Question

Karthik is in the business of manufacturing laptop components since 2010. They have been supplying their parts to all major manufacturers. His son Harsh took over the factory in 2022. He had done his Masters in Business Administration and wanted to expand the operations of the company. He planned to start manufacturing laptops to be sold in the Indian market. He discussed the idea with his financial team. They estimated the cost of the project to be around Rs. 65 crores. They decided to take the required funds from potential investors. The financial team of the company decided to make a plan which will explain to the potential investor the ways and means of how the entrepreneur plans to meet all financial obligations.

Explain any five components of this plan.

Answer 1

Financial Plan. Components of financial plan

1. Proforma investment decisions - This part of the financial plan relates to how the enterprise's funds are invested in different assets so that the enterprise can earn the highest possible returns on investment an estimate of various components of capital nature.
2. Proforma financing decisiponent This section summarizes all the projected sources of funds available to the venture to raise finance from. Typically, sources of funds are:
   1. owners i.e. Owner's funds
   2. outsiders i.e. Borrowed fund
3. Proforma income statement - The proforma income statement is the projected net profit calculated from projected revenue minus projected costs and expenses. It summarizes all the profit data during the first year of operations of the new enterprises. In preparing the proforma income statement, 'sales by month' must be calculated using forecasting techniques as the basis.
4. Proforma cash flow - Profit and cash flow are not the same, when from sales we subtract expenses, the result is profit, and when from cash receipts, we remove cash payments, the resultant figure is the cash flow. Proforma cash flow reflects the projected cash available with the enterprise, resulting in cash disbursements from projected cash accumulations. Cash flows only when actual payments are received or made. Meresalese, which might be on credit, will not generate money.
5. Proforma balance sheet - This document helps the enterprise reflect the business's position at the end of its first year. A summary of the entrepreneur's projected assets, liabilities and net worth is depicted through proforma balance sheet.
6. Break-even point - Every firm wants to maximise its profits. The break-even point is the production volume level at which the firm neither makes a profit nor a loss. The total revenue equals a firm's total cost at the given capacity level.
7. Economic and social variables - In view of the social responsibility of business, the abatement costs, i.e. the cost of controlling the environmental dam, age should also be stated in the plan. It's always advisable to mention in the business line, the socio-economic benefits expected to be acquired from the proposed investment.