Académique Documents
Professionnel Documents
Culture Documents
By
Khaled Ayesh, MBA
World Bank, InfoDev-funded Business
and IT Incubator,
Islamic University, Gaza
Training Outline
Definitions/introduction
Purpose of preparing feasibilities
Component of the feasibility study
How to prepare a feasibility study
How to analyze the investment climate
How to figure out external business opportunities
Marketing study
Technical study
Financial study
Financial analysis/statements/ratios
Environmental Impact study
Cost and benefits analysis
How to evaluate an investment projects
Payback period
Net present value/Discounted cash flows
Internal rate of return
Definition of feasibility
study
is a comprehensive study that examine
the viability of an idea that has a
business potential and advanced
to a stage where the prospective
project is socially responsible,
commercially viable and feasible
business opportunity exit.
Venture
Concept
Market Opportunity
Test of
Potential
Test of
Feasibility
Prove viability
Create initial
prospectus to
seek resources
Prove feasibility
Prepare for
implementation
Gather resources
Resources III
Resources I
Resources II
Viability Info
(general market,
process, org., etc.)
Sweat Equity
Feasibility Info
(specific market,
process, org., etc.)
Initial Equity
New
Venture
Sources of Investment
Opportunities
Pre-feasibility study
1. Describing a Product or service
2. Describing market supply and demands
3. Describing Production methodologies
4. Describing initial inputs and
5.
6.
7.
1. Describing Product or
service
characteristics
Quality component
Physical shape
Product features/benefits/adding
value
Ingredients/formula
Describe competing product
Describe other product Substitutes
2. Describing market
Where is the product produced?
What is the number of similar factory or
3. Describing Production
methodologies
Access to market
Strategic location fitness
Exhibition shows
Access to industrial support facilities
Access to public infrastructure
services
Environment friendly location
Socially respected location
Community outreach comfort
Writing Exercise
Work in Group of 5 person
Review the success stories
:
:
1.
2.
3.
4.
5.
6.
7.
1. Marketing Study
Market analysis of the a
product/service
Description of the production capacity
Projection of the demand on this
product/service
Estimating the future
demands/supply/imports/exports on
certain product/service
Analyze the competition and major
competitors
Consumption
Markets
Distribution system
Market entry
Buyers
Selling Arrangements
Prices
1. Consumption
What is the current consumption of
1. Consumption cont.
What is the quality of the product that
is being consumed?
Who consumes the product? What are
their demographics? (Age, income,
educational levels, marital status,
family size)
Are these demographic segments
growing or shrinking?
2. Markets
What is the current structure of the
marketplace?
Who is currently supplying these
products to customers?
What will be the reaction of these firms
if a new firm enters the market?
Can a firm compete with existing firms
or other potential entrants?
2. Markets cont.
What are the implications for a firm
who wants to expand its market?
What are the costs?
What revenues can be expected?
3. Distribution System
Will it be necessary to provide delivery
services?
What delivery schedules will be
required?
What common carrier options are
available?
Should the firm provide delivery itself?
Should delivery equipment be
purchased or leased?
4. Market Entry
How will the product or service be
5. Buyers
Will you sell directly to consumers or
go through a middleman buyer?
What types of buyers will purchase
the product?
Where are they located?
What product specifications will they
require?
5. Buyers cont.
Have potential buyers expressed an
6. Selling Arrangements
What type of selling services will you
need to provide?
Will you need to employ a sales force
or go through a buyer?
If you employ a sales force, how
many people will this require? What
is their compensation plan?
6. Selling Arrangements
.cont.
How will they be selling the product?
What are the costs of these
activities?
Should you have sales offices located
throughout your geographic market
area?
Why have you chosen one method of
selling activities over another?
7. Prices
Setting a price is a critical activity in
the market portion of the study.
7. Prices cont
To help determine the price, look at:
2. Technical Study
Description of production methodology
Identifying the required
equipment/technology/machinery
Identifying the location, space, engineering design,
technical drawings, etc.
Description of the required energy, fuel, water,
transport, logistics and other infrastructure services
Estimating the required raw materials, capacity,
machinery maintenance, labor, IT, the size of factory,
etc.
Preparing the manufacturing design, drawings,
leveling, basement, construction, infrastructure,
finishing, electricity, water, health and safety
measures, labor training, etc.
Projection of fixed cost ad operating cost
Production Process
The production process section of the
Facility Determination
The minimum size facility to make
3. Financial Study
Estimate of capital expenditures
Estimate of operational expenditures
Estimate of revenues for the coming 5 years
Estimate the sales over the life of the project
Propose financing plan and equities structure
Projection of the expected profits under
various assumptions
Financial analysis and ratios
Operational Costs
Includes items such as:
Wage rates
Management costs
Raw material costs
Utility rate structures
Fixed Costs (Depreciation, Taxes, Interest,
Insurance)
Profitability
Given the estimated revenues from the
marketing section and the estimated
costs from the production section, the
profitability of the enterprise can be
ascertained.
Profitability is defined as the excess of
revenues over expenses.
There are two distinct measures of
profitability.
Profitability Measures
Tax Profitability
Revenues minus expenses
This is the amount on which you pay
taxes.
Economic Profitability
Profitability Charts
Break-even analysis
Shows the level of production where
revenues will just cover costs.
Prepare this on a tax profitability and an
economic profitability basis.
Working Capital
Working capital is the cash used for day-today expenses such as the payroll, utility
bills, etc.
