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Koy’s Lavada

Presented to the Faculty of the

Department of Business Administration
University of San Carlos
Cebu City, Philippines

In Partial Fulfillment of the Requirements of the

Course in
Finance 15 – Entrepreneurial Finance
JW438MC, MWF 1:30-2:30pm
First Semester A.Y. 2018-2019

By:
GENSON, SHARA L.

December 12, 2018

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 ENDORSEMENT SHEET

This Financial Plan on KOY’s LAVADA submitted by SHARA L. GENSON, in partial

fulfillment of the requirements of the course in Finance 15: Entrepreneurial Finance has been
examined and is endorsed for final submission.

ANA LIZA R. TAN, DBA

Adviser

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 Table of Contents

Cover Page 1
Endorsement Sheet 2
Table of Contents 3
1. Financial Objectives and Target 4
1.1 Types of Ownership 4
1.2 Total Project Costs 4
1.3 Capital Structure & Sources of Financing 4
1.4 Investment Returns and Risks 4
1.5 Profitability Levels 4
1.6 Survival and Sustainability Expectations 4
2. Statement of Assumptions 5
1. Income Statement 5
2.1.1 Pricing and Costing Method Used (Production Cost/Service Costs) 5
2.1.2 Operating Costs 6
2.1.3 Financing Costs and Tax Assumption 7
2. Balance Sheet for the First Year of Operation 8
2. Projected Financial Statements 9
3.1 Projected Income Statement 9
3.2 Projected Cash Flow Statement 10
3.3 Projected Balance Sheet 11
3. Financial Evaluation 12
4.1 Vertical Analysis 12
4.4.1 Balance Sheet 12
4.4.2 Income Statement 13
4.2 Financial Ratio Analysis 14
4.2.1 Liquidity Ratios 14
4.2.1.1 Cash Ratio 14
4.2.1.2 Acid-test Ratio 14
4.2.1.3 Current Ratio 14
4.2.1.4 Days Sales in Inventories 14
4.2.2 Stability Ratios 14
4.2.2.1 Debt-Equity Ratio 14
4.2.2.2 Times-Interest Earned Ratio 14
4.2.2.3 Return on Equity vs. Return on Assets 15
Conclusion and Recommendation 16
References 16

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 1. Financial Objectives and Target

1.1 Types of Ownership

The fast change of trend from individualized laundry to commercial laundry services
coincides with rapid technological change as well as the fast, changing and modern lifestyle
of Filipinos. KOY’s Lavada is a newly launched business owned by partnerships: Shara L.
Genson and Vince Michael C. Inez. Laundry business is an easy and convenient business to
start. It is not capital or management intensive. You can start this business right from home
and grow from there. It is a very lucrative business, as not everyone that puts on clothes has
the time to do the laundry.

1.2 Total Project Costs

The total project cost of the business will be funded by the partners’ personal savings with
an equal distribution of 50% each. The costs for starting our business will be amounted to
₱500,000.00. In the start up, the business will first rent an office space and renovate it. The
equipments and supplies of the laundry shop will be bought. Utilities and telephone
connection will be installed and all the licenses and permits will be acquired.

1.3 Capital Structure & Sources of Financing

The business partners will use their personal savings and they’re not planning to apply for
bank loans and other sources of finance.

1.4 Investment Returns and Risks

An investment return would be a high customer loyalty, which the partners try to achieve by
giving their members a feeling of satisfaction and that their clothes shall be clean and
complete. On the other hand, risk isn’t avoidable however you can always keep track of
expenses and income steadily. In addition, in the long-run of operation the business will be
smooth and generates income. Lastly, investment returns in this kind of business venture
takes so time approximately 7-10 months to recover the amount of investment being put in
the capital.

1.5 Profitability Levels

The business aims to have a break-even with the total costs and its income; since, they are
still building and marketing their laundry shop.

1.6 Survival and Sustainability Expectations

As a newly formed business partnership, it is on the process of building its name and it has
the possibility to encounter a lot of risks throughout the coming years such as increase in
competition, however KOY’s Lavada remains optimistic that customers will continue to
increase every year in the future. Once it has grown into a stable and successful laundry
shop with an increase of capital, it may expand and open up more centers in different
locations.

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 2. Statement of Assumptions

2.1 Income Statement

2.1.1 Pricing and Costing Method Used (Production Cost/Service Costs)

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2.1.2 Operating Costs

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2.1.3 Financing Costs and Tax Assumption

1. The owner shall invest P 500,000.00 in the business as shown in page 4,

which approximates the total pre-operating expenses.
2. A service rendered is on cash basis.
3. The equipment and leasehold improvements are to be depreciated on a
straight-line basis.
4. For simplicity, all employees are presumed to be single and that they have no
dependents for purposes of computing the withholding tax.
5. Income tax is computed using the tabular tax rate for individuals provided by
the National Internal Revenue Code.
6. There are no other current liabilities aside from the employee benefits and
income tax since the entity pays its obligations before the end of the year.
7. Owner/Manager will withdraw instead of salary.

