CHAPTER I: INTRODUCTION

1.1 BACKGROUND
For the rapid economic development of Nepal, there is need to increase investment.
As Nepal has adopted liberal, open market economic development policy, the role of
private sectors has increased significantly. A large amount of private investment is
required for the development of industries, business and infrastructures. There is
greater interest in stock market and new business establishment in the recent years
which has increased the investment in such areas significantly so there is growing
interest in such areas as well.

The company aims to mobilize small savings into investment and such savings shall
be invested in stock and a share of profitable companies. The capital collection is
done from both Loan and Equity. There is 1 owner of the company who also work as
manager. Similarly, there will be 2 business analyst and 1 accountant who help to
provide client the necessary information and necessary information of the
organization.

The Kathmandu is the most popular area of Nepal where people from different area
comes to have the facilities here and to do their business. All the people from different
region come here to take the opportunities. Similarly, all kinds of facilities are
available here and there is development of all types of infrastructures. So there are
large no of people who come to Kathmandu for different purposes and invest money
in Kathmandu.

The business would be done in Thapathali as it is one of the business hubs and people
transact in this place regularly. The customers of the products are mainly young and
inspiring entrepreneurs and people who like to invest their money to get profitable
return. The people will invest in different sectors through advice to get profitable
return. The people from different area visit this location frequently so it is a major
hub for transaction of different kinds of business activities encouraging people to visit
this place.

The newly started business is about providing the investment facilities to the people.
It will provide different facilities to cater to the needs and wants of the people to

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maximize the return of the people. The people are looking to invest in various sectors
as the incomes of the people are growing on yearly basis. The people are getting more
interested in investing in stock market and other areas but they are not fully sure on
the sectors they want to invest in so the business will facilitate them to get their
maximum return. It will also support many new ventures that want to start the
business and serve different types of goods and services.

1.2 ORGANIZATION AND MANAGEMENT TEAM

1.2.1 MANAGEMENT TEAM

The operation of the business will require the following activities and people:

 Administration (1 Person)
Manager- owner, manage personnel in the company, is the person all personnel
report to, and oversees all the activities

 Business Analyst (2 Persons)

Analyst – An analyst that analyses the trends in different sectors and make
investment decisions to maximize the revenue generated by the firm. Mainly
concerned with analysis and decision making.

 Finance and Accounting (1 Person)

Finance Officer- maintains books of accounts, maintains internal and external
money transactions, auditing of NRB and prepares reports timely.

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1.2.2 ORGANIZATION STRUCTURE

The organizational structure would be as follows:

Manager

Accountant Business Analyst

At the top of the structure is the manager who oversees all the business activities and
monitors the business activities. The accountant and business analyst is under
manager who helps for smooth operation of business. The accountant helps to manage
the fund of the business and also for internal and external reporting of business. The
business analyst will analyze different business sectors that can be profitable and
consult with customers on the analysis of business that s/he will perform.

1.3 PRODUCTS AND SERVICES

The primary target market is the young and inspiring investors along with people who
are looking to start up a new business and gain self sufficiency. The business is also
looking to target customers who do not want to do much of the task and reap profit
from the investment i.e. people who like to get constant return from their investments.
The method of interaction of potential customers is through word of mouth and face
to face interaction whereby customers visit the company and get the information
about the different investment portfolios that they can invest in. The 4P’s of
marketing are described below:

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 Product/Service: The company will provide following services:

o Portfolio Management: The investment company would be

responsible to manage the money of the customers and invest in
different areas to manage their portfolios to maximize the return to the
customers. The portfolio will be created based upon the capital
investment of the customers as well as their risk bearing ability. In this
service the company would be solely responsible for investment.

o Investment Advice: The company will also provide investment

advices. In this service the company will not be solely responsible for
the investment but it would listen on the customers on their prospective
investments and give advice on where to invest. For instance if
customers want to invest in banking industries then company can
advice on the banking industries where most profit can be generated.

o Venture Capital: The company will be investing on the viable startup

companies where it will provide seed capital to the new companies as
well as operational support to make the business successful. In return
of the investment in such firms the company will own share capital in
such firms so there will be profit sharing based on investment made by
the company.

 Price: The company will follow competition based pricing i.e. it will charge
commission and other charges as per the competitors or even slightly lower to
attract customers to the investment company.

 Place: The company will be located in Trade Tower, Thapathali as it is a hub

for business houses and there are few investment companies in there as well so
to compete with the competitors the business will be run in Trade Tower.
Later it will be expanded to Lalitpur and other parts of Nepal as well.

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 Promotion: The company will mostly rely on word of mouth to get its
customers. However, it will be promoting the business on digital media mostly
on social sites and business related websites where there are prospect
investors.

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 CHAPTER II: ANALYSIS OF SCENARIO

2.1 MARKETS AND COMPETITION

The Thapathali area is a hub for different types of business houses and there are
investment companies located already in the area. The companies located in area
provide different facilities to the people. The products and services are different
depending on the establishment of business and the cost of operation of the business
which may be another competitive factor. Similarly, the business must be more
accessible to investors and young entrepreneurs likewise. The business should be
easily accessible to the young entrepreneurs as it is one of the main focus of the
business. There is increasing competition of the firm as there are many investment
firms who provide similar types of product and services and there is also entrance of
new firms that are providing similar services due to increasing no of customers in this
area.

The competitors of the business are as follows:

 People’s Investment Company.

 Hathway Investment Company.
 Sai Saraswati Investment.
 Jaguar Investments.

2.2 LEGAL FRAMEWORKS, ENVIRONMENTAL AND SOCIAL FACTORS

2.2.1 POLITICAL AND LEGAL ENVIRONMENT

Political and legal environment has a great effect in any business. Political
instabilities can hamper the operation of business. Moreover the changes in plans and
policies have great impact on such business. The changes in plans and policies
directly impact the profit of the business. For instance the change in commission
charge of brokers, capital gain tax etc will directly impact on the operation and profit
of business. The lower commission charge is one of the factors that people are
looking to invest in capital market so if government increases it in future it will
decrease the revenue of the business.

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2.2.3 ECONOMIC ENVIRONMENT
Various economic factors like inflation rate, economic growth, economic stability,
etc. does affect our business. The increase in inflation rate will decrease the real rate
of return people get and people will also have less money to invest in the market
which directly impacts the business operation. Economic growth increases the per
capita income which results in the increasing investing power of the customers. It can
increase the revenue of business.

2.2.4 SOCIO-CULTURAL ENVIRONMENT

Socio-cultural factors that affect business are change in the investment pattern and the
group influence of the customers who want to invest. People are looking to invest in
different areas due to their peers and their upliftment through investing activities and
they are told by their peers to invest in such areas to get fruitful return. If this is
changed then it will directly impact the business. The peer support in establishing new
business is also great which encourages the young and inspiring entrepreneurs to start
their own business.

2.2.5 TECHNOLOGICAL ENVIRONMENT

Technological advances have a great impact on the business. The introduction of
automated system of NEPSE presents both opportunity and threat to the business as
the customers can invest in market themselves in their free time as there will be daily
trading however it will also be easy to the business itself. Similarly introduction of
new technology will reduce cost to new ventures so investing in such ventures would
be more profitable for the business.

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 CHAPTER III: MARKETS AND COMPETITION

3.1 MARKET SEGMENTATION AND TARGET MARKET

K&B Investment Company has segmented its market on the basis of demographic,
psychographic and behavioral aspects:

• Demographic aspects

The demographic aspects of the customers of K&B Investment Company are as

follows:

i. Residing in Kathmandu District.

ii. 18-30 yr old people and 50-70 yr old people.
iii. High school/college student or young entrepreneurs.

• Psychographic aspects

The psychographic aspects of the customers of K&B Investment Company are as

follows:

i. Highly social.
ii. Looking to take risk to get higher return.
iii. Reading business magazine and online portals like merolagani, onlinekhabar,
sharesansar etc.
iv. Appearing in business and investment related investments.

• Behavioral aspects

K&B Investment Company has based its behavioral segmentation on the buying
pattern of the customers. They are:

i. Keeping updated with latest trends of the market.

ii. Seeking for return from the investment.
iii. Looking to start their business.

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3.2 MARKET NEEDS
K&B Investment Company is located at Thapathali, Kathmandu which is a business
centered area. It is the place where most of the business houses are located and many
people come there for business activities. Numerous investment companies are
present in this area. Besides this most investment companies only focus on investing
other people money in capital market and very few provide venture capital services
which K&B Investment Company provides. In this emerging world of business the
service of venture capital and venture funding is one of its key advantages. The
people go to Kathmandu area for day to day transaction along with other facilities so
K&B Investment Company will be located in Thapathali area where the people will
come in a regular basis.

3.3 MARKET TREND

Capital market is one of the trendy markets. There has been increasing interest of
people to invest their money on capital market. The people are also looking to be
more independent so they are looking to start their own business to serve the
customers. The emergence of new business like Doko, Daraz etc. The business firms
have recognized these needs so there has been increased level of competition in the
market. The trend for investment has grown greatly due to changes in the capital
market and the easiness of investing so people are looking to invest in capital market.

3.4 COMPETITORS
Increasing number of investment companies will give a high level of competition for
K&B Investment Company. The investment firms present in Thapathali area along
with some in Lalitpur are the major competitors. They sell their products and services
in almost same price or even in some cases lower prices. Therefore, the customers can
prefer to go these companies as they are already established business rather than
coming to the new investment company. They have been using several pricing and
promotional strategies in order to face competition.

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 CHAPTER IV: FINANCIAL PLAN

4.1 IMPORTANT ASSUMPTIONS

 Commission is expected to remain same but the no of clients and average
investment are growing each year and there is also increase in investment in
no of startups and their profit.
 Cost is supposed to be 30% initially.
 Cost is expected to increase by 10 % every 2 year.
 Out of total long term asset 55% will be financed by long term loan and
remaining 45% will be financed by equity
 Out of the working capital initial working capital will be 50% equity and rest
50% on loan.
 The rate of long term loan and short term loan is assumed to be 15%.
 Credit period for the receivables will be 60 days and 60 days for the payables.
 Short term loan is paid in first year of operation.
 Depreciation is charged on the fixed assets at the rate of 25% using WDV
(Written down Value) method.
 Salaries of staffs will increase in every 2 years.
 Rent expense is expected to increase every 2 years by Rs 50,000 monthly.
 The tax rate for the business is assumed to be 25%.
 Loan is repaid in 5 years on quarterly payment basis and the payment are
made on equal basis.
 Preliminary expenses are amortized on reducing balance method at rate of
20%.
 The cost of capital is taken to be 15% and reinvestment rate is 16%.

4.2 FINANCIAL DETAILS OF STARTUP EXPENSES

K&B Investment Company will be started with an initial investment of Rs. 1.3
million out of which 46% i.e. Rs. 597,850 will be financed by loan and the remaining
54% i.e. Rs. 700,650 will be financed by equity. This financing can be further break
down to funding of total long term asset which is 55% on loan and 45% on equity and
working capital which is 50% loan and 50% equity. The start-up cost will consists of

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different types of expenses like purchase of furniture, registration fees, advance rent,
and the initial marketing expenses. The detail of the start up expenses is shown in
Annex 1.

4.3 SALES FORECAST AND COST OF GOODS SOLD

The sales revenue is based on the no of customers served by the investment company
and the commission received and also the profit of startup business. The revenue is
increased every year on the basis of the customers served and the startup business
funded by K&B Investment Company. The COGS is also expected to increase by
10% in 2 year. The details of sales revenue is shown in Annex 2.

4.4 BUDGETED LOAN REPAYMENT SCHEDULE

The start-up long term loan is taken at 15% annual interest rate from Mega Bank. This
loan will be taken from the bank by keeping the collateral. The annual payment of this
loan is supposed to be Rs. 172,092. It will be fully reimbursed within the loan period
of 5 years. The detail of annual interest payment with principal amount repayment is
shown in Annex 3.

