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Al Fikra, Qatar's National Business Plan Competition 2014 Financial Projections January 2014. Prepared by Professor George White and S. Thomas Emerson, Distinguished Career Professor of Entrepreneurship at Carnegie Mellon University Qatar. Agenda. Introducing Financial Statements

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Presentation Transcript
slide1

Al Fikra, Qatar's National Business Plan Competition

2014

Financial Projections

January 2014

Prepared by Professor George White

and S. Thomas Emerson,

Distinguished Career Professor of Entrepreneurship

at Carnegie Mellon University Qatar

agenda
Agenda
  • Introducing Financial Statements
  • Sales Forecasting
  • Guide – Al Fikra Financials Template
  • Financial Ratios
  • Financing
  • Measuring Internal Rate of Return
major financial statements
Major Financial Statements
  • Income Statement (P & L)
  • Statement of Owner’s Equity/Retained Earnings
  • Balance Sheet
  • Statement of Cash Flows
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Al Fikra2014

Inflows of assets

in exchange for

products andservices

provided tocustomers.

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Al Fikra2014

Costs incurred

or the usingup of assetsfrom generating

revenue

computing net income
Computing Net Income

Merchandiser

Service Company

Net Sales

Revenue

Cost of Goods

Sold

Cost of Sales

Gross Profit

Gross Profit

Operating

Expenses

Operating

Expenses

Net Income

Net Income

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Al Fikra 2014

Covers a

period

of time.

From the

Income

statement.

abc corportation

Statement of Retained Earnings

For Year Ended December 31,2005

ABC Corportation

Retained Earnings, January 1 $0

Add: Net Income 48

Total $48

Less: Dividends 40

Retained Earnings, December 31 $8

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Properties or

economic

resources

owned by a

business

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Al Fikra 2014

Debts or

Obligations

of the

business

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Owner’s

claim on the

assets of a

business

From the

Statement

Of Owner’s

Equity

abc corportation1

Partial Balance Sheet

December 31,2005

ABC Corportation

Shareholders’ Equity

Share Capital $500

Retained Earnings 8

Total Shareholders’ Equity $508

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From

the

balance

sheet

sales forecasting
Sales Forecasting
  • Estimate your market size

- # of potential customers

- Average amount spent per customer

- Total Industry Sales

  • Evaluate Competition
  • Estimate Your Share of the Market
  • Don’t estimate over your capacity !!
al fikra financials template
Al Fikra Financials Template
  • Follow the instruction sheet given to you
  • Cells highlighted in BLUE can be changed to reflect your company’s situation
  • Cells highlighted in YELLOW contain formulas that can be altered to reflect your company’s situation
  • It is NOT recommended to change any cells that are not colored
financial ratios
Financial Ratios
  • Working Capital
  • Current Ratio
  • Return on Assets
  • Return on Equity
  • Gross Margin %
  • Net Income/Profit Margin %
working capital
Working Capital
  • The difference between current assets and current liabilities.

Working

Capital

=Current Assets - Current Liabilities

current ratio
Current Ratio
  • Measures the short-term debt paying ability of the company.

Current Assets

Current Liabilities

Current

Ratio

=

return on assets
Return on Assets
  • Return made on the assets employed for a given period

Net Income

Total Assets

Return on Assets

=

return on equity
Return on Equity
  • Return made on the Owner’s Equity in the business

Net Income

Total Shareholders’ Equity

Return on Equity

=

gross margin
Gross Margin %
  • Gross Margin earned as a percentage of Sakes

Gross Margin

Sales Revenue

Gross Margin %

=

net income profit margin
Net Income / Profit Margin %
  • Net Income earned as a percentage of Sales

Net Income

Sales Revenue

Net Income Margin %

=

equity financing
Equity Financing
  • Pros
  • Cons
  • Less risk than debt as no legal obligation to pay dividends or buy back shares
  • Give up ownership and control
debt financing
Debt Financing
  • Pros
  • Cons
  • Retain full ownership and control
  • Leverage can enhance shareholder returns
  • Legal obligation to pay interest and principal when due
investor return calculation example
Investor Return Calculation - Example
  • You are a new start up company with an innovative product. You invest QR 1,500,000 in your company and wish to sell a 25% equity stake in your company to other non-active investors for QR 2,000,000. You would issue 100,000 shares of which you would own 75,000 shares and the other investors would own 25,000 shares. You plan to pay out 20% of the profits each year in the form of dividends. Investors have the opportunity to sell their shares any time after 3 years.
investor return example cont d
Investor Return Example (cont’d)

You prepare your financial projections and annual net profits show as follows:

  • Year 1 QR 200,000
  • Year 2 QR 900,000
  • Year 3 QR 2,000,000
  • Year 4 QR 4,000,000
  • Year 5 QR 6,000,000
  • You estimate that the company will be worth 5 times the following year’s estimated earnings (P/E Ratio = 5) after 3 years.
question 1
Question 1
  • What is the estimated value of the company after 3 years?

Price/Earnings = 5 times

Price/QR 4,000,000 = 5

Price = QR 20,000,000

question 2
Question 2
  • What share of this amount would the non active investors be entitled to?

QR 20,000,000 X 25% = QR 5,000,000

question 3
Question 3
  • How much would the non active investors receive in dividends for the first 3 years.

Y1. QR 200,000 X 20% payout X 25% share = QR 10,000

Y2. QR 900,000 X 20% payout X 25% share = QR 45,000

Y3. QR 2,000,000 X 20% payout X 25% share = QR 100,000

question 4
Question 4
  • What would the non active investors Internal Rate of Return (IRR) be if they sold their shares after 3 years?
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Enterprise Qatar

www.eq.gov.qa

www.alfikra.qa

Tel: 40125000

Fax: 40125001