Jiabao Cut






Theamount that I will be contributing towards the business is $15,000.Currently, I do not have any equipment. I still need to purchase theequipment that is needed to start the business.


Iwill not borrow any money from financial institutions. However, myfamily members have agreed to chip in to help me raise the neededstart-up capital.

Assetsand initial cash worksheet

SinceI do not have any equipment, I will have to start from scratch andbuy the new operating equipment. Some of the operating equipment thatI will need to get started is point of sale system (POS)workstations, disinfectant, floor mats, styling chair, spray bottles,garbage cans, haircut machine, and waiting chairs. There are a musthave to have the smooth running of the business.

Grossmargin or markup

Mybusiness does not have any revenue stream from goods purchased fromsomewhere else. Therefore, there is no percentage of revenue fromthat income stream. The revenue will be from the day-to-dayoperations.

Costsand expenses

Mybusiness will require employees to run smoothly. There will be sixbarbers. Four will deal with haircut services while the remaining twowill be on pedicure and manicure. The employee will be givencompensation based on an hourly basis. The first senior operator willreceive a gross pay of $576 per month, the three middle leveloperators will each get $432 per month and the two junior operatorswill get $374.40 and$345.60respectively.

Salesand income by month

Theprojected sales for the first year are $90311. When this amount isbroken down into months, then the result is $755 per month. It isimportant to break down the yearly sales forecast figure into monthlyfigures that can be easily monitored. Breaking down the figuresmakes it easy to determine the months that have high sales. Thefirst months of the business are tough and it is not easy todetermine high seasons and low seasons in the business. At themoment, there are no credit payment options available to Jiabao cut.Given that is just starting, it does not qualify to getcredit from its suppliers. Furthermore, it is not likely for a newbusiness to be given items on credit.


Cashbudget is the projected sources and cash uses in the future period.It is used to whether the company’s operations will generate enoughcash to meet cash requirements that have been projected. In case thecompany is not able to make enough money, it means that there is aneed look for additional funding. The cash budget consists of twoareas which are uses of cash and sources of cash. If there are largebalances in the cash budget, then such balances are used to financesuitable investments. On the other hand, if there are negativebalances, it shows that there is need to identify the timing and theamount of debt that is required to clear the remaining balances.Jiabao cut does not have months with negative values on the cashbudgets. Therefore, the business has sufficient cash to finance itsinvestments.

Incomestatement and balance sheet

Yes,the company shows profit in the first year, second year and even thethird year. Yes, the profits are increasing ever year. it is a goodsign an it mean the business is a profitable venture.

Ratioor trend analysis

Debtto equity ratio

Debtto equity ratio is used to measure the financial leverage of acompany. It is an indication of how a company finances its assetsusing funds from its investors. If the debt to equity ratio is high,then it means that the company is spending more on creditor financingthan investor financing. On the other hand, when the ratio is lower,it implies that the business is financially stable. The debt equityratio in 2017 is 0.09, in 2018 it is 0.05 and in 2019 the ratio is0.03. In the case of Jiabao cut, the ratio has been reducing which isa good sign for the business.


Thegross margin ratio compares a company’s gross margin to the netsales. It measures how profitable a business is when it sells itsinventory. It is calculated by dividing the gross margin and netsales. A company with a higher gross margin rational is favorable.It means that the company sells its inventory at a higher percentage.A high margin also means that the company has more money to pay itsoperating expenses such as utilities, salaries and even rent. Thegross margin is 96% for all the three years. It means that afterpaying the inventory costs, Jiabao cut still has 96% of revenue tocover the operating costs.


Netmargin is the percentage of revenue that remains after interest,operating expenses, preferred stock dividends and taxes. The formulafor calculating the net margin is by dividing net profit by totalrevenue. The net margin is used to show how well a company canconvert its revenue into the available profits. When the net marginfor a company is reducing over time, then it means that the companyneeds to increase their sales and improve the customer experience.Additionally, the firm can manage its expenses. The net margin isused for companies that are in the same industry. The net margin for2017 is 50%, in 2018 it is 54%, and in 2019 it is 55%. In this case,the net margin increases over time. It means that the company isperforming well.

Returnon equity

Returnon equity (ROE) measures a firm’s ability to generate profits fromshareholder investments. Investors use this ratio to determinewhether a firm is using their money to increase the net income. It iscalculated by dividing net income by the shareholder’s equity.Higher return on equity ratios are preferred than lower ratios. In2017 the ratio is 82%, 2018 it is 50% and in 2019 the ratio is 35%.It is evident from these figures that the ratio is decreasing everyyear. Therefore, it only means that Jiabao is not spending theinvestor’s money properly. The lower ratios are not good for thebusiness.


Interestcoverage ratio is used to measure the ability of the company to makeinterest payment on its debts in good time. To calculate the interestcoverage ratio, the earnings before interest and taxes is divided byinterest expense. If the ratio is less than 1, it means that a firmdoes not have enough money to pay interests on money borrowed. Thecompany is not in a position to make the principle and interestpayments. It will be difficult for such a company to get financing.On the other hand, if the interest coverage ratio is 1, then it showsthat the company can comfortable make its interest payments. However,the company will still not be able to company the principle amount.The interest coverage that s usually preferred by investors I atleast 1.5. The interest coverage is zero for all the three years.

Company’sperformance over three years

Thecompany’s earnings after tax for the three years are $44,941 in2017, $55,648 for 2018 and $59,768 for 2019. Frrom these figures itshows that the company is performing well. The earnings after taxincrease every year. Therefore, it shows that the situation of thecompany keeps getting better.


Theconcern for most new businesses is to determine the point at whichthe business breaks even. Break-even point is where firm’s revenuesare able to cover its expenses over a given period of time.


Fromthe income statement and balance sheet, it is evident that thecompany is performing well. Furthermore, the ratios are also anindication of the performance of the firm. Therefore, it is onlyright to conclude that Jiabao cut should be started. The businesswill do well based on the projected financials.



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