4.5 PROJECTED INCOME STATEMENT

Pro forma income statements are an important tool for planning future business
operations. If the projections predict a downturn in profitability, we can make
operational changes such as increasing prices or decreasing costs to have profitability
in business. The pro forma income statement of K&B Investment Company shows
appropriate profit for the periods of projection, and the pro forma income statement
show the increasing profit. The detail of pro forma statement of this store is shown in
Annex 4.

4.6 PROJECTED BALANCE SHEET

A pro forma balance sheet discloses a business’s assets, liabilities, and equity at a
specific point in time. The opening balance sheet of K&B shows R.s. 1, 794,222 of

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total assets with same level of liabilities and equity and the total balance at the end of
year 5 is Rs. 15,645,826. The overall pro forma balance sheet of K&B Investment
Company for five years is disclosed in Annex 5.

4.7 PROJECTED CASH FLOW

A pro forma cash flow statement shows the total net cash inflow or outflow at a
specific point of time. It shows the cash generated from operating, investing and
financing activities. The opening cash flow of K&B Investment Company shows the
net cash balance of Rs. 573,997 at the beginning and balance of Rs.3, 322,899 at the
end of year 5. The pro forma cash flow statement of K&B Investment Company is
disclosed in Annex 6.

4.8 FINANCIAL RATIOS

Financial Ratios are related to liquidity like current ratio, profitability ratio and
solvency ratio.

4.8.1 PROFITABILITY RATIOS

Profitability ratios measure the company's use of its assets and control of its expenses
to generate an acceptable rate of return. The details are shown in Annex 7.

 Gross Profit Margin:

K&B Investment Company has maintained its gross profit margin above 65%
throughout the years of operation. The margin is almost consistent with some
deviations in between but the margin is quite profitable.

 Net Profit Margin:

Initially, the profit margin is 5.20%. It is increasing and reached to 16.71% at the
end of 5 years. The ratio has decreased in last year due to high operating cost in
the last year.

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  Return on Asset:

The return on asset is 23.5% in the first year. The return has increased in the next
2 years but it has declined in the next 2 years due to increase of cost and increase
of assets in the last 2 years.

 Operating Profit Margin:

The operating profit margin is 8.28% in the first year and has increased to 22.45%
in the coming years which shows growth in revenue.

 Return on Equity:

The return on equity is 46.22% in the beginning and has increased to 69.56% in
the next 2 years with decline in next 2 years due to increase in equity and decrease
in revenue.

 Dividend Pay-Out:

The dividend is distributed on the basis of the capital and the income earned. At
first 50% dividend is declared and the next year dividend is decreased a bit for
retaining the profit for expansion. In later years the dividend has been increased to
70%. The company plans to maintain a constant ratio of at least 50%.

4.8.2 LIQUIDITY RATIOS

Liquidity ratios show the position of cash and cash equivalents in the organization.
The details of liquidity ratios are shown in Annex 7.

 Current Ratio:
The current ratio started with 2.61 in the first year and increased to 3.55 within 5
years. The ratio is quite favorable with no sharp increase showing K&B
Investment Company has used its cash effectively as having too much cash is also
not favorable.

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  Quick Ratio:

The quick ratio of the company is quite similar to current ratio as there is minimal
inventory of the firm. This is one of the benefits of the firm as it requires low
inventory for its operation.

4.8.3 EFFICIENCY RATIOS

Efficiency ratios show if the company is able to effectively manage its assets and
liabilities to gain maximum revenue. The details of efficiency ratios are shown in
Annex 7.

 Inventory turnover Ratio:

As the firm has low inventory its inventory turnover is very high. In the first year
the turnover is 243 times and the ratio has increased to 1350 times in next 5 years.

 Account Receivable Turnover Ratio:

The account receivable turnover ratio is 47 times in the first year and has
decreased in the next 5 years. It shows that the account receivable has increased
sharply while the revenue has increased gradually. The company should focus to
maintain a constant account receivable.

