Detailed Financial Analysis: Management and Leadership Report

This report provides a detailed financial analysis focusing on the integration of finance with management and leadership principles. It encompasses the calculation of a break-even point (BEP), the projection of profit and loss statements, balance sheets, and cash flow statements for three consecutive years (2021-2023). The report employs various financial ratios to assess the company's financial health and performance. Furthermore, it incorporates a sensitivity analysis to evaluate the impact of price changes on sales and overall profitability. The study also includes assumptions regarding sales growth, asset depreciation, and operational costs. Finally, the Shannon and Weaver model of communication is proposed for communicating financial information to stakeholders. The analysis includes detailed tables and interpretations to facilitate a clear understanding of the financial projections and their implications for the company's future.

FINANCE IN
MANAGEMENT AND
LEADERSHIP

EXECUTIVE SUMMARY
Leadership and management are very essential in the proper management of financial transaction
of the business. The major reason for this is that when the company does not effectively manage
the finance in the business then this affect the working to a great extent. Hence, for this the most
important thing for management of company is to effectively make use of leadership and
management. in the present study as well the company project financial cash flows, profit and
loss and balance sheet has been calculated. Further on basis of it the use of BEP and different
financial ratios was used. in the end the use of Shannon and Weaver model of communication
was used to communicate all the financial information to stakeholders.

Table of Contents
Table of Contents.............................................................................................................................2
MAIN BODY...................................................................................................................................3
BEP.............................................................................................................................................3
Projected profit and loss..............................................................................................................5
Projected balance sheet...............................................................................................................7
Projected cash flow statement.....................................................................................................9
Financial ratios..........................................................................................................................12
REFERENCES..............................................................................................................................20

MAIN BODY
BEP
This is a technique through which the company can calculate the situation in which the company
is in no profit no loss situation (Zulauf and et.al., 2018). this is assistive for the company to
calculate as this will assist the company in deciding for the range of production beyond which
the company will earn profit and also the level of production in which the company will not be
earning any of the profit and rather will suffer loss. The BEP of RAC for the projected three
years is as follows-
Particulars 2021 2022 2023
Sales 1353867 1451089 1556124
Less: Variable cost 960000 1008000 1058400
Contribution 393867 443089 497724
Less: Fixed cost 40000 42800 45796
Net profit/(Loss) 353867 400289 451928
Contribution margin
(Contribution/ sales
*100%)
29% 30% 32%
Breakeven point
(Fixed cost /
Contribution
margin)
137931 142667 143113
Interpretation- from the above table it is clear that for earning the minimum profit the company
need to produce at least of 137931 units in the year 2021. This simply means that when the
company produces this number of units then they will be in a situation where there will be no
profit and no loss. In the similar manner in 2022 they will have to produce 142667 and in 2023
they have to produce 143113 units. This also reflects that when the company will produce
beyond these units then they will start earning profits.

ASSUMPTIONS
1. Growth trend on sale of products will be varying from 5% to 15%
and we have given the % increase which can be changed from
input
2. Life of assets and machinery is assumed to be 10 years
3. With the growth in the business, there will be an increase in the
number of employees and capital expenditure.
4. Considering the inflation factor there will be an increase in the
amount of expenditure over the years
5. With the usage of Machinery and the assets, the maintenance cost
tends to increase and we assumed it to increase by 10% per annum
10%
6. Depreciation on Fixed Assets and Machinery 10%
7. Rent, Repair and Maintenance
8. Labour Cost increase per annum 5%
9. With increase in business the increase in freight cost is assumed to
8%
8%
10. Electricity and Telephone Expenses varies with the assumption
and we assumed to use it same
11. Gathering of customer feedback system hike per annum 5%
12. Up gradation in service hike per annum 4%
13. Water Cost Hike per annum 7%
14. Number of Labour for new Product Department 8
15. Number of Labour for new Service Department 4
16. Salary per month for New Product Department 15000
17. Salary per month for New Service Department 20000
18. Total Working Months in a year 12
19. Total Funding Required 2383149.482
20. Debt % 40%
21. Loan Amount 953259.7929

