BUSINESS PLAN

BUSINESS NAME: SARAH BEAUTY SHOP AND COSMETICS

TELEPHONE: 0712203478

BUSINESS LOGO:

PRESENTER: SERAH NGINA MUSEMBI

INDEX NO:2070011019

COURSE: DIPLOMA IN INFORMATION COMMUNICATION TECHNOLOGY

COURSE CODE: 2920

PRESENTED TO: KENYA NATIONAL EXAMINATION COUNCIL

SERIES: NOVEMBER 2018

SUPERVISOR: MADAM DOLPHIN

INSTITUTION: THIKA TECHNICAL TRAINING INSTITUTE

 DECLARATION
I declare that this plan is my own work and has never been presented to any examination body or
for an award of any certificate

NAME: SERAH NGINA

SIGNATURE…………………………………………………..

DATE……………………………………………………………

LECTURER: MADAM DOLPHINE

SIGNATURE………………………………………………….

DATE……………………………………………………………..

i
 DEDICATION
I dedicate this project to God Almighty who has been my strong pillar, source of my inspiration,
understanding and knowledge. He has been the source of my strength throughout the writing of
this plan and made it possible for me. Also dedicate to my parents who have made sure I have all
it needs to make this plan possible.

ii
 ACKNOWLEDGEMENT
I would like to express my special thanks of gratitude to my lecturer madam Dolphine who has
given me the opportunity to do this business plan; she also guided me in all steps of this writing.

iii
 TABLE OF CONTENT

Table of Contents
DECLARATION..........................................................................................................................................i
DEDICATION............................................................................................................................................ii
ACKNOWLEDGEMENT..........................................................................................................................iii
TABLE OF CONTENT..............................................................................................................................iv
EXECUTIVE SUMMARY........................................................................................................................vii
1.0 BUSINESS DESCRIPTION................................................................................................................vii
CHAPTER 1..............................................................................................................................................1
1.1BUSINESS NAME................................................................................................................................1
1.2 BUSINESS LOCATION AND ADDRESS...........................................................................................1
1.3 OWNERS PROFILE.............................................................................................................................2
1.4 FORM OF OWNERSHIP......................................................................................................................2
1.5 TYPE OF OWNERSHIP.......................................................................................................................2
1.6 PRODUCT OR SERVICES..................................................................................................................2
1.7 INDUSTRY...........................................................................................................................................3
1.8 ENTRY AND GROWTH STRATEGY................................................................................................3
1.9 GOALS OF THE BUSINESS...............................................................................................................3
1.10 JUSTIFICATION................................................................................................................................3
CHAPTER 2..............................................................................................................................................4
2.1 CUSTOMERS.......................................................................................................................................4
2.2 MARKET SHARE................................................................................................................................4
2.3 COMPETITION....................................................................................................................................5
2.4 PROMOTION AND ADVERTISING STRATEGY.............................................................................5
2.5 PRICE STRATEGY..............................................................................................................................5
2.6 SALES TACTICS.................................................................................................................................5
2.7 DISTRIBUTION STRATEGY..............................................................................................................6
CHAPTER 3..............................................................................................................................................7
3.0 ORGANIZATION AND MANAGEMENT PLAN...............................................................................7
3.1 ORGANIZATION STRUCTURE.........................................................................................................7

