I need help to solve financial questions please find attached the requirement and the information about the case also the 3 chapters may help you

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I need help to solve financial questions please find attached the requirement and the information about the case also the 3 chapters may help you


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Copyright © 2016 Pearson Education, Inc. 1 Section 3: Launching the Business 12 Managing Cash Flow 12-2 Copyright © 2016 Pearson Education, Inc. ❖Explain the importance of cash management to a small company’s success. ❖Differentiate between cash and profits. ❖Understand the five steps in creating a cash budget. ❖Describe fundamental principles involved in managing the “big three” of cash management: accounts receivable, accounts payable, and inventory. ❖Explain the techniques for avoiding a cash crunch in a small company. 12 - 3 Copyright © 2016 Pearson Education, Inc. ❖ “Everything is about cash – raising it, conserving it, collecting it.” ~ Guy Kawasaki ❖ Common cause of business failure: Cash crisis! ❖ It is possible for a business to earn a profit and still go out of business by running out of cash. ❖Valley of death 12 - 4 Copyright © 2016 Pearson Education, Inc. 12 - 5 Copyright © 2016 Pearson Education, Inc. ❖ American Express OPEN Small Business Monitor study: ❖52% of small business owners experience problems with cash flow. ❖Their biggest cash flow concern is the ability to pay bills on time. 12 - 6 Copyright © 2016 Pearson Education, Inc. 12 - 7 Copyright © 2016 Pearson Education, Inc. ❖Cash management: ❖The process of forecasting, collecting, disbursing, investing, and planning for the cash a company needs to operate smoothly. ❖Young and growing companies are “cash sponges.” ❖Know your company’s cash flow cycle. 12 - 8 Copyright © 2016 Pearson Education, Inc. ❖ Cash ≠ profits. ❖ Profit is the difference between a company’s total revenue and total expenses. ❖ Cash is the money that is free and readily available to use. ❖ Cash flow measures a company’s liquidity and its ability to pay it bills. 12 - 9 Copyright © 2016 Pearson Education, Inc. 12 - 10 Copyright © 2016 Pearson Education, Inc. ❖Cash budget: ❖A “cash map” that shows the amount and the timing of a firm's cash receipts and cash disbursements over time. ❖Predicts the amount of cash a company will need to operate smoothly. ❖Helps to visualize a company’s cash receipts and cash disbursements and the resulting cash balance. 12 - 11 Copyright © 2016 Pearson Education, Inc. ❖Five steps: 1. Determining an adequate minimum balance. 2. Forecasting sales. 3. Forecasting cash receipts. 4. Forecasting cash disbursements. 5. Estimating the end-of-the-month cash balance. 12 - 12 Copyright © 2016 Pearson Education, Inc. ❖Step 1: ❖ The most reliable method of deciding the right minimum cash balance is based on past experience. 12 - 13 Copyright © 2016 Pearson Education, Inc. ❖Step 2: ❖The heart of the cash budget. ❖Sales are ultimately transformed into cash receipts and cash disbursements. ❖Cash forecast is only as accurate as the sales forecast from which it is derived. 12 - 14 Copyright © 2016 Pearson Education, Inc. (continued) ❖ “Lumpy” or seasonal sales patterns are common. ❖ 15% to 18% of wine and spirits shops’ annual sales occur between December 15 and 31. ❖ 40% of toy sales take place in last 6 weeks of the year. ❖ Prepare three sales forecasts: ❖ Pessimistic ❖ Optimistic ❖ Most Likely 12 - 15 Copyright © 2016 Pearson Education, Inc. Example: Number of cars in trading zone x Percent of imports = Number of imported cars in trading zone 84,000 x 24% 20,160 Number of imports in trading zone x Average expenditure on repairs = Total import repair sales potential 20,160 x $485 $9,777,600 Total import repair sales potential x Estimated market share = Sales estimate $9,777,600 x 9.9% $967,982 12 - 16 Copyright © 2016 Pearson Education, Inc. ❖Step 3: ❖Record all cash receipts when the cash is actually received (i.e. the cash method of accounting). ❖Determine the collection pattern for credit sales; then add cash sales. ❖Monitor closely: Slow and non-payers. 