MIB TRIESTE SCHOOL OF MANAGEMENT

ORIGINI

FINANCIAL PLANNING

In March 2022 the managers of Marina Style Co. (a small manufacturer of swimwear and
leisurewear) are ready to launch their new Spring-Summer collection. The production and the
presentation of the single line of products have already been prepared. The only thing left to do is
the financial plan.

The sales for the period April-September 2022 are forecasted on the basis of incoming orders and
show a seasonal trend, being May and June the most favourable months.

Since the production capacity is used to its full extent, the company needs to buy new equipment
for an amount of €500,000. The company plans to buy this equipment in June.

The financial manager wants to verify the financial feasibility of the investment, keeping also in
mind the fact that the bank already conceded an increase of the bank overdraft (maximum
€375.000).

The following information is used in the financial plan:

Sales in the semester April – September: €3,500,000 (April 300,000; May 625,000; June 1,000,000;
July 700,000; August 575,000; September 300,000). Sales remain unchanged in the other months
(€300,000 per month).
Payment conditions: 20% at delivery, 80% in 60 days.

Raw materials purchases are constant and equal to €188,000 per month, payments in 30 days.

Other manufacturing expenses: since the production remains constant in the course of the year,
the monthly costs are: work done by third parties €50,000 (paid in 60 days); salaries €80,000;
depreciation €5,000; other manufacturing costs €44,000 (Note: all manufacturing expenses are
included in the cost of goods sold).

The Balance Sheet at 31 March 2022 is the following (in thousands of €):

Assets Liabilities and Equity

Cash 25 Bank overdraft 225
Debtors 480 Trade payables 288
Other receivables 50 Loans 125
Inventories (raw materials and 1,200 Tax liabilities 125
finished products)
Noncurrent Assets (net of accum. 574 Contingent liabilities 170
depreciation.)
Shareholders’ Capital 950
Retained earnings 446
Total 2,329 Total 2,329
Other receivables: to be received in November 2022

Inventories: the production is constant during the financial year, as well as the unitary costs of
resources. Therefore, monthly manufacturing expenses remain unchanged month by month. In
the meanwhile, sales are seasonal. Inventory changes because of the difference between the
constant volume of production and the changing volume of sales. The pricing policy results in a
gross profit ratio (gross profit/sales) amounting to 12%.

SG&A expenses: €25,000 each month;

Trade payables refer to purchases of raw materials (188,000) and work done by third parties that
the company has to pay in 60 days (€100,000: 50,000 in April and 50,000 in May).

Loans: in June the company is expected to pay an instalment of €20,000.

Tax liabilities: the due date is May 2022.

Dividends (on the 2020 profit) will be distributed in June to the partners for an amount of €14,000.
The interest rate on bank overdraft is 8% annually, while the interest rate on deposits is 2%.
Interests are calculated monthly:

1) Prepare the monthly cash flow and the pro forma income statement for the semester
April – September 2022 (complete the attached tables)
2) According to the financial plan, will the company have enough financial resources to
invest in June? Support your answer with evidence from the budget
3) How could the company improve its financial position, considering that the shareholders
do not wish to contribute with new capital?
 BUDGETED April May June July August September TOTAL
INCOME
Sales
- COGS

INCOME

CASH BUDGET April May June July August September TOTAL

OPER. CASH FLOW

INVEST. CASH FLOW

FINAN. CASH FLOW

TOTAL CASH FLOW

 April May June July August September TOTAL
OPENING BANK
MONTHLY CASH
FLOW
CLOSING BANK
INTER. EXPENSES
CLOSING BANK
INCLUDING
INTEREST