CHAPTER 5

FINANCIAL FEASIBILITY

Introduction

This chapter provides a detailed analysis of the business's financial

aspects, covering costs, revenues, and projections for successful operations. It

begins with the start-up costs and capital requirements, outlining the initial

investments and funding sources. The loan repayment schedule details the plan

for repaying borrowed funds, while the sales forecast estimates revenues based

on projected unit sales and pricing.

The cost of sales and operating expense forecast highlight the direct and

recurring costs of production and daily operations. The projected income

statement summarizes expected profitability, and the statement of financial

position reflects the business's assets, liabilities, and equity. Finally, the cash

flow statement tracks the movement of cash to ensure liquidity and support

growth. Together, these sections offer a clear view of the business's financial

viability and sustainability.

Start-up Costs

The Start-up Costs outline the financial requirements needed to

establish and prepare the business for operation. These costs are divided into

three main categories: Founding Expenses, Capital Expenditures, and Pre-

Operating Expenses, each addressing specific aspects of launching the

business.

The Founding Expenses include costs related to the legal and regulatory

setup of the business. Legal fees amounting to ₱700 cover consultations,

contracts, and document preparation necessary for establishing the enterprise.

Additionally, ₱2,900 is allocated for business permits, licenses, and insurance

fees, ensuring the business operates legally and is protected against potential

risks.

Capital Expenditures represent investments in long-term assets

essential for the production and operation of the business. The acquisition of

machines and equipment, such as fryers, slicers, and packaging tools, requires

₱5,385. Furniture and fixtures, including tables, chairs, and storage units, are

budgeted at ₱5,000 to set up the workspace. Furthermore, ₱4,000 is allocated

for technological expenses, such as computers and software, to support

administrative and operational tasks.

Pre-Operating Expenses cover the costs incurred before the business

officially begins operations. Business and market research, budgeted at ₱3,000,

is conducted to analyze the market, understand competitors, and identify

customer preferences. Advance rent payments of ₱10,000 secure the business

premises prior to opening. Advertising and promotion costs, amounting to

₱7,500, are used for marketing campaigns to build awareness and attract

customers. Pre-employment expenses, including recruitment, background

checks, and initial training of employees, require ₱10,000. Lastly, ₱5,000 is set

aside for other pre-operating expenses, such as utilities, office supplies, and

unforeseen costs.

The total start-up costs amount to ₱53,485, covering all necessary

expenses to ensure the business is legally compliant, operationally ready, and

well-positioned to attract customers and generate revenue.

Particular Amount

FOUNDING EXPENSES

Legal Fees 700

Business permits, licenses, and insurance fees 2900

CAPITAL EXPENDITURES

Machines and Equipment 5,385

Furniture and Fixtures 5000

Technological Expenses 4,000

PRE-OPERATING EXPENSES

Business/Market Research 3,000

Advance Rent 10,000

Advertising and Promotion 7,500

Pre-Employment Expenses 10,000

Other Pre-Operating Expenses 5,000

Total Start-Up Costs 53,485

Capital Requirement

The Capital Requirement outlines the financial resources needed to

launch and sustain the business. It provides a breakdown of the total funding

required, the owner's contribution, and the amount that needs external financing.

The Total Start-Up Costs are calculated at ₱53,485, which includes all

expenses for founding, capital expenditures, and pre-operating activities

necessary to establish the business. However, the Total Capital Requirement is

set at ₱60,000, accounting for additional working capital or contingency funds to

support initial operations and unforeseen expenses.

The owner plans to contribute ₱30,000 as equity, representing half of the

total capital requirement. This contribution demonstrates the owner's commitment

to the business and reduces the reliance on external funding.

The remaining ₱30,000 will need to be financed through external sources,

such as loans, grants, or investments. This funding will cover the start-up costs

and provide additional liquidity to ensure smooth operations during the early

stages of the business.

Particular Amount

Total Start-Up Costs P53,485

Total Capital Requirement P60,000

Less: Owner’s Capital Contribution P30,000

Total Amount to be Financed P53,485

Loan Repayment Schedule

The loan repayment schedule details the monthly breakdown of payments,

showing how each installment reduces the loan balance over a 12-month period.

Each month, the total payment is divided into two components: interest and

principal. The interest portion decreases gradually because it is calculated on

the remaining balance, which reduces as payments are made. The principal

portion increases correspondingly, accelerating the reduction of the loan balance.

For example, in Month 1, the interest is ₱200.00, and the principal

payment is ₱2,409.65, reducing the loan balance to ₱27,590.35. By Month 6, the

interest drops to ₱118.60, and the principal increases to ₱2,491.05, leaving a

balance of ₱15,298.96. This trend continues, with the interest decreasing and the

principal increasing until the final payment in Month 12, where the remaining

balance is fully paid off with ₱17.28 in interest and ₱2,592.37 in principal.