Adequate working capital is crucial to
business survival
The cash flow statement demonstrates the
need for working capital at specific points
in time
Shows the uses of cash
Demonstrates the need for additional
borrowings
Labor
How many employees will be required to
run the production facility?
Compare facility needs to the local labor
force.
5. Socio-economic Study
The contribution to social benefits
Adding value to local needs
Offering a product/service
Social responsibility and community
outreach support
Contribution to local demands and
Trade balance
Cost and benefits analysis
Contribution to the added value
Contribution to generate more investment
and business opportunities and
employment opportunities.
6. Environmental Impact
assessment study
Assessing environmental impact of the
project
Assessing the project risk assessment on:
natural resources,
pollutions,
solid waste,
disposing industry waste and
biodiversities impact.
Other environmental risk and hazards,
chemical treatment, emissions, poisons, etc.
Economies of scale
Asset utilization
Capacity utilization
pattern
Seasonal, cyclical
Interrelationships
Order processing
and distribution
Value chain linkages
Marketing & sales
Logistics &
operations
Service
Product features
Performance
Mix & variety of products
Service levels
Small vs. large buyers
Process technology
Wage levels
Product features
Hiring, training,
motivation
Financial Assessment
Payback period
Rate of return
Break even analysis
Rate of internal returns
Net Present value
Discounted cash flows
Payback period
Payback period = total $
investment/annual income
Example:
One project spent $50,000 and
earned annual income $10,000
Payback period =
Calculate: ???
Rate of return
Average annual accounting income from project
Average annual investment in the project
= Return on investment (ROI)
Average annual investment =
Salvage value at end) 2
(Initial investment +
Breakeven Analysis
Breakeven point QBE is the number of units that must be
sold at price P such that total revenues (TR) equal total
costs (TC).
TR
(P QBE) =
[(P - VC) QBE]
QBE
QBE
=
=
=
TC
[FC + (VC QBE)]
=
FC
[FC(P - VC)]
(FCCM)
Main components of a
balance sheet
Assets
Liabilit
ies and
Owner
s
Examples
Measures
Indicators
Productivity of
Profitability
Return on
Equity (ROE)
Liquidity
Current Ratio
Current Assets
Current Liabilities
Measure of
financial solvency
Asset Turnover
Sales_________
Total Assets
Asset use
efficiency
Inventory Turnover
Sales_________
Inventory
Turnaround of
inventory
Debt/Equity Ratio
Corporate
Liabilities______
financing; financial
Shareholders equity risk; default risk
Activity
Leverage
Economic Assessment
Cost and benefit analysis
Can an estimate of required capital
investment be made?
Contribution to economic development
Contribution to job creation and
employment
Contribution to trade balance and
export market
Contribution to added value and
GDP
Environmental Assessment
What is the expected environmental
Income Levels
Income per capita
Income distribution
Income and consumption distribution
Consumer preferences
Consumption trends
Local production
Local demand and supply
Import/export products
International trends in international
markets
prices
Trends on international market prices
development
Hi-tech industry development center
Technology laboratory
Innovation and product development
institution
External Environmental
Analysis
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment
The External
Environment
Strategic Intent
Strategic Mission
General Environment
Socio-cultural segment
General Environment
Economic segment
Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
General Environment
Political/Legal Segment
Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and policies
General Environment
Technological Segment
Product innovations
Applications of knowledge
Focus of private and government-supported
R&D expenditures
New communication technologies
General Environment
Global Segment
General Environment
Demographic Segment
Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution
Industry Environment
A set of factors that directly influences a
ut e
bstit
f Su
ts
eat o
Thr Produc
Five Forces of
Competition
Bargaining Power of
Buyers
En
tr a
nt
s
Bar g
aini n
g Po
w
Sup
pl ier er of
s
A Fi
y
lr ing
a
v
t
Ri pe
m
o
C
Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy
Expected retaliation
Bargaining Power of
Suppliers
A supplier group is powerful when:
it is dominated by a few large companies
satisfactory substitute products are not available
to industry firms
industry firms are not a significant customer for
the supplier group
suppliers goods are critical to buyers
marketplace success
effectiveness of suppliers products has created
high switching costs
suppliers are a credible threat to integrate
forward into the buyers industry
total output
the sales of the product being purchased
account for a significant portion of the sellers
annual revenues
they could easily switch to another product
the industrys products are undifferentiated or
standardized, and buyers pose a credible threat
if they were to integrate backward into the
sellers industry
Threat of Substitute
Products
Product substitutes are strong threat when:
Intensity of Rivalry
Intensity of rivalry is stronger when competitors:
Case study
Complete feasibility study format
and writing exercises:
Topics to be determined:
1.
2.
3.
4.
5.
6.
Agribusiness
Retail Industry
Service industry
Manufacturing industry
ICT
others
Executive Summary
Regional Socio-Economic Situation (General
Description of the current situation). Most likely
including brief on your local economy.
3. Legal Study
4. Financial Plan
5. Project Implementation Schedule
6. Market Study and Marketing
7. Detail Description of Activities
8. Environmental protection
9. Control
10. Financial Analysis and Projections
11. 11) Social Economic Effects / Multiplier effects,
related studies
12. 12) Options Analysis on different hypothesis and
scenarios
Any comments?
Thanks for participation
If you need any help, feel free to send your
queries/questions through:
Consulting Group for Development, CGD
By: Khaled Ayesh
Chief Technical Advisor and Team Leader
Email: k.ayesh@hotmail.com
Jawwal: +972-599-689118