...IV. Financial Statement Projections V. Integration of Financial Statement Projections / Revolver Modeling 2 Introduction Uses for Financial Models in Investment Banking and Private Equity Investment bankers and Private Equity Professionals often must create financial models that illustrate historic financial statements along with integrated income statement, balance sheet and cash flow projections for evaluating various types of transactions such as: Sale of the Company Merger of the Company Public or Private Placement of new capital (bank loans, high yield issue, IPO or secondary equity offering, private equity or debt placement, etc.) Leveraged buyouts / Management buyouts Restructuring / Bankruptcy In these cases, the associate or analyst is expected to construct the financial model with guidance from the management team on assumptions and projections. Typically, the associate and analyst are responsible for “running the model”, including the ability to run base-case, upside, downside and alternate capital structure scenarios. For pitches and other cases where there is no access to the management team, projections from research reports (equity research reports, high yield research reports, credit rating agency reports, etc) can be used. 3 Introduction Tips for Setting Up the Financial Model Keep historic and projected income statement, balance sheet and cash flow on same worksheet Have Historic Ratios / Assumptions for Projections on the same worksheet but...
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...carefully by people, with a consultant nutritionist and delivered right into one’s doorstep is a good strategy to answer this demand. Ms. Jones has this new concept of grocery marketing and plans to pioneer in this novelty business- delivering to the household doorsteps of young professionals of high disposable income and willing to pay for services packages of groceries for a menu of pre-planned recipes for a weekly meal. The nutritional requirements of the packages are considered, premium quality ingredients and the most efficient method for preparing the over-all meal included. Like all new businesses on birth, niche in the business and its future growth studied; operational aspects planned – organization, capital equipments, sales projection, required financial capital- the projected operations for the first 3 years – escalations of requirements in every operational aspect matching the projected growth considered. Go-To Market: • Menu Planning and Grocery Delivery • A complete package of groceries and recipes for a week’s meals delivered to customers Target...
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...which they are affiliated. All of SBA's programs and services are extended to the public on a nondiscriminatory basis. ______________________________________________________________________________ TABLE OF CONTENTS INTRODUCTION 1 COVER SHEET 1 STATEMENT OF PURPOSE (MISSION STATEMENT) THE BUSINESS Legal Structure 2 Description of the Business 2 Products or Services 3 Location 3 Management 3 Personnel 3 Methods of Record Keeping 3 Insurance 4 Security 4 Summary 5 MARKETING Target Market 5 Competition 5 2 Methods of Distribution 5 Advertising 7 Pricing 7 Product Design 7 Timing of Market Entry Location 8 Industry Trends 8 7 FINANCIAL DOCUMENTS Summary of Financial Needs 8 Sources and Uses of Funds Statement Cash Flow Statement (Budget) 9 Three-year Income Projection 10 Break-even Analysis Graph 15 Actual Performance Statements 16 Balance Sheet 16 Summary 21 SUPPORTING DOCUMENTS Personal Resumes 22 Personal Financial Statement 22 Credit Reports 22 Copies of Leases 22 Letters of Reference 22 Contracts 22 Legal Documents 23 Miscellaneous Documents 23 9 PUTTING YOUR BUSINESS PLAN TOGETHER KEEPING YOUR BUSINESS PLAN CURRENT Making...
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...perform a monthly cash flow analysis for the fiscal year ending December 31st, 1990. Robert & Alex would like to open up their own restaurant/brew pub with $200,000 of their own money and with the use of external financing to finance the rest of the company until excess cash flows remain stable and positive. The second issue is to identify the key variables in this analysis. With every company, there are certain variables which affect cash flow significantly more than others. How would changes in these key variables which are identified for this particular business affect the cash flow for Kellers' Freehouse? Is there anything that can be done to fix these variables or to control them better to secure a more positive cash flow? RECOMMENDATIONS Creating a cash flow budget for the fiscal year ending 1990 will help to project cash disbursements and receipts and will inform Robert & Alex of the size of the loan that they must request in order to make it through the first fiscal year of operation with a positive cash flow. Creating five separate cash budgets projecting for sales of $550,000, $600,000, $650,000, $700,000 and $750,000 will help to view the bigger picture. Due to the fact that projected sales are perceived to be anywhere from $550,000-$750,000, projecting the cash budget for several different sales levels is a quick and easy way to perform a type of sensitivity analysis. We are checking to see how changes in sales will affect the cash flow (receipts, disbursements...