22. Owner Equity 1429889.689
Business Revenue Projections
Yearly Growth in direct life insurance Sales 10%
Yearly Growth in Contract Sales(Service Sector) 5%
Projected profit and loss
2021(Monthly Bifurcation) 2021
Income
April May June July August Sept Oct Nov Dec Jan Feb March Total
Particulars
Revenue
from life
insurance
30000 30250 33275 36603 40263 44289 48718 53590 58949 64844 71328 78461 590568
Revenue
from
Services
Provided
50000 50208 52719 55355 58122 61029 64080 67284 70648 74181 77890 81784 763299
Total
Revenue
80000 80458 85994 91957 98385 105318 112798 120874 129597 139024 149218 160245 1353867
2021 2022 2023
Income
Total
Particulars
Revenue from life insurance 590568 649625 714587
Revenue from Services Provided 763299 801464 841537
Total Revenue 1353867 1451089 1556124
Assuming 1/3 sales on credit

Assuming 1/3 purchase of raw material
on credit
Expenses Start-Up 2021 2022 2023
Establishment cost 200000
Technical Tools 100000
Furniture and Fixtures 100000
Pollution Control Board
(License)
30000
Plot 1500000
Contract Labour (Service) 960000 1008000 1058400
Direct Labour (Product) 1440000 1512000 1587600
Depreciation 40000 40000 40000
Interest 43754 34948 25692
Freight Cost 87149 94121 101651
Rent, Repair and Maintenance 12000 13200 14520
Electricity and Telephone
Expenses
50000 50000 50000
Gathering of customer feedback
system
150000 157500 165375
Up gradation in service 60000 62400 64896
Water Usage Cost 40000 42800 45796
Total Expenses 1930000 453149 3014970 3153930
(Figures in Rs.) 2021 2022 2023
Net Sales/ Income from Operations 1353867 1451089 1556124

Total Expenditure 2829149 2940021 3088238
Pollution Control Board (License) 30000
Employees Cost: Direct Labour 1440000 1512000 1587600
Employees Cost: Contract Labour 960000 1008000 1058400
Freight Cost 87149 94121 101651
Rent, Repair and Maintenance 12000 13200 14520
Electricity and Telephone Expenses 50000 50000 50000
Gathering of customer feedback system 150000 157500 165375
Up gradation in service 60000 62400 64896
Water Usage Cost 40000 42800 45796
EBIDTA -1475283 -1488933 -1532114
Interest 43754 34948 25692
Depreciation 40000 40000 40000
Profit Before Tax -1559037 -1563881 -1597806
Less: Tax 0 0 0
Profit after Tax -1559037 -1563881 -1597806
Projected balance sheet
ASSETS
Current Assets 2021 2022 2023
Cash and short-term investments - 16,66,008 - 35,00,834 - 53,75,143
Accounts receivable 4,51,244 4,83,648 5,18,656
Total inventory 63,000 65,970 69,081
Deferred income tax - - -
Other current assets 13,754 7,91,676 12,45,251
Total current assets - 11,38,011 - 21,59,540 - 35,42,155
Property and Equipment
Land 15,00,000 15,00,000 15,00,000
Establishment 2,00,000 2,00,000 2,00,000
Technical Tools 1,00,000 1,00,000 1,00,000

Furniture and Fixtures 1,00,000 1,00,000 1,00,000
Less Accumulated depreciation expense 40,000 80,000 1,20,000
Total Property and Equipment 18,60,000 18,20,000 17,80,000
Other Assets
Other long-term assets - - -
Total Other Assets - - -
TOTAL ASSETS 7,21,989 - 3,39,540 - 17,62,155
LIABILITIES
Current Liabilities
Accounts payable 69,993 73,293 76,749
Total Current Liabilities 69,993 73,293 76,749
Debt
Long-term debt/loan 7,81,144 6,00,222 4,10,044
Total Debt 7,81,144 6,00,222 4,10,044
Other Liabilities
Other liabilities - - -
Total Other Liabilities - - -
TOTAL LIABILITIES 8,51,137 6,73,515 4,86,793
CAPITAL ACCOUNT
Capital A/c 14,29,890 14,29,890 14,29,890
Reserves & surplus - 15,59,037 - 15,63,881 - 15,97,806
TOTAL EQUITY - 1,29,147 - 1,33,992 - 1,67,916
TOTAL LIABILITIES AND EQUITY 7,21,990 5,39,523 3,18,877

