Homework 7

Sources and Uses of Funds

1. Where is your money coming from?

How will it be used?

Sources of Funds:

Debt:

Term Loans $ __________

Refinancing of old debt $ __________

Lines of credit

Line 1 $ __________

Line 2 $ __________

Mortgage $ __________

Equity:

Investments $ __________

Uses of Funds:

Property $ __________

Inventory $ __________

Equipment (itemized)

1. $ __________

2. $ __________

Etc. $ __________

Working capital $ __________

Cash reserve $ __________

2. What will be the return for investors?

  When can investors cash out?

 In what form?

Financial Practices

1. What is your accounting method?

 Cash.

 Accrual.

2. What are your collection practices?

3. How will you manage your accounts receivable?

4. How will you manage your accounts payable?

5. How will you control costs?

 How will you monitor and control funds?

 Who has that responsibility?

Cash Flow Statement.

1. State your assumptions.

 Percent of cash sales versus credit sales.

 Minimum cash balance desired.

 Collection pattern for credit sales.

2. Prepare three different cash flow statements based on:

 a pessimistic sales forecast.

 a most likely sales forecast.

 an optimistic sales forecast.

Cash Budget?

Balance Sheet?

Profit and Loss Statement?

Breakeven Analysis?
Financial ratios

(Choose the ones that make the most sense for your business.)

1. Financial ratios show investors both that you are a sophisticate in financial
management and that you are staying on top of your day-to-day business
operations. Some ratios from which to choose:

Liquidity.

Current ratio.

Quick ratio.

Inventory to net working capital.

Implications of liquidity ratios.

Profitability.

Gross profit margin.

Return on assets.

Return on equity.

Implications of profitability ratios.

Leverage/debt.

Debt to assets.

Debt to equity.

Long-term debt to equity.

Implications of leverage ratios.

Activity.

Inventory turnover.

Fixed-asset turnover.

Average collection period.

Implications of activity ratios.

Intangibles--Intellectual Property
1. What patents do you hold?

2. Any copyrights?

3. Any trademarks registered?

Risk Management Strategies

1. How will you deal with unmet sales forecasts? What will you do if the market
responds differently than planned?

 Underdemand?

 Overdemand?

2. How will you respond if competitors:

 underprice you?

 overcome your competitive advantage?

 introduce newer/better technology?

3. What will you do if the industry takes a downturn?

4. How will you handle labor issues/problems?

 Skilled labor is unavailable or insufficient to meet your needs.

 Government regulation raises benefit/compensation costs.

 Your workforce unionizes.

 Your union workforce strikes.

5. What production/supply risks might you face? What are your contingency plans
for those risks? How will you handle suppliers who:

 raise prices?

 become erratic in their deliveries or their quality?

6. Any distributor risks? Contingency plans?

7. Any regulatory risks? Contingency plans?

8. Capital-related risks--potential cash flow problems, notes coming due, etc.?

Contingency plans?
 9. What insurance coverage do you have?

 On key people?

 On physical plant, equipment, and inventory?

10. What other potential risks are part of your specific business?