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Presentation/PPT
27/08/2022
Examining the asking price of a business includes reviewing all past records and assessing the future financial outlook for the business, the economy, and the industry. You are buying the future not the past.Critical Assumptions for ABC Sporting Goods:
Review attached spreadsheet for Financial Information on ABC Sporting Goods: Profit & Loss
Directions:Part I. Complete the following ratio analysis for ABC sporting Goods. Utilize: BizStats at http://www.BizStats.com and page 231-232 of the textbook Go to Industry Financials on the Blue Navigation Bar Select – Corporations 249 not Sole Proprietorships 141 Select Retail Trade Select Sporting good – Hobby book – Music Calculate the following ratios: (Based on the last 3 year average)
Compare these ratios to those found in BizStats. Comment on any differences and how they impact the value of the business. Identify any significant trends in the business.Part II. Estimate the business value using BizStats – Valuation Rule for Sporting Goods Stores at BizStats. Under reports/valuation/valuation-rule-thumb.php Adjust the business valuation based on your completed calculation and the ratio and trend analysis performed in step I.Part III. Calculate the viability of purchasing the business based on the following parameters: You can finance the business for 20% down with an interest rate of 5%, amortization over 20 years. Use the following formula: Purchase price $100,000, down payment 20% or $20,000 which results in $80,000 being financed. For $1,000 financed at 5%, the factor to calculate your monthly payment is .66x for every $100 borrowed. That equals $66/month or $792/year. We now can calculate the free cash flow available to pay the loan amount. We can use the following formula: Net Profit +interest paid (use previous years amount from P&L) +Depreciation and amortization = Cash flow For example, if we have $10,000 for our cash flow and our payments are $528 x 12 months = $6,336; then to calculate our DSC or debt service coverage ratio, we divide the Cash flow by the annual debt service or $10,000 / $6,336 =1.58x. If we borrowed $400,000 our monthly payment is $2,640 or $31,680 and if our cash flow is $100,000 then the DSC is 3.16x. Anything greater than 1.20 is considered to be adequate. Comment on the result.
Submit this assignment to your instructor via the dropbox “LP10 Assignment: ABC Sporting Goods.” This assignment is worth 75 points.
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