international-trade-calculation

international trade calculation | 9 Exercises

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Application: ExportBois SA

States :

ExportBois SA is a French company specializing in the export of wooden furniture to various European countries. You are responsible for analyzing the financial implications of a new export strategy. ExportBois SA would like to know the potential profit margin on a particular product sold internationally.

Work to do :

  1. Calculate the selling price excluding tax of a piece of furniture knowing that the purchase price excluding tax is €250 and that the company wishes to apply a markup rate of 15%.
  2. What is the margin rate achieved if the international sales price is €350 excluding VAT while the purchase cost excluding VAT remains similar?
  3. Estimate the net turnover achieved by selling 500 pieces on the foreign market at €350 net per unit.
  4. Compare the overall margin of this transaction if the export costs amount to €2.
  5. Analyze the strategic implications of a 5% increase in export costs on the overall profitability of this operation.

Proposed correction:

  1. To obtain a markup rate of 15%, we use the formula:
    PV HT = PA HT ÷ (1 – Mark rate).
    Substituting, €250 ÷ (1 – 0,15) = €294,12.
    The selling price excluding VAT should be €294,12 to achieve a mark-up rate of 15%.

  2. The margin rate is calculated by the formula:
    ((PV HT – PA HT) ÷ PA HT) x 100.
    ((350 – 250) ÷ 250) x 100 = 40%.
    The margin rate achieved is 40%.

  3. The turnover excluding tax for 500 pieces:

CA excluding VAT = Quantity x PV excluding VAT = 500 x 350 = €175.
The turnover achieved is €175.

  1. Total margin without fees = (PV HT – PA HT) x Quantity = (350 – 250) x 500 = €50.
    Total margin with costs = €50 – €000 = €2.
    The overall margin after export costs is €48.

  2. New export costs = €2 + (000% of €5) = €2.
    New overall margin = €50 – €000 = €2.
    A 5% increase in export costs reduces profitability by €100, which is still negligible compared to the overall operation.

Formulas Used:

Title Formulas
Sale price excl. VAT PA HT ÷ (1 – Mark rate)
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Turnover excluding tax Quantity x PV HT
Overall Margin (PV HT – PA HT) x Quantity – Costs
Increased Export Fees Current Fees + (5% of Current Fees)

Application: TextilExport Solutions

States :

TextilExport Solutions is a company specializing in exporting clothing to Asia. Recently, it received a large order for T-shirts and wants to calculate the financial implications of this contract. The company is looking to calculate margins and understand the impact of a change in the exchange rate on its bottom line.

Work to do :

  1. Calculate the unit margin for each t-shirt knowing that the purchase price excluding tax is €10 and that they will be sold at €15 excluding tax each.
  2. Determine the margin rate for this transaction.
  3. If an Asian customer orders 1 t-shirts, what is the overall margin excluding tax on this transaction?
  4. Analyze the impact on the overall margin if the exchange rate reduces the effective selling price by 10%.
  5. Consider a hedging strategy to mitigate the impact of exchange rate fluctuations on net profits.

Proposed correction:

  1. The unit margin is given by: PV HT – PA HT.
    Unit margin = €15 – €10 = €5.
    The unit margin for each t-shirt is €5.

  2. The margin rate is calculated by:
    ((PV HT – PA HT) ÷ PA HT) x 100.
    ((15 – 10) ÷ 10) x 100 = 50%.
    The margin rate is 50%.

  3. The overall margin is calculated by:

Unit margin x Quantity sold.
€5 x €1 = €000.
The overall margin excluding tax on this transaction is €5.

  1. New sale price with 10% reduction:
    New PV excluding VAT = €15 – (10% of €15) = €13,50.
    New unit margin = €13,50 – €10 = €3,50.
    New overall margin = €3,50 x €1 = €000.
    The overall margin is reduced to €3, a loss of €500 due to the exchange rate variation.

  2. Considering hedging strategies, such as using currency futures or options, could lock in exchange rates in advance and thereby protect the company's margins against unpredictable currency fluctuations.

Formulas Used:

Title Formulas
Unit Margin PV HT – PA HT
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Overall Margin Unit Margin x Quantity
New Reduced HT PV PV HT – (10% of PV HT)

Application: GreenTech Energies

States :

GreenTech Energies is an innovative company that markets eco-friendly solar panels internationally. With the fluctuation of the energy market, they seek to optimize their storage cost while maintaining sufficient stock to meet annual demand.