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...LEASE FINANCING Lease finance or lease financing means contract between owner of asset and user of asset. In this contract only rent is paid at periodical intervals for using of asset by user. If user of asset has no money to pay initial amount of leasing contract, he can also do contract with third part to pay initial amount or specific period rent of lease. Importance of Lease Financing: 1. Lease finance is easy to get than getting loan for buying all fixed assets. 2. Monthly rent payment for lease finance will be operating expenses. It will be allowed to deduct total income. So, company can get tax benefits in lease financing. 3. It can show as invisible debt of company out of its balance sheet. You can show lease finance in the footnote of balance sheet, if you did contract directly with the owner of asset. 4. One of major important point is that it is more flexible way of finance. You can fix your need of asset and get it one lease through lease financing. 5. A study from IFC [PDF] has revealed that 30% of total share of lease financing as investment of fixed asset is of emerging and developed economies and now 15% of developing countries. RETAIL BANKING Retail banking is a major form of commercial banking but mainly targeted to consumers rather than corporate clients. It is the method of banks' approach to the customers for sale of their products. The products are consumer-oriented like offering a car loan, home loan facility...
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.......................................................................................... 7 Budgeting ............................................................................................................................................................................... 7 Discussion Point #1: Budgeting............................................................................................................................................ 7 Bookkeeping .......................................................................................................................................................................... 8 Cash Flow .............................................................................................................................................................................. 9 Discussion Point #2: Cash Flow Projection ...................................................................................................................... 10 Profit and Loss (P&L) Statement ...................................................................................................................................... 12 Discussion Point # 3: P&L Statement...
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...statement and project cash flow statement for the next five years. The first thing reviewed was the revenue generated in comparison to the operating expenses, not including depreciation, before income taxes. Corporation A ranged from 20% to 24% over the five year projection, while Corporation B ranged from 40% to 42% over the same time period. The net income for Corporation A is consistent across the five year project and approximately 56% of revenues, indicating a large portion retained within the organization. Corporation B’s net income is approximately 40% over the same projection. If the only statement analyzed is the income statement, Corporation A would appear to be more appealing, however, it would be a mistake to only review one of financial statement and not review or calculate other important information such as statement of cash flow, net present value, profitability index, internal rate of return, and payback period on investment. The statement of cash flows is an important part of the financial statements of any company and especially to investors (Keown, Martin, & Petty, 2014). This statement will explain to investors how much actual cash or money was generated by the company (Keown et al, 2014). Corporation A generated $362,997 over the five year projection, while Corporation B generated $397,763, accounting for 9.6% more than Corporation A. The cash flow projects are also used to determine the present value (PV) of the future cash flows (FCF). The present...
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...strategies. 1.1-a Assumptions on which the financial plan has been developed……………………………….5 1.1-b Financial objectives in terms of finance requirements………………………………………..5 1.1-c Funding arrangements………………………………………………………………………...6 1.1-d Financial information requirements…………………………………………………………..9 1.1-e Financial performance targets and indicators………………………………………………..10 1.1-f Income statement projections………………………………………………………………...11 1.1-g Balance sheet projections…………………………………………………………………….12 1.2 Identify the appropriate staff and stakeholders within Virginia’s Wines that this plan should be communicated to, to enable effective implementation……………………………………………….13 Task 2 2.1-a Essential financial systems and records………………………………………………………14 2.1-b Legal and financial control systems…………………………………………………………..14 2.2-a A budget which is consistent with the financial strategies and plans…………………………17 2.2-b Revenue and expense projections for each forward period…………………………………...19 2.2-c Revenue and expense projections for each forward period…………………………………...19 2.2-d Balance sheet projection for the year………………………………………………………….20 Task 3 3.1. In monitoring the business operations explain what actions can be taken to ensure Virginia’s Wines achievement of their financial performance targets, and profit and return on investment objectives……………………………………………………………………………………….22 3.2-a Financial objectives…………………………………………………………………………...22 * 3.2-b Financial...
