing gradually with
the increase in production of the company. The overall growth orate of the company have
been constantly fluctuating where the average growth rate of the production is at 13.46 %. As

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per the information’s which are laid on the projected sales volume of the company, based on
that information the breakeven analysis of the company have been done. In breakeven
analysis the fixed and variable expenses of the company have been evaluated based on the
information provided by Chiara (Loughran and McDonald 2016.). From the revenue of the
company all the fixed and variable expenses of the firm is considered in order to earn the
breakeven situation of the firm. Each and every business target is to achieve the breakeven in
terms of sales or unit as quickly as possible so that the company can generate positive
revenue from the business operation.
Profit or loss statement Analysis:
The profit and loss statement of the company is analyzed to understand the capacity of
the company to generate sales from the business by considering the expenses and manage the
profit accordingly. The profit and loss of the company is further based on the accounting
principles from the cash flow statement of the company is evaluated (Ehrhardt and Brigham
2016). The profit and loss statement of the company will further help the company to utilize
the tools and techniques for the purpose of understanding the financial status of the firm. The
analysis of the profit and loss statement of the company is analyzed in order to understand the
present and past financial position of the business. The information’s of the company is
particularly based on the effectiveness of the business in order to generate profit for the
company. It is also significant to understand the accrual concept of accounting which is
applied in this case (De Grauwe and Grimaldi 2018). The profit and loss statement of the
company actually measures the change in the revenue and operating cost of the business for a
certain period of time. The profit and loss of the company measures the ability of the
company to generate sales by considering the expenses in order to generate profit in the
business. The profitability ratios of the company in this case are the gross profit ratio, net
profit ratio, operating profit ratio, return on asset ratio and return on margin of the company

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for the purpose of evaluating the current financial position of the business (Cesa-Bianchi,
Imbs and Saleheen 2019).
Interpretation of the above table:
The above table depicts the net profit of the company which is evaluated based on the
information provided by Chiara in order to prepare the income statement of the company
(Härdle, Chen and Overbeck 2017). By considering the cost of goods sold from the sales,
gross profit of the firm is evaluated and after deducting all the operating expenses, net profit

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before tax of the company will be obtained. Then the tax is deducted from the net profit
before tax, net profit of the year is obtained. The return of Chiara is based on the venture
profit and further the net profit of the business will increase the working capital of the
business. In such a situation the company will get confidence for further making investment
decisions regarding the same. The assumption which is taken while preparing the income
statement of the company is regarding the calculation of depreciation and amortization based
on 5 years of evaluation (Horst 2018). The reason behind that is the machine life is effective
up to 5 years and the method of calculating depreciation and amortization is based on written
down value of the machine. The income statement of the company will further helps the
business to grow or prosper based on the long run objective of the management.
Effectiveness in the financial statement of the company depends on the efficiency in the
management system of Chiara’s venture.
Balance Sheet Analysis
Balance sheet is an element of financial statement of the company which further
consists of the assets, liabilities and owners’ equity for a particular period of time. The
financial statement of the company actually measures the amount invested by the potential
shareholders of the firm. In balance sheet the assets of the company must be equal to the
liabilities of the firm (Pilbeam 2018). The assets of the company are further divided into two
types which are the non-current assets and current assets. The liabilities of the company
consists of the owners’ equity and current liabilities. The potential shareholders and
stakeholders of the firm analyzes the balance sheet of the company in order to understand the
current financial position of the business.
By taking some of the information from the balance sheet of the company, significant
financial ratios like the liquidity ratios, working capital ratio of the company analyzed in

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order to understand the financial performance of the company (Soros 2015). The shareholders
of the company analyzes the financial statement especially the share capital of the company
which is shown in the liability side of the balance sheet before taking investment decisions in
the share market. The stakeholders of the company analyzes the balance sheet in order to
understand the financial position of the company on the basis of the long run.

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Interpretation of the above table:
The above figure represents the balance sheet of the company which is based on the
information’s provided by Chiara (Shoup 2017). The effect of the depreciation and
amortization have been provided in the non-current assets at the time of evaluating the
current assets of the firm. As per the given information there are no noncurrent liabilities of
the firm. Higher the owner’s capital of the company the better is the financial position of the
company on the basis of the long term run operation of the business. Effective management
system of the company will automatically enhance the overall business of the company in
terms of sales volume and productivity. It is significant for the company to enhance the
shareholders fund for starting new venture of the business of Chiara. Enhancing the
shareholders fund will automatically generate the key interest of the shareholders along with
the stakeholders of the business (Damodaran 2016). There are lots of benefits in enhancing
the shareholders fund of the business like the stakeholders will further be interested in
investing on new projects associated with the business. This will automatically help the
business to grow and expand in the future.
Monthly and annual Cash Flow Statement of the company:
The cash flow statement actually depicts the change in the income statement and
balance sheet of the company which is based on the cash and cash equivalents. The cash flow
statement of the company consists of the cash operating activity, investing activity and
financing activity (Morrell 2018). The purpose of preparing the cash flow statement is to
understand the viability in the financial position of the business by considering the expenses
of the business. The cash flow statement of the company comprises of the positive and
negative flow of cash in the business. In case of the negative flow of cash in the business, the
company needs to adopt certain measures in order to overcome such negative cash flow in the