12 - 17 Copyright © 2016 Pearson Education, Inc. 12 - 18 Copyright © 2016 Pearson Education, Inc. ❖Step 4: ❖ Record disbursements when you expect to make them. ❖ Start with those disbursements that are fixed amounts due on certain dates. ❖ Review the business checkbook to ensure accurate estimates. ❖ Add a cushion to the estimate to account for “Murphy’s Law.” ❖ Don’t know where to begin? Try making a daily list of the items that generate cash and those that consume it. 12 - 19 Copyright © 2016 Pearson Education, Inc. 12 - 20 Copyright © 2016 Pearson Education, Inc. ❖Step 5: ❖Take Beginning Cash Balance ... ❖Add Cash Receipts ... ❖Subtract Cash Disbursements ❖Result Is Cash Surplus or Cash Shortage (Repay or Borrow?) 12 - 21 Copyright © 2016 Pearson Education, Inc. ❖ Increase amount and speed of cash flowing into the company ❖ Reduce the amount and speed of cash flowing out ❖ Make the most efficient use of available cash ❖ Take advantage of money-saving opportunities such as cash discounts 12 - 22 Copyright © 2016 Pearson Education, Inc. (continued) ❖ Finance seasonal business needs ❖ Develop a sound borrowing and repayment program ❖ Impress lenders and investors ❖ Provide funds for expansion ❖ Plan for investing surplus cash 12 - 23 Copyright © 2016 Pearson Education, Inc. ❖Big Three: 1. Accounts receivable 2. Accounts payable 3. Inventory ❖The Big 3 interact to create a company’s cash conversion cycle: ❖ The length of time required to convert inventory and accounts payable into sales and accounts receivable and finally back into cash. 12 - 24 Copyright © 2016 Pearson Education, Inc. 12 - 25 Copyright © 2016 Pearson Education, Inc. ❖About 90% of industrial and wholesale sales are on credit, and 40% of retail sales are on account. ❖Survey of small companies: 74% have accounts receivable outstanding for 60 or more days. ❖Remember: “A sale is not a sale until you collect the money.” ❖Accounts receivable goal: Collect your company’s cash as fast as you can. 12 - 26 Copyright © 2016 Pearson Education, Inc. ❖Screen credit customers carefully. ❖Establish a firm credit-granting policy. ❖Send invoices promptly. ❖Cycle billing ❖When an account becomes overdue, take action immediately. 12 - 27 Copyright © 2016 Pearson Education, Inc. ❖Ensure that invoices are accurate and timely. ❖Include a description of the goods or services purchased. ❖Ensure that invoices match purchase orders or contracts. ❖Highlight the balance dues and due date. ❖Include contact information in case customers have questions. ❖Use a security agreement. 12 - 28 Copyright © 2016 Pearson Education, Inc. ❖Stretch out payment times as long as possible without damaging your credit rating. ❖Verify all invoices before paying them. ❖Negotiate the best possible terms with your suppliers. ❖Be honest with creditors; avoid the “the check is in the mail” syndrome. ❖Schedule controllable cash disbursements to come due at different times. 12 - 29 Copyright © 2016 Pearson Education, Inc. ❖Monitor inventory closely; it can drain a company’s cash. ❖Avoid inventory “overbuying.” ❖It ties up valuable cash at a zero rate of return. ❖Arrange for inventory deliveries at the latest possible date. ❖Take advantage of discounts: ❖Quantity discounts ❖Cash discounts 12 - 30 Copyright © 2016 Pearson Education, Inc. 12 - 31 Copyright © 2016 Pearson Education, Inc. 12 - 32 Copyright © 2016 Pearson Education, Inc. ❖Barter ❖Consider bartering, exchanging goods and services for other goods and services, to conserve cash. ❖More than 500 barter exchanges operate across the United States. 