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Chapter 5

FINANCIAL STUDY

This chapter will show the quantifiable result of the project feasibility study. It will present
the forecasted financial statements for the next five years. This chapter will also cover the
detailed financial analysis of the partnership.

Major Assumptions

 Projected Sales is assumed to be 5% of the projected demand


 Sales and operating expenses will increase by 5% every year
 Financial Forecasts will be from year 2018 - 2022
 Straight line method of depreciation will be used
 Jirlyn’s Dried Catfish will be a VAT registered business. VAT and Monthly Value-added
Tax Declaration will be filed and paid every 24th of the following month.
 It will pay Php 500.00 annual registration fee to the Bureau of Internal Revenue
 Salaries will increase by .5% per year
 Utilities expense is paid as it comes due
 Inventory at the end of every year will be equal to the needed ingredients for the next
two days
 60% of sales will be on cash, and the remaining 40% will be on credit to be paid on the
coming month
 Allowance for Bad Debts will be 5% of Accounts Receivable
 Income/loss of the partnership will be shared by the partners proportionately based on
their capital ending balance
 Each partner are allowed to withdraw a maximum of Php100,000.00 per year for their
share in the profit and the remaining if any shall be added to their capital balance.
 Php 10,000.00 petty cash fund shall be maintained to cover expenses in small amount
 The partnership shall maintain a checking account to cover payables in larger amount
Projected Financial Statements

o Pre-operating Period

Jirlyn's Dried Catfish


Pre-operating Statement of Financial Position
January 1, 2018

A S S E T

Current Asset
Cash 126,259.85
Petty Cash Fund 10,000.00
Inventory 66,040.13
Prepaid Rent 21,000.00
Total Current Asset 223,299.98

Non-current Asset
Factory Building 1,315,875.02
Retail Shop 240,000.00
Delivery Vehicle 90,000.00
Office Equipment 48,475.00
Furniture & Fixtures 7,350.00
Total Non-current Asset 1,701,700.02
TOTAL ASSET 1,925,000.00

L I A B I L I T Y & P ARTN E R ' S E Q U I T Y

Liability -

Partner's Equity
Partner A Capital 385,000.00
Partner B Capital 385,000.00
Partner C Capital 385,000.00
Partner D Capital 385,000.00
Partner E Capital 385,000.00
Total Equity 1,925,000.00
TOTAL LIABILITY & PARTNER'S EQUITY 1,925,000.00
Jirlyn's Dried Catfish
Pre-operating Cash Flow
January 1, 2018

Cash Flow from Operating Activities:


Increase in Invetory (66,040.13)
Increase in Prepaid Rent (21,000.00)
Net Cash Used in Operating
Activities (87,040.13)

Cash Flow from Investing Activities


Purchase of Property Plant &
Equipment (1,701,700.02)
Net Cash Used in Investing
Activities (1,701,700.02)

Cash Flow from Financing Activities


Capital Investment 1,925,000.00
Net Cash Used in Financing
Activities 1,925,000.00
Net Increase in Cash & Cash
Equivalents 136,259.85
o Operating Period

Jirlyn's Dried Catfish


Statement of Financial Position
From December 31, 2018 - December 31, 2022

2018 2019 2020 2021 2022


ASSET
Current Asset
Cash 1,895,551.87 3,058,789.68 4,384,457.83 5,841,031.67 7,434,942.10
Petty Cash Fund 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00
Accounts Receivable 618,135.61 649,042.39 681,494.51 715,569.24 751,347.70
Allowance for Doubtful Accounts (30,906.78) (63,358.90) (97,433.63) (133,212.09) (170,779.47)
Inventory 69,342.14 73,491.02 76,856.87 80,389.61 84,097.14
Prepaid Rent 21,000.00 21,000.00 21,000.00 21,000.00 21,000.00
Total Current Asset 2,583,122.84 3,748,964.19 5,076,375.59 6,534,778.44 8,130,607.47
Non-Current Asset
Factory Building 1,315,875.02 1,315,875.02 1,315,875.02 1,315,875.02 1,315,875.02
Retail Shop 240,000.00 240,000.00 240,000.00 240,000.00 240,000.00
Delivery Vehicle 90,000.00 90,000.00 90,000.00 90,000.00 90,000.00
Office Equipment 48,475.00 48,475.00 48,475.00 48,475.00 48,475.00
Furniture & Fixtures 7,350.00 7,350.00 7,350.00 7,350.00 7,350.00
Accumulated Depreciation - Factory Building (43,862.50) (87,725.00) (131,587.50) (175,450.00) (219,312.50)
Accumulated Depreciation - Retail Shop (8,000.00) (16,000.00) (24,000.00) (32,000.00) (40,000.00)
Accumulated Depreciation - Delivery Vehicle (12,857.14) (25,714.29) (38,571.43) (51,428.57) (64,285.71)
Accumulated Depreciation - Office Equipment (9,695.00) (19,390.00) (29,085.00) (38,780.00) (48,475.00)
Accumulated Depreciation - Furniture & Fixture (735.00) (1,470.00) (2,205.00) (2,940.00) (3,675.00)
Total Non-Current Asset 1,626,550.38 1,551,400.73 1,476,251.09 1,401,101.45 1,325,951.80
TOTAL ASSET 4,209,673.21 5,300,364.92 6,552,626.68 7,935,879.88 9,456,559.27

