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CHAPTER V FINANCIAL ASPECT Financial aspect is the most important part of feasibility study, which needs a critical analysis.

The primary objective of every entrepreneur for investing his/her capital is to gain profit. This chapter will give them benefits of forecasting the success of the business. Objectives The main objective of this chapter is to evaluate the output of the operation thru the use of financial ratios. These ratios will determine the financial standing of the business. After determining the financial standing, the proponent could conclude the advisable starting number of buses to acquire. Moreover, the proponents could conclude if the business is feasible or not. Major Assumptions The proponents used the following assumptions: 1. The fare revenue is based on the supply. It will not increase for the reason that the demand will not increase for it is correlated with the supply. It will only increase after five years when the number of bus units increase. And also the history of the provision of fare hike for at least five years. 2. The proponents provide two weeks allowance on the sales forecast due to the non-uniformity of point of origin. 3. Salaries will not increase or decrease since the business is newly established, there will be no promotions and retirement. 77

4. The proponents computed for the average commission of Bus drivers and conductors. 1000.00 for the driver and 848.00 for the conductor. 5. The proponents used the straight line method in computing the depreciation of fixed assets. It is computed by subtracting the salvage value which is 10% of the investment cost from the investment cost then divided by the life remaining years. 6. For operation expenses, gasoline and oil will increase 2% yearly. Utilities expense will increase 3% yearly. 7. Repairs and maintenance includes twice a week car wash, minor repairs and the use of spare parts. 8. For administrative expenses, office supplies will increase 5% yearly. Utilities expense will increase by 3% yearly. 9. The yearly withdrawal of the partners is base on the personal needs and necessities. 10. The registration and insurance expense of the brand new bus units will run up to 3 years according to Land transportation Office. So there will be no any registration and Insurance expense for the next 3 years of operation.


Table 5-1 Sales Forecast STARTING 10 UNITS LESS ALLOWANCE YEAR UNITS SALES FOR SALES 2014 2015 2016 2017 2018 10 10 10 10 10 P 85612800 P 3,841,600 85612800 85612800 85612800 85612800 3,841,600 3,841,600 3,841,600 3,841,600 P 81771200 81771200 81771200 81771200 81771200 DECEMBER TOTAL SALES

This table shows the sales forecast of the proposed business. The proponents computed for total sales by deducting the allowance for December sales to the whole year sales. The two weeks sales for the month of December are deducted because of the non-uniformity of point of origin.


Capital Formation The partners of South Trans Bus Company have a total sharing of Php49,000,000 capital to fund the business. Income that will be generated shall be divided according to the percentage of their share and the nature of their liability to the business. The partners will give an equal amount of contribution for the initial capital formation. Below is the list of partners and their percentage of contribution for the business equity Jasper John Abunyawan Melody Araza Reyman Delgado John Ronald Kevin Galeon Darlene Guelas Edzel Jose Leovin Licop Total Contribution . Start-Up Capital This is simply how much cash the South Trans Bus Company needs to start the business and keep it running until it is self sustaining. The capital funds (cash or access to cash) one to two years span of time should be enough. 14.28% 14.28% 14.28% 14.28% 14.28% 14.28% 14.28% 100% P7000000.00 P7000000.00 P7000000.00 P7000000.00 P7000000.00 P7000000.00 P7000000.00 P49000000.00


Working Capital The excess in start-up capital shall be considered as the working capital of South Trans Bus Company. The excess shall be allotted to other operating express of the business. Sources of Financing The partners contributions to the business capital are stated as follow: A. Mr. Edzel M. Jose considered being a General Partner in the business so he contributed Php7,000,000 from the salary at his present job in SAN MIGUEL CORP. (BMEG) and personal savings. B. Ms. Melody A. Araza contributed Php7,000,000 from an inherited land which she mortgaged. C. Ms. Darlene B. Guelas contributed Php7,000,000 from her separation pay and her personal savings. D. Mr. Jasper John D. Abunyawan contributed a capital that summed up to Php7,000,000 after selling his luxury car. E. Mr. Reyman F. Delgado invested Php7,000,000 to the business. He owned a manufacturing firm of processed meat in the vicinity of Novaliches, Quezon City. F. Mr. John Ronald Kevin B. Galeon contributed amounting to Php7,000,000 after he mortgaged his house and lot at Tagaytay. G. Mr. Leovin M. Licop wit h a Php7,000,000 contribution from his income in his restaurant business. 81