31
USING FINANCIAL
STATEMENTS
John Leslie Livingstone
WHAT ARE FINANCIAL STATEMENTS? A CASE STUDY
Pat was applying for a bank loan to start her new business, Nutrivite, a retail
store selling nutritional supplements, vitamins, and herbal remedies. She de-
scribed her concept to Kim, a loan officer at the bank.
Kim:How much money will you need to get started?
Pat: I estimate $80,000 for the beginning inventory, plus $36,000 for store
signs, shelves, fixtures, counters, and cash registers, plus $24,000 working
capital to cover operating expenses for about two months. That’s a total of
$140,000 for the startup.
Kim:How are you planning to finance the investment of the $140,000?
Pat: I can put in $100,000 from my savings, and I’d like to borrow the remain-
ing $40,000 from the bank.
Kim:Suppose the bank lends you $40,000 on a one-year note, at 15% interest,
secured by a lien on the inventory. Let’s put together projected financial
statements from the figures you gave me. Your beginning balance sheet
would look like what you see on my computer screen: