CHAPTER 5

FINANCIAL ASPECT

The financial aspect of the feasibility study quantifies

the results of the marketing, technical, and management of the

study and expresses in peso terms the possible outcome of

operating the project.

The major parts of the financial aspect are the possible

sources of financing, statement of assumptions, projected

financial statements, details of various amounts contained in

the projected financial statements and the analysis of the

financial projections.

A. TOTAL COST OF INVESTMENT

Table 5.1 Total Estimated Cost of Investment

PARTICULARS COST
Equipment 186,139
Supplies 60,780
Renovation Cost 23,007
Utilities Expenses (3 Months) 15,000
Salaries (1 Month) 45,920
Permits and Licenses 12,275
Marketing Expenses 8,400
Raw Materials Inventory (1 Month) 15,000
Rent (3 Months) 74,100
Contingency Expenses 9,379
Total Estimated Cost of Investment 450,000
 The table shows the summarized estimated cost of investment

collected from the previous chapters of the feasibility study

in its monetary aspects.

B. SOURCES OF FUNDS

The sources of funds for the establishment of the business

will be from the capital contribution of the partners.

C. ASSET MANAGEMENT

It discusses to the management primarily on the physical asset

from their selection, inspection, maintenance and renewal as

well as finance, information, competence and other intangible

insofar as they relate to asset management decisions. It gives

a significant role in the business in determining the

operational performance and the maximum possible returns.

Project Local assets include cash, equipment, furniture and

fixtures, and other supplies. The assets are selected based on

the necessity of the business to operate which is to be

maintained and inspected occasionally as well as their renewal.

D. Cash Management

It is the corporate process of collecting, managing cash

as well as using it for short-term investments. Good cash-

management practices is a key component of ensuring the entity’s

financial stability and solvency. Wisely managing cash enables

a company to meet unexpected expense, to handle regularly

occurring events and avoid putting business at risk for loss of

revenues. Enumerated below are the procedures and policies

regarding the cash flows to be implemented to have a financially

successful business.

o Cash Handling

 The manager has the authority to manage all cash

actively

 Completed and reviewed monthly bank reconciliations

 The receipt of all cash must be posted as it is

received. Receipts are issued for the collection of

funds

 The receipt should be provided to the individual

making payment

o Overages and Shortages

 Overages must be deposited and shortages are to be

repaid by the one who caused it

 Shortages must be fully documented in writing

o Custody of Funds

 Cash should be protected through the use of cash

register

 Cash should not be held in desk drawers or regular

file cabinets since it can be easily be accessed with

readily available keys.

Timeliness of Deposits

It is Project Local policy that all receipts should be

deposited on the timely basis, to enable help the business

optimize its cash flows, safeguard its assets and reduce burdens

associated with the acquisition of revenue and processing of

deposits.

 Deposits must be made every day

 Money should be collected promptly and intact.

Theft or Loss of Funds

If there are theft or loss of funds, it must be reported

immediately upon discovery after it has been diligently sought.

E. Liability Management

In every business, proper administration of

responsibilities is one of the factors for the entity to survive

in the very competitive business setting. It will have a great

impression on the reputation and credibility of the business

towards its community. It helped the business to avoid costly

payment charges or compensation claims and built up confidence

in the relationship between the business and suppliers.

Moreover, it can help reduce liquidity risk and hostile market

condition impacts.
F. Paying on time

Project Local will not delay any payments since it can

damage the overall operation of the business. It can be

accumulated, and the tendency of it is that when the due date

has come the business can hardly pay its debts. There will be

monitoring of its obligations from time to time. There is a top

management policy on prompt payment of bills. Ensuring that all

staffs are aware of it, especially but not only that in finance

and purchasing personnel. Thus, paying directly can help the

business build up substantial reservoir goodwill and maintain

its positive credit profits.

G. FINANCIAL ASSUMPTIONS

1. Sales increase by 5% every year.

2. The estimated cost of sales is 70% of sales.

3. Depreciation method used is composite method.

4. Permits and licenses are estimated to be incurred in the

first year of operations amounting to P 12,275 and P
9,000.00 per year for the next years.

5. Salaries increase by 5% every year.

6. Utilities expenses increase by 5% every year and paid as

it comes due.

7. Marketing expenses is constant throughout the life of the

business.

8. Repairs and maintenance will be incurred in the first year

amounting to P 12,000a nd will increase by 20% every year.

9. Tax liability is at 30% of net income before tax.

10. Social Expenses will be incurred amounting to P 54,500

throughout the operations.

11. Renovation cost will be incurred amounting to 23,007

in the first year then 5,000 for the next 5 years.

12. There will be a two (2) partners.

13. There will be a 360 days’ operation every year.

14. Rent expense is constant throughout the year.

 H. PROJECTED FINANCIAL STATEMENTS

Table 5.2

Projected Comparative Statement of Financial Performance

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Sales 4,168,800.00 4,585,680.00 5,044,248.00 5,548,672.80 6,103,540.08

Cost of Goods Sold 2,918,160.00 3,209,976.00 3,530,973.60 3,884,070.96 4,272,478.06
Gross Margin 1,250,640.00 1,375,704.00 1,513,274.40 1,664,601.84 1,831,062.02
Expenses
Permits and Licenses 12,275.00 9,000.00 9,000.00 9,000.00 9,000.00
Rent Expense 296,400.00 296,400.00 296,400.00 296,400.00 296,400.00
Utilities Expense 60,000.00 63,000.00 66,150.00 69,457.50 72,930.38
Depreciation Expense 14,963.00 14,963.00 14,963.00 14,963.00 14,963.00
Supplies Expense 60,779.75 60,779.75 60,779.75 60,779.75 60,779.75
Salaries Expense 551,040.00 578,592.00 607,521.60 637,897.68 669,792.56
Marketing Expenses 8,400.00 8,400.00 8,400.00 8,400.00 8,400.00
Renovation Expense 23,007.00 5,000.00 5,000.00 5,000.00 5,000.00
Repair and 12,000.00 14,400.00 17,280.00 20,736.00 24,883.20
Maintenance
Social Expenses 54,500.00 54,500.00 54,500.00 54,500.00 54,500.00
Total Expenses 1,093,364.75 1,105,034.75 1,139,994.35 1,177,133.93 1,216,648.89
Net Income before Tax 157,275.25 270,669.25 373,280.05 487,467.91 614,413.14
Income Tax Expense 47,182.58 81,200.78 111,984.02 146,240.37 184,323.94
Net Income 110,092.68 189,468.48 261,296.04 341,227.54 430,089.20
 Table 5.3

PROJECTED STATEMENT OF CHANGES IN PARTNERS' EQUITY

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Partner A, Beginning 0 31,046.34 77,780.58 136,428.60 199,042.37

Additional Investment 0 0 0 0 0
Add: Share in Net Income 55,046.34 94,734.24 130,648.02 170,613.77 215,044.60
Less: Withdrawals 24,000 48,000 72,000 108,000 162,000
Partner A, Ending 31,046.34 77,780.58 136,428.60 199,042.37 252,086.97

Partner B, Beginning 0 31,046.34 77,780.58 136,428.60 199,042.37

Additional Investment 0 0 0 0
Add: Share in Net Income 55,046.34 94,734.24 130,648.02 170,613.77 215,044.60
Less: Withdrawals 24,000 48,000 72,000 108,000 162,000
Partner B, Ending 31,046.34 77,780.58 136,428.60 199,042.37 252,086.97
 Table 5.4

PROJECTED STATEMENT OF FINANCIAL POSITION

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Current Asset
Cash 290,916.68 399,348.16 531,607.19 671,797.73 792,849.93

Noncurrent
Asset
Equipment 186,139.00 186,139.00 186,139.00 186,139.00 186,139.00
Accumulated 14,963.00 29,926.00 44,889.00 59,852.00 74,815.00
Depreciation
171,176.00 156,213.00 141,250.00 126,287.00 111,324.00

Total Assets 462,092.68 555,561.16 672,857.19 798,084.73 904,173.93

Current
Liabilities
- - - - -
Total Liabilities - - - - -

Partners B, 231,046.34 277,780.58 336,428.60 399,042.37 452,086.97

Capital
Partner b, 231,046.34 277,780.58 336,428.60 399,042.37 452,086.97
Capital
Total Liabilities 462,092.68 555,561.16 672,857.19 798,084.73 904,173.93
And Partners
Equity
 TABLE 5.5

