1.0 Introduction
In this report, my theme for this case study is HELP International Corporation Berhad and the financial plan included for the three years projections will be present based on the business plan. Business plan will be introduce the projected sales and the objective of business in this company. The three financial projections will include in profit and loss account (income statement), cash flow statement and balance sheet. Then, the sensitivity analysis and financial models will be applied in the financial plan. Finally, the whole report will be concluded.
2.0 Background on HELP International Corporation Berhad
HELP International Corporation Berhad (HELP Group) incorporated on 20 June 2005 in Malaysia and were acts as the Malaysia-based investment holding company (Overview and History 2010). It has four campuses which including HELP University College, HELP International College of Technology, Fraser Technology Park Campus and HELP University College's Subang 2 campus (Corporate Information Snap Shots 2010). The HELP Group are confident for the integrated HELP University College's Subang 2 campus which targeted will be complete in the end 2010 as well as to get the full university status for HELP by complete all the criteria required of HELP (HELP International Corporate 2009).
3.0 Business Plan on HELP:
HELP International Corporation Berhad is forecast to have a business plan which is to offer accounting course at its new campus HELP@Subang 2. This business is going to fulfil the long-term goal of the company as to be the dominant school in finance, accounting, and economics (HELP International Corporate 2009). The business plan on HELP Group will start to consider the sales projections and income as well as by seeking at the current number of students and to estimate the growth rate across the next three years. At Appendix 1.0, the number of students in the current year 2009 is 3,500 people in HELP. Then, the expected growth rate to year 2012 is 10% (Appendix 1.0) in the next three years. Besides that, the number of students enrol in accounting course in 2012 is estimated increase of 20% (Appendix 1.0). Additionally, the sales projections and income will be analyse by assumed the projected annual earnings per students which is shown in Appendix 1.0 there are multiply the expected number of students which enrolled in accounting course with the expected annual tuition fees RM 5,000 per student in year 2012. In developing this business plan, it is assumed that the company's capital is RM 250,000 of equity finance have contributed come from the shareholders and RM 390,000 of debt finance is borrowing from bank loan at 10% interest.
The company objective is forecast that the three year profit increase and to achieve the forecast sales of RM 12,500,000 in year 2013. The dividend payable will be pay to shareholders while the profit is increase. In the accounting course venture, it requires considerable outlay in terms of capital expenditure is RM 550,000 which included equipment (RM 425,000) and property (RM 125,000). Then, the running cost is assumed require of RM 90,000. Thus, with the capital expenditure of RM 550,000, the total amount in this business plan needed is RM 640,000. The share capital of RM 250,000 and bank loan of RM 390,000 is assumed in this business plan as well as to finance the venture. In this business plan, all figures are at 2009 prices as well as rounded to the nearest 1,000. Capital expenditure will only occur at the start. The loan must be repaid over 3 years and commencing at the end of 2010. All the payment occurs one month after sales and then there will be a year end debtors. Utility costs are assumed at RM 200,000 plus 2.5% of tuition fees per annual. Advertising cost is also estimated at RM 250,000 plus 5% of tuition fees per annual. Depreciation will follow a straight line basic as well as across 5 years. And there is no interest on any cash balance and no account is taken of taxation in this business plan. The direct labors cost has been calculated earlier as well as also calculate the loan interest payable.
4.0 Financial Plan on HELP
Financial plan is to show the overall company performance based on profit and loss account, cash flow statement, and balance sheet. The financial statement will published at least once each year as part of the company accounts.
4.1 Profit & Loss Projections
The profit and loss statement which also known as income statement is an accounting of revenue, profit, and expenses for a given accounting period, commonly a month, quarter, or a year (Siciliano 2003). The profit and loss projection shows the company's success in achieving the objective by producing a profit. The profit and loss projection is useful for understanding the company's performance in a very high-level way. The profit and loss projection can able put it the alongside profit and loss projection to against the objective of the company. HELP Group requires equipment to operate. The major start-up cost will be equipment and property for which it invests from the capital expenditure of RM 550,000. The running costs require is RM 90,000 per annual. The HELP Group will generate RM 12,405,000 (Appendix 4.0) in tuition fees in its year 2013 of operations. The profit and loss projection summarizes the tuition fees and expenses for the three years projections. All the Ringgit Malaysia amounts reported are cumulative totals in this three years financial statement.
In year 2010, the top line is the tuition fees from student is RM 3,850,000 (Appendix 4.0) and is the bottom line is called net income. Net income is known as final profit after subtract the all expenses from the tuition fees (Tracy 2009). However, in the year 2012, the tuition fees increase of RM 809,000 and become RM 4,659,000 (Appendix 4.0) of the net income. The business of HELP Group earned RM 3,079,000 gross profit after subtract the cost of direct labour and tuition material cost in the year 2010. In the year 2012, the gross profit increase of RM 460,000 (Appendix 4.0) from year 2010 and become RM 3,539,000. Next, the operating expenses such like advertising, indirect labour cost, depreciation, utilities and general expenses are subtracted by gross profit and gain a total of RM 1,387,000 in year 2010 (Appendix 4.0). Then, the total for year 2012 is RM 1,937,000 by increase of RM 550,000 (Appendix 4.0). The last step is to subtract the loan interest and dividend payable from profit before interest, which give net profit of RM 1,648,000 in year 2010 at the bottom line in the income statement (Appendix 4.0). And the net profit in year 2012 has decrease of RM 64,000 and become RM 1,584,000 (Appendix 4.0).