Work to do :

  1. Calculate the annual storage cost per unit knowing that the cost is 5% of the purchase cost excluding tax, set at €200 per unit.
  2. If the company wants to optimize its inventory, what is the economic order quantity (EOQ) to purchase each year, knowing that the annual demand is 1 units and the ordering cost is €000 per order?
  3. Determine the optimal number of orders to place in the year.
  4. What is the potential savings of using this strategy compared to a single annual purchase of 1 units?
  5. Discuss the strategic benefits of adopting an economic order for a company like GreenTech Energies.

Proposed correction:

  1. Storage cost per unit = 5% of €200 = €10.
    The annual storage cost per unit is therefore €10.

  2. The QEC is calculated by:
    QEC = ?((2 x Annual demand x Ordering cost) ÷ Storage cost).
    QEC = ?((2 x 1 x 000) ÷ 300) = 10 units (rounded).
    The economic order quantity is 245 units.

  3. The optimal number of orders = Annual demand ÷ QEC.

1 ÷ 000 = approximately 245.
It would be necessary to place approximately 4 orders per year.

  1. Total cost with QEC = (Number of orders x Order cost) + Total storage cost.
    or 4 x 300 + (245 x 10) = €5.
    Cost of a one-time annual purchase = Ordering cost + one-time storage cost = 300 + (1 x 000) = €10.
    The potential saving is therefore €10 – €300 = €5.
    GreenTech Energies thus achieves a significant saving of €4.

  2. Adopting an economical purchasing strategy optimizes invested capital, reduces storage costs and makes the company more agile in responding to variations in demand, a critical element for the constantly evolving energy sector.

Formulas Used:

Title Formulas
Storage cost per unit Percentage x Purchase Cost
QEC ?((2 x Annual Demand x Ordering Cost) ÷ Storage Cost)
Optimal number of orders Annual request ÷ QEC
Total cost with QEC (Number of orders x Order cost) + Total storage cost

Application: AgroExport Solutions

States :

AgroExport Solutions is a company specializing in the export of organic agricultural products. Following a new cost-cutting policy, the company wants to assess the impact of this policy on the company's working capital (WCC). Fixed costs have been reduced and substantial savings have been made in inventory management.

Work to do :

  1. Calculate the net working capital (NWC) knowing that stable resources amount to €200 and stable jobs to €000.
  2. If the company's WCR amounts to €25, what is the net cash flow?
  3. Analyze the impact of a reduction in stable jobs of €10 on the FRNG.
  4. What would be the strategic benefits of more efficient management of WCR?
  5. Propose alternative strategies to improve overall net working capital.

Proposed correction:

  1. The FRNG is calculated using the formula: FRNG = Stable resources – Stable jobs.
    €200 – €000 = €150.
    The company's FRNG is therefore €50.

  2. Net cash is given by: TN = FRNG – BFR.
    €50 – €000 = €25.
    Net cash amounts to €25.

  3. Reduction of stable jobs by €10 results in a new calculation of the FRNG:

FRNG = €200 – (€000 – €150) = €000.
A reduction in stable employment increases the FRNG to €60.

  1. More efficient management of working capital reduces liquidity requirements, improves cash flow and therefore investment capacity. This can facilitate rapid strategic decision-making.

  2. Strategies may include renegotiating payment terms with suppliers and customers, accelerating inventory turnover cycles, or optimizing the use of technology to track the company's financial flows.

Formulas Used:

Title Formulas
Global Net Working Capital Stable Resources – Stable Jobs
Net cash FRNG – BFR

App: FoodEurope Imports

States :

FoodEurope Imports is a company specializing in the importation of exotic food products to Europe. The company wants to analyze the impact of import fees on the total cost of imported goods per batch, and compare the profitability of different sourcing strategies.

Work to do :

  1. Calculate the total cost of a batch of goods knowing that the FOB (Free on Board) purchase cost is €5 and that import costs represent 000% of the FOB cost.
  2. If the target selling price to achieve a 28% markup rate is to be determined, what is that selling price?
  3. What is the gross profit per lot if the company decides to sell at €7 per lot?
  4. Compare the impact on profitability if transportation costs increase by 10%, what strategy could be considered to minimize this impact?
  5. Evaluate the benefits of a diversified sourcing strategy for FoodEurope Imports.