12 - 33 Copyright © 2016 Pearson Education, Inc. (continued) ❖Trim overhead costs: ❖Ask for discounts and “freebies” ❖Conduct periodic expense audits ❖Lease rather than buy ❖Operating lease ❖Capital lease ❖Avoid nonessential cash outlays ❖Buy used or reconditioned equipment ❖Hire part-time employees and freelancers 12 - 34 Copyright © 2016 Pearson Education, Inc. (continued) ❖Outsource ❖Use e-mail rather than mail ❖Use credit cards for small purchases ❖Negotiate fixed loan payments to coincide with your company’s cash flow ❖Establish an internal security and control system ❖Develop a system to battle check fraud ❖Change shipping terms 12 - 35 Copyright © 2016 Pearson Education, Inc. (continued) ❖Start selling gift cards ❖Switch to zero-based budgeting ❖Be on the lookout for employee theft ❖Keep your business plan current ❖Build a cash cushion ❖Invest surplus cash ❖Money market account ❖Zero-balance account 12 - 36 Copyright © 2016 Pearson Education, Inc. ❖“Cash is King” ❖Cash and profits are not the same. ❖Entrepreneurial success means operating a company “lean and mean.” ❖Trim wasteful expenditures. ❖Invest surplus funds. ❖Plan and manage cash flow. 12 - 37 Copyright © 2016 Pearson Education, Inc. 12 - 38 Copyright © 2016 Pearson Education, Inc. Copyright © 2016 Pearson Education, Inc. 1 Section 3: Launching the Business 10 Pricing and Credit Strategies Copyright © 2016 Pearson Education, Inc. 10-2 ❖Discuss the relationships among pricing, image, competition, and value. ❖Describe effective pricing techniques for introducing new products or services and for existing ones. ❖Explain the pricing methods and strategies for retailers, manufacturers, and service firms. ❖Describe the impact of credit on pricing. Copyright © 2016 Pearson Education, Inc. 10 - 3 ❖Pricing: ❖ Is governed both by art and science. ❖ Requires balancing a multitude of complex forces. ❖ Influences every aspect of a small company. ❖ Is an important signal of value to customers. ❖ Involves both math and psychology. ❖ Has a greater impact on profits than corresponding increases in unit volume or reductions in costs. Copyright © 2016 Pearson Education, Inc. 10 - 4 Copyright © 2016 Pearson Education, Inc. 10 - 5 ❖Companies that take a strategic approach to pricing and monitor its results can raise their sales revenue between 1 and 8% ❖Example: Duane Reade Copyright © 2016 Pearson Education, Inc. 10 - 6 ❖Price sends important signals to customers: quality, prestige, uniqueness, etc. ❖Common small business mistake: charging prices that are too low and failing to recognize extra value, service, quality, and other benefits they offer. ❖The key is to understand the target market and identify how much customers are willing to pay rather than how much to charge. Copyright © 2016 Pearson Education, Inc. 10 - 7 ❖Must take into account competitors’ prices, but it is not always necessary to match or beat them. ❖Key is to differentiate a company’s products and services. ❖Price wars often eradicate companies’ profits and scar an industry for years. ❖Best strategy: Stay out of a price war! Copyright © 2016 Pearson Education, Inc. 10 - 8 Copyright © 2016 Pearson Education, Inc. 10 - 9 ❖ The “right” price for a product or service depends on the value it provides for a customer. ❖ Two aspects of price: ❖Objective value ❖Perceived value: determines the price customers are willing to pay. ❖ Value is not synonymous with low price. ❖Fighter brand Copyright © 2016 Pearson Education, Inc. 10 - 10 ❖Communicate with customers ❖Add a surcharge ❖Focus on improving efficiency ❖Consider absorbing cost increases ❖Eliminate discounts, coupons, and freebies ❖Use cheaper raw materials ❖Raise prices incrementally and consistently Copyright © 2016 Pearson Education, Inc. 10 - 11 (continued) ❖ Modify the product or service to lower its cost ❖ Offer products in smaller sizes or quantities ❖ Differentiate your company and its products and services from the competition ❖ Anticipate rising costs and try to lock in prices of raw materials early ❖ Emphasize the value of your company’s product or service to customers Copyright © 2016 Pearson Education, Inc. 10 - 12 Copyright © 2016 Pearson Education, Inc. 10 - 13 ❖ Three Goals: 1. Getting the product accepted ❖ Revolutionary products ❖ Evolutionary products ❖ Me-too products 2. Maintaining market share as competition grows 3. Earning a profit Copyright © 2016 Pearson Education, Inc. 10 - 14 (continued) ❖ Three basic pricing strategies: 1. Penetration 2. Skimming 3. Life cycle pricing Copyright © 2016 Pearson Education, Inc. 10 - 15 ❖Odd pricing ❖Price lining ❖Freemium pricing ❖Dynamic pricing ❖Leader pricing ❖Geographic pricing ❖Discounts (markdowns) Copyright © 2016 Pearson Education, Inc. 10 - 16 (continued) ❖Bundling ❖Optional-product pricing ❖Captive-product pricing ❖By-product pricing ❖Suggested retail prices ❖Follow-the-leader pricing Copyright © 2016 Pearson Education, Inc. 10 - 17 If a shirt costs $14, and a retailer plans to sell it for $30, the markup would be: Copyright © 2016 Pearson Education, Inc. 10 - 18 Copyright © 2016 Pearson Education, Inc. 10 - 19 Copyright © 2016 Pearson Education, Inc. 10 - 20 ❖The most commonly used pricing technique for manufacturers is costplus pricing: ❖A manufacturer establishes a price that covers the cost of direct materials, direct labor, factory overhead, selling and administrative costs, and a desired profit margin. Copyright © 2016 Pearson Education, Inc. 10 - 21 Copyright © 2016 Pearson Education, Inc. 10 - 22 ❖Absorption costing: ❖ Traditional method of product costing in which all manufacturing and overhead costs are absorbed into the product’s total cost. ❖Variable or direct costing: ❖ Product costing method that includes in the product’s costs only those costs that can vary directly with the quantity produced. Copyright © 2016 Pearson Education, Inc. 10 - 23 Break-even selling price = Profit + (Variable cost per unit x Quantity produced) + Total fixed cost Quantity produced Copyright © 2016 Pearson Education, Inc. 10 - 24 ❖To establish a reasonable, profitable price for service, small business owners must know the cost of materials, direct labor, and overhead for each unit of service they provide. Price Total cost per hour = productive hour ÷ (1-net profit as a % of sales) Copyright © 2016 Pearson Education, Inc. 10 - 25 ❖58% of small business owners say that their customers expect them to accept credit cards. ❖But, companies incur an additional cost to offer this service. ❖Three options for selling on credit: ❖Credit (and debit cards) ❖Installment credit ❖Trade credit Copyright © 2016 Pearson Education, Inc. 10 - 26 Percentage of Customers Who Shop Only at Businesses That Accept Multiple Forms of Payment Copyright © 2016 Pearson Education, Inc. 10 - 27 ❖Credit cards: typical consumer has 3.75 credit cards. ❖ Research: Customers who use credit cards make purchases that are 112% higher than if they had used cash. ❖ On a typical $100 credit card purchase, cost to business = $2.33. ❖Interchange fee Copyright © 2016 Pearson Education, Inc. 10 - 28 Copyright © 2016 Pearson Education, Inc. 10 - 29 ❖ About 0.9% of online credit card transactions are fraudulent. ❖ To minimize credit card fraud: ❖Use an address verification system ❖Require a CVV2 number ❖Check customers IP addresses ❖Monitor Web site activity with analytics ❖Verify large orders ❖Post notices on Web site that your company uses anti-fraud technology ❖Contact the credit card company or bank that issued the card Copyright © 2016 Pearson Education, Inc. 10 - 30 (continued from 10-28) ❖Debit cards ❖Shoppers make almost 53 billion debit card transactions, totaling $2.1 trillion each year. ❖Mobile wallets: ❖Applications that link a smart phone or tablet to a credit or debit card, transforming the device into a digital wallet. ❖Growing form of payment. ❖Installment credit ❖Trade credit ❖Layaway Copyright © 2016 Pearson Education, Inc. 10 - 31 ❖ Pricing techniques impact every aspect of a company including: ❖ Image ❖ Customers ❖ Cash flow ❖ Profits Copyright © 2016 Pearson Education, Inc. 10 - 32 Copyright © 2016 Pearson Education, Inc. 10 - 33 Copyright © 2016 Pearson Education, Inc. 1 Section 3: Launching the Business 11 Creating a Successful Financial Plan Copyright © 2016 Pearson Education, Inc. 11-2 ❖Describe how to prepare the basic financial statements and use them to manage a small business. ❖Create projected (pro forma) financial statements. ❖Understand the basic financial statements through ratio analysis. ❖Explain how to interpret financial ratios. ❖Conduct a break-even analysis for a small company. 