The clothing industry is the most emerging market in today’s world. It has a great potential to grow and prosper. The business presented in the report is a clothing business, named “Xyra’s Clothing." The report has presented the financials of the business to propose the investment idea to its potential investors. Xyra’s clothing is a start-up business, in which initial investment is made by four partners. Each partner has made equal investment of $50,000 which accumulated to $200,000 in total as an initial investment. The business has not dealt on credit basis from the start; hence it possesses no liabilities as yet. Company has forecasted its sales to increase by keeping the profit over 50% of the product price. Moreover, company has generated income of $ 62,7635.25, by making sales of $ 15,60147 in the first year. Company has undertaken the appropriate pricing for its products being the manufacturer of clothing for upper and middle class. In this report, an analysis has been done from an investment point of view. It has presented a thorough pitch from the prospects of investors. Report has reflected the financial position of the business by analyzing the cash budgets, marginal cost statement, income statement, balance sheet of the company. Further, company has forecasted its profitability and value of the business by measuring the profitability ratios. The report has created an impressive pitch for investors to make an investment in the business by assessing all financial forecast, company’s potential to grow, market stability and customer base. In the end, the report has presented the bird’s eye view of the financial stability and benefits of investment in the company.
ANALYSIS OF COSTING AND FINANCIAL DATA TO POTENTIAL INVESTORS:
The business “Xyra’s clothing” is the high-end brand of clothing which has started its operations recently in UK. Seeing the fashion and clothing industry of UK, people are highly involved in the purchase of clothing regardless of social class of an individual. People who belong to lower class are equally interested in purchasing as upper class in this market, which shows that this market has budding growth in the future. In this regard, the company “Xyra’s clothing” has been established in UK that will produce high-end products for its potential customers. The most appealing part is that Xyra’s Clothing is not only producing clothes of their own choice, but it takes customized orders from customers where customers can suggest designs whatever they want to see in their dresses. Company’s focal line is “Create your own fashion with us." In addition, it does not only signify for upper class but people from the middle class can also afford prices and create their own fashion with the company. People in UK are most likely to appreciate this new trend owing to its unique concept, unlike other clothing companies. The business has been initiated by four partners with equal investment of £50,000.00 accumulating to £200,000.00 of total business financing. Other than this, company has not approached bank loans as yet. All the transactions are based on cash instead of credit; this has helped the company to keep its liability restrained. The below is the chart that shows the proportion of capital invested by the owners of the company.
In order to identify the point at which company can obtain economies of scales, Xyra’s clothing has analyzed the marginal cost of the company. Marginal statement identifies the change that occurs in total cost when company produces one more product. Company has calculated this marginal cost to determine the best production level for the company. Considering the total units sold in the first year of operations are 1000, the business will incur £448.80 per unit cost of goods sold and £434.00 per unit cost of goods manufactured. These figures give an idea that the company will have to set the optimal prices to cover the cost and earn profit as well.
With the help of the cash budget, company has reflected its financial position in the market. The cash flow of Xyra’s clothing has depicted that company has sufficient cash to carry out its operations in the first year, and the cash is being utilized effectively. The cash available to the company is accounted to sales and initial investment made by owners. Available cash accumulates to £1,760,147.00. With regards to this, company acquires cash surplus of £765,435.25 as the total disbursements for the year totaled to £994,711.75. This surplus of cash gives the company leverage to use cash to expand the business operations. For an investment purpose in the company, this is an advantage as company has enough cash to take numbers of action plans to utilize the cash in efficient manner that benefits the company’s growth. Company will have greater potential to grow with the cash surplus.
The balance sheet portrays the extent of financial risk the company encounters during the period. Xyra’s clothing has also reflected the risk and opportunities in its balance sheet. As company does not support credit payments, and does not based on long term loans, the company has no liability. On the other hand, it has sufficient amount of cash in hand and current assets. This figure indicates that company’s liquidity position is sound, and it acquires adequate cash to satisfy its operating needs. In addition, company has flexible finance to deal with any situation or crisis. Adaptability to change is higher for the company as it can use its cash to make adjustments with the change. Thirdly, Xyra’s clothing has sufficient access to funds to meet the changing demands of customers in the future. From an investor’s point of view, company has a strong position and has greater potential to meet customers demand while maintaining its financial stability. Company has strong funding and expected to earn greater profits that mean it can pay its investors higher returns.
Considering the income statement of Xyra’s clothing, the company has anticipated the net income of £627,635.25 in the first year of its operations. This statement of earnings depicts that company generates revenues greater than its expenses. Net income of the company has demonstrated that it has ability to use assets and cash in an effective manner. For an investor, it is important to know the company’s ability to generate profits. Report has identified several important ratios, to analyze the financial position of the company from investors’ perspectives. Profit margin ratio shows the actual profit of the company excluding all its expenses and costs. The company has anticipated the profit margin ratio of 40.2%. This Profit margin ratio is observed higher due to the expected level of sales over the first year. Return on assets ratio explains the ability of a company to generate profit for each $1 in assets. For an investor, it is an effective way to measure the intensity of assets in a business. Being a production company, it has to acquire machinery and equipments, which cause to increase its assets than its net income. Thus, its return on asset's ratio depict the rate of 0.75%, demonstrating that company is earning 0.75% of the return at each $1 of assets.
The company has estimated its gross margin ratio of 71% which reflects the profitability of the company. A higher percentage of the company tells that company has successfully retained more on every dollar of sales to meet its various costs and expenses. For investors, this signals the sound stability of the company as it can service its expenses and costs by retaining its revenues to the greater extent. Moreover, Xyra’s clothing has calculated the asset turnover ratio which is 1.89%. This ratio depicts that the business is generating 1.9% revenue on each dollar of assets. This ratio signifies the strong position of the company as it will experience high sales volume. It also signifies that company is using its assets efficiently in the first year. Hence for investors the company is valuable to pay back them with greater returns. The economic profit of the Xyra’s clothing is £617,635.25, and this reflects that the company has worth in the market. The critical assessment before making investment attempts to assess the economic value generated by the business. In this context, this project is an attractively viable investment option as it is generating considerable economic profit after meeting due cost of capital from the operating profit.
The cash flow statement has depicted an increase in net cash flow that means company has sufficient cash to carry out business operations. The cash inflow has increased relatively to cash outflow due to which company has resulted in increase in cash flow. The operating activities of the business have been subjected to generate a large proportion of cash flow that is £1,076,435.25. This figure signifies that company is receiving a greater amount from its customers, and thus has a higher potential to grow and expand its operations. For investors, this company is favorable as it is earning better from its operating activities, and its sales will continue to increase and thus it will generate good returns for its investors. Also increase in net cash suggests that the company can expand its operations. Thus, it has a higher possibility to grow and earn profits.
The fashion industry of UK is at its peak of success. Regardless of intense competition and high demand in UK, “Xyra’s clothing” has come up with some innovative ideas to capture the market. Xyra’s clothing is the high-end brand of clothing which targets not only upper class, but also meets middle class standards of demands. This report has identified the financial prospect of the company for the investment perspective. It has been concluded that company has a great potential to grow and prosper in the future. The projections of the first year show that company has an efficient cash management. Also, it has utilized its assets in various business operations for the future expansion prospects. Hence, the business provides the viable opportunity for investment.
FORECASTED CASH BUDGET:
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