Bull Run, Virginia
Pleasant Valley Estates is envisioned as an upwardly mobile community – located in Bull Run, Virginia – and targeted toward the young, single professional and young families.
Cash Flow Statement Overview
The cash flow statement constitutes a financial document, which details the exchange of cash between a business and the outside world while strategically demonstrating the in and outbound logistics. Flow is traditionally categorized as:
flow “in” from Operations – the cash the entity or company makes by selling goods and services, flow “in” from Financing – the cash the entity or company raises by selling stocks and bonds, and flow “out” to Investing – the cash the company spends toward investing in future growth
Each of these flows can move bi-directionally. Investors generally like to see that the company covers its spending with cash from operations rather than resort to financing. The cash flow statement must also reconcile the ‘net effect’ of these flows with the difference in its cash holdings at both beginning and ending dates of the reporting period.
Cash Flow Statement for Pleasant Valley Estates
The Pleasant Valley Cash Flow Statement will show how the company anticipates paying for its operations and future growth, by detailing the “flow” of cash between the company and the outside world; positive numbers represent cash flowing in, negative numbers represent cash flowing out.
A dollar figures are computed in thousands)
Other Adjustments to Earnings
Net Cash provided from Operations
Proceeds from Issuing New Stock
Payments to Repurchase Stock
Stock Dividends Paid
Net Cash provided from Financing
Additions to Property, Plant & Equipment
Net Cash used for Investing
Change in cash and equivalents during year
Cash and Equivalents, beginning of year
Cash and Equivalents, end of year
Table 1.1 Cash Flow Statement
Cash Flow Statement Explanation
The first two sections – Net Cash provided from Operations and Net Cash provided from Financing demonstrate the two methods by which the company can get cash. The last section in Table 1.1 shows how the company is spending cash and investing in its future growth.
Investors interested in this opportunity will look to see a healthy cash flow with the company paying for investments in future growth out of the “operations” figures and not from the “financing” figures.
Supply and Demand Equilibrium Statement
An accurate Supply and Demand Equilibrium Statement will take several factors into account.
Marketing mix – the product (new home units), the price (~ $260,000.00), the place (suburban settings with lowered driving commute times to major employers and business locations), the promotion (advertising campaign to include newspaper ads, neighborhood flyers, bulletin boards, Internet sites, onsite property signs, and “open house” events on weekends).
Marketing goals – intention to attract wealthy, income-stable occupants for housing and reducing current 2.2% of vacancy levels to 0%.
Market research – U.S. Bureau of the Census: Census 2000, Virginia Labor and Housing Reports, and Governmental Reports (e.g., HUD, Sallie Mae, Freddie Mac, and so on).
Industry Analysis – building, construction, and property maintenance
Industry Life Cycle – despite economic downtrends, high demand and lower interest rates will continue to drive demand for quality home sales and rental properties.
Industry Life Cycle – growth, maturity or decline.
Industry History – building, construction, and property maintenance has a long and stable history for over 200 years.
Industry Trends – non-cyclical, seasonal based on weather patterns, and limited competition.
Industry Influential Factors – the economy affects this industry with downsizing, job elimination, and government influences affect the construction industry based on current interest rates, loan availability, and loan criteria.
Projected Industry Sales – 5.2 million with median sales prices rising 4.5% to $154,200.
Supply – total supply demand will equal ~$125,927.08 with physical resources including – but not limited to – 13.97 tons of concrete, 2,085 ft2 for wood flooring, and 3,061 ft2 required for insulation per unit
Demand – population is increasing faster than development there is a high and current demand for single unit housing.
Industry participants – construction companies and competing projects (e.g., Pleasant Valley and Bull Run).
Target Market and Customer Base – young professionals, young professional families, successful retired singles and couples, high-income immigrants.
Customer Identification – desired characteristics of populants include annual income ranging from $80,000 to $100,000 combined income and ~$50,000 for individuals.
Marketing System – controllable factors are material quality, monthly mortgage costs, and property dues. Uncontrollable factors are elemental deterrents, interest rates, and vacancy levels.