11 - 3 Copyright © 2016 Pearson Education, Inc. ❖Financial management: ❖A process that provides entrepreneurs with relevant financial information in an easy-to-read format on a timely basis. ❖It allows entrepreneurs to know not only how their businesses are doing financially but also why they are performing that way. 11 - 4 Copyright © 2016 Pearson Education, Inc. ❖Common mistake among business owners: Failing to collect and analyze basic financial data. ❖Many entrepreneurs run their companies without any kind of financial plan. ❖About 75% of business owners do not understand or fail to focus on the financial details of their companies. ❖Financial planning is essential to running a successful business and is not that difficult! 11 - 5 Copyright © 2016 Pearson Education, Inc. ❖Balance Sheet: ❖“Snapshot” ❖Estimates the firm’s worth on a given date; built on the accounting equation: Assets = Liabilities + Owner’s Equity 11 - 6 Copyright © 2016 Pearson Education, Inc. (continued) ❖Income Statement: ❖“Moving picture” ❖Compares the firm’s expenses against its revenue over a period of time to show its net income (or loss): Net Income = Sales Revenue - Expenses 11 - 7 Copyright © 2016 Pearson Education, Inc. 11 - 8 Copyright © 2016 Pearson Education, Inc. (continued from 11-7) ❖Statement of Cash Flows: ❖Shows the change in the firm's working capital over a period of time by listing the sources and uses of funds. 11 - 9 Copyright © 2016 Pearson Education, Inc. ❖ Helps the entrepreneur transform business goals into reality ❖ Challenging for a business start-up ❖ They should be realistic and well-researched! ❖ Start-ups should create two-year projections ❖ Projected financial statements: ❖ Income statement ❖ Balance sheet 11 - 10 Copyright © 2016 Pearson Education, Inc. ❖Ratio analysis: ❖ A method of expressing the relationships between any two elements on financial statements. ❖ Important barometers of a company’s health. ❖Studies indicate few small business owners compute financial ratios and use them to manage their businesses. 11 - 11 Copyright © 2016 Pearson Education, Inc. ❖Liquidity Ratios: ❖Tell whether or not a small business will be able to meet its maturing obligations as they come due. 1. Current Ratio 2. Quick ratio 11 - 12 Copyright © 2016 Pearson Education, Inc. 1. Current Ratio: ❖ Measures solvency by showing the firm's ability to pay current liabilities out of current assets. Current Ratio = Current Assets = $686,985 = 1.87:1 Current Liabilities $367,850 11 - 13 Copyright © 2016 Pearson Education, Inc. 2. Quick Ratio: ❖Shows the extent to which a firm’s most liquid assets cover its current liabilities. Quick Ratio = Quick Assets = 686,985 – 455,455 = .63:1 Current Liabilities $367,850 11 - 14 Copyright © 2016 Pearson Education, Inc. (continued from 11-12) ❖Leverage Ratios: ❖Measure the financing provided by the firm's owners against that supplied by its creditors ❖A gauge of the depth of the company's debt. ❖Careful! Debt is a powerful tool, but, like dynam ...
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Tutor Answer

markhecktutor
School: UIUC

Here is part 2

Bluffton Pharmacy Part 2
Total Sales
Cash Sales
Credit Sales
Cash Collection
11% in same month
63.50% in next
month
22% in second
month
COGS 77.40%
Payment for
Purchase

Nov
$272,357.00
$57,194.97
$215,162.03

Dec
$315,458.00
$66,246.18
$249,211.82

Jan
$230,402.00
$48,384.42
$182,017.58

Feb
$237,915.00
$49,962.15
$187,952.85

Mar
$215,376.00
$45,228.96
$170,147.04

$20,021.93 $20,674.81 $18,71...

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Anonymous
Excellent job

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