Income statement analyses
This is also called the income and expenditure account analyses or the profit and loss analyses whereby the sales less the costs should either give a profit or a loss depending on the product line. With regard to the ViiToR XP, sales are expected to rise over the next two years given the activity as has been studied over the past quarter. In the Asia Pacific region the sales are expected to rise by 17.36% each quarter based on the sales that have been lost due to stock outs. The costs of producing these products are not going to increase over the next two years except by the occasional 0.83% due to inflationary increments. Using moving averages over the last few years it shall be observed that the rate of inflation has been on a downward trend (Coin News, p. 1). The company has no depreciating assets apart from the vehicles used for dispatching consignments from the production units to the point of sale displays, and these have become negligible as the said vehicles have been around for over ten years. This implies that they shall require to be replaced in the next two to three years. The current fleet of vehicles having been bought over ten years ago shall need to be replaced in two years’ time considering the earliest time possible (Diether, p. 1).
Considering the mandatory annual increment of salaries for salaried employees, this stands at a modest 3.5% per annum (Chan, p. 1). However, with the expected increment in unit sales of the ViiToR XP and the new line ViiToR XL, these shall be enough to cater for the salaries and paying off of the expected investor input as well as an interest of up to twenty eight per cent of the loan by the end of the third fiscal year without the company going in the red. ViiToR does not pay commissions to sales persons, but there is a fixed retainer per region, which shall also increase annually as per the mandatory annual increment of salaries; that is, by 3.5% every year (Chan, p. 1).
In the fourth quarter there was a negative operating profit as well, but this was much less than in previous quarters, showing that the graph had already reached its nadir and was on an upward turn.
Cash Flow Statement
Over the past three quarters the opening cash balances have been $0, $912, 000 and $582, 000 respectively. The first quarter was dedicated to marketing research, during which the net operating cash flow accrued from this only, and stood at $88, 000. None of this expense rolled over to the second quarter, but research and development cost $60, 000 while other expenses cost $170, 000. Thus, the net operating cash flow increased to $230, 000. This is explained by the need to get a know of the market dynamics at the time, as can be seen in the third quarter, when these costs still increased further, as a result of research and development taking a large portion of the costs, to $1, 113, 202. Research and development increased by more than 400%, but is expected to reduce in the coming years as a general feel of the market has already been established. Likewise, the third quarter was when the revenues started coming in at $469, 700 by the close of the quarter, while production, advertising and excess capacity costs drove the expenses during that quarter to reach an excess of 1.1 million dollars. During the next two years, production shall be increased by not less than 18% for ViiToR XP due to popular demand. Therefore production only shall not be less than $510, 695.
During each quarter there shall be as has always been an increase in common stock of $1, 000, 000. So far, there has not been any borrowing of conventional loans, and the cash balances at the ends of each quarter have been $912, 000, $582, 000, and $468, 798 respectively. Although these figures have kept dropping over the past three quarters, an increased production will eventually see them rising appreciably in the coming years. Particularly, research and development costs are bound to reduce with time.
There have been no credit purchases so far over the past three quarters, and there is no intention of making any credit purchases in the near future. Therefore, there are no payments being made occasionally in that respect.
The fourth quarter saw an increment in the net operating cash flow of $69, 188, from a beginning cash balance of $468, 798. Much less revenue was used in research and development than the previous quarter, but production, sales force expenses, and sales office and web center expenses were among the highest costs. The marked increase shows a promising trend in revenue generation.
Key ratios
The net profit compared to the net assets employed to generate income in the company were in the ratio of 93.33%.
The net profits compared to the sales were in the ratio of 47.43%.
Since there is no debt owed to any party, there is neither a debt to sales ratio nor a debt to turnover ratio, or this may be regarded as zero. Similarly, there is neither a current liquidity ratio nor a quick liquidity test ratio to be reported. The same applies to the leverage ratios; that is the debt ratio as well as the debt to pay in capital.
The activity ratios for ViiToR Industries were such that the company was operating very close to the average and at one time exceeding it. Fixed asset turnover exceeded the average by 0.7 points but was still slightly lower than the highest score in that sector. Inventory turnover was on the higher side of one point below average score, while the total assets turnover missed the average score by a measly 0.03 points.
Profitability ratio activity for ViiToR Industries was way above average in all counts with the gross profit, and net profit margins being 51.47 and -1.91 respectively, against the means of 49.27 and -9.55 respectively. The returns on assets and returns on paid-in capital were equal performers at -2.91 against a mean of -16.73 each.
The company scored the highest value as far as revenues were concerned, and succeeded in maintaining above average scores in gross profit and net income. These figures were $4, 020, 484, $2, 069, 492 and -$76, 802 respectively against the following average scores: $3,417,694, $1,693,179, and -$256,378 respectively.
In the first quarter, assets versus liabilities were in the ratio 125:11. There were no goods sold during this period, and no investing activities were recorded either. As with the first quarter, the second quarter also had no goods sold, but investing activities totaled 1.1 million dollars so that the assets and liabilities were in the ratio 210:23. In summation, these ratios provide a very promising picture of future events in terms of sales margins vis-à-vis the liabilities the company has to pay over every quarter. Furthermore, the third quarter also continues showing a similar trend to imply that the positive foresight given earlier on gets confirmed by the latter figures. Of note is the fact that no investing activities were carried out during the third quarter, but the asset to liability ratio was still close to 100%. If the trend should continue thus the company shall still be making profitable business way into the future.
