BALLA, Cleomae Centeny G.

IV- BSBA FM

1. Why significant activities should the proponent consider with regard to the financial aspect of
the project feasibility study?

Determining the startup costs.Preparing a profit plan and making cash flow projections. Assessing the
return on invested capital. The projected profits will be used to determine the financial feasibility of
the project. This part of the financial study assesses the attractiveness of the project to equity
investors and the overall financial return on the project.

The projected profits will be used to determine the financial feasibility of the project. This part of the
financial study assesses the attractiveness of the project to equity investors and the overall financial
return on the project.

The financial feasibility of a proposed venture can be estimated using several common methods:

Net present value – The net present value method uses a percentage rate to discount future cash
flows to the present.

Internal rate of return –The IRR is the discount rate that makes the NPV of cash outflows and inflows
equal to zero. This IRR can be used to compare the attractiveness of several projects.

Payback period – The payback period is the number of years that it takes for the return from a project
to recover the costs of the investment

2. What significant information can be obtained from the market and technical aspect which can
be very useful to the financial aspect of the study?
 The Marketing Aspect seeks to determine the opportunities and threats, the
target market, the total demand and supply of the product, the competition and
the marketing program which refers to the product, price, place and promotional
strategies. Technical Aspects is the discussion of basic and operation flow of the project.
This includes the equipments, materials, structure plan and also the source of the
supplies use in the proposed project.
3. Explain the different components of the Total Project Cost

Prime cost

It consists of costs of direct material, direct labour and direct expenses. It is also known as basic,
first or flat cost.

Factory cost

It comprises of prime cost and, in addition, overheads which includes cost of indirect material,
indirect labour, and indirect expenses of the factory. The cost is also known as work costs,
production or manufacturing cost.
 Office cost
If office and administrative overheads are added to factory cost, office cost is arrived at this is
also termed as administrative cost or the total cost of production.

Total cost
Selling and distribution overheads are added to the total cost of production to get the total cost
or the cost of sales.

The various components of total cost can be depicted through the help of the following chart:
Components of total cost

Direct material plus

Direct labour plus
Direct expenses

Office cost plus selling and distribution overheads

Cost of sales or total cost

Adjustment for inventories

The following adjustments may have to be made for inventories of raw materials, work-in-
progress and finished goods while computing the different components of cost:

Direct material consumed = opening stock of direct material + purchases of direct material –
closing stock of direct material

Works cost = gross works cost + opening work-in-progress – closing work-in-progress

Cost of production of goods sold = cost of production + opening stock of finished goods – closing
stock of finished goods
4. Discuss the different sources of financing for the proposed business

Personal Savings
The first place to look for money is your own savings or equity. Personal resources can include
profit-sharing or early retirement funds, real estate equity loans, or cash value insurance
policies.

Friends and Relatives

Founders of a start-up business may look to private financing sources such as parents or friends.
It may be in the form of equity financing in which the friend or relative receives an ownership
interest in the business. However, these investments should be made with the same formality
that would be used with outside investors.

Venture Capital
Venture capital refers to financing that comes from companies or individuals in the business of
investing in young, privately held businesses. They provide capital to young businesses in
exchange for an ownership share of the business. Venture capital firms usually don’t want to
participate in the initial financing of a business unless the company has management with a
 proven track record. Generally, they prefer to invest in companies that have received significant
equity investments from the founders and are already profitable.

Banks and Other Commercial Lenders

Banks and other commercial lenders are popular sources of business financing. Most lenders
require a solid business plan, positive track record, and plenty of collateral. These are usually
hard to come by for a start- up business. Once the business is underway and profit and loss
statements, cash flows budgets, and net worth statements are provided, the company may be
able to borrow additional funds.

5. Why is it necessary to prepare the projected financial statements such as Income Statement,
Statement of Cash Flows and Balance Sheets/ Statement of financial Position?
 A company's financial statements provide vital information about its financial health.To help
managers evaluate the financial condition and the operating performance of the firm so they
may make better decisions.
6. What financial information can be obtained from those provided financial statements?
 Financial statements are written records that convey the business activities and the financial
performance of a company. It is used to evaluate a company's financial health and earnings
potential. Financial statement reports are the balance sheet, income statement, and statement
of cash flows.

The balance sheet provides an overview of assets, liabilities, and stockholders' equity as a
snapshot in time.

The income statement primarily focuses on a company’s revenues and expenses during a
particular period.

The cash flow statement measures how well a company generates cash to pay its debt
obligations, fund its operating expenses, and fund investments.

