I.
Introduction Banana Bananas s are vigorous vigorously ly growing, growing, herbaceo herbaceous us plants plants growing growing in every every humid humid
tropical region. Edible bananas are believed to have originated in the Indo-Malaysian region reaching to northern Australia. They constitute the fourth largest fruit crop of the world, following the grape, citrus fruits and the apple. World production is estimated to be twenty-ei twenty-eight ght million million tons—six tons—sixty-fiv ty-five e percent percent from Latin Latin America America,, twenty-se twenty-seven ven percent from Southeast Asia, and seven percent from Africa. One-fifth of the crop is exported to Europe, Canada, the United States and Japan as fresh fruit. India is the leading banana producer in Asia, followed by Indonesia and then by Philippines. The Philippines produces about one-half million tons, exporting mostly to Japan. The Philippines, being one of the contenders for the title, “Banana Capital of the World,” has innumerable banana plantations scattered across Mindanao. Biggest producing region is Southern Mindanao capturing almost half of the country's total production. Production of banana is mainly concentrated in Mindanao where the biggest banana producing producing provinces of Davao del Norte, Davao del Sur and Davao City of Southern Mindanao region. Outside Mindanao, the biggest producing provinces are Iloilo in Western Visayas Visayas and Isabela of Cagayan Cagayan Valley. Most of the 337,082 hectares hectares of bana banana na are mostl mostly y backy backyard ard or small smallho holde lderr opera operatio tions ns.. Accor Accordin ding g to a stud study y conducted conducted by World Bank, the few commercial commercial plantings are located in Mindanao where there are about 28,000 hectares of Cavendish bananas being produced for export. Banana has many uses especially in the human diet. Utilization of banana as food can be in many ways -- from simply being peeled and eaten out of-hand to being sliced and served in fruit cups and salads, sandwiches, custards and gelatins; being mashed and incorporated into ice cream, bread, muffins, and cream pies. Ripe
bana banana nas s are often often sliced sliced leng lengthw thwise ise,, fried fried in cooki cooking ng oil, oil, and and re-co re-cooke oked d in sugar sugar caramel. Banana puree is important as infant food and can be successfully canned by the addition of ascorbic acid to prevent discoloration. Because of seasonal gluts and peris perisha habil bility ity and and the the tonn tonnag ages es of bana banana nas s and and planta plantain ins s that that are not not suita suitabl ble e for for marketing or export because of overripeness or stained peel or other defects, there has been tremendous interest in the development of modes of processing and preserving these fruits. Unripe banana has many food uses as well. In Zamboanga City, green unripe bananas, boiled in skin and served with “ haleia” haleia ” or coconut milk caramel, are popular. Sun-drying slices of unripe fruits and pulverizing make banana or plantain flour or powder. One of the most popular unripe banana products is banana chips. Commercial production and marketing of banana chips has been increasing in various parts of the world over the past 25 years and these products are common commonly ly found found in retail retail grocerie groceries s alongsi alongside de potato potato chips chips and other snack snack foods. foods. 'Carinosa' and 'Bungulan' bananas are favored for chip-making in Latin Amerca. In the Philippines, the ‘Saba’ and ‘Cardava’ varieties are chosen for this purpose. This paper proposes a banana chips production business in Zamboanga City. City. The The idea idea stemm stemmed ed from from the prop propon onen ent’s t’s fondn fondnes ess s for for the produ product ct and and the prodigious source of banana in the area. The business and its initial product shall be named MILES COMPANY and MR. YUMMY BANANA CHIPS, respectively. The banana chips shall be distributed mainly to the canteens canteens of the different primary, secondary, secondary, and tertiary schools in Zamboanga City. Miles Company will also deliver to the grocery stores as well as the canteens of the different companies or offices in the city.
bana banana nas s are often often sliced sliced leng lengthw thwise ise,, fried fried in cooki cooking ng oil, oil, and and re-co re-cooke oked d in sugar sugar caramel. Banana puree is important as infant food and can be successfully canned by the addition of ascorbic acid to prevent discoloration. Because of seasonal gluts and peris perisha habil bility ity and and the the tonn tonnag ages es of bana banana nas s and and planta plantain ins s that that are not not suita suitabl ble e for for marketing or export because of overripeness or stained peel or other defects, there has been tremendous interest in the development of modes of processing and preserving these fruits. Unripe banana has many food uses as well. In Zamboanga City, green unripe bananas, boiled in skin and served with “ haleia” haleia ” or coconut milk caramel, are popular. Sun-drying slices of unripe fruits and pulverizing make banana or plantain flour or powder. One of the most popular unripe banana products is banana chips. Commercial production and marketing of banana chips has been increasing in various parts of the world over the past 25 years and these products are common commonly ly found found in retail retail grocerie groceries s alongsi alongside de potato potato chips chips and other snack snack foods. foods. 'Carinosa' and 'Bungulan' bananas are favored for chip-making in Latin Amerca. In the Philippines, the ‘Saba’ and ‘Cardava’ varieties are chosen for this purpose. This paper proposes a banana chips production business in Zamboanga City. City. The The idea idea stemm stemmed ed from from the prop propon onen ent’s t’s fondn fondnes ess s for for the produ product ct and and the prodigious source of banana in the area. The business and its initial product shall be named MILES COMPANY and MR. YUMMY BANANA CHIPS, respectively. The banana chips shall be distributed mainly to the canteens canteens of the different primary, secondary, secondary, and tertiary schools in Zamboanga City. Miles Company will also deliver to the grocery stores as well as the canteens of the different companies or offices in the city.