Barriers to Entry – obstacles include, but are not limited to, competitive company incursion, unforeseen supply chain difficulties, and unforeseen inclement or unseasonable weather problems.
Intellectual Property – trade secrets for marketing strategies and construction peculiarities.
Company Revenues – estimate initial annual revenue at $441,192 (includes mortgage payments, country club dues, and club initial fees x 50 units) (see Figure 1-1)
Market Share – undetermined at this time
Growth Opportunities – the company may opt to pursue other construction projects, land management, or community development options in the future.
Click to Enlarge
Figure 1-1. Annual property income over 5-year spread.
Pro-Forma Profit and Loss Statement
The Pro-Forma Profit and Loss Statement differs from the balance sheet. The balance sheet will include reference to the retained profit of the company, it only provides this information in context with the source of company finance outlets and does not indicate from where the profit came.
The profit and loss statement is a compilation and calculation of gross sales income to the company. Note that all attributable costs must be deducted.
The first year’s projected profit and loss statement must be developed in great detail; often, breaking the year into monthly or quarterly figures. The remaining four years of any solid business plan will only need to produce the annual profit and loss statements.
All assumptions on which the figures are based must be clearly identified and explained with this report. It will be necessary to test the forecast’s sensitivity by anticipating and producing additional statements based on lower and higher income figures for both costs and expenses.
Path and Process
Initially, the cost of goods sold is deducted from sales income. This provides the gross profit figures. Calculate the cost of goods sold by totaling all relevant variable costs (e.g., material and labor costs). Do not include the cost of machinery, which produced the product, or costs for factory construction or maintenance developed for supply manufacture.
Next, one will deduct the operating expenses from gross profit to arrive at the profit before tax (PBT) figure. Operating expenses will include rent, rates, administration costs, depreciation, advertising costs, and all other overhead cost.
Once the profit before tax (PBT) figure is determined, the tax payments, interest charges, and the total remuneration of employees or director – including salary and bonuses (e.g., emoluments) must be deducted.
This leaves the profit after tax (PAT) from which shareholder’s dividends are distributed.
Table 1-2 demonstrates the process of breakdown for the Pro-Forma Profit and Loss Statement.
Gross Sales (~10 units per month) actual: 2,600,000 rounded to next hundred thousandth
Less: Sales Returns and Allowances
Cost of Goods:
5121, 10,070.03, 11,788.35, 7865.73, 7052.13, 5058.87, 12,470.59, 8604.00, 9350.35, 5362.11, 16,525.00, 4133.08, 5032.80, 8596.67, 8896.41
Variable Labor 0-0 0-0 0-0 0-0 0-0-0 0
Misc. 0-0 0-0 0-0 0-0 0-0-0 0
Less: Ending Inventory 0-0 0-0 0-0 0-0 0-0-0 0
Cost of Goods Sold 5121.27, 10,070.03, 11,788.35, 7865.73, 7052.13, 5058.87, 12,470.59, 8604.00, 9350.35, 5362.11, 16,525.00, 4133.08, 5032.80, 8596.67, 8896.41
Gross Profit (Loss)
19,145 27,676 60,966 66,374 70,156 77,656 88,718 95,450 109,987 147,575 158,368 215,360
Payroll Taxes and Benefits
Maintenance and Repairs
Permits and Licenses
Bank Service Charges
Net Operating Income
Gain (Loss) on Sale of Assets
Total Other Income
Net Income (Loss)
Net Income (Loss) after taxes
Table 1.2. Pro-Forma Profit and Loss
Financial Feasibility – Market Delineation
The labor force is projected at 79.3% with 76.4% of qualified workers employed. Commuting ranges are estimated at 3.2 minutes of driving time with 2.1% of the workforce relying on public transportation for arriving and departing the work site.
Recent Economic Trend Analysis
There is a strong market demand with close proximity to schools and major employers. An 80% private wage and salaried worker estimation are deciding economic factors. Occupied housing units comprise 95.6% of availability with an absorption rate of 21%.
