Chapter V

FINANCIAL ASPECT

This chapter shows the financial aspect of the business evaluating the company’s

projected financial position and performance. Under this aspect, the proponents of the study will

be presenting the business’ initial project cost, sources of financing, assumptions, and projected

financial statement for 5 years accompanied by supporting notes and schedules to financial

statements. An analysis of the business’ liquidity and profitability through financial ratios will be

performed. A breakeven point analysis, and investment analysis will also be presented and

discussed in this study in order to determine the feasibility of the proposed project.

Initial Project Cost

The initial project cost in mobilizing the business was determined by the proponents and

is presented in the table below. Accompanying notes will be provided to show how each value

was determined.

Table (insert table #). Initial project cost computation

Project Cost
Notes Percentage
Prepaid Expenses 1 198,800.00 33.84%
Cleaning Supplies 2 3,208.00 0.55%
Store and Office Supplies 3 6,878.00 1.17%
Interior design and equipment 4 362,663.50 61.72%
Organizational and Legal Costs 5 16,000.00 2.72%
Total ₱ 587,549.50. 100%

The total cost to establish and operate Bows Eye Leisure & Café would amount to

₱ 587,549.50. The proponents decided to finance the business partner’s investment. The place

where of the business will be rented and prepaid rent expense will be included in the prepaid

expenses. In the table presented above, it can be noted that 61.72% of the cost to establish the
business is attributable to the capitalized interior design and equipment which will be subjected

to depreciation. Other proponents of the project cost includes cleaning supplies, store and office

supplies as well as organizational and legal costs which in aggregate is 4.44% of the entire

project cost.

The breakdown of the project costs is presented in the notes below.

Note 1. Prepaid Expense

Prepayments Cost
Prepaid Telephone Expense ₱ 1,300.00
Prepaid Advertisement Expense 5,500.00
Prepaid Rent 192,000.00
Total Cost ₱ 198,800.00

The proponents assume that there would be prepaid expenses in starting up the business,

Hence, prepaid expenses is created as part of the initial project cost. Prepayments includes the

prepaid telephone expense and a prepaid advertising expense. Furthermore, the proponents will

be renting a 2-story building in order to conduct the business. The building will be renovated,

where the interior design will be capitalized and considered as part of the property and

equipment. The rental will be at ₱96,000. The proponents paid two (2) months of rent in advance

with the payment placed in a security deposit.

Note 2. Cleaning Supplies

Supplies Cost
Pail ₱ 348.00
Dipper 50.00
Dustpan 300.00
Recycling Bins 1,290.00
Lobby Broom 300.00
Hand Soap 320.00
Multi-purpose Cleaner 600.00
Total Cost ₱ 3,208.00

Note 3. Store and Office Supplies

Supplies Cost
Target ₱ 4,000.00
 Waste Basket 120.00
Calculator 248.00
Bond Paper 330.00
Stapler 165.00
Staple Wire 75.00
Pencil 390.00
Fastener 75.00
Light Bulb 1,125.00
Whiteboard Marker 50.00
Folder 300.00
Total Cost ₱ 6,878.00

Note 4. Interior design and Equipment

The location of the warehouse is leased at ₱96,000.00 per month with 2 floors, restroom,

and a parking space. The lease agreement include a non-major installations for renovation and

interior design to the property since it is supposed to be for warehouse purposes only. As

aforementioned, the leased agreement will be classified as a monthly rental and will only be

placed as a prepaid rent at the beginning and a rent expense at for every month of rent payment.

In the table below, the renovation for the building will be capitalized and will be depreciated in

accordance to its estimated useful life. Furniture and Fixtures includes all movable and

immovable items necessary in conducting the business. The emergency related fixtures includes

emergency lights and smoke detectors.

In addition, the value of Equipment includes all office equipment and business

equipment, as well as all materials that are necessary to Archery. Fire extinguishers and the tools

necessary for maintenance were classified separately as tools.

