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MAJOR PORTIONS OF FINANCIAL STUDY

MAJOR ASSUMPTIONS
TOTAL PROJECTED COSTS
INITIAL WORKING CAPITAL REQUIREMENTS
ALTERNATIVE SOURCE OF FINANCING CONSIDERED , IF ANY
SOURCES OF FINANCING THE PROJECT
BEGINNING & PRO-FORMA FINANCIAL STATEMENTS
FINANCIAL ANALYSIS

MAJOR ASSUMPTIONS

IN THE FORMULATION OF FINANCIALPROJECTIONS, ASSUMPTIONS PLAY A MAJOR ROLE


BECAUSE THEY SERVE AS THE FOUNDATION FOR ESTIMATING THE FUTURE
EXPENDITURES, EXPENSES, & REVENUES OFTHE PROJECT AS ACCURATE AS POSSIBLE.

THESE ASSUMPTIONS, THEREFORE, MUST BE BASED ON WELL-CONSIDERED, REALISTIC


& WORKABLE FACTS.

GUIDELINES

1. EXISTING BUSINESS PRACTICES IN THE INDUSTRYWHERE THE PROJECT BELONGS


MAY PROVIDE SOME VALUABLE INFORMATION & INSIGHTS ON:
CREDIT TERM
CREDIT EXTENSION
BAD-DEBT ALLOCATIONS
BAD-DEBT WRITE-OFF
QUALITY-CONTROL COSTS
DIVIDENT POLICIES
SALES RETURNS, ALLOWANCES, & DISCOUNTS
LABOR & MANAGEMENT COMPENSATION
OVERHEAD ACCOUNTS
INVENTORY COSTING
OPERATING ACCOUNTS
FIXED- ASSET REQUIREMENTS
METHOD OF DEPRECIATION & AMORTIZATION
INTANGIBLE ASSET PRE-REQUISITE

2. PREVIOUSLY MADE FEASIBILITY STUDIES DIRECTLY RELATEDTO THE PROJECT


MAY CONTRIBUTE ADDITIONAL FACTORS TOBE CONSIDERED, WHICH EITHER
CONFIRM OR CONTRADICTFINDINGS IN INDUSTRY STANDARDS, SPECIFICALLY
THOSEITEMS INVOLVED IN THE COMPUTATIONS OF:
SELLING PRICE
SALES FORECASTS
UNFORSEEN COSTS
PRODUCTION VOLUME
PRODUCT MIX

GOVERNMENTAL REGULATIONS & INCENTIVES DIRECTLY ORINDIRECTLY AFFECT THE


PROJECT, SUCH AS:

IMPORT POLICIES
EXPORT POLICIES
TAX RATES
TAX EXEMPTIONS
PRICE CEILINGS
RELEVANT PRESIDENTIAL DECREES OR LOI

OTHER PERTINENT DATA WHICH CAN JUSTIFYTHE ASSUMPTIONS OF THE STUDY, SUCH
AS:

INDUSTRY POLICIES

PRE-FEASIBILITY STUDIES

SYMPOSIUM & CONFERENCES, &

MATERIAL OUTPUTS OF INDUSTRY ASSOCIATIONS.

TOTAL PROJECT COST

ESTIMATES OF THE PROJECTS INITIALCOST/ASSET REQUIREMENT WHICH MUST BE


BASED ON THE MATERIALS, SUPPLIES, EQUIPMENT, PHYSICAL PLANT, & MANPOWER
NEEDS OF THE PROJECT SPECIFIED IN THE TECHNICAL PORTION.

