Chapter 5-Financial Plan

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 48
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES
Chapter V
FINANCIAL PLAN
Finance helps management gain a clear understanding of the company's
current financial position, particularly whether the business is profitable or not.
Companies of all sizes benefit from thorough financial planning to guide the
business steadily down the path to future growth.
Total Project Cost
The total project cost will identify the necessary capital required by the
partners in order to start-up the business. A precise demonstration of the
projected cost will lead to the proper recognition of the needed assets for the
ample establishment of the enterprise.
Table 5.1
Spudz Food Products
Total Project Cost
Fixed Asset Requirements

Factory Machineries and Equipment 14,249.00
Factory Furniture and Fixtures 9,600.00
Office Equipment 11,624.00
Office Furniture and Fixtures 1,200.00
Leasehold Improvements 6,121.50
Subtotal 42,794.50
Working Capital for 2 month/s
Direct materials 51,238.33
Direct labor 8,640.00
Factory overhead 31,736.80
Indirect materials 17,392.00
Rent-factory 5,000.00
Utilities - factory 2,518.80
Factory Tools and Supplies 3,639.00
Repairs and Maintenance 3,187.00
Subtotal 91,615.13
Administrative expenses (2 months)

Salaries expense 31,831.60
Rent-office 5,000.00
Utilities – office 1,679.20
Office Tools and Supplies 977.00
Subtotal 39,487.80
Pre-Operating Expenses
Business Fees and Licenses 6,080.00
Marketing & Selling Expenses 6,600.00
Subtotal 12,680.00
Total Cash Requirements 186,577.43
Cash for Contingencies 1,422.57
Total Project Cost PHP 188,000.00
Capitalization
Investments of each partner will be on cash basis to finance the total
project cost. It is a primary requirement of the partners to have sufficient amount
of capital to provide the necessities for the smooth flow of operation of the firm.
Table 5.2
Partner’s Contribution
Name of Partners Contribution
Atinon, Christian M. PHP 37,600.00
Carpio, Jhaarny 37,600.00
Monsanto, Rosemarie M. 37,600.00
Roquero, Angela Faye 37,600.00
Sy, Angelica Millen D. 37,600.00
Total PHP 188,000.00

Financial Assumptions
The following assumptions were used by the proponents in the computation
and analysis of the financial capacity and stability of the firm;
1. Initial capital Requirement
The business has an initial capital of Php 188,000.00 contributed by
the partners in equal amount. Presentation of this capital is based on
the projected costs for the first 2 months of the business.
2. Working days
There will be five (5) working days in a week and an average of
twenty (20) days at eight (8) working hours a day for two
administrative officers. Meanwhile, there will be three (3) working
days in a week and an average of twelve (12) days at eight (8)
working hours a day for production manager and two workers. The
total operational days for the whole year of 2022 is two hundred
forty-nine (249) days for two administrative officers while there is one
hundred fifty-three for production manager and the workers.
3. Accounting Reporting Period
A calendar year of business starting on January 2022 would be
implemented.
4. Production Capacity
The firm can produce 9,600 tubs of mojos on the first year of its
operation. Production capacity is expected to increase by 3%
starting from the beginning year and to the succeeding years.
5. Purchases
a. The volume of purchases (direct and indirect materials) would
increase proportionately with the increase in the quantity produced.
b. 15% of the direct raw materials purchases will be on account to the
suppliers while the indirect material purchases is on cash basis.
c. Purchases of direct materials will be done on weekly basis inclusive
of freight charge.
d. There will be no trade discounts given to the retailers.
e. The cost of purchases is assumed to increase by 2.98% based on
average inflation rate.
6. Sales
The initial selling price per piece of the product is Php 100.00 for end
consumers inclusive of mark-up. Increase in the selling price is
brought by many factors such as production increase.
7. Accounts Receivable and Allowance for Doubtful Accounts:

a. Accounts receivable will be 15% of sales
b. 70% of total accounts receivable will be collected during the period.
c. Allowance for doubtful accounts will be 5% of total receivables in the
current period.
8. Inventory
a. There will be no work-in process inventory.
b. The ending inventory is 5% of the expected total goods available for
sale of the current year.
9. Labor and Employee Benefits
a. Labor cost will increase annually based on inflation rate.
b. There will be two workers for direct labor.
c. Labor rate for the worker is Php 2,160.00 per month.
d. Total annual benefits will include the salary, SSS, PAG-IBIG,
PhilHealth and 13th Month pay.
10. Utilities
a. Utilities expense would be assumed to be allocated to factory and
office at 60:40 respectively.
b. Utilities Expense will increase by 2.98% annually based on inflation
rate.
11. Rent Expenses
a. Rent expense is assumed to be Php 5,000.00 per month and

assumed to be fixed throughout the year and the following years.
b. Rent expense would be allocated to factory and office according to
the land occupies (50% for production, 50% for office)
12. Maintenance Expenses
a. Maintenance Expense will increase 2.98% annually based on
inflation rate.
b. Maintenance expense would be allocated solely to production since
all maintenance supplies are to be used in the production area.
13. Property, Plant and Equipment
a. Acquisition of equipment’s, furniture and fixtures is on cash basis. No
additional machinery would be purchased for the first five years of
operation.
b. The firm will use the straight-line method of depreciation.
c. All property, plant and equipment will have 10% salvage value and 5
years useful life which is equivalent to its lease term, except to
stainless kitchen table with useful life of 10 years.
14. Leasehold Improvement
a. The firm will not be having major improvement on the plant location.
Only minor development of the location is needed and it will be
expensed as incurred.
b. Leasehold improvement be depreciated for five years equivalent to
its lease term.
15. Marketing Expense

