WELCOME Financial Projections Model For Business Plans Frank Moyes and Stephen Lawrence Deming Center for Entrepreneurship Leeds College of Business University of Colorado Boulder, Colorado Copyright © 2003 by the Regents of the University of Colorado INSTRUCTIONS Instructions Financial Projections Model v6.8.3 This financial model is designed to enable entrepreneurs and students project the financial results of their ventures for a five-year period. As with all models there are certain simplifying assumptions that have been made. Each of the assumption spreadsheets has an accompanying Comments box (denoted by a cell with small red triangle in the upper right corner) that provides suggestions on how to complete the spreadsheet and the underlying assumptions to the model. You will notice that the cells in the spreadsheet are color-coded. This has been done to assist you in entering data, creating or changing formulae, or deleting data, formulae and links. Enter data and information in Green shaded cells only. Blue shaded cells calculate results within a spreadsheet. Data in Yellow shaded cells is transferred to other worksheets. Purple shaded cells bring in data from other spreadsheets. In the Green and Blue shaded cells, data and formulas may changed, moved or deleted. The current calculations are for illustration only -- you will need to tailor these spreadsheets to fit your plan. In the Yellow shaded cells data and formulas may be changed, but not deleted. DO NOT delete the Purple shaded cells -- they link one spreadsheet with others. There are 7 principal spreadsheet outputs of this model: INCOME: Income Statement BALANCE: Balance Sheet CASHFLOW: Cash Flow Statement BREAKEVEN: Break-even analysis SUMMARY: Analysis of key measures INCOME-MOS: Income Statements by months for Years 1 to 5 CASHFLOW-MOS: Cash flow Statements by months for Years 1 and 2, and by quarters for Years 3 to 5 VAL-1 & VAL-2: Venture capital method for valuing companies All other spreadsheets are to be used for calculating the underlying assumptions of the 7 principal spreadsheets: COMPS: Comparison of financial measures to peer companies REVENUE: Revenue Projections COST OF REV: Cost of Goods Sold OPER EXPEN: Operating Expenses PROP & EQUIP: Capital Expenditures, Depreciation, and Net Fixed Assets SALARIES: Salary Personnel EXTRA: Extraordinary Income and Expense TAXES: Tax calculation WORKCAP: Working Capital FUNDING: Equity, Debt, Interest Expense, Interest Income, Dividends and Retained Earnings These assumption spreadsheets are linked to each other and to the 7 principal spreadsheets. When you make a change in one of the spreadsheets, the impact is automatically r.

1. WELCOME
Financial Projections Model
For Business Plans
Frank Moyes and Stephen Lawrence
Deming Center for Entrepreneurship
Leeds College of Business
University of Colorado
Boulder, Colorado
Copyright © 2003 by the Regents of the University of Colorado
INSTRUCTIONS
Instructions
Financial Projections Model
v6.8.3
This financial model is designed to enable entrepreneurs and
students project the financial results of their ventures for a five-
year period. As with all models there are certain simplifying
assumptions that have been made. Each of the assumption
spreadsheets has an accompanying Comments box (denoted by a
cell with small red triangle in the upper right corner) that
provides suggestions on how to complete the spreadsheet and
the underlying assumptions to the model.
You will notice that the cells in the spreadsheet are color-coded.
This has been done to assist you in entering data, creating or

2. changing formulae, or deleting data, formulae and links.
Enter data and information in Green shaded cells only.
Blue shaded cells calculate results within a spreadsheet.
Data in Yellow shaded cells is transferred to other worksheets.
Purple shaded cells bring in data from other spreadsheets.
In the Green and Blue shaded cells, data and formulas may
changed, moved or deleted. The current calculations are for
illustration only -- you will need to tailor these spreadsheets to
fit your plan.
In the Yellow shaded cells data and formulas may be changed,
but not deleted.
DO NOT delete the Purple shaded cells -- they link one
spreadsheet with others.
There are 7 principal spreadsheet outputs of this model:
INCOME: Income Statement
BALANCE: Balance Sheet
CASHFLOW: Cash Flow Statement
BREAKEVEN: Break-even analysis
SUMMARY: Analysis of key measures
INCOME-MOS: Income Statements by months for Years 1 to
5
CASHFLOW-MOS: Cash flow Statements by months for
Years 1 and 2, and
by quarters for Years 3 to 5
VAL-1 & VAL-2: Venture capital method for valuing
companies
All other spreadsheets are to be used for calculating the
underlying assumptions of the 7 principal spreadsheets:
COMPS: Comparison of financial measures to peer

3. companies
REVENUE: Revenue Projections
COST OF REV: Cost of Goods Sold
OPER EXPEN: Operating Expenses
PROP & EQUIP: Capital Expenditures, Depreciation, and Net
Fixed Assets
SALARIES: Salary Personnel
EXTRA: Extraordinary Income and Expense
TAXES: Tax calculation
WORKCAP: Working Capital
FUNDING: Equity, Debt, Interest Expense, Interest Income,
Dividends and
Retained Earnings
These assumption spreadsheets are linked to each other and to
the 7 principal spreadsheets. When you make a change in one of
the spreadsheets, the impact is automatically recalculated for all
other spreadsheets.
When doing financial projections, it is easy to get lost in the
trees and lose the sense of what is reality. Most errors can be
identified if you continuously ask yourself “Does this result
make sense?” The COMPS spreadsheet, where you look at peer
companies, can be particularly helpful as a reality test.
There is an example in the model with which you can
experiment. When you are ready to start your own projections,
clear all the numbers in the green shaded cells, and then you can
begin to enter new numbers. Enter the name of your company in
the first cell of the COMPS spreadsheet. Before you begin,
make a copy of the model on a separate disk.
This original version of the model has been used since the mid-
1980’s. It has undergone numerous revisions over that period.
Since 1998, students in the Business Plan Preparation course at
the University of Colorado have used it to prepare their

4. business plans. We have appreciated their suggestions for
improvements and would encourage all users to send us
comments and suggestions.
Created by Frank Moyes and Stephen
Lawrence
Deming Center for Entrepreneurship
Leeds School of Business
University of Colorado
Boulder, Colorado
Copyright © 2001 by the Regents of the
University of Colorado
COMPSXYZ CompanyNotes
Compaq: Comparison of Financial Projections
with Peer Companies
Identify two or three companies that are similar to your venture
where you can obtain financial information. Good sources are
publicly traded companies in your industry, particularly those
that have recently done an IPO. In more traditional industries
you may find financial information by NAIC codes in Dun and
Bradstreet or the Almanac of Business and Industrial Financial
Ratios.
When selecting peer companies, you need to consider how many
years have they been in business. The financial measures of a
company that has been in business for 10 years is likely to be

5. considerable different than a start-up. For example, a start-up’s
Sales & Marketing expenses, as a % of revenue, should be
considerable greater than a mature company. In that case you
should consider the peer company’s measures as a target that
you may reach in year 5.
Peer Company ComparisonsSelect BestCompany ACompany
BCompany CComparisonProjectionsRatiosYear 1Year 2Year
3Year 4Year 5Accounts Receivable % of
Rev10.0%10.0%8.3%8.3%8.3%8.3%8.3%Inventory % of
Rev15.0%15.0%8.3%8.3%6.7%6.7%6.7%Accounts Payable %
of Rev8.0%8.0%8.7%8.7%8.7%8.7%8.7%Working Capital % of
Rev16.0%16.0%7.9%7.9%6.3%6.3%6.3%Net Fixed Assets % of
Rev9.0%9.0%23.7%11.5%9.3%7.3%5.5%Current
Ratio2.32.34.22.02.01.92.1Debt to Capital (LT Debt +
Equity)1.21.20.000.320.180.100.04ProfitabilityGross Profit %
of Rev30.0%30.0%-11.7%32.7%41.5%42.5%46.0%Sales &
Marketing % of
Rev30.0%22.9%19.0%18.5%17.9%18.0%Research &
Development % of Rev30.0%14.9%7.9%7.2%7.6%6.7%General
& Administration % of
Rev30.0%17.2%8.9%8.1%7.3%6.8%Operating Expenses % of
Rev40.0%17.0%55.0%35.7%33.8%32.9%31.5%Earnings from
Operations % of Rev12.0%12.0%-66.7%-
3.0%7.7%9.6%14.5%EBIT % of Rev12.0%12.0%-71.2%-
3.0%7.7%9.6%14.5%Depreciation % of
Rev3.0%3.0%4.3%2.5%2.5%2.3%2.0%EBITDA % of
Rev14.0%14.0%-66.9%-0.5%10.2%11.9%16.5%Net Earnings %
of Rev5.0%5.0%-71.2%-4.2%7.2%6.2%8.7%ReturnsReturn on
Assets12.0%12.0%-74.1%-9.5%21.7%20.0%27.2%Return on
Equity15.0%15.0%-90.4%-20.4%39.7%36.1%45.2%Return on
Capital (LT Debt + Equity)15.0%15.0%-90.4%-
13.9%32.4%32.6%43.5%Growth Revenue Growth Rate -
CAGR:15.0%15.0%425.0%85.7%66.7%60.0% Net Earnings
Growth Rate -

6. CAGR:12.0%12.0%NegativeNegative42.3%124.6%
&D
&T
REVENUEXYZ CompanyNotes
Compaq: Revenue Projections
To project revenues:
1) Determine the key revenue drivers for your business, e.g.
a) Number of customers, transactions or units
b) Price per customer, transaction or unit
c) Average revenue per customer or transaction
d) Distribution channel discount
e) Market penetration
f) Response rate
g) Churn rate (proportion of customers lost each year)
h) Growth rate
i) New services or products
2) Forecast revenues for the 5 years.
3) Estimate revenues by months for years 1 & 2 and by quarters
for years 3, 4 and 5. It is critical that these be estimated as
accurately as possible, as it forms the basis for projections of
Cost of Revenue, Operating Expenses, Plant and Equipment,
Working Capital, and Funding, Consider such factors as:
a) Timing of product or service roll-out
b) Growth rate within the year
c) Seasonality
d) When orders will be received
Revenue ProjectionsYears 1 to 5($)Year 1Year 2Year 3Year
4Year 5Product ANumber of
Units20,00075,000150,000250,000400,000Price per
unit5050454540Total
1,000,0003,750,0006,750,00011,250,00016,000,000Service