Account Components Cost Total Cost

Interior design Capitalized Price 150,000 150,000.00
Furniture and Monobloc Chairs 20,900.00 58,260.00
 Wooden Tables 9,800.00
Office Chair 1,100.00
Filing Cabinet 1,300.00
Fixtures Office Tables 4,000.00
Safe 3,960.00
Aggregated Bathroom Fixtures 10,000.00
Emergency Related Fixtures 7,200.00
Arrows 22,384.00
Junxing Archery Bow Set 54,000.00
Armguards 3,600.00
Archery Dyneema String 4,500.00
Chest Guard 2,232.00
Cartel Pro Finger Tab 2,400.00
Bamboo Arroe Tube Stand 600.00
Equipment
Bow sight 3,348.00
Custom Made Bow stand 1,800.00
Queuing Display System 12,500.00
Cash Register 14,999.50
Computer Desktop 12,000.00
Printer 3,600.00
Television 11,200.00 149,163.50
Fire Extinguisher 2,240.00
Tools
Maintenance Tool Box 3,000.00 5,240.00
Total Cost ₱ 362,663.50
Note 5. Organizational and Legal Costs
Organizational and Legal Costs Cost
BIR Registration ₱ 2,300.00
City Business Permit Application 2,700.00
Fire Safety Inspection Fee 1,200.00
Safety Hazard Inspection Fee 3,000.00
SEC Registration 2,500.00
Barangay Clearance Fee 1,650.00
Electricity Inspection 2,650.00
Total Cost ₱ 16,000.00

The amount for organizational and legal costs presented in the study is an estimated

budget as to how much would be spent in processing the necessary papers such as SEC

Registration, Barangay Clearance, Mayor’s Permit, BIR Registration, Fire Safety Inspection Fee,

and other legal matters considering the proper preparation of the business and all the process that

would ready the business to operate. The proponents’ estimated value is ₱16,000.00.
Sources of Financing

A business entity in order to start its establishment needs to have a start-up amount. And

in preparing this value, the business could look for different sources of financing. However, in

this proposal, the partners would be each contribute to the partnership. The contributed capital

will be the only source for starting the business.

Table (insert table #). Sources of Financing

Sources of Financing
Note Investment Percentage
Marinel Joy Elegano ₱ 120,000 20%
Lorrie Lie Mae Espinosa 120,000 20%
Johann Gabriel Natalaray 1 120,000 20%
Patricia Yvonne Sayson 120,000 20%
Crissia Jay Quiatchon 120,000 20%
Total ₱ 600,000.00 100%

Based on the previous section, the total start-up cost of the business is valued at

₱587,549.50. Therefore, the partners would approximately need ₱600,000 to start the business.

The partners would be investing a ₱120,000 each to supply 100% of the needed capital.

Note 1. Partners Contribution Agreement

Partner Contribution Profit Sharing Ratio
Marinel Joy Elegano ₱ 120,000 1/5
Lorrie Lie Mae Espinosa 120,000 1/5
Johann Gabriel Natalaray 120,000 1/5
Patricia Yvonne Sayson 120,000 1/5
Crissia Jay Quiatchon 120,000 1/5
Total ₱ 600,000.00 5/5

In the partnership contract and agreement created and signed by the partner, they all have

agreed to contribute equal amounts of cash of ₱120,000 making them as capitalist partners of the

partnership. It was further agreed that they will also offer their services to the partnership as
industrial partners. The duties and responsibilities of the partners have been presented in Chapter

2 Management Aspect of this paper. No bonus was discussed in the partnership agreement, and

the partners will be equally sharing the profits of the entity giving each partner a profit sharing

ratio of 1/5. In terms of their loss sharing ratio, the partners have agreed to follow the ratios in

the profit sharing agreement.

Furthermore, in case of liquidity, the partners agreed that the residual value after paying

all of the partnership’s creditors and other liabilities will be divided proportionate to the ending

balances in the capital accounts of each partner.

Financial Statements Assumptions

 The five-year projected financial statements of the company was based on several

assumptions which were based on industry data. The industry data were derived from different

financial websites and journals which will be cited accordingly.

Statement of Profit or Loss

Revenues

According to Statista (2021), sports and outdoor related businesses has a projected

compound annual growth rate of 16.38% and has a projected revenue growth rate of 33.80% for

2021. Taking these values into consideration, the proponents have decided to assume a growth

rate in sales of only 10% for the 2nd and 3rd year. This is due to the fact that we are currently in

the midst of a global pandemic and that the business will only be starting its operations. A

growth of 15% will be assumed for the succeeding years. Revenues refer to the total revenue

which includes the revenue from the archery range and the revenue from the leased spaces.

The allocation of the increase will be based on the proportion of each source of revenue

to the total revenue or gross profit in Year 1. As provided in Note 2 of the Notes to Financial

Statements, 90% of the gross profit is attributable to the revenue from the archery range and 10%

is attributable to the revenue from leased spaces.