II.
Product Description The Mr. Yummy banana chips are delicious, crispy, and healthy snacks. The banana chips have a sweet taste. They are made from the Filipino banana of
the Saba and Cardava variety. Smooth delicious bananas are picked in their mature green stage, peeled, thinly sliced, honey sweetened and then fried in vegetable oil. They are a nutritious snack because of the honey content. They do not contain artificial additives. They are a nutrient-dense food, contributing to a healthy diet by providing not only potassium but also calcium, carotene, vitamin C, and vitamin B6. Each chip has an average size of 25-30 millimeters in diameter and thickness of 3-4 millimeters. millimeters. The thin chips are deep-fried, deep-fried, and naturally naturally cooled before before packaging packaging restoring the product’s crispiness. The banana chips are packed by 50 grams in plastics. The label indicates the business and product name, ingredients, weight, and business address and number. Each pack is well-sealed to maintain the product’s crispiness.
III.
VMO and SWOT Analysis
Vision In seven to eight years, Miles Company will be the biggest banana chips manufacturer in Western Mindanao and will contribute to the Philippines banana chips export market. .
Mission Miles Company manufactures honey-dipped banana chips and distributes them to the different school canteens, office canteens and grocery stores in Zamboanga City.
Values 1. Excellence – in producing high quality honey-dipped banana chips 2. Honesty - in relating with customers and paying taxes to the government 3. Cleanliness and sanitation – in the preparation of ingredients, cooking of the chips and in the packaging of the product 4. Hardwork – in devoting energy and talents for the growth and success of the business
Objectives 1. Generate an annual sale of P 250,000 and net income of P50,000. 2. Produce the best tasting banana chips in Zamboanga City 3. Distribute to 50% of the school canteens in Zamboanga City 4. Gain access to the office canteens and the grocery stores in Zamboanga City 5 .Export products to other countries
SWOT Analysis A scan of the internal and external environment of the business indicates the following:
Strengths:
− With know-how in the manufacturing of banana chips −
Unique in Zamboanga City because bananas are sweetened with honey before frying
−
The snack product is nutritious. Its nutritional contents include potassium and protein
Weaknesses:
−
Lacks access to grocery stores and office canteens
−
No established supplier of honey in Zamboanga City
Opportunities :
−
There are more and more schools that are being put up in the city
−
A supportive government indicates that there is a bright future for the firm in the export market
Threats:
−
The preference of students and young people to eat junk foods
−
The prices of cooking oil, sugar and honey are increasing
Strategies Strength-Opportunities:
−
Extensively promote nutritious product to students of the different schools by joining trade fairs during school fiesta or palaro
− Accumulate profit and reinvest it for expansion of business and distribution in the neighboring places of Zamboanga City
Weaknesses-Opportunities:
−
Concentrate marketing efforts on the distribution to school canteens
−
When sales volume increases due to increased demand for the product, find suppliers outside Zamboanga City and negotiate terms.
Strengths-Threats:
−
Invest in Research and Development activities to obtain cost efficiency and optimal productivity
−
Package and label product differently to attract even junk food eaters
Weakness-Threats:
−
IV.
