FINANCIAL

FEASIBILITY
STUDY
By: Ariadne Cordero
A FINANCIAL FEASIBILITY STUDY
 Projects how much start-up capital is needed,
sources of capital, returns on investment and other
financial considerations.
 It considers how much cash is needed, where it
will come from, and how it will be spent.
 It assesses the economic vaibility of the proposed
venture by evaluating also the operating expenses
cash flow and forecast of future performance.
3 parts preparation of a financial
feasibility study
 Determining the start-up costs
 Preparing a profit plan and making cash flow
projections
 Assessing the return on invested capital
Identify the Start up Costs
 Purchases of land and building
 Acquisition of equipments
 Licenses and permits
 Deposits required for office space leases
 Initial purchases for materials
 Office furniture and supplies
 Employee wates
 Utilities
 Legal, accounting fees for incorporations
 Insurance premiums
Determine the Return on Invested
Capital
 Net present value – this method uses a percentage
rate of discount future cash flow to the present. If
the NPV of the discounted cash flows exceeds the
cost of the initial investment, then the project is
feasible and should be accepted
 Internal Rate of Return – the IRR method uses the
same formula for calculating the NPV of cash
flows. The ITT is the discount rate that makes the
NPV of cash outflows and inflows equal to zero.
This IRR can be used to compare the
attractiveness of several projects.
 Payback Period – the payback period is the
number of years that it takes for the return from a
project to recover the costs of the investment.
Shorter payback periods are preferred.
Explain Negative Cash Flows
 Ifthe project will experience a negative cash flow
during the early months, this amount should be
calculated and explanations provided that show
how these cash flow deficits will be financed.
Pinpoint needs for Additional Funding
 Use, sales, profits and cash flow projections to
calculate periods of negative cash flow and
pinpoint when additional funding will be needed to
finance growth if internal cash flow generation
isn’t sufficient.
Prepare 3 years projection of Financial
Statements
 Income Statement
 Statement of Financial Position
 Statement of Cash Flows
 Statement of Owner’s Equity
Notes to Financial Statements
 Sales
 Cost of Sales
 Selling Expense
 Operating Expenses
 Cash
 Prepaid Expenses
 Organizational Cost
 Property, Plant and Equipment
Schedules
 Revenues
 Cost
 Depreciation
 UtilityExpense
 Payroll
Ratio Analysis
 Profitability
Ratios
 Liquidity Ratios
 Asset Management Ratios
 Debt Management Ratios