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2.2.Balance Sheet for the First Year of Operation

Year 1
ASSETS

Current Assets
Cash 660,841.65
Supplies Inventories 2,269.00
Total Current Assets ₱ 663,110.65

Non Current Assets

Equipments 348,034.50
Less: Accumulated Depreciation 50,606.46
Leasehold Improvements 11,500.00
Less: Accumulated Depreciation 2,300.00
Furnitures and Fixtures 18,500.00
Less: Accumulated Depreciation 3,700.00
Total Non Current Assets ₱ 321,428.04
Total Assets ₱ 984,538.69

LIABILITIES & OWNER'S EQUITY

Current Liabilities

Due to SSS 4,680.00

Due to Philhealth 1,200.00

Due to PAG-IBIG 1,672.32

Income Tax Payable 178,435.64
Total Current Liabilities 185,987.96
Total Liabilities ₱ 185,987.96
Owner's Equity ₱ 798,550.73
Total Liabilities and Owner's Equity ₱ 984,538.69

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3. Projected Financial Statements

3.1 Projected Income Statement

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3.2 Projected Cash Flow Statement

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3.3 Projected Balance Sheet

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4. Financial Evaluation
4.1 Vertical Analysis
4.4.1 Balance Sheet

Year 1 Year 2 % (Year 1) % (Year 2)

ASSETS
Current Assets
Cash 660,841.65 884,816.46 99.66% 99.72%
Supplies Inventories 2,269.00 2,495.90 0.34% 0.28%
Total Current Assets ₱ 663,110.65 ₱ 887,312.36 100.00% 100.00%
Non Current Assets
Equipments 348,034.50 0.00% 131.42%
Less: Accumulated Depreciation 50,606.46 101,212.92 15.74% 38.22%
Leasehold Improvements 11,500.00 11,500.00 3.58% 4.34%
Less: Accumulated Depreciation 2,300.00 4,600.00 0.72% 1.74%
Furnitures and Fixtures 18,500.00 18,500.00 5.76% 6.99%
Less: Accumulated Depreciation 3,700.00 7,400.00 1.15% 2.79%
Total Non Current Assets ₱ 321,428.04 ₱ 264,821.58 100.00% 100.00%
Total Assets ₱ 984,538.69 ₱ 1,152,133.94 100.00% 100.00%
LIABILITIES & OWNER'S EQUITY
Liabilities
Due to SSS 4,680.00 4,680.00 2.52% 1.34%
Due to Philhealth 1,200.00 1,200.00 0.65% 0.34%
Due to PAG-IBIG 1,672.32 1,672.32 0.90% 0.48%
Income Tax Payable 178,435.64 232,529.88 95.94% 66.81%
Total Liabilities ₱ 185,987.96 ₱ 240,082.20 18.89% 20.84%
Owner's Equity ₱ 798,550.73 ₱ 912,051.73 81.11% 79.16%
Total Liabilities and Owner's
₱ 984,538.69 ₱ 1,152,133.94 100.00% 100.00%
Equity

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 4.4.2 Income Statement

Year 1 Year 2 % %

(Year 1) (Year 2)
Service Revenues ₱ 1,648,920.00 ₱ 1,813,812.00 100.00% 100.00%

Less: Discounts 49,467.60 54,414.36 3.00% 3.00%

Net Service Revenue ₱ 1,599,452.40 ₱ 1,759,397.64 97.00% 97.00%

Less: Cost of Services 392,968.15 399,548.25 23.83% 22.03%

Gross Profit ₱ 1,206,484.25 ₱ 1,359,849.39 73.17% 74.97%
Less: Expenses
Salaries & Wages 167,232.00 167,232.00 10.14% 9.22%
Depreciation - Equipment 35,213.31 35,213.31 2.14% 1.94%

Depreciation - Leasehold 2,300.00 2,300.00 0.14% 0.13%

improvements

Depreciation - Furnitures and 3,700.00 3,700.00 0.22% 0.20%

Fixtures

Rent 140,000.00 120,000.00 8.49% 6.62%

Supplies 31,626.25 34,788.88 1.92% 1.92%
Advertising 5,500.00 3,000.00 0.33% 0.17%
SSS contribution 37,850.40 37,850.40 2.30% 2.09%
PhilHealth Contribution 7,200.00 7,200.00 0.44% 0.40%
PAG-IBIG Contribution 10,033.92 10,033.92 0.61% 0.55%
Duties and Licenses 5,842.00 2,500.00 0.35% 0.14%
Utilities 38,000.00 38,000.00 2.30% 2.10%
Repairs and Maintenance 5,000.00 12,000.00 0.30% 0.66%

