Property Link http://www.primelocation.com/commercial-property-to-rent/details/id/NPAC999000643/ http://www.hmrc.gov.uk/manuals/dmgmanual/html/DMG36001/08_0037_DMG37003.htm http://www.entrepreneur.com/encyclopedia/term/82038.html http://tutor2u.net/business/accounts/balance_sheet.

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7.1 Assumptions

The Budget is 200 000 No additional finance is required Corporate tax is 20 %, HM Revenue & Customs (2011) 100% of the sale is paid in the month of sale. Wages & Salaries, accounting fees, legal fees and design fees are aggregated in to Administration Expense in accordance to IAS 1. Administration expense includes: 42 000 Wages& Salaries for 5 staff at: Per annum 40 500 Legal Fees Per annum 300 Accounting fees Per annum 1200 Rent (including insurance, cleaning and electricity), stationary, and advertising expense are fixed costs and are aggregated in to distribution expense in accordance to IAS 1. Distributions Expense includes 395 000 Rent 300 000 Per annum Stationary 50 000 Per annum Advertising expense 45 000per annum Variable cost of 10 Includes Coffe, tea and cookies 3 per student Learning Materials 5 per student Other expense 2 per student Stationaries include technical equipment as the natures of these items in the businesses context have a useful life of less than three years in accordance with the general accepted accounting principles (GAAP). Taxation is paid in the following year and is there for accrued in accordance to IAS 37.

The company is founded by five people with an equal share in the company and is a LTD. The share capital is 100 shares which each founder holding 25 shares. No dividend is paid out during the three year period, as the retained earnings are invested in the business. Sales volume will fluctuate with lowers sales in the summer.

7.2 Key Financial Indicator KFIs Revenue Cost Of Sales Gross Profit Administration Expense Distribution Expense EBIT Retained Profit for the year 2012 () 524000 52400 471605 42000 395000 2013 () 570000 57000 513000 42000 395000 2014 () 600000 60000 540000 42000 395000

27680

60800

82400

7.3 Break Even Analysis

Is analysis to determine the point at which revenue received equals the costs associated with receiving the revenue, (Investopedia, 2011). Breakeven occurs when 4856 monthly student subscriptions have been sold our 485600 sales revenue has been achieved. The point the business will breakeven is in the month of December 2012. Contribution per unit Selling price Variable cost Contribution Break even (units) Fixed cost Contribution per unit 32250 90 100 10 90

Break even point in(units) Break even (sales) Break even (units) Selling price Break even point (Sales)

358.33

358.33333 100 35833.33

7.4 The statement of comprehensive income A statement of comprehensive income or (profit and loss account) is a financial statement showing the net profit or loss of the employment for a period of time usually a year. It shows the gross profit of the business less the total costs incurred during the period of the account (HM Revenue & Customs. 2011). These costs are referred to as expenses and should be aggregated in order to make the statement clear for user of the financial statement. In the business the profit after tax for 2012 is 27680 with a projected increase in profit for the coming years.

Tectorials LTD The statement of comprehensive income for the year ending Sales Cost of sales Gross profit

2011

2012

2013

524,000 570,000 600,000 52,400 57,000 60,000 471,600 42,000 513,000 42,000 540,000 42,000

Administration Expenses Distribution Expense Operating Profit before tax tax 20% Net income

395,000 395,000 395,000 34,600 76,000 103,000 6,920 15,200 20,600 27,680 60,800 82,400

7.5 Cash Flow Statement Is a financial statement that reflects the inflow of revenue vs. the outflow of expenses resulting from operating, investing and financing activities during a specific time period (Entrepreneur, 2011). As opposed to accrual basis of accounting cash flow recognises expenses when paid and revenue when received. The business opening cash flow is 200 000 and the closing cash flow for the period ending December 2012 is 234 600. This indicates that the company is making a profit. Moreover, the flow of cash is stable through the entire three year periods and thus an overdraft or loan is not needed. See appendix 7.6 Balance Sheet A balance sheet is a statement of the total assets and liabilities of an organisation at a particular date - usually the last date of an accounting period, (Tutor2u 2011). The business does not have any non-current assets due the nature of the trade as explained in the table of assumptions. Moreover, the business has no long term liabilities as there are no debentures over the three years. The only liability is the accrued tax at 20 % for financial year. The total equity for the year as at 31st of December 2012 is 227 680.
Tectorials LTD

Balance Sheet as at December 31st Current Assets Cash and bank Total current assets

2012

2013

2014

234,600

303,680

391,480

234,600

303,680

391,480

Current liabilities Accrued Taxation Net assets less liabilities

6,920

15,200

20,600

Shareholder equity

227,680

288,480

370,880

200,000

200,000

200,000

Reserves Total equity 27,680

88,480 288,480 170,880 370,880

227,680

7.7 Business ratios Return on investment 170880 200000 0,85 ROI Return on investment is to see at what rate the company provides returns to shareholders, this is done by dividing Net income over the total invested capital. As we se here our ROI is 0,85 this means that the company generates 85% of the invested capital into profit after tax. This is a bit low because we used 200.000 as starting capital while we only needed about 100.000 to keep the business running during the starting faze until we get into month 4 where we start to make a profit. So this is how the ROI would look if we would use 100.000 as the invested capital. Return on investment 170880 100000 1,71

ROI

Net Profit Margin Net profit Revenue Net Profit Margin 170880 1694000 10,09 %

Our net profit is at 10,09 % which means that of every 100 pounds in revenue get 4,86 pounds will be the profit. Our margins could have been a bit higher but this is mainly due to high costs especially the cost of renting a location witch costs 300.000 each year and represents 70 % of the annual total expenditure. Return on assets EBIT Assets ROA

170880 234600 0,73

Return on assets is a ratio that shows how profitable a company is relative to its assets and how effectively management uses these resources to generate earnings. We can se that we are only generating earnings of about 0,73 pounds per pound of assets which is fairly low. Gross profit Margin Gross profit Revenue 1524600 1694000

90 % By looking at our gross profit margin which is 90% and compare it to our net profit margin of 10% we can se that we have low variable costs but high fixed costs. This means that the company should not focus on reducing costs of sales and rather focus on cutting back on fixed costs in order to become more profitable.