Chapter 5

Financial Study

This chapter presents the financial aspect of PSU LET Review Center for the

projected five years of operation. This includes the start-up capital needed, sources of

capital, estimated income and financial statement. It finds out how much cash was

needed, where it will come from, and how it will be spent. The proponents start with a

major financial assumption of the venture needed in computing the projected financial

statement.

Major Assumption:

1. PSU LET Review Center will be manage by a sole proprietor

2. The source of income will be from the tuition fees of the reviewee and the snack

store

3. The 20% of the service revenue is allocated for the account receivable and 10%

of accounts receivable is allocated for the allowance for doubtful accounts

4. There will be a premium expense which is the 10% of the total computed salary

5. The review center is open every January to March and will resume on July to

September from Thursday to Sunday (8:00-5:00 PM)

6. There will be two batch of review, weekdays and weekends with two sessions

each

7. The compensation of student labor is based on the university hourly existing rate

which is ₱ 25.00 and will work every 4 hours

8. There will be student labor for the whole year to accommodate customers

inquiry and prepare the review materials for another batch of review

9. The service income will increase by 10% every year because of increase of

reviewee

10. The estimated salaries of reviewers and student assistants will remain constant

from the 1st year to 5th year of operation

 11. The salary of the lecturers will be based on the educational attainment but the

researchers assumed that fee received is ₱ 500.00 per hour

12. Marketing and promotion shall decrease by 5% in the succeeding year

13. Repair and maintenance shall increase by 5% in the succeeding year

Total Project Cost

The PSU LET Review Center has a total capital of Five million seven hundred thousand

pesos (₱ 5,700,000.00) that consist of project cost and the initial working capital

amounting to Five Million two hundred twenty nine thousand three hundred fifty three

pesos (₱ 5,229,353.00) and Four hundred seventy thousand six hundred forty seven

pesos (₱ 470,647.00) respectively.

This is presented in the table below.

Table1. Total Project Cost

Particular Amount (₱)

Building ₱ 4,977,656.00

Machineries and equipment ₱ 212,021.00

Furniture and fixture ₱ 39,676.00

TOTAL ₱ 5,229,353.00

Working Capital

The proprietor will allocate a portion of the total investment into a working capital

amounting to Four hundred seventy thousand six hundred forty seven pesos (₱

470,647.00)
Table2. Working Capital

Operation Expenses for the First Month of

Amount (₱)
Business Operation

Salaries ₱ 152,800.00

Repair and Maintenance 3,750.00

Utilities (Electricity/Water) 148,525.00

Marketing and Promotional Expenses 5,000.00

Reserve Fund 129,416.62

Miscellaneous Expense 1,143.00

Internet and Communication Expense 4,771.50

Premium Expense 15,280.00

Office Supplies 9,948.38

Total ₱ 470,647.00

Table3. Schedule of Marketing and Promotion

Yearly 2019 2020 2021 2022 2023

Marketing

and ₱ 20,000.00 ₱ 19,000.00 ₱ 18,050.00 ₱ 17,147.50 ₱ 16,290.13

Promotion

Table4. Schedule of Repair and Maintenance

Yearly repair 2019 2020 2021 2022 2023

and
₱ 15,000.00 ₱ 15,750.00 ₱ 16,537.50 ₱ 17,364.38 ₱ 18,232.59
maintenance
The repair and maintenance will be increased by 5% every year because of the

economic inflation.

Source of Income

The source of income would be the owner’s equity coming from the tuition fee of the

reviewee’s and small snack store. A business is a legally recognized organization

designed to provide services to consumer or tertiary business in exchange for money. In

order to build a business it must have a capital because cash is used to generate

income.

Table5. Source of Income (Philippine Peso)

MARCH

BSE ₱ 7,500.00 X 150 Students ₱ 1,125,000.00

BEE ₱ 6,500.00 X 100 Students ₱ 650,000.00

SEPTEMBER

BSE ₱ 7,500.00 X 200 Students ₱ 1,500,000.00

BEE ₱ 6,500.00 X 150 Students ₱ 975,000.00

Table6. Summary of source of income

MARCH SEPTEMBER ANNUALLY

BSE ₱ 1,125,000.00 ₱ 1,500,000.00 ₱ 2,625,000.00

BEE ₱ 650,000.00 ₱ 975,000.00 ₱ 1,625,000.00

TOTAL ₱ 1,775,000.00 ₱ 2,475,000.00 ₱ 4,250,000.00

Operating Expenses

These are the expenses during the operation of the business. It is also a going cost for

running a business or system. This operating cost includes building cost, machinery and

equipment expenses, furniture and fixture expenses, office supply, maintenance

expenses, utilities such as electricity and water expenses, repair and maintenance

expense, premium expense, internet and communication expense, promotional

expenses, miscellaneous expense and salaries. To explain these expenses, the

proponents compute all the expenses separately in order to avoid difficulty in computing

the other related financial matter. And also it included the schedule of depreciation of

equipment, building, and furniture.

