Kim's Value Profit and Loss Account Notes Operating Capacity 1 2 3
Kim's Value Profit and Loss Account Notes Operating Capacity 1 2 3
1 Kim's Value
2 Profit and Loss Account
3
4 Notes % of Occupancy
5 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
6 Operating Capacity
7 Capacity constraint 1 98 N/A N/A N/A N/A N/A N/A N/A N/A N/A
8 Average price 2 55.00 N/A N/A N/A N/A N/A N/A N/A N/A N/A
9 Turnover 3 2,880 N/A N/A N/A N/A N/A N/A N/A N/A N/A
10 Total Sales ### ### ### ### 9,313,920 7,761,600 6,209,280 4,656,960 3,104,640 1,552,320
11
12 Gross Profit 4 ### ### ### ### ### 5,433,120 4,346,496 3,259,872 2,173,248 1,086,624
13 Less: Expenses
14 Recurrent expenditure 5
15 Salaries and wages ### ### ### ### ### 1,920,000 1,920,000 1,920,000 1,920,000 1,920,000
16 Rent ### ### ### ### ### 1,440,000 1,440,000 1,440,000 1,440,000 1,440,000
17 Utilities 240,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000 240,000
18 Miscellaneous 6 180,000 180,000 180,000 180,000 180,000 180,000 180,000 180,000 180,000 180,000
19 Other main expense items 7
20 Property agency commission 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000
21 Consultancy fee 8 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000
22 Promotional expense - - - - - - - - - -
23 Incorporation expense and business registration fee 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500 7,500
24 Depreciation 9 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000
25 Profit before interest and tax ### ### ### ### ### 1,155,620 68,996 ### ### ###
26 Interest (per below) 10 - - - - - 50,738 119,730 188,722 257,714 326,706
27 Profit before tax ### ### ### ### ### 1,104,882 (50,734) ### ### ###
28 Tax 11 ### 962,870 772,711 582,552 392,393 193,354 - - - -
29 Profit after tax ### ### ### ### ### 911,528 (50,734) ### ### ###
30
31
32
33 Overall profitability
34
35 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
36
37 Gross profit margin 12 70% 70% 70% 70% 70% 70% 70% 70% 70% 70%
38 Net profit margin 13 42% 39% 36% 31% 24% 15% 1% -22% -68% -206%
39 Return on total investment 14 79% 74% 67% 59% 47% 29% -2% -59% -115% -172%
40 Return on capital 15 65% 61% 55% 48% 39% 24% -2% -70% -416% 599%
41 Interest rate 16 10% 10% 10% 10% 10% 10% 10% 10% 10% 10%
42
43 Calculation of interest - - - - - - - 32,609 148,170 263,732
44
A B C D E F G H I J K L M N
1 Kim's Value
2 Initial capital Note
3 Period for depreciation 17
4
5 For the purposes of fixed and long term assets 18
6 Decoration 2,000,000 5
7 Motor vehicle 0 3
8 Equipment 0 5
9 Office equipment 0 5
10 Rental and other long term deposits 135,000
11 Other long term assets 0
12 2,135,000
13
14 Other main expense items
15 Property agency commission 60,000
16 Consultancy fee 30,000
17 Promotional expenses 0
18 Incorporation expenses and business registration f 7,500
19
20 2,232,500
21
22 For the purpose of operation (Excl depreciation) 19
23 StockStock turnover 30 day(s) 382,764 20
24 Recurrent expenditure 1 month(s) 315,000
25
26 Initial capital required 2,930,264 21
27
28
29 Payback period 22
30
31 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
32
33 Initial capital required 2,930,264 2,930,264 2,930,264 2,930,264 2,930,264 2,930,264 2,930,264 2,930,264 2,930,264 2,930,264
34
35 Profit after tax 5,435,711 4,539,246 3,642,781 2,746,316 1,849,851 911,528 (50,734) (1,206,350) (2,361,966) (3,517,582)
36 Depreciation 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000 400,000
37
38 5,835,711 4,939,246 4,042,781 3,146,316 2,249,851 1,311,528 349,266 (806,350) (1,961,966) (3,117,582)
39
40 Payback period (year(s)) 0.50 0.59 0.72 0.93 1.30 2.23 8.39 -3.63 -1.49 -0.94
A B C D E F G H I J K L M
1 Kim's Value
2 Balance Sheet
3
4 Note 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
5
6 Fixed and long term assets 23
7 Decoration ### ### ### ### ### 1,600,000 1,600,000 1,600,000 1,600,000 1,600,000
8 Motor vehicle - - - - - - - - - -
9 Equipment - - - - - - - - - -
10 Office equipment - - - - - - - - - -
11 Rental and other long term deposits 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000 135,000
12 Other long term assets - - - - - - - - - -
13 (1) ### ### ### ### ### 1,735,000 1,735,000 1,735,000 1,735,000 1,735,000
14 Current assets
15 Stock 24 382,764 344,487 306,211 267,935 229,658 191,382 153,106 114,829 76,553 38,276
16 Account receivables 25 - - - - - - - - - -
17 Cash at bank and in hand 26 315,000 315,000 315,000 315,000 315,000 315,000 315,000 315,000 315,000 315,000
18 (2) 697,764 659,487 621,211 582,935 544,658 506,382 468,106 429,829 391,553 353,276
