Professional Documents
Culture Documents
Individual
Contents
1. INRODUCTION ....................................................................................................................................... 3 SWOT Analysis .............................................................................................................................................. 4 PEST Analysis................................................................................................................................................. 6 Goals ............................................................................................................................................................. 8 2. Financial reports ....................................................................................................................................... 9 Balance sheet ............................................................................................................................................ 9 Profit and Loss Account .......................................................................................................................... 10 Year-end balance sheet .......................................................................................................................... 11 Cash Flow statement............................................................................................................................... 13 3. Investment appraisal.............................................................................................................................. 14 Investment timeline ................................................................................................................................ 15 PP(paybackperiod) .................................................................................................................................. 16 NPV (net present value) .......................................................................................................................... 16 DPP( Discount payback) .......................................................................................................................... 16 ARR(Average rate of return) ................................................................................................................... 17 IRR(Internal rate of return) ..................................................................................................................... 17 Ratio Analysis .......................................................................................................................................... 18 Gross Profit ratios ................................................................................................................................... 18 4. Sources of Finance .................................................................................................................................. 19 Choosing the Right Source of Finance .................................................................................................... 21 Internal and External Finance ................................................................................................................. 22 Internal sources ...................................................................................................................................... 22 External sources ...................................................................................................................................... 23 Best financing option .............................................................................................................................. 24 5. Impact by obtaining the bank loan ......................................................................................................... 25 Financial reports after loan ..................................................................................................................... 26 Profit and loss statement ........................................................................................................................ 27 Cash flow statement (Year 1) .................................................................................................................. 28 Conclusion and Recommendation .............................................................................................................. 30 Appendix ..................................................................................................................................................... 32 BM K- 18 Page 1
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Cash Flow statement for Year 2 .............................................................................................................. 32 Cash flow statement for Year 3 .............................................................................................................. 33 Ratios analysis ......................................................................................................................................... 34
BM K- 18
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Individual
1. INRODUCTION
As the one of the best and broad minded andbuilding the business building owner MR Samson de Silva wanted to begins a pharmacy to satisfied health need of the people who live in the village ,he is the certificate holder for conducting pharmacy and he is the person who process modern business talent to begin a business in the above mention field. Among the high price drug selling centers in the town this pharmacy will provide better service lower income level village people, not only MR Samson the Silva the rural village people also reef the benefits from the expected business.this grand opportunity will save very important time factor as well as hardly earn money in the hand of under privileged people in the village. The people live though out the world are suffering from various type of the business therefore this is the best opportunity to invest money and provide a great humanitarian service on behalf of the general public
BM K- 18
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SWOT Analysis
SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors whereas opportunities and threats are external factors. Basically a SWOT analysis distinguishes between where your organization is today, and where it could be in the future. STRENGHTS background with business experience sufficient amount of capital. The owner is training and certificated person. Having a suitable place for the business. WEAKNESSES Lack of experience employees. Difficult to finding a quality helpers Problems of having distribute. Changes in the price levels.
OPPURTUNITIES higher chance of Expanding the firm to additional area. Villages havent pharamercy in this area. Private dispensary and veterinary service are in this area.after 4.30 private medical dispensary are open. Poor bus service ,from village to town in the evening.
THREATS
BM K- 18 Page 4
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Big competition between western and medicine and ayuruwedic. Villages run after the herbal medicine
BM K- 18
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PEST Analysis
PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management.
POLITICAL
Political vary, for example frequently government change stability of government. Rules and regulations often known as loan policies, labor laws, and tax policies are highly influenced among firms.
ECONOMICAL Economic factor can be determine based on the rates of inflation, stage of the business cycle, interest rates, exchange rates, and disposable and flexible income among various segments of the population. SOCIAL As we converted our living system in to western pattern we have completely forgotten our indigenous food system cooking methods and the life depend on agree cultural background as the result of that we eat lots of western foods and the fast foods as well as oil for cooking with this blind following system our young generation have become unhealthy people before the reach in to the maturity . We can see people line up infront of the channeling centers for western medicines,doctors also prescribe number of drugs introduce by medical representative and produse by the multinational companies.
BM K- 18
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Using new computerized methods will help the business maintain their records, customer attendance and financial system in a proper way.
Now under the present open economy system there are lots of low quality local goods in the market under the this situation even the health minister declared to media conference,there are nearly 14 companies with in our country those who important distribute quality drugs within the country ,therefore people have big hesitation in purchasing drugs for their decisions. They dont have trust on drugs stoles in the country therefore we hope to established a pharmacy within high goodwill to the rajyaosusala.
