MG's Arts and

Crafts
Center Mall, Lakandula St,
Baguio City, Benguet 2600
Philippines

Business Plan
Table of Contents

Section 1: The Business Concept and the Business Model

Section 2: Executive Summary

Section 3: The Business Goals

Section 4: Company Summary

Section 5: Products and Sales

Section 6: Market Analysis

Section 7: Marketing and Advertising

Section 8: Business Positioning Strategy

Section 9: Management and Personnel

Section 10: Environmental and Regulatory Compliance

Section 11: Financial Forecast

Section 12: Evaluating Business Investments and Business Operations

I. THE BUSINESS CONCEPT AND THE
BUSINESS MODEL
KEY KEY ACTIVITIES VALUE CUSTOMER CUSTOMER
PARTNERS PROPOSITIONS RELATIONSHIPS SEGMENTS
 Local  Buy and sell of  Fresh and  Personalized  Tourists
Suppliers locally made Personalized Items  Interested
 Interested novelty items: Product  Online Retail and
Retailers -Wall Decor Designs catalogue wholesale
and -Dream  Location stores
Wholesalers Catcher  Competitive  Residents
-Personalized Prices
Picture Frame  Product
Availability
KEY RESOURCES CHANNELS
 Product brand  Delivery
 Human  Walk-in
Capital  Distributors
 Transportation and Retailers
Assets
 Advertising
 Distribution
Networks
COST STUCTURE REVENUE STREAMS
 Organizational Cost  Product Sales
 Administrative Costs  Other Income
 Distribution/Selling Costs
 Marketing and Advertising Costs
 Merchandise Inventory (Cost of
Sales)
 II. EXECUTIVE SUMMARY
Since the dawn of time people have been giving gifts for countless reasons. It could be to
show loyalty and love, to gain personal favor, to say thank you and "just because". In addition,
wherever part of the earth, whatever beliefs, customs, traditions, or religion, people are fun of
keeping memoir or souvenirs in remembrances of a person or an event, mementos as a marker of
where they have been and what they have achieved.

MG's Arts and Crafts will offer a collection of handmade gift items and mementos. Its
products will be supplied by local weavers and local manufacturers of souvenir items. The
business and is set to open 6 months from now, in the Business central District of the City of
Baguio.

MG's Arts and Crafts, formed as a Sole Proprietor, is a new company which is to operate
in the Gift, Novelty and Souvenir Stores Industry. MG's Arts and Crafts operates primarily as a
retailer, promoting handmade souvenir products, created by local manufacturers and weavers
within the city or nearby areas (wall decors), including the major products of Baguio City Jail
inmates (customized wooden picture frame and dream catchers).

The primary address of the business is:

G/F Center Mall, Lakandula St., Baguio City
Benguet Province, 2600
mgsartsandcrafts@gmail.com

The starting date o f this business plan is January 20XX.

III. THE BUSINESS GOALS

A.1 Mission
MG's Arts and Craft's mission is to promote the city's local novelty products, helps in the
distribution of items crafted by the inmates of Baguio City Jail and La Trinidad Municipal Jail,
introducing fresh and stylish designs.
Committed to customer service, the shop will provide a service that is respectful and
prompt. Employees will also be treated in a professional manner, providing a pleasing work
environment and a fair compensation, following the labor regulations of the country.

A.2 Objectives
 To provide unique and quality products at reasonable prices.
 Generate enough sales revenue to establish a profit of at least 40% of Gross Sales at the end
of year one.
  To achieve at least a modest net profit by year one.
 Establish our company as a premier "Brand Recognized" name throughout the community
in year one.
 To support its local suppliers in their product R&D and product innovation.

A.3 Keys to Success

 Offering novelty items which are fresh in design and are not available everywhere.
 Strategically locating the business at the heart of the City of Baguio.
 Providing customers an option to pre-order for customized items.
 Offering products at competitive prices.
 Constantly checking the inventory and sales and updating inventory levels accordingly
in order to meet customer deadline.

IV. COMPANY SUMMARY

MG's Arts and Crafts is a retail novelty shop located at the heart of Baguio City. The
business specializes in offering Woven wall decorations, dream catchers and personalized picture
frames.

