Fashion Clothing Company’s Financial Statements Research Paper

Exclusively available on Available only on IvyPanda® • No AI

Table of Contents

Executive Summary
Introduction
Main Financial Findings
Analysis
Conclusion
References

Executive Summary

Clothing business is one of the few businesses that will always be in the market. People wear clothes every day. The only question to answer is to know if the business can become the source of their clothing. Fashion Clothing business should engage the market through intensive marketing strategies. The plans will help the business to sell many clothes and hence make a profit.

The cash flow projections and income statements reveal potential growth in the industry. Fashion Clothing has an investment of £200,000. The £150,000 the owners invested in the business went into the purchase of tangible assets. It uses the £50,000 as cashflow.

Introduction

Fashion Clothing is an online and mail-order clothing business. The financial requirements are capital, efficient production financial records, and good management of the same. The report indicates the forecast records for the business and its growth potential.

Main Financial Findings

Summary of the First 6 Months Business Operations

Fashion Clothing needs to use five very essential records to the business. The opening statement of financial position helps to identify capital intensity, the availability of cash to run the business, assets, and the tools available for the firm to continue smoothly. The monthly cash flow forecast will help to indicate the expected monthly capital and expenses (Debrulle & Maes 2015). It also points out the availability of capital or the lack of it.

Fashion Clothing management can make a decision on how to raise the capital for the following month. The projected income statement will provide information about the net sales, the cost of sales including purchases, and the expenses. It also shows the owners the operating margin of profit or loss and how it changes each month. The projected statement of financial position gives a record of all the business’s assets and liabilities. Projected cash flow shows the owners where the cash is in the business.

Financial Accounting Statements

The business owners have £200,000 to invest. By the month of July, they had bought the tangible non-current assets for the business worth £150,000. The remaining £50,000 was in the bank for further use as working capital. All the transactions go through the same bank (Krakel 2015). The opening statement in July 2015 at the start of business for the financial position would be as follows:

Opening Statement of Financial Position at the Start of July 2015
	£
ASSETS
	July
Non-current Assets
Tangible Assets	150,000


Total	150,000

Current Assets
inventories & Assets held for sale	120,000
cash & cash equivalents	50,000
Total	170,000

Total Assets	320,000

EQUITY AND LIABILITIES

Capital Reserves
Share capital	200,000
Retained Earnings	0
	200,000

Non-Current Liabilities
Long term borrowings	0
Long term provisions	0
Deferred tax liability	0
	0

Current Liabilities
Payable & Accrued expenses	15,000
Related party transactions-current
	15,000

Total liabilities	15,000

Total Equity and Liabilities	335,000

Fashion Clothing
Cashflow Forecast

	July	August	September	October	November	December	Total

Money In
Sales:
Clothes sales	150,000	120,000	150,000	210,000	260,000	285,000	1,175,000
Loan							0

Total money in	150,000	120,000	150,000	210,000	260,000	285,000	1,175,000

Money Out
Materials Purchased	86,667	86,667	86,667	86,667	86,667	86,667	520,000
Labor	80,000	80,000	80,000	80,000	80,000	80,000	480,000
Marketing and other costs	42,500	42,500	42,500	42,500	42,500	42,500	255,000
Depreciation	15,000	15,000	15,000	15,000	15,000	15,000	90,000
New equipment	150,000					30,000	180,000
Tax						20,000	20,000

Total money out	374,167	224,167	224,167	224,167	224,167	274,167	1,545,000

Net cash inflow / (outflow)	-224,167	-104,167	-74,167	-14,167	35,833	10,833	-370,000

Bank balance at the start of the month	50,000	25,833	1,667	2,500	3,333	39,167
Overdraft	200,000	80,000	75,000	15,000
Bank balance at end of month	25,833	1,667	2,500	3,333	39,167	50,000

The company has enough tangible assets to proceed with the business. The only liability available is the accrued expenses for depreciation. The statement helps the business to determine its strength at the beginning and to make financial decisions that are dependent on the report.

Projected Statement of Financial Position

Fashion Clothing
Projected Statement of Financial Position As At 31^stDecember 2015
	£	£	£	£	£	£
ASSETS
	July	August	September	October	November	December
Non-current Assets
Tangible Assets	150,000	135,000	120,000	105,000	90,000	105,000
	150,000	135,000	120,000	105,000	90,000	105,000

Current Assets
cash & cash equivalents	50,000
	50,000	0	0	0	0	0

Total Assets	200,000	135,000	120,000	105,000	90,000	105,000

EQUITY AND LIABILITIES

Capital Reserves

Non-Current Liabilities
Current Liabilities
Bank overdraft	200,000	80,000	75,000	15,000
Short term borrowings
Total liabilities	0	0	0	0	0	0

Total Equity and Liabilities	200,000	135,000	120,000	105,000	90,000	105,000

Analysis

Initial Analysis in the Context of the Three Financial Statements

The business requires a lot of capital from the first month. It will have to negotiate with the bank for the provision of an overdraft (Morrison 2015). In this case, it will need an overdraft of £200,000. It will take overdrafts for four consecutive months as illustrated in the cash flow statement above. They will help to pay suppliers and get more materials as the business grows. By November and December, it will have gained stability. The income statement reveals potential growth.

However, it requires more capital to support this strategy. Fashion Clothing financial position during the six months of business indicate that the initial tangible asset will be depreciating each month with a deduction of £15,000 per month. It will close with £105,000 in December (Debrulle & Maes 2015).

Investigations to Increase Efficiency

Efficiency can increase through aggressive marketing strategies and capital injection. The business needs to reinvest the profits into the business. It should stop relying on the bank overdrafts because they are taxing to the business. The shareholders can increase their investment or source for more shareholders.

Projected Cash Flows

Fashion Clothes
Projected Cash flows As At 31st December 2015

	£	£
Cash flows from operating activities
Net Income		1350000
Adjustment for
Depreciation and amortization	90,000	0
Provision for losses on account receivable	0	0
Gain on sale of facility		90000

Increase in trade receivables	0
Decrease in trade payables	0
		130000
Cash generated from operations	220000

Cash flows from investing activities
Purchase of property, plant, and equipment	(180,000)
Proceeds from the sale of equipment	0
Net cash used in investing activities	0	(180,000)

Cash flows from investing activities

Net increase in cash and cash equivalent		1390000
Cash and cash equivalents at the beginning of the period		50000
Cash and cash equivalents at the end of the period		1440000

Conclusion

The statement of cash flows shows that there were no investing activities in the period. The business closed with £1,440,000 cash and cash equivalent. The owners can reinvest in the business the proceeds from the business activities. The business owners can expand the business through diversification of the product range and opening more stores.

References

Debrulle, J & Maes, J 2015, ‘Start-ups’ internationalization: the impact of business

owners’ management experience, start-up experience and professional network on export intensity’, European Management Review, vol. 12, no. 3, pp. 171-187.

Krakel, M 2015, ‘Human capital investment and work incentives’, Journal of Economics & Management Strategy, vol. 25, no. 3, 627-651.

Morrison, R 2015, From the chair of the business valuation committee: draft reports, oral reports, record keeping, and USPAP’, Business Valuation Review, vol. 34, no. 1, 39-41.

More related papers Related Essay Examples