 Account Payable Turnover Ratio:

The account payable turnover ratio is 15 times at first and has decreased in the
next 5 years. It shows that the payable has increased in the coming years and also
the cost has not increased so much in the last 5 years so the ratio has decreased.

 Total Assets Turnover Ratio:

The total assets turnover ratio is 4.51 times at first and has decreased to 2.52. It
shows that the total asset has increased in the next 5 years so the ratio has
decreased in the coming years.

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  Fixed Assets Turnover Ratio:

The fixed assets turnover ratio is 8.83 times in first year and has increased to 93
times as the revenue has grown in the next 5 years and there has been no addition
of fixed assets in the future years.

4.8.4 SOLVENCY RATIOS

Solvency ratios depict whether firm is solvent i.e. whether it is able to pay the
liabilities with the revenue generated and also the position of debt and equity in an
organization. The details of solvency ratios are shown in Annex 7.

 Debt Equity Ratio:

The debt equity ratio is 56% in the first year and has decreased in the next 5 years
as the debt has decreased in the next 5 years and equity has increased in next 5
years as well.

 Total asset to equity ratio:

The total asset to equity ratio is 1.97 times at the beginning and has increased to
2.17 times in the next 5 years. This shows a good balance between assets and
equity as the assets are just higher than equity.

 Total net worth to total outside liabilities ratio:

The total net worth to total outside ratio is 1.03 times and has decreased in the last
2 years due to increase in liabilities in the last 2 years. The capital has also
increased but the liabilities have increased in greater proportion than the increase
in capital.

 Interest coverage ratio:

The interest coverage ratio is 6.18 times in the first year. It has increased to 338
times in the next 5 years due to decrease in interest and increase in income for the
next 5 years.

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  Debt service coverage ratio:

The debt service coverage ratio is 5.23 times in the beginning and has increased to
29.90 times in the next 5 years. It is due to decrease in debt in the next 5 years and
increase in revenue in the next 5 years.

4.9 NPV AND IRR

NPV can be described as the “difference amount” between the sums of discounted:
cash inflows and cash outflows. It compares the present value of money today to the
present value of money in the future, taking inflation and returns into account. IRR is
the discount rate at which the present value of all future cash flow is equal to the
initial investment or in other words the rate at which an investment breaks even. The
projected NPV shows the total value of Rs. 5,010,872 and IRR of 97.67%. The
calculation is shown in Annex 8.

4.10 PAYBACK PERIOD

The pay-back period of K&B Investment Company is 1.61 years. It means that the
initial investment will be recovered in just more than 1.5 years. The calculation of
these periods is shown in the Annex 8.

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 CHAPTER V: RISKS AND CONTINGENCIES

5.1 INTERNAL RISKS

Several internal business risks can arise during the business operation. They can be as
follows:
 Switching off jobs by staffs
 Agency problems
 Information leak

To solve these risks, the management will try to motivate its employees by providing
several contingent incentives and target bonuses to its employees and the organization
will be involved along with increase in pay in yearly basis. Agency problem is one of
the common problems where there is conflict of interest between management and
staff. The business will try to not have agency problem by setting an ulterior goal for
all and also have clear communication of goals of both staff and managers to satisfy
the goal. There can also be information leak from within. The information is the most
valuable asset for the firm as information helps to take business decisions in almost all
cases so there should not be information leak to others. To ensure this the company
can have secured connection to prevent leak from online sources and from networked
resources. For leaking from offline sources there should be proper trust of employees
which will be gained from experience and working environment.

5.2 EXTERNAL RISKS

K&B Investment Company has to be prepared for the potential external risks. It may
include various factors like political changes, changes in economic policies, inflation
rate, threats of new entrants and change in customers’ preferences. In such situation,
the business should focus on the business strategies to cope with the changing
environment. K&B Investment Company will form an agreement with other
investment companies to cope with some of the changes in policy of the government.
The business will also have partnership with broker firms to help face the competition
from other investment companies and also to get timely information and ease of
transaction.