This repayment schedule ensures the loan is cleared within 12 months,

with the balance reaching zero at the end. It demonstrates how regular payments

progressively reduce the loan while minimizing interest costs over time.

Month Interest Principal Ending Balance

1 P200.00 P2,409.65 P27,590.35

2 P183.94 P2,425.72 P25,164.63

3 P167.76 P2,441.89 P22,722.74

 4 P151.48 P2,458.17 P20,264.57

5 P135.10 P2,474.56 P17,790.02

6 P118.60 P2,491.05 P15,298.96

7 P101.99 P2,507.66 P12,791.31

8 P85.28 P2,524.38 P10,266.93

9 P68.45 P2,541.21 P7,725.72

10 P51.50 P2,558.15 P5,167.57

11 P34.45 P2,575.20 P2,592.37

12 P17.28 P2,592.37 P-0.00

Sales Forecast

The sales forecast outlines the projected performance of Squash Fries

with dip (50g) over a 12-month period, detailing unit sales, total sales, and direct

costs. The unit sales are expected to grow steadily, starting at ₱22,500 in Month

1 and increasing by ₱11,250 monthly, reaching ₱146,250 in Month 12. This

consistent growth demonstrates a positive trend in demand for the product. The

unit price remains fixed at ₱75 throughout the year, providing stability in pricing

and revenue calculations.

Total sales are directly tied to the growth in unit sales, with revenues

starting at ₱22,500 in Month 1 and rising incrementally to ₱146,250 in Month 12.

The cumulative total sales over the 12-month period amount to ₱990,000,

reflecting a significant revenue stream for the business.

 The direct unit cost for producing each Squash Fries with dip is ₱25,

which remains constant throughout the year. This cost is used to calculate the

direct cost of sales, which increases in line with unit sales. The direct cost of

sales begins at ₱7,500 in Month 1 and grows by ₱3,750 monthly, reaching

₱48,750 in Month 12. Over the entire year, the cumulative direct cost of sales

totals ₱330,000.

Each unit generates a gross profit of ₱50 (₱75 unit price minus ₱25 direct

cost), ensuring profitability as sales grow. The forecast reflects a stable pricing

strategy and consistent cost management, which, combined with the steady

growth in sales, projects a strong financial performance for the product over the

12-month period.

Month Month Month Month Month Month Month Month Month Month Month Month

1 2 3 4 5 6 7 8 9 10 11 12

Unit

Sales

Squas P22,5 P33,7 P45,0 P56,2 P67,5 P78,7 P90,0 P101,2 P112,5 P123,7 P135,0 P146,2

h 00 50 00 50 00 50 00 50 00 50 00 50

Fries

w/ dip

(50g)

TOTA P22,5 P33,7 P45,0 P56,2 67,50 78,75 90,00 101,25 112,50 123,75 135,00 146,25

L UNIT 00 50 00 50 0 0 0 0 0 0 0 0

SALE

Unit Month Month Month Month Month Month Month Month Month Month Month Month

Prices 1 2 3 4 5 6 7 8 9 10 11 12

Squas P75 P75 P75 P75 P75 P75 P75 P75 P75 P75 P75 P75

h
 Fries

w/ dip

(50g)

TOTA P22,5 P33,7 P45,0 P56,2 67,50 78,75 90,00 101,25 112,50 123,75 135,00 146,25

L 00 50 00 50 0 0 0 0 0 0 0 0

SALE

Direct Month Month Month Month Month Month Month Month Month Month Month Month

Unit 1 2 3 4 5 6 7 8 9 10 11 12

Costs

Squas P25 P25 P25 P25 P25 P25 P25 P25 P25 P25 P25 P25

Fries

w/ dip

(50g)

Direct

Cost

of

Sales

Squas P7,50 P11,2 P15,0 P18,7 P22,5 P26,2 P30,0 P33,75 P37,50 P41,25 P45,00 P48,75

h 0 50 00 50 00 50 00 0 00 0 0 0

Fries

w/ dip

(50g)

Subtot P15,0 P22,5 P30,0 P37,5 P45,0 P52,5 P60,0 P67,50 P75,00 P82,50 P90,00 P97,50

al 00 00 00 00 00 00 00 0 0 00 0 0

Direct

Cost

of

Sales

Cost of Sales

For the Squash n Crunch fries, where the unit production cost is ₱25, the

cost of sales varies based on the projected monthly sales volumes.

 In the first month, with 300 units sold, the cost of sales amounts to ₱7,500.

This increases to ₱11,250 in the second month with 450 units sold, and ₱15,000

in the third month with 600 units. By the fourth month, the cost of sales reaches

₱18,750 for 750 units, and in the fifth month, it rises to ₱22,500 for 900 units.