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business. The cash generated by the company must be identified and according it is the
responsibility of the upper level management of the company to maintain positive flow of
cash in the business (Arcand, Berkes and Panizza 2015).
The net cash flow generated by the company is taken into account and further analysis
regarding the same is needed to understand the reason behind the positive and negative flow
of cash in the business. The firm have to adopt significant strategies in order to avoid the
negative flow of cash in the business. It is significant for the business in order to generate the
positive flow of cash so that the flow of working capital of the company remains smooth and
effective.
Interpretation of the above table:
From the above figures in the table it can be interpreted that the net cash flow from
operating activity is negative for the 2nd month and 3rd month. The net cash flow from the
investing activity is negative but at the initial stage of business the cash flow from the
financing activity of the firm is positive. Due to the decrease in the cash flow from the

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operative activity there is a negative flow of cash in the net cash from operating and investing
activity of the business for the 2nd and 3rd month of the business operation (Jordà, Schularick
and Taylor 2016). This actually took place at the initial stage of business but after that the
company is generating positive flow of cash in the business. As per the trend analysis of the
business, the cash flow statement of the firm is constantly increasing due to the increase in
the sales revenue of the firm. The assumption taken while evaluating the cash flow statement
of the firm is that the operating expenses of the firm is variable in nature and further the cost
of the business is optimized in order to generate more cash in the business.
Discounted Cash Flow Statement Analysis
The purpose of the discounted cash flow statement of the company is to estimate the
investment which is based on the future cash flow of the business. The discounted cash flow
is evaluated for the purpose of making future cash flow investment in the business (Minsky
2016). The present value of the company is evaluated in order to understand the viability of
the project. The discounted cash flow statement of the company also provide information’s
which is useful for the company for the purpose of taking investment decision (Fisher 2018).
The discounted cash flow statement analysis of the company helps to determine the fair value
of the estimated stock in the business. The discounted cash flow statement of the company
works as a significant tool for the business in order to take the key investment decision of the
company at a fair price value. Further the valuation of the firm is based on the effective flow
of working capital. The discounted cash flow of the company is based on the time value of
money concept along with the risk and return associated with the business in that case. The
position of the cash flow of the company can be visible at the end of a year in business
operations.

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Interpretation of the above table:
From the above table it can be said that as per the given information by Chiara the
discount rate of the company for four years have been constant to 8%. The trend analysis is
performed regarding discounted cash flow statement of the company is for five years. The
sales growth of the company have been decreasing gradually. The company in this case is
able to generate the free flow of cash in the business for four years. By summing up all the
discounted cash flow of business of the company it is possible for the company to evaluate
the fair value of business. The company needs to maintain the positive flow of cash in the
business so that the upper level management of the company can run the business smoothly
and effectively. Further it is the responsibility of the upper level management of the company
in order to check and revise the discounted cash flow statement of the company.

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Sensitivity analysis of the business plan
The sensitivity analysis of the business actually helps to determine the independent
variables of the company based on the certain set of information’s. Sensitivity analysis of the
company is based on the outcome of the decision within a certain range of the variables
(Gitman, Juchau and Flanagan 2015). The practice in that case is related to the uncertainty
analysis which is further based on the quantification of uncertainty in the sensitivity analysis
of the company. There actually exist two methods in the sensitivity analysis of the business
which are the modelling and simulation techniques are the significant tools used by the
management by utilizing excel software. By performing the sensitivity analysis, it helps the
upper level management of the company for the purpose of decision making. The sensitivity
analysis of the company will help the upper level management of the system to understand
the significant glitches in the system and take actions accordingly. The sensitivity analysis of
the company will actually provide clear picture regarding the financial performance of the
company.
Interpretation of the above table:
From the above table it can be interpreted that the current value of the company is
given as per the provided information. The input in the process are the variable sales price,
conversion rate and distribution right of the firm. The resultant outcome in that case are the
net profit, cash balance, return on equity , fair value of the business and break even sales in
unit. In case of the sensitivity analysis it can be said that when the variable sale price per

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annum is changing then the other two inputs in the changing cells are remaining constant.
Then in case of the lower sales price compared to the constant value, the net profit, return on
equity and fair value business of the company is negative. The higher sales value of the
variable sales price in comparison to the current value of the company has significant
increased which is shown in the result sales. When the conversion rate is variable and the
other two element is constant, then in case of the lower conversion rate the resultant output of
the company in terms of the net profit, cash balance and return on equity of the company has
increased in comparison with the higher conversion rate. When the distribution rights is
changing, the other two element in that case is changing in a significant manner. In case of
the higher distribution right the net profit, cash balance, return on equity, fair value of the
business is lower compared to the values in the result cell in case of the lower distribution
rights. Accordingly the sensitivity analysis of the business of Chiara have been performed on
the given information.
Conclusion
From the above discussion it can be concluded that the analysis regarding the new
venture of Chiara is evaluated based on the provided information. The elements which have
been considered in that case are the break even analysis, monthly cash flow statement and
discounted cash flow statement of the company. The risk and return in that case have been
evaluated for the purpose of identifying the financial position of the company in terms of the
new venture. The sensitivity analysis of the company have been evaluated in order to
understand the change in the variable segment of the company. There are certain assumption
which is made during the process are the financial statement of the company is quite
impeccable. The management team in that case plays significant role in order to enhance the
profitability of the business in case of the new venture started by Chiara. From the sensitivity
analysis of the company it is clear that the company needs to take significant action regarding

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the lower sales price and at higher conversion rate. As per the information which is provided
by Chiara it can be said that as per the budget prepared by the company it will be possible for
the firm achieve significant growth in the business by utilizing the necessary tools and
techniques for the purpose of analyzing.

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