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ENTREPRENEURIAL FINANCE
ENTREPRENEURIAL FINANCE
Student Name:
Professor:
October 25, 2019
Table of Contents
    S.No.
    Table of Contents
    Page No.
    1
    Introduction
    3 – 4
    2
    Part A – Financial Ratios
    4 – 5
    3
    Part A - Sustainable Growth Rate & AFN
    5 – 6
    4
    Part B – Projected Income Statement 2017
    6 - 7
    5
    Part B – Projected Balance Sheet 2017
    7 – 8
    6
    Part B – Projected Cash Flows 2017
    8 – 9
    7
    Part C – Projected Income Statement 2018
    9
    8
    Part C – Projected Balance Sheet 2018
    10
    9
    Part C – Projected Cash Flows 2018
    10 - 11
    10

    Cumulative AFN 2018
    11 – 12
    11
    Total Assets to Total Debt Ratio & Equity Multiplier
    12
    12
    Conclusion
    13
    13
    References
    14
Introduction
This project is about understanding the realm of entrepreneurship. In this project we will be covering detailed analysis of Financial Ratios including Net Profit Margin, Sale to Total Asset Ratio, Equity Multiplier, and Total debt to Total Asset ratio, Return on Asset and return on equity. Understanding these financial ratios will help in analyzing the large amounts of financial data in a simplified form. Ratios are basically showing the relationships between two or more financial variables or between financial variables and time. It also includes studying a sustainable sales growth rate and additional funds requirement by the business. The basic purpose is that the business wants to expand sales and in order to achieve a particular growth rate it needs funds to fulfill its objectives. This can be done so by getting additional funding help in the form of debt, retained earnings or external capital known as common stock.
The next segment of the project is about preparing projected financial statements. Its purpose is to express a venture’s future cash needs by making a projected income statement, a projected balance sheet and projected cash flows. It helps in relating the future cash needs of the venture. For this we will be using percent – of – sales forecasting method. It projects account balances by assuming that majority of items can be expressed as a percent of sales. So first we will calculate a projected income statement for 2017, a projected balance sheet for 2017, what is the additional fund requirement for 2017 and a projected cash flows for 2017.
After this the next segment is about making further projections. The basic purpose of this is to understand the financial implications associated with the need for additional funds. It is so because obtaining additional funds may also involve additional expenses such as additional interest expenses is additional funds are generated by borrowing money. These are basically long term financial planning signals and entrepreneurs greatly benefit from it by taking time to prepare long term goals. We will be calculating projected income statement for 2018, projected balance sheet for 2018 and projected cash flows for 2018. Then we will calculate the cumulative additional funds requirement for both the years 2017 and 2018. This will help in knowing the future cash needs for next two years. Also there will be a comparison of total debt to assets ratio with cumulative additional funds in 2018 with this ratio in 2016. In the same way calculation will be done for Equity multiplier.
Lastly we will be making conclusions and observations on the business report. This is done to summarize the whole concept and bind together all the references made. All the conclusions will be made on all the parts of the project keeping in consideration the calculations scripted. It will help in drawing better solutions to different needs of the entrepreneur and his venture.
DHARMA BIOTECH:
PART A
A. Financial Ratios:
a) Net Profit Margin: Net Income / Sales %
= 6.4 %
Sales = $15,000 and Net income = $960 (figures in $ 000’s)
The company is earning a margin of 6.4% after excluding operating and non-operating expenses from sales. The margin is quite less as compared to sales.
b) Sales-to-Total Assets Ratio: Total Sales / Total Assets
= 1.25
Sales = $15,000 and Total Assets = $12,000 (figures in $ 000’s)
This ratio indicates how much sales is generated by total assets. A higher ratio indicates the company is utilizing its assets efficiently in order to generate revenues. As we can see Dharma Biotech has a ratio of 1.25, which indicates more than 100% utilization of assets of the company.
c) Equity Multiplier: Total Assets / Equity
= 2.31
Total Assets = $12,000 and Shareholder’s Equity = $2400 + $2800 = $5200. (figures in $ 000’s)
The ratio is 2.31 which clearly indicates that the majority of assets have been funded using debt and lesser from Share capital of the firm. If equity would have been more or equivalent to assets then it would have been favorable as funding would have been done from equity and not from outside debt.
d) Total Debt-to-Total Assets Ratio: Total Debt / Total Assets
= 0.57
Total Debt = $6800 and Total Assets = $12,000 (figures in $ 000’s)
The ratio clearly states that majority of assets are contributed by debt. As the ratio is 0.57, which indicates more than 50% assets are financed by debt. A higher ratio of more than 1 is not considered favorable, but in case of Dharma biotech, the ratio is quite favorable as the company has more assets than debt and it is using debt and equity both to generate assets.
Return on Assets: Net Income / Total Assets %
= 8%
This ratio includes Net income from Asset contribution. The ratio says, assets have contributed only 8% in generating income. This is a very low figure percentage contribution by assets. The company should focus on improving its net income.
Return on Equity: Net Income / Total Shareholder’s Equity %
= 18%
The ratio indicates how much return company will generate from equity contribution. In other words,...