Research on the feasibility of processing own honey made from banana
Profile of Target Market(s)
Zamboanga City is the center for education in Western Mindanao. It is a home to three universities, three computer colleges, ad numerous colleges and institutes in the Zamboanga Peninsula region. The Department of Education – Zamboanga City Division records a total of three hundred fifty-two schools in all education level including pre-
school in school year 2007-2008. Two hundred forty-five (245) and one hundred one (101) of these schools are government-owned and privately-owned, respectively. This number is six less than the recorded number of schools in school year 2006-2007. The closing of twelve private elementary schools and the opening of one public high school, three public pre-elementary schools and two private pre-elementary schools contributed to the decrease. The Department of Education – Zamboanga City Division has in record 175,319 and 176,079 students in the preschool, primary and secondary level in school years 2006-2007 and 2007-2008, respectively. More than ninety percent of the schools in Zamboanga City have their own school canteens. A survey was conducted to thirty different schools located in the city proper, east and west coast in Zamboanga City. Twenty-eight of the thirty schools have canteens located inside the school and these canteens are owned by a cooperative of teachers and staff members. Ten students for each of the twenty-eight schools were handed out questionnaires to determine their purchases and purchase level from the canteens. Five out of ten (50%) students visit and buy from the school canteen once a day either for snacks, lunch, or school supplies; three students (30%) seldom go to the canteen (less frequent than once a weekly) and buy school supplies and drinks. The remaining two students (20%) never go to the canteen because they bring their own food and school supplies or because they do not have money at all. Three out of the five regular canteen goers are likely to buy snack food. Two out of these three snack buyers prefer commercialized chips like Chippy and Piatos and
other junk foods. One prefers home made snacks like bico, cassava cakes, sandwiches, and bananaque. Eleven of the twenty-eight school canteens were selected as targeted place of distribution of the product. Nine out of eleven pre-selected school canteens committed to buy the product from the business. The Brent Hospital and College Inc. and Immaculate Conception Archdiocese School are the two schools who responded “No” when asked if they will buy the proposed product. All nine prefer the goods to be on consignment basis.
This term provides that each pack of 50 grams honeydipped banna chips is
priced at P6.00. Payment on the delivered goods for the day shall be made on the next day’s delivery. The schools were chosen for their large population and the nearness of each school from another. The latter reason will generate efficiency in the delivery and collection of payment. The following are schools/canteens which committed to buy the product, with their corresponding population and location: Schools 1 Claret HS 2 WMSU (Lab High & College) 3 ZNHS West 4 Pilar College (All levels) 5 STI College 6 SCC (HS & Colleges) 7 Universidad de Zamboanga City (College) 8 Universidad de Zamboanga Tetuan (HS & College) 9 ZCHS Main
Location San Jose Rd, Baliwasan, Zamboanga City Normal Rd, Baliwasan, Zamboanga City RT. Lim Blvd., Baliwasan, Zamboanga City RT. Lim Blvd., Baliwasan, Zamboanga City Gov. Lim Ave., Zamboanga City Pilar Street, Zamboanga City P. Lorenzo Street, Zamboanga City
Population 1,178 22,000 5,807 1,398 594 1,497 5,199
Don Toribio Street, Zamboanga City
8,609
Don Alfaro Street, Zamboanga City
9,496
V.
Marketing Plan
A. Marketing Mix
Product Mr. Yummy banana chips are healthy and delicious snacks. Bananas are dipped in honey syrup before fried. The product does not contain any preservative or additive. The banana chips are packed by 50 grams in plastics and are each pack is individually labeled.
Price Each pack of 50 grams of banana chips is priced at P6.00. This is because the desired gross profit margin is 75%. A unit cost of P2.18 with a gross margin of this rate will result to a rounded off-price of P6.00. The price of the Mr. Yummy Banana Chips is not greatly different from the price of the products of the competitors. In fact, the wholesale price of the Member Food Dealer and Guiwan Special Banana Chips, which distributes to retail and convenience stores, is also P6.00. Prices of other competitors range from P6.50 to P10.00. Such differences in the prices, however, shall have the least significant effect in the competition. Price is neither the competency nor strategy of the proposed business.
It shall focus instead in delivering banana chips product, unique and special for its honey content. Furthermore, the main distribution links of the competitors are the grocery stores and convenience centers. These stores will sell the products at P9.00 to P15.00. Miles Company shall do direct delivery of its products to the school canteens and stores at P6.00.
Place or Distribution The delicious and healthy banana chips product will be distributed mainly to canteens of the different schools in Zamboanga City. Initially, it shall deliver to the canteens of Claret High School, Western Mindanao State University, Zamboanga National High School West, Pilar College, Brent Hospital and College, STI College Zamboanga, Southern City College, Universidad de Zamboanga - City Campus and UZ Tetuan Campus, Zamboaga City High School Main and Immaculate Conception Archdiocese School. The first five schools above are located in the west area of the city while the last three schools are located in the east. STI College, Southern City College and Universidad de Zamboanga are found within the city proper. Since the business aims to make it known also to non-school canteen customers, it will deliver to retail stores in Guiwan, Tumaga, Canelar, Sta. Maria, and San Roque. Canteens of GSIS and BIR are also targeted. Cash collection shall be made on the following delivery. Given that delivery shall be made daily, collection of the day’s delivery shall be made on the following day. Collection from these non-school canteens and retail stores shall be made on the next
Saturday of delivery. This is to encourage these customers to buy and patronize the proposed product.
Promotion The business shall be promoted by word of mouth and through personal selling efforts of the business proponent. Packaging and labeling will be enhanced more to further promote the product.
