Sales Forecast - Term Paper Example

Sales Forecast Sales We would assume that the outlet can hold 500 units of products with a retail value ofR$750 (where the average price per unit of product is R$ 1.5). If the outlet is stocked on a daily basis, them the outlet can be expected to generate expected revenue in the range of R$500 toR$750 every day. Again, if we consider that the outlet is open for business for about 360 days a year; this would imply that the outlet would generate around R$180,000 (on the basis of R$500/day) toR$270,000 (on the basis of R$750/day). Expenditures The stocking up of the outlet with products would necessitate an arrangement of delivery vehicle and drivers. Additionally the day to day operations would require paper bags as well as package boxes in addition to the cost of ingredients and manufacturing cost. Let us assume that the total estimated expense per day for the outlet would be approximately aroundR$400 per day. Income If we assume that the average annual revenue generated by the outlet is R$250,000 and that the operating margin of the company is 40%, the outlet would earn a profit of R$150,000. Fund Requirement Nevertheless, the business will have to pay a yearly rent in addition to the funds required to set up the outlet. The expense for the initial outlet would be aroundR$8,000 (which comprise of R$ 4000 rent per year and the expenditure for furniture and settings). Break-Even Analysis The break even analysis of business would be conducted for a time frame of one year. As already discussed in the Sales forecast, the estimated average sales price of a product unit of the outlet is R$1.5. For the analysis, let us assume that the fixed expenses associated with production of the sauces are R$0.25 per unit of product. Additionally the variable expenses such as the price of raw materials and ingredients are estimated to be R$.035 per unit. It is expected that the outlet would sell on an average around 12,000 units of products per month over the period of one year. By considering all these values into the formulas, we can conduct a breakeven examination. The yearly expected unit sale of the outlet is 12,000 x 12 = 144,000. Thus, the total variable expenses would be 144,000 xR$.35 =R$50,400. Likewise, the fixed expenses over the period of one year would be, (£.25 x 12,000) x 12 =R$36,000. Consequently, the total expenditure of the outlet for the one year time period would be, R$50,400 +R$36,000 =R$86,400. The estimated revenue for each the outlet over one year is 144,000 xR$1.50 =R$216,000. As a result, the Profit or Loss for the year would beR$216,000 –R$86,400 =R$129,600 Therefore, Breakeven Point for 18 Cafe =R$36,000 / (1.50 - 0.35) = 31,305 units (approximately) This indicates that the business will have to sell around 31,305 units of products with the purpose of breaking even. The break even sales value for the sauce outlet would be (31,305 xR$1.50) =R$46957.5. Since, the business is expected to sell around 12,000 units of products every month, hence it is likely that it would break even during the third month of its operations in Brazil. Financial Projections Sources and Uses of funds The owner of the business intends to invest around R$100,000 of personal assets and around R$300,000 in the form of bank loans. The start up expenses as well as the preliminary financing is shown in the following table: Start up Expenses Values in R$ Legal 1,500 Patent 20,000 Insurance 1,000 Rent 20,000 Furnishing 20,000 Equipments & Machinery 1,00,000 Others 55,000 Total 2,17,500 Start up assets Cash Required 60,000 Start up Inventory 35,000 Other Current Assets Non-Current assets Total Assets 95,000 Total Requirements 3,12,500 Assumption Sheet We would assume that the company would earn revenue worth R$1,500,000 and R$1,750,000 in its first two years of operation. We would also assume that the cost of goods sold is approximately around 40% of the total revenue. The pro forma statements of the company based on these assumptions are as follows: Pro forma Income Statements Income Statement Year1 Year 2 (Values in R$) Net revenues 1500000 1750000 Cost