7. BNumber of Customers50,000100,000200,000500,000Fee per
Customer30302520Total
01,500,0003,000,0005,000,00010,000,000Net
Revenue1,000,0005,250,0009,750,00016,250,00026,000,000Rev
enues by Months & Quarters($)MonthsYear 1Year 2Year 3Year
4Year 5Month 10262,500Month 20262,500Month
30367,500Total 1st
Quarter0892,5002,000,0003,000,0005,000,000Month
450,000315,000Month 580,000367,500Month
6100,000367,500Total 2nd
Quarter230,0001,050,0002,500,0004,000,0006,000,000Month
7100,000420,000Month 8120,000525,000Month
9150,000525,000Total 3rd
Quarter370,0001,470,0002,500,0004,500,0007,000,000Month
10120,000577,500Month 11130,000630,000Month
12150,000630,000Total 4th
Quarter400,0001,837,5002,750,0004,750,0008,000,000Total for
year1,000,0005,250,0009,750,00016,250,00026,000,000Average
Revenue by Month83,333437,500812,5001,354,1672,166,667by
Quarter250,0001,312,5002,437,5004,062,5006,500,000
&D
&T
COST OF REVXYZ CompanyNotes
Compaq: Cost of Revenue Projections
To project Cost of Revenues:
1) Determine the key drivers of costs to provide the service or
product, e.g.
a) Personnel costs (this is calculated automatically when you
estimate people expenses - wage rates/salaries, incentives,
number of employees - in the PERSONNEL worksheet)
b) Depreciation resulting from large capital expenditures (this is
calculated automatically when you estimate capital expenditures
in PROP & EQUIP spreadsheet)

8. c) Materials costs
d) Yields or scrap rates
e) Website operating costs
f) Systems costs
g) Warehouse and shipping expenses
h) Maintenance expenses
i) Returns
j) Outsourcing expenses
k) Lease and/or rental expenses
l) Cost reductions
m) Capacity utilization
2) Estimate All Other Costs that will be required to produce and
deliver the product/services by projecting a % of Revenue. The
model assumes the same % over the 5-year period. If this is not
the case, then change the formula in each cell.
3) Evaluate these cost projections in relation to comparable
companies (see the COMPS worksheet). Is the Cost of
Revenue/Revenue ratio reasonable when compared to companies
similar to yours?
4) Analyze the Cost of Revenues to determine which are
variable and fixed costs. Enter these into the worksheet where
shown. This allocation will be used in the BREAKEVEN
spreadsheet to determine the break-even point.
5) Estimate Cost of Revenues by months for years 1 & 2 and by
quarters for years 3, 4 and 5. The model assumes that the Cost
of Revenue/Revenue ratio for a particular year is consistent
through out the year. This may not be the case, particular in the
first and second years. Consider such factors as:
a) Product or service roll out timing
b) Cost reduction timing
c) Inefficiencies when starting up new plant and equipment
d) Growth rate

9. e) Seasonality
Cost of RevenuesYears 1 to 5($)Year 1Year 2Year 3Year
4Year
5Revenue1,000,0005,250,0009,750,00016,250,00026,000,000Co
st of RevenueProduct AMaterial Costs per
Unit15.0014.0011.0010.009.00Subcontact Costs per
Unit10.0010.007.006.506.00Total Direct Costs per
Unit25.0024.0018.0016.5015.00Unit
Sales20,00075,000150,000250,000400,000Total Direct Costs
500,0001,800,0002,700,0004,125,0006,000,000Labor
Costs69,000227,700552,000864,0001,200,000Total Direct
Costs569,0002,027,7003,252,0004,989,0007,200,000Service
BService Personnel
Costs120,750212,750480,0001,500,0002,750,000Other
ExpensesSalary
Expenses276,000690,000990,0001,410,0002,000,000Depreciatio
n36,71491,714137,429190,286243,143Facility costs (rent,
energy)50,000200,000300,000300,000450,000System
Costs25,000100,000150,000300,000350,000All other costs % of
Revenue4%40,000210,000390,000650,0001,040,000Total Cost
of Revenues1,117,4643,532,1645,699,4299,339,28614,033,143
% of Revenue111.7%67.3%58.5%57.5%54.0%Allocation of
Cost of Revenue
between:Variable729,7502,450,4504,122,0007,139,00010,990,0
00
Frank Moyes: Variable Expenses
Decide which of the Costs of Revenue are
variableFixed387,7141,081,7141,577,4292,200,2863,043,143
Frank Moyes: Fixed Expenses
Decide which of the Costs of Revenue are
fixedTotal1,117,4643,532,1645,699,4299,339,28614,033,143

10. Cost of Revenues by Months & Quarters($)Year 1Year 2Year
3Year 4Year 5Month 10176,608000Month 20176,608000Month
30247,252000Total 1st
Quarter0600,4681,169,1141,724,1762,698,681Month
455,873211,930000Month 589,397247,252000Month
6111,746247,252000Total 2nd
Quarter257,017706,4331,461,3922,298,9013,238,418Month
7111,746282,573000Month 8134,096353,216000Month
9167,620353,216000Total 3rd
Quarter413,462989,0061,461,3922,586,2643,778,154Month
10134,096388,538000Month 11145,270423,860000Month
12167,620423,860000Total 4th
Quarter446,9861,236,2581,607,5312,729,9454,317,890Total for
year1,117,4643,532,1645,699,4299,339,28614,033,143
&D
&T
OPER EXPXYZ CompanyNotes
Compaq: Operating Expense Projections
To project operating expenses:
1) Determine the key drivers of operating expenses, e.g.
a) Sales & Marketing
i) Personnel expenses (this is calculated automatically when you
estimate people expenses - wage rates/salaries, incentives,
number of employees - in the PERSONNEL worksheet)
ii) Customer acquisition cost
iii) Sales commissions
iv) Exhibitions
v) Brand building
vi) Catalog
vii) Customer service
viii) Tech support
ix) Customer service
b) Research and Development

11. i) Personnel expenses (this is calculated automatically when you
estimate people expenses - wage rates/salaries, incentives,
number of employees - in the PERSONNEL worksheet)
ii) Beta testing
iii) Time to market
iv) Patent and copyright application
v) Prototyping
vi) Subcontracting
c) General and Administration
i) Personnel expenses (this is calculated automatically when you
estimate people expenses - wage rates/salaries, incentives,
number of employees - in the PERSONNEL worksheet)
ii) Depreciation resulting from large capital expenditures (this
is calculated automatically when you estimate capital
expenditures in PROP & EQUIP spreadsheet)
iii) Legal, accounting and other service provider expenses
iv) Credit card transaction fees
v) Recruiting expenses
vi) MIS expenses
vii) Office rent and utilities
2) Make provisions in each of the operating expenses categories
for all the other operating expenses that are not significant
enough to be considered a driver. These might include
marketing materials, travel and entertainment, insurance,
leasing, telecommunications, etc.
3) Evaluate the projection of the Operating Expense/Revenue
ratio for Sales & Marketing, Research & Development, and
General & Administration in relation to comparable companies
(see the COMPS worksheet). Is the Operating Expense/Revenue
ratio reasonable when compared to companies similar to yours?
4) Estimate operating expenses for Sales & Marketing, Research
& Development, and General & Administration by months for
years 1 & 2 and by quarters for years 3, 4 and 5.

12. The model automatically projects the monthly and quarterly
expenses by multiplying each month’s or quarter’s Revenue by
the year’s operating expense/revenue ratio. This may not be
accurate, particularly in the first and second years. Consider
such factors as:
a) Product or service roll out timing
b) Major events, e.g. opening a new location, product launch
c) Growth rate
d) Seasonality
Also, in many new businesses there are little or no revenues in
the early months. Conversely, operating expenses can be very
high, as you get ready to launch the business. The operating
expense/revenue ratio may vastly underestimate these early
month expenses and you should make suitable adjustments.
Operating ExpensesYears 1 to 5($)Year 1Year 2Year 3Year
4Year 5Net
Revenues1,000,0005,250,0009,750,00016,250,00026,000,000Sal
es & MarketingDriversSalaries and
Benefits69,000270,250432,900624,000816,000Commissions %
of Revenue5%50,000262,500487,500812,5001,300,000Direct
Mail Campaign50,000150,000300,000500,0001,000,000All
other expenses % of
Revenue6%60,000315,000585,000975,0001,560,000Total Sales
and Marketing229,000997,7501,805,4002,911,5004,676,000
% of Revenue22.9%19.0%18.5%17.9%18.0%Research &
DevelopmentDriversSalaries and
Benefits69,000195,500310,050504,000672,000Testing50,00060,
000100,000250,000300,000All other expenses % of
Revenue3%30,000157,500292,500487,500780,000Total
Reaserch &
Development149,000413,000702,5501,241,5001,752,000 %
of Revenue14.9%7.9%7.2%7.6%6.7%General &
AdministrationDriversSalaries and
Benefits125,000300,150388,440573,600784,800Depreciation6,6

13. 6740,000106,667183,333266,667Rent and
Utilities20,00020,000100,000110,000200,000All other expenses
% of Revenue2%20,000105,000195,000325,000520,000Total
General &
Administration171,667465,150790,1071,191,9331,771,467
% of Revenue17.2%8.9%8.1%7.3%6.8%Total Operating
Expenses549,6671,875,9003,298,0575,344,9338,199,467% of
Revenue55.0%35.7%33.8%32.9%31.5%Allocation of Operating
Expenses
between:Vaiable160,000840,0001,560,0002,600,0004,160,000
Frank Moyes: Variable Expenses
Decide which of the Operating Expenses are
variableFixed389,6671,035,9001,738,0572,744,9334,039,467
Frank Moyes: Fixed Expenses
Decide which of the Operating Expenses are fixed
Compaq: Operating Expense Projections
To project operating expenses:
1) Determine the key drivers of operating expenses, e.g.
a) Sales & Marketing
i) Personnel expenses (this is calculated automatically when you
estimate people expenses - wage rates/salaries, incentives,
number of employees - in the PERSONNEL worksheet)
ii) Customer acquisition cost
iii) Sales commissions
iv) Exhibitions
v) Brand building
vi) Catalog
vii) Customer service
viii) Tech support
ix) Customer service
b) Research and Development
i) Personnel expenses (this is calculated automatically when you

14. estimate people expenses - wage rates/salaries, incentives,
number of employees - in the PERSONNEL worksheet)
ii) Beta testing
iii) Time to market
iv) Patent and copyright application
v) Prototyping
vi) Subcontracting
c) General and Administration
i) Personnel expenses (this is calculated automatically when you
estimate people expenses - wage rates/salaries, incentives,
number of employees - in the PERSONNEL worksheet)
ii) Depreciation resulting from large capital expenditures (this
is calculated automatically when you estimate capital
expenditures in PROP & EQUIP spreadsheet)
iii) Legal, accounting and other service provider expenses
iv) Credit card transaction fees
v) Recruiting expenses
vi) MIS expenses
vii) Office rent and utilities
2) Make provisions in each of the operating expenses categories
for all the other operating expenses that are not significant
enough to be considered a driver. These might include
marketing materials, travel and entertainment, insurance,
leasing, telecommunications, etc.
3) Evaluate the projection of the Operating Expense/Revenue
ratio for Sales & Marketing, Research & Development, and
General & Administration in relation to comparable companies
(see the COMPS worksheet). Is the Operating Expense/Revenue
ratio reasonable when compared to companies similar to yours?
4) Estimate operating expenses for Sales & Marketing, Research
& Development, and General & Administration by months for
years 1 & 2 and by quarters for years 3, 4 and 5.