LIABILITY & PARTNER'S EQUITY


LIABILITY
Current Liability
VAT Payable 606,741.09 637,439.94 669,484.74 703,131.78 738,461.17
Income Tax Payable 653,379.64 664,011.75 715,268.61 769,462.43 826,443.73
Total Current Liability 1,260,120.73 1,301,451.69 1,384,753.35 1,472,594.21 1,564,904.90
Total Liability 1,260,120.73 1,301,451.69 1,384,753.35 1,472,594.21 1,564,904.90
PARTNER'S EQUITY
Partner A Capital 589,910.50 799,782.65 1,033,574.66 1,292,657.13 1,578,330.87
Partner B Capital 589,910.50 799,782.65 1,033,574.66 1,292,657.13 1,578,330.87
Partner C Capital 589,910.50 799,782.65 1,033,574.66 1,292,657.13 1,578,330.87
Partner D Capital 589,910.50 799,782.65 1,033,574.66 1,292,657.13 1,578,330.87
Partner E Capital 589,910.50 799,782.65 1,033,574.66 1,292,657.13 1,578,330.87
Total Partner's Equity 2,949,552.49 3,998,913.23 5,167,873.32 6,463,285.67 7,891,654.37
TOTAL LIABILITY & PARTNER'S EQUITY 4,209,673.21 5,300,364.92 6,552,626.68 7,935,879.88 9,456,559.27
Jirlyn's Dried Catfish
Statement of Partner's Equity
From December 31, 2018 - December 31, 2022

2018 2019 2020 2021 2022

Balance Beginning:
Partner A Capital 385,000.00 589,910.50 799,782.65 1,033,574.66 1,292,657.13
Partner B Capital 385,000.00 589,910.50 799,782.65 1,033,574.66 1,292,657.13
Partner C Capital 385,000.00 589,910.50 799,782.65 1,033,574.66 1,292,657.13
Partner D Capital 385,000.00 589,910.50 799,782.65 1,033,574.66 1,292,657.13
Partner E Capital 385,000.00 589,910.50 799,782.65 1,033,574.66 1,292,657.13
Total 1,925,000.00 2,949,552.49 3,998,913.23 5,167,873.32 6,463,285.67
Add: Net Income from
Operation 1,524,552.49 1,549,360.74 1,668,960.09 1,795,412.35 1,928,368.70
Total 3,449,552.49 4,498,913.23 5,667,873.32 6,963,285.67 8,391,654.37
Less Drawings
Partner A Capital (100,000.00) (100,000.00) (100,000.00) (100,000.00) (100,000.00)
Partner B Capital (100,000.00) (100,000.00) (100,000.00) (100,000.00) (100,000.00)
Partner C Capital (100,000.00) (100,000.00) (100,000.00) (100,000.00) (100,000.00)
Partner D Capital (100,000.00) (100,000.00) (100,000.00) (100,000.00) (100,000.00)
Partner E Capital (100,000.00) (100,000.00) (100,000.00) (100,000.00) (100,000.00)
Total (500,000.00) (500,000.00) (500,000.00) (500,000.00) (500,000.00)
Balance Ending 2,949,552.49 3,998,913.23 5,167,873.32 6,463,285.67 7,891,654.37
Jirlyn's Dried Catfish
Statement of Comprehensive Income
From December 31, 2018 - December 31, 2022

2018 2019 2020 2021 2022


Unit Sales 57,222.00 60,083.10 63,087.26 66,241.62 69,553.70

Sales 12,362,712.26 12,980,847.87 13,629,890.26 14,311,384.78 15,026,954.02


Cost of Goods Sold 9,575,818.79 10,148,110.85 10,613,862.34 11,101,718.33 11,613,772.15
Gross Profit 2,786,893.47 2,832,737.02 3,016,027.92 3,209,666.44 3,413,181.87

