Financial Plan for Dr McDougalls Right Food Asian Entre - Essay Example

The financial break-even point is defined as “the point where revenue equals expenses and profit is zero” (Smartacus Corporation, 2011, par. 1). For Dr. McDougall’s financial situation, assuming fixed cost = $2.8 and variable cost = $2, the number of units that must be sold to break-even is 3,800 units.

Cost of Goods Sold (COGS)

            The components of the cost of goods sold are calculated by establishing the “Beginning Finished Goods Inventory + Cost of Goods Manufactured = Finished Goods Available for Sale – Ending Finished Goods Inventory = Cost of Goods Sold” (Averkamp, 2011, par. 1). For Dr. McDougall’s financial performance, it could be assumed that the COGS was arrived at using this:

            Beginning Finished Goods Inventory            150,000

            Cost of Goods Manufactured                         100,000

            Finished Goods Available for Sale                 250,000

            Ending Finished Goods Inventory                    30,000

            Cost of Goods Sold                                        220,000

Uses of Financial Information

            Financial information could be used to determine the available resources which can be used in plans and endeavors. Dr. McDougalls’s plans include the research and development of innovative products of similar natural ingredients in other preparations to cater to other cultural tastes. Therefore, financial information would serve as the gauge for decision-making and to design of appropriate strategies that would achieve the defined goals.

Key Financial Ratios

            The relevant financial ratios to determine profitability and success are profitability ratios such as the gross profit margin (gross profit/sales) = 60%; operating profit margin (operating profit/sales) = 31%; and net profit margin (net income/sales) = 26%. These ratios define that there are substantial profits generated from the manufacture of food products that provide a successful measure of returns for the company.

Three-Year Cash Flow Statements
                                                                                    1st Year           2nd Year          3rd Year

Cash flow from Operating Activities

     Net Income                                                            142,800           157,300            173,030

Additions to Cash:

    Depreciation                                                           12,000            15,000              15,000

Subtractions from Cash:

   Increase in Inventories                                            112,000           120,000            150,000

Net cash flow from Operations                                    42,000             52,300             38,030

Cash flow from Investing Activities           

   New Equipment                                                         10,000                -                        -

Increase/ (Decrease) in Cash                                     32,000            52,300            38,030

Assumptions: Sales increase by 10% per annum, and the profit margin is retained at 26%.