15. The model automatically projects the monthly and quarterly
expenses by multiplying each month’s or quarter’s Revenue by
the year’s operating expense/revenue ratio. This may not be
accurate, particularly in the first and second years. Consider
such factors as:
a) Product or service roll out timing
b) Major events, e.g. opening a new location, product launch
c) Growth rate
d) Seasonality
Also, in many new businesses there are little or no revenues in
the early months. Conversely, operating expenses can be very
high, as you get ready to launch the business. The operating
expense/revenue ratio may vastly underestimate these early
month expenses and you should make suitable adjustments.
Total549,6671,875,9003,298,0575,344,9338,199,467Sales &
Marketing by Months & Quarters($)Year 1Year 2Year 3Year
4Year 5Month 1049,888000Month 2049,888000Month
3069,843000Total 1st
Quarter0169,618370,338537,508899,231Month
411,45059,865000Month 518,32069,843000Month
622,90069,843000Total 2nd
Quarter52,670199,550462,923716,6771,079,077Month
722,90079,820000Month 827,48099,775000Month
934,35099,775000Total 3rd
Quarter84,730279,370462,923806,2621,258,923Month
1027,480109,753000Month 1129,770119,730000Month
1234,350119,730000Total 4th
Quarter91,600349,213509,215851,0541,438,769Total for
year229,000997,7501,805,4002,911,5004,676,000Research &
Development by Months & Quarters($)Year 1Year 2Year 3Year
4Year 5Month 1020,650000Month 2020,650000Month
3028,910000Total 1st
Quarter070,210144,113229,200336,923Month
47,45024,780000Month 511,92028,910000Month
614,90028,910000Total 2nd

16. Quarter34,27082,600180,141305,600404,308Month
714,90033,040000Month 817,88041,300000Month
922,35041,300000Total 3rd
Quarter55,130115,640180,141343,800471,692Month
1017,88045,430000Month 1119,37049,560000Month
1222,35049,560000Total 4th
Quarter59,600144,550198,155362,900539,077Total for
year149,000413,000702,5501,241,5001,752,000General &
Administrative by Months & Quarters($)Year 1Year 2Year
3Year 4Year 5Month 1023,258000Month 2023,258000Month
3032,561000Total 1st
Quarter079,076162,073220,049340,667Month
48,58327,909000Month 513,73332,561000Month
617,16732,561000Total 2nd
Quarter39,48393,030202,591293,399408,800Month
717,16737,212000Month 820,60046,515000Month
925,75046,515000Total 3rd
Quarter63,517130,242202,591330,074476,933Month
1020,60051,167000Month 1122,31755,818000Month
1225,75055,818000Total 4th
Quarter68,667162,803222,851348,411545,067Total for
year171,667465,150790,1071,191,9331,771,467
&D
&T
Note: total expenses for the year must equal the annual
projections above.
Note: total expenses for the year must equal the annual
projections above.
Note: total expenses for the year must equal the annual
projections above.
PERSONNELXYZ CompanyNotes
Compaq: Personnel Expenses
To project personnel expenses:

17. 1) Determine key personnel to be recruited
a) Sales and Marketing
b) Research and Development
c) General and Administrative
d) Cost of Revenue
i) Salary
ii) Hourly
2) For each of the above areas indicate
a) Position or title
b) Number of employees
c) When will be hired
d) Salary or wages.
3) If you are projecting significant growth over the period, then
you should make sure that salaries of the key employees are
roughly comparable to companies in the same industry and size.
For example, you may be successful in attracting the Chief
Marketing Officer to your company with a generous options
package, but “low” salary of $100,000 in the first two years of
operations. If your company grows to $50 million in revenues in
year 3, then you will have to begin the pay close the market rate
for company of that size.
One of the most common mistakes new entrepreneurs make is to
vastly underestimate the salary levels that the company must
pay to attract key personnel. You need to determine the market
rate in your area and industry for personnel.
4) Determine the benefits package as a % of base pay. This
should include legally required employer deductions such as
FICA and Workman’s comp, as well as health insurance,
pensions and other benefits.
5) Determine incentive plan (options, profit sharing, bonus).
Estimate the cost and include it in the Administrative Expense

18. section of the Operating Expenses worksheet.
PersonnelYears 1 to 5($)Year 1Year 2Year 3Year 4Year
5Net
Revenues1,000,0005,250,0009,750,00016,250,00026,000,000Sal
es & MarketingSales
Manager60,00080,000100,000125,000150,000Marketing
Manager80,000100,000125,000150,000Customer
service40,000120,000200,000250,000Tech
support35,00050,00070,000130,000(other…)(other…)(other…)T
otal
Salary60,000235,000370,000520,000680,000BenefitsPercent
(%)15%15%17%20%20%Total benefit
costs9,00035,25062,900104,000136,000 Total S & M
Compensation69,000270,250432,900624,000816,000 % of
Revenue6.9%5.1%4.4%3.8%3.1%Research and DevelopmentR
& D
Manager80,000100,000125,000150,000Engineers60,00060,0001
30,000230,000300,000Technicians30,00035,00065,000110,000S
ubcontract(other…)(other…)Total
Salary60,000170,000265,000420,000560,000BenefitsPercent
(%)15%15%17%20%20%Total benefit
costs9,00025,50045,05084,000112,000Total R & D
Compensation69,000195,500310,050504,000672,000 % of
Revenue6.9%3.7%3.2%3.1%2.6%General &
AdministrationChief Executive
Officer60,00080,000100,000125,000150,000Chief Financial
Officer50,00060,00075,000100,000Accounting40,00045,00025,
00050,00075,000Secretarial25,00026,00027,00028,00029,000Cl
erks and admin
personnel60,000120,000200,000300,000(other…)(other…)Total
Salary125,000261,000332,000478,000654,000BenefitsPercent
(%)15%15%17%20%20%Total benefit

19. costs039,15056,44095,600130,800Total G & A
Compensation125,000300,150388,440573,600784,800 % of
Revenue12.5%5.7%4.0%3.5%3.0%Cost of
RevenueManufacturing PersonnelOperations
Manager100,000125,000150,000175,000200,000Quality
Assurance 50,000100,000150,000300,000350,000Materials and
Logistics40,000150,000200,000300,000450,000Engineering
75,000125,000150,000300,000Other
personnel50,000150,000200,000250,000300,000(other...)Total
Salary240,000600,000825,0001,175,0001,600,000BenefitsPerce
nt (%)15%15%20%20%25%Total benefit
costs36,00090,000165,000235,000400,000Total Salary
Costs276,000690,000990,0001,410,0002,000,000Hourly
PersonnelNumber of employees39203040Average wages per
employee20,00022,00023,00024,00024,000Total
wages60,000198,000460,000720,000960,000BenefitsPercent
(%)15%15%20%20%25%Total benefit
costs9,00029,70092,000144,000240,000Total Wage
Costs69,000227,700552,000864,0001,200,000Service
PersonnelNumber of employees35102540Salary per
employee35,00037,00040,00050,00055,000Total
salaries105,000185,000400,0001,250,0002,200,000BenefitsPerc
ent (%)15%15%20%20%25%Total benefit
costs15,75027,75080,000250,000550,000Total Salary
Costs120,750212,750480,0001,500,0002,750,000Total COR's
Compensation465,7501,130,4502,022,0003,774,0005,950,000
% of Revenue46.6%21.5%20.7%23.2%22.9%Total Salary &
Wages545,0001,464,0002,252,0003,313,0004,454,000Total
Benefits63,000219,600421,390662,6001,018,800Total
Compensation728,7501,896,3503,153,3905,475,6008,222,800
% of Revenue72.9%36.1%32.3%33.7%31.6%
&D
&T
EXTRAXYZ CompanyNotes

20. Compaq: Extraordinary Income & Expense
To project extraordinary Income & Expense, estimate those
amounts that are one of a kind or nonrecurring.
Estimate Extraordinary Income & Expenses by months for years
1 & 2 and by quarters for years 3, 4 and 5. Consider major
events such as product or service rollout, acquisition, initial
public offering, etc.Extraordinary Income & ExpenseYears 1 to
5($)Year 1Year 2Year 3Year 4Year 5Income (Item…)0
(Item…) (Item…)Total00000Start-up
expensesLegal25,000Relocation20,000
(Item…)Total45,0000000Total Extraordinary
Income/(Expense)(45,000)0000Extraordinary Income and
Expense by Months & Quarters($)Year 1Year 2Year 3Year
4Year 5Month 1(25,000)Month 2(20,000)Month 3Total 1st
Quarter(45,000)0000Month 4Month 5Month 6Total 2nd
Quarter00000Month 7Month 8Month 9Total 3rd
Quarter00000Month 10Month 11Month 12Total 4th
Quarter00000Total for year(45,000)0000
&D
&T
TAXESXYZ CompanyNotes
Compaq: Taxes
Determine the appropriate federal, state and local income tax
rates. If you have losses in the initial years, the loss carry-
forward is automatically calculated.
TaxesYears 1 to 5($)Year 1Year 2Year 3Year 4Year 5Net
Revenues1,000,0005,250,0009,750,00016,250,00026,000,000Inc
ome Tax (Rate Federal & State)0.400.400.400.400.40Net
Earnings Before
Taxes(712,131)(218,064)704,5151,520,7813,753,390Cumulative
(712,131)(930,195)(225,681)1,295,1005,048,491Taxes000(518,
040)(1,501,356) Percent of Revenues0.0%0.0%0.0%-3.2%-

21. 5.8%
&D
&T
PROP & EQUIPXYZ CompanyNotes
Compaq: Property & Equipment
To project property and equipment, capital expenditures,
depreciation, accumulated depreciation:
1) Determine the major capital expenditure projects for 5 years,
e.g. property, plant, equipment, computers, servers, systems,
software, furniture and fixtures, etc. Keep in mind that
software, system design, training can be equal to or greater than
the cost of hardware.
Sometimes a new business may be able to purchase the assets of
an existing business. The depreciation rates for these assets may
be different than that of new capital expenditures. The model
will calculate the depreciation and net asset value of the
expenditures.
2) Estimate the level on-going capital expenditures.
3) Determine the expected life for the each of the expenditures.
Depreciation will be calculated on a straight-line basis. The
model assumes that full 12-month’s depreciation is taken in the
year that the expenditure takes place. The model groups
expenditures into three categories:
a) Computers, software and office equipment (depreciation
allocated to General & Administrative expenses)
b) Plant and equipment (depreciation allocated to Cost of
Revenue)
c) Other (depreciation allocated to General & Administrative
expenses)

22. If you are a capital-intensive business, you may need more
categories of expenditures with different depreciation rates. The
model can be modified, but you will need to establish links to
the appropriate cost/expense spreadsheets.
4) Estimate capital expenditure by months for years 1 & 2 and
by quarters for years 3, 4 and 5. Consider such factors as:
a) Product or service roll out timing
b) Capacity utilization
c) New process development and technology
d) Equipment and systems obsolecence
e) Cost reduction timing
f) Growth rate
g) Seasonality
Property and EquipmentYears 1 to 5($)Year 0
Frank Moyes: Purchased Assets
To be used when your venture purchases an existing business.
Compaq: Property & Equipment
To project property and equipment, capital expenditures,
depreciation, accumulated depreciation:
1) Determine the major capital expenditure projects for 5 years,