The business owner is Mr. MG Galvez, a High School Teacher by profession. The idea of
establishing the business started after years of observing and hearing the difficulty of a
neighboring weaving business in their Barangay, which usually operates at humble income or
sometimes at break-even, in looking for distributors and/or retailers.

Seeing that their products are of quality with fresh designs, MG Galvez thought of
reselling the craft. He first tried introducing the it to his co-employees, friends and relatives. These
friends and relatives appreciated the products and encouraged him to resell to a bigger market.

He then started this Business Plan and through the recommendation of a pastor in their
local church, MG Galvez included the products crafted by inmates at Baguio City Jail and La
Trinidad Municipal Jail. Their main products are dream catchers of different sizes and
personalized wooden picture frames which are made to order. The markets of these inmates are
limited only to their family, friends and other visitors.

 Start-up (Capital) Summary

Based on the startup capital needed to initiate the business, funding will come from the
owner's own finances.

To commence the business, the following are the estimated start up requirements:

START UP REQUIREMENT
Start Up Expenses
 Rent Expense 18,000.00
Taxes and Licenses - Permits, DTI Reg, BIR Reg, CTC, etc. 15,000.00
Advertising and Promotion 10,000.00
Repairs and Maintenance 5,000.00
Other Expense 5,000.00
Supplies Expense 2,000.00
Total Start up Expenses 55,000.00

Start up Current Assets

Cash on Hand 20,000.00
Merchandise Inventory 50,000.00 70,000.00

Start up Non Current Assets

Cash Register (POS) 35,000.00
Casio Printing Calculator 2,000.00
Furniture and Fixtures - Tables, chairs, etc. 5,000.00 42,000.00
Total Start up Assets 112,000.00

Total Start up Requirement 167,000.00

V. Product & Sales

The Company's Sales Forecast is P 764,000 on the first year, P1,223,250 on the second year
and P 1,929,200 on the third year with a combined Cost of Goods Sold of P456,830; P721,100 and
P1,101,000 respectively. This results in a Gross Profit of P 307,170; 502,150 and P 838,200 for the
first year, second year and third year of business operation respectively.

Woven Wall decors (except personalized design) and Dream Catchers will be displayed
for selling at the shop.

For Picture frames and personalized Woven wall decors, only samples are displayed in
the store. Customer orders will be forwarded to the suppliers and will be available within 3-5
business days depending on the bulk of orders.

PRODUCTS Year 1 Year 2 Year 3

Woven Wall Decor (Nature Design)
Unit Price PHP 200.00 PHP 210.00 PHP 225.00
Units Sold 1500 2000 2700
Unit Cost PHP 80.00 PHP 86.00 PHP 95.00
Inventory Added 1550 2050 2700
Inventory Remaining 50 100 100

Woven Wall Décor (Stripes)

Unit Price PHP 65.00 PHP 75.00 PHP 90.00
Units Sold 800 1000 1300
Unit Cost PHP 33.33 PHP 35.00 PHP 38.00
Inventory Added 850 1000 1300
Inventory Remaining 50 50 50

Wall Decor (Personalized)

Unit Price PHP 250.00 PHP 260.00 PHP 275.00
Units Sold 500 800 1200
Unit Cost PHP 160.00 PHP 165.00 PHP 172.00
Inventory Added 500 800 1200
Inventory Remaining 0 0 0

Dream Catcher (Large)

Unit Price PHP 120.00 PHP 127.00 PHP 140.00
Units Sold 500 800 1200
Unit Cost PHP 75.00 PHP 80.00 PHP 85.00
Inventory Added 550 800 1200
Inventory Remaining 50 50 50
Dream Catcher (Regular)
Unit Price PHP 110.00 PHP 125.00 PHP 140.00
Units Sold 500 800 1200
Unit Cost PHP 50.00 PHP 53.00 PHP 57.00
Inventory Added 550 800 1200
Inventory Remaining 50 50 50

Dream Catcher (Small)

Unit Price PHP 100.00 PHP 109.00 PHP 119.00
Units Sold 1000 1500 2200
Unit Cost PHP 39.00 PHP 43.00 PHP 48.00
Inventory Added 1050 1550 2200
Inventory Remaining 50 100 100

Dream Catcher (Key Chain Size)