B. Competition The following are the competitors of the Miles Company;
Competitors
Business Location
1. KuKuh’s Banana Chips
Sta. Maria, Zamboanga City
2. Member Food Dealer Banana Chips
Canelar, Zamboanga City
3. Ecoco Banana Chips
Manila City
4. Guiwan Special Banana Chips
Guiwan, Zamboanga City Isabela City
5. Food Trade Center Banana Chips
Place of Distribution Canteens of schools and offices; Convenience stores Canteens of schools and offices; Convenience stores in ZC Grocery Stores Nationwide Retail Stores; Bakeries Canteens of schools and offices; Convenience stores in Isabela City
Price (of 50g pack) P 7.00
6.00
10.00
6.00 6.50
and ZC
The banana chips products of the competitors listed in the foregoing page are almost alike. Except ECOCO banana chips, which uses table banana or sweet plantain of the Musa acuminata group like the lady finger ( sulaybaguio) and ‘’Gros Michael” (lakatan) bananas, all of the companies use saba and cardava. Peeled and sliced bananas of these varieties are deep fried and packed in plastics. Miles Company, however, shall soak the banana in honey syrup before frying. This shall result more delicious and nutritious banana chips. This gives Miles Company edge over all its competitors.
C. Factors in the External Environment that Affect the Business
Political Factors The Local Government of Zamboanga City as well as national government agencies like the Department of Trade and Industry and Department of Science and Technology are supportive to entrepreneurs and the whole business sector. The current political issue involving the ZTE project does affect the business directly or indirectly.
Economic Factors Inflation is a problem of all businesses. Although inflation does affect the business in the costing of the raw materials and pricing of the finished goods to a great extent, it significantly affects the purchasing power of the money given to students as allowance.
Socio-Cultural Factors Mr. Yummy banana chips product competes with other snacks in capturing the taste and preference of students who are the end customers of its market. These other snacks include the potato chips of Jack and Jill Corporation, cheese curls and other junk foods. They are often preferred by students.
Technological Factors Training on banana chip production in the future, can open doors to the use of technology in the business. Technology, automation can increase the efficiency of the production, in volume and quality and can therefore pave the way to banana chips export.
VI.
Operational Plan
A. Production Process The Mr. Yummy Banana Chips production process shall be as follows:
Raw Materials Inventory
Peeling of the bananas
Slicing of the banana
Soaking in honey and sprinkling of sugar
Cooking in vegetable oil
Cooling
Packaging
Finished Goods Inventory
Production shall be daily, the cooking in the morning and manual packaging in the afternoon. Finished goods for the day shall be delivered the following day. Goods produced on Fridays are distributable to non-school canteens on Saturday while goods made on Saturdays are to be delivered on Monday the following week. Bananas will be peeled and sliced. Peeling and slicing of one bunch and two hands of bananas will take one hour and fifteen minutes. Ten kilograms of peeled and sliced bananas shall be soaked in honey and sprinkled with sugar. The sliced bananas will be soaked in honey syrup for thirty minutes and then drained. They shall be fried, five kilograms first and then the remaining five. A cooking strainer shall be used to facilitate the emerging and sieving from oil of cooked banana chips. Frying will only take 30 minutes for all ten kilograms. The cooked banana chips will then be spread over large “bilao” atop with absorbent paper and will be cooled for one hour without manual or electric fanning to maintain its crispiness. Cooled banana chips are then packaged by 50 grams in plastics. They are measured first using a small but precise weighing scale and should be 50 grams in weight before sealing. Packs are sealed and labeled. The following table summarizes the banana chips production process with the length for each step:
BANANA CHIPS PRODUCTION Steps
Timeframe
1. Peeling of bananas
45 minutes
2. Slicing of peeled bananas
30 minutes
3. Soaking in honey
30 minutes
4. Draining of the banana and sprinkling with sugar
5 minutes
5. Frying of honeyed banana slices
30 minutes
6. Cooling of banana chips
60 minutes
7. Weighing and packaging of chips and labelling of packs TOTAL TIME Manpower Requirement
280 minutes 480 minutes
1 employee
B. Suppliers The business shall buy its weekly supply of seven and a half bunches of bananas from the farmers in Dungcaan, east of Zamboanga City. The contact person in the area is Ms. Marie Atilano, a relative of the business proponent. She resides in the area and knows the residents of the barrage.
C. Schedule of Operations The business shall operate from Monday to Saturday, from 8 A.M. to 5:00 P.M. Purchase of raw materials and supplies shall be made every Saturday before the production week. Banana chips produced during the day shall be sold in the following day. Products completed during Fridays are made so for distribution to non-school
canteens and retail stores during Saturdays. This is because very few schools operate on a Saturday. During semester breaks and school holidays, the business shall intensify selling efforts to non-school canteens and retail stores. Collection from school canteens shall be made on the following delivery, that is, on the following day. To encourage non-school canteens and retail stores, however, collection from these customers shall be made on the next Saturday of delivery.