23. e.g. property, plant, equipment, computers, servers, systems,
software, furniture and fixtures, etc. Keep in mind that
software, system design, training can be equal to or greater than
the cost of hardware.
Sometimes a new business may be able to purchase the assets of
an existing business. The depreciation rates for these assets may
be different than that of new capital expenditures. The model
will calculate the depreciation and net asset value of the
expenditures.
2) Estimate the level on-going capital expenditures.
3) Determine the expected life for the each of the expenditures.
Depreciation will be calculated on a straight-line basis. The
model assumes that full 12-month’s depreciation is taken in the
year that the expenditure takes place. The model groups
expenditures into three categories:
a) Computers, software and office equipment (depreciation
allocated to General & Administrative expenses)
b) Plant and equipment (depreciation allocated to Cost of
Revenue)
c) Other (depreciation allocated to General & Administrative
expenses)
If you are a capital-intensive business, you may need more
categories of expenditures with different depreciation rates. The
model can be modified, but you will need to establish links to
the appropriate cost/expense spreadsheets.
4) Estimate capital expenditure by months for years 1 & 2 and
by quarters for years 3, 4 and 5. Consider such factors as:
a) Product or service roll out timing
b) Capacity utilization
c) New process development and technology
d) Equipment and systems obsolecence

24. e) Cost reduction timing
f) Growth rate
g) Seasonality
Year 1Year 2Year 3Year 4Year 5PurchasedNet
RevenuesAssets1,000,0005,250,0009,750,00016,250,00026,000,
000Capital ExpendituresComputers, Software & Office
Equipment20,000100,000200,000250,000350,000Plant &
Equipment250,000350,000250,000300,000300,000Other10,0005
0,000100,000100,000100,000Total Capital
Expenditures0280,000500,000550,000650,000750,000 % of
Revenue28.0%9.5%5.6%4.0%2.9%Depreciation Computers,
Sofware & Office Equipment (allocated to General &
Administrative Expenses) Depreciation Rate: Years133333
Year 000000 Year 16,6676,6676,66700 Year
233,33333,33333,3330 Year 366,66766,66766,667 Year
483,33383,333 Year 5116,667 Total
Depreciation6,66740,000106,667183,333266,667Depreciation
on Plant and Equipment (allocated to Cost of Revenue)
Depreciation Rate: Years177777 Year 000000 Year
135,71435,71435,71435,71435,714 Year
250,00050,00050,00050,000 Year 335,71435,71435,714 Year
442,85742,857 Year 542,857 Total
Depreciation35,71485,714121,429164,286207,143Depreciation
Other (allocated to Cost of Revenue) Depreciation Rate:

25. Years11010101010 Year 000000 Year
11,0001,0001,0001,0001,000 Year 25,0005,0005,0005,000
Year 310,00010,00010,000 Year 410,00010,000 Year 510,000
Total Depreciation1,0006,00016,00026,00036,000Total
Depreciation43,381131,714244,095373,619509,810 % of
Revenue4.3%2.5%2.5%2.3%2.0%Property & Equipment Gross
Asset Value0280,000780,0001,330,0001,980,0002,730,000
Accumulated
Depreciation43,381175,095419,190792,8101,302,619 Net
Property and
Equipment0236,619604,905910,8101,187,1901,427,381 % of
Revenue23.7%11.5%9.3%7.3%5.5%Capital Expenditures by
Months & Quarters($)Year 1Year 2Year 3Year 4Year 5Month
150,000100,000Month 2100,000100,000Month 350,000Total 1st
Quarter200,000200,000100,000200,000200,000Month
440,000Month 5Month 6100,000Total 2nd
Quarter40,000100,000200,000200,000200,000Month
740,000Month 8Month 9100,000Total 3rd
Quarter40,000100,000100,000100,000200,000Month 10Month
11Month 12100,000Total 4th
Quarter0100,000150,000150,000150,000Total for
year280,000500,000550,000650,000750,000
&D
&T
WORKCAPXYZ CompanyNotes
Compaq: Working
Capital
To project working capital:
1) Accounts Receivable
Determine for each year accounts receivables as a % of
Rrevenue (the average number of days outstanding is
automatically calculated). Use the information collected in the
Financial COMP's analysis to help estimate the percentage. The

26. model will calculate the accounts receivable outstanding at the
end of the year and month/quarter, based upon the monthly and
quarterly revenue projections. The formula for calculating
accounts receivable has a maximum of 120 days. If you expect
the days outstanding to be greater than 120, then you will need
to adjust the formula, or perhaps consider a different credit
policy.
2) Inventory
Determine for each year inventory as a % of Revenue (the
inventory turns are automatically calculated). Use the
information collected in the Financial COMP's analysis to help
estimate the percentage. The model will calculate the inventory
at the end of the year and month/quarter, based upon the
monthly and quarterly revenue projections. The formula for
calculating inventory has a minimum of 3 turns. If you
inventory turns are less than 3, then you will need to adjust the
formula.
3) Other Current Assets
Estimate for each year Other Current Assets as a % of Revenue.
See limitation of 120 days described above.
4) Accounts Payable and Accrued Expenses
Estimate for each year payables and accrued expenses a % of
Revenue. The model shows the equivalent days outstanding. The
formula for calculating payables and accrued expenses has a
maximum of 120 days. If you expect to take longer than 120
days to pay your bills, then you will need to adjust the formula.
For most industries, credit terms beyond 120 days is very
unusual.
5) Other Current Liabilities
Estimate for each year Other Current Liabilities as a % of
Revenue. See limitation of 120 days described above.
Working CapitalYears 1 to 5($)Year 1Year 2Year 3Year 4Year

27. 5Net
Revenues1,000,0005,250,0009,750,00016,250,00026,000,000Ac
counts Receivable% of Revenue8.3%8.3%8.3%8.3%8.3%
Moyes: Accounts Receivable
See Notes above for restriction on Days Outstanding in
calculating Accounts Receivable.Days
Outstanding3030303030Accounts Receivable
149,400627,480913,0001,577,0002,656,000(Increase)/Decrease
from Prev.
Period(149,400)(478,080)(285,520)(664,000)(1,079,000)Invento
ry% of Revenue8.3%8.3%6.7%6.7%6.7%Inventory Turns
Moyes: Moyes:
Inventory turns chancges each year to reflect the differnet mix
of product and services
Frank Moyes: Inventory
See Notes above for restrictions on Turns in calculating
Inventory.
Compaq: Working
Capital
To project working capital:
1) Accounts Receivable
Determine for each year accounts receivables as a % of
Rrevenue (the average number of days outstanding is
automatically calculated). Use the information collected in the
Financial COMP's analysis to help estimate the percentage. The
model will calculate the accounts receivable outstanding at the
end of the year and month/quarter, based upon the monthly and
quarterly revenue projections. The formula for calculating
accounts receivable has a maximum of 120 days. If you expect
the days outstanding to be greater than 120, then you will need
to adjust the formula, or perhaps consider a different credit

28. policy.
2) Inventory
Determine for each year inventory as a % of Revenue (the
inventory turns are automatically calculated). Use the
information collected in the Financial COMP's analysis to help
estimate the percentage. The model will calculate the inventory
at the end of the year and month/quarter, based upon the
monthly and quarterly revenue projections. The formula for
calculating inventory has a minimum of 3 turns. If you
inventory turns are less than 3, then you will need to adjust the
formula.
3) Other Current Assets
Estimate for each year Other Current Assets as a % of Revenue.
See limitation of 120 days described above.
4) Accounts Payable and Accrued Expenses
Estimate for each year payables and accrued expenses a % of
Revenue. The model shows the equivalent days outstanding. The
formula for calculating payables and accrued expenses has a
maximum of 120 days. If you expect to take longer than 120
days to pay your bills, then you will need to adjust the formula.
For most industries, credit terms beyond 120 days is very
unusual.
5) Other Current Liabilities
Estimate for each year Other Current Liabilities as a % of
Revenue. See limitation of 120 days described above.
1212151515Inventory Days3030242424Inventory
149,400627,480737,0001,273,0002,144,000(Increase)/Decrease
from Prev.
Period(149,400)(478,080)(109,520)(536,000)(871,000)Other
Current Assets% of
Revenue1.0%1.0%1.0%1.0%1.0%Days44444Other CA
Value18,00075,600110,000190,000320,000(Increase)/Decrease

29. from Prev.
Period(18,000)(57,600)(34,400)(80,000)(130,000)Accounts
Payable & Accrued Expenses% of
Revenue8.7%8.7%8.7%8.7%8.7%Days3131313131AP &
Accrued
Value155,720657,720957,0001,653,0002,784,000Increase/(Decr
ease) from Prev.
Period155,720502,000299,280696,0001,131,000Other Current
Liabilites% of
Revenue1.0%1.0%1.0%1.0%1.0%Days44444Other Current
Liabilities18,00075,600110,000190,000320,000Increase/(Decrea
se) from Prev.
Period18,00057,60034,40080,000130,000Revenues by Months
& Quarters($)Year 1Year 2Year 3Year 4Year 5Month
10262,500000Month 20262,500000Month 30367,500000Total
1st Quarter0892,5002,000,0003,000,0005,000,000Month
450,000315,000000Month 580,000367,500000Month
6100,000367,500000Total 2nd
Quarter230,0001,050,0002,500,0004,000,0006,000,000Month
7100,000420,000000Month 8120,000525,000000Month
9150,000525,000000Total 3rd
Quarter370,0001,470,0002,500,0004,500,0007,000,000Month
10120,000577,500000Month 11130,000630,000000Month
12150,000630,000000Total 4th
Quarter400,0001,837,5002,750,0004,750,0008,000,000Total for
year1,000,0005,250,0009,750,00016,250,00026,000,000Account
s Receivable by Months & Quarters($)Year 1Year 2Year 3Year
4Year 5Month 1- 0261,450Month 2- 0261,450Month 3-
0366,030664,000996,0001,660,000Month 449,800313,740Month
579,680366,030Month
699,600366,030830,0001,328,0001,992,000Month
799,600418,320Month 8119,520522,900Month
9149,400522,900830,0001,494,0002,324,000Month
10119,520575,190Month 11129,480627,480Month
12149,400627,480913,0001,577,0002,656,000Inventory by
Months & Quarters($)Year 1Year 2Year 3Year 4Year 5Month 1-

