Chapter 6

FINANCING AND FINANCIAL STABILITY

This chapter analyzes the financial capability of the proposed business. This will

present and discuss the total project cost, the sources of funds, assumptions used in

projected financial statements and financial analysis.

Total Project Cost

The total project cost is the total amount of funds, which consists fixed asset,

pre-operating expenses and working capital needed to finance the project. Under the

fixed asset are the office equipment, office furniture and fixtures, and other non-current

asset. The pre-operating expense includes rent expense, renovation cost, and

organizational cost (permits and licenses). The expense during the business are

included in the working capital, which are office supplies, learning and art materials,

utilities, salaries and miscellaneous (food allowance). The proposed project will require

an investment of Php 2,260,000.00. The breakdown is shown in Table 22.

 Table 22

Total Projected Cost

Casa Bambini
Projected Project Cost

Fixed Assets
Land (Lease) Php 800,000.00
Building (Lease) 400,000.00
Office Equipment 80,482.00
Office Furniture & Fixtures 82,730.00
Others Non Current Assets 11,949.50
Pre-operating Expenses
Renovation Cost 350,000.00
Business Registration and Permits 12,560.00
Advertising Expense 25,000.00
Working Capital
Learning and Art Materials 1,650.00
Office Supplies 5,000.00
Salaries 378,060.00
Utilities 75,000.00
Miscellaneous 37,568.50
TOTAL Php 2,260,000.00
Sources of Funds

The proposed business has a total of eight (8) capitalist partners and who agreed

to contribute Php 132,500.00 each in order to raise the amount of Php 1,060,000.00

and they also filed a lease contract amounting to Php 1,200,000.00 that will be used for

the operation of the business.

Assumptions to the Financial Projections

 Table 23

Projected Statement of Comprehensive Income

Casa Bambini
Projected Comprehensive Income Statement
2017 2018 2019 2020 2021

Service Revenues Php 3,141,668.16 Php 3,194,254.08 Php 3,316,009.16 Php 3,401,728.16 Php3,489,841.95
Cost of Service 1,309,028.40 1,330,939.20 1,381,670.48 1,417,386.73 1,454,100.81

Gross Profit Php 1,832,639.76 Php 1,863,314.88 Php 1,934,338.68 Php 1,984,341.43 Php2,035,741.14

LESS: General Administrative

Expense
Salaries Expense 450,000.00 463,500.00 477,405.00 491,727.15 506,478.96
PAG-IBIG Contributions Expense 2,400.00 2,400.00 2,400.00 2,400.00 2,400.00
PhilHealth Contributions Expense 5,250.00 5,250.00 5,250.00 5,250.00 5,400.00
SSS Contribution Expense 22,984.80 23,426.40 23,426.40 23,426.40 24,310.80
Employee Benefits Expense 37,500.00 38,625.00 39,783.75 40,977.26 42,206.58
Office Supplies Expense 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00
Learning and Art Materials 1,650.00 1,666.50 1,683.17 1,700.00 1,717.00
Utilities Expense 30,600.00 30,600.00 31,212.00 31,836.24 32,472.96
Taxes and Licenses Expense 0.00 284.69 315.37 147.04 159.14
Repair and Maintenance Expense 3,000.00 3,060.00 3,121.20 3,183.62 3,247.30
Production Uniform Expense 2,650.00 2,676.50 2,703.27 2,730.30 2,757.60
Depreciation Expense 36,365.94 36,365.94 36,365.94 36,365.94 36,365.94
Pre-operating Expenses
Renovation Cost 350,000.00 0.00 0.00 0.00 0.00
Business Registration and Permits 12,560.00 0.00 0.00 0.00 0.00
Advertising Expense 25,000.00 0.00 0.00 0.00 0.00

Income Before Income Taxes Php 847,679.02 Php1,250,459.85 Php1,305,672.58 Php1,339,597.47 Php1,373,224.85

LESS: Income Tax 254,303.71 375,137.96 391,701.77 401,879.24 411,967.46

Net Income (Net Loss) Php 593,375.31 Php 875,321.90 Php 913,970.81 Php 937,718.23 Php 961,257.40

The projected statement of comprehensive income shows that the Casa Bambini

will have an expected profit of Php 593,375.31 on its first year of operation, and on the

succeeding years it will gain Php 875,321.90 for 2018, Php 913,970.81 for 2019,

Php 937,718.23 for 2020 and Php 961,257.40 for 2021.

