Case study (2) - profit and cash flow
Many businesses have seasonal demand patterns. This question enables you to test your knowledge of profit and cash flow, and to practise working by examining a case study, extracting data, and making appropriate calculations. Do not try to be quick, just careful!
A farmer grows rape seed on her farm. She has 40 hectares of usable land. She expects a yield of 8.5 tons/hectare and should receive $100 cash per ton from the buyer, and $25 per tonne as a subsidy payment from the EU Agricultural Support budget. She grows one crop per year, which she sells in August. In September she buys and plants seeds, 4 tons at a price of $250 per ton. She buys fertiliser in November and March; 15 tons each time at $80 per ton. She pays herself $450 per month and also pays $500 four times each year for assistance in seeding September, fertilising and reaping in November, March and August. She pays rent of $1,500 in January, April, July and October, and taxes of $1,700 in May. All transactions are in cash.
At the start of this growing season she had $3,000 in the bank.
How much profit will she expect to make this season?
Will she need to arrange an overdraft with her bank?
Hint: You need a table, by month, to work this out correctly.
If she does need an overdraft, when will she need it and how much should she ask for?