Marketing expense from 2022-2026 will be constant.
16. Partnership equity:
a. The partners are allowed to have withdrawal every year which will
not exceed 60% of their share in net income.
b. Remaining profits are shared equally by the partners in accordance
with the agreement of the partners as stipulated in the contract.
17. Growth Rate:
Growth rate of 2.99% is computed by the proponents from the
increase in individual population in Census given by the City
Population Management Office (CPMO) of Calamba.
18. BMBE
There will be no income tax payable in accordance to R.A 9178
Barangay Micro-Business Enterprise.
19. Inflation Rate
Inflation rate as peg at an average rate of 2.98% from years 2016-
2021 provided, by the Philippine Statistics Authority (PSA).
Financial Statement
Financial statements and their accompanying notes provide useful
information regarding the financial position of a company, the success of its
operations, the policies and strategies of management as well as insight to its
future performance. It is a set of records which is both valuable and critical to the
decision-making process employed by investors, creditors, management,
employees, regulators, suppliers, and other stakeholders.
A company’s financial statement can be used as an analytical tool, as a
management report card, as an early warning signal, as a basis for prediction,
and as a measure of accountability. Financial statements also provide an
economic history that is comprehensive and quantitative, and it can be used to
gauge company performance. For these reasons, financial statements are
indispensable for developing an accurate profile of ongoing performance and
prospects of company. The financial statements are the means by which
information accumulated and processed in financial accounting is periodically
communicated to the users. Without accounting the information embedded in the
financial statements, users may not be able to arrive at sound economic
decisions. Financial statements are a structured financial representation of the
financial position and the transaction undertaken by an enterprise. They are the
responsibility of the company’s management. This means that the format by
which the financial statements are presented, the information presented therein
and the fairness of their representation depend on the assessment by the
enterprise management.
Statement of Financial Performance
The statement of income of earnings, now termed in the business world
as “Statement of Comprehensive Income” is a representation of the results of an
enterprise’s business operations. It specifically reflects and evaluates the

revenues earned and expenses incurred in a given accounting period.
Since the late 1960s or early 1970s, the income statement has been
widely perceived by its various users as the single most significant financial
statement of an enterprise. Creditors refer to the income statement for insights
into the ability of the debtor to generate future cash flows from its operations
needed to repay its obligation. Investors consider the past income of the
enterprise as a useful predictor of future earnings and the best indicator of future
dividend and future market price behavior. Management on the other hand, uses
the income statement as a measure or gauge of the effectiveness and efficiency
in using up the enterprise’s resources. The profit that is provided in the income
statement is the lifeblood of any enterprise organized to earn a satisfactory return
on the capital invested by its owners.
The income statement is the formal statement showing the performance
of the enterprise for a given period of time. It summarizes the revenues earned
and expenses incurred for the period of time. Information about the performance
of an enterprise, in particular in its profitability, is required in order to assess
potential changes in the economic that is likely to control in the future. It is also
useful in predicting the capacity of the enterprise to generate cash flows from its
existing resource base.

SPUDZ FOOD PRODUCTS

Projected Income Statement
For the Years Ended December 2022-2026
Particulars Note 2022 2023 2024 2025 2026
Net Sales 1 912,000.00 980,400.00 1,026,732.00 1,071,928.00 1,128,636.00

Less: Cost of Goods Sold 2 494,203.22 542,485.13 569,466.52 596,418.19 624,441.30
Gross Profit 417,796.78 437,914.87 457,265.48 475,509.81 504,194.70
Operating Expenses
Marketing & Selling Expenses 3 6,600.00 6,600.00 6,600.00 6,600.00 6,600.00
Administrative Expenses 4 240,430.12 249,389.92 256,686.61 265,269.70 278,642.73
Bad Debt Expense 6,840.00 7,353.00 7,700.49 8,039.46 8,464.77
Percentage Tax Expense 5 27,360.00 36,252.00 38,154.96 39,858.33 41,898.54
Total Operating Expenses 281,230.12 299,594.92 309,142.06 319,767.49 335,606.04
NET INCOME 136,566.66 138,319.95 148,123.43 155,742.32 168,588.66
Statement of Cash Flow
The statement of cash flows provides information about the cash receipts
and cash payments of an entity during a period. It is a formal statement that
classifies cash receipts (inflows) and cash payments (outflows) into operating,
investing, and financing activities. This statement shows the net increase or
decrease in cash during the period and the cash balance at the end of the period.
This also helps project the future net cash flows of the entity. (Ballada, 2018)
SPUDZ FOOD PRODUCTS
Projected Statement of Cash Flows
2022 2023 2024 2025 2026

CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Sale of Goods 870,960.00 977,322.00 1,017,807.06 1,062,541.18 1,118,383.65
Cash Paid for Purchases (261,315.50) (328,620.62) (346,640.13) (365,252.93) (384,644.31)
Cash Paid to Employees (242,829.60) (253,004.87) (261,553.26) (271,425.36) (286,125.79)
Cash Paid for Utilities Expenses (25,188.00) (25,938.60) (26,711.57) (27,507.58) (28,327.30)
Cash Paid for Percentage Tax Expenses (20,520.00) (28,899.00) (30,454.47) (31,818.87) (33,433.77)
Cash Paid for Pre-Operating Expenses (12,680.00) (12,680.00) (12,680.00) (12,680.00) (12,680.00)
Cash Paid for Rental Expenses (60,000.00) (60,000.00) (60,000.00) (60,000.00) (60,000.00)
Cash Paid for Maintenance Expenses (3,187.00) (3,281.97) (3,379.78) (3,480.49) (3,584.21)
Cash Paid for Miscellaneous (108,968.00) (114,836.24) (120,957.53) (127,342.13) (133,999.66)
Net Cash Provided by (Used in) Operating Activities 136,271.90 150,060.70 155,430.31 163,033.83 175,588.60
CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of Equipment (25,873.00) - - - -
Purchase of Furnitures and Fixtures (10,800.00) - - - -
Purchase of Leasehold Improvements (6,121.50) - - - -
Net Cash Provided in Investing Activities (42,794.50)
CASH FLOWS FROM FINANCING ACTIVITIES

Initial Capital Contribution 188,000.00 - - - -
Cash Paid to Partners' Withdrawals (81,939.99) (82,991.97) (88,874.06) (93,445.39) (101,153.20)
Net Cash Provided in Financing Activities 106,060.01 (82,991.97) (88,874.06) (93,445.39) (101,153.20)
Increase (Decrease) in Cash 199,537.41 67,068.73 66,556.26 69,588.44 74,435.40

Cash Beginning Balance - 199,537.41 266,606.14 333,162.39 402,750.83
Cash Ending Balance 199,537.41 266,606.14 333,162.39 402,750.83 477,186.23
Statement of Changes in Partner’s Equity
The statement of changes in equity summarizes the changes that
occurred in partner’s equity. In this, the number of capital and drawing accounts
has made the preparation of this statement of changes in equity all the more
useful for a partnership. Changes in an entity’s equity between the beginning and
the end of the reporting period reflect the increase or decrease in net assets
during the period. (Ballada, 2018)

SPUDZ FOOD PRODUCTS
Projected Statement of Changes in Partner's Equity
2022 2023 2024 2025 2026
Capital balance beginning 37,600.00 48,525.33 59,590.93 71,440.80 83,900.19

Add: Share in Net Income 27,313.33 27,663.99 29,624.69 31,148.46 33,717.73
Less: Withdrawal (16,388.00) (16,598.39) (17,774.81) (18,689.08) (20,230.64)
ATINON, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28

