23

VI. FINANCIAL ASPECT

6.1 Total Project Cost and Proposed Sources of Funds
DOLORES FOOD PRODUCTS
Total Project Cost
Category Schedule Debt Equity Total
Fixed Assets
Building 1 217,533.00 217,533.00
Machinery and Equipment
Peeling Machine 12,000.00 12,000.00
Slicing/Cutting Machine 15,000.00 15,000.00
De-oiling Machine 18,000.00 18,000.00
Flavoring Machine 21,000.00 21,000.00
Weighing Scale 990.00 990.00
361 L Pan 7,000.00 7,000.00
Double Burner 800.00 800.00
Table (Stainless) 13,000.00 13,000.00
Styrofoam Box 4,800.00 4,800.00
Sealer 2,980.00 2,980.00
Chairs 4,900.00 4,900.00
Ceiling Fan 4,785.00 4,785.00
Permits and Licenses 10,000.00 10,000.00
Total

Working Capital
Direct Materials 2 63,080.00 63,080.00
Direct Labor 3 30,200.00 30,200.00
Indirect Labor 4 5,250.00 5,250.00
Utilities 6,316.99 6,316.99
Repairs and Maintenance 1,000.00 1,000.00
Office Supplies 500.00 500.00
Total Project Cost 397,434.99 41,700.00 439,134.99

Source of Fund Amount Percentage

Debt 397,434.99 91%
Equity 41,700.00 9%
Total Project Cost 439,134.99 100%
 24

6.2 Financial Assumptions

 Straight-line method was used in computing the depreciation.

 Sales are assumed to increase by 16% per annum
 Direct materials are assumed to increase by 10% per annum
 Direct and indirect labor are assumed to increase 5% per annum.
 The capacity utilization is assumed to increase by 5% per annum.
 Utilities expenses are assumed to increase by 10% per annum.
 Miscellaneous are assumed to increase by 3% per annum.
 Repairs and Maintenance Expenses are assumed to increase by 4% per
annum.
 The business uses peso as a monetary unit.
 Office Supplies are assumed to increase by 3% per annum.

A. Projected Income Statement

DOLORES FOOD PRODUCTS

Projected Income Statement
For four periods
Year 1 Year 2 Year 3 Year 4
Sales (Schedule 6) 1,818,880.00 2,109,900.80 2,447,484.93 2,839,082.52
Less: Cost of Sales 1,127,360.00 1,214,706.00 1,315,454.10 1,425,402.89
Gross Profit 691,520.00 895,194.80 1,132,030.83 1,413,679.63
Less: Operating Expenses (Schedule 7) 232,552.95 235,056.52 237,935.29 241,236.27
Net Income Before tax 458,967.05 660,138.28 894,095.54 1,172,443.36
Tax Expense (30%)* 100,190.11 160,541.48 230,728.66 314,233.01
Net Income After tax 358,776.93 499,596.80 663,366.88 858,210.35

*Computation for tax expense

Net Income Before tax 458,967.05 660,138.28 894,095.54 1,172,443.36
Less: Personal Exemptions
Basic 50,000.00 50,000.00 50,000.00 50,000.00
Additional 75,000.00 75,000.00 75,000.00 75,000.00
Taxable Income 333,967.05 535,138.28 769,095.54 1,047,443.36
Tax rate: (30%) 100,190.11 160,541.48 230,728.66 314,233.01
 25

B. Projected Statement of Cash Flow

DOLORES FOOD PRODUCTS

Projected Cash Flow
Pre-operation Year 1 Year 2 Year 3 Year 4
Cash Inflows
Loan 397,434.99
Equity 41,700.00
Cash Inflow from 1,818,880.00 2,109,900.80 2,447,484.93 2,839,082.52
revenue
Total Cash Inflow 439,134.99 1,818,880.00 2,109,900.80 2,447,484.93 2,839,082.52

Cash Outflow
Payment for construction of Building 217,533.00
Payment for permits and licenses 10,000.00
Acquisition of Machines and 105,255.00
Equipment
Payment for Direct Materials 756,960.00 832,656.00 915,921.60 1,007,513.76
Payment for Direct Labor 307,400.00 316,800.00 331,920.00 347,796.00
Payment for Indirect Labor 63,000.00 65,250.00 67,612.50 70,093.13
Payment for Utilities 75,803.87 83,384.25 91,722.68 100,894.95
Payment for Repairs and 1,000.00 1,040.00 1,081.60 1,124.86
Maintenance
Payment for Office Supplies 500.00 515.00 530.45 546.36
Payment of Principal and Interest 128,039.53 122,907.71 117,391.00 111,460.54
Payment for taxes 100,190.11 160,541.48 230,728.66 314,233.01
Total Cash Outflow 332,788.00 1,432,893.51 1,583,094.44 1,756,908.49 1,953,662.61