D. Business Location The banana chips production shall be home based. The products shall be made at the place where the proponent resides. It is a 4 meter by 9 meter house being rented by the proponent from a relative, located in 132 San Jose Road, Baliwasan, Zamboanga City. It is one of the two houses in the lot with area of 270 square meters. The other is a two-storey house with a total floor area of 160 square meters. One-half of the area of house shall be retained as the personal and sleeping quarter of the proponent and the other half shall be made into a packaging area. Cooking shall be held outside, in an outdoor kitchen adjacent to the packaging area.
VII.
Organizational Plan
A. Business Organization Initial Organization The business, a sole proprietorship, shall initially employ only two employees. The project proponent shall be the first and the manager and shall be responsible for the purchase of raw materials and supplies, delivery of finished goods, dealing with customers and prospective customers, and managing the finance of the business. The second employee shall be responsible for the production: cooking in the morning and packaging in the afternoon. He shall maintain the cleanliness of the kitchen, the utensils and cooking wares and the production process in general. He must be: -
knows cooking
-
able to work with minimum supervision
-
clean and neat in looks and ways
-
willing to undergo training
-
willing to work and receive per piece wage
-
observant and patient
Future Organizational Chart Five to six year from now, the following will be the business organization chart:
Manager
Marketing
-
promotes and delivers
Finance
-
products -
deals with customers and prospective customers
maintains the books of the
Production
- Produces banana chips
business -
oversees the overall financial condition of the
and maintains its quality -
schedules production to increase productivity
business
B. Personnel Compensation Employees of the business shall receive wage equivalent to the minimum daily wage of employees of retail establishments employing not more than 30 employees in Zamboanga Peninsula.
Wage Order No. RIX-13 prescribes the granting of P195.00
minimum to these employees. The employees of Martin Company are also entitled to government mandated benefits and privileges: 13 th Month Pay, SSS, Phil Health and Pag-ibig. The following is a summary of the personnel compensation of the business, indicating basic compensation and personnel benefits, factored annually:
Annual
Employee
Martin, K Worker 2
Monthly Basic Pay
Phil 13th Health Annual Month (P62.50 Gross Pay Pay Monthly) 195.00 4,875.00 58,500.00 4,239.60 1,200.00 750.00 4,875.00 69,564.60 195.00 4,875.00 58,500.00 4,239.60 1,200.00 750.00 4,875.00 69,564.60 Daily Rate
SSS Pag-Ibig Basic Pay (P353.30 (P100.00 Monthly) Monthly)
For the monthly basic pay, the project proponent, the owner of the business receives an equal pay to that of the other employee. Compensation of the manager is charged to operating expense while the compensation of the other employee is partly charged against cost of goods sold and partly against operating expenses. For the compensation charged to cost of goods sold, he shall receive 15 centavos for every unit of product completed. The remainder thereof shall be charged to operating expense.
VIII.
Financial Plan
A. Unit Costing Unit cost is derived from the batch cost divided by the number of units each batch produces. Unit cost is as follows: Raw Materials 10 kilogram banana (peeled, 1 bunch and 2 hands of bananas) 2 botles of honey 1.5 kilogram brown sugar 1liter cooking oil (to be used only twice to maintain quality) Total Raw Materials Units Produced (of 50 grams) Raw Materials Per Unit Packaging Cost Per Unit Plastic Label Direct Labor Per Unit Factory Overhead (Wood Coal)
P60 per bunch, 5 per hand P75.00 per bottle P26.00
P
P83.75 P P P0.18 per piece P0.05 per pice
P
0.18 0.08
41.88 300.88 190 1.58
0.26 0.15
P15 per cooking, 5 kilogram of banana per cooking)
Unit Cost
70.00 150.00 39.00
0.19 P
2.18
* 100% input in kilograms = 95% outputs in kilogram
One hundred percent of banana as an input will produce only ninety-five percent of banana chips as an output. This may be due to the loss of moist content of banana when fried and cooled. The 10,000 kilograms of banana, therefore, will produce 9,500 grams of banana chips, or 190 packs of 50 grams of banana chips.
B. Production Volume Daily production for the first year of operation is 190 units. Annual increase is projected at 40 units for the four (4) additional school canteens to be captured each year.
C. Mark-up Desired gross profit per unit is 75%. Price of the banana chips, therefore, for the first year is P6.00 per unit.
D. Merchandise Inventory Only the goods produced at the last working day of the year are expected to remain unsold at year end. This based on the assumption that delivery of goods produce during the day will be delivered on the following day. Ending merchandise units will be sold in the first working-school day of the year.
