The sportswear industry is a competitive market with many established brands competing for global market share.
Recently a new venture called Kings Sports ltd. was formed. The USP of the company is to offer a fully customisable rugby kit to their customers and entering a niche market by focusing especially on university, small and low division rugby clubs.
The decision to enter this niche market was made due to high entry barriers within the general sportswear market from established companies. With Nike, Adidas and Puma ranked, 26, 62 and 97 respectively as the top 100 global brands, new entrants will be forced to place a high level of investment into the business to compete, which is not available to the owners.
A complete and comprehensive financial plan was produced.
The following methods and theories are applied:
a) Clearly outline the aims and objectives of the business, indicate what the unique selling point of the enterprise is and the legal form (company or partnership).
b) Detail the main costs of the products or services provided and establish the break even point for those products or services including a sensitivity analysis. You must indicate how you have arrived at the price of your product or service.
c) Produce a detailed monthly cash flow for the first three years of the business.
d) Provide a comprehensive investment appraisal for any capital purchases that need to made (machinery, transport, or buildings).
e) Produce annual budgeted income statements, balance sheets and cash flow statements for the first three years of the business. Showing a range of financial ratios from year to year so that an appraisal of the business may be made.
f) Indicate the level of funding required and what form that funding will take.
Table of Contents
I. Monthly Cash Flow Statements
A. Monthly Cash Flow Statement 1st year
B. Monthly Cash Flow Statement 2nd Year
C. Cash flow for 3rd Year
II. Financial Statements
A. Financial Statements for 1st Year
1. Income Statement
2. Balance Sheet
3. Cash Flow Statement
B. Financial Statements 2nd Year
1. Income Statement
2. Balance Sheet
3. Cash Flow Statement
C. Financial statements 3rd Year
1. Income Statement
2. Balance Sheet
3. Cash Flow Statement
III. Expenses
A. Start Up Costs
B. Wages and Salaries
C. Rent
D. Company Vehicle Allowance
E. Office Equipment
F. Printing and Stationary
G. Insurance
H. Telephone, Website and Internet Expenses
I. Machinery
J. Cost of Sales Breakdown
K. Outsourcing Costs
L. Marketing Expenses
IV. Bank Loans
V. Depreciation
VI. Method Dividend Payout
VII. Delivery Charges
VIII. Investment Appraisal
IX. Full (Absorption) Costing
X. Break Even Analysis
A. Break-Even Analysis 1st year
B. Break-Even Analysis 2nd year
C. Break-Even Analysis 3rd Year
XI. Sensitivity Analysis
XII. Trade Receivables – Doubtful & Bad Debt
A. Estimated Bad Debt
B. Allowance of Bad Debt
XIII.Financial Ratios
A. First Year
1. Return on Capital Employed Ratio
2. Operating Profit Margin
3. Average Inventories Turnover Period
4. Average Settlement Period of Trade Receivables
5. Current Ratio
6. Acid Test ratio
7. Financial Gearing
B. Second Year
1. Return on Capital Employed Ratio
2. Operating Profit Margin
3. Average Inventories Turnover Period
4. Average Settlement Period of Trade Receivables
5. Current Ratio
6. Acid Test ratio
7. Financial Gearing
C. Third Year
1. Return on Capital Employed Ratio
2. Operating Profit Margin
3. Average Inventories Turnover Period
4. Average Settlement Period of Trade Receivables
5. Current Ratio
6. Acid Test ratio
7. Financial Gearing
Objectives and Core Topics
The primary goal of this assignment is to develop a comprehensive financial plan for a new startup business venture, "Kings Sports Ltd.", requiring funding of up to 4 million pounds. The report focuses on outlining the company's business case, financial structure, and operational sustainability over its first three years of activity.
- Strategic financial planning and business case development.
- Cost structure analysis, pricing strategy, and break-even calculations.
- Cash flow management and investment appraisal (NPV analysis).
- Financial performance evaluation through ratio analysis (ROCE, OPM, Gearing).
- Risk assessment and sensitivity analysis for financial projections.
Excerpt from the Book
Investment Appraisal
The investment appraisal method chosen is the net present value (NPV) as according to Ross, Westerfield and Jaffe (2005:513), it is hard to find any theoretical fault with NPV1.
The manufacturing machineries for the business will be the only capital purchase appraised. The initial investment in the two machines required for the manufacturing process was £29,459.46. With a discount rate of 2.75%, we determined that the NPV of the machinery was £425,987.57, which indicates that this would be a great investment to the company (appendix VIII).
