Urban Waters PPT - Copy

Case study solution

Given Facts

Operating Expenses Technicians' Wages Local Management Salaries Sales Staff Salaries Water Testing & Filter Maintenance Marketing Expenses Vehicle Expenses

Year 1 Year 2 Year 3 3600 120000 180000 120000 325000 400000 0 18000 18000 10200 408000 612000 60000 75000 171400 2500 65000 110000

Assumptions for Revenue Calculation Narration Number of vendors Customers per vendor Water rate per litre Number of working days Revenue

Year 1 50

Year 2 2000

Year 3 3000

150 0.08

150 0.08

150 0.08

365 365 365 219000 8760000 13140000

Narration Local Politicians Underreporting

 Underreporting

Assumptions for Revenue loss under certain Year 2 Year 3 condition

Year 1 43800 1752000 2628000 32850 1314000 1971000

is calculated at 15% of Gross

Revenue  Informal cost to Local politicians is calculated at 20% of Gross Revenue

Capital Cost and DepreciationSlow sand filters Year 2 Year 3

Capital Investment Year 1 Number installed 50 1950 1000 Cost of each filter 400 250 250 Total Expenditure 20000 487500 250000 Depriciation per filter 26.67 16.67 16.67 Depreciation 1333.33 33833.33 50500.00   Life expectancy for Filter is 15 years

Capital Investment Number Cost per motorcycle Total expenditure Depriciation   Life

Capital Cost and DepreciationMotorcycles Year 1

Year 2

Year 3

3

97

50

2500 7500 1500

2500 242500 50000

2500 125000 75000

expectancy for Motorcycle is 5 years

Capital Cost and DepreciationTrucks Capital Investment Year 1 Year 2 Year 3 Number 1 20 9 Cost per vehicle 12500 12500 12500 Total expenditure 12500 250000 112500 Depriciation 2500 52500 75000

  Life

expectancy for Truck is 5 years

Depreciation

Capital Investment Year 1 Year 2 Year 3 Sand filter 1333.33 33833.33 50500.00 Motorcycle 1500 50000 75000 Truck 2500 52500 75000 136333.3 Total 5333.33 3 200500

Narration Revenues Less: COGS Less: Loss on underreporting GROSS PROFIT Less: Operating Costs Technicians' Wages Local Management Salaries Sales Staff Salaries Water Testing & Filter Maintenance Marketing Expenses Vehicle Expenses Other Costs Depreciation TOTAL OPERATING

Year 1

Income Statement Year 2 Year 3 Projections 219000 8760000 13140000 43800

1752000

2628000

32850 142350

1314000 5694000

1971000 8541000

3600

120000

180000

120000 0

325000 18000

400000 18000

10200 60000 2500 47800 5333.5

408000 75000 65000 1756000 136340

612000 171400 110000 2632000 200510

Balance Sheet Year 0 Capital Retained Earnings Outside Liabilities TOTAL LIABILITIES GROSS FIXED  ASSETS Slow-sand Filters Motorcycles and Trucks Total Less:  Accumulated depreciation

Year 1 Year 2 Year 3 200000 200000 200000 200000 6800666. -107084 2583577 5 0 7000666. 92916.5 2783577 5

20000

507500

757500

20000 512500 750000 40000 1020000 1507500

5333.5 141673.5 342183.5 1165316.

 Year 1 Operating Profit  Add back: Depreciation  Add expense:Consultancy investment turned expense Cash From Operations Debt raised Debt repaid Interest on debt paid Cash From Financing Investment in fixed assets Investment in current assets Investment in Blue

Cash flow Year 2 Year 3 -107084 2790660 4217090 Statement 5333.5

136340

200510

4000

4000

4000

-97750

2931000

4421600

0

1000000 1000000 100000 100000

0

40000

980000

487500

Question- 2 The template provided for Income Statement first reports gross revenue from sales ‘earned’ and then allows for underreporting losses in computing gross profits for the three years. Keeping with the principles of the Revenue Recognition concept on the one hand and the Conservatism concept on the other, in your opinion, what is the best way to report revenues for Urban Water Partners?  Answer While reporting revenues underreporting losses need not be accounted for since that amount of sale was never earned and is just an assumption that a percentage of expected revenue shall be lost in underreporting. However in the current context it is necessary to mention it in order to inform the investor on business model, it’s outflow and risk associated with the business.

Question- 2 The template provided for Income Statement first reports gross revenue from sales ‘earned’ and then allows for underreporting losses in computing gross profits for the three years. Keeping with the principles of the Revenue Recognition concept on the one hand and the Conservatism concept on the other, in your opinion, what is the best way to report revenues for Urban Water Partners?  Answer While reporting revenues underreporting losses need not be accounted for since that amount of sale was never earned and is just an assumption that a percentage of expected revenue shall be lost in underreporting. However in the current context it is necessary to mention it in order to inform the investor on business model, it’s outflow and risk associated with the business.

Question 3-If you were a consultant vetting the students’ business plan, what assumptions would you change? Any additions or deletions that you would make?  Answer1. No monetary assumption on filter related losses is accounted which needs to be quantified. 2. Transaction charges occurring out of the payment gateway through mobile networks is not calculated and needs to be assumed. 3. Availability of uninterrupted water supply is assumed however in real case scenario some contingency may arise and cost of it needs to be assumed and included.

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