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Necessary Financing

For my operation I will need $2,250 at the beginning of the second year of existence. If the demand for my service will be as projected then I will open the second consulting center in the shopping center «Fortuna», so I will need financing to buy the fixed assets. This loan will be necessary to support my development.

Cash Budget

  2003 2004 2005
Operating activities      
Net income $1 331 $3 075 $3 510
Depreciation $694 $1 674 $2 073
Net cahs provided by operating activities $2 025 $4 750 $5 583
Long-term investing activities      
Cash used to acquire fixed assets -$1 273 -$1 336 -1403,31
Cash used to acquire intangible assets -$829 -$871 -$914
Net cash provided by investing activities -$2 102 -$2 207 -$2 317
Financing activities      
Owner's investments $2 102 $0 $0
Increase in notes payable $0 $2 207 $0
Net cash provided by financing activities $2 102 $2 207 $0
Net change in cash $2 025 $4 750 $3 266
Cash at the beginning of year $0 $2 025 $6 774
Cash at the end of year $2 025 $6 774 $10 040

 

Balance Sheet

Assets      
  2003 2004 2005
Current assets:      
Cash $2 025 $6 774 $10 040
Fixed assets:      
a computer $500 $1 025 $1 576
a monitor $250 $513 $788
a modem $80 $165 $253
a printer $153 $313 $481
office equipment $200 $410 $631
a telephone/fax $90 $185 $284
Less accum. depreciation $420 $1 434 $2 689
Total fixed assets $853 $1 175 $1 323
       
Intangible assets:      
a database $661 $1 355 $2 083
Other software $168 $345 $531
Less accum. depreciation $274 $934 $1 752
Total intangible assets $556 $766 $862
       
Total assets $3 433 $8 715 $12 225
       
Liabilities      
Long-term notes payable - $2 207 $2 207
       
Owner's equity      
Nikolay Belih, capital $3 433 $6 508 $10 018
       
Total Liab. and Equity $3 433 $8 715 $12 225

 


Income Statement

The amounts are given as they are in Russia

  2003 2004 2005
Revenues $8 464 $18 050 $33 940
Operating expenses:      
Salary expense $2 400 $5 040 $15 876
Office rent expense $1 600 $3 480 $6 854
Depreciation furniture and equipment $694 $1 674 $2 073
Advertising $659 $631 $609
Insurance $105 $210 $315
Utilities expenses $62 $131 $413
Total operating expenses $5 520 $11 167 $26 141
       
General expenses:      
Telephone & Internet $525 $630 $756
       
Other expenses:      
Interest $0 $662 $662
       
Total expenses $6 045 $12 458 $27 559
Net income before taxes $2 420 $5 591 $6 381
taxes (45%) $1 089 $2 516 $2 872
Net income $1 331 $3 075 $3 510

 




Ratio Analysis

 
Leverage ratios      
Debt ratio - 0,25 0,18
Debt -to-net worth ratio - 0,46 0,30
Times interest earned ratio - 8,44 9,64
Asset Management      
Fixed assets turnover 9,93 15,36 25,65
Total assets turnover 2,47 2,07 2,78
Profitability ratios      
Profit margin on sales 0,16 0,17 0,10
Return on total assets 0,39 0,35 0,29
Return on equity 0,39 0,47 0,35

I did not indicate accounts receivables and accounts payables, as my business will be very small and all operations will be done in cash by personal sales during first three years. In addition, invoices and credit cards are not common in Russia, so it is one more reason of not indicating them. So, I did not count liquidity ratios, as all of them are based on current liabilities.

From my analysis of projected future operations, we can see that debt ratio will decrease in 2004 and 2005 from 0,25 to 0,18. It tells about the decrease of funds provided by creditors and increase in the attractiveness of business for investments, as creditors prefer lower ratios. Debt -to-net worth ratio will also decrease in 2004 and 2005 from 0,46 to 0,30, what tells about the increase of business’s ability to meet both its creditor and owner obligations in case of liquidation. The times interest earned ratio will decrease. It indicates that the firm will have fewer difficulties in meeting the interest payments of loan. The net income can decrease almost by ten times until the business will not be able to pay its interest obligations in 2005.

The fixed assets turnover will constantly increase, what indicates the increase of effectiveness of the fixed asset usage. The total assets turnover ratio will decrease from 2003 to 2004 and increase from 2004 to 2005. It tells about the decrease of the volume of the business produced on the total asset investment in 2004 and increase of it in 2005. The main cause of decrease will be more significant increase in total assets and less significant in sales.

The profit margin on sales ratio will slightly increase in 2004 and more significantly decrease in 2005. It indicates the decrease of income per dollar for the first three years of existence. The cause of the decrease in 2005 will be the more intensive use of debt.

The ROA will constantly decrease in the first three years of existence of the business. It indicates the decrease of the return on assets. The cause of it will be more significant increase in total assets and less significant in net income.

The ROE will increase from 2003 to 2004. It will indicate the increase in the rate of return on the owner’s investments. The cause of it will be more intensive use of debt. But in 2005 there will decrease in ROE, what is explained by the more significant increase in equity and less significant in net income.


Date: 2015-12-24; view: 715


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