On the other hand, the tuition fees has decrease 8% in the year 2010 showing in Appendix 5.0, are effect on the net income of RM 4,234,000 by increase of RM 470,000 from tuition fees at year 2010 of RM 3,850,000. A comparison showing that the increasing tuition fees in year 2012 in Appendix 4.0 is RM 809,000 and then in Appendix 5.0 is RM 470,000 as well as the different is RM 339,000 due to the economic downturn which change the 8% occurs in the second year.
The company objective is forecast that the three year profit increase and to achieve the forecast sales of RM 12,500,000 in year 2013. The total amount projected sale in three years is RM 12,744,000 (Appendix 4.0) is more than the forecast sales. Based on the standard costing and variance analysis, there is a difference of RM 256,000 (favourable) between the projected sale and forecast sale in three years projected sales (Rasmussen et al. 2002). The result of favourable in the sales price variance is present that the sale is more profit and additional in demand. However, the company accountant in HELP Group is decides to advise the Board of Directors later. Due to this financial plan are just forecast and the forecast sales as well as have not achieve, then the accountant plan to delay to inform the Board of Directors. The delaying to release this information to the Board of Directors will impact on the company's financial plan and cause it ineffective due to the projections is based on the business plan and then flexible current interest is effect on the loan interest. The delaying also will cause the Board of Directors no enough time to estimate the practicable of the financial plan and there may cause the financial plan unsuccessful. Besides that, the delaying occurs also will causes the less of resource in the 'real time' as well as influencing the successful of the financial plan.
In the second years of HELP Group operations is assume occurs an unexpected economic downturn and resulting in an 8% change in the company's projected sales from year 2011 to year 2012. At Appendix 5.0, the net profit had decrease from year 2011 (RM 1,655,000) to year 2012 (RM 1,588,000) by different (variance) of RM 67,000 is due to the economic downturn on year 2011. Therefore, the sales volume variance which according to the standard costing and variance analysis for the year three is adverse due to the economic downturn (Atrill & McLaney 2006). Besides that, the total amount of expenses also will be affected to increase and the net profit will decrease in year 2012 due to the economic downturn which increase the inflation as well as to increase the expenses in year three. Hence, suggestion has been given that the utility fees may pay occurs two month after sales in year 2012, so that the expenses cost will be less. Additionally, the advertising cost and indirect labour cost also can be reducing to decrease the expenses cost in year 2012.
(see Appendix 4.0 & 5.0)
4.2 Cash Flow Projections
Cash Flow Projection are indicate that the influence of various transactions on the cash position of the company (Banjerjee 2005). The help of the profit and loss account, balance sheet, and other relevant information is needed to prepare the cash flow statement. The main point to do a cash flow statement is to project when payments will be received and when bills will be paid as well as to determine that whether have sufficient cash to meet the duty when they come due (Hall 2003). Therefore, the purpose of the cash flow statement is to conclude the cash inflows and outflows, then to get the net flow in the company cash position throughout the period between the receipts and payment. At Appendix 6.0, the closing cash balance in year 2012 is RM 4,406,000 which is more than the year 2011, RM 2,921,000 by increase of RM 1,485,000 has showing that the company have sufficient cash for the purpose of reinvestment.
(see Appendix 6.0 & 7.0)
4.3 Balance Sheet
The financial position of the business in company will be concluding in the balance sheet (Davie & Boczko 2005). The balance sheet consists of a number of categories which included the assets, liabilities or shareholders' equity (equity or share capital) had showing in the Appendix 8.0 & 9.0. Working capitals or also as net current assets (Appendix 8.0 & 9.0) is commonly will be defined as current assets subtract current liabilities (Atrill & McLaney 2006). Working capital demonstrates a net investment in short-term assets. These assets are repeatedly flowing into and out of the business as essential for daily operations. The various components of working capital are interrelated, as well as able seen as part of a short-term cycle. Then, the company can evaluate their business plan to invest a short-term assets based on the working capital in the balance sheet. Besides that, the financial gearing represent the relationship between the contributions to financing the business made by the owners and the amount contributed by other in the loans form. The gearing ratio estimate the percentage of capital employed which is finance on debt and long-term finance (Greenwood 2002). The higher the gearing, then the dependence on borrowing and long-term finance is higher. On the other hand, the lower the gearing ratio, then the dependence on equity (shares) financing is higher. Refer to the Working 1.0, the gearing ratio is 61%. This gearing ratio is consider higher, then means the dependence on borrowing at bank loan also higher (RM 390,000). The company has to consider based on the level of gearing which has a significant impact on the degree of risk relating with a business when making financing decisions. Hence, the distributions of debt finance and equity finance in this business have to decide based on the level of gearing. Balance sheet on Appendix 8.0 also showing that it is availability of the financial instruments can be using is stock (Fabozzi 2002). The shareholders may receive periodic dividends when the business of company is doing well. Additionally, the shareholders also can be able to gain a profit by sell their stock in a good performance company.
(see Appendix 8.0 & 9.0)
5.0 Conclusions
It is important to understand the overall the business plan on going and the plan are to assist the HELP Group to prepare the financial plan (profit and loss account, cash flow statement and balance sheet) as well as the company able to understand and calculate the accounting ratios rests on an understanding of financial statement. The business plan can help the company to achieve its objective like increase the three year profit and RM 12,500,000 of sales in year 2013. Therefore, the company performance and profitability can be increase as well as an able to maximize the shareholders wealth.
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