 Table 24

Projected Cost of Service

Cost of Service

2017 2018 2019 2020 2021

Food Allowance Php 144,000.00 Php 146,880.00 Php 149,817.60 Php 155,870.23 Php 155,870.23
Utilities 210,000.00 214,200.00 218,484.00 227,310.75 227,310.75
Salaries 822,240.00 846,907.20 872,314.42 925,438.36 925,438.36
Government
Contribution 64,268.40 52,376.40 68,361.60 68,361.60 68,361.60
Employee
Benefits 68,520.00 70,575.60 72,692.87 77,119.86 77,119.86
Cost of Service Php 1,309,028.40 Php 1,330,939.20 Php 1,381,670.48 Php 1,454,100.81 Php 1,454,100.81

Casa Bamibini’s cost of service is from the expense for food allowance,

government contribution, and employee benefits. Every year their expense increase

based on financial assumptions.

 Table 25

Projected Statement of Financial Position

Casa Bambini
Projected Statement of Financial Position

2017 2018 2019 2020 2021

ASSETS
Current Assets
Cash and Cash Equivalents Php 1,268,829.75 Php 1,940,501.08 Php 2,650,821.16 Php 3,384,879.50 Php 4,142,476.83
Accounts Receivables 0.00 0.00 0.00 0.00 0.00
Learning and Art Materials 1,650.00 1,666.50 1,683.17 1,700.00 1,717.00
Office Supplies 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00
Total Current Assets Php 1,275,479.75 Php 1,947,167.59 Php 2,657,504.33 Php 3,391,579.50 Php 4,149,193.83

Non-Current Assets
Land 800,000.00 800,000.00 800,000.00 800,000.00 800,000.00
Building 400,000.00 400,000.00 400,000.00 400,000.00 400,000.00
Office Furniture and Fixture 80,482.00 80,482.00 80,482.00 80,482.00 80,482.00
Office Equipment 82,730.00 82,730.00 82,730.00 82,730.00 82,730.00
Other Non-Current Asset 11,049.50 11,049.50 11,049.50 11,049.50 11,049.50
Total Accumulated (36,365.94) (72,731.88) (109,097.82) (145,463.76) (181,829.70)
Depreciation
Total Non-Current Asset 1,337,895.56 1,301,529.62 1,265,163.68 1,228,797.74 1,192,431.80

TOTAL ASSETS Php 2,613,375.31 Php2,306,127.11 Php 3,922,668.01 Php 4,620,377.24 Php 5,341,625.63

LIABILITIES AND PARTNERS'

EQUITY
Current Liabilities
Accounts Payable Php 0.00 Php 0.00 Php 0.00 Php 0.00 Php 0.00
Notes Payable 0.00 0.00 0.00 0.00 0.00
Lease Liability 240,000.00 240,000.00 240,000.00 240,000.00 0
Non-Current Liabilities
Notes Payable 0.00 0.00 0.00 0.00 0.00
Lease Liability 720,000.00 480,000.00 240,000.00 0 0
Partners' Equity
Aracap, Capital 206,671.91 316,087.15 430,333.50 547,548.28 667,705.46
Bulaon, Capital 206,671.91 316,087.15 430,333.50 547,548.28 667,705.46
Gaspi, Capital 206,671.91 316,087.15 430,333.50 547,548.28 667,705.46
Koizumi, Capital 206,671.91 316,087.15 430,333.50 547,548.28 667,705.46
Lawan, Capital 206,671.91 316,087.15 430,333.50 547,548.28 667,705.46
Maritillana, Capital 206,671.91 316,087.15 430,333.50 547,548.28 667,705.46
Mirasol, Capital 206,671.91 316,087.15 430,333.50 547,548.28 667,705.46
Siena, Capital 206,671.91 316,087.15 430,333.50 547,548.28 667,705.46
TOTAL LIABILITIES AND Php 2,613,375.31 Php 3,248,697.11 Php 3,922,668.01 Php 4,620,377.24 Php 5,341,643.63
PARTNERS' EQUITY
 Cash balances were taken from the statement of cash flow and business

operations. Learning materials increases by 1% per year, while office supplies are

stable every year. Property plant and equipment and other non-current asset are in their

base value to be deducted by the net depreciation of all of the PPE and other non-

current asset. All the liabilities came from their lease contracts. While the equity

balances are in net as a result of the gain and loss in the net income of the operations

of the business

Table 26

Projected Statement of Cash flow

Casa Bambini
Projected Statement of Cash flow
2017 2018 2019 2020 2021
BEGINNING CASH
BALANCE 1,054,250.00 1,268,829.75 1,940,501.08 2,650,821.16 0.00 3,384,879.50

CASH INFLOWS
Net income from
operations: 847,679.02 1,250,459.85 1,305,672.58 1,339,597.47 1,373,224.85
Add Noncash
changes:
Depreciation
Expense 36,365.94 36,365.94 36,365.94 36,356.94 36,356.94
Less increase in
current assets 0.00 16.50 16.67 16.83 17.00
Total Cash Inflows 884,044.96 1,286,809.29 1,342,021.85 1,375,937.58 1,409,564.79

CASH OUTFLOWS
LESS: Lease .
. Payment 240,000.00 240,000.00 240,000.00 240,000.00 240,000.00
Income Tax
Payment 254,303.71 375,137.96 391,701.77 401,879.24 411,967.46
Acquisition
of fixed
assets 175,161.50 0.00 0.00 0.00 0.00
Net increase
(decrease) in Cash 214,579.75 671,671.33 710,320.08 734,058.34 757,597.33
Cash at the end of the
period 1,268,829.75 1,940,501.08 2,650,821.16 3,384,879.50 4,142,476.83

The business had an inflow due to their income from operations and

depreciation expense. They also had outflows which are from yearly payments of

income tax, lease contract and acquisition of fixed assets.

