Accounts and finance

Table of Contents

1. Topic pack - Accounts and finance - introduction
2. 3.1 Sources of finance - notes
3. 3.1 Sources of finance - questions
4. 3.2 Investment appraisal - notes
5. Investment appraisal
6. 3.2 Investment appraisal - questions
7. 3.3 Working capital - notes
8. 3.3 Working capital - questions
   1. Working capital - short exercises
   2. Cash flow forecasts - case study - cash flow management
   3. Cash flow forecasts - short answer questions
   4. Cash flow forecasts - numerical questions
   5. Case study (1) - profit and cash flow
   6. Case study (1) - profit and cash flow
   7. Case study (2) - profit and cash flow
   8. Awash with cash
   9. Awash with debt
9. 3.4 Budgeting - notes (HL only)
10. 3.4 Budgeting - questions
11. 3.5 Final accounts - notes
12. 3.5 Final accounts - questions
13. 3.5 Final accounts - simulations and activities
14. 3.6 Ratio analysis - notes
15. 3.6 Ratio analysis - questions
16. 3.6 Ratio analysis - simulations and activities
17. Printable version

Case study (1) - profit and cash flow

Ecocity Cars Ltd

Ecocity has developed a new micro city car that runs on a petrol/electric system licensed from Honda. It knows from market research that there is a strong demand for the vehicle because of its small size and competitive pricing, and it is installing assembly capacity for up to 2,500 cars per month. It has prepared the following cost and revenue data for the first 6 months of sales of the car.

The selling price of each car is $25,000 each. Cars will be sold to specialised dealers on two months credit, initially.

Cars must be assembled two months before sale at this stage. When Ecocity become more established it will be able to cut this, and is planning for just-in-time assembly in year 2.

Costs are forecasted as follows:

Parts and materials: $10,000 per car, purchased and paid for one month before use.
Labour: $2,000 per car, paid for at the time of assembly
Overheads: $100,000 per week, paid as cash.

For the first 6 months of sales, prepare the following:

• Cash flow forecast
• Profit forecast

If Ecocity starts its operation and the first ordering of materials with $1 million in the bank, will it need an overdraft facility in this period? If so, how much should be asked for, and when?