19
20 Other current assets 27 (3) ### ### ### ### ### 1,985,146 829,530 - - -
21
22 (2) + (3) = (4) ### ### ### ### ### 2,491,528 1,297,635 429,829 391,553 353,276
23
24 Current liabilities
25 Account payables 28 382,764 344,487 306,211 267,935 229,658 191,382 153,106 114,829 76,553 38,276
26 Tax payable ### 962,870 772,711 582,552 392,393 193,354 - - - -
27 (5) ### ### ### 850,487 622,051 384,736 153,106 114,829 76,553 38,276
28
31 Operating fund 29 (4) - (5) = (6) ### ### ### ### ### 2,106,791 1,144,530 315,000 315,000 315,000
32
33 Total net assets (1) + (6) ### ### ### ### ### 3,841,791 2,879,530 2,050,000 2,050,000 2,050,000
34
35
36 Source of capital
37 Share capital ### ### ### ### ### 2,930,264 2,930,264 2,930,264 2,930,264 2,930,264
38 Profit / (loss) ### ### ### ### ### 911,528 (50,734) ### ### ###
39 Loans 30 - - - - - - - 326,086 1,481,702 2,637,318
40 ### ### ### ### ### 3,841,791 2,879,530 2,050,000 2,050,000 2,050,000
41
42
43 Main financial ratios
44 100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
45
46 Days of stock turnover 20 30 30 30 30 30 30 30 30 30 30
47 Days of account receivables tur 31 0 0 0 0 0 0 0 0 0 0
48 Days of account payables turno 32 30 30 30 30 30 30 30 30 30 30
49 Liquidity ratio 33 (4) / (5) 5.32 5.39 5.48 5.63 5.90 6.48 8.48 3.74 5.11 9.23
A B C D E F G H I J K L M
50 Leverage 34 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.16 0.72 1.29
Budget Analysis Worksheet - Notes
This worksheet aims at helping SMEs in understanding the capital needs upon starting up a
business and briefly anticipating the financial position of the business under different
scenarios. As a number of assumptions and estimates are involved in this worksheet, SMEs
should obtain a fundamental understanding on the type of business they would like to start
before using it.
Notes
1 Capacity constraint
An enterprise's earning capacity can be limited by its fixed assets such as machinery. For
instance, an eatery's operating capacity is limited by its space and the number of tables
available. However, this worksheet is also applicable to businesses which are not limited
by fixed assets, such as boutiques. A boutique's capacity constraint is the estimated
number of customers who will spend in the boutique.
Assuming an SME is operating a small eatery. There are a total of 22 tables and each
table can accommodate 4 persons. Its capacity constraint is therefore 88 seats.
2 Average price
Average price refers to the anticipated sales value of one transaction, e.g. the average
amount spent by a customer in the eatery, or the average value of an order for a trading
company.
3 Turnover
An asset for production can be used repeatedly. For instance, each table in the small
eatery can be used by different customers for several times during a day. Turnover refers
to the number of times each table is used in one day. For a boutique, turnover simply
refers to the number of days when the boutique is open for business during a year.
Assuming a table in the eatery can be used repeatedly. Breakfast is from 7:00am to
10:00am, a total of 3 hours. Lunch hour is from 12:00noon to 2:00pm, a total of 2 hours.
Tea time is from 3:00pm to 5:00pm, a total of 2 hours. Dinner is from 6:00pm to 9:00pm, a
total of 3 hours. Night meal is from 9:00pm to 11:00pm, a total of 2 hours. There are a
total of 12 hours during which a seat can be occupied. Assuming each customer stays for
an average of 1.5 hours, and there are 30 days in 1 month, each seat can therefore be
used for 2,880 times during a year.
4 Gross profit
Gross profit is total sales less direct expenses. Direct expenses can simply be assumed to
be the costs of direct materials used such as the ingredients of a bowl of wonton noodle.
Hence, the gross profit of selling a bowl of wonton noodle is the price of the bowl of noodle
less the costs of the ingredients. SMEs only need to assume a gross profit margin in this
worksheet, the amount of gross profit will be derived. SMEs can also try to assume
different gross profit margins to figure out the impact on the net profit (note 12).
5 Recurrent expenditure
Recurrent expenditure is expenses incurred for normal operating activities, such as rent
and salaries.
Assuming that there are a total of 16 staff members, viz. 6 waiters, 2 responsible for drinks
and beverages, 2 working in the kitchen, 2 cleaners, 2 handling the take-away, one cashier
and the owner, and the average monthly salary per person is $10,000, the total amount of
salaries will be $160,000 each month, and $1,920,000 each year.