BM K- 18
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Selling the high quality drugs using the drugs name avoiding the brand name Now in the drug business they charge high rate for even low quality drugs under the brand name, even the doctors use the brand name avoiding the drugs name ,therefore we should explain this to our customers from the explosion. Provide the opportunity for the customers to fulfill their health need from the close market with the trust. Usually customer hesitate to buy certain types of drugs under the brand name ,they are paying high price therefore it will be relief to them. To avoid the long queue In the town areas people have to stay in a long queue to buy their drugs wasting their valuable time because of the congestion we can provide our service to them without wasting their time not only that but also we can expos clearly the different of the prices.
When we fulfill the above mention goals we can create a competitive market to the RAJAY OSU SAL providing competitive service
BM K- 18
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820000
100,000
100000 Total assets 920000 Capital & Long term Liabilities Capital Total capital and liability 920,000 920000 9200000
BM K- 18
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Net Profit
279000
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Origina l Value Current Assets Closing stock (10% from purchases) Cash and bank Key money building Fixed Assets Furniture and fits 100000 Total Assets Liabilities
Depreciat ion
Remainin g Value
50,000
Capital & Long term Liabilities Capital 920,000 1199000 Retained earnings 279000
1,249,000
BM K- 18
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Managing financial resources Balance sheet notes Depreciation Furnitures and fits 10% Creditors Assuming 10% from purchases Closing stock Assuming 10% from purchases
Individual
BM K- 18
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Cash Inflows Sales (Cash) Capital (-) Opening cash and bank 1,200,000 620,000 (120,000) 1,700,000
Cash Outflow Purchases (cash) Telephone Bill Electricity Bill Salary Advertising Maintenance Inventory Net Cash flow Opening cash and bank equivalent Closing cash and bank equivalent
BM K- 18
450,000 15000 35000 96000 8000 7000 300000 (911000) 789000 120000 909000
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3. Investment appraisal
This
the
planning
process
used
to
determine
whether
an
organization's
long
term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures. These are the formal methods used in investment appraisal techniques, Traditional methods Payback Period Accounting Rate of Return (ARR)
Discounting Methods Discounted Payback Period Net Present Value (NPV) Profitability Index (PI)
For R & R pharmacy, Ive decided to use payback period, discounted payback period, accounting rate, return capital employee known as (ROCE) and Net present value (NPV).
BM K- 18
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Investment timeline
Cash Flows Year 0 Year 1 789,000 Year 2 794,230 Year 3 800,701 According to the forecasted cash flows (from the cash flow statements) the timeline for the investment can be derived as follows. 962,331 161,630 (632,600) AMOUNT TO BE RECOVERED (1,421,600)
789,000
794,230
800,701
789,000
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PP(paybackperiod)
The Payback period for this project is 1 year and 1 month. According to the payback period it can be considered a good investment because it is lower than the standard payback period (2.5 years).
Finding the Present value of cash flows is needed in order to calculate some non traditional techniques (NPV,IRR, DPP). Therefore the amount to be recovered will be adjusted according to these values.
PV of Cash Flows
AMOUNT TO BE RECOVERED
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therefore it can offer us a more accurate description of this aspect as it considers time value of money. Our DPP is still lower than our standard payback period, so the DPP considers this a good investment.
This calculated IRR for the project is 68% and the rate of interest is 10%. This means the safety margin in between 10% and 68% is very wide. So our investment can be considered a low risk project.
BM K- 18
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Ratio Analysis
Financial ratios are a valuable and easy way to interpret the numbers found in financial statements. It can help to answer serious questions such as whether the business is carrying excess debt, whether customers are paying according to terms, whether the operating expenses are too high and whether the companys assets are being used properly to generate income and so on. In other words ratio analysis may provide the all the important early warning indications that allow you to solve your business problems before your business gets destroyed by them. It also enables the business owners to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry.
BM K- 18
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4. Sources of Finance
Businesses have various way of hoist money. Huge organizations are capable of using a broad variety of finance sources than the smaller ones. Choosing the right kind of finance is very important to the nature of the business. Savings are an obvious way of putting money into a business. Currently companys main way of raising finance is by issuing shares. Following are the financial sources available to a business.
Personal Savings Entrepreneur using his/her own money to start the business are known as personal savings. The advantage of personal savings is, it is easy and quick. And also it has a least risk. Gain finance from this source has no or less cost. This is the ideal business for long term; this is an appropriate source of finance because it has a least risk. Leasing Contract between the leasing company and the customer is known as leasing. Cost of obtaining maybe high. Various assets can be taken such as buildings and motor vehicles etc... The cost of obtaining is high when compared with personal savings. And the lesser owns the asset until the payments are settled. Retained Profit The accumulated portion of profits which is not distributed among the owner. To start the business this source of finance cannot be used but it can be used after the first year. This is also a quick and easy source of finance. And here too the cost of obtaining is very low and this can be used in the long run. Bank loan Cost of obtaining a bank loan maybe high. Capitalist has to repay the loan with an interest. If the business will continue for a longer period then the loan can be obtain for long term. Overdrafts
BM K- 18
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Overdrafts are a short term loan can be obtained by keeping the bank balance as a security. Cost of obtaining finance from this source maybe costly since the bank will charge an interest on overdraft.
