Haley White owns and operates Kochi Trading which is a spice packaging operation. Haley works in the business full time.

Details:

• Haley’s accountant has prepared a budget for her but she is unsure as to what it means. She shows you the month by month cash flow forecast and a quarterly projected income statement.

• Haley has provided the sales forecasts on which the statements are based. Of her customers 90% buy on credit and the remainder buy for cash. Cost of goods sold is 65% of sales and Inventories are kept at $16,000.

• Haley plans to trade in the old truck at the start of the quarter as the old one is not very reliable. The new van will cost $90,000 whilst the old one will fetch a trade in of $12,000.

• The business employs three staff and the monthly salaries bill is $20,000.

• The annual insurance premium of $7,200 was paid on 1 July.

• Currently Haley withdraws $8,000 a month for personal expenses.

• The $20,000 current portion of the business loan is due for repayment on 1 December.

• The projected financial statements for Kochi Trading are attached in Appendix B.

Required

With reference to the projected financial statements, write a business report to Haley White. Use each of the headings for items (i) to (iii) below as headings in the discussion section of the report.

(i) In general terms, discuss what viability means in the context of a business?

(ii) Using the Income Statement, discuss whether this Kochi Trading is a good business to be in.

(iii) What does the estimated cash flow reveal about Kochi Trading?

(iv) Conclusion and Recommendations. What advice would you give Haley?

Answer rating: 100% (QA)

Requirement I Once someone has decided he has a good quality business proposal and he wants to run in the midst of it can he predict whether it will be a triumph Well thats anywhere assess the viabili... View the full answer