| Following is clothing & accessories department store chain (multi stores, multi locations) budget. Due to COVAD 19, the company has experienced reduction in business and they would like to update their forecast from original budget |
| | Please update forecast based on following assumptions |
| | Provide management commentaries based on business environment, economy, market trend, demand, other business factors and major items of reforecasted income statement |
| | Please provide recommendations to improve profitability, margin, reduction in cost and working capital management |
| | ($000's) | FY-20 (Original Budget) | | | FY-20 (Updated Forecast) |
| | Revenue | 60,000,000 |
| | Total Cost of Sales | 42,000,000 | 70.0% | | | ERROR:#DIV/0! |
| | Gross Profit | 18,000,000 | 30.0% | | - 0 | ERROR:#DIV/0! |
| | Payroll Expenses | 7,500,000 | 12.5% | | | ERROR:#DIV/0! |
| | Bonus (Budgeted 10% of Payroll Expense) | 750,000 | 1.3% | | | ERROR:#DIV/0! |
| | Rent | 2,000,000 | 3.3% | | | ERROR:#DIV/0! |
| | Facility/Utilities | 200,000 | 0.3% | | | ERROR:#DIV/0! |
| | Travel & Entertainment | 1,000,000 | 1.7% | | | ERROR:#DIV/0! |
| | Sales & Marketing | 1,200,000 | 2.0% | | | ERROR:#DIV/0! |
| | Legal & Professional | 1,000,000 | 1.7% | | | ERROR:#DIV/0! |
| | Other General & Administrative Exp | 1,200,000 | 2.0% | | | ERROR:#DIV/0! |
| | Depreciation | 350,000 | 0.6% | | | ERROR:#DIV/0! |
| | Amortization | 100,000 | 0.2% | | | ERROR:#DIV/0! |
| | Total Operating Expense | 15,300,000 | 25.5% | | - 0 | ERROR:#DIV/0! |
| | Operating Income | 2,700,000 | 4.5% | | - 0 | ERROR:#DIV/0! |
| | Interest Income (current cash balance $0.5M; interest rate 1%) | 5,000 | 0.0% | | | ERROR:#DIV/0! |
| | Interest Expenses (current debt balance $1.5M, interest rate 5%) | (75,000) | -0.1% | | | ERROR:#DIV/0! |
| | Profit Before Tax | 2,630,000 | 4.4% | | - 0 | ERROR:#DIV/0! |
| | Income Tax | 657,500 | 1.1% | | - 0 | ERROR:#DIV/0! |
| | Net Income | 1,972,500 | 3.3% | | - 0 | ERROR:#DIV/0! |
| | EBITDA | 3,150,000 | 5.3% | | | ERROR:#DIV/0! |
| | Non GAAP Net Income |
| | GAAP Net Income | 1,972,500 |
| | Adjustments (Net of Tax): |
| | Amortization | 75,000 |
| | |
| | Total Adjustments | 75,000 |
| | Non GAAP Net Income | 2,047,500 |
| | DSO | 33 |
| | DIO | 36 |
| | DPO | 30 |
| | CCC | 39 |
| | Accounts Receivable | 5,500,000 |
| | Inventory | 4,200,000 |
| | Accounts Payable | 3,500,000 |
| Assumptions: |
| | Revenue: |
| | Reduce revenue by 20% |
| | Management decided to give 2% discount on updated revenue |
| | Create 10% provision for return at year-end. Margin on return products is 20%. |
| | Cost of Sales: |
| | Management decided to reduce cost of sales by 20% due to reduction in revenue by terminating some direct temp & full time labor and other direct cost |
| | Management decided to create 5% inventory reserves on original budgeted inventory |
| | Operating Expenses: |
| | Due to reduction in business, 10 corporate staff with annual $90K salary (plus 20% load for payroll tax and benefits) in the beginning of the second month of second quarter were laid off |
| | Management decided to give one month severance pay as one time payment in Q2 for all impacted staff |
| | Management has decided to reduce bonus accrual by 50% from original accrual on updated payroll. |
| | Management is projecting 10% reduction in Facilities/Utilities expenses |
| | Due to current environment, company announced travel freeze for non-essential travel and plan to reduce travel & entertainment by 30%. |
| | Sales & Marketing expenses are same as % of updated revenue |
| | Management is projecting 15% reduction in General & Administrative expenses |
| | Management is projecting 50 basis points (bps) bad-debt expense on updated revenue |
| | Cancelled planned capital expenditure of equipment (with 5 years life) on July 1 for $500K |
| | Other: |
| | Due to reduction business, company has used all cash in Q1-20 and no cash balance left |
| | Due to change in business environment, the company has to borrow incremental $1.0M @ 3% interest rate in beginning of Q2-20 but able repay back in beginning of Q4-20. |
| | No change in the tax rate |
| | Compute AR, Inventory and A/P based on following assumptions |
| | - Increase in DSO by 3 days |
| | - Deterioration in DIO by 3 days |
| | - Improvement in DPO by 3 days |
Babu Dev
presentation-2.xlsx