Unit Price PHP 25.00 PHP 30.00 PHP 39.00
Units Sold 5000 6000 8000
Unit Cost PHP 8.00 PHP 10.00 PHP 13.00
Inventory Added 5200 6000 8000
Inventory Remaining 200 200 200

Personalized Wooden Picture Frame (Family)

Unit Price PHP 650.00 PHP 675.00 PHP 715.00
Units Sold 500 800 1200
Unit Cost PHP 480.00 PHP 490.00 PHP 505.00
Inventory Added 500 800 1200
Inventory Remaining 0 0 0

Personalized Wooden Picture Frame (Single)

Unit Price PHP 160.00 PHP 175.00 PHP 210.00
Units Sold 300 400 500
Unit Cost PHP 80.00 PHP 95.00 PHP 102.00
Inventory Added 300 400 500
Inventory Remaining 0 0 0

Personalized Wooden Picture Frame (Couple)

Unit Price PHP 300.00 PHP 325.00 PHP 350.00
Units Sold 500 800 1200
Unit Cost PHP 150.00 PHP 160.00 PHP 175.00
Inventory Added 500 800 1200
Inventory Remaining 0 0 0

SUMMARY
Total Sales PHP 1,340,000.0 PHP 2,118,100.0 PHP 3,347,300.0
 VI. Market Analysis
 Potential Market/Buyer

It is the summer capital of the Philippines and has a known tourist spots being visited all
over the year, which makes it suitable for the sale of tokens and souvenirs and which imply a
large number of buyers, and implies the assurance of the permanence of customers coming in.

The business would cater to the residents, tourists, business establishments in Baguio and the
nearby provinces. It is estimated that 80% of sales will come from the city's tourists/visitors.

 Suppliers

Dream catchers and Customized Picture frames will be supplied by the inmates of Baguio
City Jail and La Trinidad Municipal Jail. Currently, they can produce (at maximum capacity) a
total of 50,000 picture frames in a year.

Woven Wall Decors will be supplied by various weavers located in the City. There are
more than 300 weaving sites in the city of Baguio. Around 50 of them specialize in wall decors.
This number of weaving sites is sufficient to meet the projected number of units that the business
will sell.

VII. Marketing and Advertising

MG's Arts and Crafts is expecting to s pend a total o f P10,000 on Marketing and
Advertising Expense s o n the first year o f operation, P7,000 o n the second year and P5,000
on the third year.

Advertising is done through radio, local news paper, fliers, and tarpaulins.

VIII. Business Positioning Strategy

 Fresh and Personalized Product Designs

Customers are given wide range of unique designs from our talented suppliers, and are given
the option to personalize their preferred design which will fit their lifestyle, their taste and/or the
interior design or their offices or houses.

The days and time of product availability depends on the customer's preferences and depends
on the entity and its suppliers' capacity and business operation.
  Location

For its accessibility to the market, the business is to be located I n the business central
district, situated near the City public market and at the center of three universities - BCU, SLU
and UB. Accordingly, the best location seen among vacant spaces for rent is a 5 sq meter at the
G/F or Baguio Center Mall.

 Pricing

The business entity will offer the products at a reasonable price, without sacrificing quality and
durability, and without taking advantage of suppliers.

 Product Availability

The business will continuously be reviewing the inventory and sales forecast and adjust
inventory levels accordingly to stock sufficient number of items and meet customer deadline.

IX. Management and Personnel

The business will be managed by the sole proprietor himself. Only 2 employees will be hired for the
first year - 1 cashier and 1 sales personnel.

On the succeeding years, an increase in sale is projected hence, another sales personnel is needed. 1
cashier and 2 sales personnel are the employees for the second year and third year respectively.
Qualifications are - male or female, at least high school graduate, a resident of Baguio, with or without
experience.
The minimum wage and the benefits mandated by DOLE are the basis of their salaries.