30. 0261,450Month 2- 0261,450Month 3-
0366,030536,000804,0001,340,000Month 449,800313,740Month
579,680366,030Month
699,600366,030670,0001,072,0001,608,000Month
799,600418,320Month 8119,520522,900Month
9149,400522,900670,0001,206,0001,876,000Month
10119,520575,190Month 11129,480627,480Month
12149,400627,480737,0001,273,0002,144,000Other Current
Assets by Months & Quarters($)Year 1Year 2Year 3Year 4Year
5Month 1- 031,500Month 2- 031,500Month 3-
044,10080,000120,000200,000Month 46,00037,800Month
59,60044,100Month
612,00044,100100,000160,000240,000Month
712,00050,400Month 814,40063,000Month
918,00063,000100,000180,000280,000Month
1014,40069,300Month 1115,60075,600Month
1218,00075,600110,000190,000320,000Accounts Payble &
Accrued Expenses by Months & Quarters($)Year 1Year 2Year
3Year 4Year 5Month 1- 06,600Month 200Month
33131696,0001,044,0001,740,000Month 450,000331,170Month
582,200381,360Month
6103,520383,670870,0001,392,0002,088,000Month
7104,400436,170Month 8124,400543,480Month
9155,280548,100870,0001,566,0002,436,000Month
10126,600600,600Month 11135,280655,410Month
12155,720657,720957,0001,653,0002,784,000Other Current
Liabilities by Months & Quarters($)Year 1Year 2Year 3Year
4Year 5Month 1- 031,500Month 2- 031,500Month 3-
044,10080,000120,000200,000Month 46,00037,800Month
59,60044,100Month
612,00044,100100,000160,000240,000Month
712,00050,400Month 814,40063,000Month
918,00063,000100,000180,000280,000Month
1014,40069,300Month 1115,60075,600Month
1218,00075,600110,000190,000320,000
&D

31. &T
FUNDINGXYZ CompanyNotes
Compaq: Funding
Look at Cash Flow projections to determine the amount of
funding required. Decide whether equity or debt is most
appropriate. For most start-ups, equity is required in the initial
years.
If you decide to use debt, determine the type of loan (long term
or short term); repayment terms and interest rate.
Interest Income not calculated automatically. Suggest look at
cash balance on spreadsheet and make a rough approximation of
the interest income, e.g.
Cash balance at the beginning of the year is $250,000
Cash balance at the end of the year is 500,000
Average balance for the year
375,000
Interest rate on 30 day Treasury bills is 5%
Interest income for Year 3 is
18,750
Timing of Funding
The model assumes that equity and new debt funding occurs at
the beginning of each year. Debt repayments take place at the
end of each year and interest expense is calculated accordingly.
If this is not the case, then manual adjustments to the monthly
income statements, balance sheets and cash flow statements are
required.
Funding ProjectionsYears 1 to 5($)BeginYear 1Year 2Year
3Year 4Year 5Beginning

32. Cash1,500,000EquityCommon500,000500,000500,000500,00050
0,000500,000Increase / (Decrease) Previous
Period00000PreferredA
Round1,000,0001,000,0001,000,0001,000,0001,000,0001,000,00
0B Round500,000500,000500,000500,000Total
Preferred1,000,0001,000,0001,500,0001,500,0001,500,0001,500
,000Increase / (Decrease) Previous Period0500,000000Total
Equity1,500,0001,500,0002,000,0002,000,0002,000,0002,000,0
00Debt Short Term Debt100,000Increase / (Decrease) Previous
Period000100,000(100,000) Long Term DebtCurrent
Portion100,000100,000100,000100,000Long Term
Portion400,000300,000200,000100,000Total Long Term
Debt0500,000400,000300,000200,000Increase / (Decrease)
Previous PeriodCurrent Portion0100,000000Long Term
Protion0400,000(100,000)(100,000)(100,000)Total Long Term
Debt0500,000(100,000)(100,000)(100,000)Total Equity &
Debt1,500,0001,500,0002,500,0002,400,0002,400,0002,200,000
Interest Interest RateShort Term
Debt9.0%9.0%9.0%9.0%9.0%Long Term
Debt12.0%12.0%12.0%12.0%12.0%Interest ExpenseShort Term
Debt0009,0000Long Term
Debt060,00048,00036,00024,000Total
Interest060,00048,00045,00024,000Interest IncomeInterest
Rate4.0%4.0%4.0%4.0%4.0%Interest
Income000010,000Retained EarningsNet
Income(712,131)(218,064)704,5151,002,7412,252,034Dividends
50,000Increase / (Decrease) Retained
Earnings(712,131)(218,064)704,5151,002,7412,202,034Beginni
ng Retained
Earnings0(712,131)(930,195)(225,681)777,060Ending Retained
Earnings(712,131)(930,195)(225,681)777,0602,979,094
&D
&T
INCOMEXYZ CompanyIncome StatementYears 1 to 5($)Year
1Year 2Year 3Year 4Year 5NET

33. REVENUES1,000,0005,250,0009,750,00016,250,00026,000,000
COST OF
REVENUE1,117,4643,532,1645,699,4299,339,28614,033,143
% of Revenues111.7%67.3%58.5%57.5%54.0%GROSS
PROFIT(117,464)1,717,8364,050,5716,910,71411,966,857
% of Revenues-11.7%32.7%41.5%42.5%46.0%OPERATING
EXPENSES Sales &
Marketing229,000997,7501,805,4002,911,5004,676,000
Research &
Development149,000413,000702,5501,241,5001,752,000
General and
Administration171,667465,150790,1071,191,9331,771,467
Total Operating
Expenses549,6671,875,9003,298,0575,344,9338,199,467
% of Revenues55%36%34%33%32%EARNINGS FROM
OPERATIONS(667,131)(158,064)752,5151,565,7813,767,390E
XTRAORDINARY INCOME /
(EXPENSE)(45,000)0000EARNINGS BEFORE INTEREST &
TAXES(712,131)(158,064)752,5151,565,7813,767,390INTERES
T INCOME /
(EXPENSE)0(60,000)(48,000)(45,000)(14,000)NET EARNINGS
BEFORE
TAXES(712,131)(218,064)704,5151,520,7813,753,390TAXES0
00(518,040)(1,501,356)NET
EARNINGS(712,131)(218,064)704,5151,002,7412,252,034
% of Revenues-71.2%-4.2%7.2%6.2%8.7%
&D
&T
BALANCEXYZ CompanyBalance SheetYears 1 to
5($)BeginYear 1Year 2Year 3Year 4Year 5ASSETS
CURRENT ASSETS
Cash1,500,000408,170367,660570,510792,8701,735,714
Accounts Receivable149,400627,480913,0001,577,0002,656,000
Inventories149,400627,480737,0001,273,0002,144,000
Other Current Assets18,00075,600110,000190,000320,000

34. Total Current
Assets1,500,000724,9701,698,2202,330,5103,832,8706,855,714
PROPERTY &
EQUIPMENT0236,619604,905910,8101,187,1901,427,381TOT
AL
ASSETS1,500,000961,5892,303,1253,241,3195,020,0608,283,0
94LIABILITIES & SHAREHOLDERS' EQUITY CURRENT
LIABILITIES Short Term Debt0000100,0000 Accounts
Payable & Accrued
Expen155,720657,720957,0001,653,0002,784,000 Other
Current Liab18,00075,600110,000190,000320,000 Current
portion of long term debt00100,000100,000100,000100,000
Total Current
Liabilities0173,720833,3201,167,0002,043,0003,204,000
LONG TERM DEBT (less current
portion)00400,000300,000200,000100,000 STOCKHOLDERS'
EQUITY
CommonStock500,000500,000500,000500,000500,000500,000
Preferred
Stock1,000,0001,000,0001,500,0001,500,0001,500,0001,500,00
0 Retained
Earnings(712,131)(930,195)(225,681)777,0602,979,094Total
Equity1,500,000787,8691,069,8051,774,3192,777,0604,979,094
TOTAL LIABILITIES &
EQUITY1,500,000961,5892,303,1253,241,3195,020,0608,283,0
94
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CASHFLOWXYZ CompanyCash Flow StatememtYears 1 to
5($)Year 1Year 2Year 3Year 4Year 5OPERATING
ACTIVITIES Net
Earnings(712,131)(218,064)704,5151,002,7412,252,034
Depreciation43,381131,714244,095373,619509,810 Working
Capital Changes(Increase)/Decrease Accounts
Receivable(149,400)(478,080)(285,520)(664,000)(1,079,000)(In

35. crease)/Decrease
Inventories(149,400)(478,080)(109,520)(536,000)(871,000)(Inc
rease)/Decrease Other Current
Assets(18,000)(57,600)(34,400)(80,000)(130,000)Increase/(Dec
rease) Accts Pay & Accrd
Expenses155,720502,000299,280696,0001,131,000Increase/(De
crease) Other Current Liab18,00057,60034,40080,000130,000
Net Cash Provided/(Used) by Operating
Activities(811,830)(540,510)852,850872,3601,942,844INVESTI
NG ACTIVITIES Property &
Equipment(280,000)(500,000)(550,000)(650,000)(750,000)
Other Net Cash Used in Investing
Activities(280,000)(500,000)(550,000)(650,000)(750,000)FINA
NCING ACTIVITIES Increase/(Decrease) Short Term
Debt000100,000(100,000) Increase/(Decrease) Curr. Portion
LTD0100,000000 Increase/(Decrease) Long Term
Debt0400,000(100,000)(100,000)(100,000)
Increase/(Decrease) Common Stock00000 Increase/(Decrease)
Preferred Stock0500,000000 Dividends Declared0000(50,000)
Net Cash Provided / (Used) by Financing
01,000,000(100,000)0(250,000)INCREASE/(DECREASE) IN
CASH(1,091,830)(40,510)202,850222,360942,844CASH AT
BEGINNING OF
YEAR1,500,000408,170367,660570,510792,870CASH AT END
OF YEAR1,500,000408,170367,660570,510792,8701,735,714
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BREAKEVENXYZ CompanyNotes
Compaq: Break-even Analysis
Look at the Costs of Revenues and determine which costs are
fixed and variable. Conduct a similar analysis of the Operating
Expenses. Input these numbers in the appropriate cells of those
worksheets. The break-even revenue is calculated automatically.