iv
3.2 BUSINESS MANAGER.......................................................................................................................7
3.3 KEY MANAGEMENT PERSONNEL.................................................................................................8
3.4 OTHER PERSONNEL..........................................................................................................................8
3.5 RECRUITMENT, TRAINING AND PROMOTIONS..........................................................................9
3.51 RECRUITMENT.................................................................................................................................9
3.5.2 TRAINING.........................................................................................................................................9
3.5.3 PROMOTIONS..................................................................................................................................9
3.6 REMUNERATION AND INCENTIVES..............................................................................................9
3.6.1 REMUNERATION............................................................................................................................9
3.6.2 INCENTIVES.....................................................................................................................................9
3.7 LICENCES, PERMIT AND BY LAWS.............................................................................................10
3.7.1 LICENCES......................................................................................................................................10
3.7.2 BY LAWS........................................................................................................................................10
3.8 SUPPORT SERVICES........................................................................................................................10
3.8.1 INSURANCE...................................................................................................................................10
3.8.2 BANKING SERVICES....................................................................................................................10
CHAPTER 4............................................................................................................................................11
4.0 PRODUCTION AND OPERATION PLAN.......................................................................................11
4.1 PRODUCT FACILITIES AND EQUIPMENT...................................................................................11
4.2 PRODUCTION STRATEGY..............................................................................................................11
4.3 PRODUCT DESIGN AND DEVELOPMENT...................................................................................12
4.4 PRODUCTION PROCESS.................................................................................................................12
4.5 REGULATION AFFECTING OPERATION.....................................................................................13
CHAPTER 5............................................................................................................................................14
5.0 FINANCIAL PLAN............................................................................................................................14
5.1 PRE-OPERATION EXPENSES.........................................................................................................14
5.2 WORKING CAPITAL ESTIMATES.................................................................................................15
5.3 PROJECTED CASH FLOW...............................................................................................................18
5.4PROFORMA INCOME STATEMENT...............................................................................................19
5.5 PROFORMA BALANCE SHEET......................................................................................................20
5.6 BREAK EVEN POINT.......................................................................................................................22
5.7 PROFITABILITY RATIO..................................................................................................................25

v
5.8 DESIRED FINANCING.....................................................................................................................27
5.9 CAPITALISATION............................................................................................................................27

vi
 EXECUTIVE SUMMARY

1.0 BUSINESS DESCRIPTION

The proposed business is centered in beauty industry. The business name is SARAH BEAUTY
SHOP AND COSMETICS; the name assures that it will provide SARAH BEAUTY SHOP AND
COSMETICS to the customers. It is located in Murang’a county, Gatanga constituency in kisii
town. It is a sole proprietorship business dealing with provision of beauty services at the arm of
the profit.

2.0 MARKETING PLAN

The owner of the business target all aged clients in need of hair and beauty services. The
business targets an average of 400 clients per month. Due to stiff competition, in the area of
business the business will offer more services at fair prices. The owner of the business will also
use word of mouth to encourage their clients to visit the place next time.

3.0 ORGANIZATION AND MANGEMENT PLAN

The manager of the business will be carrying out management activities. The business will also
have other employees eg accountant for recruitment of employees basing on their skills, salaries
and wages will be on monthly basis through cash. The business will apply legal licenses and
permits from concerned government offices, support services like banking, insurance, telephone
and electricity will also be required.

4.0 PRODUCTION PLAN

Purchased items maintenance cost will be incurred as per the month it happened. Regulations
affecting the business will lead to renewing of licenses and permits annually and adhere to
factory and laws governing quantity of products and services.

5.0 FINANCIAL PLANS

The pre-operational cost had a total of sh. 667791 and the estimated working capital 1615000
for year 1. In other cash flow total sales were 1450000 and net surplus of 1002200 similar to
accumulated cash. In proforma income statement cost of sales year 1 525150, year 2 675630,

vii
year 3 796050. 308832 year 2, 342820 year 3, 2675630 year 3, 796050. In proforma balance
sheet, fixed assets year 1 308832 year 2 342820 year 3 392250 and total liability of the 3 years
are 650000, 2693000 and 730000. In breakeven point the total variable cost is 125000 and
contribution of 3650000. Bank loan of 1200000 and return on equity is 1690.

viii
 CHAPTER 1
BUSINESS DESCRIPTION

INTRODUCTION

This chapter consist of;

Business name

Business location and address

Owner’s profile

Type of business

Product or services

Industry

Entry and growth strategy

Goals of the business

Justification

1.1BUSINESS NAME
SARAH BEAUTY SHOP AND COSMETICS is the name of the business. The name is used as
business strategy.

