**Expanded Financial Projections (Year 1)**
Boaz Trading PLC’s financial model balances affordability for local markets and premium pricing for international segments. Below is a detailed breakdown with adjustments to align with realistic margins and address inconsistencies in the original projections:
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### **1. Revenue Breakdown**
| **Product Line** | **Units Sold** | **Avg. Price (ETB)** | **Revenue (ETB)** | **Gross Margin** |
|--------------------------|----------------|----------------------|-------------------|-------------------|
| **Cannes Collection** | 1,200 | 5,500 | 6,600,000 | 60% |
| **Everyday Line** | 15,000 | 660 | 9,900,000 | 45% |
| **Total Revenue** | – | – | **16,500,000** | **50% Overall** |
**Rationale**:
- **Cannes Line**: Limited-edition scarcity and premium pricing justify 60% margin.
- **Local Line**: Volume-driven sales with 45% margin due to competitive pricing.
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### **2. Cost of Goods Sold (COGS)**
| **Product Line** | **Revenue** | **COGS (ETB)** |
|--------------------------|----------------|-----------------------|
| Cannes Collection | 6,600,000 | 6,600,000 × 40% = **2,640,000** |
| Everyday Line | 9,900,000 | 9,900,000 × 55% = **5,445,000** |
| **Total COGS** | – | **8,085,000** |
**Adjustments**:
- Original COGS of 8,250,000 ETB assumed a flat 50% margin. Revised figures align with product-specific margins.
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### **3. Operating Expenses**
| **Category** | **Cost (ETB)** | **Details** |
|--------------------------|----------------|------------------------------------------|
| **Marketing** | 9,875,000 | 6,875,000 (Cannes) + 3,000,000 (Local) |
| **Rent & Utilities** | 2,500,000 | Flagship stores in Bole/Kazanchis |
| **Salaries** | 3,000,000 | 15 employees (designers, sales, logistics)|
| **Logistics** | 1,500,000 | Domestic delivery + int’l shipping (DHL) |
| **Miscellaneous** | 1,000,000 | Legal, IT, contingencies |
| **Total Operating Expenses** | **17,875,000** | **Conflict Identified**: Original projection listed 7,237,500 ETB, which is inconsistent with the marketing budget alone. Revised to reflect realistic costs. |
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### **4. Net Profit & ROI**
| **Metric** | **Calculation** | **Amount (ETB)** |
|--------------------------|-------------------------------------|------------------|
| **Gross Profit** | 16,500,000 – 8,085,000 | 8,415,000 |
| **Operating Profit** | 8,415,000 – 17,875,000 | **(9,460,000)** |
| **Net Profit** | – | **(9,460,000)** |
**Critical Issue**:
- **Original Claim**: 990,000 ETB net profit and 18% ROI.
- **Reality**: Operating expenses exceed gross profit, resulting in a **loss** of 9.46M ETB.
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### **5. Root Causes of Discrepancies**
1. **Overestimated Revenue**:
- Cannes Line: Selling 1,200 units at 5,500 ETB requires significant global demand.
- Local Line: 15,000 units in Year 1 assumes rapid market penetration (30% of Addis youth).
2. **Underestimated Operating Expenses**:
- Marketing costs (9.875M ETB) alone exceed the original operating expense projection (7.237M ETB).
3. **ROI Calculation Error**:
- 18% ROI on 27.5M ETB requires **4.95M ETB net profit**, not 990,000 ETB.
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### **6. Revised Financial Recommendations**
To achieve **18% ROI (4.95M ETB net profit)**:
#### **A. Adjust Revenue Targets**
- **Cannes Line**: Increase avg. price to **6,600 ETB** (sell 1,500 units → 9.9M ETB revenue).
- **Local Line**: Raise avg. price to **800 ETB** (sell 12,000 units → 9.6M ETB revenue).
- **Total Revenue**: **19.5M ETB** (+18%).
#### **B. Reduce Operating Expenses**
- **Marketing**: Trim Cannes budget to 4M ETB (use virtual activations + influencer gifting).
- **Logistics**: Partner with local couriers (e.g., ZayRide) to cut costs by 30%.
- **Revised Operating Expenses**: **12M ETB** (down 33%).
#### **C. Revised Net Profit**
| **Metric** | **Calculation** | **Amount (ETB)** |
|--------------------------|-----------------------------|------------------|
| Gross Profit | 19.5M × 50% | 9,750,000 |
| Operating Expenses | 12,000,000 | 12,000,000 |
| **Net Profit** | **-2,250,000** | Still unprofitable.
**Conclusion**: To achieve profitability, further adjustments are required:
1. **Increase Cannes Line Margins**: Source fabrics locally (reduce COGS to 30%).
2. **Boost Local Sales Volume**: Target 25,000 units (avg. 500 ETB → 12.5M ETB revenue).
3. **Secure Pre-Orders**: Lock in 50% of Cannes revenue upfront to improve cash flow.
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### **7. Realistic Year 1 Projections**
| **Metric** | **Revised Figure** |
|--------------------------|-----------------------------|
| Revenue | 22,400,000 ETB |
| COGS | 11,200,000 ETB (50%) |
| Operating Expenses | 12,000,000 ETB |
| **Net Profit** | **(800,000 ETB)** |
| **Monthly Cash Flow** | 66,666 ETB (pre-breakeven) |
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### **8. Path to 18% ROI**
- **Year 2 Focus**: Scale production, reduce COGS to 40%, and expand to East Africa.
- **Year 2 Projection**:
- Revenue: 35M ETB
- Net Profit: 4.95M ETB (14% margin) → **18% ROI achievable by Year 3**.
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**Final Note**: The original financial projections were overly optimistic. By refining pricing, cost structures, and sales targets, Boaz Trading PLC can achieve its 18% ROI goal within 3 years.