Less: Withdrawal (16,388.00) (16,598.39) (17,774.81) (18,689.08) (20,230.64)
CARPIO, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28

Less: Withdrawal (16,388.00) (16,598.39) (17,774.81) (18,689.08) (20,230.64)
MONSANTO, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28

Less: Withdrawal (16,388.00) (16,598.39) (17,774.81) (18,689.08) (20,230.64)
ROQUERO, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28

Less: Withdrawal (16,388.00) (16,598.39) (17,774.81) (18,689.08) (20,230.64)
SY, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28
Statement of Financial Position
The statement of financial position is a statement that shows the financial
position or condition of an entity by listing the assets, liabilities, and owner’s
equity as at a specific date. Users of financial statements analyze the financial
position to evaluate entity’s liquidity, its financial flexibility, and its ability to
generate profits, and its solvency. (Ballada, 2018)

SPUDZ FOOD PRODUCTS
Projected Statement of Financial Position
2022 2023 2024 2025 2026

ASSETS
Current Assets
Cash 199,537.41 266,606.14 333,162.39 402,750.83 477,186.23
Accounts Receivable 41,040.00 37,278.00 38,849.94 40,536.27 42,749.16
Less: Allowance for Doubtful Accounts (6,840.00) (7,353.00) (7,700.49) (8,039.46) (8,464.77)
Inventory 26,010.70 28,551.85 29,971.92 31,390.43 32,865.33
Total Current Assets 259,748.10 325,082.98 394,283.77 466,638.07 544,335.95
Non-Current Assets
Property, Plant, and Equipment 36,673.00 36,673.00 36,673.00 36,673.00 36,673.00
Less: Accumulated Depreciation (5,737.14) (11,474.28) (17,211.42) (22,948.56) (28,685.70)
30,935.86 25,198.72 19,461.58 13,724.44 7,987.30
Leasehold Improvements 6,121.50 6,121.50 6,121.50 6,121.50 6,121.50
Less: Accumulated Depreciation (1,224.30) (2,448.60) (3,672.90) (4,897.20) (6,121.50)
4,897.20 3,672.90 2,448.60 1,224.30 -
Total Non-Current Assets 35,833.06 28,871.62 21,910.18 14,948.74 7,987.30
TOTAL ASSETS 295,581.16 353,954.60 416,193.95 481,586.81 552,323.25
LIABILITIES AND PARTNER'S EQUITY

Current Liabilities
Accounts Payable 46,114.50 48,646.96 51,289.44 54,046.41 56,922.08
Percentage Tax Payable 6,840.00 7,353.00 7,700.49 8,039.46 8,464.77
Total Current Liabilities 52,954.50 55,999.96 58,989.93 62,085.87 65,386.85
Partner's Equity
Atinon, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28
Carpio, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28
Monsanto, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28
Roquero, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28
Sy, Capital 48,525.33 59,590.93 71,440.80 83,900.19 97,387.28
Total Partner's Equity 242,626.66 297,954.64 357,204.01 419,500.94 486,936.40
TOTAL LIABILITIES AND EQUITY 295,581.16 353,954.60 416,193.95 481,586.81 552,323.25

Financial Analysis
Financial statements analysis is a systematic approach which involves
careful selection of data from financial statements for the primary purpose of
forecasting the financial health of an enterprise. It examines trends in key
financial data as well as analyses of key financial ratios. It is noteworthy to
mention that an important aspect of this analysis is the comparison of actual
financial conditions with expected financial conditions. As an end result, it is a
tool which provides stakeholders such as managers, investors, and creditors
valuable financial information necessary for critical decision-making.
Financial Ratios
A common method to evaluate financial statements is through the use and
analysis of ratios. Financial ratios tend to provide an analysis of a firm’s (a)
liquidity, (b) acitivity, (c) solvency, (d) profitability, and (e) capital budgeting
analysis.
A. Liquidity Ratio
Liquidity ratios measure the firm’s ability to meet its maturing short-term
obligations.
Current Ratio
Current ratio measures the number of times current assets could cover
current liabilities. Higher ratio indicates good liquidity position.
Current Assets
Current Ratio =
Current Liabilities
Table 5.3
Current Ratio
Year Current Assets Current Liabilities Current Ratio
2022 259,748.10 52,954.50 4.91
2023 325,082.98 55,999.96 5.81
2024 394,283.77 58,989.93 6.68
2025 466,638.07 62,085.87 7.52
2026 544,335.95 65,386.85 8.32
Table 5.3 shows the increasing trend of the current ratio. The current ratio of
Spudz Food Products primarily indicates a good measure of the firm’s liquidity to
meet short-term obligations.
Acid Test Ratio or Quick Ratio
This ratio includes the quick assets that can be easily converted into cash. It
measures the liquidity position in more conservative way. When acid test ratio is
more than one means that the company has the capability to pay its debt without
selling its inventory.
Quick Assets
Acid Test Ratio =
Current Liabilities
Table 5.4
Acid Test Ratio
Year Quick Assets Current Liabilities Current Ratio
2022 233,737.41 52,954.50 4.41
2023 296,531.14 55,999.96 5.30
2024 364,311.84 58,989.93 6.18
2025 435,247.64 62,085.87 7.01
2026 511,470.62 65,386.85 7.82
The table 5.4 shows that ratios starting from 2022, point out that the business
has ability to pay its debt through the use of its quick assets. Since quick asset is
only composed of cash and accounts receivable, there is more than five to ten
available to pay a peso of liability.
Working Capital
Net working capital manifests the amount invested by the business to operate
its normal business activities. Higher net working capital indicates better
performance of the company.
Acid Test Ratio = Current Assets – Current Liabilities
Table 5.5
Working Capital
Year Current Assets Current Liabilities Working Capital
2022 259,748.10 52,954.50 206,793.60
2023 325,082.98 55,999.96 269,083.02
2024 394,283.77 58,989.93 335,293.83
2025 466,638.07 62,085.87 404,552.20
2026 544,335.95 65,386.85 478,949.10
The table 5.5 shows how faster the growth in the current assets are than the
growth in the current liabilities. It still shows an increasing trend, an indication of
high level of debt-paying. Moreover, the enterprise has been profitable in five
consecutive years causing cash to increase. Accordingly, increase in cash is
increase in current asset. This may lead to appreciation in working capital.
B. Activity Ratio
Activities ratios measure the relative efficiency of a firm based on its use of its
assets and leverage. In other words, it is a toll which determines if a firm is
generating revenues and cash form its resources.