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...bankrupt the company in a few years. Furthermore, the short term borrowing has increased since 1998; this indicates that the current cash flows cannot handle the companies short term financial needs. This may improve in two to three years if the sales projections are accurate, however, I believe they are very conservative and are another aea of significant risk if there is no equity injection. In conclusion, the firm is taking on too much debt while making more large capital commitments. This coupled with short term cash flow issues (slow AR) an increasing accounts payable the company is exposed to a significant amount of risk an almost certain failure. Our recommendation is that a large equity injection be made and/or the owners evaluate selling the firm to a competitor or other potential buyer. The later may be more beneficial as it appears the current management team is unable to operate efficiently. Simple Ratio Analysis and Comments ROE ROE has increased from '00 o '01 which may be the result of the decrease in equity as a % of NOI annually. Based on the information provided it will continue to decrease over the next two years. ROA ROA has declined; this is a sign of misuse of assets or underutilization. If management follows the proforma it will reverse this trend in 3 years. It is important to note that the proforma sales projections are very conservative and perhaps not realistic. Debt Ratio This is a significant issue. Its debt has increased over the last few...
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...the bills, to take a trip, fix up the house, or save for a rainy day. Businesses are no different. But what we call mad money, they call free cash flow. Free cash flow is the remaining cash flows that are available for use by a company to bring added wealth and value to the shareholders after all the bills have been paid. It represents real cash. The presence of free cash flow indicates that a company has cash to expand, develop new products, buy back stock, pay dividends, or reduce its debt. High or rising free cash flow is often a sign of a healthy company that is thriving in its current environment (investinganswers.com). There is an extensive selection of criteria for selecting projects. Some may want to select projects that show instantaneous increases in cash inflow, while others may want to concentrate on long-term growth. Examples of projects include investments in property, plant and equipment, and research and development projects. Bauer Industries, an automobile manufacturer, was presented with a proposal to build a plant that will manufacture lightweight trucks. The plan utilized a cost of capital of 12% to evaluate the project over a ten year period. Based on extensive research, an incremental free cash flow projection (in millions of dollars) was prepared. The net present value of the estimate free cash flow to manufacture the lightweight trucks was determined using the following formula: NPV = -150 + 36 x 1/(.12) (1- 1/〖1.12〗^9 ) + 48/〖1.12〗^10...
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...present value for each project to decide which project creates more value. First, we need to figure out the initial cash outflow of each project. Table 1 and table 2 illustrate the initial cash outflows of MMDCL and DYOD separately. As the upfront R&D and marketing are tax deductible and the tax rate is 40%, the initial expenditures are $3.02 million and $5.331 millions. Next step is to calculate the unlevered cash flows of each year. As the result 9.2 (p.310) illustrates, unlevered cash flow = profit before interest and taxes + depreciation and amortization – change in working capital – capital expenditures + sales of capital assets – realized capital gains + realized capital losses – profit before interest and taxed * tax rate.The process of computing the working capital from year 2010 to 2020 was explained in Table 3 and Table 4. The computation of the unlevered cash flows for each project was illustrated in Table 5. As the case pointed out, project MMDCL entailed moderate risk, which is 8.4%, while project DYOD revealed a relatively high risk, which is 9%. In addition, both projects can create indefinitely value if it is given continuing investment. As a consequence, when calculate the net present value; we have to regard it as a growing perpetuity. The U.S. retail sales of dolls were planed to grow at a constant rate by 3% per year. To persuade a conservative projection, we used a relatively low perpetual growth rate, which is 2% in this case. Therefore, we can compute each project’s...