Gross Profit

Since the entity is not engaged in retail or manufacturing, there will be no cost of goods

sold or cost of sales to be presented in the income statement. This would entail that the gross

profit of the business equates to the total revenue of the entity for that year.

Operating Expenses
 Operating expenses of the entity pertains to all expenses related to the operations of the

business with specification as to selling and administrative costs. Since there is no available

industry data and annual reports for Archery Range businesses here in the Philippines, the

proponents have decided that each element of the operating expenses, except for salaries, rent,

utilities, and depreciation expenses, will grow together with the grow together with the growth in

sales.

Provision for Income Tax

Provision for income tax is assumed to be at a fixed rate of 30% of the income before tax,

in accordance with the provisions of the TRAIN Law and IAS 12: Income Taxes.

Net Income

Net income of the entity will vary throughout the projected years. They will be

increasing, however the increase will not be the same with the increase in revenue because not

all components of the operating expenses of the business grow spontaneously with sales.

Statement of Financial Position

Spontaneous Assets

All assets of the entity, with the exception of property, plant and equipment, increase

spontaneously alongside revenues. Hayes (2020) said that these assets grow in proportion to

revenues, as a result of a company’s day-to-day operations. In this feasibility study, it is assumed

that all spontaneous assets except for cash and supplies grow together with the growth in

revenue. The spontaneous assets of the company includes cash, prepaid expenses, supplies which

refers to both store and office supplies, and organizational and legal costs.

Property, Plant and Equipment

According to Arnoldi (2020), fixed assets of a company are assumed to be operating at a

capacity of 70%. Fixed assets cannot be operated at full capacity since this would mean that the

Archery range as well as the coffee shop are open 24 hours, 7 days a week. In this study, there

would be no additional acquisition of property, plant and equipment since the existing PPE

would be able to support the sales growth. Furthermore, this assumption would entail that the

depreciable charge for the period would be the same throughout the projected five year statement

of financial position. A straight-line method of depreciation was also utilized.

Spontaneous Liabilities

Non-interest bearing liabilities are assumed to spontaneously grow in proportion to

revenues. The company will only have accounts payable as its current liabilities since it is the

most common item in the liabilities section of a financial statement. It is therefore assumed that

the entity will not engage in any short-term borrowing for the next five years. An assumed value

of accounts receivable will be placed in the financial statements.

Shareholder’s Equity

The entity is in the form of a General Partnership, therefore each partner has his or her

own capital account. The capital account of the partners at the beginning of the business will be

equal to their contribution to start up the business. The capital accounts will be increased equally

when it comes to their respective shares in net income. It is assumed that there would be no

withdrawals at year 1, and so therefore, all partners will have the same ending balance. However,

withdrawal were assumed to have occurred from Year 2 to Year 5.

Statement of Cash Flows

Beginning Balance for Cash

The statement of cash flows is not usually created as part of the projected financials

statements due to the fact cash is very liquid and it is difficult to determine the movement of cash

for the next five years. However, the proponents decided to create a cash flow statement. Using

the plug-in approach (Velez-Pareja, 2009), the beginning balance for cash at Year 1 was stated at

₱227,150.

Projected Financial Statements

Statement of Financial Performance
Bows Eye Leisure & Cafe
Statement of Financial Performance
5-year Projected Statement
Note Year 1 Year 2 Year 3 Year 4 Year 5
Revenue
Archery Services 1 7,064,714 7,771,185 8,548,304 9,830,550 11,305,132
Revenue from Leases 2 288,000 316,800 348,480 400,752 460,865
Gross Profit 7,352,714 8,087,985 8,896,784 8,127,354 9,346,457
Operating Expenses 3 3,199,963 3,207,844 3,233,599 3,268,140 3,305,427
EBT 4,152,751 4,880,141 5,663,185 4,859,214 6,041,030
Tax Expense (30%) 1,245,825 1,464,042 1,698,955 1,457,764 1,812,309
Net Income 2,906,925.70 3,416,098.98 3,964,229.46 3,401,449.80 4,228,721.00

