Financial Projections

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FinancialProjections

BriefSummary of the Product

TravelPro Company will venture into the business of manufacturing suitcasescalled Intelligent Suitcase. The suitcases offer a unique solution toproblems faced by travellers when connecting flights. These suitcasesare a good example of how one can use technology to solve old-ageproblems. The intelligent suitcase is fitted with a Bluetooth devicethat is used in tracking the suitcase using proximity heat map. Thefitted GPS systems also aid in providing the location of the missingsuitcases when traveling for long distances.

Wewill create a strategic alliance with Kings Collection since they arethe leading high-end suitcase suppliers. This way, we will be in aposition of gaining a large market share within a short period. Wewill also place our products at slightly lower prices than those ofour prospective competitors. This strategy shall help us to swiftlypenetrate into the market.

ProjectedStatement of Cash Flow

Thetable below demonstrates the three years cash flows to be expected.The capital expenses entail software &amp technology investment andpurchase of computer equipment.

Twentypercent of the fixed costs are represented by the computer equipment.During the first year, this translates to $80,000.

Softwareandtechnologyinvestment represents fifty percent of the fixed costs. During thefirst year, this represents $1.3 million.

Projected Cash Flow Statement

Year 1

2

3

Cash Received

Operations Cash Flow

Cash Sales

4,759,000.00

14,859,600.00

Cash from Receivables

14,274,000.00

44,578,800.00

Subtotal Cash flows from Operating activities

19,033,000.00

59,438,400.00

Additional Cash Received

New Investment

4,111,000.00

Subtotal Cash flow Received

4,111,000.00

19,032,000.00

59,438,400.00

Expenditures

Operations expenditure

Cash payments

201,000.00

1,960,000.00

4,105,000.00

Bill Payments

2,149,150.00

11,445,858.00

26,737,688.00

Subtotal Spent on Operations

2,350,150.00

13,405,858.00

30,842,688.00

Additional Cash Spent

Purchase Long-term Assets

1,380,000.00

323,544.00

653,822.00

Subtotal Cash Spent

3,729,150.00

13,729,402.00

31,496,510.00

Net Cash Flow

380,850.00

5,302,598.00

27,941,890.00

Cash Balance

427,850.00

5,730,448.00

33,672,338.00

BreakevenAnalysis

Fromthe table below, the projected monthly breakeven point is estimatedat $222,000.

Monthly breakeven

222,000

Assumptions:

Average variable costs (%)

0%

Projected fixed monthly costs

222,000

Assumptions

Thistable shows the assumptions which are crucial for the success of thiscompany.

Year 1

2

3

Prevailing Interest Percentage

11.00

11.00

11.00

Long term Interest Percentage

11.00

11.00

11.00

Tax Percentage

24.40

24.01

24.40

Start-UpExpenses

FixedCorporate Costs

Thisrepresents the percentage of cash allocated to fixed corporate coststhat are associated with office charges (Warren,et al. 2015).In the first year of operation, $50,000 was allocated to training andhiring expenses, $150,000 for the lease of equipment and office setupwhile $200,000 was allocated to the hiring of the sales force.

FixedTechnology Costs

Thisrepresents the percentage of cash allocated to fixed internet relatedand computer charges and developments. In the first year ofoperation, $800,000 was allocated to software development, $200,000for integration of systems and $300,000 for website design.

Advertising

Thisrepresents the percentage of cash allocated to advertising in themedia. In the first year, $250,000 was assigned to marketingcampaigns. In the subsequent years, more cash has been allocated tothis docket.

Salesand Marketing

Thisrepresents the cash allocated to selling and marketing activities(Asefso,2013)which include all the commissions paid to the sales staff, $200,000will be allocated towards this.

Researchand Development

Thisrepresents the cash allocated towards R&ampD activities. $200,000will be spent on fine tuning and testing of computer programs andsystems.

Generaland Administrative

Thisrepresents the cash allocated towards running the business. $200,000will be spent on accounting fees, legal fees, and the company’sinitial set-up.

Depreciation

Thisrepresents the depreciation of all capital investments. Straight linedepreciation will be used over the next 20 years.

ProjectedIncome Statement

Belowis the projected income statement for this company. The fixed costsfor advertising, technology and corporate affairs are shown in thesales and marketing section of the income statement.

