Integrated Financial Model for Yse, a Drone Trading Company

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DSO 547-Designing spreadsheet based business models

Final Project

Integrated Financial Model for YSE, a drone trading company

Instructor:

Prof. Omeed Selbe

Team members:

Shreya Shetty

Yadnesh Gotey

Elmira Mirmaleksani

Executive Summary:

YSE Drones is trading company based out of Los Angeles, California; And aims to be a leading importer of hobby drones. Having already secured exclusive contract with Walmart California, YSE is looking at nationwide expansion with stringent quality checks of all its products, thus providing the best products at affordable pricing to all its clients. Looking at company’s financial statements over the past 5 quarters we have made some key insights into the Company’s performance and identified some places which can improve the ROI.

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Volume of Business:
Company’s Business Model is that of trading goods. The NPV net present value(to be easier to understand!!) of the company depends majorly on the volume of goods it trades. Hence expansion is the key

Margin:
Efforts should be made to maximize the margin as it is the only source of revenue (revenue stream) for the company.

Asset light Business strategy:
Keep working capital available to allow trading in higher volumes. Hence reduce investments in fixed assets and use renting and leasing wherever possible.
Target Market
Next steps:
The analysis of company’s historic performance enables us to make some broad suggestions to suggestions.(?)

• Negotiate terms of payments (DSO and DPO) to get more liquidity in system and higher volumes of Business.
• Expansion will lead to higher ROI. ( add more SKUs and trendy tech-related tools and toys, possessing potential demand in the united states as  the target market we have)
• Get more Business partners like Walmart California to establish nationwide presence.
• The Drone market is on its boom and hence there is ample demand of the product. Is it a next step?

Context

YSE Drones is a Limited Liability Partnership registered in the state of California. The management of the company includes a mix of experienced industry professionals. With the operations handled by supply chain professionals and marketing and sales by an experienced entrepreneur. An ambitious asset light model makes this company an attractive investment for venture capitalists.

The company deals in the import of toy drones from exclusive partners overseas and distributing it through channel partners like Walmart. The demand for drones in market has been at an all-time high at USD 356 million(1) in 2015 and is expected to grow to USD 4.19 Billion(1) in 2024 with a CAGR of 30%(1).

With a flexible and agile(explanation?) business structure, YSE can expand rapidly to match up with this exponential growth in market. Keeping minimal long term assets allow very fast and(?) ROI for current and future investors. With most of the operations being automated and streamlined the company size is lean and expense on labor is cut down to minimum.

The company is an attractive investment if it can get one or more clients in second year of its operation. Also, ensuring that it gets best quality of products imported from its supplier will ensure more orders from its existing clients. 

Financial Analysis

Assumptions

We have made some assumptions in formulating our Financial statements and projecting them to a 5 year mark. based on the market analysis or competition analysis.

• Cost of equity assumed to be 12%
• Growth Rate considerd 4%, since this is considered a startup and the demand raise is more or less secured based on the market forecast we considered a good growth rate which is 4%
• Tax Rate at a standard 35%
• Unit Sales growth Rate 15 % annual : Normally Distributed with 2% deviation
• Marging on COGS : 20% with a 10%  dev
• Increase in purchase price of product : 10% per year

Cash Conversion Cycle :

  Cash convertion cycle                                CCC             45

Initial Sales figures:

With a start of 5000 units per quarter with a some ? deviation of 500 units on both sides have been used to simulate the company’s projected performance

Other assumptions about Operating expenses have been elaborated in the Financial Model

Sensitivity Analysis / Investigation of Model Drivers

Assuming a modest 1000 units as initial sales figure we run the sensitivity analysis:

• We realize that our business is most sensitive to Initial sales figures and Margin is second impactful.

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Looking at this insight we increase the initial sales to 5000 units and reperform(redo) sensitivity analyses

Herein we learn that after a certain volume our margin is our most significant factor to Financial Growth and the payment terms : DSO and DPO are not as significant