The sixth month sees a cost of ₱26,250 for 1,050 units produced and sold.

The trend continues upward in the second half of the year. In the seventh

month, the cost of sales is ₱30,000 for 1,200 units, and it climbs to ₱33,750 in

the eighth month for 1,350 units. By the ninth month, the cost reaches ₱37,500

for 1,500 units, and in the tenth month, it amounts to ₱41,250 for 1,650 units.

The eleventh month sees a cost of ₱45,000 for 1,800 units, and in the twelfth

month, it peaks at ₱48,750 for 1,950 units sold.

Over the course of the year, the total cost of sales amounts to ₱337,500,

reflecting the direct expenses required to produce the fries sold. This calculation

is essential for determining profitability, as it allows the business to compare

production costs with the revenue generated from sales.

Month Month Month Month Month Month Month Month Month Month Month Month

1 2 3 4 5 6 7 8 9 10 11 12

Squas P25 P25 P25 P25 P25 P25 P25 P25 P25 P25 P25 P25

h Fries

w/ dip

(50g)

Cost

of

Sales

Squas P7,50 P11,2 P15,0 P18,7 P22,5 P26,2 P30,0 P33,7 P37,50 P41,25 P45,0 P48,7

h Fries
 w/ dip 0 50 00 50 00 50 00 50 00 0 00 50

(50g)

Subtot P15,0 P22,5 P30,0 P37,5 P45,0 P52,5 P60,0 P67,5 P75,00 P82,50 P90,0 P97,5

al Cost 00 00 00 00 00 00 00 00 0 00 00 00

of

Sales

Operating Expense Forecast

The 12-month operating expense forecast removes salaries and

reallocates the corresponding budget to utilities. The rent remains at ₱5,000 per

month, with a two-month advance paid in Month 1, totaling ₱15,000 for the first

month. Utilities begin at ₱4,000 per month, with ₱1,500 originally allocated and

an additional ₱2,500 from salaries. This amount increases by 5% each quarter,

reaching ₱4,631 by the end of the year. Miscellaneous expenses start at ₱1,000

per month and increase by 10% each quarter to cover unexpected costs like

repairs and supplies, totaling ₱1,331 by the end of the year. The total annual

operating expenses amount to ₱131,044, with rent, utilities, and miscellaneous

expenses accounting for ₱65,000, ₱51,062, and ₱14,982, respectively. This

forecast ensures a balanced and realistic budget, reflecting the reallocation of

funds without compromising essential expenses.

Month Mont Month Month Month Month Month Month Month Month Month Month

1 h2 3 4 5 6 7 8 9 10 11 12

Rent P15,0 P0.0 P5,00 P5,00 P5,00 P5,00 P5,00 P5,00 P5,00 P5,00 P5,00 P5,00
0 0 0 0 0 0 0 0 0
00 0 0

Utilities P4,00 P4,0 P4,00 P4,20 P4,20 P4,20 P4,41 P4,41 P4,41 P4,36 P4,36 P4,36

0 00 0 0 0 0 0 0 0 1 1 1

Miscellane P1,00 P1,0 P1,00 P1,10 P1,10 P1,10 P1,21 P1,21 P1,21 P1,33 P1,33 P1,33
 ous 0 00 0 0 0 0 0 0 0 1 1 1

TOTAL P20,0 P5,0 P10,0 P10,3 P10,3 P10,3 P10,6 P10,6 P10,6 P10,9 P10,9 P10,9

OPERATIN 00 00 00 00 00 00 20 20 20 62 62 62

EXPENSE

Projected Income Statement

The projected income statement for Year 1 provides a comprehensive

overview of the business's financial performance. Total sales are forecasted at

₱1,012,500, with a direct cost of sales amounting to ₱337,500, resulting in a

gross income of ₱675,000. This represents a 66.69% gross income margin,

indicating strong profitability from core operations.

Operating expenses are detailed across several categories, including Sales and

Marketing and Other Expenses (₱69,714), Rent (₱65,000), Utilities (₱51,062),

Insurance (₱1,200), Legal (₱3,600), and Other Expenses (₱14,982). The total

operating expenses amount to ₱140,558, leaving a profit before interest and

taxes (EBIT) of ₱534,442.

The business's EBITDA (Earnings Before Interest, Taxes, Depreciation,

and Amortization) is projected at ₱571,852.94, reflecting strong cash flow before

non-operating costs. After accounting for an interest expense of ₱1,315.83 and

taxes incurred of ₱20,250, the net income is forecasted at ₱512,877.