Total General and Administrative 29.69% 26.12%

489,497.88
Expenses 473,818.51
Income Before Tax ₱ 716,986.37 ₱ 886,030.89 43.48% 48.85%

Income Tax (Tabular) ₱ 178,435.64 ₱ 232,529.88 10.82% 12.82%

Income After Tax ₱ 538,550.73 ₱ 653,501.00 32.66% 36.03%

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4.2 Financial Ratio Analysis
4.2.1 Liquidity Ratios
(Cash Equivalents + Cash) ÷ Current Liabilities
4.2.1.1 Cash Ratio
= 660,841.65 ÷ 185,987.96 = 3.55
The company has a cash ratio which is greater than 1, meaning the company has more cash
and cash equivalents than current liabilities. In this situation, the company has the ability to
cover all short-term debt and still have cash remaining.
(Current Assets — Inventories) ÷ Current
4.2.1.2 Acid-test Ratio Liabilities

= (663,110.65 — 2,269.00) ÷ 185,987.96 = 3.55
The company has an acid-test ratio of greater than 1 meaning it has enough liquid assets to pay
their current liabilities.
Current assets ÷ Current liabilities

4.2.1.3 Current Ratio
= 663,110.65 ÷ 185,987.96 = 3.57
A current ratio under 1 indicates that the company’s debts that will need to be paid in a year or
less are greater than its assets (either cash or expected to be converted to cash within a year or
less.) A current ratio less than one would not be concerning if the company has a much higher
receivables turnover than payables turnover. However, for Koy’s Lavada it has a current ratio
of greater than 1.
4.2.1.4 Days Sales in (Inventory ÷ Cost of Services) x 360 days

Inventories = (2,269.00 ÷ 392,968.15) x 360 days = 2 days
The days sales in inventory calculation, also called days inventory outstanding or simply days
in inventory, measures the number of days it will take a company to sell all of its inventory. In
other words, the days sales in inventory ratio shows how many days a company's current stock
of inventory will last. In this case, the company only takes 2 days to finish up their stocks.
4.2.2 Stability Ratios
Liabilities ÷ Owner’s Equity

4.2.2.1 Debt-Equity Ratio
= 185,987.96 ÷ 798,550.73 = 0.23
Each industry has different debt to equity ratio benchmarks, as some industries tend to use
more debt financing than others. A debt ratio of .5 means that there are half as many liabilities
than there is equity. In other words, the assets of the company are funded 2-to-1 by investors
to creditors. This means that investors own 66.6 cents of every dollar of company assets while
creditors only own 33.3 cents on the dollar. In Koy’s Lavada, you can see that they don’t have
any investors. Since, they financed their company with their personal money.

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 Return on Equity

= Net Income ÷ Owner’s Equity
= 538,550.73 ÷ 798,550.73 = 0.67

4.2.2.2 Return on Equity


vs. Return on Assets
Return on Assets

= Net Income ÷ Average Total Assets

= 538,550.73 ÷ 984,538.69 = 0.54
Return on Equity and Return on Assets are important components in banking for measuring
corporate performance. Return on equity (ROE) helps investors gauge how their investments
are generating income, while return on assets (ROA) helps investors measure how
management is using its assets or resources to generate more income.

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Conclusion and Recommendation

For a successful business it is necessary that one should have proper knowledge and skills of
managing the entire business; the owners should properly hire supervisors by following the
specific selection criteria and should take personal interest in the activities as well. They should
also be updated with the business activities. Furthermore, the supervisor should adapt suitable
measures for the eliminations of risk that the business can face he/she should focus on core
problem and should take suitable actions to minimize them.

Starting a small business is complex, time consuming and life altering. There are many more
things that go into running it than just providing the product(s) or service(s) that your business
offers. You’ll also be responsible for your business’s finances, protecting your business and
personal assets, keeping your business legal, paying taxes, keeping records, managing employees
and more.

If you understand what you’re doing and know how to minimize the risks and challenges, the
independence, personal satisfaction and financial rewards you can achieve as an entrepreneur
mean that starting a small business could be the best decision you’ll ever make.

References

https://bohatala.com/laundry-business-plan-idea/
https://www.investopedia.com/ask/answers/070914/what-are-main-differences-between-return-
equity-roe-and-return-assets-roa.asp
https://www.investopedia.com/university/small-business/conclusion.asp
https://corporatefinanceinstitute.com/resources/knowledge/finance/financial-ratios/

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