Salary Category

These are the payments given to the employees for their services rendered to the

business. Professional fee or salary expense determines the compensation of all the

employer of any business. As show in table the summary of projected salary will

discussed.

Table7. Salary Category (Philippine Peso)

Professional fee MONTHLY

ANNUALLY
MAJORS (3 Month Basis)

Professional Education 80,000.00 160,000.00

General Education 80,000.00 160,000.00

Specialization 96,000.00 192,000.00

Pre Board 8,000.00 16,000.00

Final Coaching 8,000.00 16,000.00

TOTAL ₱ 272,000.00 ₱ 544,000.00

Salary Expense Monthly ANNUALLY

Student Labor (2) ₱ 5,600.00 ₱ 67,200.00

 Table8. Summary of Salary Category

Category Monthly Annually

Professional Fee + Salary

₱ 50,933.33 ₱ 611,200.00
Fee

Maintenance Category

These are the expenses in maintaining the daily or monthly operation of the

business. The summary of these expenses is pretended as follows.

Table9. Utility Expenses (Philippine Peso)

Category Monthly Annually

Electrical Bill ₱ 78,500.00 (6 months) + ₱ 588,750.00

19,625.00 (6 months)

Water Bill ₱ 600.00 (6 months) + ₱ 5,400.00

300.00 (6 months)

TOTAL ₱ 594,150.00

Table10. Repair and Maintenance Yearly Expense

2019 2020 2021 2022 2023

₱ 15,000.00 ₱ 15,750.00 ₱ 16,537.50 ₱ 17,364.38 ₱ 18,232.59

Computation for Depreciation

Annual Depreciation = Cost of Asset – Estimated Salvage Value / Estimated Useful Life

of Asset

Table15. Schedule of Depreciation of Building (Philippine Peso)

 2019 2020 2021 2020 2022

Total Cost 4,977,656.

Salvage Value 497,765.60

Book Value 4,753,661.48

Depreciation Cost 223,994.22 447,989.04 671,983.56 895,978.08 1,119,972.60

Table16. Schedule of Depreciation of Machineries and Equipment (Philippine Peso)

MACHINERIES
2019 2020 2021 2022 2023
& EQUIPMENT

Total Cost 212,021.00

Salvage Value 21,202.10

Book Value 188,567.21

Depreciation Cost 23,453.79 46,907.58 70,361.37 93,815.16 117,268.95

Table17. Schedule of Depreciation of Furniture and Fixture

FURNITURE &
2019 2020 2021 2022 2023
FIXTURE

Total Cost 39,676.00

Salvage Value 3,967.60

Book Value 35,591.08

Depreciation Cost 4,084.92 8,169.84 12,254.76 16,339.68 20,424.60

THE FINANCIAL STATEMENT

The financial statement is the instruments that diagnose the financial health of the

business. There are three basic financial statements that are usually prepared by the

business from time to time the income statements, the Balance Sheet and the
Statement of Cash Flows. The project financial statements are then presented, however

they must not be only the based on assumption. It will not only serve as a framework

upon which proprietor will have to aim to launch the operation on the business.

Income Statement

Income statement is the computation of the business total revenue and total cost for

one period or fiscal year arriving at the net income within the period. It is also called as

Profit and Loss Statement or Statement of Operations.

Cash Flows

Cash flow is a systematic presentation of cash receipts and disbursements for a given

operating period or fiscal year. It is mostly used to describe payments that are expected

to happen in the future, are thus uncertain and therefore need to be forecasted with

cash flows. Cash flows are narrowly interconnected with the concepts of value, interest

rate and liquidate. A cash flow that shall happen on future day can be transformed into a

cash flow of the same value.

Balance Sheet

Balance sheet is the itemized statement of the assets, liabilities, and owners’ equity of

the business. It is a statement reflecting the financial condition of the business at the

date of its preparation. It shows the composition of the property of the business, its

debts, and the equity of the owner. The balance sheet is also called as the Statement of

Assets and Liabilities or Statement of Financial Condition.

