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Airex – Financial Projections

The following information presents a summary of projections for the first 5 years of operations, beginning in July 1997. AIREX’s first year will begin in July 1997 and will finish in June 1998. The detailed financial data is shown in the Annex 3.

8.1 DEMAND

This analysis began with our main assumptions (as it is shown in the Annex 3.1), including market demand (e.g. volume of recyclable residues, non-recyclable, services and consulting time), necessity of equipment and man power, labor costs and general expenses.

Our forecast for the first five years of operations indicates that AIREX will have 10 customers by the end of the first year, increasing to 20, 30, 45 and 80 respectively in the following years. It is important to mention that the consulting revenues will start only in the second year and will represent approximately 11% of the total sales.

The learning curve and the experience in this market will bring benefits especially after the third year, as can be seen in the next graph:

Cost Reduction
8.2 FINANCIAL STATEMENTS

The income statement, cash flow statement (per year and detailed for the first two years) and balance sheet for the first five years are shown in Annex 3. It is important to mention that all the expenses and investments in the first year of operation will be absorbed by the shareholders’ capital and by the positive cash flow generated.

Income statement

The projected income statement for the first five years is shown below. The decrease in costs is mainly due to the increased learning curve and will result in a strong increase in the net income. We will start with a loss of US$40,313 in the first year, which will be converted to a gain in the second of US$219,016, reaching US$979,358 in the fifth year. A more detailed year end income statement is presented in the Annex 3.2.

Year Income Statement

Year 1 Year 2 Year 3 Year 4 Year 5
REVENUES
Total of sales 649,380 2,424,600 3,646,900 5,470,350 9,758,400
COST OF GOODS SOLD
Total 604,357 1,777,683 2,789,095 4,085,313 7,063,264
GROSS PROFIT 45,023 646,917 857,805 1,385,037 2,695,136
EXPENSES
Total 85,337 225,733 326,477 475,615 811,755
OPERATIONAL PROFIT -40,313 421,184 531,328 909,422 1,883,381
INCOME BEFORE TAXES -40,313 421,184 531,328 909,422 1,883,381
Taxes on income 0 147,414 185,965 318,298 659,183
NET INCOME AFTER TAXES -40,313 273,770 345,363 591,124 1,224,198
Dividends 0 54,754 69,073 118,225 244,840
NET INCOME -40,313 219,016 276,290 472,900 979,358

Cash Flow

Year 1 Year 2 Year 3 Year 4 Year 5
Beginning Cash Balance 38,432 45,617 234,836 600,445
Total Cash Receipts 649,380 2,463,032 3,692,517 5,705,186 10,358,845
Total Cash Disbursements 636,948 2,019,415 3,110,927 4,603,168 8,068,659
Net Cash from Operations 12,432 443,617 581,590 1,102,017 2,290,186
Total of non-operational expenditures 274,000 398,000 346,754 501,573 1,085,725
Total of non-operational income 300,000
Net Cash Balance 38,432 45,617 234,836 600,445 1,204,461

The cash flow statement for the first five years is presented above. It is possible to see a positive net cash balance beginning in the first year and increasing gradually to US$1,204,461 in the fifth year. More details can be seen in the Annexes 3.3 and 3.4.

Balance Sheet

According to the pro forma balance sheet it is possible to see beginning assets of US$259,687 supported only by the capital invested. These assets will increase to US$2,452,090 in the fifth year supported by capital and retained earnings.

A general overview of the balance sheet is presented below. A more detailed version is shown in the Annex 3.5.

Balance Sheet

Year 1 Year 2 Year 3 Year 4 Year 5
ASSETS
Current Assets 38,432 45,617 234,836 600,445 1,204,461
Fixed Assets 221,255 487,840 589,230 745,673 1,247,630
TOTAL ASSETS 259,687 533,457 824,066 1,346,118 2,452,091
LIABILITIES & EQUITY
Current Liabilities 0 54,754 69,073 118,225 244,840
Equity 259,687 478,702 754,993 1,227,892 2,207,251
TOTAL LIABILITIES & EQUITY 259,687 533,456 824,066 1,346,117 2,452,090

8.3 FINANCIAL RATIOS AND INVESTMENT RETURN

The investment projections for the first five years is shown below. A detailed list of investment items is presented in the Annex 3.6.

Investments

Unit Year 1 Year 2 Year 3 Year 4 Year 5
Total Total value US$ 322,855 322,495 518,070 836,005 1,575,003
Equipment Investment per period US$ 66,800 189,200 395,000 662,300 1,327,600

Pay Back Analysis

The graph above shows the pay-back analysis. It can be noticed that with an investment of US$300,000, the pay-back will be approximately 3.2 years. It is relevant to mention that the discounted pay-back is 4.1 years, the net present value (NPV) is US$179,901 using a conservative discount rate of 25%, and the internal rate of return (IRR) is 40.9%.

The table below summarizes the main financial ratios projected for the first five years of the company:

Financial Ratios

Year 1 Year 2 Year 3 Year 4 Year 5
Return on Equity (ROE) -15.5% 51.3% 41.9% 43.9% 49.9%
Return on Total Assets -15.5% 41.1% 33.5% 35.1% 39.9%
Total Assets Turnover 2.50 4.55 4.43 4.06 3.98
Gross Profit Margin 6.9% 26.7% 23.5% 25.3% 27.6%
Operating Profit Margin -6.2% 17.4% 14.6% 16.6% 19.3%
Net Profit Margin
(after dividends)
-6.2% 9.0% 7.6% 8.6% 10.0%
Net Present Value US$179,901
Internal Rate of Return 40.90%
Pay Back 3.2 years
Discounted Pay Back 4.1 years
Discount rate 25%

 


 

AIREX
Table of Contents Appendices
1. Executive Summary
2. Business Description
3. Products and Services
4. Marketing Plan
5. Operational Plan
6. Management and Organization
7. Capital Structure
8. Financial Projections
9. Conclusion
Depreciation Schedule
Letters of Reference
Resumes of Management
General Assumptions
Detailed Cash Flow
Investments
All information herein is confidential and belongs to AIREX.
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