Integrated Financial Model for Yse, a Drone Trading Company

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Action Point

- Negotiate purchase rates from suppliers leveraging faster payment for goods.

- Allow longer credit policy to Walmart and other clients in return for higher volume of business.

Margin Analysis

Our Business has minimal operating expenses as it is a purely commodity trading model. In this case we look at the Profit Margin quarterly .

Because all our values are forecasted we get a constant value of Profit margin . But because of our selection of asset light model, we have a steady but high profit margin sustained through our forecast period.

Capital Requirements

For projecting our Capital requirements we look at the Free Cash Flow for initial sales figure of 5000 with some uncertainity considered.

We see that to be 95 % certain that we have sufficient finances for operations we will need approximately 1.63 million $

This will be the lowest our Free cash flow drops in our projection of 5 years.

Action Point

- As our Business has a high growth rate, it will suitable to even take up a high interest rate loan for a short duration to fend off the initial slump in cash flow. Attached in the financial analysis is the detailed Cash flow analysis.

- Thus look for investments or loan with a shorter period.

- This will help in managing the initial requirement of capital and also will make tax benefits in the longer run as taxable income reduces due to the amount due to investors

Value Generation

As Free Cash Flow is important to our Business, the valuation of our company has also been based on the NPV of Free Cash Flow.

The Cumulative Free Cash flow for all years of projections rounds up to 6.3 milion $ however when discounted by the market growth rate comes to impressive 3.36 million $ in current scenario.

With the rapid developments in the drone market, it will be easy for YSE to diversify into other similar lines of products and increase its market share. However this can be achieved only after establishing a strong foothold in the Toy Drones segment.

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Keeping

initial sales as 5,000

margin : 20%

2. Initial sales : 10,000

Margin : 20% : distr

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Summary of key assumptions

Cost of equity: 12 %

Growth Rate : 4%

Tax rate : 35%

Long term debt rate : 10%

Initial sales : 10,000 units

Sales growth rate : 15% p.a. : Assumed to be normally distributed with deviation : 2%

Margin on product : 20% normally distributed with 10 % deviation

Cash Conversion cycle

DSO 45

DIO 30

DPO 30

Import cost per unit : 5$ : deviation 0.5$

Transport rate to client : 1$

Rent per storage facility : 100,000 p.a.

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- Our Business model is that of Trading . ie-importing and then selling to partner distributors

Keeping this in mind we observe that the most impacting factors are:

Initial sales and margin..

This leads us to the observation that

We can negotiate on payment terms : DSO DIO DPO with our clients if they offer us bigger volume of business

Also

Margin is another important factor.

To maintain competitive edge :

Instead of increasing Selling price : we should find the best supplier overseas.

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Find 2 scenarios :

- Low volume and favourable DSO DPO DIO

- High volume unfav ….

References

[1] : https://www.grandviewresearch.com/press:release/global:consumer:drone:market