1.2 BUSINESS LOCATION AND ADDRESS

SARAH BEAUTY SHOP AND COSMETICS will be located in kisii town along lamu
superhighway just next to equity bank wing house room number four ground floor. The chosen
location is seen suitable since it is in a town area and also being near a major road where
everyone can allocate us hence attracting more clients. It’s also located near big hotel Hilton and
parklands which can be a source of clients too. With this will request the hotels management to

1
allow us provide beauty services to their commission at a commission. Also around the area
there is availability of the railway, airport, telephone, water and electricity. The email address
will be joysarah25@gmail.com, telephone no. 0725406020 for easier communication.

1.3 OWNERS PROFILE

SARAH BEAUTY SHOP AND COSMETICS is a sole proprietor business started by Sarah
Ngina 30 years old. She resides in murang’a county, gatanga constituency and currently pursue a
diploma in Information Communication Technology. The owner of the business expectation to
individual contributions is high.

1.4 FORM OF OWNERSHIP

The owner operates as a sole proprietor. This type of ownership is suitable to her business as she
will be able to make the profit of her expectation.

1.5 TYPE OF OWNERSHIP

The business will deal with primary production.

1.6 PRODUCT OR SERVICES

The business will offer these services;

weaving

Manicure

Hair styling

Hair cuts

Skin care

Pedicure

2
The owner will also be selling hair and beauty products both wholesale and retail to help add out
year profit. SARAH BEAUTY SHOP AND COSMETICS will never emphasize our clients need
being our major concern.

1.7 INDUSTRY
SARAH BEAUTY SHOP AND COSMETICS is a firm under the beauty industry where there is
stiff competition. The owner of the business will make sure of doing extra more services in a
unique customer attending to enable her attract and maintain clients.

1.8 ENTRY AND GROWTH STRATEGY

ENTRY

The main motive in entry in this type of business is owner’s interest and her passion in hair
dressing in this industry. Also to analyze the strength and weakness in competition and future
survival.

GROWTH STRATEGY

Through well maintaining of clients we have, word of mouth and taking our clients’ needs will
be able to grow at a reasonable rate.

1.9 GOALS OF THE BUSINESS

Not to be job seekers but job creators in the community. To create a service based business
whose goal is to go beyond our clients expectations. To increase the number of clients at least
15% per year.

1.10 JUSTIFICATION
By carrying out research and survey, proves that the location the owner has selected will provide
average high income due to high demand of products and services. By providing her services
well good through word of mouth and through this be able to win more clients.

3
 CHAPTER 2
2.0 MARKETING PLAN

INTRODUCTION

This chapter consists of:

Customers

Market share

Competition

Promotion and advertisement strategy

Price strategy

Sales tactics

Distribution strategy

2.1 CUSTOMERS
SARAH BEAUTY SHOP AND COSMETICS will target clients who are in need of our services
most especially who come to our job, outside job eg those employed during lunch hour and after
job. The owner main concern being her customers need will not be looking at her clients’ level of
income but as they are willing and able for her services will be there readily available. The
owner will also work with nearby hotels eg Hilton and parklands where she will request for a
contact to be hair service providers to their clients.

2.2 MARKET SHARE

Through it being hard to estimate accurately the market size due to in availability of accurate
data, the owner of the business target at least four hundred people per month.

4
2.3 COMPETITION
SARAH BEAUTY SHOP AND COSMETICS want to set itself apart from other beauty salons
that only offer two or three types of services. The owner of the business having realized this
being a big frustration to clients has decided to offer more services at one point. Hair done styled
and nail polished at one point. She doesn’t intend to compete with high salons which are not
affordable to low and middle class people. She wishes to offer a fair ground for those clients who
can’t those high luxurious salons. Installation of CCTVs and employment of a qualified security
guard which will help her assure her clients safe security.

2.4 PROMOTION AND ADVERTISING STRATEGY

The owner of the business advertises will be very simple by satisfying her clients as her best
marketing tool. When her clients go to the public their hair well made they send more clients to
her and also being active in various radio stations eg citizen and also in Facebook. Also through
word of mouth will still be able to gain more clients.