Inventory Turnover
Inventory turnover is the ratio of cost of goods sold by a business to its
average inventory during a given accounting period. It is an activity ratio
measuring the number of times period, a business sells and replaces its entire
batch of inventory again.
Cost of Goods Sold

Inventory Turnover =
Average Turnover
Table 5.6
Inventory Turnover
Year Cost of Goods Sold Average Turnover Inventory Turnover
2022 494,203.22 26,010.70 19.00
2023 542,485.13 27,281.27 19.88
2024 569,466.52 29,261.89 19.46
2025 596,418.19 30,681.18 19.44
2026 624,441.30 32,127.88 19.44
Table 5.6 shows that the inventory turnover is 19 times in 2022, which means
that there is an efficient management for the enterprise.
Average Sales Period
Average sales period or average days’ supply in inventory is a financial
measure of company’s performance that gives investors man idea of how long it
takes a company to turn its inventory. This measure is one part of cash
conversion cycle, which represents the process of turning raw materials into
cash.
Days∈Year
Inventory Turnover =
Inventory Turnover
Table 5.7
Average Sales Period
Year Days in Year Inventory Turnover Days
2022 360 19.00 18.95
2023 360 19.88 18.10
2024 360 19.46 18.50
2025 360 19.44 18.52
2026 360 19.44 18.52
Table 5.7 shows how fast or how long it takes for the inventory to sell. As
shown above, days to sell is also which means that the sales somehow become
faster. It will take almost 19 days to sell inventories. This implies that fewer funds
are tied up in inventory; cash circulates faster and in effect more income for the
business. Spudz Food Products’ average sale or conversion period decreased
from 18 days in 2023.
Accounts Receivable Turnover
Accounts Receivable Turnover ratio is an accounting measure used to
quantify a company's effectiveness in collecting its accounts receivable, or the
money owed by customers or clients. This ratio measures how well a company
uses and manages the credit it extends to customers and how quickly that short-
term debt is collected or is paid. A firm that is efficient at collecting on its
payments due will have a higher accounts receivable turnover ratio.
Net Sales
Accounts Receivable Turnover =
Average Accounts Receivable
Table 5.8
Accounts Receivable Turnover
Average Accounts
Year Net Sales AR Turnover
Receivable
2022 912,000 26,010.70 35.06
2023 980,400 27,281.27 35.94
2024 1,026,732 29,261.89 35.09
2025 1,071,928 30,681.18 34.94
2026 1,128,636 32,127.88 35.13
Table 5.8 shows the efficiency of collection of the enterprise. The increasing
AR turnover signifies that the company is going better at collecting the accounts
receivable.
Average Collection Period
Average Collection Period is the amount of time it takes for a business to
receive payments owed by its clients in terms of account receivables. Companies
calculate the average collection period to make sure they have enough cash on
hand to meet their financial obligations.
Days∈Year
Collection Period =
Average Accounts Receivable
Table 5.9
Collection Period
Year Days in Year AR Turnover Days
2022 360 35.06 10.27
2023 360 35.94 10.02
2024 360 35.09 10.26
2025 360 34.94 10.30
2026 360 35.13 10.25
Table 5.10 shows how fast or how long it takes for the account receivables to
be collected. It will take 10 days to collect the payment from the retailers.
C. Solvency Ratio
Solvency or Leverage ratios measure the firm’s ability to meet its long-term
obligations as they become due.
Debt Ratio
Debt ratio measures the percentage of funds provided by creditors to
purchase assets. The lower the debt ratio is better for the company, increasing
rate of debt ratio implies that the company is aggressive which focus on being
profitable. In contrast, decreasing rate or debt ratio shows that the firm is
conservative which focuses on liquidity.
Total Liabilities
Debt Ratio =
Total Assets
Table 5.10
Debt Ratio
Year Total Liabilities Total Assets Debt Ratio
2022 52,954.50 295,581.16 17.92%
2023 55,999.96 353,954.60 15.82%
2024 58,989.93 416,193.95 14.17%
2025 62,085.87 481,586.81 12.89%
2026 65,386.85 552,323.25 11.84%
Table 5.10 displays the decreasing debt ratio for five years of operation of the
business. The lower the ratio, the lower the risk, is better for the enterprise. This
also implies that the business is conservative when it comes to its strategy which
focused on being liquid.

Equity Ratio
The equity ratio refers to a financial ratio indicative of the relative proportion of
equity applied to finance the assets of a company. This equity ratio is a variant of
the debt-to-equity-ratio and is also, sometimes, referred as net worth to total
assets ratio. The equity ratio communicates the shareholder’s funds to total
assets in addition to indicating the long-term or prospective solvency position of
the business.
'
Total Partner s Equity
Equity Ratio =
Total Assets
Table 5.11
Equity Ratio
Year Total Partner's Equity Total Assets Equity Ratio
2022 242,626.66 295,581.16 82.08%
2023 297,954.64 353,954.60 84.18%
2024 357,204.01 416,193.95 85.83%
2025 419,500.94 481,586.81 87.11%
2026 486,936.40 552,323.25 88.16%
Table 5.11 shows that the Equity ratio increased from 85% to almost 91%. It
indicates that the companies increase their equity ratios which are typically
favorable for companies. This is usually the case for several reasons. Higher
investment levels by the owner shows potential investor that the company is
worth investing in since so many investors are willing to finance the company.
Debt to Equity Ratio
The debt-to-equity ratio measures the use of debt to finance operations. It
provides a measure of the relative amount of resources contributed by the
creditors and owners. The lower the debt-to-equity ratio is better for the firm.
Total Liabilities
Debt to Equity Ratio =
Total Partne r ' s Equity
Table 5.12
Debt to Equity Ratio
Year Total Liabilities Total Partner's Equity Debt to Equity Ratio
2022 52,954.50 242,626.66 21.83%
2023 55,999.96 297,954.64 18.79%
2024 58,989.93 357,204.01 16.51%
2025 62,085.87 419,500.94 14.80%
2026 65,386.85 486,936.40 13.43%
Table 5.12 measures riskiness of the firms’ capital structure in terms of
relationship between the funds supplied by creditors and investors. The table
shows decreasing trend on debt-to-equity ratio which is favorable to the
company.
D. Profitability Ratios
Profitability ratios show the profitability of the operations of the company. This
measures the overall performance of the firm and its efficiency in managing
assets, liabilities, and equity. Analysts carefully look into profitability ratios to
calculate and evaluate returns to owners of business.
Rate of Return in Equity
Return on equity or return in capital is the ratio of net income of a business
during a year to its owner’s equity during that year. It is a measure of profitability
of owner’s investments. It shows net income as percentage of owner’s equity.
Net Income
Rate of Return in Equity =
Average Partne r ' s Equity
Table 5.13
Rate of Return in Equity
Average Partner's Rate of Return on
Year Net Income
Equity Equity
2022 136,566.66 242,626.66 56.29%
2023 138,319.95 270,290.65 51.17%
2024 148,123.43 327,579.33 45.22%
2025 155,742.32 388,352.48 40.10%
2026 168,588.66 453,218.67 37.20%
Table 5.13 shows a decreasing return on equity from 2022 to 2026. This
indicates a pleasant reflection of generating return to partners. This shows that
the enterprise is efficient in generating income relative to the partner’s
investment.
Operating Profit
A measure of a company’s earning power from ongoing operations, equal to
earnings before deduction of interest payments and income taxes.
Operating Profit
Operating Profit =
Net Sales
Table 5.14
Operating Profit
Year Operating Profit Net Sales Operating Ratio
2022 130,829.52 912,000.00 14.35%
2023 132,582.81 980,400.00 13.52%
2024 142,386.29 1,026,732.00 13.87%
2025 150,005.18 1,071,928.00 13.99%
2026 162,851.52 1,128,636.00 14.43%
The 5.14 shows the profitability of the operation of the business. Increasing
trend, except in 2023, can be observed within five years. The increases reflect
good management in the operations of the business, from controlling of costs to
be incurred in the operations up to generating income.
Net Profit Margin
Net profit divided by net revenues, often expressed as a percentage. The
number is an indication of how effective a company is at cost control. The higher
the net profit margin is, the more effective the company is at converting revenue
into actual profit. The net profit margin is a good way of generally subject to
similar business conditions. However, the net profit margins are also a good way
to compare companies in different industries in order to gauge which industries
are relatively more profitable. It is also called net margin.
Net Profit
Net Profit Margin =
Net Sales
Table 5.15
Net Profit Margin
Year Net Income Net Sales Net Profit Ratio
2022 136,566.66 912,000.00 14.97%
2023 138,319.95 980,400.00 14.11%
2024 148,123.43 1,026,732.00 14.43%
2025 155,742.32 1,071,928.00 14.53%
2026 168,588.66 1,128,636.00 14.94%
As shown in the table, net profit margin increased every year. The ratios still
project profitability even after considering all revenues and expenses including
interest and non-operating items.
Rate of Return on Assets