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5.3 FUTURE PLAN AND EXIT STRATEGY

5.3.1 FUTURE PLAN

The future plans of K&B Investment Company are as follows:
 Currently, we will be targeting more on capital investment and less on startup
firms. As the business grows, we will also focus on providing services to more
startup firms to encourage new entrepreneurs.
 As the business grows, we will be opening branches in different places
throughout the Kathmandu valley like Lalitpur, Bhaktapur etc.
 We will be extending our product lines or product range. We will be adding
additional product categories.

5.3.2 EXIT STRATEGY

In this uncertain and dynamic world, there may be different forces that may not act in
favor of the company. So a company should always be prepared to face the risks and
should be ready with suitable exit strategies. K&B Investment Company will be
aware of this fact and will adopt the following exit strategies:
 Diversification: The business can start its own subsidiary of different
business to have different source of revenue and be ready to exit in the
worst case scenario.
 Selling: If the environment is very unfavorable then the business should
think of being sold to others. The business will be sold to another party
who is interested in conducting the investment business.

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Contents
CHAPTER I: INTRODUCTION ................................................................................................. 1-5
1.1 BACKGROUND .............................................................................................................. 1
1.2 ORGANIZATION AND MANAGEMENT TEAM ....................................................... 2
1.2.1 MANAGEMENT TEAM ......................................................................................... 2
1.2.2 ORGANIZATION STRUCTURE ............................................................................ 3
1.3 PRODUCTS AND SERVICES ....................................................................................... 3
CHAPTER II: ANALYSIS OF SCENARIO ............................................................................... 6-7
2.1 MARKETS AND COMPETITION ...................................................................................... 6
2.2 LEGAL FRAMEWORKS, ENVIRONMENTAL AND SOCIAL FACTORS .................... 6
2.2.1 POLITICAL AND LEGAL ENVIRONMENT ............................................................. 6
2.2.3 ECONOMIC ENVIRONMENT..................................................................................... 7
2.2.4 SOCIO-CULTURAL ENVIRONMENT ....................................................................... 7
2.2.5 TECHNOLOGICAL ENVIRONMENT ........................................................................ 7
CHAPTER III: MARKETS AND COMPETITION ................................................................... 8-9
3.1 MARKET SEGMENTATION AND TARGET MARKET ................................................. 8
3.2 MARKET NEEDS ........................................................................................................... 9
3.3 MARKET TREND................................................................................................................ 9
3.4 COMPETITORS ................................................................................................................... 9
CHAPTER IV: FINANCIAL PLAN ....................................................................................... 10-16
4.1 IMPORTANT ASSUMPTIONS ......................................................................................... 10
4.2 FINANCIAL DETAILS OF STARTUP EXPENSES ........................................................ 10
4.3 SALES FORECAST AND COST OF GOODS SOLD ...................................................... 11
4.4 BUDGETED LOAN REPAYMENT SCHEDULE ............................................................ 11
4.5 PROJECTED INCOME STATEMENT ............................................................................. 11
4.6 PROJECTED BALANCE SHEET ..................................................................................... 11
4.7 PROJECTED CASH FLOW ............................................................................................... 12
4.8 FINANCIAL RATIOS ........................................................................................................ 12
4.8.1 PROFITABILITY RATIOS ......................................................................................... 12
4.8.2 LIQUIDITY RATIOS .................................................................................................. 13
 4.8.3 EFFICIENCY RATIOS ................................................................................................ 14
4.8.4 SOLVENCY RATIOS ................................................................................................. 15
4.9 NPV AND IRR.................................................................................................................... 16
4.10 PAYBACK PERIOD ........................................................................................................ 16
CHAPTER V: RISKS AND CONTINGENCIES ................................................................... 17-18
5.1 INTERNAL RISKS............................................................................................................. 17
5.2 EXTERNAL RISKS ........................................................................................................... 17
5.3 FUTURE PLAN AND EXIT STRATEGY ........................................................................ 18
5.3.1 FUTURE PLAN ........................................................................................................... 18
5.3.2 EXIT STRATEGY ....................................................................................................... 18