Operating Expenses
Office Supplies 14,208.00 14,918.40 15,664.32 16,447.54 17,269.91
Salaries and Wages 282,920.00 284,334.60 285,756.27 287,185.05 288,620.98
Lease & Rent 91,800.00 96,390.00 101,209.50 106,269.98 111,583.47
Utilities 37,864.92 39,758.17 41,746.07 43,833.38 46,025.05
Depreciation 75,149.64 75,149.64 75,149.64 75,149.64 75,149.64
Uniform Expense 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00
Gasoline Expense 28,800.00 28,800.00 28,800.00 28,800.00 28,800.00
Fees, Licenses and Permits 6,820.00 6,820.00 6,820.00 6,820.00 6,820.00
Professional Fees 24,000.00 25,200.00 26,460.00 27,783.00 29,172.15
Bad Debts Expense 30,906.78 32,452.12 34,074.73 35,778.46 37,567.39
Other General Expenses 12,492.00 11,541.60 12,118.68 12,724.61 13,360.84
Total Operating Expenses 608,961.34 619,364.53 631,799.22 644,791.66 658,369.44
NET INCOME BEFORE TAX 2,177,932.12 2,213,372.49 2,384,228.70 2,564,874.78 2,754,812.43
Income Tax at 30% 653,379.64 664,011.75 715,268.61 769,462.43 826,443.73
NET INCOME AFTER TAX 1,524,552.49 1,549,360.74 1,668,960.09 1,795,412.35 1,928,368.70
Jirlyn's Dried Catfish
Statement of Cash Flows
From December 31, 2018 - December 31, 2022

2018 2019 2020 2021 2022


Cash Flow from Operating Activities:
Net income/Loss 1,524,552.49 1,549,360.74 1,668,960.09 1,795,412.35 1,928,368.70
Depreciation 75,149.64 75,149.64 75,149.64 75,149.64 75,149.64
Bad Debts Expense 30,906.78 32,452.12 34,074.73 35,778.46 37,567.39
Increase in
Inventory (3,302.01) (4,148.89) (3,365.85) (3,532.74) (3,707.52)
Increase in Accounts Receivable (618,135.61) (30,906.78) (32,452.12) (34,074.73) (35,778.46)
Increase in VAT Payable 606,741.09 30,698.85 32,044.80 33,647.04 35,329.39
Increase in Income Tax Payable 653,379.64 10,632.11 51,256.86 54,193.82 56,981.29
Net Cash Used in Operating
Activities 2,269,292.02 1,663,237.81 1,825,668.15 1,956,573.85 2,093,910.43

Cash Flow from Financing Activities


Partner's Drawings (500,000.00) (500,000.00) (500,000.00) (500,000.00) (500,000.00)
Net Cash Used in Financing
Activities (500,000.00) (500,000.00) (500,000.00) (500,000.00) (500,000.00)
Beginning Cash & Cash Equivalents 136,259.85 1,905,551.87 3,068,789.68 4,394,457.83 5,851,031.67
Net Increase in Cash & Cash
Equivalents 1,905,551.87 3,068,789.68 4,394,457.83 5,851,031.67 7,444,942.10
Financial Analysis

o Financial Ratios

Liquidity Ratios

Current Ratio
2018 2019 2020 2021 2022 Average
Current Assets 2,583,122.84 3,748,964.19 5,076,375.59 6,534,778.44 8,130,607.47
Divided by Current Liabilities 1,260,120.73 1,301,451.69 1,384,753.35 1,472,594.21 1,564,904.90
Current Ratio 2.05 2.88 3.67 4.44 5.20 3.65

With an average current ratio of 3.65, it can be assumed that the partnership has the ability to meet its short term debt when
they fall due because it has sufficient amount of current assets to cover its short term liabilities. The partnership has Php 3.65 of
current assets for every Php 1.00 of current liabilities.

Working Capital 2018 2019 2020 2021 2022 Average


Current Assets 2,583,122.84 3,748,964.19 5,076,375.59 6,534,778.44 8,130,607.47
Less Current Liabilities 1,260,120.73 1,301,451.69 1,384,753.35 1,472,594.21 1,564,904.90
Working Capital 1,323,002.11 2,447,512.50 3,691,622.23 5,062,184.23 6,565,702.57 3,818,004.73

The partnership has more than enough current asset to meet all of its short term financial obligations as denoted by the
consistent positive figures of working capital.
Quick Ratio 2018 2019 2020 2021 2022 Average
Quick Assets 2,523,687.48 3,717,832.07 5,075,952.34 6,566,600.91 8,196,289.80
Divided by Current Liabilities 1,260,120.73 1,301,451.69 1,384,753.35 1,472,594.21 1,564,904.90
Quick Ratio 2.00 2.86 3.67 4.46 5.24 3.64

This indicates that the partnership can meet its current financial obligations with the available quick funds on hand.