PROHECTED STATEMENT OF CASH FLOWS

PROJECTED STATEMENT OF CASH FLOWS

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Cash Flows for Operating

Activities
Cash Sales 4,168,800.00 4,585,680.00 5,044,248.00 5,548,672.80 6,103,540.08
Payments to Suppliers 2,918,160.00 3,209,976.00 3,530,973.60 3,884,070.96 4,272,478.06
Payments for Permit and 12,275.00 9,000.00 9,000.00 9,000.00 9,000.00
Licenses
Payments for Rent 296,400.00 296,400.00 296,400.00 296,400.00 296,400.00
Payments for Utilities 60,000.00 63,000.00 66,150.00 69,457.50 72,930.38
Payments of Supplies 60,779.75 60,779.75 60,779.75 60,779.75 60,779.75
Payments for Salaries 551,040.00 578,592.00 607,521.60 637,897.68 669,792.56
Payments for Marketing 8,400.00 8,400.00 8,400.00 8,400.00 8,400.00
Expenses
Payments for Repair and 12,000.00 14,400.00 17,280.00 20,736.00 24,883.20
Maintenance
Payments for 23,007.00 5,000.00 5,000.00 5,000.00 5,000.00
Renovation Expenses
Payment of Income Tax 47,182.58 81,200.78 111,984.02 146,240.37 184,323.94
Payments for Social 54,500.00 54,500.00 54,500.00 54,500.00 54,500.00
Expenses
Net cash provided by
(used in) operating 125,055.68 204,431.47 276,259.03 356,190.54 445,052.19
activities
Cash Flows from Investing
Activities

Payments to acquire 89,948.00 - - - -

Store and Office
Equipment
Payments to acquire 49,391.00 - - - -
Furniture and Fixtures
Payment to acquire 46,800.00 - - - -
Delivery Vehicle
Equipment
Net cash provided by 186,139.00 - - - -
investing activities
Cash Flows from Financing
Activities

Cash received as 400,000.00 - - - -

Investment by Owners
 Payments for 48,000.00 96,000.00 144,000.00 216,000.00 324,000.00
Withdrawals by Owners
Net cash provided by 352,000.00 (96,000.00) (144,000) (216,000) (324,000)
Financing Activities
Net Increase (Decrease) in
Cash
290,916.68 108,431.47 132,259.03 140,190.54 121,052.19
Cash Balance at the - 290,916.68 399,348.16 531,607.19 671,797.73
beginning of the period
Cash Balance at the end 290,916.68 399,348.16 531,607.19 671,797.73 792,849.93
of the period

I. FINANCIAL STATEMENT ANALYSIS

TABLE 5.6

RETURN ON SALES

Year 1 Year 2 Year 3 Year 4 Year 5

Net Income
110,092.68 189,468.48 261,296.04 341,227.54 430,089.20
Divided by Sales
4,168,800.00 4,585,680.00 5,044,248.00 5,548,672.80 6,103,540.08
RETURN ON SALES 0.03 0.04 0.05 0.06 0.07

TABLE 5.7

RETURN ON INVESTMENT

Year 1 Year 2 Year 3 Year 4 Year 5

Net Income 110,092.68 189,468.48 261,296.04 341,227.54 430,089.20
Divided by Investment 400,000 400,000 400,000 400,000 400,000
RETURN ON 0.28 0.47 0.65 0.85 1.08
INVESTMENT
 TABLE 5.8

RETURN ON EQUITY

Year 1 Year 2 Year 3 Year 4 Year 5

Net Income
110,092.68 189,468.48 261,296.04 341,227.54 430,089.20
Total Partners' Equity
462,092.68 555,561.16 672,857.19 798,084.73 904,173.93
RETURN ON EQUITY 0.24 0.34 0.39 0.43 0.48

A. PAYBACK PERIOD

Year Initial Investment Cash Remaining Total

Provided by Years
Operating
Activities
1 400,000 274,944.33 1
125,055.68
2 70,512.86 0.26
204,431.47
3
276,259.03
4
356,190.54
5
445,052.19
Total 1 and 3
months