Return on assets is the ratio of annual net income to average total assets of a
business during a financial year. It measures efficiency of the business in using
its assets to generate net income.
Net Income
Rate of Return on Assets =
Average Total Assets
Table 5.16
Rate of Return on Assets
Year Net Income Average Total Assets ROA Ratio
2022 136,566.66 295,581.16 46.20%
2023 138,319.95 324,767.88 42.59%
2024 148,123.43 385,074.27 38.47%
2025 155,742.32 448,890.38 34.69%
2026 168,588.66 516,955.03 32.61%
The enterprise’s return on asset conveys that there must be efficiency in
managing assets. It shows decreasing trend, an indication that the assets are
being placed into good use, which is generating profits.
Return on Sales
Return on sales is a financial ratio that calculates how efficiently a company is
at generating profits from its revenue. An increasing ROS is a proof that the
company is getting more efficient in generating profits on its revenue.
Net Income
Return on Sales =
Net Sales
Table 5.17
Return on Sales
Year Net Income Net Sales ROS Ratio
2022 136,566.66 912,000.00 14.97%
2023 138,319.95 980,400.00 14.11%
2024 148,123.43 1,026,732.00 14.43%
2025 155,742.32 1,071,928.00 14.53%
2026 168,588.66 1,128,636.00 14.94%
Table 5.17 shows that there is favorable increase on return on sales every
year. This reflects the income net of all expenses which means that there is a
return of more than 17 cents per peso sales on the first year and consistently
increasing the following years. The higher the ratio, the better for the company.
Cost Volume Profit Analysis (CVP)
The cost-volume-profit analysis, also commonly known as break-even
analysis, looks to determine the break-even point for different sales volumes and
cost structures, which can be useful for managers making short-term economic
decisions. CVP analysis makes several assumptions, including that the sales
price, fixed and variable cost per unit are constant. Running this analysis involves
using several equations for price, cost, and other variables, then plotting them
out on an economic graph.
Contribution Margin
An important measure in break-even analysis is contribution margin, which
can be defined on either a per-unit or a total basis.CM per unit includes
production, selling, and administrative costs. Unit contribution margin is constant
because revenue and variable cost have been defined as being constant per
unit. This will fluctuate in direct proportion to sales volume. Contribution margin
indicates the amount of revenue remaining after all variable costs have been
covered (Agamata 2012).
Contribution Margin = Sales – Total Variable Cost

Table 5.18
Contribution Margin
Year Sales Variable Cost Contribution Margin
2022 912,000.00 488,810.00 423,190.00
2023 980,400.00 513,719.19 466,680.81
2024 1,026,732.00 539,679.21 487,052.79
2025 1,071,928.00 566,732.00 505,196.00
2026 1,128,636.00 594,917.24 533,718.76
Sales – Total Variable Cost

Contribution Margin per unit =
Production∈Units
Table 5.19
Contribution Margin per unit
Year Sales Variable Cost Production in units CM/unit
2022 912,000.00 488,810.00 9600 44.08
2023 980,400.00 513,719.19 9840 47.43
2024 1,026,732.00 539,679.21 10080 48.32
2025 1,071,928.00 566,732.00 10320 48.95
2026 1,128,636.00 594,917.24 10560 50.54
Table 5.19 shows the contribution margin is increasing from 48.08 to 50.54.
Contribution margin of the firm can be considered high enough to cover fixed
costs and to have some profit.
Break Even Point Analysis
A company’s break-even point is the level of activity, in units or peso, at which
total revenues equal total costs. Thus, at BEP, the company incurs neither a
profit nor a loss on operating activities. The BEP is calculated to establish a point
of reference. Knowing BEP, managers are better able to set sales goals that
should result in profits from operations rather than losses (Railborn, 2009).
Break Even Sales Volume
¿
Break Even Sales Volume = Total ¿ Cost Contribution Margin per unit
Table 5.20
Break Even Sales Volume
Year Fixed Cost CM/unit Break Even in Units
2022 262,449.74 44.08 5,953.63
2023 272,857.54 47.43 5,753.22
2024 281,645.39 48.32 5,828.91
2025 291,764.08 48.95 5,960.07
2026 306,718.46 50.54 6,068.64
Table 5.20 will determine the number of units to be sold to reach the break-
even point. Also, it shows how many units must be sold in order to avoid losses,
comparing it with actual sales in units there is really a large gap, therefore
chances of incurring a loss would be remote.
¿
Break Even Peso Sales = Total ¿ Cost Contribution Margin Ratio
Table 5.21
Break Even Peso Sales
Year Fixed Cost CM Ratio Break Even Sales
2022 262,449.74 46% 565,595.04
2023 272,857.54 48% 573,217.35
2024 281,645.39 47% 593,722.77
2025 291,764.08 47% 619,066.83
2026 306,718.46 47% 648,606.57
Break-even peso sales per year are shown in Table 5.21. The sales in peso
should exceed this amount to ensure profit for the firm. The firm must have
operating profit rather than simply cover total fixed costs.
Margin of Safety
When making decision about business opportunities and changes in sales
mix, managers often consider the margin of safety, which is the excess of
budgeted or actual sales over break-even sales. The margin of safety is the
amount that sales can drop before reaching the BEP, and thus, provides a
measure of the amount of cushion against losses (Raiborn, 2009).
Margin of Safety in Peso
Margin of Safety in Peso = Budgeted Sales – Break Even Sales
Table 5.22
Margin of Safety in Peso
Year Budgeted Sales Break Even Sales MS in peso
2022 912,000.00 565,595.04 346,404.96
2023 980,400.00 573,217.35 407,182.65
2024 1,026,732.00 593,722.77 433,009.23
2025 1,071,928.00 619,066.83 452,861.17
2026 1,128,636.00 648,606.57 480,029.43
This indicates that there is a high margin of safety in peso which is good for
the company. The firm does not need to watch over its sales and control costs. A
positive and increasing MOS indicates that the business has slim chances of
incurring a loss because its budgeted sales are by far greater than the MOS
sales.
Margin of Safety in Ratio
Margin of Safety ∈Peso