FIXED COSTS

LAND & LAND IMPROVEMENTS

COST OF LAND, NOTARY FEES, REGISTRATION DUTIES, & OTHER RELATED COSTS

BUILDINGS, INCLUDING ELECTRIC & & WATER UTILITIES, FURNITURE & FIXTURES

BUILDING COST, WELLS, WATER PIPES, ELECTRICAL CONNECTIONS, GAS SUPPLY,


TELEPHONE SYSTEM, RESERVOIR & TANKS, WASTE WATER DISPOSAL, FENCING,ROADS &
PATHS, EMPLOYEES HOUSING, & FIRE PROTECTION

EQUIPMENT PLUS INSTALLATION COSTS

PURCHASE AND INSTALLATION OF MACHINERY


PURCHASE TAXES, FREIGHT & INSURANCE EXPENSES,CUSTOMS DUTIES

TRIAL-RUN ASSOCIATED WITH ELECTRIC UTILITIES, EQUIPMENT & MACHINERY

ELECTRICITY & TELEPHONE LINES, ELECTRICAL EQUIPMENT,INTERNAL TRANSPORT


EQUIPMENT, VEHICLES, OFFICEEQUIPMENT & SUPPLIES, FURNITURE &
FIXTURES,MAINTENANCE & CLEANING EQUIPMENT, & SPARE PARTS

CURRENT ASSETS

INVENTORY INVESTMENTS
- PURCHASES OF MATERIALS & SUPPLIES
- FREIGHT EXPENSES
INVENTORY RELATED COSTS
- INDIRECT & DIRECT LABOR W/ CORRESPONDING FRINGE BENEFITS
- HEAT, LIGHT , & POWER
- MAINTENANCE
- WAREHOUSING EXPENSES RELATED TO RAW MATERIALS
- MATERIALS IN PROCESS
- FINISHED GOODS
CASH CREDITS
- PRE PAID EXPENSES (COST OF INITIAL INVESTIGATIONS, PRE FEASIBILITY STUDIES,
RESEARCH & TECHNICAL STUDIES, ECONOMIC & MARKETING STUDIES, FINANCIAL &
PROFITABILITY STUDIES, DESIGN STUDIES & CONSULTING ENGINEERING FEES).
- INTANGIBLE ASSETS (PATENTS, LICENSE, GOODWILL, REPRODUCTION RIGHTS)
- OPERATING SALARIES
- WAGES & FRINGE BENEFITS
- ENGINEERING COSTS
- OPERATING TAXES
- OFFICE SUPPLIES
- COMMUNICATION FACILITIES
- OFFICE UTILITIES
- BILLING COSTS
- TRANSPORATION COSTS
- EXPENSE FOR ADVERTISING
- BORROWING COSTS
- PROVISIONS FOR UNFORESEEN COSTS

SOURCES OF FINANCING THE PROJECT


STEPS IN DECIDING ON THE FINANCING SCHEME TO SUPPORT THE PROJECT:
- LIST THE ALTERNATIVE SOURCES OF FINANCING
- DETERMINE SOURCES SELECTED OR PROPOSED AS A FUNCTION OF MADXIMUM
PROFITABILITY
- FINALIZE THE AMOUNT & TERMS FOR EACH SOURCE SELECTED
- STATE THE STATUS OF FINANCING FROM EACH SOURCE
- SPECIFY THE FINANCING OF CONTINGENCIES & FLUCTUATIONS IN WORKING CAPITAL
- PINPOINT ALTERNATIVE SOURCES OF FINANCING IN ORDER OF PRIORITY

PREPARATION OF FINANCIAL STATEMENTS


PRESENT IN AN ORDERLY & UNDERSTANDABLE FROM THE CASH BUDGET, THE OPERATING
PERFOMANCE, & THE FINANCIAL CONDITION OF A BUSINESS ENTERPRISE
IT DEPICTS THE PROGRESS OF A FIRM IN FINANCIAL TERMS

TYPES OF FINANCIAL STATEMENTS NEEDED


THE INCOME STATEMENT IS THE COMPUTATION OF THE PROJECTS TOTAL REVENUES &
TOTAL COST FOR ONE PERIOD OR FISCAL YEAR, THEREBY ARRIVING AT THE CONCERNS NET
INCOME OR DEFICIT WITHIN THE PERIOD, TOGETHER WITH ITS PERFOMANCE IN TERMS OF
PROFITABILITY & COST CONTROL
THE CASH FLOW STATEMENT OR THE CASH BUDGET IS A SYSTEMATIC PRESENTATION OF
CASH RECEIPTS & DISBURSEMENTS FOR A GIVEN OPERATING PERIOD OR FISCAL YEAR, TAKING
FOR GRANTED THE ACCRUAL CONCEPT IN ACCOUNTING.
THE BALANCE SHEET SHOWS THE ASSETS DERIVED BY THE PROJECT FROM CORRESPONDING
LIABILITIES & EQUITIES (NET WORTH). IT IS AN OVERALL PICTURE OF A FIRMS FINANCIAL
CONDITIONS AS OF A CERTAIN TIME.

5) FINANCIAL ANALYSIS

THIS PORTION GAUGES THE PROJECTS PROFITABILITY, LIQUIDITY, CASH SOLVENCY & GROWTH OVER
TIME.

A. TEST OF LIQUIDITY
- THESE MEASURES ARE USED TO DETERMINE A FIRMS ABILITY TO MEET SHORT
TERM OBLIGATIONS, & TO REMAIN SOLVENT IN THE EVENT OF ADVERSITIES.

CURRENT RATIO =


QUICK OR ACID TEST RATIO =


LIQUIDITY OF INVENTORIES =
DEFENSIVE POSITION =
+ +
( )
B. TEST OF DEBT SERVICE
- THESE TESTS ARE EMPLOYED TO PRESENT THE PROJECTS ABILITY TO MEET LONG
TERM OBLIGATIONS

DEBT TO NETWORTH RATION =


TOTAL CAPITALIZATION RATION = &
C. TEST OF PROFITABILITY
- THESE SHOW THE OPERATIONAL PERFORMANCE & EFFICIENCY OF THE PROJECT

NET PROFIT MARGIN =
&
OPERATING PROFIT MARGIN =

GROSS PROFIT MARGIN =
RETURN ON FINANCIERS INVESTMENT =
+
&

RETURN ON OWNERS INVESTMENT =
RETURN ON COMMON STOCK EQUITY =


&
RETURN ON NET OPERATING PROFIT =

ASSET TURNOVER =

RETURN ON ASSETS, OR EARNING POWER =

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