PART 2:

Larry and Janice Martin continue with their ambitions. Computech would be a repair and sales shop in the Kitchener area.

As they prepared their Business Plan and the related financial projections, they knew that there would be many business, operational and financial decisions that they would need to consider. This was to be important not only as they were sketching out their plan but also once the business started operating.

To succeed they were reminded that they needed to operate to generate profits, to be able to pay bills and to grow the business through investment and growth. Further they knew that investing decisions at the start and throughout the life of the business, operating decisions on a day to day basis and above all financing decisions as to where and how to use monies from investors to make the greatest returns.

MODULE 5:

Reflecting upon the Balance Sheet and the Income Statement that you prepared in Module 2 of the Case:

Q1: What is the companys expected Current Asset level? What is the companys Net Property & Plant level?

Q2: Looking at your Income Statement and Balance Sheet from Module 2 what is the projected CompuTech average outstanding Accounts Receivables? What is the companys Inventory Turnover rate?

Q3: If the company wished to exhibit a 30 day receivable average, what would their level of Accounts Receivable become? If they were able to invest the savings at 7% what would their impact on profits be?

Q4: If CompuTechs competition is experiencing a 6 X turnover on inventory, is CompuTech matching this performance, and if not what level of inventory should they be displaying?

MODULE 6:

Larry and Janice have retained an accountant to help them understand their cash position in their projected first year of operations (they plan to open their business on January 1, 2021). The accountant has reviewed their latest projections for 2021 and since they were planning to go ahead with their business he was keen to help them prepare a cash budget for the first 6 months of 2021. She advised the Martins that it was imperative that they preserve liquidity in this first phase of their business.

Several assumptions need to be reflected in the cash budget. Revenues are estimate to be $30,000 per month; it is estimated that 40% of the customers would pay immediately while 60% would pay up between 30 and 60 days. Their COGS is estimated to be $11,000 per month and the accountant suggested that 50% of their COGS should be paid at the time of purchase with the remaining 50% delayed until the next month. Salaries at $9,000 per month, Lease Costs of $1,200 per month, Utilities of $300 per month, Office Supplies of $100 per month and Advertising of $200 per month need to be accounted for and paid out in each month. Federal Tax installments of $4,000 in March and $5,000 in June also need to be recorded.

Q1: Assuming that CompuTech will begin operations with a Cash Balance of $10,500 on January 1, 2021 please complete a Cash Budget for the Martins to share with their accountant.

Q2: What impact on the Cash Budget would an increase in COGS were to increase by 30% due to product sourcing problems arising from the pandemic? Further it is estimated that customers may delay their payments resulting in only 20% paying immediately with the remaining 80% carrying over until the second month as AR. What would the Martins have to plan for if the above issues unfolded?