36. To determine the break-even quantity, divide the break-even
revenue by the average selling price per customer or unit sold
that is assumed in the REVENUE spreadsheet.
Break-Even AnalysisYears 1 to 5($)Year 1Year 2Year 3Year
4Year
5Revenue1,000,0005,250,0009,750,00016,250,00026,000,000Co
st of
Revenue0Variable729,7502,450,4504,122,0007,139,00010,990,0
00Fixed387,7141,081,7141,577,4292,200,2863,043,143Total1,1
17,4643,532,1645,699,4299,339,28614,033,143Operating
ExpensesVariable160,000840,0001,560,0002,600,0004,160,000
Fixed389,6671,035,9001,738,0572,744,9334,039,467Total549,6
671,875,9003,298,0575,344,9338,199,467Total Costs &
ExpensesVariable889,7503,290,4505,682,0009,739,00015,150,0
00Fixed777,3812,117,6143,315,4854,945,2197,082,610Total1,6
67,1315,408,0648,997,48514,684,21922,232,610Variable
Costs/Revenue Ratio0.890.630.580.600.58Break-Even Point
Revenues7,051,0765,673,4847,946,40612,342,16116,972,152
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INCOME-MOSXYZ CompanyIncome Statements5 Years by
Months & Quarters($)XYZ CompanyIncome StatementYear
1Year 1 by MonthsTotal AnnualMonth 1Month 2Month 3Month
4Month 5Month 6Month 7Month 8Month 9Month 10Month
11Month 1212 MonthsProjectionNET
REVENUES00050,00080,000100,000100,000120,000150,00012
0,000130,000150,0001,000,0001,000,000COST OF
REVENUE00055,87389,397111,746111,746134,096167,620134,
096145,270167,6201,117,4641,117,464GROSS
PROFIT000(5,873)(9,397)(11,746)(11,746)(14,096)(17,620)(14,
096)(15,270)(17,620)(117,464)(117,464)OPERATING
EXPENSES Sales &
Marketing00011,45018,32022,90022,90027,48034,35027,48029,

37. 77034,350229,000229,000 Research &
Development0007,45011,92014,90014,90017,88022,35017,8801
9,37022,350149,000149,000 General and
Administration0008,58313,73317,16717,16720,60025,75020,60
022,31725,750171,667171,667 Total Operating
Expenses00027,48343,97354,96754,96765,96082,45065,96071,4
5782,450549,667549,667EARNINGS FROM
OPERATIONS000(33,357)(53,370)(66,713)(66,713)(80,056)(10
0,070)(80,056)(86,727)(100,070)(667,131)(667,131)EXTRAOR
DINARY INCOME /
(EXPENSE)(25,000)(20,000)0000000000(45,000)(45,000)EAR
NINGS BEFORE INTEREST &
TAXES(25,000)(20,000)0(33,357)(53,370)(66,713)(66,713)(80,
056)(100,070)(80,056)(86,727)(100,070)(712,131)(712,131)INT
EREST INCOME / (EXPENSE)00000000000000NET
EARNINGS BEFORE
TAXES(25,000)(20,000)0(33,357)(53,370)(66,713)(66,713)(80,
056)(100,070)(80,056)(86,727)(100,070)(712,131)(712,131)TA
XES00000000000000NET
EARNINGS(25,000)(20,000)0(33,357)(53,370)(66,713)(66,713)
(80,056)(100,070)(80,056)(86,727)(100,070)(712,131)(712,131)
XYZ CompanyIncome StatementYear 2Year 2 by MonthsTotal
AnnualMonth 1Month 2Month 3Month 4Month 5Month 6Month
7Month 8Month 9Month 10Month 11Month 1212
MonthsProjectionNET
REVENUES262,500262,500367,500315,000367,500367,500420,
000525,000525,000577,500630,000630,0005,250,0005,250,000
COST OF
REVENUE176,608176,608247,252211,930247,252247,252282,5
73353,216353,216388,538423,860423,8603,532,1643,532,164G
ROSS
PROFIT85,89285,892120,249103,070120,249120,249137,42717
1,784171,784188,962206,140206,1401,717,8361,717,836OPER
ATING EXPENSES Sales &
Marketing49,88849,88869,84359,86569,84369,84379,82099,775
99,775109,753119,730119,730997,750997,750 Research &

38. Development20,65020,65028,91024,78028,91028,91033,04041,
30041,30045,43049,56049,560413,000413,000 General and
Administration23,25823,25832,56127,90932,56132,56137,2124
6,51546,51551,16755,81855,818465,150465,150 Total
Operating
Expenses93,79593,795131,313112,554131,313131,313150,0721
87,590187,590206,349225,108225,1081,875,9001,875,900EAR
NINGS FROM
OPERATIONS(7,903)(7,903)(11,065)(9,484)(11,065)(11,065)(1
2,645)(15,806)(15,806)(17,387)(18,968)(18,968)(158,064)(158,
064)EXTRAORDINARY INCOME /
(EXPENSE)00000000000000EARNINGS BEFORE INTEREST
&
TAXES(7,903)(7,903)(11,065)(9,484)(11,065)(11,065)(12,645)(
15,806)(15,806)(17,387)(18,968)(18,968)(158,064)(158,064)IN
TEREST INCOME /
(EXPENSE)(5,000)(5,000)(5,000)(5,000)(5,000)(5,000)(5,000)(
5,000)(5,000)(5,000)(5,000)(5,000)(60,000)(60,000)NET
EARNINGS BEFORE
TAXES(12,903)(12,903)(16,065)(14,484)(16,065)(16,065)(17,6
45)(20,806)(20,806)(22,387)(23,968)(23,968)(218,064)(218,064
)TAXES00000000000000NET
EARNINGS(12,903)(12,903)(16,065)(14,484)(16,065)(16,065)(
17,645)(20,806)(20,806)(22,387)(23,968)(23,968)(218,064)(218
,064)XYZ CompanyIncome StatementYear 3Year 4Year 5Years
3, 4 & 5 by QuartersAnnualAnnualAnnualYear 3Year 4Year
5ProjectionProjectionProjection1st Qtr2nd Qrtr3rd Qrtr4th
QrtrTotal1st Qtr2nd Qtr3rd Qtr4th QtrTotal1st Qtr2nd Qtr3rd
Qtr4th QtrTotalNET
REVENUES2,000,0002,500,0002,500,0002,750,0009,750,0003,
000,0004,000,0004,500,0004,750,00016,250,0005,000,0006,000
,0007,000,0008,000,00026,000,0009,750,00016,250,00026,000,
000000COST OF
REVENUE1,169,1141,461,3921,461,3921,607,5315,699,4291,7
24,1762,298,9012,586,2642,729,9459,339,2862,698,6813,238,4
183,778,1544,317,89014,033,1435,699,4299,339,28614,033,143

39. GROSS
PROFIT830,8861,038,6081,038,6081,142,4694,050,5711,275,82
41,701,0991,913,7362,020,0556,910,7142,301,3192,761,5823,2
21,8463,682,11011,966,8574,050,5716,910,71411,966,857OPE
RATING EXPENSES Sales &
Marketing370,338462,923462,923509,2151,805,400537,508716,
677806,262851,0542,911,500899,2311,079,0771,258,9231,438,
7694,676,0001,805,4002,911,5004,676,000 Research &
Development144,113180,141180,141198,155702,550229,20030
5,600343,800362,9001,241,500336,923404,308471,692539,0771
,752,000702,5501,241,5001,752,000 General and
Administration162,073202,591202,591222,851790,107220,0492
93,399330,074348,4111,191,933340,667408,800476,933545,067
1,771,467790,1071,191,9331,771,467 Total Operating
Expenses676,524845,656845,656930,2213,298,057986,7571,315
,6761,480,1351,562,3655,344,9331,576,8211,892,1852,207,549
2,522,9138,199,4673,298,0575,344,9338,199,467EARNINGS
FROM
OPERATIONS154,362192,953192,953212,248752,515289,0673
85,423433,601457,6901,565,781724,498869,3981,014,2971,159
,1973,767,390752,5151,565,7813,767,390EXTRAORDINARY
INCOME / (EXPENSE)000000000000000000EARNINGS
BEFORE INTEREST &
TAXES154,362192,953192,953212,248752,515289,067385,423
433,601457,6901,565,781724,498869,3981,014,2971,159,1973,
767,390752,5151,565,7813,767,390INTEREST INCOME /
(EXPENSE)(12,000)(12,000)(12,000)(12,000)(48,000)(11,250)(
11,250)(11,250)(11,250)(45,000)(3,500)(3,500)(3,500)(3,500)(1
4,000)(48,000)(45,000)(14,000)NET EARNINGS BEFORE
TAXES142,362180,953180,953200,248704,515277,817374,173
422,351446,4401,520,781720,998865,8981,010,7971,155,6973,
753,390704,5151,520,7813,753,390TAXES00000(94,636)(127,4
59)(143,870)(152,076)(518,040)(288,399)(346,359)(404,319)(4
62,279)(1,501,356)0(518,040)(1,501,356)NET
EARNINGS142,362180,953180,953200,248704,515183,181246,
714278,481294,3641,002,741432,599519,539606,478693,4182,2

40. 52,034704,5151,002,7412,252,034Do Not DeleteCalculation
AreaTax Loss Carry ForwardInterest Income/(Expense)Tax Loss
Carry ForwardCumulative Net Earning Before Taxes Month
1Month 2Month 3Month 4Month 5Month 6Month 7Month
8Month 9Month 10Month 11Month 12Year
1(25,000)(45,000)(45,000)(78,357)(131,727)(198,440)(265,153)
(345,209)(445,279)(525,334)(612,061)(712,131)Year
2(725,034)(737,938)(754,002)(768,486)(784,550)(800,615)(818,
260)(839,066)(859,873)(882,260)(906,228)(930,195)Cumulative
Net Earning Before Taxes Year 3Year 4Year 5Quarter 1Quarter
2Quarter 3Quarter 4Quarter 1Quarter 2Quarter 3Quarter
4Quarter 1Quarter 2Quarter 3Quarter
4(787,833)(606,881)(425,928)(225,681)52,137426,310848,6611
,295,1002,016,0982,881,9963,892,7945,048,491Interest
Income/(Expense)Total YearPer Month/QtrYear 100Year
2(60,000)(5,000)Year 3(48,000)(12,000)Year
4(45,000)(11,250)Year 5(14,000)(3,500)
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Note: these two columns must be the same
CASHFLOW-MOSXYZ CompanyCash Flow StatememtYear 1
by Months($)XYZ CompanyCash Flow StatementYear 1Year 1
by MonthsEstimatedAnnualMonth 1Month 2Month 3Month
4Month 5Month 6Month 7Month 8Month 9Month 10Month
11Month 12Year 1ProjectionOPERATING ACTIVITIES Net
Earnings(25,000)(20,000)0(33,357)(53,370)(66,713)(66,713)(80
,056)(100,070)(80,056)(86,727)(100,070)(712,131)(712,131)
Depreciation3,6153,6153,6153,6153,6153,6153,6153,6153,6153
,6153,6153,61543,38143,381 Working Capital
Changes(Increase)/Decrease Accounts
Receivable000(49,800)(29,880)(19,920)0(19,920)(29,880)29,88
0(9,960)(19,920)(149,400)(149,400)(Increase)/Decrease
Inventories000(49,800)(29,880)(19,920)0(19,920)(29,880)29,88
0(9,960)(19,920)(149,400)(149,400)(Increase)/Decrease Other
Current