Assuming that the small eatery is located in Tsimshatsui which occupies 3,000 sq ft, and
the rent is $40 per sq ft, monthly rental will be $120,000, and the yearly rental will be
$1,440,000.
Assuming that the utilities expense amounts to $20,000 every month, the total utilities
expense for one year will be $240,000.
6 Miscellaneous
This includes transportation expenses, entertainment expenses, etc. Although each item
included in the miscellaneous item does not appear to be material, the total amount when
all items are added could be significant. SMEs can estimate the amount by referring to the
actual situation or by calculating the amount based on a certain percentage of the total
expenses.
Assuming the commission to the property agent amounts to half of the monthly rental, and
this expense is only incurred in the first year.
Business registration fee for one year is $2,600, whilst company registration fee is $1,720.
Assuming a lawyer or an accountant is entrusted to deal with these registrations, the fee
incurred will be around $7,500.
8 Consultancy fee
SMEs may need professional advice upon starting up their business. This expense
depends on individual SME's needs.
Assuming consultancy fee upon the start-up of business is $30,000.
9 Depreciation
Depreciation is the cost of fixed assets amortised over the assets useful live.
10 Interest expense
Interest expense is a finance cost. If an SME has adequate capital, borrowing could be
avoided to minimise the finance cost. However, a healthy level of borrowing (debt to asset
ratio or leverage ratio) could help an SME managing its fund more efficiently. Though
SMEs should carefully consider their repayment capability when deciding on the level of
borrowing.
Note: Due to the limitation of circular formula in the worksheet, SMEs need to input the
interest calculated in the row "calculation of interest" provided.
11 Tax
The profits tax rate for the year of assessment 2006/07 is 17.5%. If an SME has an
overseas operation, it should consider the overseas tax rate as well as how tax is
calculated in that particular place.
15 Retun on capital
It is the ratio of profit after tax to the capital inserted by the SME.
16 Interest rate
Interest rate is the cost of borrowing, which can be floating or fixed depending on the terms
of the contract. SMEs should be aware of the interest rate trend to avoid unnecessary
costs. If the return on investment is higher than the cost of borrowing, SMEs can consider
borrowings with consideration of other fees and costs incurred and the risk of the
investment.
18 Capital required for the purposes of fixed and long term assets
Costs for fixed and long term assets have to be incurred upon start-up of a business
regardless of the SME's operation level.
Given that the main stock item of an eatery is food, the period of stock turnover should not
be long. In this illustration, it is assumed that the number of stock turnover days is 30 days.
22 Payback period
Payback period means how long an SME requires to get back the amount of investment.
In practice, cash flow is required to calculate the payback period. To simplify the
calculation in this worksheet, the amount of profit after tax with an adjustment of
depreciation is used.
24 Stock
SMEs need to consider various factors, such as the business status and customers' needs,
to determine the stock level. But in order to minimise the cost of stocking, it should avoid
keeping perishable or obsolete goods. In general, SMEs should maintain a stock level
which could meet at least three months' sales.
25 Account receivables
In general, SMEs should keep account receivables less than three months' sales in order
to avoid sharing customers' financing costs, as well as to avoid bad debt. SMEs involving
in small businesses, such as boutiques, should maintain its account receivables at the
lowest level. Assuming an SME gives its customers a credit period of 90 days, the number
of account receivable turnover day is 90.
Given that transactions in the small eatery are generally cash transactions, and credit
period for customers is rare, the number of account receivables turnover day is assumed to
be 0 and account receivable is also 0.
28 Account payables
The optimal way to settle creditors is by account settlement. SMEs can also consider bank
borrowings, but need to consider the interest expenses.
Assuming a credit period of one month is given by the creditors, the amount of account
payable is calculated by the account payable turnover of 30 days.
29 Operating fund
SMEs need operating fund to support daily activities, including maintaining current assets
and current liabilities. Holding excessive long term assets will tie up the funds, increases
financing costs and lowers its profitability.
30 Loan
Loans can be short term or long term. Short term loans which are repayable within one
year belong to current liabilities. Loan with repayment period longer than one year is long
term loan. Long term loan is usually classified as sources of finance.
Given that transactions in the small eatery are generally cash transactions, and credit
period for customers is rare, the number of account receivables turnover day is assumed to
be 0 and account receivable is also 0.
32 Days of account payable turnover
The optimal way to settle creditors is by account settlement. SMEs can also consider bank
borrowings, but need to consider the interest expenses.
Assuming a credit period of one month is given by the creditors, the amount of account
payable is calculated by the account payable turnover of 30 days.
33 Liquidity ratio
Liquidity ratio is the ratio of current assets to current liabilities. A healthy ratio should not be
less than 1.
34 Leverage
Leverage is the ratio of an SME's borrowings to its net assets.