Financial Ratios and Venture Investor Attractiveness

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WEEK 1 HOMEWORK|
Entrepreneurial Finance|
Professor: Caryl Pedersen|
|
Roxanne Robinson|
5/12/2013|

Chapter 1: Exercises/Problem #1 pp.33-34
1. [Financing Concepts] The following ventures are at different stages in their life cycles. Identify the likely stage for each venture and describe the type of financing each venture is likely to be seeking and identify potential sources for that financing. A. Phil Young, founder of Pedal Pushers, has an idea for a pedal replacement for children’s bicycles. The Pedal Pusher will replace existing bicycle pedals with an easy-release stirrup to help smaller children hold their feet on the pedals. The Pedal Pusher will also glow in the dark and will provide a musical sound as the bicycle is pedaled. Phil is seeking some financial help in developing working prototypes. Early-stage venture / Development Stage / Seed Financing

B. Petal Providers is a firm that is trying to model the U.S. floral industry after its European counterparts. European flower markets tend to have larger selections at lower prices. Revenues started at $1 million last year when the first “mega” Petal Providers floral outlet was opened. Revenues are expected to be $3 million this year and $15 million next year after two additional stores are opened. Seasoned Firm / Rapid Growth Stage / Mezzanine Financing

Chapter 2: Exercises/Problem #2 A-C & E p.70
| Venture XX| Venture YY| Venture ZZ|
After-tax Profit Margins| 5%| 25%| 15%|
Asset Turnover| 2.0 times| 3.0 times| 1.0 times|

2. [Financial Ratios and Performance] Following is financial information for three ventures: A. Calculate the ROA for each firm.
Return on Assets = Net Profit Margin x Asset Turnover
(Net Profit / Total Assets) = (Net Profit / Revenues) x (Revenues / Total Assets) Venture XX = 5% x 2.0 = .05 x 2 = 0.1 = 10%
Venture YY = 25% x 3 = .25 x 3 = .75 = 75%
Venture ZZ = 15% x 1 = .15 x 1 = .15 = 15%
B. Which venture is indicative of a strong entrepreneurial venture opportunity? The venture indicative of a strong entrepreneurial venture opportunity is Venture YY with the highest Return on Assets of 75%. C. Which venture seems to be more of a commodity-type business? The venture that seems to be more of a commodity-type business would be Venture XX with the lowest profit margin of 5%. E. Use the information in Figure 2.9 relating to pricing/profitability and “score” each venture in terms of potential attractiveness.

| Venture XX| Venture YY| Venture ZZ|
Gross Margins| -| -| -|
Potential Attractiveness| -| -| -|
After-Tax Margins| 5%| 25%| 15%|
Potential Attractiveness| LOW| HIGH| AVG|
Asset Intensity| 2| 3| 1|
Potential Attractiveness| AVG| HIGH| LOW|
ROA| 10%| 75%| 15%|
Potential Attractiveness| LOW| HIGH| AVG|

Chapter 2: LearnRite.com Mini Case questions p.74 (Note that questions over this Mini Case are included in one of your graded discussion topics this week, so it would be beneficial to complete this assignment early in the week so you can respond appropriately to the discussions.) MINI CASE: LearnRite.com Corporation

LearnRite has made the following five-year revenue projections: | 2011| 2012| 2013| 2014| 2015|
Revenues ($M)| $1.0| $9.6| $30.1| $67.8| $121.4|

Projected GPM=30% annually
Projected NPM= 10% (2013) Asset Turnover = 2 times per year Investors ROR=40% annually compounded Possible Merger Operating and Marketing Expenses = $3 million (2011), $5 million (2012), break even (2013), Projected Industry Sales = $35 Billion annually

A. Project industry sales for children’s software through 2015 based on the information provided above. | 2011| 2012| 2013| 2014| 2015|
Projected Industry Sales| $1.0| $9.6| $30.1| $67.8| $121.4|

B. Calculate the year-to-year annual sales...
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