Margin of Safety in Ratio =
Net Sales
Table 5.23
Margin of Safety in Ratio
Year MS in Peso Net Sales MS Ratio
2022 346,404.96 912,000.00 37.98%
2023 407,182.65 980,400.00 41.53%
2024 433,009.23 1,026,732.00 42.17%
2025 452,861.17 1,071,928.00 42.25%
2026 480,029.43 1,128,636.00 42.53%
An increasing MOS ratio indicates that the business has slim chances of
incurring a loss because its budgeted sales are by far greater than the MOS
sales.
E. Capital Budgeting Analysis
Capital budgeting analysis is used by a firm in evaluating major projects and
investments, such as acquisition of new plants or equipment. This is also viewed
by investors to determine the value of a potential investment project.
Average Annual Cash Flow
The annual cash inflows indicate the total cash amount that the company has
received or collected.
Table 5.24
Annual Cash Flow

Year Net Income Depreciation Expense Annual Cash Flow
2022 136,566.66 5,737.14 142,303.80
2023 138,319.95 5,737.14 144,057.09
2024 148,123.43 5,737.14 153,860.57
2025 155,742.32 5,737.14 161,479.46
2026 168,588.66 5,737.14 174,325.80
As shown in the table, the company has an increasing annual cash inflows
which is indicative of good financial performance. The increasing cash inflows
are sources from its operations since sales is currently the only cash available to
the firm.
Payback Period
Payback period (also known as pay-off an pay-out period), measures the
length of time required to recover the amount of initial investment. It is the time
interval between time of the initial quality and full recovery of the investment
(Cabrera, 2011).
Table 5.25
Payback Period
Cost of Annual Cash Payback
Year Balance
Investment Inflow Period
2022 188,000 142,303.80 45,696.20 1.00
2023 144,057.09 0.32
Total 1.32
Table 5.25 shows the payback period of the cost of investment which is 1.32
or one year, three months and twenty-five days.

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES i
NOTE 1
Net Sales
2022 2023 2024 2025 2026

Net Sales 912,000.00 980,400.00 1,026,732.00 1,071,928.00 1,128,636.00
NOTE 2
COST OF GOODS SOLD
2022 2023 2024 2025 2026

Direct Materials 307,430.00 324,313.08 341,929.62 360,309.41 379,480.52
Direct Labor 51,840.00 53,384.83 54,975.70 56,613.98 58,301.07
Factory Overhead 160,943.92 167,328.38 173,981.28 180,913.31 188,134.61
Indirect Materials 104,352.00 110,082.68 116,062.32 122,301.04 128,808.35
Depreciation Expense -
2,564.82 2,564.82 2,564.82 2,564.82 2,564.82
Equipment
864.00 864.00 864.00 864.00 864.00
Furniture & Fixture
1,224.30 1,224.30 1,224.30 1,224.30 1,224.30
Leasehold Improvements
Tools & Supplies Expense 3,639.00 3,747.44 3,859.12 3,974.12 4,092.55
Maintenance Expense 3,187.00 3,281.97 3,379.78 3,480.49 3,584.21
Rent Expense 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00
Utilities Expense 15,112.80 15,563.16 16,026.94 16,504.55 16,996.38
Total Manufacturing Costs 520,213.92 545,026.29 570,886.59 597,836.70 625,916.20
Add: Finished Goods, beg. - 26,010.70 28,551.85 29,971.92 31,390.43
Total Goods Available for Sale 520,213.92 571,036.98 599,438.44 627,808.62 657,306.63
Less: Finished Goods, ending 26,010.70 28,551.85 29,971.92 31,390.43 32,865.33
Cost of Goods Sold 494,203.22 542,485.13 569,466.52 596,418.19 624,441.30
NOTE 3
Marketing & Selling Expenses
2022 2023 2024 2025 2026

Marketing and Selling
6,600.00 6,600.00 6,600.00 6,600.00 6,600.00
Expenses
Total Marketing & Selling

6,600.00 6,600.00 6,600.00 6,600.00 6,600.00
Expenses
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES ii
NOTE 4
Administrative Expenses
2022 2023 2024 2025 2026
Salaries (Office Workers) 190,989.60 199,620.04 206,577.56 214,811.38 227,824.72

Office Tools and Supplies
Expense 977.00 1,006.11 1,036.10 1,066.97 1,098.77
Business Permit and Licenses
Expense 6,080.00 6,080.00 6,080.00 6,080.00 6,080.00
Depreciation Expense - Office
Equipment 2,092.32 2,092.32 2,092.32 2,092.32 2,092.32
Depreciation Expense - Office
Furniture and Fixture 216.00 216.00 216.00 216.00 216.00
Rent Expense (50% for Office) 30,000.00 30,000.00 30,000.00 30,000.00 30,000.00
Utilities Expense (40% for
Office) 10,075.20 10,375.44 10,684.63 11,003.03 11,330.92
Total Administrative
240,430.12 249,389.92 256,686.61 265,269.70 278,642.73
Expenses
NOTE 5
Percentage Tax Payable

