PA 5 CLA 5

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Part B: Professional Assignment

The business uses a retailer business model in which the business links the customers to the suppliers of the commodity. In such business model, customers make purchases to the company and the company outsources products from the manufacturers and suppliers. The business ensures the customers can access the products needed by the customers (Jalbert, 2019). The reason as to why the business model was selected for the venture is because it reflects market forces and demand trends over time. This gives the company an opportunity to adjust the prices charged to reflect the needs of the market (Jocevski, 2020). For instance, when there is an increase in pricing in the market, the company adjusts the pricing to ensure it is reflected on the pricing of the business.

Revenue projection

The new venture will experience a significant increase in revenue over the five years as illustrated in the graph below.

The graph is developed based on projected revenue in 5 years. The revenue curve raises upwards towards right indicating a consistent increase in revenue in the next 5 years. The projected income is projected based on the estimated revenue and expenditure. In ensuring the business generates the projected income in the five years as identified, there has to be listed expenditures. The increase in revenue over the five years is based on an assumption that cost loops will be filled through application of necessary strategies. For instance, marketing strategies that are found to not yield the expected sales target will be eliminated and instead replaced by more effective marketing strategies. The company also operates under cost leadership strategy with an aim of reducing expenditure as much as possible (Yhip & Alagheband, 2020). As illustrated in the income projections, the company will experience a consistent increase in revenue over the past five years.

Pro forma P&L Statement

INCOME STATEMENT	YEAR 1	YEAR 2	YEAR 3	YEAR 4	YEAR 5
DETAIL	Amount	Amount	Amount	Amount	Amount	Amount	Amount	Amount	Amount	Amount
Income:
Gross sales	18200		21700		57300		74900		87700
(Commissions)	-5000		-5000		300		-5000		-15400
(Returns and allowances)	-1680		-1440		-1680		-1680		-1680
*Net Sales*	11520	11520	15260	15260	55920	55920	68220	68220	70620	70620
Expenses: General and administration
Salaries and wages	77		77		840		960		1200
Employee benefits	113		113		780		840		1440
Payroll taxes	64		64		64		64		64
Professional services	54		54		54		54		54
Marketing and advertising	551		563		551		551		551
Rent	145		145		145		145		145
Equipment rental	180		180		180		180		180
Maintenance	165		166		165		165		165
Depreciation	101		99		101		101		101
Insurance	120		120		120		120		120
Utilities	80		81		80		80		80
Postage and shipping	55		60		55		55		55
Interest on loans	120		60		120		120		120
Other	82		82		82		82		82
*Total expenses*	1907	-1907	1864	-1864	3337	-3337	3517	-3517	4357	-4357
Net Income before taxes	9603	9613	12896	13396	47283	52583	64703	64703	66263	66263
Provision for taxes on income	-180	-180	-180	-180	-540	-540	-600	-600	-960	-960
NET PROFIT	9423	9433	12716	13216	46743	52043	64103	64103	65303	65303

Pro forma cash flow statement

Pro forma cash flow statement
	Year 1	Year 2	Year 3	Year 4	Year 5
Cashflow from operating activities
Cash generated from operations	2345	6899	8678	9785	10345
Income tax paid	245	334	456	689	890
Net cash generated from operating activities	2590	7233	9134	10474	11235
Capital expenditures	1550	2345	2950	3225	4560
Working capital investment	1610	1710	1950	2300	2800
Net cash used in investing activities	3160	4055	4900	5525	7360

Net cash available or (shortage) before financing	5750	11288	14034	15999	18595

Cash flow from financing activities
Borrowing and repayments	860	1200	1650	1900	2300
Dividends paid to company shareholders	200	700	1200	3000	5000
Other interest received	400	400	600	800	1000
Capital Injections	300	1000	1200	1500	2000
Net cash from or (used in) financing activities	1760	3300	4650	7200	10300


Cash and cash equivalents at end of the period	3990	7988	9384	8799	8295

The assumption made in the analysis is that there will be no unexpected changes that will change cash flow of the new venture in the next five years. This assumption is based on the fact that there will be an effective risk management strategy to minimize various risks that affect cash flow management of a business venture (Spanos et al, 2019).

Pro-forma balance sheet

Pro forma balance sheet
Particular	Year 1	Year 2	Year 3	Year 4	Year 5
Assets:
Non-current assets	3000	3200	3500	3800	4000
Cash	2000	2000	2500	2500	3000
Account receivable	1500	1800	2200	2400	2600
Total assets	6500	7000	8200	8700	9600

Liabilities:
Account payable	200	500	1000	1500	3000

Equity	6300	6500	7200	7200	6600
Total liabilities $ Equity	6500	7000	8200	8700	9600

The assumption made is that the venture will maintain minimum liabilities. Also, the assumption made is that within the period of 5 years, there will be no change in accounting and financial reporting policies. The pro-forma balance sheet is developed based on the pro-forma cash flow statement and the profit and loss or income statement. It shows the financial position of the company at the end of the 5 accounting periods (annual basis) as indicated in both the cash flow statement and the income statement (Florea, 2020).

Reference

Jocevski, M. (2020). Blurring the lines between physical and digital spaces: business model innovation in retailing. California Management Review, 63(1), 99-117.

Jalbert, T. (2019). A management focused tool for developing pro-forma financial statements. International Journal of Management and Marketing Research, 12(1), 61-86.

Spanos, P. M., Galanos, C. L., & Liapis, K. J. (2019). Corporate financial modeling using quantitative methods. In Economic and Financial Challenges for Eastern Europe (pp. 161-183). Springer, Cham.

Florea, G. C. (2020, June). Financial statements forecast. In International conference Knowledge-Based Organization (Vol. 26, No. 2, pp. 19-22).

Yhip, T. M., & Alagheband, B. (2020). Financial Statement Analysis. In The Practice of Lending (pp. 47-94). Palgrave Macmillan, Cham.

Projected revenue in 5 years

Revenue Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 0 9433 13216 52043 64103 65303 Column1 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Column2 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5