Net Cash flow 106,346.99 385,986.49 526,806.36 690,576.44 885,419.91

Add: Cash bal, beg. - 106,346.99 492,333.48 1,019,139.84 1,709,716.27
Cash bal, end. 106,346.99 492,333.48 1,019,139.84 1,709,716.27 2,595,136.18
 26

C. Projected Balance Sheet

DOLORES FOOD PRODUCTS

Projected Balance Sheet
ASSETS Pre- Year 1 Year 2 Year 3 Year 4
Operating
Current Assets
Cash 106,346.99 492,333.48 1,019,139.84 1,709,716.27 2,595,136.18
Permits and licenses 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00
Total Current Assets 116,346.99 502,333.48 1,029,139.84 1,719,716.27 2,605,136.18
Non-current Assets
Building 217,533.00 217,533.00 217,533.00 217,533.00 217,533.00
Machinery and Equipment 105,255.00 105,255.00 105,255.00 105,255.00 105,255.00
Less: Accumulated 27,209.56 54,419.12 81,628.67 108,838.23
Depreciation
Total Non-current Assets 322,788.00 295,578.44 268,368.88 241,159.33 213,949.77
Total Assets 439,134.99 797,911.92 1,297,508.72 1,960,875.60 2,819,085.95

LIABILITIES
Notes Payable 397,434.99 397,434.99 397,434.99 397,434.99 397,434.99
Total Liabilities 397,434.99 397,434.99 397,434.99 397,434.99 397,434.99

OWNER'S EQUITY
Owner's equity, beg 41,700.00 41,700.00 400,476.93 900,073.73 1,563,440.61
Add:
Net Income - 358,776.93 499,596.80 663,366.88 858,210.35
Owner's equity, end 41,700.00 400,476.93 900,073.73 1,563,440.61 2,421,650.96
Total Liabilities and Equity 439,134.99 797,911.92 1,297,508.72 1,960,875.60 2,819,085.95
 27

6.3 Financial Ratios

A. Asset Management

Asset Management Ratio measure how effectively the project is in managing its
assets. The tables below show the fixed assets turnover ratio and the total asset
turnover of the project.
Table 16. Fixed Asset Turnover Ratio

Particulars Year 1 Year 2 Year 3 Year 4

Sales
1,818,880.00 2,109,900.80 2,447,484.93 2,839,082.52
Net Fixed Assets
295,578.44 268,368.88 241,159.33 213,949.77
Fixed Asset Turnover
Ratio 6.15 7.86 10.15 13.27

Analysis:The project generated 6.35x in year 1 and increases over the years.
Throughout the years, the project’s results indicate that it is using its fixed assets as
intensively as possible to generate revenue.
B. Profitability Ratio

To determine the ability of the project to generate enough income given the total
amount of the money invested in the project, the profitability ratio is used and is
presented below.
Table 17. Net Profit Margin
Particulars Year 1 Year 2 Year 3 Year 4
Net Income
358,776.93 499,596.80 663,366.88 858,210.35
Revenue
1,818,880.00 2,109,900.80 2,447,484.93 2,839,082.52
Net Profit Margin Rate 20% 24% 27% 30%

Analysis: The table shows an increasing trend in the net profit margin rate of the
project. This trend is a favorable indication that the business can cover its operating
expenses and a yield in profit.
 28

C. SOLVENCY RATIO
Table 18. Debt to Asset Ratio
Year 1 Year 2 Year 3 Year 4
Total Liabilities
397,434.99 397,434.99 397,434.99 397,434.99
Total Assets
797,911.92 1,297,508.72 1,960,875.60 2,819,085.95
Debt to Asset Ratio 0.50 0.31 0.20 0.14

Analysis: The trend of the ratio over the years is decreasing which is favorable to the
business. The assets of the business are greater than its liabilities.
Table 19. Debt to Equity Ratio
Year 1 Year 2 Year 3 Year 4
Total
Liabilities 397,434.99 397,434.99 397,434.99 397,434.99
Total Equity
400,476.93 900,073.73 1,563,440.61 2,421,650.96
Debt to 0.99 0.44 0.25 0.16
Equity Ratio

Analysis: The trend of the ratio over the years is decreasing which is favorable to the
business. A lower ratio indicates less risk because this means that the business relies
more on its investments rather than on external lenders.
5.5 Investment Decision Analysis
A. Return on Investment

The project has a total project cost of Php 439,134.99 and the rate of return
based on its expected annual profit is 135%. This indicates that in every one peso
invested in the project, return of 1.35 pesos will be generated each year.
Table 20. Return on Investment

Net Profit 594,987.74

Projected Cost 439,134.99
Return on Investment 1.35
 29

B. Payback Period

The table presented below indicates that the project investment cost will be
recovered after 0.30 years or 3.6 months*.
Table 21. Payback Period

Projected Cost 439,134.99

Net Cash Flow 1,454,081.44
Net Profit Margin Rate 0.30

* 1 month = 0.0833333 Years(http://www.calculateme.com/Time/Months/ToYears.htm)