The product line profitability analyses
All costs related to ViiToR XP when compared with the sales from the same product line still continue to give a positive feedback. For example, when the cost of labor is compared to the sales, where labor includes the work done by the sales persons, the ratio of sales to labor is close to 47:5, which gives a very wide margin between the revenue generated and the cost of generating the said revenue after compensating the hired workforce. Similar trends in the market are yet to be expected in the future even after compensating for the remunerative increments expected with the turn of every year.
When the costs and the profits obtained from this product line are compared, the percentage of costs that make up the profit before the rebates are factored in is such that as the number of units produced increases, the cost per unit diminishes appreciably. In this light, for an increase in production from 100 units to 250 units, there is a comparable decrease in cost from 3, 573 dollars to 2,442 dollars for the ViiToR XP. At the highest production level the company has managed so far, the production of 5000 units costs 1356 dollars per unit before the law of diminishing returns takes effect.
At this juncture, it should be surmised that the advent of the ViiToR XL shall see higher sales margins than for the ViiToR XP, which is an efficient brand, but whose efficiency has been revamped to usher in the ViiToR XL brand.
Expense Budgets (Funding Needs & Options)
The Viitor XP brand was produced using $196, 671, and this cost was defrayed entirely with a profit margin amounting to $196, 029. That is, the gross revenue from this brand, after rebates had been accounted for, as well as the cost of goods, was $190, 029. When brand design, advertisement design, brand advertising as well as the display at the point of purchase are factored in, Viitor’s profit was $79, 648 with each unit raking in $669. The items mentioned above cost $60, 000, $30, 000, $20, 181 and $200 respectively, with the percentages of sales revenue being 15.28%, 7.64%, and 5.14% respectively excepting the point of purchase display. The total expense from this brand was $110, 381, which took up 28.11% of sales revenue. Future projections put these values at four times the amounts stated taking into account inflation costs per annum. The costs of goods sold for this brand account for 50.08% of the sales revenues while the brand as a whole had sales that accounted for 20.28% of the sales revenue.
The company has often maintained a total of 5 sales people per quarter. With sales people in Shanghai and Tokyo earning the same annual salaries, the company may not need to review the current rates in the short term, but shall maintain a sales force budget of $49, 790 per quarter. By projection, this translates to about $200, 000 per annum for two years. Only one office shall be opened in the first year, but with the two outlets in the second year the costs are set to double. Annual cost of hiring sales people stands at $35, 024 per salesman per annum. Therefore for the two years, the total cost of hiring sales persons shall be slightly in excess of $500, 000. It follows that the costs of Viitor XP units sold in the first year shall be sufficient for the remuneration of all salespeople for the entire two year financials.
Advertisement have been, on the whole, not very encouraging. The total expense accrued from advertising through local media in the three countries was $133, 260. Regional media were not used for advertising, and this was the reason for the very low scores.
In the Asia Pacific region there are three operational sales offices: Tokyo, Shanghai and Sydney, whose setup costs were $170, 255 for the Tokyo office, and a similar amount for the Shanghai office, while that for Sydney was less by about $40, 000. Quarterly leasing costs for each of the offices were unique per country, with the Tokyo and Sydney sales offices taking up the largest chunks of leasing costs, with over $100, 000 between them. However, Sydney does not feature in the present two year financial plan, and that would imply that the leasing costs for the two years would also be slightly in excess of $0.5 million. A break down of the costs is as follows: for the two years that the Shanghai office would be operational, it would accrue $256, 384 in leasing costs, while the Tokyo office only being operational for one year would exceed this cost by over $30, 000.
Since Viitor has experienced lost sales and potentials, it will be introducing a new product into the market called Viitor XL, which shall replace the previous model called Viitor X. it is hoped that this brand shall meet the qualifications required by the Customer Union, which are necessary for its success in the market within the Asia Pacific region.
Funding Options
The company has the following funding options: sales revenue, production, sinking fund, interest income, borrowing a conventional income, or borrowing a long-term loan. The company cannot thrive if its products are only secluded in one place and for this reason ViiToR has a diversity of horses. However, it is prudent to work with what one has. The company can borrow a short term loan or withdraw, as well as plowing back the revenue generated in production.
Funding Needs
On the whole, the factory runs with very few employees and the machines in use run far below the capacity for which they were made. Money is needed for the following reasons::repayment of loans, repaying 3-month for licensing fees, interest charges, shipping and market researching. Excess capacity costs, web marketing expenses, rebates and production also fall under the docket of company financial needs, some of which have just recently seed the light of day. With enough funding, other needs which have not been met shall have been catered for, so that the company can run at its full potential.
Capital Structure at ViiToR
During the last three quarters as well as the fourth quarter, there has been no debt accrued by ViiToR Industries. In essence this depicts a strong capital structure with a high level of equity and a low level of liabilities or debts.
Returns on Investment for Investors
Exit Strategy
$30000 worth of shares have already been given to managers within the company. Other options open to ViiToR include strategic acquisitions and initial public offerings among other srtrategies
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Works Cited
Chan, C. E. "What Is an Appropriate Annual Salary Increase?" 2016. Chron. 13 July 2016 <http://work.chron.com/appropriate-annual-salary-increase-16035.html>.
Coin News. "Current US Inflation Rates: 2006-2016 | US Inflation Calculator." 2015. Coin News Media Group LLC. 13 July 2016 <http://www.usinflationcalculator.com/inflation/current-inflation-rates/>.
Diether, John. "What is the Average Car Depreciation Rate?" 2016. CARSDIRECT. 13 July 2016 <http://www.carsdirect.com/auto-loans/what-is-the-average-car-depreciation-rate>.