2022 2023 2024 2025 2026
Percentage tax payable, Beg. 6,840.00 7,353.00 7,700.49 8,039.46
Percentage tax payable, due 27,360.00 29,412.00 30,801.96 32,157.84 33,859.08
Total 27,360.00 36,252.00 38,154.96 39,858.33 41,898.54
Less: Percentagage Tax Payable Paid 20,520.00 28,899.00 30,454.47 31,818.87 33,433.77
Percentage Tax Payable, End 6,840.00 7,353.00 7,700.49 8,039.46 8,464.77
Schedule of Variable Cost
Variable Cost
2022 2023 2024 2025 2026
Direct Materials 307,430.00 324,313.08 341,929.62 360,309.41 379,480.52
Indirect Materials 104,352.00 110,082.68 116,062.32 122,301.04 128,808.35
Direct Labor 51,840.00 53,384.83 54,975.70 56,613.98 58,301.07
Utilities 25,188.00 25,938.60 26,711.57 27,507.58 28,327.30
Total Variable Cost 488,810.00 513,719.19 539,679.21 566,732.00 594,917.24
Divided by Annual Production 9600 9840 10080 10320 10560
Total Variable Cost per unit 50.92 52.21 53.54 54.92 56.34
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES iii
Schedule of Fixed Cost
Fixed Cost
2022 2023 2024 2025 2026
Supplies Expense 4,616.00 4,753.56 4,895.21 5,041.09 5,191.31
Salaries 242,829.60 253,004.87 261,553.26 271,425.36 286,125.79
Repairs and Maintenance 3,187.00 3,281.97 3,379.78 3,480.49 3,584.21
Taxes and Licenses 6,080.00 6,080.00 6,080.00 6,080.00 6,080.00
Depreciation Expenses 5,737.14 5,737.14 5,737.14 5,737.14 5,737.14
Total Fixed Cost 262,449.74 272,857.54 281,645.39 291,764.08 306,718.46
Divided by Annual Production 9600 9840 10080 10320 10560
Total Fixed Cost per unit 27.34 27.73 27.94 28.27 29.05
Schedule of Depreciation Expense

Depreciation
Useful Life Salvage Cost of
Unit Expense per
(in years) Value Purchase
Year
Factory Equipment
Chest Freezer 5 1 1,395.00 13,950.00 2,511.00
Plastic Sealer 5 1 29.90 299.00 53.82
14,249.00 2,564.82
Factory Furniture and Fixtures

Stainless Steel Table 10 2 960.00 9,600.00 864.00
9,600.00 864.00
Office Equipment
Printer 5 1 499.50 4,995.00 899.10
Desktop computer 5 1 599.00 5,990.00 1,078.20
Electric Stand Fan 5 1 63.90 639.00 115.02
11,624.00 2,092.32
Office Furniture and Fixtures

Monobloc chair 5 3 120.00 1,200.00 216.00
1,200.00 216.00
Total 36,673.00 5,737.14

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES iv
Schedule of Compensation
Salaries and Wages
2022
DAILY OPERATION MONTHLY ANNUAL 13TH
POSITION
RATE IN DAYS RATE INCOME MONTH
1. General
Manager / 220 249 4,565.00 54,780.00 4,565.00
Bookkeeper
2. Marketing
& Sales 200 249 4,150.00 49,800.00 4,150.00
Officer
3. Production
200 153 2,550.00 30,600.00 2,550.00
Manager
4. Worker 1 180 153 2,295.00 27,540.00 2,295.00
5. Worker 2 180 153 2,295.00 27,540.00 2,295.00
Salaries per Month
2022
JAN FEB MAR APR MAY JUNE JULY AUG SEP OCT NOV DEC
POSITION
(21/13) (18/10) (23/15) (18/10) (21/13) (22/14) (21/13) (22/14) (22/14) (21/13) (20/12) (20/12)
1. GM/BK 4,620 3,960 5,060 3,960 4,620 4,840 4,620 4,840 4,840 4,620 4,400 4,400
2. MO 4,200 3,600 4,600 3,600 4,200 4,400 4,200 4,400 4,400 4,200 4,000 4,000
3. PM 2,600 2,000 3,000 2,000 2,600 2,800 2,600 2,800 2,800 2,600 2,400 2,400
4. W1 2,340 1,800 2,700 1,800 2,340 2,520 2,340 2,520 2,520 2,340 2,160 2,160
5. W2 2,340 1,800 2,700 1,800 2,340 2,520 2,340 2,520 2,520 2,340 2,160 2,160
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES v
Benefits and Incentives
MONTHLY SSS PAG-IBIG TOTAL