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...Caledonia Products Company is introducing a new product, we have been given the assignment that involves both the calculation of the cash flows associated with a new investment and the evaluation of several mutually exclusive projects. The company is currently in the 34% tax bracket with a 15% discount rate because this project is considered a fad project it will only last five years then it will be terminated. This paper will focus on free cash flows, projection of cash flows during years 1-5, projects initial outlay, cash flow diagram, net present value, internal rate of return, and if the project should be accepted. Free Cash Flow Versus Profits Earned After reviewing the numbers for project Caledonia Products, it shows that the best route that Caledonia Products Company should focus on is free cash flows versus to the accounting profits that was obtained by the project itself. The numbers show that the accounting profits should be earned by this current project due to there is a positive rather than negative cash flow to the company shareholders. In this case, Caledonia’s free cash flow is its total cash available to the creditors who invested their cash to run the project. Accounting profits are costs which are the interest, taxes and the depreciation that run a business and in which it should not interfere the free cash flows. The free cash flow that this project shows, starting from zero to the five year mark will benefit the Caledonia Products company if they should choose...
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...Warute Phanthumkmol Calaveras Vineyards Case Dear Dr. Lynna Martinez, After reviewing your projections of Calaveras Vineyards, I used the adjusted present value method to come up with the value of the company. With this method, I assume that the whole firm is financed only through equity. Therefore, when calculating the free cash flow, debt was not taken into account. Despite that, the net present value of interest shields is added back to compensate the debt in the capital structure. With this method, the company is valued at $9.62 million. In order to assess Calaveras’ value, I calculated the free cash flow from 1994 to 1998. The free cash flow from each year derived from adding Earnings before Interest and Taxes, Depreciation, and Amortization and subtracting the Change in Net Working Capital, and Capital Expenditure. Earnings before Interest and Taxes were calculated from subtracting tax rate of 37% from Earnings before Interest (EBIT), which was projected in the Income Statement. Other values were based off of the spreadsheet attached with this memo. Once I got the free cash flow for each year, I used the Cost of Equity or the CAPM rate to discount it to present value. The rate is calculated by adding the risk-free rate with the product of market risk premium and beta. The risk-free rate of 5.85% is based off of the interest rate of 30-year T-bonds. As for the market risk premium, I chose the geometric mean premium of returns on small-company stocks less returns...
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...Key Events/ Case synopsis Palmer Limited is an industrial Mechanical building contracting company from Saskatoon. Michael and Andrea Palmer founded it in 1986. They saved around $ 25,000 to start the business. They currently have 32 employees working under them. The main problem that they are facing now is the volatile market and decline in the housing construction business market in the current year. This is causing them troubles with the bank. Problem Statement and Objectives The Confederation bank is requesting an assessment of financial needs to maintain the bank’s support. Some critical issues that the company is facing are that the company is deviating from its core competencies. They are experiencing Cash flow problems. They are in a high debt right now. They are having a hard time collecting what is owed to them due to the market. The Confederation bank is asking the Palmer brothers to create a financial statement for the year of 1999, which will be the deciding factor for the bank weather to support Palmer Limited or not. They also want to see if Palmer Limited will be able to pay the debt or not. Situation Analysis Porters Five Forces The rivalry amongst existing firms is medium low. The number of competitors is equal and the business is balanced in comparison to all the employees. There is low growth rate, with high exit barriers and relatively low switching costs. The Bargaining power of suppliers is low. There are not many suppliers present in the market...
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...Cover Page Provide your company name, address, and contact information along with owner name(s) and contact information for primary contact. II. Table of Contents Include a table of contents as a quick reference to topics discussed in your plan. I. Cover Page II. Table of Contents III. Executive Summary IV. Financing Proposal V. Company Description VI. Industry Analysis VII. Products & Services VIII. Market Analysis IX. Management & Organization X. Operational Plan XI. Financial Plan & Projections XII. Supporting Documents III. Executive Summary WRITE THIS LAST! Summarize your business plan in two pages or less. Be enthusiastic and concise. Include business goals, objectives, and monetary amount desired if applying for a loan. IV. Financing Proposal Explain how you intend to obtain capital and the amount required. What are your desired terms? How do you plan to utilize the funds? Include any collateral you have available. What is the owner's equity/cash contribution? V. Company Description What does your company do? Give a brief company history. Include a description of your products and services. Who are your customers? Describe your business location and facilities. What are your key strengths? List the owners and the legal structure. Why did you choose this type of structure? What, if any, are the planned changes for the company? Describe the goals and objectives of the company. VI. Industry Analysis What are the characteristics of your industry...
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