X. Environmental & Regulatory Compliance

All necessary fees and taxes were paid; and permits and licenses were processed and secured:
 DTI Registration and Permit
 Mayor's Permit and Sanitary Permit
 Community Tax Certificate
 Barangay and Garbage Fee
 BIR Registration, Certification Fees and Documentary Stamp Tax
 Initial Business Tax

In Addition, employees shall be paid in accordance with the labor laws. Salaries are to be given
every 15th and 30th of the month.
XI. Financial Forecast

Profit & Loss

MG's Arts and Crafts

Profit and Loss Statement
For the Years ending December 31, 2017-2019

Note 2017 2018 2019

Sales Revenue 1,340,000.00 2,118,100.00 3,347,300.00
Less: Cost of Goods Sold Schedule 4 707,164.00 1,126,516.50 1,756,700.00
Gross Profit 632,836.00 991,583.50 1,590,600.00
Less: Operating Expenses
Salaries and 13th Month 192,000.00 306,000.00 324,000.00
Depreciation Schedule 2 8,400.00 8,400.00 8,400.00
Repairs and Maintenance 5,000.00 5,250.00 5,512.50
Advertising Expenses 10,000.00 7,000.00 3,000.00
Supplies Expense 2,500.00 2,625.00 2,756.25
Rent Expense 240,000.00 240,000.00 240,000.00
Utilities Expense 18,000.00 22,500.00 28,125.00
Taxes and Licenses 15,000.00 15,750.00 16,537.50
Other Expenses 2,000.00 2,100.00 2,205.00
Total Operating Expenses 492,900.00 609,625.00 630,536.25
Net Income Before Tax 139,936.00 381,958.50 960,063.75
Income Tax Expense Schedule 5 12,487.20 74,587.55 256,220.40
Net Income After Tax 127,448.80 307,370.95 703,843.35
 Statement of Financial Position (Formerly Balance Sheet)
MG's Arts and Crafts
Statement of Financial Position
As of December 31, 2017-2019

Note 2017 2018 2019

ASSETS - -
- - -
Current Asset
Cash Schedule 1 224,395.60 316,777.30 733,043.50
Inventories Schedule 2 15,466.50 23,300.00 25,900.00
Total Current Assets 239,862.10 340,077.30 758,943.50

Noncurrent Asset
Machinery and Equipment - POS and
Schedule 3 29,600.00 22,200.00 14,800.00
Calculator, Net
Furniture and Fixtures Schedule 3 4,000.00 3,000.00 2,000.00
Total Noncurrent Assets 33,600.00 25,200.00 16,800.00
TOTAL ASSETS 273,462.10 365,277.30 775,743.50

LIABILITIES AND CAPITAL

Accounts Payable Schedule 4 144,526.10 226,870.00 351,860.00

Income Tax Payable 12,487.20 74,587.55 256,220.40
Total Current Liabilities 157,013.30 301,457.55 608,080.40

Total Noncurrent Liabilities - - -

Total Liabilities 157,013.30 301,457.55 608,080.40

Capital, Beg. 169,000.00 116,448.80 63,819.75

Net Income 127,448.80 307,370.95 703,843.35
Drawings (180,000.00) (360,000.00) (600,000.00)
Capital, End 116,448.80 63,819.75 167,663.10

TOTAL LIABILITIES AND CAPITAL 273,462.10 365,277.30 775,743.50

 CASH FLOW

MG's Arts and Crafts

Statement of Cash Flows
December 31, 2017-2019

2017 2018 2019

Cash Receipts from Ordinary Sales 1,340,000.00 2,118,100.00 3,347,300.00

Less: Cash Disbursements

Payments to Suppliers 578,104.40 907,480.00 1,407,440.00

Salaries and 13th Month 192,000.00 306,000.00 324,000.00

Repairs and Maintenance 5,000.00 5,250.00 5,512.50

Advertising Expenses 10,000.00 7,000.00 3,000.00
Supplies Expense 2,500.00 2,625.00 2,756.25
Rent Expense 240,000.00 240,000.00 240,000.00
Utilities Expense 18,000.00 22,500.00 28,125.00
Taxes and Licenses 15,000.00 15,750.00 16,537.50
Other Expenses 2,000.00 2,100.00 2,205.00

Income Taxes Paid - 12,487.20 74,587.55

Total Cash Outflow from Operating Activities 1,062,604.40 1,521,192.20 2,104,163.80
Net Cash flow From Operating Activities 277,395.60 596,907.80 1,243,136.20

