Financial Forecasts and Determination of

Financial Feasibility
The financial forecasts refer to the monetary transaction that the
business is expected to engage in. Ultimately, the end of result of the
financial forecasts will indicate the feasibility of the enterprise.
Four Critical financial statements namely;
1. Income Statements
2. Balance Sheet
3. Cash Flow statement
4. Funds sales forecasts
1. INCOME STATEMENT
1. a financial statement that measures an enterprise’s performance in terms
of revenue and expenses over a certain period. Simply put

REVENUES – EXPENSES = INCOME OR PROFIT (LOSS)

GROSS SALES 750,600

LESS: COST OF GOODS SOLD 468,487

GROSS PROFIT/MARGIN 282,113

LESS: OPERATING EXPENSES 166,145

OPERATING PROFIT/ MARGIN 115,968

LESS: TAXES 21,392

NET PROFIT AFTER TAXES 94,576
2. BALANCE SHEET
1. Creating the balance sheet is a bit more complicated because one
has to look different thing: assets, liabilities and equities.
Assets – represent all the investments in the enterprise including the
initial investment that you considered in the pre feasibility study
(investment requires). These include (on hand and in bank) , account
receivable, inventory of goods, equipment and machinery, facilities,
vehicles, etc.

Liabilities – debts to suppliers , to banks, to government, to employees

and other financiers.

Stockholders’ equity – represents the investors’ investment in the stock

(or share) of the business
The Balance Sheet equation
ASSETS= LIABILITIES + EQUITY
ASSETS LIABILITIES
Current Assets Current Liabilities
Cash 100,500 Accounts Payable 150,000
Accounts Receivable 370,200 Income Taxes Payable 20,500
Inventory 405,350 Wages Payable 75,000
FIXED ASSETS Short Term Debt 125,000
Land 422,100 LONG TERM LIABILITIES
Building 200,000 Long term Debt 777,650
Vehicle 150,000 STOCK HOLDERS’ EQUITY
TOTAL ASSETS 1,648,150 CAPITAL 350,000
RETAINED EARNINGS* 150,000
TOTAL LIABILITIES & EQUITY 1,648,150
FINANCIAL RATIOS AND
MEASUREMENTS
In any business endeavor, the investor or the entrepreneur
himself/herself will always be interested in knowing the payback
period or how long will take for him/her to get back what he/she
invested.

However, payback period is just one of the many financial

computations one can take a look at in considering a particular business
opportunity. The income payback period can be computed as follows.
PAYBACKPERIOD = _____TOTAL INVESTMENT____
ANNUAL NET INCOME AFTER TAXES
To compute for the income payback based on ABC Company’s financial
statements, which specify investment of 1,500,000 and net income
after taxes of 500,000 a year, we can conclude that it would take
around 3 years for the company to recover the investment

INCOME PAYBACK PERIOD = 1,500,000 = 3 years

500,000
There is also return on sales (ROS) ratio where there entrepreneur
calculates how much profit the enterprise is earning for each peso. The
formula is as follows:

NET PROFIT AFTER TAXES

RETURN ON SALES
SALES

Substituting the variables into ABC COMPANY’S estimated figures:

500,000 10%
RETURN ON SALES =
5,000,000

Furthermore, if the entrepreneur is interested to know the return on the

investments made, which come in the form of assets, then he or she can compute
for the return on assets (ROA) OR return in Investment (ROI) shown by the formula:
RETURN ON ASSETS or RETURN ON INVESTMENT

RETURN ASSETS NET PROFIT AFTER TAXES

TOTAL ASSETS/INVESTMENT

Again, Substituting the variables into ABC COMPANY’S estimated figures:

RETURN ASSETS 500,000 33%

1,500,000

The above ratios are but a few of the frequently used financial measurements. Should the
resulting figures for all three ratios be favorable, this means that the business opportunity is
quite promising
The Feasibility Study
For bigger projects that entail millions of pesos worth investment, a
full-brown feasibility study might be required more than the pre-
feasibility study.
• It is more comprehensive and detailed
• More rigorous approach

Feasibility study is prepared to convince bankers and investors to put

money into business opportunity
In writing feasibility study, the entrepreneur
should take into consideration the following
1. A more in dept study of market potential to ensure that the business
proposal will reach the forecasted sales figures;
2. Proof that product or service offered has the right design, attributes,
specifications, and preferred features;
3. Proof that the entrepreneur and his or her team have necessary
experience, skills and capabilities to maximize the venture’s chances
of success.
4. Legal visibility
5. More detailed costing on the different assets and more justification
for the production and operating expenses
6. More thorough and analysis of the technology and its sustainability