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Finance Tutorial 3 - Sheet1 2

The document provides financial information for a pharmacy including budgets for sales, costs of goods sold, expenses and profits for 2017 and 2018. It includes exercises calculating wages, workers compensation and valuation based on earnings and capitalization rates. The final exercise discusses inventory management and calculations for initial inventory levels and target inventory amounts based on turnover ratios and projected sales.

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Jason Lou
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24 views

Finance Tutorial 3 - Sheet1 2

The document provides financial information for a pharmacy including budgets for sales, costs of goods sold, expenses and profits for 2017 and 2018. It includes exercises calculating wages, workers compensation and valuation based on earnings and capitalization rates. The final exercise discusses inventory management and calculations for initial inventory levels and target inventory amounts based on turnover ratios and projected sales.

Uploaded by

Jason Lou
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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:( NEIL'S PHARMACY :( :(
2019 Budget 2 2019 Budget 1 2018 2017
Sales 3574850 3574850 3574850 100% 3763000 100% Review the wages budget provided. Answer the following questions for this scenario.
LESS COST OF SALES To address a fall in sales, the owners are planning on reducing the wages budget by 5% for 2018:
Opening Stock 170000 170000 170000 160000 Calculate the new wages?
Plus Purchases 2470000 2470000 2470000 2600000 Calculate the new superannuation based on 9.5%?
Less Closing Stock 162000 162000 162000 170000 Worker compensation is listed as a separate expense. Average risk factor applied to get premium is 1.23% of gross wages (ex super):
Cost Of Goods Sold 2478000 2478000 2478000 2590000 Calculate the new workers comp figure after reducing wages by 5%?
What is the EBITDA for 2017?
GROSS PROFIT MARGIN 1096850 1096850 30.70% 1173000 31.20% What is the budget EBITDA for 2018?
EXPENSES
Accountancy 5000 5000 5000 4500
Advertising & Promotion 14000 14000 14000 18000
Bank Charges 3100 3100 3100 3000
Computer Expenses 12000 12000 12000 14000
Depreciation 9000 9000 9000 10000 :(
Donations 1000 1000 1000 1000
Electricity & Gas 6000 6000 6000 5800

Freight & Cartage 500 500 500 500


Insurance General
Insurance Worker Comp
11700 11700 11700
7585
11200
7790
Activity 2 - Wages Budgeting
Download a copy of this profit and loss

Interest 39415 39415 39415 47210


Journals & Reference Books 2000 2000 2000 2000
Leasing Charges 3000 3000 3000 3000
Merchant Fees 4500 4500 4500 5000
Motor Vehicle Expenses 4000 4000 4000 4000
Packing 2500 2500 2500 3000
Postage 800 800 800 1000
Printing & Stationery 6000 6000 6000 8000 Activity 3 - Valuation
Rent 115000 115000 115000 3.20% 110000 - Return on Investment or Capitalisation Rate is set by the market
Repairs & Maintenance 1500 1500 1500 2000 - Capitilisation rate or Cap Rate = Net Income/Market Value
Security 1500 1500 1500 1500 Therefore: Market Value = Net Income(EBITDA)/Capitilisation rate
Staff & Customer Amenities 2200 2200 2200 2500 E.g. Valuing a business using net income of $100,000 and market Cap rate of 18% (or return on investment of 18%) is as follows:
Staff Training & Recruitment 1500 1500 1500 3000 $100,000/0.18 = $555,555
Subscriptions 6300 6300 6300 6000 I.e. If you invested $555,555 you would expect to earn $100,000 from that investment.
Superannuation 34225 36100 Activity 3 – Valuation exercise
Telephone 3400 3400 3400 3000 The following questions relate to pharmacy valuation:
Travelling Expense 2200 2200 2200 2000 1. Calculate the increase in value based on an 18% capitalisation rate
Uniforms 1000 1000 1000 1000 2. What would be increase in valuation if they also improved GP margin by 1% to 31.7% for the latest year?
Wages - Employees 370000 380000 3. What is the effect of increase the Cap rate by 1%?
Total Expenses 670925 696100 4. What is the effect of decreasing the Cap rate by 1%?
5. What factors might influence the Cap rate?
NET PROFIT 425925 476900
EBITDA
Valuation 18%
Valuation 19%
Valuation 17% Goodwill = Valuation- Stock-Fixtures
Budget NP after change to wages

Budget figure after change to wages AND change to GP%

Activity 4 - Inventory Management


You have been appointed to manage a new pharmacy that will be opening in two months. The budget for the store shows cost of goods sold of $2,000,000 for the first year. In discussions with the owner, you agree to set a target inventory turnover ratio of 6 (implying 60 days average inventory on hand).
What level of inventory (in dollar terms) should the store purchase for its opening?

The store owner is concerned that your initial inventory balance seems like a lot of money! Recalculate your starting inventory using a turnover ratio of 8.

While the store owner is happy with the revised figure, over the coming weeks the owner increases the sales budget to $3,400,000 (with a target gross margin of 35%). What costs of goods sold is implied by the new sales number?

What would be the target inventory using this cost of goods sold and an inventory turnover of 8?

Discuss the importance of ordering and payment of stock in the cashflow cycle. NB Review the cashflow cycle slide from FM Lecture 3 (Cashflow)

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