7. Why is it necessary to compute the following financial ratios (Liquidity, Profitability, Solvency,
Activity )
 The purpose and importance of ratio analysis are to evaluate or analyze
the financial performance of the firm. It reveals how a company is financed, how it uses its
resources, its ability to pay its debts and its ability to generate profit. Ratios provide a glimpse of
a company's position at a particular time, and are most useful when compared across time
periods and when comparing companies in the same industry.
 Liquidity ratios focus on a firm's ability to pay its short-term debt obligations.
 Profitability ratio, these are ratios that measure if a business' activities are profitable.
 Solvency ratio is a key metric used to measure an enterprise's ability to meet its debt
obligations and is used often by prospective business lenders. The solvency
ratio indicates whether a company's cash flow is sufficient to meet its short-and long-
term liabilities.
 Activity Ratios is defined as a set of financial ratios that measures how effectively a
business uses its operating assets and convert them into sales or cash. Activity
ratios help in evaluating a business's operating efficiency by analyzing fixed assets,
inventories, and accounts receivables.
 8. Which ratios are computed under Liquidity, , Profitability, Solvency, Activity

Activity Ratios

Inventory turnover

Computation: Cost of goods sold/average inventory

Days of inventory on hand (DOH)

Computation: Number of days in period/inventory turnover

Receivables turnover

Computation: Revenue/Average receivables

Interpretation: This measures the efficiency of a company’s credit and collection processes. A relatively
high receivables turnover ratio may indicate that a company has highly efficient credit and collections,
or it could imply that a company’s credit or collection policies are too stringent.

Payables turnover

Computation: Purchases/Average trade payables

Interpretation: This measures how many times per year a company theoretically pays off all its creditors.

Number of days of payables -Computation: Number of days in period/Payables turnover

Working capital turnover -Computation: Revenue/Average working capital

Fixed asset turnover - Computation: Revenue/Average net fixed assets

Interpretation: This measures how efficiently a company generates revenues from its investments in
fixed assets. A higher fixed asset turnover ratio indicates a more efficient use of fixed assets in
generating revenue.

Total asset turnover Computation: Revenue/Average total assets

Interpretation: This measures a company’s overall ability to generate revenues with a given level of
assets. A low asset turnover ratio can be indicative of inefficiency or of the relative capital intensity of
the company.
 Liquidity Ratios

Current ratio -Computation: Current assets/Current liabilities

Interpretation: A higher current ratio indicates a higher level of liquidity or ability to meet short-term
obligations.

Quick ratio -Computation: Cash + Short-term marketable investments + Receivables/Current liabilities

Interpretation: A higher quick ratio indicates a higher level of liquidity or ability to meet short-term
obligations. It is a better indicator of liquidity than the current ratio in instances where inventory is
illiquid.

Solvency Ratios

 Debt-to-assets ratio Computation: Total debt/Total assets

 Debt-to-capital ratio Computation: Total debt/Total debt + Total shareholders’ equity

Interpretation: This measures the percentage of a company’s capital(debt +equity) that is represented
by debt. A higher ratio implies higher financial risk and weaker solvency.

Debt-to-equity ratio Computation: Total debt/Total shareholders’ equity

Interpretation: This measures the amount of debt capital relative to equity capital. A higher ratio implies
higher financial risk and weaker solvency.

Profitability Ratios

 Gross profit margin Computation: Gross profit/Revenue

Interpretation: This indicates the percentage of revenue that is available to cover operating and other
expenses and to generate profit. A higher gross profit margin indicates a combination of higher product
pricing and lower product costs.

 Operating profit margin Computation: Operating income/Revenue

Interpretation: An operating profit margin which increases faster than the gross profit margin can
indicate improvements in controlling operating costs, such as administrative overheads.

 Net profit margin Computation: Net income/Revenue

Interpretation: This measures how much of each dollar collected as revenue translates into profit.

 Return on Assets (ROA) Computation: Net income/Average total assets

 Interpretation: This measures the return earned by a company on its assets.

 Return on Equity (ROE) Computation: Net income/Average total equity

Interpretation: This measures the return earned by a company on its equity capital, including minority
equity, preferred equity, and common equity.

9. What does payback period means?

 The payback period is determined by counting the number of years it takes to recover the funds
invested.

10. How is the payback period computed?

 Payback Period =Initial Investment /Net Cash Flow per Period

B
Payback Period = A +
C
 Where,
A is the last period number with a negative cumulative cash flow;
B is the absolute value (i.e. value without negative sign) of cumulative net cash flow at the end
of the period A; and
C is the total cash inflow during the period following period
BALLA, Cleomae Centeny G.

IV-BSBA FM

1. Why is it necessary to identify the target market before developing a new market under
the market study?
Target market is important because it enables the firm to direct its resources to
those customers with high potential for sales growth, interest in the product and loyalty to the
brand.
2. Identify target market(customer profile/who are the target customers –identify classify and
quantify) and describe the market demographics (customer age, sex income level,
education, occupation, lifestyle, number of children, and the like)
Geographic segmentation targets customers based on a predefined geographic border.
Differences in interests, values, and preferences vary dramatically throughout cities, states,
and countries, so it is important for marketers to recognize these differences and advertise
accordingly.
Demographic segmentation divides a market through variables such as age, gender,
education level, family size, occupation, income, and more. This form of segmentation is a
widely used strategy due to specific products catering to obvious individual needs relating to
at least one demographic element.
Psychographic traits can range from values, personalities, interests, attitudes, conscious and
subconscious motivators, lifestyles, and opinions. To understand your target customers on
this level, methods such as focus groups, surveys, interviews, and case studies can all prove
successful in compiling this type of conclusion.
Attitudes towards your brand, the way they use it, and their knowledge base are all examples

of behavioral segmentation .
3. What is the primary factor to consider in choosing the product? Why?