Determination of Demand Factors
Income figures demonstrate that 50% of per capita salaries fall between $35,000 and $74,999.00. Population in the Pleasant Valley Estates measures at 11,337 persons. 3% of all households lack complete indoor plumbing facilities and 2.4% lack telephone services.
Analysis of Potential Supply – Possible Competition
The Pleasant Valley and Bull Run projects could present measurable competition to the Pleasant Valley Estates proposed construction project.
The California Teachers Union has contracted to purchase rental properties as well as provide debt financing for land purchase and financing for construction.
This commitment will attract additional investors as needed.
Virginia Construction Code
All new construction must comply with the Virginia Uniform Statewide Building Code. Several state required construction permits will also be required. These permits are to be filed under the owner/developer name of LadderMan Construction. They will include: building permits, electrical permits, mechanical permits, plumbing permits, VDOT licensing, and sewage and water supply construction permits.
Current review processes include the proposal for Bull Run, Virginia, land plot 43-3 located on State Highway 609, Pleasant Valley Road.
Reported assessment value per property is valuated at $210,960.
Excavation and single-family construction will be conducted within a zone rated for residence occupation. This shall include connecting water, sewer, electricity, gas, and laying utility cables underground. The streets will be paved according to agreements through the State of Virginia; curbs, sidewalks, and streetlights will be constructed, connected, or erected by the construction team.
Structural and Architectural Elements
The architectural style will be Classic Colonial, averaging 2600 ft2, with a width of 56 feet. Each two-story Colonial home will include four bedrooms, 2.5 baths, a basement, and will be placed on single-zoned one-acre plots.
Estimated Building Costs
The estimated cost per single-family residential dwelling unit is $125,927.08. The retail valuation per single-family residential dwelling unit will begin at $260,000.00. This calculation is based on a current cost of $100.00 per ft2. Estimated construction materials and cost producing processes include excavation, concrete, lumber, wood flooring, millwork, sheathing, roofing, exterior siding, plaster and drywall, tile work, windows and abutments, heating, insulation, hardware, and appliances.
The estimated construction costs are $125,927.08 per individuated single-family residential dwelling unit.
The objective is to manage costs while remaining within or below budget. All costs are to be financed through start-up capital or bank loans. The construction company will not manage the project or the new home units; it will, however, enter into a fiduciary agreement requiring a property manager to secure the highest possible net return per project.
2.2% of all housing units are vacated with occupied housing units composed of 95.6% of the population.
Monthly Mortgage Costs
64.6% of the population (2000 rankings) pay mortgages ranging from $1,000.00 to $1,499.00. Pleasant Valley Estates prices will begin at $260,000.00 with an average of $52,000.00 down (a standard 20%). Buyers will be financing approximately 80% of the balance ($208,000.00) at the current interest rate of 7%. This interest rate is calculated based on a likely increase in market rates from 5-6%. The loans will – on average – be based on a 30-year mortgage.
F.W. Dodge reports. Dec. 2000. http://dodge.construction.com/.
Revenues minus cost of sales, operating expenses, and taxes, over a given period of time. Earnings are the reason corporations exist, and are often the single most important determinant of a stock’s price. Earnings are important to investors because they give an indication of the company’s expected future dividends and its potential for growth and capital appreciation. That does not necessarily mean that low or negative earnings always indicate a bad stock; for example, many young companies report negative earnings as they attempt to grow quickly enough to capture a new market, at which point they’ll be even more profitable than they otherwise might have been. Also known as: Income
The allocation of the cost of an asset over a period of time for accounting and tax purposes; also, the decline in the value of a property due to general wear and tear or obsolescence; opposite of appreciation.
Jordan, B. “Homeownership Alliance.” Banc One Investments Advisor.
Freddie Mac Reports Strong Multifamily Lending Volume: New Product Lines Boost Production and Position Freddie Mac as Industry Leader.” Freddie Mac News and Information Report. Nov. 2000.
Statistics and predictions were taken from the following: CBR MLS, National Association of RealtorsÂ®, and the National Association of Home Builders. http://www.moneychimp.com/