Case Study: Stride Ahead

A group of friends have formed a new business called Stride Ahead, in which they have invested £300,000 of their own capital. They are intending to manufacture and sell walking boots. By the start of July 2010, they have spent £200,000 on tangible non current assets and they currently have the remaining £100,000 in their business bank account.
They provide you with the following forecasted figures for their first 6 months of trading:
£
Sales for the next 6 months 2,400,000
Cost of the materials used up in sales 960,000
Labour costs for the 6 months 720,000
Other expenses for the 6 months, including £20,000 depreciation of tangible non current assets 560,000
Materials purchased during the 6 months 1,040,000
Their projected cash receipts and payments are estimated to be as follows:

Month (2010) Sales Receipts Payments for Materials Labour and Other Expenses
£ £ £
July 200,000 240,000 These payments are divided equally over each of the 6 months.
August 160,000 240,000
September 200,000 80,000
October 280,000 80,000
November 480,000 80,000
December 600,000 80,000

Totals 1,920,000 800,000
In addition to the above, they expect to have to pay a tax bill of £50,000 in December 2010 and also plan to buy £40,000 in additional tangible non current assets in that same month. All transactions will go through their business bank account.
You are asked to provide a Business Report for the friends who have invested in Stride Ahead, commenting on the business’ prospects and including the following four financial statements.
Since none of the investors have a background in accounting and finance, you should also explain what each of these statements means as a part of your Report.
1. An opening statement of financial position at the start of July 2010.
2. A monthly cash flow forecast, showing the bank balance at the end of each of the 6 months and indicating what level of overdraft facilities the friends need to negotiate with their bank manager. Explain what additional expense they should take into account as a result of needing this financial assistance (overdraft).
3. A projected income statement for the first 6 months of trading.
4. A projected statement of financial position for Stride Ahead at the end of its first 6 months of operations.
Hints
1. Using a spreadsheet may help you to produce your cash flow forecast and remember here that £200,000 of the initial £300,000 has already been spent.
2. Think carefully about the £20,000 depreciation charge when working out your monthly cash outflows for labour and other expenses.
3. Also think carefully about the figures for closing stocks (inventories), creditors (payables) and debtors (receivables).
4. Please remember that your qualitative analysis and explanation of your four statements are just as important as the calculations themselves. These, together with your presentation of a professional report, will contribute towards your grade for this assignment.
Use the Turnitin link below to submit your assignment by Day 7. Please do not worry if the Turnitin Report generated distorts the appearance of your numerical calculations / financial statements; your instructor can also access the original submission as a “.doc” or “.docx” file

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