Financial Projections for Style Diva Retail Business in West London

Desklib provides past papers and solved assignments. This project analyzes Style Diva's financial health and expansion plans.

Assignment 2
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Table of Contents
Introduction:...............................................................................................................................3
Task 1.........................................................................................................................................4
a..............................................................................................................................................4
b..............................................................................................................................................5
Task 2.........................................................................................................................................8
Conclusion:................................................................................................................................9
References:...............................................................................................................................10
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Introduction:
In this project, the information is given about the retail business in West London. The amount
of capital required in the business and capital structure along with the sources of these funds.
This project highlights the project profit report to be submitted to the bank while applying for
a business loan by the businessmen. It shows the formulas to be used for the preparation of
reports and also explains the details calculated in the report. The statement of profit in this
project is supported with the charts of expenses, sources of income and explanation of the
formulas used in the calculations.
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Task 1
a.
The business is assumed to be operating under the name of "Style Diva" which is a retail
shop for girls clothing. The shop is located in West Londonand provides its customers
trending as well as good quality clothes (Baker and Wurgler, 2015). The goal of the business
to get recognition in the retail clothing industry and make profits. The business is need of
funds to expand the operations of its firm for which it is considering bank loan as a source of
funds. The business is operating on a small scale and is still making profitsso the owner has
thought of expanding its business and deriving large profits and capture a good market share.
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b.
Statement showing the profit of the "Style Diva" for the past 12 months:-
Month Sales
(-)
Purchas
e cost
(-)
Carriag
e
inwards
Gross
profit
(-)
Other
expense
s
(+)
Discount
received Profit
May 60,000 27000 2700 30,300 20,500 540 10,340
June 66,000 29700 2970 33,330 21,050 594 12,874
July 72,600 32670 3267 36,663 21,860 653 15,456
August 79,860 35937 3594 40,329 22,436 719 18,612
September 87,846 39531 3953 44,362 23,285 791 21,868
October 96,631 43484 4348 48,798 24,053 870 25,615
November 1,06,294 47832 4783 53,678 25,239 957 29,396
December 1,16,923 52615 5262 59,046 26,282 1052 33,816
January 1,28,615 57877 5788 64,951 27,262 1158 38,847
February 1,41,477 63665 6366 71,446 28,528 1273 44,191
March 1,55,625 70031 7003 78,590 29,982 1401 50,009
April 1,71,187 77034 7703 86,449 31,659 1541 56,331
Notes:
 All the data for the past 12 months has been assumed to provide for the
requirements of the task. Taxes have been ignored for the calculations.
 Sales for the first month is taken at 60,000 and it is assumed that there is a growth
rate of 10% in the sales.
 The purchase cost is estimated to be 45% of the actual sales value.
 Carriage inwards is assumed to be 10% of the purchase cost.
 Gross profit is calculated by deducting purchase cost and carriage inwards from the
sales value.
 Expenses other than that of purchase and carriage inwards are categorized as other
expenses. There is a separate statement showing the details of these expenses.
 It is assumed that suppliers provide a 2% discount on the value of goods purchased
on timely payments and "Style Diva" avails the discount.
 Profit column shows the amount of profit earned by the "Style Diva"
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Statement showing the details of other expenses (other
than purchase cost and carriage inward):
Month
Adminis
tration
cost
Shop
rent
Electric
ity
Carriage
outward
s
Discou
nt
allowed
Interest
costs
Total
Other
expenses
May 2500 4000 500 4,800 1,200 7500 20,500
June 2500 4000 450 5,280 1,320 7500 21,050
July 2500 4000 600 5,808 1,452 7500 21,860
August 2500 4000 450 6,389 1,597 7500 22,436
September 2500 4000 500 7,028 1,757 7500 23,285
October 2500 4000 390 7,730 1,933 7500 24,053
November 2500 4000 610 8,503 2,126 7500 25,239
December 2500 4000 590 9,354 2,338 7500 26,282
January 2500 4000 400 10,289 2,572 7500 27,262
February 2500 4000 380 11,318 2,830 7500 28,528
March 2500 4000 420 12,450 3,112 7500 29,982
April 2500 4000 540 13,695 3,424 7500 31,659
7% 7%
7%
7%
8%
8%
8%9%
9%
9%
10%
10%
Total Other expenses
May
June
July
August
September
October
November
December
January
February
March
April
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Notes:
 Expenses are shown amount wise in order to maintain the requirement of monthly profits.
 Administration cost and shop rent are assumed to be fixed throughout the months.
