Names: ____________________________________ Date submitted:

__________Section code: _______________ Score:__________

Activity No. 3.4

FINANCIAL ASSUMPTIONS

A section on financial assumption has to be included in business plans for starting a

potential enterprise or for those applying for additional capital. This will enable entrepreneurs to
estimate and foresee possible flow of cash and financial condition of the enterprise through a
period of time. Also, lending institutions look at this section in considering their approval for
capital loans. These financial assumptions should give assurance of worth and profitability to
interested parties. The figures should be appealing but at the same time realistic, consistent and
credible.

Objectives
At the end of the activity, the students are expected to:
1. detail sales projections.
2. project cost items for the whole enterprise.
3. identify sources of capital.
4. construct projected financial statements.

Procedure

This is a group activity and will be submitted in the next laboratory meeting.

1. Sales Projections. In Activity Question 1, provide details of estimated annual sales indicated
in the previous activity. Once the production cycle is determined, indicate the expected
volume of production to attain per cycle, price per unit of goods sold and the resulting total
peso sales in Table 3.4.1. The monthly heading in the table can be modified based on the
determined production cycle of the selected enterprise. Below the table are assumptions
made as basis for the figures. Assumptions might include possible changes in volume
produced, changes in price and mortality rate (for poultry/livestock). In Table 3.4.2, provide a
projection of your sales for three years. Make sure to indicate your assumptions. The
projections are for the whole enterprise and not on a per hectare basis.

2. Cost Projections. In Activity Question 2, provide yearly projections of categories of cost items
i.e. Pre-operating expenses, depreciation of fixed assets, production expenses, marketing
expenses and administrative expenses.

Pre-operating expenses are expenditures incurred before the formal operation of the
enterprise excluding purchases of fixed assets. This includes expenses for registering the
business, making the business plan, transportation expenses, attendances to trainings and
initial marketing efforts. Refer to the DTI website (Securing Business Permits and Business
Registrations) for necessary fees and payments for business registration (depending on type
of business). Write the pre-operating expenses in Table 3.4.3.

Depreciation is the decrease in the value of fixed or capital assets through time. In Table
3.4.4, compute for the annual depreciation of the enterprises’ “purchased” fixed assets
enumerated in Activity 3.3, specifically Table 3.3.2. Make a three-year (3) projection of the
total annual depreciation of fixed assets using the Straight-line method. Exclude value of
land.

Production expenses are expenditures incurred in “producing” the product. This is either
direct or indirect expenses. Direct costs include expenses for raw materials and direct labor.
Indirect expenses are those that do not readily become a part of the production process like
depreciation of production assets, salary of managers, taxes, repairs and maintenance and
utility bills. Payment for regular farm managers can be placed in the administrative expense.
Recall entries of Activity 3.3 particularly Table 3.3.3 and 3.3.4 and classify the items into
direct and indirect production expenses. Make cost projections for three (3) years and note
the corresponding assumptions (changes in price and quantity purchased). Write this in
Table 3.4.5.

Marketing expenses start from produce reparation, packaging, transportation, marketing

 materials, labor and all other expenses incurred until the product reaches the hand of the
first line buyer. Payment for regular marketing managers can be placed in the administrative
expense. Refer to concepts of Agricultural Marketing in AgEcon 26 and lecture note in
AgEcon 27. In Table 3.4.6, write your marketing expense projections for three (3) years. Note
for assumptions in the projection (changes in price and quantity purchased).

Administrative expenses refer to facilitating activities performed in the enterprise such as

payments for offices clerks and personnel, office supply, materials and utility bills. Payment
for production, marketing and financial managers can be placed in this section. This is very
evident if the enterprise has a formal administration office. Write the entries on administrative
expense in Table 3.4.7. Note for assumptions in the projection.

3. Sources of Capital. In Activity Question 3- Table 3.4.8, summarize the cost projections in the
previous tables for Year 1. Determine the source of funds in financing each cost entry either
from owner’s personal capital called Equity or from outside sources called Debt, e.g. banks,
friends, relatives, angel investors, banks and other lending/credit institutions. For debts,
indicate credit terms such as estimated year of payment and interest charged. In Table 3.4.9,
make a projection of debt repayments for three (3) years. Principal refers to the amount of
borrowed capital. Interest is the peso value of charged interest for the period. Total Payment
is the sum of portion of the principal paid and interest paid for the period. Outstanding
balance is the difference of the Principal debt and Total Payment for the period.

4. Projected Financial Statements. Using the tables generated in Activity Questions 1, 2, and 3, fill-in
the tables in Activity Question 4. Projected Income Statement in Table 3.4.10, Projected Cash Flow
Statement in Table 3.4.11, and Projected Balance in Table 3.4.12.

