Professional Documents
Culture Documents
Business Plan
Prepared For
Mr. SADIR ZAIDI
Instructor of corporate finance
Director of Faculty of Life Sciences and Business Management
University of Veterinary and Animal Sciences (UVAS)
Lahore
Prepared By
Mr. KHAWAR NADEEM
Mr. YASIR LATIF
Miss. FAIZA MUNEER
Mr. AMIR HUSSAIN
Miss. SARA FARID
Students of MBA 2nd Semester (sec B)
Session (2008-2010)
University of Veterinary and Animal Sciences (UVAS)
June8, 2009
Y.L
To My Beloved Parents.
K.H
To My Beloved Parents.
F.M
To My Beloved Parents.
S.F
To My Beloved Mother.
A.H
We are proud on following personalities for being our friends and relatives that guidance helps us in
the preparation of this project
➢ Mr. Haseeb who provided us some useful information related to our topic.
➢ Mr. Ali who provided us some useful information related to our topic.
In the end Special thanks to our parents and teachers specially Mr. ZAIDI (Our corporate finance
instructor) whom unlimited efforts are there in our personality
“SAVVY GARMENTS”
In this report we have given the introduction of business, products of garments, financial analysis.This
is our first experience to do work on business plan, we learn much from it. We hope in future Mr.Zaidi
will provide us more chances of such good experiences.
Yours sincerely
Student of FLBS (UVAS)
Table of contants
Sales forecasting: then we do the work on the forecasting of the business, we forecast the cost of the
business first variable and as well as the fixed cost of the business. After forecasting the cost of the
business do the work on the sales of the business with the help of the data that is taken form the market
and implement it and make the sales for the business
On the basis of above data we prepare the projected income statement of the business.
Capital budgeting: in business plan the first task is capital budgeting in which we do the 6 type of
analysis NPV, IRR, ARR, PI, discounted payback, payback. By this we check the feasibility of the
project.
OCF: then we calculate the operating cash flow of the business by using the different techniques like
bottom up approach, top down approach, and tax shield approach.
Scenario analysis: after this we do the scenario analysis and check the feasibility of the project in the
different scenario like base case, best case, and worst case.
Sensitivity analysis: in this analysis we used different scenario to check the feasibility of the project by
change only one variable among the four variables (units, price, VC, FC) and other remains the same.
Break even analysis: in this analysis we check the break even of the project by the different way like
accounting break even, cash breakeven and financial breakeven.
Mission:
Satisfy the customer on the low prices and with high quality of product.
Business nature:
We started a trading concern business in the Lahore city.
Products:
We have the following products in men’s garments:
1) Casual shirts
2) Dress shirts
3) Dress pants
4) Jeans
5) Suits
6) ties
Objective:
We have the following objective in this field:
✔ Increase the sales up to 5%
✔ Increase the branches
Features:
We have the following features in this business:
➢ We provide good standard of products and suitable prices
➢ Friendly environment for customers
➢ Good return of customer money
PROJECT FORCASTING
Variable cost:
➢ Variable cost per unit:
➢ Per month:
Rent Rs.14600
Salary of sales man Rs.18000
➢ Per year:
Rent per year Rs.175200
Salary per year Rs.216000
We present and compare a number of different approaches used in practice. Our primary goal is to
acquaint you with the advantages and disadvantages of the various approaches. As well as we see, the
most impotent concept in this area is the idea of net preened value. Capital budgeting has the following
tools.
= - 1500000 + 4672053
NPV = Rs.3172053
An in vestment should be accepted if the net present value is positive and rejected if it is negative.
Decision:
The present value of the expected cash flow is Rs.4672053, but the cost of getting those cash
flow is only Rs.1500000, so the NPV is - 1500000 + 4672053 = Rs.3172053. This is positive so based
on the net present vale rule, we should accept this project.
Rule;
Based on the payback rule, an investment is acceptable if its calculated payback period is less
then some pre specified number of years.
Decision:
The initial cost of the project is Rs. 1500000 and the cash flow of the first year is Rs. 1524105. So
the payback period is 0.984 years. And this is the positive sign for the project.
Rule:
Based on the discounted payback rule, an investment is acceptable if its discounted payback is
less then some pre specific number of years.
