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ProTrax – Financial Statements
Investment Opportunity
The founders of ProTrax are contributing $40,000 in start-up capital. To finance working capital needs, we are seeking an additional $80,000 from outside investors in exchange for 15% of the company. Recruitment advertising is cyclical in nature, and sufficient funds must be available to effectively manage the firm’s cash flow.
A summary of the income statements for the first 5 years of operation is shown below:
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Revenue | 399,000 | 829,000 | 1,281,000 | 1,717,000 | 2,153,000 |
| Operating Expenses | 290,000 | 556,000 | 829,000 | 1,068,000 | 1,292,000 |
| Operating Profit/(Loss) Before Tax | 108,000 | 273,000 | 452,000 | 649,000 | 861,000 |
| Income Tax | 22,000 | 55,000 | 224,000 | 260,000 | 344,000 |
| Net Profit/(Loss) After Tax | 87,000 | 219,000 | 228,000 | 389,000 | 516,000 |
Figure 4 Summary of Income Statements
ProTrax will break even in December of Year 1 and generate a positive cash flow in March of that same year. Excess cash will finance market expansion activities and new service launches. A summary of financial ratios is listed below.
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Return on Sales | 0.22 | 0.26 | 0.18 | 0.23 | 0.24 |
| Return on Assets | – | 0.69 | 0.45 | 0.53 | 0.48 |
| Return on Investment | 0.42 | 0.63 | 0.46 | 0.53 | 0.51 |
Exit Strategy
Several options exist by which investors can regain their invested capital. After five years, investors may choose either to maintain their equity ownership of the company or to exercise their right to sell their equity to the company at a guaranteed P/E ratio of 10. ProTrax may eventually offer its shares publicly on the NASDAQ, and investors will be given piggyback rights to list their shares as well. Alternatively, a well-established advertising or employment agency may buyout ProTrax.
Financial Statements
ProTrax requires little investment in fixed assets, and its costs do not increase proportionately with sales volume. Consequently, as market penetration increases, costs do not grow proportionately over time. Our costs tend to remain relatively constant over time because we provide a service that is not dependent on powerful suppliers or distributors. However, initially, because of the high start-up costs, our cash outflows exceed our inflows from revenue. An infusion of capital from outside investors will be used to finance our working capital needs. As the company grows, steadily increasing revenues will ensure ProTrax’s liquidity.
The financial statements incorporate the following assumptions: Revenues change considerably under the pessimistic, realistic and optimistic scenarios. The market shares achieved in year 1 under the expected, optimistic and pessimistic scenarios are 1.8%, 2.6% and 0.86%, respectively. The pessimistic case assumes that either we will achieve a smaller than expected percentage of the market, or that the profit potential of our service will result in many direct competitors entering the market, forcing ProTrax to lower its prices. The breakeven revenue for ProTrax is $301,925, while our forecast revenue for year 1 is $398,578.
| ProTrax | ||
| Table of Contents | Appendices | |
| 0. Executive Summary 1. The Company 2. Market Opportunity 3. Competition 4. Positioning Strategy 5. Marketing Strategy 6. Operational Plan 7. Management 8. Financial Statements 9. Future Growth |
Questionnaires Schedule of Operations Resumes of Management Forecasting Market Share Cash Flow Income Statement Balance Sheet |
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| All information herein is confidential and belongs to ProTrax. | ||