Financial Management Project: Analysis of a German Chocolate Business

This project presents a comprehensive financial analysis of a proposed German handmade chocolate business venture. The analysis includes a detailed executive summary, followed by an introduction outlining the objectives and scope of the financial plan. The main body of the report provides a summary of assumptions and estimates, accompanied by justifications, and conducts a break-even analysis to determine the sales volume needed to cover costs. A profit and loss statement is presented to assess the business's profitability, along with a balance sheet that outlines the company's assets, liabilities, and equity at the end of the first year. The report also includes monthly and annual cash flow projections to evaluate the business's liquidity and financial health over time. A sensitivity analysis is performed to assess the impact of various factors on the business's financial performance. Finally, the report concludes with critical reflections, recommendations, and references to support the findings and provide actionable insights for the business owner. The financial statements are prepared to analyze the business's financial position and performance.

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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