Based on the NPV calculated for the first two machines purchased in year one, it can be used as a rough assumption for the NPV of the additional two machines purchased in year three. The investments on the additional machineries could be seen as a project which should be pursued as it would appear to generate wealth for the business.
Summary of Chapters
I. Monthly Cash Flow Statements: This chapter provides detailed monthly financial inflows and outflows for the first three years, illustrating the impact of seasonal purchasing behaviors on the business.
II. Financial Statements: These sections present the annual Income Statements, Balance Sheets, and Cash Flow Statements for the company's first three years of operation.
III. Expenses: This chapter breaks down all operational costs, including staffing, rent, manufacturing processes, and marketing expenditures, explaining the rationale behind outsourcing and cost management.
IV. Bank Loans: This chapter details the loan financing strategies employed by the company to support its early operations and international expansion efforts.
V. Depreciation: This section explains the methodology used for calculating the depreciation of machinery and office equipment over their respective useful lives using the reducing-balance method.
VI. Method Dividend Payout: This section defines the percentage of profits allocated to shareholders as dividends for each of the three years.
VII. Delivery Charges: This chapter outlines the shipping and logistics costs structure based on weight and geographical location of customers.
VIII. Investment Appraisal: This chapter presents the Net Present Value (NPV) calculations used to justify the capital investment in manufacturing machinery.
IX. Full (Absorption) Costing: This chapter provides an analysis of the total production costs per unit for each year to determine the company's cost efficiency.
X. Break Even Analysis: This chapter evaluates the number of units that must be sold to cover total costs for each of the three years, incorporating adjustments for changes in fixed and variable expenses.
XI. Sensitivity Analysis: This chapter assesses the resilience of the project by testing how changes in unit sales, costs, pricing, and discount rates impact the overall Net Present Value (NPV).
XII. Trade Receivables – Doubtful & Bad Debt: This chapter addresses the financial risk associated with unpaid invoices, particularly concerning international sales, and the management of bad debt provisions.
XIII. Financial Ratios: This chapter provides a critical analysis of the company's performance, utilizing key metrics such as ROCE, Operating Profit Margin, Current Ratio, and Gearing Ratio to appraise business efficiency.
Keywords
Financial Management, Startup, Cash Flow, Net Present Value, Break-Even Analysis, Investment Appraisal, Profitability, Gearing Ratio, Trade Receivables, Costing, Outsourcing, Sensitivity Analysis, Financial Statements, Sportswear Industry, Business Plan
Frequently Asked Questions
What is the primary purpose of this assignment?
The primary purpose is to produce a comprehensive financial plan for a new startup business venture, "Kings Sports Ltd.", by detailing its operational costs, revenue streams, and financial sustainability.
What are the key thematic areas covered in the report?
The key areas include business case development, costing and pricing strategies, cash flow management, investment appraisal, and performance evaluation through financial ratios.
What is the core research question or objective?
The central objective is to demonstrate that the proposed new venture, focused on customisable rugby kits, will be a financial success, evidenced by projected financial statements and a detailed business appraisal.
Which scientific methods are used in the financial analysis?
The report utilizes Net Present Value (NPV) for investment appraisal, sensitivity analysis to assess risks, break-even analysis for cost planning, and various financial ratios such as Return on Capital Employed (ROCE) and the current ratio.
What topics are explored in the main body of the document?
The main body covers the business strategy, detailed expense structures (including staff and manufacturing), monthly cash flow projections, financial statement analysis, and sensitivity analysis of key variables.
Which keywords characterize the work?
Key terms include Financial Management, Startup, Cash Flow, Net Present Value, Break-Even Analysis, Investment Appraisal, and Financial Ratios.
Why did the company decide to outsource its manufacturing process?
Outsourcing was chosen to reduce fixed infrastructure investment, shorten product delivery times from the industry standard of 6-12 weeks to just two weeks, and allow for greater product customisation.
How does the report address the issue of international bad debt?
The report highlights the rise in bad debt due to international sales and proposes the implementation of a new payment policy, such as using secure third-party payment gateways like PayPal, to mitigate this risk.
How has the financial gearing of the company changed over the three years?
The company maintains low reliance on external funding. The gearing ratio fluctuated to support specific international expansion preparations in the second year, eventually reaching 0% by the third year.
- Quote paper
- Raphael Städtler (Author), 2010, The financial forecast of a start-up business within the sports industry, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/170892
