Financial Aspect

Introduction

Financial study quantifies and expresses in peso terms, the results of the

other aspect like marketing, technical, management and the other aspects. This

study is done to determine and evaluate the project’s capital requirements,

possible sources of financing including the terms and conditions, forecast of

operating revenue, costs and expenses and the effect of inflation on the financial

situation and results of operations.

The basic projected financial statements that are usually included in the

financial study are the statement of financial position, statement of

comprehensive income, and the statement of cash flows. Inclusion of these

statements in the financial study assists in the evaluation of the results of

financial projections as to profitability, liquidity and solvency of the project and

its ability to withstand difficulties.

According to Valix (2007), “Statement of Financial performance shows the

income of the entity for a given period of time. The performance of the entity is

primarily measured in terms of the level of income earned by the entity through

the effective and efficient utilization of resources.” The projected income

statement as presented shows the forecasted income, expenses, gains, losses

and net income or loss recognized during the period.

A statement of Financial Position is defined further by Valix “is a formal

statement showing the financial position of an entity as of a particular date.” The

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projected balance sheet presents three elements of financial position, namely

assets, liabilities, and equity.

The statement of cash flows is a component of financial statement

summarizing the operating, investing, and financing activities of an entity. It

provides information about the cash receipt and cash payments of an entity

during a period.

The following shows the financing requirements. It includes source of

funds, projected pre-operating comprehensive income, statement of financial

position and cash flow.

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Financing Requirement

A. Sources of Funds

Eats Pinoy will have 48.62:51.38 debt to equity financing which is broken

down as follows:

Structure Amount Percentage

Debt 26,500,000.00 48.62%

Equity 28,000,000.00 51.38%

Total 54,500,000.00 100%

As agreed by the proponents, the proposed business will operate as Stock

Corporation having an authorized number of shares to issue 2 million wherein

the incorporators will subscribed and pay the amount of 4million each. The

business will also acquire an interest bearing loan amounting to 27.5 million to

fund its expenditures which will pay an interest of 2.25% per annum (based on

the average inflation rate as of January 2020). The loan will be payable in equal

annual instalments within 10 years. Payment is due every end of December

starting 2021.
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B. Projected Pre-operating Statement of Comprehensive Income

Shop ‘n Go-most Wanted

Projected Pre-operating Comprehensive Income
For the period ended December 31, 2013
Sales -
Less: CGS -
Gross Profit -
Delivery Income -
Interest Income -
Total Revenue -

Less: Operating Expense

Salaries and Wages -
Fringe Benefit -
Advertising 35,000
Depreciation -
Supplies -
Utilities 583,250
Taxes and Licenses -
Organizational Cost 204,205
Repairs and maintenance -
Interest expense 1,033,500
Total Expense 1,855,955
Net income (loss) before tax (1,855,955)
Less: Income Tax (30%) -
Net income after tax (1,855,955)
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C. Projected Pre-operating Statement of Financial Position

Eats Pinoy
Projected Pre-Operating of Financial Position
As of February 2020

Assets
Current
Cash and cash equivalent 423,997
Prepaid insurance 100,000
Supplies 2,270
Inventories 17,389,000
Total current asset 17,915,267
Non current
Land 16,687,890
Building 17,250,000
Furniture and Fixture 33,088
Equipment and machineries 757,800
Total noncurrent asset 34,728,778
Total asset 52,644,045
Liabilities and equity
Liabilities:
Current liabilities
Pag-ibig -
SSS/ PhilHealth Premium -
Noncurrent liabilities 26,500,000
Stock holders equity
Share capital 28,000,000
Accumulated profits (1,855,955)
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Total Liabilities and Equity 52,644,045

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D. Projected Pre-operating Statement of Cash Flow

Eats Pinoy
Projected Pre-Operating of Cash Flow
As of December 31, 2013
Operating cash flow

Operating cash inflows:

Revenue -
Interest income -
Total operating cash inflow -
Operating cash outflow:
Organizational expense 204,205
Taxes and licences -
Prepaid insurance 100,000
Purchases of supplies 2,270
Advertising expenses 35,000
Utilities expenses 583,250
Payment of Interest 1,033,500
Inventories 17,389,000
Others -
Repairs and maintenance -
Fringe benefit -
Bank charges -
Payment of salaries -
SSS, Philhealth remittance -
Withholding tax remittance -
Income tax payment -
Total operating cash outflow 19,347,225
Net operating cash flow (19,347,225)
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Investing cash flow

Investing cash inflow:
Investing cash outflow:
Land 16,687,890
Building 17,250,000
Furniture and fixture 33,088
Equipment and machineries 757,800
Total investing cash outflow 34,728,778
Net investing cash flow (34,728,778)
Financing cash flow
Financing cash inflow:
Equity 28,000,000
Debt 26,500,000
Financing cash outflow:
Payment of principal -
Dividend Paid -
Net financing cash flow 54,500,000
Net cash flow 423,997
Add: cash beginning -
Cash balance, end 423,997

E. Summary of Pre-operating Expenditures

Shareholder's Equity    
Equity   28,000,000
Debt   26,500,000
    54,500,000
Current Asset    
Inventories 17,389,000  
Supplies 2,270  
Insurance 100,000  
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Total Current Asset 17,491,270  

Non Current Asset    
Land 16,687,890  
Building 17,250,000  
Equipments and Machineries 757,800  
Furniture and Fixtures 33,088  
Total Non Current Asset 34,728,778  
Expenses    
Utilities 583,250  
Organizational Cost 204,205  
Interest Expense 1,072,500  
Advertisement 35,000  
  1,855,955  
Total Expenditure   54,076,003
Cash and Cash Equivalent   423,997

Major Assumptions

Major assumptions are necessary to formulate projections based on the

financial aspects of a future business. These assumptions will serve as a guide in

determining estimates and projections of future expenses and revenues of the

projects. The estimated amounts that will be presented in the financial aspect

will be rounded off to the nearest peso.

However the application of the approximation requires outmost care and

professional judgement because it needs to be realistic, consistent and workable

throughout the analysis to show the near accurate projections.

A. Current asset

1. Cash
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A checking deposit account will be maintained at Banco de

Oro (BDO) for the deposit of all daily cash receipt at the end of the

month and use imprest system. A petty cash fund account will also

be set to Php 20,000 so that any greater than 500 peso

disbursement will be made to check issuance. It is assumed that

the total amount of petty cash allotted will be disbursed every year.

2. Unused supplies

The ending balance of unused supplies will be equal to 20%

of the sum of the beginning balance of office supplies and all

purchases made during the current year. On the other hand 80 %

will be expenses.

3. Inventories

Inventories will be bought from the supplies with lowest bid

for the price. The company will have an authorized supplier but can

still buy from others if it is out of stock or with lesser cost. The

company will be purchasing if the ending inventory is 20%.

Noncurrent assets

1. Building

The assumption is that will be depreciated over its estimated

useful life of 50 years using the strait line method. Meanwhile the
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building will be built by a construction firm with an estimated cost

of 5,500,000.

2. Equipment and machineries

The equipment and machineries to be used together with

the estimated useful life are presented bellow

Straight line method will also be used for the depreciation. 10% of

the cost will be the basis for the salvage value.

The assets are as follows:

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Table 5.1. Summary of Equipment and Machineries

Machineries &
Equipments
Items Useful life Total cost Residual value Depreciation
Electric generator 25 years 68,000 6,800 2,448
Telephone 5 years 1,099.50 109.95 197.91
Air conditioner 25 years 27945 2,794.5 1006.02
Security camera 10 years 990 99 89.1
LCD monitor 5 years 3950 395 711
Computer set 5 years 31600 3160 5,688
Emergency lights 7 years 675 67.5 86.79
Fire extinguisher 7 years 1,900 190 244.29
Fire alarm 7 years 1,974 197.4 253.8
Mop wringer 5 years 1790 179 322.2
Cash register 25 years 156000 15600 5616
Refrigerator 10 years 15876 1587.6 1428.84
Digital messenger 10 years 36000 3600 3240
Motor vehicle 25 years 260000 26000 9360
Point of Sale 25 years 50000 5000 1800
Electronic Billboard 15 years 100000 10000 6000
speakers 5 years 21,000 2,100 1050
Kitchen equipment’s 5 years 100000 10000 5000
napkins 15 days 705 70.5 69.5
Total 879505 44611.5

