Purchase sheer full year Quarterly for FIN941 - CASE STUDY 2 ALMA.com Financial Operating Plan [Due Date: Saturday July 20, 2019 ALMA.com Venture, discussed in CASE STUSY 1, is an e-commerce service for teenagers' video games, television programmes, and other material, intended to be both educational and enjoyable. Valuable product information and detailed editorial comments are combined with a wide selection of products for purchase to help families make their children's edutainment decisions. Because of relatively high marketing expenditures aimed at gaining market share, the firm is expected to suffer net losses for the first two years 2019 and 2020. However, net profit margins are expected to average 10 percent per year beginning in Year 2021. After discussions with the company's marketing manager and finance manager, sales over each quarter of 2021 are forecasted to be: @ Quarter Sales Forecast (in Millions) Growth 01 $ 5.00 02 $ 7.50 SAC 03 $8.50 $ 9.10 Total $30.10 COC'ALMA.com balance sheet as of the end of 2020 was as follows: ALMA.com Balance Sheetlas of December 31, 2020 (in Millions) Collect Cash 1 8 .45 Accounts payable 1.65 2011 Accounts receivable 1.70 Capital Lease Liability 1.35 Inventories 1.50 Total Liabilities 3.00 Net fixed assets 1.35 Equity 10.00 Total assets $13.00 Total $13.00 "Represents the capital lease of tools and equipment werehouse facilities) paid somca , purchaset 66 Lease long term Ending Inventory 30; LOGS (20%) liability Trenting No loans profil Gross 10% of Mental 30% All sales are made on credit terms of net 90 days and are collected the following quarte. No bad debts are anticipated. The accounts receivable on the balance sheet at the end of 2020 thus will be collected in Quarter 1, 2021. Quarter 1, 2021 sales will be collected in Quarter 2, and so on. Inventorylon hand represents a minimum operating level (safety stock), which the company intends to maintain. Alma.com purchases its inventory every quarter 100% of next quarter's sales requirements. ALMA.com's policy is to maintain ending inventory at the end of each cuarter equals to 30% of next quarter's expected sales. Purchases are paid 66% in the same quarter and 34% in the next quarter Cost of goods sold averages 70% of sales (gross profit margin 30% General, Administration and Selling cash expenses average (0%)of sales. Depreciation is SO 10M per Quarter. The annual interest rate on outstanding long-term lease liability is 8% interest expense is paid quarterly. Ms Alma Serah assumes taxes are paid quarterly and the income tax rate is 40% for budgeting purposes. The capital lease instaliment is 0.70M per Year (0.175 per quarter). There are no additional capital expenditures planned during 2021, and no dividends will be paid. The company's desired end-of-quarter minimum cash balance is $1.50M, Ms Serah hopes to meet any cash shortages during the period by an agreed $SM open line of credit with the bank at 4%. laver Now you are paying to the Supplier after 2 years in the market 2. Prepare quarterly pro forma income statements for Q1, Q2, Q3, and for Q4 ending December 31, 2021. b. Prepare the end of the year 2021 pro forma balance sheet. c. Prepare quarterly purchase budget for Q1, Q2, Q3, and for Q4 ending December 31, 2021 Assume that forecasted sales for the first quarter of 2022 = $12 million. d. Prepare quarterly general, administration and selling budget for Q1, Q2, Q3, and for 24 ending December 31, 2021. e. Prepare quarterly cash budget for Q1, Q2, Q3, and for Q4 ending December 31, 2021. f. Based on your financial statement projections for the four quarters of 2021, indicate (1) whether new bank borrowing (open line of credit) will be needed and (2) if borrowing is needed, when does the need start occurring and what is the maximum amount needed? 