Grading criteria
This activity will be graded by the following criteria and points:
Criteria Point allotment Actual points
earned

Sales Projection 10

Pre-Operating Expense 10

Fixed Asset and Depreciation Schedule 10

Production Expense 10

Marketing Expense 10

Administrative Expense 10

Sources of Capital 10

Projected Income Statement 10

Projected Cash Flow Statement 10

Projected Balance Sheet 10

Total 100 points

Note: Faculty-in-charge to create rubric for score range from 1 to 10. Table entries vary per
enterprise commodity.
Activity Questions

1. Sales Projections.

Table 3.4.1 Projected sales of the enterprise per month/cycle.

PROJECTED SALES PER CYCLE
 Month

Item n F Ma Ap Ma Ju Ju Au Sep Oc No Dec TOTA

e r r Ja n l g t v
b y e y t L

Volum
e

Unit
Price

Total
Peso
Sales

Assumptions:

Table 3.4.2 Projected annual sales of the enterprise.

Item Year 1 Year 2 Year 3

Volume

Unit Price

Total Peso Sales

Assumptions:
1. All sold items are paid fully in cash. No credit payment.
2. Cost Projections
a. Pre-operating Expense

Table 3.4.3 Pre-operating expenses of the enterprise.

Items Amount

Total pre-operating expenses

Use extra sheets if necessary

b. Fixed Asset and Depreciation Schedule

Table 3.4.4 Annual depreciation of fixed assets
Fixed Asset Total Life Annual Depreciation
Cost(Qt Charges
y x P)
Year 1
 TOTAL

Use extra sheets if necessary

c. Production Expense

Table 3.4.5 Production expenses of the enterprise.

Production Items Yearly Total Cost Projection (Quantity x
Price)

Year 1 Year 2 Year 3

Direct Costs

Indirect Costs
 TOTAL PRODUCTION EXPENSE

Use extra sheets if necessary

Assumptions:

d. Marketing Expense

Table 3.4.6 Marketing expenses of the enterprise.

Marketing Items Yearly Total Cost Projection (Quantity x
Price)

Year 1 Year 2 Year 3

TOTAL MARKETING EXPENSE

Use extra sheets if necessary

Assumptions:

e. Administrative Expense
Table 3.4.7 Administrative expenses of the enterprise.
Administrative Items Yearly Total Cost Projection (Quantity x
Price)

Year 1 Year 2 Year 3

TOTAL ADMINISTRATIVE EXPENSE

Assumptions:

3. Sources of Capital

Table 3.4.8 Sources of funds for the enterprise.

Item To Equity Debt
Expense (PhP)
Principal Interest Estimated
per Year of
Annum (%) Repayment

Pre-Operating
Expense

Fixed Investments
(excluding
depreciation)

Production Expense
(excluding
depreciation)
 Marketing Expense
(excluding
depreciation)

Administrative
Expense
(excluding
depreciation)

TOTAL

Table 3.4.9 Financing charges of debts.

Year Principal Interest Total Outstanding
(PhP) (PhP) Payment Balance

Year 1

Year 2

Year 3

4. Projected Financial Statements

Table 3.4.10

Projected Income Statement

______________________________
For the period Year 1 to Year 3
Items Pre Year 1 Year 2 Year 3
Operation

Revenue

Sale from farm

products

Sale of capital assets

Total revenue

Expenses

Pre-operating expense

Production expense
(excluding
depreciation)

Marketing expense
(excluding
depreciation)
 Administrative
expense (excluding
depreciation)

Financial expense

Depreciation of fixed
assets

Total expenses

Net Income

Table 3.4.11

Projected Cash Flow Statement

__________________________

For the period Year 1 to Year 3

Items Pre Year 1 Year 2 Year 3
Operation

Cash Inflow

Beginning cash
balance

Loan proceeds

Owner’s equity

Cash sales

ADD: Collection from

receivables

Total cash inflow

Cash Outflow

Pre-operating
expenses
 Purchase of fixed
capital

Production expense
(excluding
depreciation)

Marketing expense
(excluding
depreciation)

Administrative
expense (excluding
depreciation)

Financial expense

Total cash outflow

Net Cash Flow

Table 3.4.12

Projected Balance Sheet

_________________________
For the period Year 1 to Year 3
Items Pre Year 1 Year 2 Year 3
Operation

Assets

Current assets

Cash

Account receivable

Total current assets

Non-current assets

Fixed assets less

depreciation

Total non-current
assets

TOTAL ASSETS

Liabilities

Current liabilities

Current portion of
loans payable

Interest payable

Total current liabilities

Non-current liabilities
 Remaining long-term
loans

Total non-current
liabilities

Total Liabilities

Owner’s Equity

Retained earnings

Total Owner’s Equity

TOTAL LIABILITIES &

OWNER’S EQUITY