Ordinary Shares Form of right to its owner to share in the profit of the company (dividends) and to vote at general meetings of the company. This source of finance is high in cost but it is suitable to use if the business is a large scale and if it requires a high capital. Ordinary shares can only be issued by a company. Sole traders and partnerships cannot issue ordinary shares.
BM K- 18
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How quickly the money is needed The longer a business can spend trying to raise the money, normally the cheaper it is. However it may need the money very quickly (say if had to pay a big wage bill which if not paid would mean the factory would close down). The business would then have to accept a higher cost.
The cheapest option available The cost of finance is normally measured in terms of the extra money that needs to be paid to secure the initial amount the typical cost is the interest that has to be paid on the borrowed amount. The cheapest form of money to a business comes from its trading profits.
The amount of risk involved in the reason for the cash A project which has less chance of leading to a profit is deemed more risky than one that does. Potential sources of finance (especially external sources) take this into account and may not lend money to higher risk business projects, unless there is some sort of guarantee that their money will be returned.
BM K- 18
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Day to day cash from sales to customers. Money loaned from trade suppliers through extended credit. Reductions in the amount of stock held by the business. Disposal (sale) of any surplus assets no longer needed (e.g. selling a company car).
An overdraft from the bank. A loan from a bank or building society. The sale of new shares through a share issue.
Internal sources
The internal sources of finance are as follows: Personal sources these are the source of finance that the entrepreneur invest.His/her own money.
BM K- 18
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Share capital invested by the founder These are the money that comes from the shares of the capital which we invested.
External sources
Loan capital This can take several forms, but the most common are a bank loan or bank overdraft. Bank provide this for the money that we have in the bank.
BM K- 18
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Loan application form Salary slips two Guarantors statements Guarantors salary slips Information about the bank accounts Information about bank accounts in other banks Photocopy of National ID of the applicant Other relevant documents.
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BM K- 18
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Rs.
100000
Current Assets Cash at hand Closing stock (10% from purchases) Key money building Total Assets Capital and Liabilities Current liabilities Creditors (10% from purchases) Long term Liabilities Loan Capital Capital introduced Retained earnings Total Liabilities and Equity 820,000 389000 1,259,000 100000 -50,000 909000 50,000 200,000 1,259,000
BM K- 18
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Profit and loss statement as at 31/1/1 Sales (-) Cost of Sales Opening Stock (+) Purchases (-) Closing Stock (10% from purchases) Gross Profit (-) Other expenses Depreciation Telephone Electricity Bill Salary Advertising Maintenances Interest paid 10,000 15,000 35,000 96,000 8,000 7,000 10000 181,000 Net Profit 269,000 200,000 500,000 -50,000 -750,000 450,000 1,200,000
BM K- 18
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Cash Outflow Purchases (cash) Telephone Bill Electricity Bill Salary Advertising Maintenance Inventory Interest paid (Note 1) Net Cash flow Opening cash and bank equivalent Closing cash and bank equivalent 450,000 15000 35000 96000 8000 7000 300000 10000 -921000 779,000 120,000 899,000
BM K- 18
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Managing financial resources Note 1 Bank loan: 100,000 Interest rate: 10% Interest paid = 10,000
Individual
BM K- 18
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86.27%
60%
955.827
1 year
By considering the above table it is appropriate to invest in this business because the Net Present Value shows a positive figure and the discounted payback period is 1 year which means the amount that is invested will be paid back after one year.
A bank loan was taken to finance this business and as an effect of this the net profit has been reduced. It is recommended to reduce the amount taken as a loan and increase the amount of personal savings in order to increase the net profit.
It is recommended to use a computer software package to derive the financial statements more accurate and also it is appropriate to have a research and take the information than making assumptions. Then it will be more appropriate and accurate.
BM K- 18
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References
www.pppnetwork.com/?view=The_Importance_Of_Financial_Planning&mid=1563&mid=1563
tutor2u.net/business/gcse/finance_choosing_right_sources.htm
www.combank.lk/newweb/info/184?oid=73&lm=
lecture notes
BM K- 18
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Individual
Cash Inflows
Sales (Cash) 1,260,000
620,000 (120,000)
1,760,000
(965,770)
794,230
Net Cash flow Opening cash and bank equivalent Closing cash and bank equivalent
120,000 914,230
BM K- 18
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Individual
Cash Inflows
Sales (Cash) 1,323,000
620,000 (120,000)
1,823,000
(1,022,299)
800,701
Net Cash flow Opening cash and bank equivalent Closing cash and bank equivalent
120,000 920,701
BM K- 18
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Individual
Ratios analysis
ARR Average Annual Net Income Investment 794,644 920,000 86.37%
ACID Test Total Current assets Inventories Total current liabilities 1159000 50,000 50,000 22.18
BM K- 18
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