Asset Turnover 2018 2019 2020 2021 2022 Average


Net Sales 12,362,712.26 12,980,847.87 13,629,890.26 14,311,384.78 15,026,954.02
Divided by Average Total Asset 3,067,336.61 4,755,019.07 5,926,495.80 7,244,253.28 8,696,219.58
Asset Turnover 4.03 2.73 2.30 1.98 1.73 2.55

This means that for every peso of the partnership’s assets, Jirlyn’s Dried Cat Fish generated Php 2.55 in revenus.

Inventory Turnover 2018 2019 2020 2021 2022 Average


Cost of Goods Sold 9,575,818.79 10,148,110.85 10,613,862.34 11,101,718.33 11,613,772.15
Divided by Ave. Inventory 67,691.13 71,416.58 75,173.95 78,623.24 82,243.38
Inventory Turnover 141.46 142.10 141.19 141.20 141.21 141.43

In average, the business sells and replaces its entire inventory 141 times in a year. Higher inventory turnover denotes
efficient operation and lesser cost on stocking inventory.
Solvency Ratios

Debt to Total Asset Ratio 2018 2019 2020 2021 2022 Average
Total Liabilities 1,260,120.73 1,301,451.69 1,384,753.35 1,472,594.21 1,564,904.90
Divided by Average Assets 4,209,673.21 5,300,364.92 6,552,626.68 7,935,879.88 9,456,559.27
Debt to Total Asset Ratio 0.30 0.25 0.21 0.19 0.17 0.22

In general, it shows that the partnership is 22% financed by creditors and that the remaining 78% is funded by the partners.
This also shows that the partnership has a positive sign of financial stability because the partnership has borrowed fewer funds as
compared to its total assets that it owns.

Debt to Equity Ratio 2018 2019 2020 2021 2022 Average


Total Liabilities 1,260,120.73 1,301,451.69 1,384,753.35 1,472,594.21 1,564,904.90
Divided by Total Partner's Equity 2,949,552.49 3,998,913.23 5,167,873.32 6,463,285.67 7,891,654.37
Debt to Equity Ratio 0.43 0.33 0.27 0.23 0.20 0.29

In average, creditors provide 29 centavos for each peso provided by the partners to finance the assets. This means that the
portion of assets provided by the partners is greater than the portion of assets provided by creditors.

Profitability Ratios

Gross Profit Ratio 2018 2019 2020 2021 2022 Average


Gross Profit 2,786,893.47 2,832,737.02 3,016,027.92 3,209,666.44 3,413,181.87
Divided by Net Sales 12,362,712.26 12,980,847.87 13,629,890.26 14,311,384.78 15,026,954.02
Gross Profit Ratio 0.23 0.22 0.22 0.22 0.23 0.22
This means that for every peso in dried cat fish sales, the partnership earned 22 centavos in profit but spent 78 centavos to
make it.

Profit Margin 2018 2019 2020 2021 2022 Average


Net Income 2,177,932.12 2,213,372.49 2,384,228.70 2,564,874.78 2,754,812.43
Divided by Net Sales 12,362,712.26 12,980,847.87 13,629,890.26 14,311,384.78 15,026,954.02
Profit Margin 0.18 0.17 0.17 0.18 0.18 0.18

From the figures above, it shows that the partnership can convert 18% of its net sales to net income.

o Rates of Return

Return on Total Asset 2018 2019 2020 2021 2022 Average


Net Income 2,177,932.12 2,213,372.49 2,384,228.70 2,564,874.78 2,754,812.43
Divided by Average Total Asset 3,067,336.61 4,755,019.07 5,926,495.80 7,244,253.28 8,696,219.58
Return on Total Asset 0.71 0.47 0.40 0.35 0.32 0.45

This means, every peso that the partners invested in assets produced 45% of net income.