E. On Account Only goods delivered to non-school canteen customers on the last Saturday of the year are considered to be on account. For projection, a daily sale multiplied by 6 days credit term for non-school canteen customers is equal to the Accounts Receivable at year end. Since all purchases are on cash basis, there shall be accounts payable at the end of the year.
F. Fixed Assets The following the fixed assets to be used in the conduct of the business and their corresponding acquisition cost, useful life, annual depreciation:
Schedule of Fixed Assets Assets
Cost
Cookware Steel Tungku- welded Sealer Other kitchen utensils Furniture Motor Vehicle Total
P 2,500.00 600.00 250.00 500.00 1,000.00 55,060.00 P 59,910.00
Useful Life (in Years)
5 5 5 5 5 10
Annual Depreciation P 500.00 120.00 50.00 100.00 200.00 5,506.00 P 6,476.00
The straight line method of depreciation is used in computing for annual depreciation expense. The motorcycle vehicle to be used in the delivery of product shall be purchased from EMCOR Veterans, Zamboanga City on installment basis. Down payment for the purchase is P3, 500 and equal monthly installment is P2, 500 inclusive of interest, for 24 months. The present value of this future payments based on the 15% per annum interest
offer of EMCOR is P 51, 560.00. This amount added to the down payment amount is equal to P56, 560.00, the cost of the motor vehicle.
G. Project Cost and Financing Initial project cost is estimated at P 29,207.33 and shall be financed through a cash gift from parents upon graduation of the proponent. Working capital of one (1) month is allotted for both production cost and operation expense. The cost to acquire manufacturing equipment and the necessary down payment and installment payment for the first month for the delivery equipment are also factored as a capital expense. Pre-operating expenses include deposit on rental of the business area and licensing cost. A breakdown of the initial investment is shown below.
Capital Outlay - Production and Delivery Equipment Cookware Steel Tungku- welded Sealer Other kitchen utensils Furnitures Motor Vehicle Down Payment 1st Month Installment
P 2,500.00 600.00 250.00 500.00 1,000.00 P 3500.00 2500.00
6,000.00
P 10,850.00
2,100.00 4,000.00
6,100.00
4,940 2.18
10,774.40
Pre-Operating Expenses Rental Deposits-3 months Permits and Licences Working Capital - Production Cost (1 month) Units to be Produced Unit Cost Working Capital - Operating Expenses
(1 month) Wages Expense - Martin Wages Expense -Worker 1 Office Supplies Expense Gas, Oil, Transportation Rent Expense
4,649.80 4,649.80 166.67 2,166.67 700.00
12,332.93
Total Initial Investment
P 29,207.33
H. Operating Expenses Operating expenses include wages expense, licenses and permits, oil, gasoline, and transportation expense, supplies, and rent expense. All operating expenses, except wages expense, increase by 5% annually. This is based on the inflation rate of 5%. Wages expense increases by 10% annually.
I. I. Financial Statements (send me your excel file) Projected Income Statements The following income statements summarize the revenue, cost of goods sold and expenses of the business. The profitability report shows increasing annual sales and steady operating expenses. Annual net income increases every year, by more than P25, 000.00.
Miles Company INCOME STATEMENT 2009-2013 (in Philippine Pesos)
Sales Cost of Goods Sold Gross Profit
2009
2010
2011
2012
354,540.00 128,816.20 225,723.80
466,085.00 164,146.37 301,938.63
568,292.50 202,344.17 365,948.33
676,692.50 243,951.38 432,741.12
2013
791,332.50 289,213.45 502,119.05
Operating Expenses Income before tax and interest Interest Expense Income before tax Income tax - 35% NET INCOME
171,913.26
183,938.06
197,099.57
211,513.09
227,305.76
53,810.54 6,137.69 47,672.85 18,833.69 28,839.16
118,000.57 2,301.72 115,698.85 41,300.20 74,398.65
168,848.76 0.00 168,848.76 59,097.07 109,751.70
221,228.04 274,813.29 0.00 0.00 221,228.04 274,813.29 77,429.81 96,184.65 143,798.22 178,628.64
Projected Cash Flows Statements The business reports its cash flow statements using indirect method. The cash flow statements summarize the firm’s cash inflows and cash outflows or cash receipts and cash disbursements, respectively. Cash inflows include cash investments and cash from customers for products sold, while cash outflow include cash paid for manufacturing costs and operating expenses, income tax payment to BIR, and cash used in acquiring fixed assets. There are no additional cash investments. Payment of tax for the current year operation shall be paid on the following year before the deadline, April 15 of the year. Miles Company will have an increasing cash balance at year end because of increasing sales. The table in the next page is a summary of the company’s cash transactions.