POSITION MONTH PHILHEALTH
INCOME ER EE ER EE CONTRIBUTION
GM/BK 4,620.00 392.70 207.90 184.80 92.40 92.40 5,590.20
MO 4,200.00 357.00 189.00 168.00 84.00 84.00 5,082.00
PM JANUARY 2,600.00 221.00 117.00 104.00 52.00 52.00 3,146.00
W1 2,340.00 198.90 105.30 93.60 46.80 46.80 2,831.40
W2 2,340.00 198.90 105.30 93.60 46.80 46.80 2,831.40
GM/BK 3,960.00 336.60 178.20 158.40 79.20 79.20 4,791.60
MO 3,600.00 306.00 162.00 144.00 72.00 72.00 4,356.00
PM FEBRUARY 2,000.00 170.00 90.00 80.00 40.00 40.00 2,420.00
W1 1,800.00 153.00 81.00 72.00 36.00 36.00 2,178.00
W2 1,800.00 153.00 81.00 72.00 36.00 36.00 2,178.00
GM/BK 5,060.00 430.10 227.70 202.40 101.20 101.20 6,122.60
MO 4,600.00 391.00 207.00 184.00 92.00 92.00 5,566.00
PM MARCH 3,000.00 255.00 135.00 120.00 60.00 60.00 3,630.00
W1 2,700.00 229.50 121.50 108.00 54.00 54.00 3,267.00
W2 2,700.00 229.50 121.50 108.00 54.00 54.00 3,267.00
GM/BK 3,960.00 336.60 178.20 158.40 79.20 79.20 4,791.60
MO 3,600.00 306.00 162.00 144.00 72.00 72.00 4,356.00
PM APRIL 2,000.00 170.00 90.00 80.00 40.00 40.00 2,420.00
W1 1,800.00 153.00 81.00 72.00 36.00 36.00 2,178.00
W2 1,800.00 153.00 81.00 72.00 36.00 36.00 2,178.00
GM/BK 4,620.00 392.70 207.90 184.80 92.40 92.40 5,590.20
MO 4,200.00 357.00 189.00 168.00 84.00 84.00 5,082.00
PM MAY 2,600.00 221.00 117.00 104.00 52.00 52.00 3,146.00
W1 2,340.00 198.90 105.30 93.60 46.80 46.80 2,831.40
W2 2,340.00 198.90 105.30 93.60 46.80 46.80 2,831.40
POLYTECHNIC UNIVERSITY OF THE PHILIPPINES vi
GM/BK 4,840.00 411.40 217.80 193.60 96.80 96.80 5,856.40
MO 4,400.00 374.00 198.00 176.00 88.00 88.00 5,324.00
PM JUNE 2,800.00 238.00 126.00 112.00 56.00 56.00 3,388.00
W1 2,520.00 214.20 113.40 100.80 50.40 50.40 3,049.20
W2 2,520.00 214.20 113.40 100.80 50.40 50.40 3,049.20
GM/BK 4,620.00 392.70 207.90 184.80 92.40 92.40 5,590.20
MO 4,200.00 357.00 189.00 168.00 84.00 84.00 5,082.00
PM JULY 2,600.00 221.00 117.00 104.00 52.00 52.00 3,146.00
W1 2,340.00 198.90 105.30 93.60 46.80 46.80 2,831.40
W2 2,340.00 198.90 105.30 93.60 46.80 46.80 2,831.40
GM/BK 4,840.00 411.40 217.80 193.60 96.80 96.80 5,856.40
MO 4,400.00 374.00 198.00 176.00 88.00 88.00 5,324.00
PM AUGUST 2,800.00 238.00 126.00 112.00 56.00 56.00 3,388.00
W1 2,520.00 214.20 113.40 100.80 50.40 50.40 3,049.20
W2 2,520.00 214.20 113.40 100.80 50.40 50.40 3,049.20
GM/BK 4,840.00 411.40 217.80 193.60 96.80 96.80 5,856.40
MO 4,400.00 374.00 198.00 176.00 88.00 88.00 5,324.00
PM SEPTEMBER 2,800.00 238.00 126.00 112.00 56.00 56.00 3,388.00
W1 2,520.00 214.20 113.40 100.80 50.40 50.40 3,049.20
W2 2,520.00 214.20 113.40 100.80 50.40 50.40 3,049.20
GM/BK 4,620.00 392.70 207.90 184.80 92.40 92.40 5,590.20
MO 4,200.00 357.00 189.00 168.00 84.00 84.00 5,082.00
PM OCTOBER 2,600.00 221.00 117.00 104.00 52.00 52.00 3,146.00
W1 2,340.00 198.90 105.30 93.60 46.80 46.80 2,831.40
W2 2,340.00 198.90 105.30 93.60 46.80 46.80 2,831.40
GM/BK 4,400.00 374.00 198.00 176.00 88.00 88.00 5,324.00
MO 4,000.00 340.00 180.00 160.00 80.00 80.00 4,840.00
PM NOVEMBER 2,400.00 204.00 108.00 96.00 48.00 48.00 2,904.00
W1 2,160.00 183.60 97.20 86.40 43.20 43.20 2,613.60
W2 2,160.00 183.60 97.20 86.40 43.20 43.20 2,613.60
GM/BK 4,400.00 374.00 198.00 176.00 88.00 88.00 5,324.00
MO 4,000.00 340.00 180.00 160.00 80.00 80.00 4,840.00
PM DECEMBER 2,400.00 204.00 108.00 96.00 48.00 48.00 2,904.00
W1 2,160.00 183.60 97.20 86.40 43.20 43.20 2,613.60
W2 2,160.00 183.60 97.20 86.40 43.20 43.20 2,613.60

Chapter 5-Financial Plan

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POLYTECHNIC UNIVERSITY OF THE PHILIPPINES 48

POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

Finance helps management gain a clear understanding of the company's

current financial position, particularly whether the business is profitable or not.

business steadily down the path to future growth.

Total Project Cost

partners in order to start-up the business. A precise demonstration of the

ample establishment of the enterprise.

Fixed Asset Requirements

Administrative expenses (2 months)

Investments of each partner will be on cash basis to finance the total

project cost. It is a primary requirement of the partners to have sufficient amount

Atinon, Christian M. PHP 37,600.00

Carpio, Jhaarny 37,600.00

Monsanto, Rosemarie M. 37,600.00

Roquero, Angela Faye 37,600.00

Sy, Angelica Millen D. 37,600.00

Total PHP 188,000.00

The following assumptions were used by the proponents in the computation

and analysis of the financial capacity and stability of the firm;

1. Initial capital Requirement

The business has an initial capital of Php 188,000.00 contributed by

the partners in equal amount. Presentation of this capital is based on

the projected costs for the first 2 months of the business.

There will be five (5) working days in a week and an average of

administrative officers. Meanwhile, there will be three (3) working

days in a week and an average of twelve (12) days at eight (8)

hundred fifty-three for production manager and the workers.

3. Accounting Reporting Period

A calendar year of business starting on January 2022 would be

operation. Production capacity is expected to increase by 3%

starting from the beginning year and to the succeeding years.

a. The volume of purchases (direct and indirect materials) would

increase proportionately with the increase in the quantity produced.

b. 15% of the direct raw materials purchases will be on account to the

suppliers while the indirect material purchases is on cash basis.

c. Purchases of direct materials will be done on weekly basis inclusive

d. There will be no trade discounts given to the retailers.

e. The cost of purchases is assumed to increase by 2.98% based on

average inflation rate.

consumers inclusive of mark-up. Increase in the selling price is

brought by many factors such as production increase.

7. Accounts Receivable and Allowance for Doubtful Accounts:

a. Accounts receivable will be 15% of sales

b. 70% of total accounts receivable will be collected during the period.

c. Allowance for doubtful accounts will be 5% of total receivables in the

a. There will be no work-in process inventory.

b. The ending inventory is 5% of the expected total goods available for

sale of the current year.

9. Labor and Employee Benefits

a. Labor cost will increase annually based on inflation rate.

b. There will be two workers for direct labor.

c. Labor rate for the worker is Php 2,160.00 per month.

d. Total annual benefits will include the salary, SSS, PAG-IBIG,

PhilHealth and 13th Month pay.

a. Utilities expense would be assumed to be allocated to factory and

office at 60:40 respectively.

b. Utilities Expense will increase by 2.98% annually based on inflation

11. Rent Expenses

a. Rent expense is assumed to be Php 5,000.00 per month and

assumed to be fixed throughout the year and the following years.

b. Rent expense would be allocated to factory and office according to

the land occupies (50% for production, 50% for office)