SAMPLE CASE STUDY FOR MODEL

Company Overview

Apricot Home Appliances $($AHA$)$ is a leading company for Home Appliances in Pakistan with a wide range of Air Conditioners $($AC$),$ Small Domestic Appliances $($SDA$)$ and LED TVs$.$ Normally it imports parts from China and assemble locally to save import duties. It has own brand shops in Lahore, Islamabad and Karachi currently.

Financial Model Information

You are required to build an integrated financial statement model for AHA for the next $5$ years $($F$2020-$ F$2024)$ using provided data and the following assumptions.

Assume all figures are in PKR unless stated otherwise.

Sales Units

$$ In $2019$ Lahore, Islamabad and Karachi sold $10000,8200$ and $9200$ units respectively.

$$ In $2021$ AHA launched new shop in Quetta and it will sale $8750$ units in first year.

$$ In $2023$ AHA launched another shop in Gujranwala and it sold $9110$ units in this year.

$$ Annual growth in sales volume is expected $15\%$ in $2020$ and $17\%$ in subsequent years for all

shops.

Pricing

$$ In $2019,$ unit import price was $1200$$$.$

$$ Inflation is expected to $2\%$ for five years.

$$ Exchange rate in $2019$ is PKR $155$ per USD that is expected to increase in coming $5$ year at the

rate of $5\%.$

$$ Further expenses are freight charges that are $3\%$ on import price and further import duties are

$33\%$ on accumulative value.

$$ Company$$s Expected markup is $20\%$ for next $5$ years.

Payroll

$$ There is $1$ GM throughout $5$ years and in $2020$ there were $3$ Branch Managers.

$2$ New Branch Managers were added in the years of new branch opening.

$$ Each branch has $2$ Sale Executives.

$$ In $2019$ Salary of GM$,$ Branch Manager and Sale Executives is Rs$.450,000,$ Rs$.180,000$ and

Rs$\mathrm{.}70,000$ respectively.

$$ Company policy is to increase salary at the rate of $10\%$ each year.

Operating Costs

$$ Rent is fixed at Rs$.5$ million per shop.

$$ Utilities in year $2019$ are Rs$.25$ million and areTravelling charges are Rs$.9\mathrm{.}3$ million in year $2019$ and are expected to increase at inflation rate.

$$ SG&A is expected to be $3\mathrm{.}5$ million in year $2019$ and may grow at inflation thereafter.

$$ Company is expecting to have miscellaneous other charges as $1$ million in year $2019$ that will

increase at the inflation rate.

$$ All operating costs are for all shops except rent that is fixed per shop.

CAPEX and Depreciation

$$ The Company is expected to spend $500$ million on capex in F$2020,700$ million in F$2021$

$$ and $600$ million for each year after. Capex is spent evenly over the course of the year.

$$ AHA uses the Straight$-$Line method of depreciation.

$$ Existing assets $($if any$)$ have a remaining useful life of $35$ years while new assets will be

depreciated

$$ over $47$ years.

Working Capital

$$ Reasonable assumptions can be made for next five year. Tax

$$ Tax rate for company is $35\%$

$$ It is expected that the Company$$s pre$-$tax income for government purposes will be PKR $40$

million lower than the pre$-$tax income for accounting purposes every year in the forecast due to temporary timing differences.

Long Term Loan

$$ Company plans to get long$-$term loan or PKR $500$ million in year $2020.$

$$ Rate of Interest for this new loan will be $12\%$ per annum.

$$ Loan will be repayable in $5$ years$$ time period.

$$ Installment of new loan will be paid at the end of the year.

Intangibles

$$ There is no intangibles throughout the forecast period. Equity

$$ AHA plans to issue PKR $10$ million of preferred shares in $2020$ with a yield of $3\%$ as dividend on preferred shares.

$$ PKR $2$ million will be repaid in $2021$ from preferred shares.

$$ AHA plans to issue PKR $150$ million Common Share in $2020$ and another PKR $300$ million in $2022.$

$$ Dividend payout ratio will be $15\%$ of Net Income each year.

$$ Company plans to create $30\%$ of net income as general reserve from year $2020$ to onwards. expected to increase at inflation rate.