Purchase of Machinery and Equipment (POS &

Calculator) (37,000.00) - -

Purchase of Furniture and Fixtures (5,000.00) - -

Net cash Outflow From Investing Activities (42,000.00) - -

Proceeds From Loans - - -

Proprietor's Capital 169,000.00 - -
Total 169,000.00 - -

Less: Payments Of Loans - - -

Payments Of Liabilities - (144,526.10) (226,870.00)
Drawings (180,000.00) (360,000.00) (600,000.00)
Total (180,000.00) (504,526.10) (826,870.00)
Net Cash Flow From Financing Activities (11,000.00) (504,526.10) (826,870.00)
 Net Increase (decrease) 224,395.60 92,381.70 416,266.20
Add: Cash Balance Beginning - 224,395.60 316,777.30
Cash Balance- End 224,395.60 316,777.30 733,043.50

SCHEDULE 1: Ending Inventory

2017 2018 2019
Ending Ending Ending
Unit Units Inventory Unit Units Inventory Unit Units Inventory
Cost Unsold Value Cost Unsold Value Cost Unsold Value
Woven Wall
Decor (Nature
Design) 80.00 50 4,000.00 86.00 100 8,600.00 95.00 100 9,500.00
Woven Wall
Décor (Stripes) 33.33 50 1,666.50 35.00 50 1,750.00 38.00 50 1,900.00
Wall Decor
(Personalized) 160.00 0 - 165.00 0 - 172.00 0 -
Dream Catcher
(Large) 75.00 50 3,750.00 80.00 50 4,000.00 85.00 50 4,250.00
Dream Catcher
(Regular) 50.00 50 2,500.00 53.00 50 2,650.00 57.00 50 2,850.00
Dream Catcher
(Small) 39.00 50 1,950.00 43.00 100 4,300.00 48.00 100 4,800.00
Dream Catcher
(Key Chain Size) 8.00 200 1,600.00 10.00 200 2,000.00 13.00 200 2,600.00
Personalized
Wooden Picture
Frame (Family) 480.00 0 - 490.00 0 - 505.00 0 -
Personalized
Wooden Picture
Frame (Single) 80.00 0 - 95.00 0 - 102.00 0 -
Personalized
Wooden Picture
Frame (Couple) 150.00 0 - 160.00 0 - 175.00 0 -
Ending Inventory 15,466.50 23,300.00 25,900.00

SCHEDULE 2: Depreciation Expense and Accumulated Depreciation

MACHINERY AND EQUIPMENT (POS & CALCULATOR)

2017 2018 2019
Acquisition Cost 37,000.00 37,000.00 37,000.00
Accumulated Depreciation (7,400.00) (14,800.00) (22,200.00)
Book Value 29,600.00 22,200.00 14,800.00

*Useful Life: 5 years

*Depreciation Policy: Straight Line
 FURNITURES AND FIXTURES
2017 2018 2019
Acquisition Cost 5,000.00 5,000.00 5,000.00
Accumulated Depreciation (1,000.00) (2,000.00) (3,000.00)
Book Value 4,000.00 3,000.00 2,000.00

*Useful Life: 5 years

*Depreciation Policy: Straight Line

TOTAL DEPRECIATION EXPENSE 33,600.00 25,200.00 16,800.00

SCHEDULE 3:
Projected Purchases from Suppliers 2017 2018 2019
Woven Wall Decor (Nature Design) 124,000.00 176,300.00 256,500.00
Woven Wall Decor (Stripes) 28,330.50 35,000.00 49,400.00
Woven Wall Decor (Personalized) 80,000.00 132,000.00 206,400.00
Dream Catcher (Large) 41,250.00 64,000.00 102,000.00
Dream Catcher (Regular) 27,500.00 42,400.00 68,400.00
Dream Catcher (Small) 40,950.00 66,650.00 105,600.00
Dream Catcher (Key Chain size) 41,600.00 60,000.00 104,000.00
Personalized Wooden Picture Frame (Family) 240,000.00 392,000.00 606,000.00
Personalized Wooden Picture Frame (Single) 24,000.00 38,000.00 51,000.00
Personalized Wooden Picture Frame (Couple) 75,000.00 128,000.00 210,000.00

Total Projected Purchases from Suppliers 722,630.50 1,134,350.00 1,759,300.00

Multiply by 80% 0.80 0.80 0.80
Total Payments to Suppliers 578,104.40 907,480.00 1,407,440.00