Projected cash flow statement
CASHFLOW STATEMENT
Particulars 2021 2022 2023
Cash flow from Operating Activities
Profit as per P&L A/c -1563881 -1597806
Non-cash expenses
Depreciation 40000 40000
Cash Flow from operation before working capital changes -1523881 -1557806
Changes in Working capital changes
Accounts Receivable -32404 -35008
Inventory -2970 -3111
Other current Assets -777922 -453575
Accounts Payable 3300 3457
Other current liability
Change in working capital -809996 -488238
Interest paid 34948 25692
Income tax Payable 0 0
Cash flow from operations -2298929 -2020352
Cash flow from investing activities
Estimated payment for purchase of equipment
Cash received from sale of equipment
Cash flow from investing activities 0 0
Cash flow from financing activities
Changes in long term borrowings -180922 -190178
Interest/Dividends paid -34948 -25692
Cash flow from financing activities -215870 -215870
Net changes in cash flow -2514799 -2236222
Opening cash balance -1666008 -3500834
Closing cash balance -3500834 -5375143
Check on net changes in cash -679974 -361913
Weighted Average Cost of Capital 12.0%
Terminal Value Growth 3.0%

Year
2021 2022 2023
Profit After Tax (15,63,881) (15,97,806)
Interest 34,948 25,692
Tax Expense - -
Tax-Effected EBIT (Earnings
Before Interest) (15,28,933) (15,72,114)
Plus: Depreciation Expense 40,000 40,000
Capital Expenditures 19,30,000 0 0
Changes in Working Capital (8,09,996) (4,88,238)
Unlevered Free Cash Flow (6,78,936) (10,43,876)
Present Value of Unlevered
Free Cash Flow (6,06,193) (8,32,171)
Terminal Value -9523739
Present Value of Terminal
Value
-8715570
NPV based on terminal
year 3
-10153935
From the above all calculation and projected financial statement it is clear that the use of
projected financial statement is very helpful for the company. This is particularly because of the
reason that when the company is having the projected statements then this provide the company
an idea that how the company is going to plan the future (Chychyla, Leone and Minutti-Meza,
2019). This will be assistive for RAC to ensure that all the operations of the company are taken
in the same manner as projected in the financial statements. Further this projection will assist the
company in managing the work in effective and efficient manner and will assist in taking
effective decisions for betterment and growth of the company.

The projected profit and loss account is a statement that provides information of the
estimates sales and the expenses of the company. Thus, from the estimated income the estimated
expenses are deducted and then this leads to the calculation of the profit or the loss (Tikhomirov
and Plotnikov, 2018). This assist RAC in managing the estimated working and if the company
works in accordance with the estimated working then they will get the desired range of profits.
Further this projection is very helpful for the company in deciding for the future strategies and
this will be assistive for the company in working in direction of the growth and development.
Projected balance sheet- in accordance with the projected profit and loss account the
company also prepares the balance sheet. This is essential for the reason that when the company
has a project amount of income and estimated expenses then on basis of that the company also
estimates the asset and liabilities of the company (El‐Haj and et.al., 2019). This is also very
important for the company to have a knowledge relating to the estimated asset and liabilities of
the company to a great extent. Thus, for RAC it is very important to have a good amount of asset
and fewer liabilities so that the financial position of company is good.
Projected cash flow statement- this is also an important statement which is helpful in
analysing the situation of the company in better and effective manner. This is particularly
because of the reason that when the company projects the estimated cash flow from different
activities like the operating, financing and investing activity then this will help the company in
knowing the fact that how the company will try to improve the cash flow from these activities
(Jin, Jeong and Kim, 2017).
Sensitivity analysis- this is a model of finance which assist the company in determining
the fact that how the target variable is affected on the basis of the changes taking place in some
other variable as well. This analysis if very important because there are many dependent and
independent variable and if there is change in any of the independent variable then there is sure
change in dependent variable as well (Drakopoulou, 2016). In the present case of RAC if the
estimated profit or loss of company in 2021 is a loss of 1559037 and if it is assumed that the
prices of the product decreases by 25 %. Then this will have a positive impact over the sales of
the company. The major reason for this is that when the prices are low then the consumer will
buy more of the product and this will result in the increase in sales of the product and services.
Thus, for this reason a change in price will definitely affect the number of consumer or the