Will also offer discount to clients who have been referred to her and also clients who come along
with their friends for her services.

There will also be a box where any client who brings clients is written in a paper and by the end
of every three clients is written in a paper and by the end of every three month the client who
would have brought many clients would be awarded with gifts.

2.5 PRICE STRATEGY

The owner of the business will price her services and products at affordable fair prices. Beauty
therapy services will be fair to all her clients.

2.6 SALES TACTICS

The owner of the business will offer a short distance transport of beauty products as an after sale
to those who buy goods in wholesale.

The owner of the business will also be offering outside services eg in hotels and also to her
acquired clients who may not be able to come to her job place.

5
2.7 DISTRIBUTION STRATEGY
In the beauty area the owner of the business will offer short distance transport services to those
clients who buy goods in wholesale.

6
 CHAPTER 3

3.0 ORGANIZATION AND MANAGEMENT PLAN

INTRODUCTION

This chapter consists of:

Organization structure

Business manager

Key management personnel

Recruitment training and promotions

Remuneration and incentive

Licenses, permits and by laws

Support services.

3.1 ORGANIZATION STRUCTURE

Manager (owner)

Hair and beauty services sales persons

Cleaners

3.2 BUSINESS MANAGER

NAME: SERAH NGINA

NATIONALITY: KENYAN

GENDER: FEMALE

ORGANIZATION

7
Serah Ngina being the owner of the business is the manager, having a diploma in information
communication technology and also work experience for five years in shop business. She also
loves dealing with people and has driven ambition and discipline to manage the business and its
employees

3.3 KEY MANAGEMENT PERSONNEL

Her duties and responsibilities will be:

Assign responsibilities and duties

Fund the business

Planning and organizing activities that are firm

Recruitment and employment

3.4 OTHER PERSONNEL

Hair and beauty services providers

Qualifications

Two years’ experience in this job

Should be at the age of majority

Duties and responsibilities

Market our job to the public through word of mouth

Provide hair and beauty services

Casual workers

Qualifications

Do their way in best way possible

Duties and responsibilities

8
Cleaning activities

3.5 RECRUITMENT, TRAINING AND PROMOTIONS

3.51 RECRUITMENT
The owner of the business will add up employees for efficient running of the business. She will
also advertise job vacancies through posters and other gatherings in the community to recruit
qualified personnel.

3.5.2 TRAINING
The owner of the business will be training her employees ie increasing skills and knowledge to
make them fast efficient and more productive for a better yield.

3.5.3 PROMOTIONS
The owner of the business will take her employee out to learn research new styles and also visit
other beauty shop to add on the skills and knowledge.

3.6 REMUNERATION AND INCENTIVES

3.6.1 REMUNERATION
The owner of the business will reward those clients who came along with other clients. She will
also reward the best employee who rendered his services heartedly having respect and well
behaving at end of every year.

3.6.2 INCENTIVES
The owner of the business will pay extra money to the most performed employee. She will also
provide house allowances, medical and hardship.

9
3.7 LICENCES, PERMIT AND BY LAWS

3.7.1 LICENCES
The owner of the business will acquire health license and also business permit s which are issued
at county government office.

3.7.2 BY LAWS
The owners business will adhere to legislation by laws and regulation governing the industry.

3.8 SUPPORT SERVICES

3.8.1 INSURANCE
The business will acquire an insurance cover against theft and fire. The insurance cover will be
offered by Angel insurance.

3.8.2 BANKING SERVICES

The business will open an account with equity bank savings account with Barclays bank.
Telephone communication will be offered by safaricom and telcom to enhance communication
between the owner and her clients.

10
 CHAPTER 4

4.0 PRODUCTION AND OPERATION PLAN

INTRODUCTION
This chapter consists of:
Product facilities and equipment
Production strategy
Product design and development
Production process
Regulation affecting operation.

