Report to Request Bank Loan

Introduction

Scott is a graduate with a degree in computer science but due to lack of job opportunities in the market, he has decided to venture into the business of computer vending and offering personalized services. Scott is intending to sell his products through eBay. Scott has done enough research in the market and has been able to get the market which offers distinctive products which are essential for his business of producing three different types of personal computers (PCs) which will be targeted to different market segments. Also, Scott has done enough research in the market concerning the prices of the products in the market and he has been able to come up with the best pricing strategy which will attract the customers in the market. Scott has taken into consideration all the analysis that may affect the profitability of the business, including fixed and variable costs of developing a complete product. Scott does not have sufficient capital to start the business and is there for requesting for funding to run his business.

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Profitability of the Business

Based on the budgeted financial stated of Scott the company will be profitable with the break-even sales being 0.175 which represents 17.5% of the sales revenue. This indicates that the prices being charged on the different types of the PCs will be able to cover the fixed costs incurred to assemble the products. Also, the break-even point indicates that the costs of running the business both fixed and variable costs do not exceed the profits made by the business. Hence based on the break-even analysis of the company, the sales of the company are realistic and the prices set for the products are accurate and will enable the company to gain revenue which will enhance loan payment. In addition, the breakeven of 17.5 % of the sales indicated the total contribution of each service and sales in the company that contributes to the overall profit of the company.

The company is projected to have a margin of safety of 8416.645 Euros, which indicates that the business is viable and sound. This also indicates that even if the sales of the company might reduce, the company will still be able to make a profit and, hence the company will not default to pay its loan. Also, the company is budgeted to have a net income of 6395 Euros. The budgeted net income indicates that the company is operating at a profit and will be in a position to pay back for the loan obtained through the income received from the company.

Funds Requirements to Start the Business

To facilitate the starting of the business Scott will require some startup capital which will cater for the acquisition of non-current assets and the working capital of the business. As a result, at the beginning of the business Scott will require 6,000 Euros to invest in non-current assets such as equipment and tools. The current assets will be charged at an annual depreciation of 20%. The net working capital of the business is based on the assumption that the loan required to fund the business will cater to both current assets and the non-current assets. Hence the total current assets required by the business will amount to 14,000 Euros and the current liabilities of the business are estimated to be 3808, hence the working capital of the business is estimated to be 10195 Euros. This an indication that the business will be in apposition to pay its current obligation and also the anticipated working capital indicates that the business will be in a position to expand through its anticipated growing operations. Hence, the business has appositive working capital and it will be in apposition to repay the loan at 24% interest rate.

Financial Viability of the Business

The company is anticipated to have a liquidity ratio of 3.68 which is based on the current assets and liabilities of the business. The liquidity ratio of the business is greater than 1 indicating that the business will be in apposition to pay its current obligations and debts. The liquidity ratio of 3.65 is a clear indication that the business is strong, viable and stable and the business will have enough assets to fiance its debts in case it will not be in apposition to pay back the required loan. Based on the liquidity of 3.65 the business will be able to pay the required interests and the bank installments.

How Business Will Improve When Granting Loan

Based on the total cash requirement of the business which entails components purchased for the display unit which is estimated to be 2,450 Euros, components purchase for the inventory which is estimated to be 7350 Euros, purchase of the packaging materials which is estimated to be 60 Euros, purchase of the fixed assets which is estimated to be 6000 Euros and the operating expenses for the business is estimated to be 1,355 Euros. The total cash required to start the business is budgeted to be 17,215 Euros, rounded up to the nearest 1000 the total cash required to start the business is 18,000Euros.

Taking into consideration the loan payment requirement which should begin from the fourth month of the operation of the business with a payback period of 5 years with 57 equal installments, the business will be able to repay back the loan since it is anticipated to be viable and generate enough revenue.