2. An analysis of the cash conversion cycle should also help Alma Serah understand what has been happening to the operations of ALMA.com. Prepare an analysis of the conversion periods for the three components of the cash conversion cycle for 2021. Explain what has happened in terms of each component of the cycle during 2021. Ms. Serah should be interested in knowing whether ALMA.com. has been building or burning cash. Comment on the cash build, cash burn, and the net cash build/burn position for 2021 Purchase sheer full year Quarterly for FIN941 - CASE STUDY 2 ALMA.com Financial Operating Plan [Due Date: Saturday July 20, 2019 ALMA.com Venture, discussed in CASE STUSY 1, is an e-commerce service for teenagers' video games, television programmes, and other material, intended to be both educational and enjoyable. Valuable product information and detailed editorial comments are combined with a wide selection of products for purchase to help families make their children's edutainment decisions. Because of relatively high marketing expenditures aimed at gaining market share, the firm is expected to suffer net losses for the first two years 2019 and 2020. However, net profit margins are expected to average 10 percent per year beginning in Year 2021. After discussions with the company's marketing manager and finance manager, sales over each quarter of 2021 are forecasted to be: @ Quarter Sales Forecast (in Millions) Growth 01 $ 5.00 02 $ 7.50 SAC 03 $8.50 $ 9.10 Total $30.10 COC'ALMA.com balance sheet as of the end of 2020 was as follows: ALMA.com Balance Sheetlas of December 31, 2020 (in Millions) Collect Cash 1 8 .45 Accounts payable 1.65 2011 Accounts receivable 1.70 Capital Lease Liability 1.35 Inventories 1.50 Total Liabilities 3.00 Net fixed assets 1.35 Equity 10.00 Total assets $13.00 Total $13.00 "Represents the capital lease of tools and equipment werehouse facilities) paid somca , purchaset 66 Lease long term Ending Inventory 30; LOGS (20%) liability Trenting No loans profil Gross 10% of Mental 30% All sales are made on credit terms of net 90 days and are collected the following quarte. No bad debts are anticipated. The accounts receivable on the balance sheet at the end of 2020 thus will be collected in Quarter 1, 2021. Quarter 1, 2021 sales will be collected in Quarter 2, and so on. Inventorylon hand represents a minimum operating level (safety stock), which the company intends to maintain. Alma.com purchases its inventory every quarter 100% of next quarter's sales requirements. ALMA.com's policy is to maintain ending inventory at the end of each cuarter equals to 30% of next quarter's expected sales. Purchases are paid 66% in the same quarter and 34% in the next quarter Cost of goods sold averages 70% of sales (gross profit margin 30% General, Administration and Selling cash expenses average (0%)of sales. Depreciation is SO 10M per Quarter. The annual interest rate on outstanding long-term lease liability is 8% interest expense is paid quarterly. Ms Alma Serah assumes taxes are paid quarterly and the income tax rate is 40% for budgeting purposes. The capital lease instaliment is 0.70M per Year (0.175 per quarter). There are no additional capital expenditures planned during 2021, and no dividends will be paid. The company's desired end-of-quarter minimum cash balance is $1.50M, Ms Serah hopes to meet any cash shortages during the period by an agreed $SM open line of credit with the bank at 4%. laver Now you are paying to the Supplier after 2 years in the market 2. Prepare quarterly pro forma income statements for Q1, Q2, Q3, and for Q4 ending December 31, 2021. b. Prepare the end of the year 2021 pro forma balance sheet. c. Prepare quarterly purchase budget for Q1, Q2, Q3, and for Q4 ending December 31, 2021 Assume that forecasted sales for the first quarter of 2022 = $12 million. d. Prepare quarterly general, administration and selling budget for Q1, Q2, Q3, and for 24 ending December 31, 2021. e. Prepare quarterly cash budget for Q1, Q2, Q3, and for Q4 ending December 31, 2021. f. Based on your financial statement projections for the four quarters of 2021, indicate (1) whether new bank borrowing (open line of credit) will be needed and (2) if borrowing is needed, when does the need start occurring and what is the maximum amount needed? 2. An analysis of the cash conversion cycle should also help Alma Serah understand what has been happening to the operations of ALMA.com. Prepare an analysis of the conversion periods for the three components of the cash conversion cycle for 2021. Explain what has happened in terms of each component of the cycle during 2021. Ms. Serah should be interested in knowing whether ALMA.com. has been building or burning cash. Comment on the cash build, cash burn, and the net cash build/burn position for 2021
