438 ACCOUNTING FOR MANAGERS
Table A2.29 (continued)
Budget
Cash flow
Profit after interest 3,480 5,430 5,305 6,780 20,995
Add back depreciation 5,400 5,400 5,400 5,400 21,600
8,880 10,830 10,705 12,180
Less capital expenditure 6,500 2,000 1,000 9,000 18,500
Less dividend 10,000 10,000
Less debt repayments 1,000 5,000 4,000 3,000 13,000
Net cash flow 1,380 3,830 −4,295 180 1,095
Cumulative cash flow 1,380 5,210 915 1,095
Therefore, gross profit can be calculated as 141 or 17.8% of sales.
Sales 586 791 +35%
Cost of sales 486 650 (791−41)Gross profit 100 17% 141 17.8% (119+22)
Overheads − 19 − 22Operating profit 81 13.8% 119 15%The company plans to increase sales substantially and improve margins through better pur-
chasing and/or higher prices, and will incur significant costs in storeopenings, warehousing
and IT systems while maintaining only a 15% increase in corporate overheads.
A detailed budget projection would need to support these broad figures. The budget
should identify, as a minimum:
žThe sales mix by whatever categories are relevant (products, geographic sales, type of
customer etc.).
žThe margins on different categories of sales.
žThe cost of materials, retail store salaries and property costs that are deducted to arrive
at gross profit.
žThe warehousing and distribution costs.
žCentral overhead costs.
In terms of marketing, there are threedistinct market strategies in existence:
žIncreasing sales to existing customers through direct mailing.
žWinning market share through television advertising.
žIncreasing sales in new geographic areas through opening new stores.