4.1 PRODUCT FACILITIES AND EQUIPMENT

The business will purchase equipments required on cash basis.
Item Quantity Unit price TOTAL
Chair 8 400 3200
Computer 1 500 500
Therapy machine 1 600 600
Broad dry 3 1500 4500
Tables 4 1000 4000
Drier 2 3000 6000
Telephone 1 1000 1000
Totals 19800

4.2 PRODUCTION STRATEGY

The owner of the business will be ordering her stock maximum twice per month. The order will
be done to various companies that offer the product they require. This will enable them enjoy
free delivery hence avoiding transport cost.

She will also employ 5 employees, three majoring on service provision while the two sell the
beauty products. The management will ensure that they employ qualified personnel for efficient
work.

11
They will also learn other expenses including

Monthly production expenses

Labour 8000 310000

Rent 20000 50000
Water 10000 24000
Electricity 15000 40000
Totals 144000

4.3 PRODUCT DESIGN AND DEVELOPMENT

The owners business will be challenged in using latest technology due to a lot of research so as
to have modern means of offering services and coming up with more hairstyles and weaving
designs.

4.4 PRODUCTION PROCESS

The following steps will be taken to ensure that effective services are offered to clients

STEP 1

Client is warmly welcomed

STEP 2

Client is kindly asked the services she needs

STEP 3

After services client should pay at the counter area

STEP 4

Thank the client for coming and ask her to come next time.

12
4.5 REGULATION AFFECTING OPERATION
The owner’s business will need to make applications to several necessary licenses legislation and
permit providers. This will enable efficient operation. The service providers must adhere to
legislation and regulation governing the industry.
Also will adhere to all compliance required where applicable under the laws of government of
Kenya and respective county government.

CHAPTER 5

5.0 FINANCIAL PLAN

INTRODUCTION
This chapter consists of:
Pre-operational cost

13
 Working capital estimates
Projected cash flow statement
Pro-forma income statement
Pro-forma balance sheet
Breakeven point
Profitability ration
Desired financing
Capitalization

5.1 PRE-OPERATION EXPENSES

This is the cost one incurs before beginning the business. This includes cost of purchasing of
machinery
Item Amount
Tools, equipment and machinery 543291
Furniture and fittings 37000
Stock 33500
Advertisement 15000
Rent 12000
License and permit 27000
Total 667791

5.2 WORKING CAPITAL ESTIMATES

WC= CA-CL

Assets
Description Ksh

14
Cash at hand 650000
Cash at bank 385000
Debtors 90000
Movable assets 74000
Fixed assets 416000
Totals 667000

Liabilities
Description Ksh
Bank loan 320000
Creditors 70000
Loans 157000
Total 547000

Year 2
Assets
Descriptions Ksh
Cash at bank 670000
Cash at hand 400000
Debtors 110000
Movable assets 80000
Fixed assets 45000
Total 1710000

Liabilities
Descriptions Ksh
Bank loans 230000

15
Unaitas 110500
Creditors 70000
Total 410500

WC=1710000-410500=1299500

Year 3
Assets
Description ksh
Cash at bank 740000
Cash at hand 605000
Debtors 320000
Movable assets 96000
Fxed assets 470000
Total 22310000

Liabilities
Descriptions Ksh
Bank loan 250000
Creditors 120000
Unaitas loan 80500
Total 450500

16
5.3 PROJECTED CASH FLOW
CASH JAN FEB MAR AP MA JUN JUL AU SEP OCT NO DEC
FLOW CH R Y E Y G T V
Sales 180 170 1900 175 170 1800 2000 190 195 1800 180 1450
000 000 00 000 000 00 00 000 000 00 000 000
Disc 250 200 1800 200 100 2400 3000 260 200 2600 300 2800
00 00 00 00 00 0 0 00 00 0 00 0
Debtors 920 800 7000 950 680 9500 1200 900 880 9000 800 9000
00 00 0 00 00 0 000 00 00 0 00 0
Total 297 270 2780 290 248 2840 3590 308 303 2860 290 1568
000 00 00 000 000 000 00 000 000 000 000 00
Cash
outflow
Salaries 480 480 4800 480 480 4800 4800 480 480 4800 500 5600
00 00 0 00 00 0 0 00 00 0 00 0
Purchas 150 700 1450 190 150 4500 1750 190 163 1780 179 4500
es 000 0 000 000 000 0 00 000 000 00 000 00
Telepho 600 500 3600 800 900 5000 7000 600 400 7000 450 8900
ne 0 0 0 0 0 0 0
Pay to 250 340 2800 200 340 3200 2300 450 455 4300 300 1900
creditor 00 00 0 00 00 0 00 000 00 00 0
s
Electrici 900 900 9000 900 900 9000 8900 459 890 6700 560 9600
ty 0 0 0 0 0 0 0
Water 670 450 6000 450 340 5600 2000 750 900 8900 790 7200

17
 0 0 0 0 0 0 0
Adverti 500 500 5000 500 500 5000 5000 500 500 5000 500 5000
se 0 0 0 0 0 0 0
Taxes 300 320 3500 300 320 3000 2400 230 240 2400 300 3200
0 0 0 0 0 0 0
Interest 240 250 2700 240 240 2400 2300 240 240 2400 240 2900
0 0 0 0 0 0 0
Insuran 400 400 4000 400 400 4000 4000 400 400 4000 400 4000
ce 0 0 0 0 0 0 0
Total 210 269 2585 271 212 2890 3541 300 295 2705 269 5658
400 80 50 550 050 50 50 050 750 00 600 000
Surplus 860 102 1950 184 369 4950 4850 795 723 1550 204 1002
00 00 0 50 50 0 0 0 000 200
Accumu 866 968 1163 134 177 1756 1805 188 195 2112 232 1239
lated 00 00 00 7 0 00 00 450 700 000 600 800
cash

5.4PROFORMA INCOME STATEMENT

Description Year 1 Year 2 Year 3
Sales 740000 1900000 2010000
Discount received 172000 159000 164000
Collection from 2175000 2331000 2476000
debtors
Cost of sales 1424000
Gross profit 75100 907000 1052000
Expenses
Electricity 14500 14000 115000
Licence fee 27000 27000 27500
Rent 44000 44000 44000
Telephone 23600 23600 23600
Rent

18
Salaries 42000 47000 54000
Total expenses 151000 156000 167500
Net profit before tax 583500 750700 884500
10% of tax 58350 75070 88450
Net profit after tax 525150 675630 796050

5.5 PROFORMA BALANCE SHEET

Description Year1 Year 2 Year3
Fixed assets
Production fee 1544560 156600 165000
Vehicle 76000 97000 120000
Computer 60000 80000 100000
Furniture 48000 45000 50000
Total 338560 378600 435000
Less dept
Production 5% 7728 7830 12000
Vehicle 10% 7600 9700 20000
Computer 20% 12000 16000 25000
Furniture 5% 2400 2250 42750
Total 29728 35780
Total fixed assets 308832 392250

Current assets 342820

Cash at hand 480000 500000 657200

Cash at bank 300000 320000 520000

Debtors 80000 90000 340000

Total 860000 910000 100000

Total assets 1268832 1252820 960000

Current liabilities 1352250

Bank overdraft 400000 430000 450000

Creditors 250000 263000 280000

Total 650000 693000 730000

19
Long term
liability
Bank loan 100000 110000 120000

Owners equity 220000 205000 230000

Total 320000 315000 350000

Total liabilities 970000 1108000 1080000

5.6 BREAK EVEN POINT

YEAR 1 YEAR 2 YEAR 3
ITEMS AMOUNT AMOUNT AMOUNT
Variable expenses cost
Purchases 279000 383000 591000
Electricity bill 12000 12000 12000
Advertisement 2800 1100 17000
Stationery 1200 1000 1300
Telephone bill 15200 17500 11700
Total variable expenses 310200 414600 61700
Fixed expenses
Salaries 15300 15300 15300
Rent 49000 48000 48000
Loan payment 52000 48000 25040
License 7000 4200 4200
Total fixed cost 123300 115500 92540

