Key Performance Indicators

Year 1 Year 2 Year 3 Year 4 Year 5

Net Income (213,042) 120,760 210,386 310,245 421,610
Total Assets Turnover 0.88 1.93 2.18 2.40 2.65
Fixed Assets Turnover 0.99 0.99 0.99 0.99 0.99
Return on Assets (0.02) 0.01 0.02 0.02 0.03
Return on -20.74% 11.75% 20.48% 30.20% 41.04%

Invested Capital
Return on Equity (0.21) (0.21) (0.21) (0.21) (0.21)
Return on Net Worth -26.16% 12.91% 18.37% 21.31% 22.46%

 Break Even Point: 112.48 %

 Break Even Sales: 3,492,349
 Debt Service Coverage Ratio: 1.54 Times
 Payback Period: 4.55 Times
 Internal Rate of Return: 3.62%

7.1 FINANCIAL PLAN

The section of business plan consists of the financial statements, calculation, assumptions and
methodology used as a basis for the projection of the expected financial performance of Cakes
Inside. It expects to raise its own capital with two partners. The financial plan provides a detail
insight to where the company wants to see itself in the future.

The financial plan for the company Cakes Inside will provide with details through the help of
Income statement, Cash Flow Statement, Balance Sheet, and various other important financial
ratios to understand the current and future planning of the company.

7.2 ASSUMPTIONS
Following assumptions are done to have the financial plans
 Inventories were kept for 30 days of sales.
 Total capital consists of 60% loan and 40% equity
 Rate of depreciation for class A is 15%.
 Rate of depreciation for class B is 25%.
  Rate of depreciation for class C is 20%.
 Interest rate on the loan amount would be 10%,
 Tax rate is 25% on the earning.

7.3 INITIAL STARTUP REQUIREMENT SUMMARY

The startup expenses will include legal expenses, fixed assets, and preliminary expenses. The
business will be started by 2 partners with total of 21.50 lakhs. The startup expenses are given
below in the table:

Table 7.1: Startup Expenses

Particulars Amount
Fixed Asset  
Machinery & Equipment 1,071,600
Furniture & Fixture 155,000
Vehicle 110,000
Total Fixed Asset 1,336,600
Decoration and Construction 300,000
Pre operating expenses 500,000
Total Asset 2,136,600
Total Start Up Cost 2,136,600

7.4 TOTAL FUNDING REQUIREMENT

Cakes Inside is a company whose funds for the startup will be brought into the company by two
investors holding respective responsibilities and duties. Each partner of the company will be
contributing 4.4 lakhs and 1.1 lakhs respectively. This will bring up 5.5 lakhs as a capital into the
organization which will help to cover the initial startup expenses. Below table shows the
proportion of the investors and the amount of investment done by investor.

Table 7.2: Investor’s investment proportion

 Partners Proportion Capital
Denim Jung Shah 50 520,000
Rahul Giri 50 520,000
Total Equity 1,040,000
7.5 PROJECTED INCOME STATEMENT
On the basis of the assumptions, the following Income statement is projected.

Table 7.3: Projected Income Statement

Cakes Inside
   
Projected Income Statement
             
Description 1 2 3 4 5
Sales Revenue
3,105,00 6,831,00 7,514,10
Total Sales 0 0 0 8,265,510 9,092,061

Less: Cost of Goods Sold

1,397,25 3,073,95 3,381,34
Total Direct Cost 0 0 5 3,719,480 4,091,427

1,707,75 3,757,05 4,132,75

Gross Margin 0 0 5 4,546,031 5,000,634

Less: Fixed
Cost
1,416,00 3,115,20 3,426,72
Office and Administrative Cost 0 0 0 3,769,392 4,146,331

Profit before Depreciation and Interest 291,750 641,850 706,035 776,638 854,302

Less: Depreciation 321,490 283,292 252,012 226,326 205,179

Depreciation 221,490 183,292 152,012 126,326 105,179
Amortization 100,000 100,000 100,000 100,000 100,000
Profit before Interest (29,740) 358,559 454,023 550,312 649,123

Interest on Loan 183,302 197,545 173,509 136,652 86,976

Profit before Tax (213,042) 161,013 280,515 413,660 562,147

Less: Income Tax (25%) - 40,253 70,129 103,415 140,537

Net Profit after Tax (213,042) 120,760 210,386 310,245 421,610

Previous year's Profit - (213,042) (92,282) 118,104 428,349

Cumulative Profit forwarded to B/S (213,042) (92,282) 118,104 428,349 849,959

Cash Profit 108,448 404,051 462,398 536,571 626,789
 7.6 PROJECTED CASH FLOW
The cash flow statement shows the projection on the provision for ongoing expenses that are
adequate and sufficient to meet the needs of the company for the business to generate cash flow
sufficient to support its day to day operations.