Total Payable to Suppliers 144,526.10 226,870.00 351,860.00

SHEDULE 4: Cost of Sales

2017 2018 2019
Beg. Inventory 0 15,466.50 PHP 23,300.0
Add: Purchases 722,630.50 1,134,350.00 1,759,300.00
Total Goods Available for Sale 722,630.50 1,149,816.50 1,782,600.00
Less: Cost of Ending Inventory 15,466.50 23,300.00 25,900.00
Total Cost of Sales 707,164.00 1,126,516.50 1,756,700.00
SCHEDULE 5: Income Tax Expense
2017
Gross Taxable Income 139,936.00
Less: Exemptions
Personal Exemption 50,000.00

Additional Exemption - 50,000.00

Net Taxable Income 89,936.00

**Tax Bracket: Over 70,000 but not Over 140,000

Tax on PHP 70,000 8,500.00

Tax on Excess Over PHP 70,000 [(89,936 - 70,000)*20%] 3,987.20

Income Tax Expense 12,487.20

 2018
Gross Taxable Income 381,958.50
Less: Exemptions
Personal Exemption 50,000.00
Additional Exemption - 50,000.00
Net Taxable Income 331,958.50

**Tax Bracket: Over 250,000 but not Over 500,000

Tax on PHP 250,000 50,000.00

Tax on Excess Over PHP 250,000 [(331,958.50 - 250,000)*30%] 24,587.55
Income Tax Expense 74,587.55

2019
Gross Taxable Income 960,063.75
Less: Exemptions
Personal Exemption 50,000.00
Additional Exemption - 50,000.00
Net Taxable Income 910,063.75

**Tax Bracket: Over 500,000

Tax on PHP 500,000 125,000.00

Tax on Excess Over PHP 500,000 [(910,063.75 - 500,000)*32%] 131,220.40
Income Tax Expense 256,220.40
XII. EVALUATING BUSINESS INVESTMENTS AND
BUS. OPERATIONS
A. LIQUIDITY RATIOS:

Liquidity ratios are the ratios that measure the ability of a company to meet its short term
debt obligations. These ratios measure the ability of a company to pay off its short-term liabilities
when they fall due.
Current Assets Measures a company's ability to pay short-term and
Current Liabilities long-term obligations. This represents the company's
Current Ratio =
ability to pay its debt over the next 12 months or its
business cycle.
Also known as the acid test ratio. Measures the ability
of a company to pay its current liabilities when they
Quick Assets
Quick Ratio = come due with only quick assets. Quick assets are
Current Liabilities
current assets that can be converted to cash within 90
days or in the short-term.

Definitions:
 Current Assets: balance sheet accounts that represent the value of all assets that is reasonably
expected to be converted into cash within one year (12 months) or within the company's
normal operating cycle. This includes the following:
C- Cash and Cash Equivalents
M- Marketable Securities (Trading Securities)
R- Receivables (Current)
I- Inventories
P- Prepayments.

 Quick Assets - balance sheet accounts that can be converted to cash quickly. This includes the
following:
C- Cash and Cash Equivalents
M- Marketable Securities (Trading Securities)
R- Receivables (Current)

 Current Liabilities: balance sheet accounts that represents amounts due to be paid to creditors
within one year (twelve months) or within the company's normal operating cycle. Current
liabilities includes the following:
- the principal portion of notes payable that will become due within one year
- accounts payable
- the remaining current liabilities such as payroll taxes payable, income taxes
payable, interest payable and other accrued expenses
MG'S ARTS AND CRAFTS' LIQUIDITY RATIOS BASED ON FINANCIAL FORECASTS:
CURRENT RATIO:
2017 Current Assets 239,862.10
Current Ratio = = = 1.53
Current Liabilities 157,013.30

2018 Current Assets 340,077.30

Current Ratio = = = 1.13
Current Liabilities 301,457.55

2019 Current Assets 758,943.50

Current Ratio = = = 1.25
Current Liabilities 608,080.40

Based on the projected results of business operations, the current ratios for 2017, 2018 and
2019 respectively are 1.53, 1.13 and 1.25.

The current ratio of 1.53 indicates that the business has P1.53 of current assets to pay P1.00
current liabilities - 1.53:1 (1.53 is to 1). The higher the current ratio is, the more capable the
company is to pay its obligations.

