Pleasant Valley Estates is envisioned as an upwardly mobile community - located in Bull Run, Virginia - and targeted toward the young, single professional and young families.
Cash Flow Statement Overview
The cash flow statement constitutes a financial document, which details the exchange of cash between a business and the outside world while strategically demonstrating the in and outbound logistics. Flow is traditionally categorized as:
flow "in" from Operations - the cash the entity or company makes by selling goods and services, flow "in" from Financing - the cash the entity or company raises by selling stocks and bonds, and flow "out" to Investing - the cash the company spends toward investing in future growth
Each of these flows can move bi-directionally. Investors generally like to see that the company covers its spending with cash from operations rather than resort to financing. The cash flow statement must also reconcile the 'net effect' of these flows with the difference in its cash holdings at both beginning and ending dates of the reporting period.
Cash Flow Statement for Pleasant Valley Estates
The Pleasant Valley Cash Flow Statement will show how the company anticipates paying for its operations and future growth, by detailing the "flow" of cash between the company and the outside world; positive numbers represent cash flowing in, negative numbers represent cash flowing out.
A dollar figures are computed in thousands)
Other Adjustments to Earnings
Net Cash provided from Operations
Proceeds from Issuing New Stock
Payments to Repurchase Stock
Stock Dividends Paid
Net Cash provided from Financing
Additions to Property, Plant & Equipment
Net Cash used for Investing
Change in cash and equivalents during year
Cash and Equivalents, beginning of year
Cash and Equivalents, end of year
Table 1.1 Cash Flow Statement
Cash Flow Statement Explanation
The first two sections - Net Cash provided from Operations and Net Cash provided from Financing demonstrate the two methods by which the company can get cash. The last section in Table 1.1 shows how the company is spending cash and investing in its future growth.
Investors interested in this opportunity will look to see a healthy cash flow with the company paying for investments in future growth out of the "operations" figures and not from the "financing" figures.
Supply and Demand Equilibrium Statement
An accurate Supply and Demand Equilibrium Statement will take several factors into account.
Marketing mix - the product (new home units), the price (~ $260,000.00), the place (suburban settings with lowered driving commute times to major employers and business locations), the promotion (advertising campaign to include newspaper ads, neighborhood flyers, bulletin boards, Internet sites, onsite property signs, and "open house" events on weekends).
Marketing goals - intention to attract wealthy, income-stable occupants for housing and reducing current 2.2% of vacancy levels to 0%.
Market research - U.S. Bureau of the Census: Census 2000, Virginia Labor and Housing Reports, and Governmental Reports (e.g., HUD, Sallie Mae, Freddie Mac, and so on).
Industry Analysis - building, construction, and property maintenance
Industry Life Cycle - despite economic downtrends, high demand and lower interest rates will continue to drive demand for quality home sales and rental properties.
Industry Life Cycle - growth, maturity or decline.
Industry History - building, construction, and property maintenance has a long and stable history for over 200 years.
Industry Trends - non-cyclical, seasonal based on weather patterns, and limited competition.
Industry Influential Factors - the economy affects this industry with downsizing, job elimination, and government influences affect the construction industry based on current interest rates, loan availability, and loan criteria.
Projected Industry Sales - 5.2 million with median sales prices rising 4.5% to $154,200.
Supply - total supply demand will equal ~$125,927.08 with physical resources including - but not limited to - 13.97 tons of concrete, 2,085 ft2 for wood flooring, and 3,061 ft2 required for insulation per unit
Demand - population is increasing faster than development there is a high and current demand for single unit housing.
Industry participants - construction companies and competing projects (e.g., Pleasant Valley and Bull Run).
Target Market and Customer Base - young professionals, young professional families, successful retired singles and couples, high-income immigrants.
Customer Identification - desired characteristics of populants include annual income ranging from $80,000 to $100,000 combined income and ~$50,000 for individuals.
Marketing System - controllable factors are material quality, monthly mortgage costs, and property dues. Uncontrollable factors are elemental deterrents, interest rates, and vacancy levels.
Barriers to Entry - obstacles include, but are not limited to, competitive company incursion, unforeseen supply chain difficulties, and unforeseen inclement or unseasonable weather problems.
Intellectual Property - trade secrets for marketing strategies and construction peculiarities.
Company Revenues - estimate initial annual revenue at $441,192 (includes mortgage payments, country club dues, and club initial fees x 50 units) (see Figure 1-1)
Market Share - undetermined at this time
Growth Opportunities - the company may opt to pursue other construction projects, land management, or community development options in the future.
Click to Enlarge
Figure 1-1. Annual property income over 5-year spread.
Pro-Forma Profit and Loss Statement
The Pro-Forma Profit and Loss Statement differs from the balance sheet. The balance sheet will include reference to the retained profit of the company, it only provides this information in context with the source of company finance outlets and does not indicate from where the profit came.
The profit and loss statement is a compilation and calculation of gross sales income to the company. Note that all attributable costs must be deducted.
The first year's projected profit and loss statement must be developed in great detail; often, breaking the year into monthly or quarterly figures. The remaining four years of any solid business plan will only need to produce the annual profit and loss statements.
All assumptions on which the figures are based must be clearly identified and explained with this report. It will be necessary to test the forecast's sensitivity by anticipating and producing additional statements based on lower and higher income figures for both costs and expenses.
Path and Process
Initially, the cost of goods sold is deducted from sales income. This provides the gross profit figures. Calculate the cost of goods sold by totaling all relevant variable costs (e.g., material and labor costs). Do not include the cost of machinery, which produced the product, or costs for factory construction or maintenance developed for supply manufacture.
Next, one will deduct the operating expenses from gross profit to arrive at the profit before tax (PBT) figure. Operating expenses will include rent, rates, administration costs, depreciation, advertising costs, and all other overhead cost.
Once the profit before tax (PBT) figure is determined, the tax payments, interest charges, and the total remuneration of employees or director - including salary and bonuses (e.g., emoluments) must be deducted.
This leaves the profit after tax (PAT) from which shareholder's dividends are distributed.
Table 1-2 demonstrates the process of breakdown for the Pro-Forma Profit and Loss Statement.
Gross Sales (~10 units per month) actual: 2,600,000 rounded to next hundred thousandth
The labor force is projected at 79.3% with 76.4% of qualified workers employed. Commuting ranges are estimated at 3.2 minutes of driving time with 2.1% of the workforce relying on public transportation for arriving and departing the work site.
Recent Economic Trend Analysis
There is a strong market demand with close proximity to schools and major employers. An 80% private wage and salaried worker estimation are deciding economic factors. Occupied housing units comprise 95.6% of availability with an absorption rate of 21%.
Determination of Demand Factors
Income figures demonstrate that 50% of per capita salaries fall between $35,000 and $74,999.00. Population in the Pleasant Valley Estates measures at 11,337 persons. 3% of all households lack complete indoor plumbing facilities and 2.4% lack telephone services.
Analysis of Potential Supply - Possible Competition