Illustrative example | Fictional company and data
Page 1
Executive review
Sales grew, but the July plan shortfall and working-capital build tightened near-term cash.
Executive assessment
July sales increased 8.9% from the prior year but finished $150,000 below plan. EBITDA was $185,000 - $22,000 above the prior year and $115,000 below plan. Lower sales volume and the lower gross-margin rate reconciled $98,000 of the shortfall; operating expenses accounted for the remaining $17,000.
Net income plus depreciation provided $133,000 before working-capital changes. Receivables, inventory, and prepaids used $300,000; increases in payables, accruals, and income taxes payable provided $152,000, resulting in a net working-capital use of $148,000. Capital expenditures, debt principal, and owner distributions used another $115,000. Cash therefore declined $130,000 to $280,000. The forecast ends August at $365,000 but falls to $145,000 during the first payment cycle.
The full-year forecast is $29.2 million in sales and $2.72 million in EBITDA. It assumes average monthly sales of $2.44 million at a 32.2% gross margin from August through December. July bookings were $2.34 million and July gross margin was 31.0%, so the forecast requires improvement in both volume and margin.
Key measures
July performance, liquidity, and working-capital exceptions in one view.
| Measure | July actual | Plan or threshold | Prior period | Assessment |
|---|---|---|---|---|
| Net sales | $2,450 | $2,600 plan | $2,250 prior year | 5.8% below plan; 8.9% above prior year |
| Gross margin | 31.0% | 33.0% plan | 30.0% prior year | 2.0 points below plan; 1.0 point above prior year |
| EBITDA | $185 | $300 plan | $163 prior year | $115 below plan; $22 above prior year |
| Ending cash | $280 | $200 internal floor | $410 at June 30 | $130 decrease during July |
| Receivables over 60 days | $160 | $100 internal threshold | $118 at June 30 | $42 increase during July |
Management priorities
- Secure payment commitments or escalation dates for the four customer balances representing $115,000 of receivables over 60 days.
- Establish approval and customer-recovery rules for expedited freight.
- Review $140,000 of planned replenishment for 42 slow-moving SKUs.
Page 2
Performance and outlook
Volume, realized margin, and operating costs fully reconcile the July EBITDA shortfall.
Selected performance measures
Current-month and year-to-date results include plan and prior-year context.
Current month
| Measure | Actual | Plan | Variance | Prior year |
|---|---|---|---|---|
| Net sales | $2,450 | $2,600 | ($150) | $2,250 |
| Gross profit | $760 | $858 | ($98) | $675 |
| Gross margin | 31.0% | 33.0% | (2.0) pts | 30.0% |
| Operating expenses | $575 | $558 | ($17) | $512 |
| EBITDA | $185 | $300 | ($115) | $163 |
| Net income | $108 | $197 | ($89) | $92 |
Year to date
| Measure | Actual | Plan | Variance | Prior year |
|---|---|---|---|---|
| Net sales | $16,980 | $17,500 | ($520) | $15,450 |
| Gross profit | $5,555 | $5,775 | ($220) | $4,805 |
| Gross margin | 32.7% | 33.0% | (0.3) pts | 31.1% |
| Operating expenses | $3,900 | $3,837 | ($63) | $3,540 |
| EBITDA | $1,655 | $1,938 | ($283) | $1,265 |
| Net income | $1,030 | $1,255 | ($225) | $737 |
What drove July EBITDA
The bridge fully reconciles the $115,000 variance from plan.
- July plan$300
- Lower sales volume($49.5)
- Lower realized gross margin($48.5)
- Operating-expense overrun($17)
- July actual$185
Two specialized-assembly orders totaling $90,000 were incomplete at month-end and moved into August; lower commodity and spot-order volume accounted for the remaining $60,000 sales shortfall. At the planned margin, the $150,000 volume variance reduced EBITDA by $49,500.
The 2.0-point gross-margin variance reduced EBITDA by another $48,500. Unrecovered expedited freight accounted for $31,000: $19,000 related to supplier and internal planning issues, and $12,000 related to customer-service decisions. Discounting and product mix accounted for approximately $18,000. Operating expenses were $17,000 above plan, including $10,000 of overtime and temporary coverage, $4,000 of one-time systems support, and a net $3,000 across the remaining categories.
Compared with the prior year, gross profit increased $85,000 while operating expenses increased $63,000. As a result, $22,000 of the additional gross profit reached EBITDA. Year to date, gross profit increased $750,000 and EBITDA increased $390,000.
Product-family profitability
Sales mix and realized margin identify where the plan variance is concentrated.
| Product family | Sales | Share of sales | Gross profit | Actual margin | Plan margin | Variance |
|---|---|---|---|---|---|---|
| Core components | $1,100 | 44.9% | $374 | 34.0% | 35.0% | (1.0) pts |
| Specialized assemblies | $800 | 32.7% | $264 | 33.0% | 34.0% | (1.0) pts |
| Commodity and spot items | $550 | 22.4% | $122 | 22.2% | 27.5% | (5.3) pts |
| Total | $2,450 | 100.0% | $760 | 31.0% | 33.0% | (2.0) pts |
Commodity and spot items represented 22.4% of July sales but only 16.1% of gross profit. The product family accounted for approximately $29,000 of the $48,500 gross-margin rate variance. Core components and specialized assemblies accounted for approximately $11,000 and $8,000, respectively. Commodity and spot orders should therefore be reviewed first for discounting, freight recovery, and order-level economics.