 PSU LET REVIEW CENTER

Projected Income statement for Year 1

Revenue

Cash service revenue ₱ 4,250,000.00

Other income 30,000.00

Total gross income ₱ 4,280,000.00

Less:

Office supplies Expense ₱ 39,793.50

Salaries 611,200.00

Premium Expense 61,120.00

Utility Expense 594,150.00

Marketing & Promotion Expense 20,000.00

Internet & Communication Expense 19,086.00

Depreciation Expense 251,533.23

Repair & Maintenance Expense 15,000.00

Miscellaneous Expense 4,572.00

Doubtful Expense 85,000.00

Total Operating Expense (₱ 1,701,454.73)

Net Income ₱ 2,578,545.27

 PSU LET REVIEW CENTER

Projected Cash Flow for Year 1

Cash Flow from Operating Activities

Cash received from customer ₱ 3,430,000.00

Total ₱ 3,430,000.00

Less: Disbursements

Office Supplies Expense ₱ 39,793.50

Salaries 611,200.00

Utility Expense 594,150.00

Premium Expense 61,120.00

Marketing & Promotion Expense 20,000.00

Internet & Communication Expense 19,086.00

Repair & Maintenance Expense 15,000.00

Miscellaneous Expense 4,572.00

Total ₱ 1,364,921.50

Cash Provided by Operating Expense ₱ 2,065,078.50

Cash Flow from Investing Activity

Building ₱ 4,977,656.00

Furniture and Fixture 39,676.00

Machineries and Equipment 212,021.00

Total ₱ 5,229,353.00
Cash Flow from Financing Activity

Beginning Capital ₱ 5,700,000.00

Cash Balance End ₱ 2,535,725.50

 PSU LET REVIEW CENTER

Projected Balance Sheet for Year 1

Current Assets

Cash ₱2,535,725.50

Accounts Receivable ₱850,000.00

Less: Doubtful Accounts Allowance (85,000.00) 765,000.00

Total Current Assets ₱ 3,300,725.50

Non-Current Assets

Building ₱ 4,977,656.00

Machineries and Equipment 212,021.00

Furniture and Fixture 39,676.00

Less: Accumulated Depreciation (₱ 251,533.23)

Total Non-Current Assets ₱ 4,977,819.77

Total Assets ₱ 8,278,545.27

Liabilities and Capital

Liabilities 0

Capital ₱ 8,278,545.27

Total Liability and Capital ₱ 8,278,545.27

PROFIT MARGIN RATIO

Profit Margin is also known as Net Margin, Net Profit Margin or Net Profit Ratio. It refers

to the measure of profitability. It means how much out of every peso of sales a business

actually keeps in earning. A higher profit indicates a profitable business that has better

control over its costs.

It is calculated by finding the net profit as a percentage of the revenue.

Profit Margin Ratio = Net Profit / Revenue

= 2,578,545.27/4,280,000.00

= 0.60 or 60%

Return on Investment

Return on Investment is the concept of an investment yielding a benefit to the investor.

A high Return on Investment means the investment gains compare favorably to

investment cost. It is the ratio of money or lost on an investment relative to the amount

of money invested.

Return on Investment = Net Profit / Capital

= 2,578,545.27/5,700,000.00

= 0.45 or 45%

Payback Period

Payback period is the period of time required to recoup the funds expended in an

investment. It is also the period where a business reaches the break even post. Shorter

payback periods are preferable because of the shorter time required for the return on an

investment to repay the sum of the original investment. Payback period intuitively

measures how long something takes to pay for itself.

Payback Period = Beginning Capital / Cash Balance End

= 5,700,000.00/2,535,725.50

= 2.2478 or Two years two months and Four days

Table18. Projected Income Statement

Revenue 2019 2020 2021 2022 2023

Cash service revenue

Other income

Total gross income

Less:

Office supplies

Expense

Salaries

Premium Expense

Utility Expense

Marketing &

Promotion Expense

Internet &

Communication

Expense

Depreciation Expense

Repair &

Maintenance

Expense

Miscellaneous

Expense

Doubtful Expense

Total Operating

Expense

Net Income
Table19. Projected Cash Flow

2019 2020 2021 2022 2023

Cash Flow from Operating

Activities
Cash received from
customer
Total

Less: Disbursements

Office Supplies Expense

Salaries

Utility Expense

Premium Expense

Marketing & Promotion

Expense
Internet & Communication
Expense
Repair & Maintenance
Expense
Miscellaneous Expense

Total

Cash Provided by
Operating Expense

Cash Flow from Investing

Activity
Building

Furniture and Fixture

Machineries and Equipment

Total

Cash Flow from Financing

Activity
Beginning Capital

Cash Balance End

Table20. Projected Balance Sheet

2019 2020 2021 2022 2023

Current Assets
Cash
Accounts
Receivable
Less: Doubtful
Accounts
Allowance
Total Current
Assets
Non-Current
Assets
Building
Machineries
and
Equipment
Furniture and
Fixture
Less:
Accumulated
Depreciation
Total Non-
Current Assets
Total Assets
Liabilities and
Capital
Liabilities
Capital
Total Liability
and Capital