Usually, the considered acceptable current ratio is 2:1 (2 is to 1), but this vary among
industries. The current ratios computed are lower than the usual acceptable current ratio.
However, it indicates that the company is liquid - the business has enough resources to pay its
debt over the next 12 months or the normal operating cycle. However, the owner can still plan
better strategies to increase the current ratio specially for Year 2.
If current ratio is bellow 1 (current liabilities exceed current assets), then the company
may have problems paying its bills on time. However, low values do not indicate all the time
that there's a critical problem but this should alarm the management.

QUICK RATIO:
2017 Quick Assets 224,395.60
Quick Ratio = = = 1.43
Current Liabilities 157,013.30

2018 Quick Assets 316,777.30

Quick Ratio = = = 1.05
Current Liabilities 301,457.55

2019 Quick Assets 733,043.50

Quick Ratio = = = 1.21
Current Liabilities 608,080.40
 Quick Ratio is an indicator of company's short-term liquidity. It measures the ability to
use its quick assets (cash and cash equivalents, marketable securities and accounts receivable) to
pay its current liabilities.

Based on the projected results of business operations, the quick ratios for 2017, 2018 and
2019 respectively are 1.43, 1.05 and 1.21.
The current ratio of 1.43 indicates that the business has P1.43 of quick assets to pay P1.00
current liabilities - 1.53:1 (1.53 is to 1). The higher the quick ratio is, the more capable the company
is to pay its obligations. This indicates that the assets of the business that can be quickly converted
into cash (within 90 days) are sufficient to cover current liabilities. However, the owner can still
plan better strategies to increase the quick ratio specially for Year 2.

B. SOLVENCY RATIOS:

Solvency Ratios measure the ability of a company to meet its obligations - Long-term and
Short - Term. It approximates the relative financial risk being taken by the enterprise. The higher
the ratio, the higher financial exposure and risk. Generally, companies with higher solvency ratios
are thought to be more risky.

Measure a company's financial leverage.

Total Indicates how much debt a company is using
Liabilities to finance its assets relative to the amount of
value represented in shareholders' equity. It
Debt - to - Capital Ratio = shows the relation between the portion
of assets financed by creditors and the portion of
assets financed by owners. This ratio is important
Capital for investors in deciding whether they will invest
or not in a company, or will they provide a loan or
not.
A ratio of 1 (or 1 : 1) means that creditors and owners equally contribute to the assets of the
business.

A less than 1 ratio indicates that the portion of assets provided by owners is greater than the
portion of assets provided by creditors and a greater than 1 ratio indicates that the portion of assets
provided by creditors are greater than the portion of assets provided by owners.

Creditors usually like a low debt to capital ratio because a low ratio (less than 1) is the
indication of greater protection to their money. But owners like to get benefit from the funds provided
by the creditors therefore they would like a high debt- to-capital ratio.

Debt-to- capital ratio vary from industry to industry. Different norms have been developed
for different industries. A ratio that is ideal for one industry may be worrisome for another industry.
A ratio of 1 : 1 is normally considered satisfactory for most of the companies. But again, the lower the
ratio, the better.

Definitions:
 Capital is the net amount of funds invested in a business by its owners, plus any profits,
reduced by losses and personal drawings. This is also calculated as the difference between the
total assets and the total liabilities.

 Total Liabilities: Current Liabilities + Noncurrent Liabilities

 Noncurrent Liabilities: long-term financial obligations listed on a company's balance sheet

that are not due within 12 months from the balance sheet date, such as long-term loans, bonds
payable and long-term lease obligations

DEBT TO CAPITAL RATIO:

2017 Debt - to - Total Liabilities 157,013.30

Capital Capital 1.35
= =
Ratio = 116,448.80

2017 Debt - to - Total Liabilities 301,457.55

Capital Capital 4.72
= =
Ratio = 63,819.75

2017 Debt - to - Total Liabilities 608,080.40

Capital Capital 3.63
= =
Ratio = 167,663.10

Based on the financial forecast for MG's Arts and Crafts, the Debt-to-Capital ratios are
1.35, 4.72 and 3.63 respectively for the years ending 2017, 2018 and 2019. All ratios are more
than 1.

