Impact of Sales Discount - 2% & Interest Payable

Discount offered at POS

Interest on borrowed funds from bank

2%
6%
0.5%

per year
per month

P&L - 2011 Forecast - Interest included, with 30% : 25% payable split

Nov

Jan

Feb

Mar

Apr

May

Jun

Total

2,857
2,340
517

2,893
2,451
442

3,183
2,617
566

3,255
2,581
674

3,797
3,148
649

4,159
3,413
746

20,144
16,550
3,594

Expenditure
Sales discount
Bad Debt
Warehouse lease
Salaries, including social security
Interest
Distribution costs
General & administrative costs
Local and municipal taxes
Total Expenditure

23
143
130
85
13
127
35
13
569

23
145
130
85
12
129
36
13
573

25
159
130
86
12
132
34
13
591

26
163
130
87
13
141
37
15
612

30
190
130
89
15
145
36
15
650

33
208
130
91
16
148
39
15
680

160
1,008
780
523
80
822
217
84
3,674

Net Profit

(52)

(131)

(25)

62

(1)

66

(80)

Sales
Purchases
Gross profit

Dec

Interest Calculations - Based on no outstanding receivables from Nov & Dec 2010
Sales Receipts for Jan 2011

3218

Sales for Jan 2011

2,857

Jan Sales receipts comprises of Jan 40% with 2%

discount + 30% Dec + 25% Nov

Equation [1]

40% with 2% discount for Jan

1,120

Sales receipts for Feb 2011

2,986

Sales for Feb 2011

2,893

Feb Sales receipts comprises of Feb 40% with

2% discount + 30% Jan + 25% Dec
40% with 2% discount for Feb
30% Jan 2011

Equation [2]
1,134
857

Therefore substituting into equation [2]

25% Dec = 2986 - 1134
Dec Sales 2010

995
3,979

Substituting Dec sales into equation [1]

30% Dec 2010

1,194

Nov Sales 2010

3,617

Sales
Receivables
30-day credit @ 30% delivery
60-day credit @ 25% delivery
30-day interest payable
60-day interest payable
Monthly Interest
Ratios
Markup [Gross profit / Purchases]
Sales Margin [Gross profit / Sales]

Nov
3,617

Dec
3,979

Jan
2,857

Feb
2,893

Mar
3,183

0
Apr
3,255

1085
904

1194
995

857
714

868
723

955
796

977
814

1139
949

1248
1040

5.43
5

5.97
9

4.29
8.55
12.83

4.34
7.19
11.53

4.77
7.60
12.37

4.88
8.05
12.93

5.70
8.82
14.51

6.24
9.95
16.18

22%
18%

18%
15%

22%
18%

26%
21%

21%
17%

22%
18%

May
3,797

Jun
4,159

P&L - 2011 Forecast - Interest included, with 50% :45% payable split, no 2% discount
- Warehouse lease reduced by 10% & software amortization
Jan

Feb

Mar

Apr

May

Jun

Total

2,857
2,340
517

2,893
2,451
442

3,183
2,617
566

3,255
2,581
674

3,797
3,148
649

4,159
3,413
746

20,144
16,550
3,594

Expenditure
Amortization
Sales discount
Bad Debt
Warehouse lease
Salaries, including social security
Interest
Distribution costs
General & administrative costs
Local and municipal taxes
Total Expenditure

17
0
143
117
85
23
127
35
13
560

17
0
145
117
85
20
129
36
13
562

17
0
159
117
86
22
132
34
13
579

17
0
163
117
87
23
141
37
15
599

17
0
190
117
89
25
145
36
15
634

17
0
208
117
91
28
148
39
15
663

100
0
1,008
702
523
141
822
217
84
3,597

Net Profit

(43)

(120)

(13)

75

15

83

(3)

Sales
Purchases
Gross profit

Interest Calculations

Sales
Receivables
30-day credit @ 50% delivery
60-day credit @ 45% delivery

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

3,617

3,979

2,857

2,893

3,183

3,255

3,797

4,159

1085
904

1194
995

1429
1286

1447
1302

1592
1432

1628
1465

1899
1709

2080
1872

7.14
15.92
23.07

7.23
12.94
20.17

7.96
13.67
21.63

8.14
14.49
22.62

9.49
15.87
25.36

10.40
17.90
28.30

22%
18%

18%
15%

22%
18%

26%
21%

21%
17%

22%
18%

Previous 2% discount terms

30-day interest payable

60-day interest payable
Monthly Interest
Ratios
Markup [Gross profit / Purchases]
Sales Margin

5.43
5

5.97
9

Notes/Recommendations
1. Based on the above comparison the removal of the 2% discount shows that after 6 months, Sports CM shows an overall +ve net profit.
This suggests that from a strictly financial analysis, the 2% incentive is not profitable.

22%
18%

Monthly Cash Flow Forecast 2011 - No 2% discount

Bank balance at beginning
Sales receipts
Purchases payments
Other payments
Warehouse lease
Salaries, incl. Social security
Distribution costs
General & administrative costs
Local and municipal taxes
Corporate income tax
Total of other payments
Net cash flow
Bank balance at end

Jan
(56)
2,098
2,682

Feb
(1,030)
2,423
2,406

Mar
(1,406)
2,732
2,550

Apr
(1,653)
2,893
2,596

May
(1,766)
3,060
2,921

Jun
(2,042)
3,363
3,307

Total
(7,953)
16,570
16,462

130
85
127
35
13

130
85
129
36
13

130
87
141
37
15

130
89
145
36
15

130
91
148
39
15

390

393

130
86
132
34
13
35
430

410

415

423

780
523
822
217
84
35
2,461

(974)

(376)

(248)

(113)

(276)

(367)

(2,353)

(1,030)

(1,406)

(1,653)

(1,766)

(2,042)

(2,409)

(2,409)