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Case study: Financial modelling for TechStars Inc. Background: TechStars Inc. is a SaaS company offering software services through both subscription and usage - based models.

Case study: Financial modelling for TechStars Inc.
Background:
TechStars Inc. is a SaaS company offering software services through both subscription and usage-based models. The company is seeking an FP&A Analyst to develop a comprehensive five-year financial model covering the income statement, balance sheet, and cash flow statement.
Assumptions:
1. Subscription revenue stream:
- TechStars offers monthly and annual subscription plans. Monthly subscribers pay $50 per month, while annual subscribers pay the full amount upfront with 15% discount. Assume that all annual contracts are up for renewal on Jan-1st of each year.
2. Usage-based revenue stream:
- This is estimated to be $5/month per active subscriber during high demand seasons, which happens at the last month of each quarter. And for it to be $3 the rest of the year.
3. User growth and retention:
- The company anticipates a user growth of 15% annually for both monthly and annual subscribers and the churn rate is expected to be 10% every year.
4. Costs and expenses:
- Cost of sales is expected to be around 30% of subscription revenue. The company is working on a cost optimization project which be lunched in year 3 and is expected to reduce the cost of sales by 20%
- General and administrative costs are expected to grow by 12% every.
- Sales and marketing costs are expected to increase proportionally with revenue growth.
5. Capital expenditure and investments:
- Capex is projected to be 5% of the previous year revenue and depreciation is 25% of previous year fixed assets ending balance.
- R&D is expected to be 30% of revenue and amortization is estimated to be 25% of the previous year's R&D ending balance.
6. Working capital:
- Accounts receivable and accounts payable are assumed to grow proportionally with revenue.
- Working capital days are expected to remain stable over the forecast period.
7. Interest and taxes:
- Interest expense is based on a fixed rate of 4% on outstanding debt.
- The tax rate is estimated to be 20% of taxable income.
Base year numbers (End of period):
- Number of monthly subscribers: 5,000
- Number of annual subscribers: 1,000
- Total revenue: $3,000,000
- Gross margin: 70%
- General and administrative: $1,000,000
- Sales and marketing: $500,000
- Depreciation: $100,000
- R&D amortization: $100,000
- PP&E balance: $500,000
- R&D balance: $1,100,000.
- Accounts receivables: $300,000
- Accounts payable: $250,000
- Cash: $2,000,000
- Share capital: $100,000.
- Long-term debt: $2,000,000(to be paid by end of year 5).
Requirements:
a- Building the financial model
- Develop a detailed income statement projecting revenue, COGS, gross profit, operating expenses, EBITDA, depreciation, interest, taxes, and net income for each year.
- Create a comprehensive balance sheet displaying assets, liabilities, and equity for each year, considering Capex, depreciation, debt, and equity financing.
- Construct a cash flow statement (operating, investing, financing) for each year, reconciling with changes in the balance sheet accounts.
- Perform sensitivity analysis on user growth rates and subscription churn rates to assess their impact on financial statements.
- Summarize key findings and insights derived from the financial model, presented in a clear and organized manner.
Show only table of projection of year 1,2,3,4,5 and explain why (Dont forget churn rate, growth rate, G&A, S&M, R&D, Dep, Capex, and tax rate)

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