 Table 26

Projected Breakeven Point

Casa Bambini
Projected Breakeven Point

Fixed Cost 2017 2018 2019 2020 2021

Cost of Service

Salaries 822,240.00 846,907.20 872,314.42 898,483.85 925,438.36

Government
Contribution 64,268.40 52,376.40 68,361.60 68,361.60 68,361.60

Employee Benefits 68,520.00 70,575.60 72,692.87 74,873.65 77,119.86

Utilities 210,000.00 1,165,028.40 214,200.00 1,184,059.20 218,484.00 1,231,852.88 222,853.68 1,264,572.78 227,310.75 1,298,230.58

Selling and
Administrative Expense

Salaries Expense 450,000.00 463,500.00 477,405.00 477,405.00 506,478.96

PAG-IBIG
Contributions Expense 2,400.00 2,400.00 2,400.00 2,400.00 2,400.00
PhilHealth
Contributions Expense 5,250.00 5,250.00 5,250.00 5,250.00 5,400.00
SSS Contribution
Expense 22,984.80 23,426.40 23,426.40 23,426.40 24,310.80
Employee Benefits
Expense 37,500.00 38,625.00 39,783.75 39,783.75 42,206.58
Office Supplies
Expense 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00
Learning and Art
Materials 1,650.00 1,666.50 1,683.17 1,683.17 1,717.00

Utilities Expense 30,600.00 30,600.00 31,212.00 31,212.00 32,472.96

Taxes and Licenses
Expense 112.00 284.69 315.37 315.37 159.14
Repair and
Maintenance Expense 3,000.00 3,060.00 3,121.20 3,121.20 3,247.30
Production Uniform
Expense 2,650.00 2,676.50 2,703.27 2,703.27 2,757.60

Depreciation Expense 36,365.94 597,512.74 36,365.94 612,855.03 36,365.94 628,666.10 36,365.94 628,666.10 36,365.94 662,516.29

Total Fixed Cost 1,762,541.14 1,796,914.23 1,860,518.98 1,893,238.88 1,960,746.87

Divide

Selling Price 595.00 605.00 628.00 644.00 661.00

LESS: Variable Cost 20.00 575.00 30.60 574.40 31.21 596.79 31.84 612.16 32.47 628.53

Breakeven Point ( In Units) 3,065.29 3,128.33 3,117.54 3,092.72 3,119.58

Total fixed cost was taken from total cost of service added by total expenses of

the business, to be divided by the total variable cost that was taken from subtracting the

selling price by the variable cost of the food allowance.

 Table 27

Return on Investment

Casa Bambini
Return on Investment

Year Net Income Investment Percent

2017 593,375.31 1,060,000.00 55.98%
2018 875,321.90 1,060,000.00 82.58%
2019 913,970.81 1,060,000.00 86.22%
2020 937,718.23 1,060,000.00 88.46%
2021 961,257.40 1,060,000.00 90.68%

Return on Investment (ROI) measures the income or loss generated for every

Peso investment made. The higher the income generated per peso investment, the

better. Return on Investment is a measure that evaluates the performance of a business

by dividing net profit by investment. It is usually expresses as a percentage.

The Return on Investment in Year 2017 is expected to be 55.98% due to Net

income of Php 593,375.31. Casa Bambini’s Net Income in succeeding years is

expected to have higher amount than its first year of operation because there will be no

pre-operating expenses hence the Return on Investment of 82.58% in 2018, 86.22% in

2019, 88.46% in 2020 and 90.68% in 2021.

 Table 28

Payback Period

Casa Bambini
Payback Period

Investment Cash Inflow (Outflow) Year

1,060,000.00 214,579.75 1
845,420.25 671,671.33 1
173,748.92 710,320.08 3 Months
2 years and 3 months

The Payback Period is the length of time required to recover the cost of an

investment. It is a simple way to evaluate the risk associated with a proposed project.

An investment with a shorter payback period is considered to be better, since the

investor’s initial outlay is at risk for a shorter period of time.

The total cash flows over the five (5) year period are projected to be

Php 2,417,226.83. There will be a Php 173,748.92 of investment yet to be paid back at

the end of year 2 and Php 710,320.08 of cash flow projected for year 3. This will result

to a payback period of 2 years and 3 months.