 Electricity expenses are taken on the fully irrational basis as assumed figures.
 Carriage outward is 8% of the sales value.
 Discount allowed is assumed @ 2% of sales value.
 Interest is assumed to be fixed @ 10% of the borrowing capital involved in the business.
Statement showing profit analysis:
Month Profit Increase in Profit
Profit as % of
sales
May 10340 N.A. 17%
June 12874 25% 20%
July 15456 20% 21%
August 18612 20% 23%
September 21868 17% 25%
October 25615 17% 27%
November 29396 15% 28%
December 33816 15% 29%
January 38847 15% 30%
February 44191 14% 31%
March 50009 13% 32%
April 56331 13% 33%
357356 Total profit
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May
June
July
August
September
October
November
December
January
February
March
April
0%
5%
10%
15%
20%
25%
30%
35%
Analysis of profit
Increase in Profit Profit as % of sales
Statement Showing the current capital structure of the company (based on assumed
figures):
Source Amount
Capital 50,000
Loan from X 75,000
Total Existing Capital 1,25,000
Owner's
Capital
40%
Loan from X
60%
Capital
Owner's Capital
Loan from X
The fore coming new marginal capital structure is as follows:
Source Amount
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Bank loan 52,500
Capital 10,000
Additional Capital for expansion 62,500
Statement showing the distribution of Capital:
Month Capital Stock Operation
May 1,25,000 27000 98,000
June 1,25,000 29700 95,300
July 1,25,000 32670 92,330
August 1,25,000 35937 89,063
September 1,25,000 39531 85,469
October 1,25,000 43484 81,516
November 1,25,000 47832 77,168
December 1,25,000 52615 72,385
January 1,25,000 57877 67,123
February 1,25,000 63665 61,335
March 1,25,000 70031 54,969
April 1,25,000 77034 47,966
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Task 2
The statements are made according to the requirements specified in task 1. For calculating the
profit amounts general profit and loss statement is stated in the presented form for explaining
monthly profits in a single table. Gross profit is calculated by; Sales (-) Purchase cost (-)
Carriage inwards (Campos. et. al., 2017). Further, for calculating net profit other expenses
and incomes of the business are added subtracted in the Gross profits.
An analysis of profit has been done which showed a monthly increase in profits compared to
the previous month; (Difference in profit*100)/ Previous month profit. It shows the
percentage increase in comparison to previous months (Cherchye. et. al., 2016). Monthly
profit is calculated in terms of sales percentage as Profit amount of the month / Sales of the
month. Average Profit is calculated for bank’s convenience in understanding monthly profits:
Sum of profits for 12 months/ 12; this is the formula of simple average which is sum divided
by no. of values.
The capital structure of the business is evaluated and the new additional capital which is
required for expansion has also been allocated to its sources (Prokhorova. et. al., 2016). The
definition of capital structure and distribution of existing capital is shown between stock and
operations. The distribution is calculated by identifying value in stock from the purchase cost
of goods and operational investment is calculated by subtracting stock value from total
invested capital.
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Conclusion:
This project report shows the importance of capital and capital structure in the business. It
also shows the process of calculating gross profits and net profit of the business. It also
explains the analysis to be done in understanding profits and capital. The project talks about
the need for capital for expansion of business activities and the need for financial statements
for the processing of bank loans. Financial data statements and formula for their calculation
has been learned in the project.
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References:
 Baker, M. and Wurgler, J., 2015. Do strict capital requirements raise the cost of
capital? Bank regulation, capital structure, and low-risk anomaly. American Economic
Review, 105(5), pp.315-20.
 Bukh, P.N., Larsen, H.T. and Mouritsen, J., 2001. Constructing intellectual capital
statements. Scandinavian journal of management, 17(1), pp.87-108.
 Campos, F., Frese, M., Goldstein, M., Iacovone, L., Johnson, H.C., McKenzie, D. and
Mensmann, M., 2017. Teaching personal initiative beats traditional training in
boosting small business in West Africa. Science, 357(6357), pp.1287-1290.
 Cherchye, L., De Rock, B. and Walheer, B., 2016. Multi-output profit efficiency and
directional distance functions. Omega, 61, pp.100-109.
 Prokhorova, V.V., Klochko, E.N., Kolomyts, O.N. and Gladilin, A.V., 2016.
Prospects of the agro-industrial complex development: economic diversification,
business development, mono-industry town strengthening and
expansion. International review of management and marketing, 6(6S), pp.159-164.
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