1. Economic Factor

The need of a product also doesn’t play a role here, but the most important thing is
affordability.

2. Functional Factor

The factor is totally about needs, backed by a logic that what makes sense and also fits in the
best interest of the customer.

3. Marketing Mix Factors

 The consumers consider various things like the characteristics of the product, price charged,
availability of the product at the required location and much more.

4. Personal Factors

The personal factors include age, occupation, lifestyle, social and economic status and the
gender of the consumer. These factors can individually or collectively affect the buying decisions
of the consumers.

5. Psychological Factor

When it comes to the psychological factors there are 4 important things affecting the consumer
buying behaviour, i.e. perception, motivation, learning, beliefs and attitudes.

6. Social Factors

Social factors include reference groups, family, and social status. These factors in turn reflect an
endless and vigorous inflow through which people learn different values of consumption.

4. What is the strategy in place or distribution when launching a new product? How can its
stability be maintained?

Before you begin planning your product launch, you need to understand your audience. Conduct
thorough market research to gain valuable insights into who your target customers are, and
what they want. Now that you have a thorough understanding of your audience, you need to
craft a message that will highlight the most valuable features of your product. The goal of your
product launch promotion strategy should be to educate your target consumers.

5. Why is there a needed distribution strategy in relation to location of the business? How
does it affect customer loyalty

Most companies target their customers far and wide. Because of the rising costs, companies are
trying to expand in various markets so that they have a higher turnover and hence a higher
margin. To reach far and wide, you need the right distribution strategies in place. You cannot
market a product and then not deliver the product to the end customer.

6. What is the most practical or the cheapest promotional strategy? Explain and give example

Social Media Promotion

Social media websites such as Facebook and Google+ offer companies a way to promote products and
services in a more relaxed environment. This is direct marketing at its best. Social networks connect with
a world of potential customers that can view your company from a different perspective.

Product Giveaways and Samples

Product giveaways and allowing potential customers to sample a product are methods used often by
companies to introduce new food and household products. Many of these companies sponsor in-store
promotions, giving away product samples to entice the buying public into trying new products.

7. Describe the best promotional strategy used by the leading car dealers in the Philippines
 Social Media Promotion
The Auto Deal Lead-Management tool offers a variety of integration opportunities to
help both brands and dealers manage their online leads from multiple different
sources.
 Visibility and Transparency with Dealers’ Monthly Promos
Online marketplaces are an ideal location for dealers to market information
on special promotions.
 Quality Customer Experience
Auto Deal makes this easy for marketers and sales managers through a user-
friendly dashboard that can provide a breakdown on the performance of
individual team members.

8. Explain the nature of break even analysis

Break-even analysis is an analytical technique used to study cost-volume-profit relationship and
to determine the point at which revenues and costs agree exactly. Break-even point (BEP)
indicates the level of operations that produce neither profit nor loss.
9. What does break-even point means?
Break-even point is the production level where total revenues equals total expenses. Break-
even point is where a company produces the same amount of revenues as expenses either
during a manufacturing process or an accounting period.
10. How are break-even points computed in terms of units and peso sales?

Break-Even points in unit=Fixed Cost/Sales per unit- variable cost per unit

11. Differentiable variable from fixed cost

Variable costs vary with the amount produced. Fixed costs remain the same, no matter how
much output a company produces. A variable cost is a company's cost that is associated with the
amount of goods or services it produces. A company's variable cost increases and decreases
with the production volume.

12. What does contribution margin mean?

Contribution margin is a product's price minus all associated variable costs, resulting in the
incremental profit earned for each unit sold. The total contribution margin generated by an
entity represents the total earnings available to pay for fixed expenses and to generate a profit.
13. How is contribution margin computed?
Total contribution margin (CM) is calculated by subtracting total variable costs TVC from total
sales S.
CM = S - TVC

14. What does Net present value mean?

 Net present value is the difference between the present value of cash inflows and the present
value of cash outflows over a period of time. NPV is used in capital budgeting and investment
planning to analyze the profitability of a projected investment or project
15. How is the Net present value computed?

Formula for NPV

NPV = (Cash flows)/( 1+r)i

i- Initial Investment

Cash flows= Cash flows in the time period

r = Discount rate

i = time period

16. What are the decision rules under the Net present Value method?
According to the net present value theory, investing in something that has a net present value
greater than zero should logically increase a company's earnings. In the case of an investor, the
investment should increase the shareholder's wealth. Companies may also participate in
projects with neutral NPV when they communicate goodwill or ongoing investments to
shareholders.
17. Why is it necessary for the proponent to perform Sensitivity analysis for proposed business
project?
Sensitivity analysis is an important method for predicting the outcome of a decision if a
situation turns out to be different compared to the key predictions. It helps in assessing the
riskiness of a strategy. Helps in identifying how dependent the output is on a particular input
value