of revenues 600000 700000 Gross profit 900000 1050000 Operating expenses: Sales & Marketing 195000 200000 General and Admin 303000 305000 Annual Rent 20000 20000 Net income 382000 525000 Pro forma Balance Sheets Balance Sheet (Values in R$) ASSETS Current Assets:  Year 1  Year 2 Cash & Cash Equivalents  50000  52000 Marketable Securities     Accounts Receivable  100000  90000 Inventories  40000  50000 Prepaid Expenses  12000  14000 Total Current Assets  202000  206000       Fixed Assets  240000  240000 Intangible Assets  180000  180000 Investments  0  50000 Other Non-current Assets  200000  210000       TOTAL ASSETS  822000  886000       LIABILITIES Current Liabilities:  Year 1 Year 2  Accounts Payable  15000  16000 Accrued Expenses     Short-term Loans  20000  35000 Current Portion of LT Debt  20000  25000 Income Taxes Payable  10000  10000 Total Current Liabilities  65000  70000       Non-current Liabilities:     Line of Credit  300000  320000 Term Loan  180000  180000 Total Non-current Liabilities  480000  500000 TOTAL LIABILITIES  545000  586000       EQUITY Capital  200000  210000 Retained Earnings  77000  90000 TOTAL EQUITY  277000  300000       TOTAL LIABILITIES & EQUITY  822000   886000 Pro forma Cash Flows (All Values in R$) Year 1 Year 2 Cash Flow from Operating Activities Cash Receipt from Customers 2160000 2500000 Cash Paid to employees and suppliers (864000) (1000000) Net Cash Flow generated from Operations 1296000 1500000 Cash Flow from Investing Activities Machineries and Equipments (250000) (10000) Replacement of old equipments 0 (60000) Proceeds 0 20000 Net Cash Flow from Investing Activities (250000) (50000) Cash Flow from Financing Activities Proceeds from contributed Capital 50000 60000 Loan Proceeds 150000 120000 Loan Payments (50000) (50000) Net Cash Flow from financing activities 100000 130000 Ratio Analysis (All values in R$) Year year 1 year 2 Current Assets 202000 206000 Current Liabilities 65000 70000 Current Ratio 3.11 2.94 Cash and cash equivalents 50000 52000 Current Liabilities 65000 70000 Cash Ratio 0.77 0.74 Profit from operations 900000 1050000 Profit after taxation attributable to members 382000 525000 Equity attributable to owners 277000 300000 Revenue 1500000 1750000 Total assets 822000 886000 Operating profit margin 60.00% 60.00% Net profit margin 25.47% 30.00% ROE 137.91% 175.00% ROA 46.47% 59.26% Revenue 1500000 1750000 Working capital 137000 136000 Working capital Turnover 10.95 12.87 Revenue 1500000 1750000 Total assets 822000 886000 Total asset turnover 1.82 1.98 Revenue 1500000 1750000 Equity attributable to members 277000 300000 Equity Turnover 5.42 5.83 The current ratio of the company is relatively high, implying that the company would be able to cater to its immediate obligations very comfortably. The analysis of a firm’s capacity to produce cost-effective sales by means of its resources can be determined with the help of the profitability ratios. The profit margins of the company are also expected to be high, indicating that it would utilise its assets and capital in an efficient manner. Currency Fluctuation between US Dollar and Brazilian Currency The following section of the paper would assess the movement of US dollar with respect to the Brazilian currency, Brazilian Real, during the last one year starting from October 9, 2011 to October 8, 2012. http://www.x-rates.com/graph/?from=BRL&to=USD&amount=1 Figure: Value of US Dollar per 1 Brazilian Real. It can be observed that the value of US dollar had been unstable owing to the exchange rate fluctuation between American and Brazilian currency. The company can lessen its hazard of loss from variations in exchange rates by means of http://www.investopedia.com/articles/forex/08/invest-forex.asp#axzz28gLFAfzm http://www.freit.org/WorkingPapers/Papers/FirmLevelTrade/FREIT224.pdf http://www.doingbusiness.org/~/media/FPDKM/Doing%20Business/Documents/Profiles/Country/BRA.pdf http://www.ey.com/Publication/vwLUAssets/Doing_business_in_Brazil_2011/$FILE/Doing%20Business%20in%20Brazil%202011.pdf http://www.pwc.com.br/pt/publicacoes/assets/doing-business-brazil05.pdf Read More