Proposed correction:

  1. The total cost of a lot with import fees:
    Import fees = 20% x €5 = €000.
    Total cost = €5 + €000 = €1.
    The total cost per lot is €6.

  2. PV HT for a markup rate of 28%:
    PV HT = PA HT ÷ (1 – Mark rate).
    PV excluding tax = 6 ÷ (000 – 1) = €0,28.
    The target selling price is €8 per lot.

  3. Gross profit per lot at €7 of sale:

Gross Profit = PV – Total Cost.
€7 – €500 = €6.
The gross profit made is €1 per lot.

  1. New increase in transport costs:
    Additional costs = 10% x €1 = €000.
    New total cost = €6 + €000 = €100.
    Strategy: Negotiating transportation contracts or optimizing supply routes can minimize these costs.

  2. A diversified strategy helps reduce the risk of single-supplier dependency, achieve better price comparisons, and improve supply chain resilience to external disruptions.

Formulas Used:

Title Formulas
Import Fees Percentage x FOB Cost
Sale price excl. VAT PA HT ÷ (1 – Mark rate)
Gross profit per lot PV – Total Cost
Additional costs Percentage increase x Transportation costs

Application: InnovBeauty International

States :

InnovBeauty International exports specialty cosmetics to Latin America. The company is looking to understand its competitive position in this dynamic market and wants to estimate its profit margins for several of its flagship products.

Work to do :

  1. Calculate the unit margin of a lipstick sold for €22 excluding VAT for export, knowing that the purchase cost excluding VAT is €12.
  2. Determine the margin rate on this product.
  3. What is the turnover achieved if 3 lipsticks are sold at a price of €000 excluding VAT?
  4. Consider the impact of a 5% discount on the selling price. What would the new margin rate be?
  5. Evaluate how the company could use the margins obtained to strengthen its brand strategy in the market.

Proposed correction:

  1. Unit margin: PV HT – PA HT = €22 – €12 = €10.
    The unit margin per lipstick is €10.

  2. Margin rate: ((PV HT – PA HT) ÷ PA HT) x 100 = ((22 – 12) ÷ 12) x 100 = 83,33%.
    The margin rate on this product is 83,33%.

  3. Net sales: Quantity x Net sales = 3 x 000 = €22.

The turnover achieved is €66.

  1. New PV excluding VAT after 5% discount: €22 – (5% of €22) = €20,90.
    New unit margin = €20,90 – €12 = €8,90.
    New margin rate = ((20,90 – 12) ÷ 12) x 100 = 74,17%.
    The new margin rate after discount would be 74,17%.

  2. High profit margins allow reinvestment in marketing campaigns, R&D innovation or attractive discounts to strengthen InnovBeauty International's presence in the Latin American market.

Formulas Used:

Title Formulas
Unit Margin PV HT – PA HT
Margin rate ((PV HT – PA HT) ÷ PA HT) x 100
Turnover excluding tax Quantity x PV HT
New PV excluding VAT after discount PV HT – (Discount percentage x PV HT)

Application: TechInnov Export

States :

TechInnov Export is a company that sells cutting-edge IT equipment in Asia. The company has recently reviewed its purchasing and selling strategies to maximize gross profit while being competitive in the market.

Work to do :

  1. Calculate the cost of purchasing a batch of 100 computers knowing that the unit cost excluding tax is €1 and a purchase discount of 000% has been applied.
  2. Determine the selling price excluding tax of this lot if TechInnov Export wishes to achieve a margin rate of 20%.
  3. What is the gross profit if all computers are sold at the calculated price?
  4. Analyze the effect of competitive pressure that would bring the unit selling price down to €1. What would then be the new gross profit?
  5. What strategy could TechInnov Export adopt to maintain its margin in this competitive context?

Proposed correction:

  1. Purchase cost with discount: €1 – (000% of €5) = €1.
    Total cost for 100 computers = 100 x 950 = €95.
    The total purchase cost is €95.