Return on Equity 2018 2019 2020 2021 2022 Average


Net Income 2,177,932.12 2,213,372.49 2,384,228.70 2,564,874.78 2,754,812.43
Divided by Average Total Equity 2,437,276.24 3,474,232.86 4,583,393.28 5,815,579.50 7,177,470.02
Return on Equity 0.89 0.64 0.52 0.44 0.38 0.58

In average, the partners have 58% return on their investment in the partnership.
o Cash Payback Period

Cash Payback Period

Partner's Initial Investment 1,925,000.00

Annual Net Cash Flow from Operation:

Year 1 2,269,292.02
Year 2 1,663,237.81
Year 3 1,825,668.15
Year 4 1,956,573.85
Year 5 2,093,910.43
Total 9,808,682.25
Average 1,961,736.45

Year Net Cash Flow


0
1 2,269,292.02
2 1,663,237.81
3 1,825,668.15
4 1,956,573.85
5 2,093,910.43
Payback Period = 1,925,000.00 / 2,269,292.02
.84 years

It will take ten months or .84 years for the partnership to be able to recover invested
cash.
o Break-even Point

Break-even poin in Units = Fixed Cost


Sales Price per Unit - Variable Cost per Unit

= 578,054.56
(216.05 - 166.73)

Break-even poin in Units = 11,720

Break-even poin in Pesos = Fixed Cost


Contribution Margin Ratio

where:
Sales price- Variable Cost
CM Ratio = x 100
Sales price
(216.05 - 166.73)
x 100
216.05
CM Ratio = 23%

Break-even poin in Pesos = 578,054.56


23%

Break-even poin in Pesos = 2,532,211.85

At the sale of 11,720 dried fish, the partnership will earn an amount that is equal to its
total variable and fixed expenses. At this point, the partnership will have a net income of zero.
o Sensitivity Analysis

Jirlyn's Dried Catfish


Statement of Comprehensive Income
As of December 31, 2018

5% decrease in 5% decrease in Forecasted Results 5% increase in 5% increase in


unit sales sales price sales price unit sales

2018 2018 2018 2018 2018


Unit Sales 54,360.90 57,222.00 57,222.00 57,222.00 60,083.10

Sales 11,744,576.65 11,744,815.50 12,362,712.26 12,980,810.70 12,980,847.87


Cost of Goods Sold 9,034,289.73 9,575,818.79 9,575,818.79 9,575,818.79 9,985,267.59
Gross Profit 2,710,286.92 2,168,996.71 2,786,893.47 3,404,991.91 2,995,580.28

Operating Expenses
Office Supplies 14,208.00 14,918.40 14,208.00 14,918.40 15,664.32
Salaries and Wages 282,920.00 284,334.60 282,920.00 284,334.60 285,756.27
Lease & Rent 91,800.00 96,390.00 91,800.00 96,390.00 101,209.50
Utilities 37,864.92 39,758.17 37,864.92 39,758.17 41,746.07
Depreciation 75,149.64 75,149.64 75,149.64 75,149.64 75,149.64
Uniform Expense 4,000.00 4,000.00 4,000.00 4,000.00 4,000.00
Gasoline Expense 28,800.00 28,800.00 28,800.00 28,800.00 28,800.00
Fees, Licenses and Permits 6,820.00 6,820.00 6,820.00 6,820.00 6,820.00
Professional Fees 24,000.00 25,200.00 24,000.00 25,200.00 26,460.00
Bad Debts Expense 30,906.78 32,452.12 30,906.78 35,778.46 37,567.39
Other General Expenses 12,492.00 11,541.60 12,492.00 12,724.61 13,360.84
Total Operating Expenses 608,961.34 619,364.53 608,961.34 623,873.89 636,534.04
NET INCOME BEFORE TAX 2,101,325.57 1,549,632.18 2,177,932.12 2,781,118.02 2,359,046.24
Income Tax at 30% 630,397.67 464,889.65 653,379.64 834,335.41 707,713.87
NET INCOME AFTER TAX 1,470,927.90 1,084,742.53 1,524,552.49 1,946,782.62 1,651,332.37

Change in Unit Sales


A 5% decrease in unit sales will cause the net income to decrease by 4%. This change
will also cause the cost of goods sold to decrease by 5% since unit sales and cost of goods are
directly proportional. Whenever the unit sales increase/decrease, the cost of goods sold will also
increase/decrease in the same proportion.
On the other hand, 5% increase in unit sales will cause the net income to increase by
8%. Consequently, cost of goods sold will also increase because of their direct relationship.

Change in Sales Price


5% decrease in sales price will cause the net income to decrease by 29%. An increase
in sales price will have no impact on the cost of goods sold because these two line items in the
income statement have no direct relationship. A minimal decrease in sales price will adversely
affect the net income of the partnership.
5% increase in sales price will cause the net income to increase by 28% and have no
effect on the cost of goods sold.
In summary, the partnership will earn more by increasing its sales price than
increasing unit sales because increase in sales price will not affect cost of goods sold thus no
additional expenses for the partnership. Increasing unit sales on the other hand also increases
sales, however it also increases the cost of goods sold, thus increasing expenses.