20
CALCULATION FOR BREAK EVEN POINT FOR YEAR 1
Gross margin sales= annual sales-variable cost
946000-310200=635800
Gross margin= gross margin x 100
Annual sales

635800 x 100= 67.2%

946000

Break even point for year 1

= total fixed cost

Gross margin

= 123300

0.672

=183.482

Calculation for break even point for year 2

Gross margin sales = annual sales- variable cost

975900 – 414600 = 516300

Gross margin = gross margin x 100

Annual sales

5613900 x 100=57.5%

21
975900

=total fixed cost

Gross margin %

=115500

0.575

=200869.6

Calculation for break even point for year 3

Annual sales=1117000

Gross margin sales=annual sales-variable cost

=1117000-617700=499300

Gross margin =gross margin x 100

Annual sales

499300 x 100
1117000

Break even point for year 1

= total fixed cost =92540 = 207024.60

Gross margin% 0.447
SUMSARAH OF BREAK EVEN POINT

ITEMS YEAR 1 YEAR 2 YEAR 3

BEP 183482 200869 207024
Sales 946000 975900 117000
Profit 1129482 1176769 1324024

22
5.7 PROFITABILITY RATIO
GROSS PROFIT MARGIN

GROSS MARGIN FOR YEAR 1

Gross profit margin =gross profit x 100=425700 x 100=45%

Sales 946000
Gross profit for year 2
Gross profit margin=gross profit x 100=383900 x 100=39.3%
sales 975900

gross profit for year 3

gross profit margin= gross profit x 100 = 591000 x 100 = 52.9%

sales 1117000

SUM OF GROSS PROFIT MARGIN FOR 3 YEARS

ITEM YEAR 1 YEAR 2 YEAR 3

Gross profit margin 45% 39.3% 52.9%

RETURN ON EQUITY

RETURN ON EQUITY FOR YEAR 1

ROE =net profit after tax x 100 = 508810x100 =30.1%

Owners’ equity 167000

RETURN ON EQUITY FOR YEAR 2

ROE = net profit after tax x 100 = 541110x100 = 38.1%
23
Owners equity 145800

RETURN ON EQUITY FOR YEAR 3

ROE = net profit after tax x 100 = 691016 x 100 = 60.7%

Owners equity 113700

SUMSARAH FOR RETURN ON EQUITY FOR THE 3 YEARS

ITEM YEAR 1 YEAR 2 YEAR 3
Return on equity 30.1% 38% 61%

RETURN ON INVESTMENT FOR YEAR 1

Return on investment for year 1
ROI = net profit after tax x 100 = 508810 x100 =120
Total investment 425700

Return on investment for year 2

ROI = net profit after tax x 100 = 54110 x 100 = 141%
Total investment 383000

Return on investment for year 3

ROI = net profit after tax x 100 = 691016 x 100 = 117%
Total investment 591000

SUM SHOWING RETURN ON INVESTMENT FOR 3 YEARS

ITEMS YEAR 1 YEAR 2 YEAR 3
ROI 120% 141% 117%

24
5.8 DESIRED FINANCING
NO ITEM AMOUNT
1 Pre-operational cost 290000
2 Working capital 193350
3 Fixed assets 22300
Total investment 244650

5.9 CAPITALISATION

NO ITEM AMOUNT REMARKS

1. Owners salary 70,000 Personal savings
( cash at bank)
2. Coop bank loan 120,000 To be payable in 36
months
3. Relatives 54650
( contributions)
Total 244650

Total proposed capitalization =kshs 244650

NET PROFIT RATIO

Net profit =net profit /sales*100

583500/1740000*100=34%

LIQUIDITY RATIO

Current assets/liabilities 1268832/650000*100=2.1

Hence assets are more than liabilities

RETURN ON EQUITY RATIO

Net profit before tax/total capital*100

25
563500/365000*100=1690

26