Miles Company CASH FLOWS STATEMENTS 2009-2013 (in Philippine Pesos) 2009
Cash, Beginning of the Year Add; Cash Inflows Cash Initially Invested in Business Cash from customers Total Inflows Less : Cash Outflows Cash paid for manufacturing cost Cash paid for operating expense Cash used to acquire manufacturing equipment Cash used to acquire motor vehicle Cash paid for interest Cash paid to BIR for Income Tax Total Outflows Cash, End of the Year
2010
2011
2012
2013
43,889.73
117,290.40
249,227.57
415,616.20
347,700.00 376,907.33
463,955.00 463,955.00
566,327.50 566,327.50
674,607.50 674,607.50
789,127.50 789,127.50
129,230.40
164,258.64
202,466.63
244,084.77
289,358.56
165,437.20
177,462.00
190,623.51
205,037.03
220,829.70
27,362.31
27,698.28
0.00
0.00
0.00
6,137.69
2,301.72
0.00
0.00
0.00
0.00 18,833.69 41,300.20 59,097.07 333,017.60 390,554.33 434,390.34 508,218.86 43,889.73 117,290.40 249,227.57 415,616.20
77,429.81 587,618.07 617,125.63
0.00
29,207.33
4,850.00
Projected Balanced Sheets Miles Company BALANCE SHEETS 2009-2013 (in Philippine Pesos) 2009
2010
2011
2012
2013
ASSETS Cash Accounts Receivable Merchandise Inventory Total current assets
Fixed Assets Less : Accumulated Depreciation
TOTAL ASSETS
43,88 9.73 6,84 0.00 41 4.20 51,14 3.93
117,29 0.40 8,97 0.00 52 6.47 126,78 6.87
249,22 7.57 10,93 5.00 64 8.93 260,81 1.50
415,61 6.20 13,02 0.00 78 2.32 429,41 8.53
617,125 .63 15,225 .00 927 .43 633,278 .06
59,91 0.59 6,47 6.06 53,43 4.53 104,57 8.46
59,91 0.59 12,95 2.12 46,95 8.47 173,74 5.34
59,91 0.59 19,42 8.18 40,48 2.41 301,29 3.91
59,91 0.59 25,90 4.23 34,00 6.35 463,42 4.88
59,910 .59 32,380 .29 27,530 .29 660,808 .36
27,69 8.28 18,83 3.69 46,53 1.97
41,30 0.20 41,30 0.20
59,09 7.07 59,09 7.07
77,42 9.81 77,42 9.81
96,184 .65 96,184 .65
29,20 7.33 28,83 9.16 58,04 6.49
58,04 6.49 74,39 8.65 132,44 5.14
132,44 5.14 109,75 1.70 242,19 6.84
242,19 6.84 143,79 8.22 385,99 5.06
385,995 .06 178,628 .64 564,623 .70
104,57 8.46
173,74 5.34
301,29 3.91
463,42 4.88
660,808 .36
LIABILITIES & CAPITAL
Installment Payable Income Tax Payable Total Liabilities Capital, Beginning of the Year Add: Net Income Capital, End of the Year TOTAL LIABILITIES & CAPITAL
The table in the preceding page shows a summary of the assets and the corresponding liabilities and capital of the business. It shows an increasing asset value due primarily to the increase of cash balance. Its only liability is the income tax payable which increases as net income increases. Capital or net worth also increases because of the increasing profitability of the business.
J. Financial Ratio K. APPICABLE FINANCIAL STATEMENT RATIOS 2.7 2
3 .07
4 .41
5 .55
6. 58
51,143.93
126,786.87
260,811.50
429,418.53
633,278.06
18,833.69
41,300.20
59,097.07
77,429.81
96,184.65
0.1 8
0 .24
0 .20
0 .17
0. 15
18,833.69
41,300.20
59,097.07
77,429.81
96,184.65
104,578.46
173,745.34
301,293.91
463,424.88
660,808.36
0.5 6
0 .76
0 .80
0 .83
0. 85
Total Equity
58,046.49
132,445.14
242,196.84
385,995.06
564,623.70
Total Assets
104,578.46
173,745.34
301,293.91
463,424.88
660,808.36
0.3 2
0 .31
0 .24
0 .20
0. 17
Total Liabilities
18,833.69
41,300.20
59,097.07
77,429.81
96,184.65
Total Equity
58,046.49
132,445.14
242,196.84
385,995.06
564,623.70
1. Current Ratio Current Assets Current Liabilities
2. Debt Ratio Total Liabilities Total Assets
3. Equity Ratio
4. Debt to Equity Ratio
5. Gross Profit Margin
0.64
0.65
0.64
0.64
0.63
Gross Profit
225,723.80
301,938.63
365,948.33
432,741.12
502,119.05
Sales
354,540.00
466,085.00
568,292.50
676,692.50
791,332.50
6. Operating Profit Margin Income before Interest Tax
0.1 5
0. 25
0. 30
0. 33
0. 35
53,810.54
118,000.57
168,848.76
221,228.04
274,813.29
354,540.00
466,085.00
568,292.50
676,692.50
791,332.50
0.1 0
0. 17
0. 20
0. 22
0. 23
35,315.22
80,874.71
116,227.76
150,274.28
185,104.70
354,540.00
466,085.00
568,292.50
676,692.50
791,332.50
0.0 8
0. 16
0. 19
0. 21
0. 23
28,839.16
74,398.65
109,751.70
143,798.22
178,628.64
354,540.00
466,085.00
568,292.50
676,692.50
791,332.50
3.3 9
2. 68
1. 89
1. 46
1. 20
Net Sales
354,540.00
466,085.00
568,292.50
676,692.50
791,332.50
Ave. Total Assets
104,578.46
173,745.34
301,293.91
463,424.88
660,808.36
0.2 8
0. 43
0. 36
0. 31
0. 27
28,839.16
74,398.65
109,751.70
143,798.22
178,628.64
104,578.46
173,745.34
301,293.91
463,424.88
660,808.36
Sales
7. Cash Flow Margin Cash flow from operations Sales