Operating context
New orders were $2.34 million, $110,000 below July shipments and $310,000 below the $2.65 million plan. Backlog declined from $1.95 million to $1.84 million, producing a 0.96x book-to-bill ratio. On-time and in-full performance was 94.2%, compared with a 96.0% internal target, and the two incomplete specialized-assembly orders moved $90,000 of sales into August. The forecast requires average monthly sales of $2.44 million through year-end, making order intake and fulfillment the principal volume risks.
Full-year outlook
The forecast requires stronger order intake and margin performance through year-end.
| Measure | Full-year plan | Current forecast | Variance |
|---|---|---|---|
| Net sales | $30,000 | $29,200 | ($800) |
| Gross profit | $9,900 | $9,490 | ($410) |
| Gross margin | 33.0% | 32.5% | (0.5) pts |
| Operating expenses | $6,650 | $6,770 | ($120) |
| EBITDA | $3,250 | $2,720 | ($530) |
| EBITDA margin | 10.8% | 9.3% | (1.5) pts |
The forecast assumes $12.22 million of sales, a 32.2% gross margin, and $1.07 million of EBITDA from August through December. July bookings and gross margin were below the levels required by that forecast. The August review should update the forecast for actual order intake, completion of the delayed assemblies, margin performance, and committed operating costs.
Page 3
Cash, working capital, and follow-up
Profit did not convert to cash because receivables and inventory grew.
July cash bridge
A complete reconciliation from opening to ending cash.
| Cash movement | Amount |
|---|---|
| Opening cash - July 1 | $410 |
| Net income | $108 |
| Depreciation | $25 |
| Increase in accounts receivable | ($170) |
| Increase in inventory | ($120) |
| Increase in prepaid and other current assets | ($10) |
| Increase in accounts payable | $130 |
| Increase in accrued expenses | $15 |
| Increase in income taxes payable | $7 |
| Capital expenditures | ($35) |
| Debt principal payments | ($30) |
| Owner distributions | ($50) |
| Ending cash - July 31 | $280 |
Net income, adjusted for $25,000 of depreciation, provided $133,000 before working-capital changes. Working capital used $148,000, and capital expenditures, debt principal, and owner distributions used another $115,000. The resulting $130,000 decline reconciles opening cash to the July 31 balance.
Working-capital exceptions
The two exceptions with the clearest near-term management significance.
| Matter | July 31 | June 30 or threshold | Management significance |
|---|---|---|---|
| Receivables over 60 days | $160 | $118 at June 30 | Four identified accounts represent $115,000 of the total |
| Inventory over 180 days | $310 | $260 at June 30 | 13.0% of inventory compared with a 10.0% internal threshold |
90-day cash outlook
Month-end balances and the lowest projected weekly balance show the timing risk.
| Cash measure | August | September | October |
|---|---|---|---|
| Opening cash | $280 | $365 | $425 |
| Customer receipts | $2,260 | $2,330 | $2,880 |
| Operating disbursements | ($2,135) | ($2,230) | ($2,840) |
| Debt service and capital expenditures | ($40) | ($40) | ($40) |
| Ending cash | $365 | $425 | $425 |
| Lowest projected weekly balance | $145 | $225 | $315 |
Month-end cash remains above the $200,000 internal floor, but the forecast falls to $145,000 during the first August payment cycle. That week includes $615,000 of payroll and supplier payments and $480,000 of expected receipts. The receipts include $75,000 from two of the past-due customer balances, making collection timing the principal near-term cash risk.
The forecast does not include a benefit from the proposed $140,000 replenishment deferral, and it assumes no additional financing. The first two weeks of receipts and disbursements should be reviewed before nonessential purchases or distributions are approved.
Management follow-up
Each matter closes with a next step, accountable owner, due date, and completion measure.
Past-due receivables
Obtain payment commitments or dated dispute-resolution plans for the four balances comprising $115,000 of receivables over 60 days; update expected receipt dates in the cash forecast.
- Owner
- Controller and Sales Director
- Due
- Aug. 14
- Complete when
- All four balances have a documented payment or escalation date; cash forecast is updated.
Expedited freight and pricing
Require advance approval for expedited freight over $2,000 and identify when freight should be incorporated into customer quotes.
- Owner
- Operations Director and Sales Director
- Due
- Aug. 7
- Complete when
- Every August expedite is coded by cause, approved, and assigned a customer-recovery decision.
Slow-moving inventory
Review 42 affected SKUs and decide whether to buy, defer, or cancel $140,000 of planned replenishment.
- Owner
- Purchasing Manager
- Due
- Aug. 6
- Complete when
- The full $140,000 has a documented decision; customer-service risks and owners are identified.