The Debt-to-Capital ratio of 1.35 indicates that creditors contribute P1.35 of the business'
assets for each P1.00 contribution of the owners - creditors contributes more to the entity's assets
than that of the owners.
For the owner, the ratio is good. Meaning, he does not have to invest much since creditors
will finance more of its assets. However, in case MG Galvez, the owner of MG's Arts and Crafts
would like to obtain a business loan from the bank in the future, the ratio indicates that providing
a loan to the business is risky on the part of the lender. Hence, the owner must plan for an
approach in order to lower the Debt-to-Capital ratio if he plan to borrow money from the bank to
add additional financing for the business.

C. PROFITABILITY RATIOS
 Profitability ratios show a company's overall efficiency and performance.

Net Income After Taxes It measures how much profit a company

Return on Asset + Interest Expense + earns for every peso of its assets. The
(Return on Income Tax higher, the better because that means the
Investment) (%) = Average Assets (Beg and company is doing a good job using its
End) assets to generate sales.
Net Income After
Return on Sales ROS is an indicator of profitability and is often used
Taxes
(%) = to compare the profitability of companies and
Sales
industries of differing sizes.

RETURN ON ASSETS/INVESTMENT:

The return on assets ratio, often called the return on total assets, is a profitability ratio that
measures the net income produced by total assets during a period by comparing net income to the
average total assets. In other words, the return on assets ratio or

Since company assets' sole purpose is to generate revenues and produce profits, this ratio helps
both management and investors see how well the company can convert its investments in assets into
profits. You can look at ROA as a return on investment for the company since capital assets are often
the biggest investment for most companies. In this case, the company invests money into capital assets
and the return is measured in profits.

Return on Assets can vary substantially across different industries. This is the reason why it is
recommended to compare it against company's previous values or the return of a similar company.

The only common rule is that the higher return on assets is, the better, because the company is
earning more money on its assets.
Net Income After Taxes -
Interest Expense - Income 139,936.00
Return on Asset (Return on
2017 Tax = = 58%
Investment) (%) =
**Average Assets (Beg and
239,862.10
End)

**Please note that 2017 is the first year of operations. Hence, average assets cannot be computed since
Beginning Assets is zero. in this case, use the ending balance of assets
 ROA measures how
efficiently a company can
manage its assets to produce
381,958.50
Return on Asset (Return on profits during a period.Net
= = 132%
Investment) (%) = Income After Taxes - Interest
2018 Expense - Income Tax
Average Assets (Beg and
289969.7
End)

Net Income After Taxes -

Interest Expense - Income 960,063.75
Return on Asset (Return on
2019 Tax = = 175%
Investment) (%) =
Average Assets (Beg and
549510.4
End)

MG's Arts and Carfts' ROA ratio is 58%,, 132% and 175% respectively for the years endig 2017,
2018 and 2019.

The ratios for the first year is interpreted as, for every peso that MG's Arts and Crafts’ invested
in assets during the year, it produced a net income or a return of 58% of asset investments. The higher
the ratio, the better. However, investors would have to compare MG's Arts and Crafts’ return with
other gift shop and novelty businesses to get a true understanding of how well MG's Arts and Crafts
is managing his assets.. If other businesses in the gift shop and novelty industry have higher ratios,
then MG is not doing well. But if businesses in the same industry have the same or lower ratio, then
MG is doing well.

RETURN ON SALES

2017 Net Income After Taxes 127,448.80

Return on Sales (%) = = = 10%
Sales 1,340,000.00

2018 Net Income After Taxes = 307,370.95

Return on Sales (%) = = 15%
Sales 2,118,100.00

2019 Net Income After Taxes = 703,843.35

Return on Sales (%) = = 21%
Sales 3,347,300.00

Return on sales (ROS) is a ratio used to evaluate a company's operational

efficiency; ROS is also known as a firm's operating profit margin. This measure provides insight
into how much profit is being produced per peso sales
 The Return on Sales Ratio based on the financial forecasts are 10%, 15% and 21%
respectively for the years ending 2017, 2018 and 2019.

For the year 2017, the 20% ratio indicates that 10% of total sales are converted into profits
while 90% are used to run the business.

Again, higher ratio indicates a better performance. There is no standard ROS and ROS
differs for every type of industry. In order to determine whether a company is performing well,
comparison of ROS to other businesses' within the same industry is necessary.