A&B Hair-Line Company offers multiple hair services to both men and ladies. The firm also sells hair and skin care products. The attached Excel sheet provides the summary of A&B Hair-Line Company’s financial projections for three years. Financial projections play a vital role in making effective business plans. It helps business leaders forecast the growth and success of a business. This is vital in influencing decisions about production, investments, and expansion. The projected numbers aligned with the values of firms in the same industry operating within the US. The hair care industry is growing constantly, and it’s likely to perform better in the future.
Balance sheet
The balance sheet presents projected business assets, liabilities, and shareholders’ equity values. The balance sheet formula was adopted in the preparation of the balance sheet. That is, total assets must equal total liability and owners’ equity. Total assets are the sum of current and fixed assets; total liability is the sum of short-term and long-term liabilities. Items used in current assets include cash and its equivalent, inventories, and account receivables. For the first year, the cash and cash equivalent was selected as $ 25,000. This value represents money maintained in hard cash to meet immediate obligations. The inventory value used was $33000. This represents the value of merchandise held in the store ready to sell. The business will also sell its goods and services on credit. In this approach, the business will maintain $ 26,000 in accounts receivables. SellingSelling goods in accounts receivable helps expand sales and improve financial performance. Finally, the company will hold property and equipment worth $ 23,000 for the first year. $23000 is enough to purchase the required equipment. The values in the years 2 and 3 increased steadily. This is because it’s projected that the firm will acquire more assets in the future while making more sales.
The company also has accounts payable, accrued expenses, other liabilities, and borrowing. All these values represent money the company owes to third parties. The firm will purchase supplies on credit to be paid in the future. The company purchases $8000 in supplies in the first year to credit. This value will complement the supplies bought by money. The $8000 selected is reasonable, and the company could quickly settle it. This value increased in preceding years since the company will increase the volume of supplies. Accrued expenses in the first year were $ 23,500. This value increased in years two and three since the company expanded its operations, as did its costs. Borrowings for the first year is $6000. This amount would be used to finance its immediate financial needs. However, this value decreased in the preceding years since the company will be settling its debts. This is the same for long-term and other liabilities, which dropped in years 2 and 3 since the company will be keen to pay its debts.
Income statement and cash flow statement
From the income statement, the company will make $97000 in revenue. This incorporates sales of goods and services. This value increases in years 2 and 3 as the company projects to expand its sales in the coming years. The COGS in year 1 was $ 29,000. This value increased in years 2 and 3 since the increased sales meant the company had to spend more on production and advertisement. The tax expense is 20 percent of the firm’s revenue per the US corporate tax. Net income represents money retained after all the expenses incurred by the company and the direct costs.
Finally, the cash flow statement is divided into cash flow from operation, investing, and financing. The negative value in cash flow from financing represents cash outflow to purchase equipment. The cash flow from investment incorporates money from operations, which includes depreciation, accounts payable, inventory, and account receivables. The $6200 inventory represents an increase in goods for the company to sell.
Reference
Fridson, M. S., & Alvarez, F. (2022). Financial statement analysis: a practitioner’s guide. John Wiley & Sons.
write