Financial Management Report: Analysis of a Rose Oil Business Venture

This report provides a comprehensive financial analysis of a proposed rose oil import business venture. The analysis includes an executive summary, introduction, and main body covering estimations, assumptions, and a detailed break-even analysis. It presents a profit and loss statement and balance sheet for the first year of operation, alongside a monthly cash flow projection. The report also includes a conclusion, recommendations for the business owner, and a critical reflection on the overall attractiveness of the business idea. Key aspects such as sensitivity analysis, financial viability, and the impact of sales volume and import costs are considered. The financial plan evaluates the business's potential for profitability and sustainability, offering insights into key financial metrics and strategic recommendations for optimizing the business model. The report provides a detailed breakdown of costs, revenues, and profitability, offering a clear picture of the business's financial health.

Financial
Management

EXECUTIVE SUMMARY
This project report is based on the concept of financial management in which a person
Danial is willing to establish a new business venture with the amount of €730,000. The business
plan includes the import of Rose oil form Bulgaria to France. The retired person have asked to
conduct financial management for the new idea with the help of assumptions and estimations.
For this purpose various aspects have been analysed including sensitivity analysis, cash flow
statement, profit and loss account, balance seep, break even and financial viability analysis etc.
At last a reflection related to overall analysis is also being provided. At the end a reflection is
also being provided regarding the attractiveness of the business idea. A recommendation
regarding enhancing import from Bulgaria is also being provided to Danial. It has been
recommended to Danial that if he is willing to achieve profits around 35000 then goods should
be imported from other country. It has also been suggested to Danial to enhance the sales from
70 bottles per month so that its transactions can also be increased by 5%. It will be beneficil to
reach at the level of selling 800 bottles per year.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Break even analysis................................................................................................................2
Profit and loss statement and balance sheet for first year......................................................5
Monthly cash flow..................................................................................................................8
CONCLUSION..............................................................................................................................14
RECOMMENDATIONS...............................................................................................................15
Critical Reflection................................................................................................................15
REFERENCES..............................................................................................................................16

INTRODUCTION
Financial management can be defined as the process of planning, controlling, organising
and monitoring financial resources that are available within an organisation. It can be conduced
with the help of different elements such as final accounts, ratios, sensitivity analysis etc. It is
very important for all the business entity to conduct financial management on yearly basis so that
overall profitability and performance of business can be assessed (Grant, Ponsford and Bennett,
2012). In this project report a retired person Danial who is recently retired and got €730,000 in
lump sum payment, is planning to establish a retail business of rose oil. It is going to be sold in
France and imported from Bulgaria. In this assignment various topics are discussed for financial
management of Danial. These are sensitivity, break even, financial viability analysis, formulation
of cash flow statement, P & L account and balance sheet.
MAIN BODY
Estimations and assumptions
As Mr Danial is a retired employee of a chemical firm and got £730000 at the retirement
in a lump sum amount. After getting retired Danial is planning to be a part of retail industry of
France by selling rose oil there which is going to be imported form Bulgaria. For this purpose a
financial managers have been asked by Danial to analyse the sensibility of the new business idea
and its viability. While preparing final accounts, cash budget and conducting sensibility analysis
various figures are assumed. A detailed financial plan is also being conducted for the client in
order to make sure that it won't result in monetary disaster (Dunham-Taylor, 2014)(.
It has been assumed that demand of bottled rose oil will be increased with 70 bottles per
month and at the end of the year it will reach to 820 and then remain constant for remaining five
years. With the increment of 70 bottles each month the transactions will also be increased by 5%
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for the same time period. It has also been assumed that 16 kilograms rose oil will be purchased
by Danial from Kazanlak Oils which an established producer of rose oils in Bulgaria. Other
assets such as copyright which was taken from KO are also shown in balance sheet amounting
£721838 are estimated by the financial manager while formulating final accounts (Cornwall,
Vang and Hartman, 2016).
Justifications: These assumptions are made as they are required to formulate the
financial plan. As it was mentioned by the client that in first month 50 bottles are going to be
sold and at the end of the year it will meet the full level of demand which is 800 units. It has
been assumed that it will increase by 70 bottles per month to meet that level. Rate of transaction
is being assumed as it is required for sensitivity analysis because it shows the relationship
between two variables that are dependent and independent (Fredrick, 2013). All the assumptions
are made because these are required to complete the tasks that are discussed in case study. Total
requirement of rose oil is estimated around 16 kilograms because total sales will be 5220 bottles
and stock of next month will be 820. Total bottles that are required in first year are 6040. each
bottle is having 2.5 grams. So the total requirement rose oil will be 15100. the demand can
fluctuate so the estimated rose oil which should be purchased from Bulgaria is 16 kilograms.
Break even analysis
Break even analysis: It is a technique which is used to determine that point where the
organisation or a business may reach to a level that may result in the situation of no profit and no
loss. It shows relationship between fixed cost and contribution per unit or profit margin ratio
(Break even analysis, 2019). A calculation of break even point for Mr Danial's business is as
follows:
Particular £
2

Sales 243300
less:- Variable cost
Packing material (28710)
Carriage inward (2760)
Shipping charges (42804)
Commission (3054)
Decoration Exp. (192) 77520
Contribution 165780
less:- Fixed cost
Rent (12750)
Salary (33400)
Web Development Exp. (7500)
Research (6500) 60150
Profit 105630
Selling Price = £45
Selling units = 5220
3