= 240409 = 0.2198
1093563
= 1528621
750000
= 203.8 %
IRR= 100.7472
The internal rate of return of the project is much higher then the required rate of return. So we prefer to
accept this project.
The result of calculation tells us that per rupee invested, Rs.3.114702 in value or Rs.2.114702 in NPV
result. The profitability index thus measures “bangs for the buck,” that is, the value created per rupee
invested.
There are the following approaches to calculate the OCF of the project.
1. Bottom Up Approach:
Because we ignoring any financing expenses, such as interest, in our calculations of
project OCF, we can write project net income as:
This is bottom-up approach. Here we start with the accountant’s bottom line and add back any
noncash deduction such as depreciation. It is crucial to remember that
= 1524105
= 1601086
[Type text] Page 19
3rd year = 8342967 – 6366715 – 471563
= 1504689
= 1658980
= 1804244
This is the top down approach, the second variation on the basis of OCF definition. Here we start at the
top of the income statement with sales and work our way down to net cash flow by subtracting costs,
taxes, and other expenses.
= 1501605 + 22500
= 1524105
= 1601086
= 1504689
= 1804244
This approach views OCF as having two components. The first is what the project’s cash flow would be if
there were no deprecation expense.
There is number of possible scenarios we can consider. A good place to start is with the worst case
scenario. This will tell us the minimum NPV of the project. If this turns out to be positive, we will be in
good shape. While we are at it, we will go a head and determine the other extreme, the best case. This
puts an upper bound on our NPV.
Upper Lower
Calculation of OCF:
OCF = EBIT = depreciation – taxes
Base;
OCF = 5204700
Best case:
OCF = 6244992
Worst case:
OCF = 4236012
Calculation of NPV:
NPV = - initial investment + PV of future cash flow
Base:
NPV = 13728848
PV = 5204700 (2092598)
= 15228848
Best case:
NPV = 16772722
PV = 6244992 (2092598)
= 18272722
Worst case:
NPV = 10894486
PV = 4236012 (2.92598)
= 12394486
Sensitivity analysis
Sensitivity analysis is a variation on scenario analysis that is useful in pinpointing the areas where
forecasting risk is especially severe. The basic idea of the sensitive analysis is to freeze all of the variables
except one and then see how sensitivity our estimate of NPV is to change in the one variable.
If our NPV estimate turns out to be very sensitive to relatively small change in the projected value of
some component of project cash flow, then the forecasting risk associated with that variable is high.
Best case:
OCF = 5478480
NPV = 14529923
Worst case:
OCF = 4930920
NPV = 12927773
Best case:
OCF = 5699610
NPV = 15176945
Worst case:
OCF = 4709790
NPV = 12280751
Income statement
[Type text] Page 26
Detail Best Worst
Sales 13169520 13169520
Cost 5965080 6554760
Depreciation 90000 90000
Best case:
OCF = 5425830
NPV = 14375870
Worst case:
OCF = 4983570
NPV = 13081826
Income statement
Detail Best worst
Sales 13169520 13169520
Cost 6240360 6279480
Depreciation 90000 90000
EBIT 6839160 6800040
Income tax 1709790 1700010
Net income 5129370 5100030
Best case:
OCF = 7173160 + 90000 – 1793290
OCF = 5469870
NPV = -1500000 + 16004730
NPV = 14504730
Worst case:
OCF = 7169724 + 90000 – 1792431
OCF = 5467293
NPV = -1500000 + 15997189.9
NPV = 14497189.9
a. Accounting break-even :
Numerically we notice that the break-even level is equal to the sum of fixed cost an depreciation,
divided by price per unit less variable cost per unit. This is always true.
Q = FC + D
P–v
Q = 391200 + 90000
938 – 418
Q = 925.3846
Q = 391200
938 – 418
Q = 752.31
c. Financial breakeven:
The last case we consider is that of financial break-even, the sales level that results in a
zero NPV. To the financial manger, this is the most interesting case.
Q = FC + OCF
P–V
Q = 391200+5204700
938 – 418
Q = 10761.34
Operating leverage:
It is the degree to which a project or firm is committed to fix production cost. a firm with low
operating leverage have the low fixed costs compared to a firm with high leverage.
DOL = 1 + FC
OCF
DOL = 1 + 391200
5204700
DOL = 1.075
So the project has the low degree of the operating leverage so the fixed cost of the project is also low.