8. Net Profit Margin Net Income Net Sales
9. Asset Turnover
10. Rate of Return On Assets Net Income Ave. Total Assets
Current ratio measures the ability of the business to meet current obligations as they become due. The increasing balance of cash and non-incurring of liability to trade creditors and lenders contribute to the increasing solvency or current ratio of the business. The increasing current ratio of Miles Company indicates that the company will be more and more liquid in the coming years. Debt ratio, equity ratio, and debt to equity ratio measure the proportion of liability to assets, capital to assets, and liability to capital, respectively. These ratios measure the financial strength of the business and cautions to creditors. The debt ratio of Martin
Company increases because of the increasing income tax payable and shall result to increase in the debt to equity ratio. Inversely, the increasing debt ratio of the business results to decreasing equity ratio. The financial ratios table in the preceding page shows that the company will be financially strong in the coming operating years because of the larger proportion of capital than liabilities in the financial structure of the business. Gross profit margin, operating profit margin, cash flow margin and net profit margin ratios used to measure the profitability of the business. Gross profit margin measures the ability of a firm to control manufacturing costs and to pass along price increases through sales to customers. But since pricing of the Martin Honeydipped Banana Chips is based on a desired gross profit rate, the gross profit margin of the business is relatively consistent throughout the years. The operating profit margin of the Miles Company is on an increasing trend. This indicates the ability of the company to control operating expenses while sharply increasing sales. Also, the increasing cash flow margin shows that the business shall have no problem in converting sales to cash to enable it to expand and obtain market share. There is also an increasing trend of the net profit margin of the business due to increased sales and control in all costs and expenses. The rate of return of investment shall assure prospective investors or partners that there is money in the business. Miles Company has an increasing rate of return of investment because of its overall efficiency in managing assets and generating profits.
L. Capital Budgeting Analysis For the purpose of capital budgeting analysis, net future cash inflows of the business shall be matched with the initial project cost of P 29,207.33. The following cash flow
table shows the short payback period, positive net present vale and a high internal rate of return of the proposed business:
CAPITAL BUDGETING CASH FLOW SCHEDULE For the Years 2008-2013 (In Philippine Peso) PreOperating Initial Investment Amortization Vehicle Net Income after taxes add: depreciation Add: salvage value of motor Net Cashflow Cash Balance
2009
2010
(21,362.31)
(27,698.28)
28,839.16
74,398.65
6,476.06
6,476.06
2011
2012
2013
109,751.70
143,798.22
178,628.64
6,476.06
6,476.06
6,476.06
(29,207.33)
32,380.29 (29,207.33)
13,952.91
53,176.43
(15,254.42)
37,922.01
116,227.76
150,274.28
217,484.99
PAY BACK PERIOD NET PRESENT
1.29 P 327,280.02
VALUE INTERNAL RATE OF RETURN*
145%
*25% is the most li kely rate of return is the the computed rate of return on investment
The above table shows that the high cash inflows provided by the business operation shall result to a payback period of 1.29 years. This means that initial investment shall be recovered by Miles Company within 1.29 years.
The net present value of a project is the present value of the expected cash flows that the business will receive as result of investing into the project. The Net Present Value of the project is P 327,280.02, and this is the value that will be added to the initial investment. Since, the NPV is positive, the project could be considered financially viable. Internal rate of return is defined as the discount rate that equates the present value of the project's future net cash flows with the project's initial cash outlay. If the IRR is compared with the interest offered by banks or other risk-free investment instruments, the IRR of 145% is much higher than the rate offered by investing to government bonds such as T-bills. This means that this project is a more attractive investment.