41. Assets000(6,000)(3,600)(2,400)0(2,400)(3,600)3,600(1,200)(2,4
00)(18,000)(18,000)Increase/(Decrease) Accts Pay & Accrd
Expenses003149,96932,20021,32088020,00030,880(28,680)8,68
020,440155,720155,720Increase/(Decrease) Other Current
Liab0006,0003,6002,40002,4003,600(3,600)1,2002,40018,0001
8,000 Net Cash Provided/(Used) by Operating
Activities(21,385)(16,385)3,646(79,373)(77,315)(81,618)(62,21
8)(96,281)(125,335)(45,361)(94,352)(115,855)(811,830)(811,83
0)INVESTING ACTIVITIES Property &
Equipment(50,000)(100,000)(50,000)(40,000)00(40,000)00000(
280,000)(280,000) Other00 Net Cash Used in Investing
Activities(50,000)(100,000)(50,000)(40,000)00(40,000)00000(2
80,000)(280,000)FINANCING ACTIVITIES
Increase/(Decrease) Short Term Debt0000 Increase/(Decrease)
Curr. Portion LTD0000 Increase/(Decrease) Long Term
Debt0000 Increase/(Decrease) Common Stock0000
Increase/(Decrease) Preferred Stock0000 Dividends
Declared000 Net Cash Provided / (Used) by Financing
00000000000000INCREASE/(DECREASE) IN
CASH(71,385)(116,385)(46,354)(119,373)(77,315)(81,618)(102
,218)(96,281)(125,335)(45,361)(94,352)(115,855)(1,091,830)(1,
091,830)CASH AT BEGINNING OF
PERIOD1,500,0001,428,6151,312,2301,265,8771,146,5041,069,
188987,570885,352789,072663,737618,376524,0241,500,000C
ASH AT END OF
PERIODERROR:#NAME?1,428,6151,312,2301,265,8771,146,5
041,069,188987,570885,352789,072663,737618,376524,024408,
170408,170XYZ CompanyCash Flow StatementYear 2Year 2 by
MonthsEstimatedAnnualMonth 1Month 2Month 3Month 4Month
5Month 6Month 7Month 8Month 9Month 10Month 11Month
12Year 2ProjectionOPERATING ACTIVITIES Net
Earnings(12,903)(12,903)(16,065)(14,484)(16,065)(16,065)(17,
645)(20,806)(20,806)(22,387)(23,968)(23,968)(218,064)(218,06
4)
Depreciation10,97610,97610,97610,97610,97610,97610,97610,9
7610,97610,97610,97610,976131,714131,714 Working Capital

42. Changes0(Increase)/Decrease Accounts
Receivable(112,050)0(104,580)52,290(52,290)0(52,290)(104,58
0)0(52,290)(52,290)0(478,080)(478,080)(Increase)/Decrease
Inventories(112,050)0(104,580)52,290(52,290)0(52,290)(104,58
0)0(52,290)(52,290)0(478,080)(478,080)(Increase)/Decrease
Other Current
Assets(13,500)0(12,600)6,300(6,300)0(6,300)(12,600)0(6,300)(
6,300)0(57,600)(57,600)Increase/(Decrease) Accts Pay & Accrd
Expenses(149,120)(6,600)31331,13950,1902,31052,500107,310
4,62052,50054,8102,310502,000502,000Increase/(Decrease)
Other Current
Liab13,500012,600(6,300)6,30006,30012,60006,3006,300057,6
0057,600 Net Cash Provided/(Used) by Operating
Activities(375,147)(8,527)(214,217)432,211(59,478)(2,778)(58,
749)(111,680)(5,210)(63,491)(62,762)(10,682)(540,510)(540,51
0)0INVESTING ACTIVITIES0 Property &
Equipment(100,000)(100,000)000(100,000)00(100,000)00(100,0
00)(500,000)(500,000) Other00 Net Cash Used in Investing
Activities(100,000)(100,000)000(100,000)00(100,000)00(100,0
00)(500,000)(500,000)0FINANCING ACTIVITIES0
Increase/(Decrease) Short Term Debt0000 Increase/(Decrease)
Curr. Portion LTD100,0000100,000100,000
Increase/(Decrease) Long Term Debt400,0000400,000400,000
Increase/(Decrease) Common Stock0000 Increase/(Decrease)
Preferred Stock500,0000500,000500,000 Dividends
Declared000 Net Cash Provided / (Used) by Financing
1,000,000000000000001,000,0001,000,0000INCREASE/(DECR
EASE) IN
CASH524,853(108,527)(214,217)432,211(59,478)(102,778)(58,
749)(111,680)(105,210)(63,491)(62,762)(110,682)(40,510)(40,5
10)CASH AT BEGINNING OF
PERIOD408,170933,023824,496610,2791,042,490983,012880,2
33821,484709,804604,594541,103478,341408,170CASH AT
END OF
PERIODERROR:#NAME?933,023824,496610,2791,042,490983,
012880,233821,484709,804604,594541,103478,341367,660367,

43. 660XYZ CompanyCash Flow StatementYear 3Year 4Year
5Years 3, 4 & 5 by QuartersAnnualAnnualAnnualYear 3Year
4Year 5ProjectionProjectionProjection1st Qtr2nd Qrtr3rd
Qrtr4th QrtrTotal1st Qtr2nd Qtr3rd Qtr4th QtrTotal1st Qtr2nd
Qtr3rd Qtr4th QtrTotalOPERATING ACTIVITIES Net
Earnings142,362180,953180,953200,248704,515183,181246,71
4278,481294,3641,002,741432,599519,539606,478693,4182,252
,034704,5151,002,7412,252,034
Depreciation61,02461,02461,02461,024244,09593,40593,40593,
40593,405373,619127,452127,452127,452127,452509,810244,0
95373,619509,810 Working Capital
Changes(Increase)/Decrease Accounts
Receivable(36,520)(166,000)0(83,000)(285,520)(83,000)(332,0
00)(166,000)(83,000)(664,000)(83,000)(332,000)(332,000)(332,
000)(1,079,000)(285,520)(664,000)(1,079,000)(Increase)/Decre
ase
Inventories91,480(134,000)0(67,000)(109,520)(67,000)(268,000
)(134,000)(67,000)(536,000)(67,000)(268,000)(268,000)(268,00
0)(871,000)(109,520)(536,000)(871,000)(Increase)/Decrease
Other Current
Assets(4,400)(20,000)0(10,000)(34,400)(10,000)(40,000)(20,00
0)(10,000)(80,000)(10,000)(40,000)(40,000)(40,000)(130,000)(
34,400)(80,000)(130,000)Increase/(Decrease) Accts Pay &
Accrd
Expenses38,280174,000087,000299,28087,000348,000174,0008
7,000696,00087,000348,000348,000348,0001,131,000299,28069
6,0001,131,000Increase/(Decrease) Other Current
Liab4,40020,000010,00034,40010,00040,00020,00010,00080,00
010,00040,00040,00040,000130,00034,40080,000130,000 Net
Cash Provided/(Used) by Operating
Activities296,626115,976241,976198,272852,850213,58688,119
245,886324,769872,360497,051394,991481,931568,8711,942,84
4852,850872,3601,942,844INVESTING ACTIVITIES Property
&
Equipment(100,000)(200,000)(100,000)(150,000)(550,000)(200,
000)(200,000)(100,000)(150,000)(650,000)(200,000)(200,000)(

44. 200,000)(150,000)(750,000)(550,000)(650,000)(750,000)
Other00000 Net Cash Used in Investing
Activities(100,000)(200,000)(100,000)(150,000)(550,000)(200,
000)(200,000)(100,000)(150,000)(650,000)(200,000)(200,000)(
200,000)(150,000)(750,000)(550,000)(650,000)(750,000)FINAN
CING ACTIVITIES Increase/(Decrease) Short Term
Debt000100,0000100,0000(100,000)(100,000)0100,000(100,000
) Increase/(Decrease) Curr. Portion LTD000000000000
Increase/(Decrease) Long Term
Debt0(100,000)(100,000)0(100,000)(100,000)0(100,000)(100,00
0)(100,000)(100,000)(100,000) Increase/(Decrease) Common
Stock000000000000 Increase/(Decrease) Preferred
Stock000000000000 Dividends
Declared0000(50,000)(50,000)00(50,000) Net Cash Provided /
(Used) by Financing
000(100,000)(100,000)100,00000(100,000)0000(250,000)(250,0
00)(100,000)0(250,000)INCREASE/(DECREASE) IN
CASH196,626(84,024)141,976(51,728)202,850113,586(111,881
)145,88674,769222,360297,051194,991281,931168,871942,844
202,850222,360942,844CASH AT BEGINNING OF
PERIOD367,660564,286480,262622,238570,510684,096572,215
718,101792,8701,089,9211,284,9121,566,843367,660570,51079
2,870CASH AT END OF
PERIOD564,286480,262622,238570,510684,096572,215718,101
792,8701,089,9211,284,9121,566,8431,735,714570,510792,870
1,735,714
&D
&T
SUMMARYXYZ CompanySummaryYears 1 to 5Year 1Year
2Year 3Year 4Year 5Summary Financials
($)Revenue1,000,0005,250,0009,750,00016,250,00026,000,000
Gross
Profit(117,464)1,717,8364,050,5716,910,71411,966,857EBIT(7
12,131)(158,064)752,5151,565,7813,767,390EBITDA(668,750)(
26,350)996,6101,939,4004,277,200Net

45. Earnings(712,131)(218,064)704,5151,002,7412,252,034Net
Cash from Operating
Activities(811,830)(540,510)852,850872,3601,942,844Capital
Expenditures280,000500,000550,000650,000750,000Interest
Income/(Expense)0(60,000)(48,000)(45,000)(14,000)Dividends0
00050,000Cash 408,170367,660570,510792,8701,735,714Total
Equity(212,131)(430,195)274,3191,277,0603,479,094Total
Debt0500,000400,000300,000200,000Growth Revenue Growth
Rate - CAGR:425%86%67%60% Net Earnings Growth Rate -
CAGR:NilNil42.3%124.6%Ratios Current
Ratio4.22.02.01.92.1 Debt to Capital (LT Debt +
Equity)0.00.30.20.10.0ProfitabilityGross Profit %-
11.7%32.7%41.5%42.5%46.0%Operating Expenses
%55.0%35.7%33.8%32.9%31.5%Net Earnings %-71.2%-
4.2%7.2%6.2%8.7%ReturnsReturn on Assets-74.1%-
9.5%21.7%20.0%27.2%Return on Equity-90.4%-
20.4%39.7%36.1%45.2%Return on Capital (LT Debt + Equity)-
90.4%-13.9%32.4%32.6%43.5%
&D
&T
VAL-1XYZ CompanyNotes
Compaq: Valuation
The venture capital method assumes that a firm will undertake
an Initial Public Offering (IPO) at some point in the future or be
acquired, ie a “liquidity event”. The future value of the firm is
determined by multiplying the earnings of the firm in the year
of the liquidity event by the expected price/earnings (P/E) ratio
that the market will support. (The long-run P/E ratio of NYSE
stocks is about 15.) This provides the expected future value of
the firm.
The present value of the firm is then calculated using a risk
adjusted discount rate. Discount rates of 50 to 100% (and