  2. PV HT with margin rate of 20%:
    PV HT = PA HT ÷ (1 – Margin rate).
    PV excluding tax = 950 ÷ (1 – 0,20) = €1.
    Total sale price for the lot = 100 x 1 = €187,50.

  3. Gross profit: PV – Purchase cost.

€118 – €750 = €95.
The gross profit made is €23.

  1. New unit PV under pressure: €1.
    New gross profit per unit = 1 – 100 = €950.
    New total gross profit = 100 x 150 = €15.
    The new gross profit would be €15, down due to competition.

  2. To maintain its margin, TechInnov Export could diversify its offering, propose additional services or improve its manufacturing processes to reduce internal costs, in order to stand out while preserving its competitive advantage.

Formulas Used:

Title Formulas
Purchase cost with discount Unit Cost – (Discount Percentage x Unit Cost)
Selling price excluding VAT (target) PA HT ÷ (1 – Margin rate)
Gross profit PV – Purchase Cost

Application: SolarPlus Exports

States :

SolarPlus Exports, a key player in the export of solar technologies to Africa, wishes to strengthen its financial processes through better management of its working capital requirement (WCR) in order to maximize its net cash.

Work to do :

  1. Calculate the WCR knowing that AgroExport Solutions has €60 of current jobs and €000 of current resources.
  2. If the overall net working capital amounts to €40, what is the net cash flow (NCF)?
  3. Evaluate the impact on working capital requirements of a €5 reduction in current resources.
  4. What would be the effects on net cash flow if current assets were increased by €8?
  5. Propose measures to optimize the WCR and improve the financial health of SolarPlus Exports.

Proposed correction:

  1. The WCR is calculated by: Current jobs – Current resources.
    €60 – €000 = €30.
    The BFR is €30.

  2. The TN is calculated by: TN = FRNG – BFR.
    €40 – €000 = €30.
    Net cash is €10.

  3. New calculation of BFR after reduction:

New WCR = €60 – (€000 – €30) = €000.
A reduction in current resources increases the WCR to €35.

  1. Impact on TN with increase in circulating jobs:
    New WCR = (€60 + €000) – €8 = €000.
    New TN = €40 – €000 = €38.
    Net cash is reduced to €2.

  2. To optimize WCR, SolarPlus could analyze its payment and collection periods, reduce its inventories and optimize its cash conversion cycle in order to release funds quickly and efficiently.

Formulas Used:

Title Formulas
Need in funds Circulating Jobs – Circulating Resources
Net cash FRNG – BFR

Application: LuxuryFashion MEP

States :

LuxuryFashion MEP wants to export a new range of luxury handbags to the United Arab Emirates. In order to ensure a competitive pricing strategy, the company wants to assess its margins and anticipate the impact of economic uncertainties on its pricing strategy.

Work to do :

  1. Calculate the unit margin for a bag sold for €700 excluding VAT when the acquisition cost excluding VAT is €500.
  2. What is the markup rate applied to this luxury bag?
  3. If LuxuryFashion MEP sells 350 bags, what will be the total turnover?
  4. Simulate the effect on the markup rate if a drop in demand forces the company to sell the bags at €650 excluding VAT.
  5. Discuss the strategic implications of flexing margins to accommodate unforeseen market changes.

Proposed correction:

  1. Unit margin = PV excluding tax – PA excluding tax = €700 – €500 = €200.
    The unit margin per bag is €200.

  2. Markup rate: ((PV HT – PA HT) ÷ PV HT) x 100 = ((700 – 500) ÷ 700) x 100 = 28,57%.
    The markup rate is 28,57%.

  3. Total turnover: Quantity x PV excluding VAT = 350 x 700 = €245.

The total turnover is €245.

  1. With a price drop:
    New markup rate = ((650 – 500) ÷ 650) x 100 = 23,08%.
    The price drop reduces the markup rate to 23,08%.

  2. The ability to adjust margins in the face of economic uncertainties allows LuxuryFashion MEP to maintain its competitiveness while ensuring its profitability, by adapting its price according to market conditions while preserving its brand strategy.

Formulas Used:

Title Formulas
Unit Margin PV HT – PA HT
Brand taxes ((PV HT – PA HT) ÷ PV HT) x 100
Total turnover Quantity x PV HT

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