3. Furniture and Fixtures

Table 5.2 will show the furniture and fixtures to be used with their

estimated useful life. Ten percent of the cost will be used for the

computation of salvage value. The assets are as follows:

Table 5.2. Summary of Furniture and Fixture

A. Furniture &

fixtures
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Useful life Total cost Residual Depreciation

value

Wall clock 5 years 598 59.8 107.64

Trash bin 8 years 600 60 67.5

chairs 10 years 10000 1000 900

tables 10 years 12000 1200 1080

Wall displays 5 years 1000 100 180

Table top accessories 15 years 2300 230 138

Total 26098 2473.14

B. Liabilities

a. Current liabilities

1. SSS, Pagibig and withholding tax

These payables are based on the salaries and wages of the employees.

The SSS, philhealth , and pagibig deducted this month it will be payable the

following month. As regards to the tax payable it will be withheld for the period

of time to be paid every on or before April 15

2. Current portion of long term debt

This is equivalent to the principal to be paid in instalments basis to the bank

for the following year.

b. Noncurrent liabilities
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This will include the portion of the bank loan which is not due within the

current operating year or the succeeding period.

c. stock holders equity

The incorporators will contribute a capital in terms of money amounting to

Php 8,000,000 each. Since there are seven incorporators which will invest, the

amount will total to PHp 56,000,000. The investor will contribute additional

investment after 5 years of the operation to evaluate whether the proposed

business profitable but there will be no capital withdrawal for the 1st 5 year of

operation. The business will also have an authorized capital stock equivalent to 2

million shares having a 100 par value.

As part of the policy, the investor will be given 20% cash dividend based

on the net income every year

C. revenues

The proponents assume that the sales will increase by according to the

projected demand of the following years and the following years, the estimated

spending by 25%. It is estimate that 3 customers per day will avail of the

delivery and demand will increase by 60% in the next year as known to the

public. Delivery will be computed by the no. Of customers a year multiplied the

minimum purchase and delivery cost set by the company.

Other revenues would include interest income that will be computed based on

the cash in bank balance last year multiplied by the interest rate of Banco de Oro
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(BDO) for deposit amounting to 4,000,000 and above. The interest rate

amounted to .875%.

D. Operating expenses

a. 13th month pay

This incentive will be given as a fringe benefit to employees every end of

the year. The 13th month pay will be equivalent to the monthly salaries of the3

employees. However, the 13th month pay will not be equal to the monthly salary

of the employee if they entered at the middle of the year, the computation will

be based on the total accumulated income for the whole year and will be divided

by 12 months. That would be basis of the fringe benefit that will expense.

b. supplies expense

It is assumed that 80 % of all the supplies (sum of the beginning supplies

and all current year purchases) will be expense every year while 20% will be the

ending inventory.

c. interest expense

For the computation of the interest expense, it is assumed that the

inflation rate will be used. The inflation rate used was 3.9% which was based on

the average inflation rate computed as of January 2012.

d. repairs and maintenance expense

Repairs and maintenance expenses will be incurred to prolong the life of

the building and to ensure the full capacity of the property plant and equipment.

As a company policy, there would be no cost to be incurred during the 1 st year of

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operation gradually increased by .086% in the succeeding years based on the

book value of the building. The percentage was computed based on the average

inflation rate of 3.9% divide by the estimated useful life of the building which is

50 years.

e. Depreciation expense

Straight line method will be used for computing the depreciation expense

of noncurrent asset and building. In line with this, salvage value will be provide

which is based on 10 % of the historical or acquisition cost of the asset

f. Insurance expense

The basis for computing insurance expense will be the straight line

amortization. The insurance of the building will be applicable for 5 years.

g. Bank charges

It is assumed that the bank charges will cost the business 200 per month

that would include all the charges that is required to be paid at the bank.

h. Income tax expense

The income tax expense to be declared will be based on how much

income will be earned by the proposed business after deducting all the

expenses from the gross profit. The income tax expense to be reported will

be 30% of the total operating income.