Total sales = £243300
=5220*45 + 240*35
= £234900+8400
= £243300
Rent = £850 per month
= 850*12+3
= £12750
Salary = £33400
Employee = £15500 each yearly
= £15500*2
= £31000
Assistant = £200 per month
= £200*12
= £2400
Packing material = 5220*5.50
= £28710
Shipping Charges = 5220*8.20
= £42804
Commission = 1.3% of 234900
= £3054
Decoration Expenses = 240*0.80
= £192
Carriage inward = 230*12
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= £2760
Break even point (Units) = Fixed cost / Contribution per unit
= 60150/31.76
= 1893.89
= 1894 units (approx.)
Fixed cost = £60150
Contribution per unit = Contribution margin / unit sold
= 165780/5220
= 31.76 (approx.)
Break even Sales = Fixed cost / P.V ratio
= 60150/68.14%
= £88274.14
= £88274 (approx.)
P.V ratio = Contribution / Sales *100
= 165780 / 243300 *100
= 68.14%
The above analysis dictates that Danial is required to sale at least 1894 bottles per year in
order to recover all the costs and the total amount of sales should be £88274.
Profit and loss statement and balance sheet for first year
Profit and loss statement: All the incomes and expenses of a business are recorded in
this statement and then net profit or loss is calculated for a specific time period. Only non
operating expenditures and revenues are showed in P & L. It guides the managers to assess that
they are generating profits or bearing losses. It is also used in financial decision making process
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by internal and external stakeholders (Dener and Young (Sandy) Min, 2013). If all the relevant
and appropriate information is transcribed in this account then it may help outsider parties to
make investment in the business projects. When accurate data is not recorded in P & L then it is
not possible for them to analyse actual position of business. Expenses like salaries, depreciation,
rent, interest paid, postage, legal charges etc. and incomes like commission received are
considered as the part of this account. A profit and loss statement for Danial is as follows:
Trading and P&L Account
Particular £
Sales (5220*45 + 8400) 243300
Closing stock 36900
Total 280200
Less:
Opening stock (16*9711) 155376
Carriage inward 2760
Direct labour 31000
Gross profit 91064
Add:
Discount received 51274
Less:
Salary (200*12) 2400
Rent (850*15) 12750
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Packing material (5.50*5220) 28710
Website development exp 7500
Research Exp 6500
Shipping charges (8.20*5220) 42804
Commission (234900*1.3%) 3054
Interest paid 6000
Decoration exp. (0.80*240) 192
Net profit 32428
Note: 9711 pound is the value of 19000 bulgarian lev on the date when the profit and loss
account is generated.
From the above profit and loss account it has been analysed that at the end of first year
Danial may acquire a profit of £32428. Gross profits for the same period are £91064. Total sales
for first year is 243300 which includes cash sales to Nina and other sales to the market. Purchase
for the same period is £155376 which is based on an estimation of buying 16 kilogram of rose oil
in France. The accounts is showing that the business may survive in the market and Danial can
establish it successfully in France (Zimmerman and Roberts, 2012).
Balance Sheet: It is also known as statement of financial position in which all the assets,
liabilities and equities are recorded in order to analyse fiscal status of a business. It helps the
internal stakeholders to analyse weakness of the organisation and then form strategic decision to
deal with it. Machinery, furniture, cash, investments, stock, bills receivables, debtor etc. are
7

considered as assets. Share capital, retained earning etc. are recorded in equities and creditors,
loans, advances are treated as liabilities. A balance sheet for Danial is as follows:
BALANCE SHEET
Liabilities £ Assets £
Capital
730000 Machinery 450
Add: - Net profit
32428 762428 Refrigerator 8500
Equipment 5200
Loan 75000 Cash 64540
Closing stock 36900
Copyright 721838
837428 837428
The above balance sheet shows that Danial have invested £730000 in the business which
is considered as the capital and total capital also includes net profits if £32428 that are carried
forward from profit and loss account. Danial have also planned to take a loan of £75000 which is
shown in the liability side of the balance sheet. Machinery of £450, refrigerator of £8500 and
Equipments of £5200 have been purchased by Danial in first year hence all of them are shown in
the assets side of balance sheet. Cash of £64540 is taken from the monthly cash flow and it is the
8

closing balance of last month. Stock of £36900 (820*45) is kept as Danial is willing to maintain
a stock of four weeks. Balance amount of £721838 is considered as copyrights as the client have
taken the rights for six years from Kazanlak Oils which is producer of pure rose oils in Bulgaria
(Odoyo, Adero and Chumba, 2014). The amount of loan which mentioned in the balance sheet
is being provided in the case study in which Danial is planning to take a loan from bank.
Copyrights are the main requirements that are important to operate business in other country and
Danial have to pay an amount of 721838 pound to the government of the country as a fee of
copyrights. If the business in not operated by Danial then it is possible that this money can be
saved and invested in other options such as shares or debentures or other securities.
Monthly cash flow
Monthly Cash Flow: All the cash related transactions are recorded in this statement. It
may guide the organisation to assess closing balance of cash at the end of the year. It is very
important for all the business to formulate it so that detailed information can be recorded about
organisation's transactions. It also helps to assess that the business is generating cash for the
financial year or not (Degeorge and et. al., 2013). A monthly cash flow for Danial is as follows
which is based on the sensibility analysis:
Particular
First
mon
th
Secon
d
mont
h
Thir
d
mon
th
Fort
h
mont
h
Fifth
mont
h
Sixth
mont
h
Seven
th
mont
h
Eight
h
mont
h
Nint
h
mont
h
Tent
h
mon
th
Eleven
th
month
Twelf
th
mont
h
Opening
balance 38327
2783
0
1990
9
1456
4
1179
5 11602
1398
5
1894
4
2647
9 36590 49277
9