Financial Analysis and Management Accounting
If the company take equity financing then it will create less burden on the company. It is because the company do not have to repay the loan on regular basis. Also, the company have to face problems to take a bank loan for new business. It will not create additional risk for the company if they fail to earn profit for particular years. In the case of equity financing, the company does not have to maintain a good credit score (corporatefinanceinstitute.com, 2022). The company will easily raise their finance by issuing shares. Equity shareholders will be involved in business growth with the help of their knowledge, experience and business network. It is because they expect a better return from a business where they invest.
The company have to repay the debt on a regular basis whether the company earn a profit on not in a particular period. For these reasons, the company have to make additional profit from their profit. It is riskier than equity financing because the business's future cash flow is not predictable at present (Franquesa and Vera, 2021).
|
Future Cash flow |
||||
|
Details |
Amount($) |
|||
|
Revenue |
2024 |
2025 |
2026 |
2027 |
|
Coffee |
2400000 |
2160000 |
1800000 |
1440000 |
|
Pastries and Cakes |
408200 |
350000 |
300000 |
250000 |
|
Less: COGS |
1200000 |
1080000 |
900000 |
720000 |
|
Gross profit |
1608200 |
1430000 |
1200000 |
970000 |
|
Less: Operating Expenese |
|
|||
|
Salary |
200000 |
200000 |
200000 |
200000 |
|
Rent |
250000 |
250000 |
250000 |
250000 |
|
Utilities |
50000 |
50000 |
50000 |
50000 |
|
Insurance |
100000 |
100000 |
100000 |
100000 |
|
Advertisement Expenses |
20000 |
10000 |
8000 |
- |
|
Operating Income |
988200 |
820000 |
592000 |
370000 |
|
Non-operating Expenses |
|
|||
|
Interest Expenses |
30000 |
22500 |
15000 |
30000 |
|
Depreciation Expenses |
25000 |
25000 |
15000 |
7500 |
|
Income Before Tax |
933200 |
772500 |
562000 |
332500 |
|
Less: Tax Expenses |
0 |
0 |
0 |
0 |
|
Net Income |
933200 |
772500 |
562000 |
332500 |
|
Non discounted Payback Period ($)
|
|||
|
Year |
Net cash flow |
Unrecoverable Investment |
|
|
0 |
-2750000 |
2750000 |
|
|
1 |
988200 |
1761800 |
|
|
2 |
820000 |
941800 |
|
|
3 |
592000 |
349800 |
|
|
4 |
370000 |
-20200 |
|
Every organisation's main goal is to make a profit so that they run their business successfully and also expand their business in the future periods. Business expansion help organisation to serve more customers which help to create a more customer base. In the given case study, the income statement of the company is prepared on the basis of assumption by considering the annual demand for coffee and pastry. Also, considered various expenses to determine a budget profit for the 2024 period. On the basis of the assumption, it is calculated that the company will earn a profit of $933000 in 2024 (Belle, 2022). This profit percentage is not bad for the company. But the company have to perform better to earn more profit. At present, the company is earning a profit of 33 per cent therefore the company generating profit by more than 10 per cent.
The NPV considered the time value of money which is more beneficial to determine the future value of cash flow. Through net present value, the company can determine its investment viability. Net present value is very essential for capital budgeting. But net present value uses the required discount return rate which impacts the inaccurate calculation of net present value. But in the given case the project will increase the company’s worth by -$297809 in four years (Anuya and Borad, 2022). Therefore, it is recommended that this project will not provide a better return to the company. also, the net present value of the company is negative so this project is not suitable or the company.
et al., 2022). Using these process the company understand its customer's choice and preference. Therefore, this process will provide knowledge that it is required to provide training to their employees to develop new products as per their customers (Aryani and Setiawan, 2020).
Jain D 2021 Review the Variables That Influence Product Pricing Decision Journal Contemporary Issues in Business and Government 27 i pp 786-792 href="https://www.cibgp.com/article_10921_44801fce4c5c9b491477bc01626a577d.pdf" https: www cibgp com article_10921_44801fce4c5c9b491477bc01626a577d pdf name="_qslhkr27lc59" a br clear="all" h1 1: Forecast income statement calculations align="center" Loan Opening Interest Principle Closing Balance 500000 30000 375000 22500 250000 15000 7500 125000 depreciation cost- salvage Life assets 100000-0 u Years rowspan="2" 25000 height="424" Appendix 2: Net present value b border="1" cellspacing="0" cellpadding="0" colspan="3" Calculation of discount rate 9433962 2 8899964 3 8396193 Year 1 6 4 width="81" valign="top" 0 7920937 td tr thead table nbsp p class="Normal1" style="margin-top:12.0pt;margin-right:0in;margin-bottom:12.0pt; margin-left:0in;text-align:justify;line-height:200%" span new="" serif mso-fareast-font-family: times="" roman>