Profit and Loss Statement

Year 1

2

3

Sales

19,032,000.00

59,438,400.00

Direct sales cost

Other

Total Cost of Sales

Gross Margin

19,033,000.00

59,438,400.00

Gross Margin (%)

100%

100%

Total Expenses

Employees’ Salaries

210,000.00

1,950,000.00

4,105,000.00

Sales, Marketing and Other Expenditures

2,160,000.00

9,356,520.00

16,379,882.00

Depreciation

69,000.00

85,177.00

117,868.00

Research &amp Development

200,000.00

951,600.00

1,783,152.00

Payroll Taxes

30,000.00

294,000.00

615,750.00

Other

Total Operating Expenses

2,669,000.00

12,646,297.00

23,001,652.00

EBIT

(2,670,000)

6,386,703.00

36,436,748.00

EBITDA

(2,600,000)

6,470,880.00

36,554,616.00

Interest Expense

Taxes Incurred

1,597,426.00

9,261,007.00

Net Profit

(2,669,000)

4,789,277.00

27,175,741.00

Net Profit/Sales (%)

25.20

45.70

Travel Pro Business ModelThebusiness model of Travel Pro Company is cost-driven considering thatthe suitcases have been priced based on their initial cost ofmanufacturing. The price charged on each suitcase is slightly belowthat of the competing products and this will aid in marketpenetration. The cost of manufacturing a single suitcase is $60 and aprofit margin of 25% is placed on each piece. This thus implies thatone piece goes for $75.Pro forma Balance Sheet

Thecompany’s statement of financial position depicts a solid net worthand sales growth.

Year 1

2

3

Assets

Current Assets

Cash

427,850.00

5,730,448.00

33,672,338.00

Total Current Assets

427,850.00

5,730,448.00

33,672,338.00

Long Term Assets

Assets

1,379,000.00

1,703,544.00

2,357,366.00

Accumulated Depreciation

69,000.00

154,177.00

272,045.00

Total Long-term Assets

1,311,000.00

1,549,367.00

2,085,321.00

Total Assets

1,738,850.00

7,279,815.00

35,757,659.00

Liabilities and Capital

Current Liabilities

Accounts Payable

250,850.00

1,002,538.00

2,304,640.00

Subtotal Current Liabilities

250,849.00

1,001,538.00

2,305,640.00

Total Liabilities

250,849.00

1,001,538.00

2,305,640.00

Paid Capital

4,160,000.00

4,160,000.00

4,160,000.00

Retained Earnings

(3,000.00)

(2,672,000.00)

2,117,277.00

Earnings

(2,669,000.00)

4,789,277.00

27,175,741.00

Total Capital

1,488,000.00

6,277,277.00

33,453,018.00

Total Liabilities and Capital

1,738,850.00

7,279,815.00

35,757,659.00

Net Worth

1,488,000.00

6,277,277.00

33,453,018.00

FundingSources

Thefinancial statements of the business start-up integrate two venturecapital investment rounds of 2.6 million dollars in total and anextra $1.4 million for cash flow reasons. The financial projectionsare excluded from the money raised through the suggested initialpublic offer. The financial year ends on every 31st of December. Thebusiness will be funded partly through the IPO and the capital raisedby the investor. If sufficient cash is not raised through the twooptions, then debt capital will be considered as another option.Raising capital through debt will not be a difficult task consideringthat the financial projections of this company are very impressive.

ReviewOf the Revenue Model and Proof That It Will Generate Profits

TravelPro Company will venture into the business of manufacturing suitcasescalled Intelligent Suitcase. The suitcases are fitted with Bluetoothdevices that aid in tracking lost luggage. Travellers haveincreasingly expressed their concerns over lost luggage whenconnecting flights but with this idea this shall be a thing of thepast. Travel Pro will make a strategic alliance with Kings Collectionso that it can enable it to penetrate into the market quickly asmentioned earlier. According to the pro forma income statement, theproduct will start making profits as from year 2 onwards hence it isprudent to exploit this opportunity. No profits will be made in year1 since the business is a start-up and there will be no sales. Theanticipated profits for year 2 and 3 are $4,789,277.00 and27,175,741.00 respectively.

References

Asefso,A. (2013). LeanSales and Marketing.AAGlobal Sourcing Ltd

FinancialManagement,44(2).(2015). doi:10.1111/fima.2015.44.issue-2

Warren,C. S., Reeve M J &amp Duchac, J. (2015). CorporateFinancial Accounting.Cengage Learning.