Following Table 4 shows the projected Cash flow statement of the company.
Table 7.4: Projected Cash Flow Statement
Cakes Inside
   
Projected Cash Flow Statement
               
Description 0 1 2 3 4 5

1. Cash Flow from Operating Activities

Net profit/(Loss) before Tax - (213,042) 161,013 280,515 413,660 562,147

Add. Depreciation - 221,490 183,292 152,012 126,326 105,179
Add: Amortization - 100,000 100,000 100,000 100,000 100,000
Less: Income Tax Payment - (40,253) (70,129) (103,415) (140,537)

Cash Flow before change in W. C. - 108,448 404,051 462,398 536,571 626,789

Adjustments for
Decrease/(Increase) in Inventories - (232,875) (48,904) (28,178) (30,996) (34,095)
Decrease/(Increase) in Sundry Debtors - (517,500) (108,675) (62,618) (68,879) (75,767)
(Decrease)/Increase in Sundry Creditors - 232,875 48,904 28,178 30,996 34,095

Net Cash flow from Operating activities - (409,052) 295,376 399,780 467,692 551,022

2. Cash Flow from Investing Activities

Decrease/(Increase) in Fixed Assets (1,336,600) -

Decrease/(Increase) in Pre-operating
Expenses (500,000) - - - - -

Net Cash Flow from Investing Activities (1,836,600) - - - - -

3. Cash Flow from Financing Activities

Increase/(Decrease) in share capital 1,027,338 - - - - -

Increase/(Decrease) in Working Capital loans - 986,375 207,139 119,351 131,287 144,415
Increase/(Decrease) in Long Term loans 1,602,450 (64,098) (192,294) (320,490) (448,686) (576,882)

Net Cash Flow from Financing Activities 2,629,788 922,277 14,845 (201,139) (317,399) (432,467)

Net increase in Cash and Cash equivalents 793,188 513,225 310,221 198,642 150,292 118,555
Cash and Cash Equivalents : Opening - 793,188 1,306,413 1,616,634 1,815,275 1,965,568
Cash and Cash Equivalents : Closing 793,188 1,306,413 1,616,634 1,815,275 1,965,568 2,084,123
7.7 PROJECTED BALANCE SHEET
Table 7 shows the projected Balance sheet for Cakes Inside including the details of the five years
of annuals.

Table 7.5: Projected Balance sheet

Cakes Inside
   
Projected Balance Sheet
               
Description 0 1 2 3 4 5
Sources of Funds

Shareholder's Fund
Share Capital 1,027,338 1,027,338 1,027,338 1,027,338 1,027,338 1,027,338
Profit & Loss Account - - - 118,104 428,349 849,959

Sub Total 1,027,338 1,027,338 1,027,338 1,145,442 1,455,687 1,877,297

Loans
Working Capital Loan - 986,375 1,193,514 1,312,865 1,444,152 1,588,567
Long term Loan 1,602,450 1,538,352 1,346,058 1,025,568 576,882 -

Sub Total 1,602,450 2,524,727 2,539,572 2,338,433 2,021,034 1,588,567

Total Sources 2,629,788 3,552,065 3,566,909 3,483,875 3,476,720 3,465,864

Application of Funds
Fixed Assets 1,336,600 1,336,600 1,115,110 931,819 779,807 653,481
Less: Depreciation - 221,490 183,292 152,012 126,326 105,179

Net fixed Assets 1,336,600 1,115,110 931,819 779,807 653,481 548,302

Current Assets
Inventory - 232,875 281,779 309,957 340,952 375,048
Debtors - 517,500 626,175 688,793 757,672 833,439
Cash and Bank 793,188 1,306,413 1,616,634 1,815,275 1,965,568 2,084,123
Total Current Assets 793,188 2,056,788 2,524,587 2,814,024 3,064,192 3,292,609
Less: Current Liabilities - 232,875 281,779 309,957 340,952 375,048

Net Current Assets 793,188 1,823,913 2,242,809 2,504,068 2,723,239 2,917,562

Preliminary Expenditure 500,000 365,000 265,000 165,000 65,000 (35,000)

(to the extent of not written off)
Profit & Loss Account - 213,042 92,282 - - -

Total Application 2,629,788 3,517,065 3,531,909 3,448,875 3,441,720 3,430,864

7.8 BREAK EVEN POINT
The Breakeven point for Sales in first year is Rs.3,492,349. Therefore, no profits are made from
the sale until more than these sales generated.
Table 7.6: Break Even Point

