Sensitivity Analysis
Turnover
The projections are based on a turnover of £77million over the three year period. This produces a profit of £8.1million (before interest on loan stock). A return of 9% 0n turnover and a return of 68% on capital invested of £12million, of which 50% will be retained by the company.
Land Costs
The projections are based on land costs of £27.5million over the three year period.
Build Costs
The projections are based on build costs of £37.8million over the three year period. If build costs increased by 10.7%, the return would drop to £12million: a return of 100% on the original capital invested of £12million.
Start Dates
The projections are built on assumed project start dates. If, as likely, the start dates are not as assumed, this will have an impact on the cash flow which will have an effect on profitability not known at this time. It could be beneficial if more projects can be put in hand earlier than projected although the cash flow may suffer until the accelerated sales start to have an impact.
Overheads
Overheads have been based on the manpower anticipated to be required to fulfil the business plan. If the anticipated manpower is not available, it may have an impact on the company’s ability to fulfil its projected figures.
An inflation allowance of 3% per annum has been incorporated.
Interest
Interest has been assumed at 4% on “in hand” bank balances and 7.2% on overdrawn balances.