46. more) are frequently used in valuing start-up businesses to
capture the inherently risky nature of new ventures. Similarly,
venture capitalists frequently demand an Internal Rate of Return
(IRR) of 100% (or more) in order to justify investing in a risky
startup. (An IRR of 100% is equivalent to doubling the value of
an investment every year.)
There are two valuation worksheets provided in the model:
VAL-1 estimates the value of the company based on an initial
investment of the start of the venture and a one-time liquidity
event. The net income estimates for each of the five years need
to be inputted manually, but you can easily make links directly
to Net Income line in the Income Statement projections. Use the
Negotiation Workspace to test various dilution assumptions.
Val-2 estimates the value of the company based on multiple
rounds of investment. The timing of the each round of
Investment and the IPO can be modified. Use the Negotiation
Workspace to test various dilution assumptions.
Valuation Venture Capital MethodYears 1 to
5Assumptions:REFInvestor required IRR60%AP/E ratio at IPO
or acquisition15BInitial
investment$1,500,000CFV(A,C)G/FIRR(D,G)REFDEFGHI
JKValuation CalculationYearNet IncomeMarket
Capitalization Required Future Value (Investor)Investor's
ShareInvestor's
ReturnInvestor's
ROIInvestor's
IRRIRR Calculation WorkspaceCalculationIncome StmtB *
EFV(F,D)C / GF * HI / CIRR(I,C,D)StartYear 1Year 2Year
3Year 4Year 5Liquidity Event in Year
11(712,131)($10,681,967)$2,400,000100.0%$00%ERROR:#N/A
($1,500,000)$0Liquidity Event in Year
22(218,064)($3,270,964)$3,840,000100.0%$00%ERROR:#N/A(

47. $1,500,000)$0$0Liquidity Event in Year
33704,515$10,567,721$6,144,00058.1%$6,144,000410%60%($1
,500,000)$0$0$6,144,000Liquidity Event in Year
441,002,741$15,041,112$9,830,40065.4%$9,830,400655%60%(
$1,500,000)$0$0$0$9,830,400Liquidity Event in Year
552,252,034$33,780,514$15,728,64046.6%$15,728,6401049%6
0%($1,500,000)$0$0$0$0$15,728,640Negotiation
WorkspaceYearInvestor's
ShareInvestor's
ReturnInvestor's
ROIInvestor's
IRR125.0%$00%ERROR:#N/A($1,500,000)$0225.0%$00%ERR
OR:#N/A($1,500,000)$0$0325.0%$2,641,930176%21%($1,500,
000)$0$0$2,641,930425.0%$3,760,278251%26%($1,500,000)$0
$0$0$3,760,278540.0%$13,512,206901%55%($1,500,000)$0$0$
0$0$13,512,206
&D
&T
VAL-2XYZ CompanyNotes
Compaq: Valuation
The venture capital method assumes that a firm will undertake
an Initial Public Offering (IPO) at some point in the future or be
acquired, ie a “Liquidity Event”. The future value of the firm is
determined by multiplying the earnings of the firm in the year
of the Liquidity Event by the expected price/earnings (P/E) ratio
that the market will support. (The long-run P/E ratio of NYSE
stocks is about 15.) This provides the expected future value of
the firm.
The present value of the firm is then calculated using a risk
adjusted discount rate. Discount rates of 50 to 100% (and
more) are frequently used in valuing start-up businesses to
capture the inherently risky nature of new ventures. Similarly,

48. venture capitalists frequently demand an Internal Rate of Return
(IRR) of 100% (or more) in order to justify investing in a risky
startup. (An IRR of 100% is equivalent to doubling the value of
an investment every year.)
There are two valuation worksheets provided in the model:
VAL-1 estimates the value of the company based on an initial
investment of the start of the venture and a one-time liquidity
event. The net income estimates for each of the five years need
to be inputted manually, but you can easily make links directly
to Net Income line in the Income Statement projections. Use the
Negotiation Workspace to test various dilution assumptions.
Val-2 estimates the value of the company based on multiple
rounds of investment. The timing of the each round of
Investment and the IPO can be modified. Use the Negotiation
Workspace to test various dilution assumptions.
Valuation Venture Capital MethodYears 1 to 5Multiple
RoundsAssumptionsRefCalculationMonth of IPO60AForecast
annualized earnings at IPO$2,252,034BP/E ratio at
IPO15CInvestment RoundFirstSecondThird Month of
Investment024CInvestor required IRR60%50%DAmount of
Investment$1,500,000$500,000ERequired Monthly
IRR5.00%4.17%0.00%FD/12Duration of Investment603660GA-
CCalculationsMarket Capitalization at
IPO$33,780,514HB*CFirstSecondThird Required FV for
Investor at IPO$15,728,640$1,687,500$0IE*(1+F)^GIndividual
Investor's Share46.6%5.0%0.0%JI/HIndividual Investor's
ROI1049%338%ERROR:#DIV/0!KI/EIndividual Investor's
IRR60%50%ERROR:#DIV/0!L(I/E)^(12/G)-1Cumulative
Investors' Share46.6%51.6%51.6%Msum(J)Cumulative
Founders' Share53.4%48.4%48.4%N1-MNegotiations
RoundFirstSecondThird Individual Investor's
Share15.0%5.0%3.0%FV for Investor at

49. IPO$5,067,077$1,689,026$1,013,415Individual Investor's
ROI338%338%ERROR:#DIV/0!Individual Investor's
IRR28%50%ERROR:#DIV/0!
&D
&T
Teresa Harris v. Forklift Systems, Inc.
United States Supreme Court 510 U.S. 17 (1994)
Plaintiff Harris was a manager for Defendant Forklift Systems,
Inc. During her tenure at Forklift Systems, Plaintiff Harris was
repeatedly insulted by defendant’s president and, because of her
gender, subjected to sexual innuendos. Numerous times, in front
of others, the president told Harris, “You’re just a woman, what
do you know?” He sometimes asked Harris and other female
employees to remove coins from his pockets and made
suggestive comments about their clothes. He suggested to Harris
in front of others that they negotiate her salary at the Holiday
Inn. When Harris complained, he said he would stop, but he did
not; so she quit and filed an action against the defendant for
creating an abusive work environment based on her sex.
The district court found in favor of the defendant, holding that
some of the comments were offensive to the reasonable woman
but were not so serious as to severely affect Harris’s
psychological well-being or to interfere with her work
performance. The court of appeals affirmed. Plaintiff Harris
appealed to the U.S. Supreme Court.
Justice O’Connor
In this case we consider the definition of a discriminatorily
“abusive work environment” (a “hostile work environment”)
under Title VII.

50. Title VII of the Civil Rights Act of 1964 makes it “an unlawful
employment practice for an employer… to discriminate against
any individual with respect to his compensation, terms,
conditions, or privileges of employment, because of such
individual’s race, color, religion, sex, or national origin.”…
[T]his language “is not limited to ‘economic’ or ‘tangible’
discrimination. The phrase ‘terms, conditions, or privileges of
employment’ evinces a congressional intent ‘to strike at the
entire spectrum of disparate treatment of men and women’ in
employment,” which includes requiring people to work in a
discriminatorily hostile or abusive environment. When the
workplace is permeated with “discriminatory intimidation,
ridicule, and insult,” that is “sufficiently severe or pervasive to
alter the conditions of the victim’s employment and create an
abusive working environment.”
This standard, which we reaffirm today, takes a middle path
between making actionable any conduct that is merely offensive
and requiring the conduct to cause a tangible psychological
injury. As we pointed out in Meritor, “mere utterance of an
‘epithet which engenders offensive feelings in a employee,’
does not sufficiently affect conditions of employment to
implicate Title VII. Conduct that is not severe or pervasive
enough to create an objectively hostile or abusive work
environment’—an environment that a reasonable person would
find hostile or abusive”—is beyond Title VII’s purview.
Likewise, if the victim does not subjectively perceive the
environment to be abusive, the conduct has not actually altered
the conditions of the victim’s employment, and there is no Title
VII violation.
But Title VII comes into play before the harassing conduct
leads to a nervous breakdown. A discriminatorily abusive work
environment, even one that does not seriously affect employees’
psychological well-being, can and often will detract from

51. employees’ job performance, discourage employees from
remaining on the job, or keep them from advancing in their
careers. Moreover, even without regard to these tangible effects,
the very fact that the discriminatory conduct was so severe or
pervasive that it created a work environment abusive to
employees because of their race, gender, religion, or national
origin offends Title VII’s broad rule of workplace equality. The
appalling conduct alleged in Meritor, and the reference in that
case to environments “so heavily polluted with discrimination
as to destroy completely the emotional and psychological
stability of minority group workers,” merely present some
especially egregious examples of harassment. They do not mark
the boundary of what is actionable.
We therefore believe the District Court erred in relying on
whether the conduct “seriously affected plaintiff’s
psychological well-being” or led her to “suffer injury.” Such an
inquiry may needlessly focus the fact-finder’s attention on
concrete psychological harm, an element Title VII does not
require. Certainly Title VII bars conduct that would seriously
affect a reasonable person’s psychological well-being, but the
statute is not limited to such conduct. So long as the
environment would reasonably be perceived, and is perceived,
as hostile or abusive, there is no need for it also to be
psychologically injurious.
This is not, and by its nature cannot be, a mathematically
precise test. But we can say that whether an environment is
“hostile” or “abusive” can be determined only by looking at all
the circumstances. These may include the frequency of the
discriminatory conduct; its severity; whether it is physically
threatening or humiliating, or a mere offensive utterance; and
whether it unreasonably interferes with an employee’s work
performance. The effect on the employee’s psychological well-
being is, of course, relevant to determining whether the plaintiff
actually found the environment abusive. But while

52. psychological harm, like any other relevant factor, may be taken
into account, no single factor is required.
Reversed and remanded in favor of Plaintiff, Harris.
Sheet1Balance sheet For SYL Company for the year ending
2015Income statement for SYL Company for the year ending
2015ASSETSCASH RECEIVED 150,000Current Assets$Cash
from Operations75,000Cash10,000SUBTOTAL CASH FROM
OPERATIONS225,000Accounts
receivable7,000Inventory12,000Additional cash
received14,000Total current Assets29,000Sales Tax20,000New
Current borrowing3,000Non-Current AssetsNew long-term
liabilities5,000Computers and equipment5,000New investment
Received10,000SUBTOTAL CASH RECEIVED52,000TOTAL
ASSETS34,000LIABILITIESEXPENDITURESCurent liabilities
Expenditures from operations5,000Accounts payable
16,000Cash Spending12,000Tax liability10,000SUBTOTAL
SPENT ON OPERATIONS27,000Total26,000Additional Cash
spent5,000Non-current Liabilities Sales tax10,000Business
Loan3,000Principal repayment of current
borrowing500Total3,000Purchase Other Current
Assets1,500SUBTOTAL CASH SPENT 17,000TOTAL
LIABILITIES 29,000NET ASSETS5,000NET CASH
FLOW233,000OWNERS EQUITY5,000Income Statement for
SYL Company for the year ending 2015SALES Direct cost of
sales150,000Other production expenses 4,000Total cost of
sales154,000EXPENSESpayroll 45,000Marketing and other
expenses30,000Depreciation
5,000Utilities3,000Insurance5,000Rent10,000Other1,000TOTA
L OPERATING EXPENSES99,000Profit before
interest55,000Interest expense 3,000Taxes incurred5,000NET
PROFIT 47,000KEY ASSUMPTIONS MADE1. The company
makes constant sales in the firt year2. All the financial
statements have been prepared based on accrual basis of
accounting3. All the statements have been prepared as per the

53. requirements of IFRS
Sheet2
Sheet3