Cakes Inside
   
Calculation of Break-even Point
             

Particulars 1 2 3 4 5
   
A. Fixed Cost
  Depreciation 221,490 183,292 152,012 126,326 105,179
  Amortization 100,000 100,000 100,000 100,000 100,000
  Interest 183,302 197,545 173,509 136,652 86,976
  administrative cost 1,416,000 3,115,200 3,426,720 3,769,392 4,146,331
   
  Total Fixed Cost 1,920,792 3,596,037 3,852,240 4,132,370 4,438,487
   
B. Variable Cost
  Total Direct Cost 1,397,250 3,073,950 3,381,345 3,719,480 4,091,427
   
  Total Variable Cost 1,397,250 3,073,950 3,381,345 3,719,480 4,091,427
   
C. Sales Revenue
  Sales 3,105,000 6,831,000 7,514,100 8,265,510 9,092,061
   
  Total Sales 3,105,000 6,831,000 7,514,100 8,265,510 9,092,061
 
Contribution Margin NRS' 000 1,707,750 3,757,050 4,132,755 4,546,031 5,000,634
 
BEP in NRS ' 000 3,492,349 6,538,249 7,004,073 7,513,401 8,069,976
 
BEP in % of Capacity 112.48% 95.71% 93.21% 90.90% 88.76%
7.9 PROJECTED FINANCIAL RATIOS
Business Financial Ratios are related to liquidity ratio, asset management ratio, debt management
ratio and profitability ratio.

7.9.1 Liquidity Ratios

Liquidity ratio measures the firm’s ability to satisfy tits short term commitments out of current or
liquid asset. Here, in the business all the transaction is planned to be carried out in cash and no
account receivables and account payable resulting no current liabilities. Thus, liquidity ratios like
current assets turnover, quick assets turnover, etc. cannot be known.

7.9.2 Asset Management Ratio

The asset management ratio or efficiency ratio measures the firm’s effectiveness of utilizing its
assets. Cakes Inside is a service company thus don’t have inventory and even transaction are on
cash thus cannot calculate inventory turnover, receivables turnover, payable turnover, etc. while
total assets and fixed assets turnover can be calculated whose detail is as follows:

 Total Asset Turnover Ratio

Total Asset turnover ratio of the company is 0.88 in the first year and increased to 2.40 in fourth
year and 2.65 in fifth year.

 Fixed Asset Turnover Ratio

The fixed asset turnover ratio is 0.99 in the first year to the final year.

 Current Asset Turnover Ratio

The fixed asset turnover ratio is 1.51 in the first year and increased to 2.76 in the final year

7.9.3 Debt Management Ratio

The company is fully raised its capital through equity and no loan is entertained. Since the value
of loan is zero debt ratios cannot be calculated like debt ratio, debt to equity ratio, interest
coverage ratio.

7.9.4 Profitability Ratio

Profitability ratios measure the company's use of its assets and control of its expenses to generate
an acceptable rate of return. It shows the operation of the company.
 Net profit margin ratio: It is the ratio of net profit after tax to sales times 100. The ratio is
--0.07 in the first year and 0.05 in the fifth year.
 Times Interest Earned Ratio: It is the ratio of EBIT to sales times 100. The ratio is -0.16 in
the first year and 7.46 in the fifth year.
 ROE: It is the ratio of NPAT to net worth times 100. The ratio is -0.21 in the first year and
increased to 0.22 in the fifth year.
 ROA: It is the ratio of NPAT to total assets times 100. The ratio is -0.02 in the first year and
increased to 0.03 in the fifth year.

Table 7.7: Financial Ratio

Calculation of Ratio Years

      1 2 3 4 5
Current Ratio   8.83 8.96 9.08 8.99 8.78
Quick Ratio   7.83 7.96 8.08 7.99 7.78
Assets Turnover Ratio 0.88 1.93 2.18 2.40 2.65
Inventory Turnover Ratio 13.33 24.24 24.24 24.24 24.24
Gross Profit Margin Ratio 0.55 0.55 0.55 0.55 0.55
Net Profit Margin Ratio (0.07) 0.02 0.03 0.04 0.05
Return on Assets Ratio (0.02) 0.01 0.02 0.02 0.03
Return on Equity Ratio (0.21) 0.12 0.18 0.21 0.22
Debt to Equity Ratio 2.46 2.47 2.04 1.39 -
Times Interest Earned Ratio (0.16) 1.82 2.62 4.03 7.46
Current Assets Turnover Ratio 1.51 2.71 2.67 2.70 2.76
Total Assets to Total Liabilities Ratio 0.99 0.99 0.99 0.99 0.99