PROFIT AND LOSS YEAR 1

Sales ₱1,012,500
Direct Cost of Sales ₱337,500
 TOTAL COST OF SALES ₱675,000
Gross Income ₱675,000
Gross Income % 66.69%
Expenses
Sales and Marketing and Other ₱69,714.00
Expenses
Rent ₱65,000.00
Utilities ₱51,062.00
Insurance ₱1,200.00
Legal ₱3,600.00
Other ₱14,982.00
Total Operating Expenses ₱140,558.00
Profit Before Interest and Taxes ₱534,442.00
EBITDA ₱571,852.94
Interest Expense ₱1,315.83
Taxes Incurred ₱20,250.00
Net Income ₱512,877.00

Statement of Financial Position

The Statement of Financial Position for Year 1 highlights the company’s

strong financial standing across liquidity, profitability, debt, and asset

management metrics. The business has ₱60,000.00 in current assets, entirely in

cash, and ₱31,315.83 in current liabilities. This results in a favorable liquidity

position, with an acid ratio greater than 1, indicating that the company can

comfortably meet its short-term obligations. However, the absence of accounts

receivable and short-term investments suggests a lack of diversification in

current assets.

Profitability metrics reveal excellent performance, with net sales of

₱1,012,500.00 and a cost of goods sold (COGS) of ₱675,000.00, resulting in a

gross income of ₱675,000.00. The company’s net income of ₱512,877.00

represents a significant portion of sales, showcasing efficient expense

management and strong profit generation capabilities.

The company’s debt profile indicates a balanced financial structure, with

total liabilities of ₱31,315.00 and total equity of ₱28,685.00. This positive equity

position reflects that the company’s assets exceed its liabilities, providing a solid

foundation for long-term financial stability.

In terms of asset management, the inventory turnover ratio of 12.40

demonstrates effective stock utilization. With a COGS of ₱675,000.00 and an

inventory value of ₱337,500.00, the company efficiently aligns production with

sales, turning over its inventory more than 12 times annually.

YEAR 1
Liquidity
Current Assets ₱60,000.00
Current Liabilities ₱31,315.83
Acid Ratio
Cash ₱60,000.00
Accounts receivable ₱0.00
Short Term Investment ₱0.00
Current Liabilties ₱31,315.00

Profitability
Gross Income
COG/COS ₱675,000.00
Net Sales ₱1,012,500.00
Net Income
Net Income ₱512,877.00
Net Sales ₱1,012,500.00

Debt
Leverage
Total liabilities ₱31,315.00
Total equity ₱28,685,.00
 Asset-Management
Inventory Turnover 12.40
COG/COS ₱675,000.00
Inventory ₱337,500.00

Cash Flow Statement

The Cash Flow Statement for Year 1 outlines the company’s cash inflows

and outflows, providing a clear picture of its liquidity and financial management.

The business generated a total of ₱1,012,500.00 in cash from operations, all

derived from cash sales. There were no additional cash inflows from sources

such as new borrowings, investments, or asset sales, resulting in a total cash

received of ₱1,012,500.00.

On the expenditure side, the company spent ₱472,144.00 on operations,

which includes ₱337,500.00 for cash spending and ₱134,644.00 for bill

payments. Additional cash outflows included ₱30,000.00 for principal repayment

of current borrowing, ₱1,315.00 for other liabilities, and ₱14,385.00 for the

purchase of long-term assets. These expenses brought the total cash spent to

₱517,844.00.

After accounting for all cash inflows and outflows, the company achieved a

net cash flow of ₱494,656.00 for the year. This positive cash flow indicates

strong financial performance and effective cash management, ensuring the

company has sufficient liquidity to support its operations and future growth.

YEAR 1
Cash Received
Cash from Operations
Cash Sales ₱1,012,500.00
SUBTOTAL CASH FROM OPERATIONS ₱1,012,500.00
Additional Cash Received
Sales Tax, VAT, HST/GST Received ₱0.00
New Current Borrowing ₱0.00
New Other Liabilities (interest-free) ₱0.00
New Long-term Liabilities ₱0.00
Sales of Other Current Assets ₱0.00
Sales of Long-term Assets ₱0.00
New Investment Received ₱0.00
SUBTOTAL CASH RECEIVED ₱1,012,500.00
Expenditures Year 1
Expenditures from Operations
Cash Spending ₱337,500.00
Bill Payments ₱134,644.00
SUBTOTAL SPENT ON OPERATIONS ₱472,144.00
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out ₱0.00
Principal Repayment of Current Borrowing ₱30,000.00
Other Liabilities Principal Repayment ₱1,315.00
Long-term Liabilities Principal Repayment ₱31,315
Purchase Other Current Assets ₱0.00
Purchase Long-term Assets ₱14,385.00
Dividends
SUBTOTAL CASH SPENT ₱517,844.00
Net Cash Flow ₱494,656.00