Statement of Financial Position

Bows Eye Leisure & Cafe
Statement of Financial Position
5-year Projected Statement
Note Year 1 Year 2 Year 3 Year 4 Year 5
ASSETS
Current Assets
Cash 4 3,109,488 6,147,253 9,729,115 13,090,492 17,282,540
Prepaid Expenses - - - - -
Supplies 120,921.00 120,402.00 136,917.20 156,211.78 175,966.21
Organizational and
- - - - -
Legal Costs
Total Current Assets 3,230,409 6,267,655 9,866,032 13,246,704 17,458,506
Non-Current Assets
Property, Plant and
5 326,517 290,370 254,223 218,076 181,929
Equipment
TOTAL ASSETS 3,556,926 6,558,025 10,120,255 13,464,780 17,640,435

LIABILITIES AND
OWNER’S EQUITY
Current Liabilities
Accounts Payable 50,000 55,000 60,500 69,575 80,011
TOTAL LIABILITIES 50,000 55,000 60,500 69,575 80,011

OWNER’S
EQUITY
Elegano, Capital 701,385 1,319,605 2,029,451 2,709,741 3,527,485
Espinosa, Capital 701,385 1,259,605 1,979,451 2,623,741 3,469,484
Natalaray, Capital 701,385 1,204,605 1,921,951 2,587,241 3,417,485
Sayson, Capital 701,385 1,364,605 2,059,451 2,729,741 3,563,485
Quiatchon, Capital 701,385 1,354,605 2,069,451 2,744,741 3,582,485
TOTAL OWNER’S
3,506,926 6,503,025 10,059,755 13,395,205 17,560,424
EQUITY
TOTAL LIABILITIES
3,556,926 6,558,025 10,120,255 13,464,780 17,640,435
AND OWNER’S EQUITY

Statement of Changes in Partners’ Equity

Bows Eye Leisure & Cafe
Statement of Changes in Partners’ Equity
5-year Projected Statement
Year 1 Year 2 Year 3 Year 4 Year 5
Elegano, Capital Beg. 120,000.00 701,385.14 1,319,604.94 2,029,450.83 2,709,740.79
Share in Net Income 581,385.14 683,219.80 729,845.89 680,289.96 845,744.20
Total 701,385.14 1,384,604.94 2,049,450.83 2,709,740.79 3,555,484.99
Withdrawals 0 65,000.00 20,000.00 0 28,000.00
Elegano, Capital End 701,385.14 1,319,604.94 2,029,450.83 2,709,740.79 3,527,484.99

Espinosa, Capital Beg. 120,000.00 701,385.14 1,259,604.94 1,979,450.83 2,623,740.79

Share in Net Income 581,385.14 683,219.80 729,845.89 680,289.96 845,744.20
Total 701,385.14 1,384,604.94 1,989,450.83 2,659,740.79 3,469,484.99
Withdrawals 0 125,000.00 10,000.00 36,000.00 0
Espinosa, Capital End 701,385.14 1,259,604.94 1,979,450.83 2,623,740.79 3,469,484.99

Natalaray, Capital Beg. 120,000.00 701,385.14 1,204,604.94 1,921,950.83 2,587,240.79

Share in Net Income 581,385.14 683,219.80 729,845.89 680,289.96 845,744.20
Total 701,385.14 1,384,604.94 1,934,450.83 2,602,240.79 3,432,984.99
Withdrawals 0 180,000.00 12,500.00 15,000.00 15,500.00
Natalaray, Capital End 701,385.14 1,204,604.94 1,921,950.83 2,587,240.79 3,417,484.99

Sayson, Capital Beg. 120,000.00 701,385.14 1,364,604.94 2,059,450.83 2,729,740.79

Share in Net Income 581,385.14 683,219.80 729,845.89 680,289.96 845,744.20
Total 701,385.14 1,384,604.94 2,094,450.83 2,739,740.79 3,575,484.99
Withdrawals 0 20,000.00 35,000.00 10,000.00 12,000.00
Sayson, Capital End 701,385.14 1,364,604.94 2,059,450.83 2,729,740.79 3,563,484.99

Quiatchon, Capital Beg. 120,000.00 701,385.14 1,354,604.94 2,069,450.83 2,744,740.79

Share in Net Income 581,385.14 683,219.80 729,845.89 680,289.96 845,744.20
Total 701,385.14 1,384,604.94 2,084,450.83 2,749,740.79 3,590,484.99
Withdrawals 0 30,000.00 15,000.00 5,000.00 8,000.00
Quiatchon, Capital End 701,385.14 1,354,604.94 2,069,450.83 2,744,740.79 3,582,484.99

Statement of Cash Flows

Bows Eye Leisure & Cafe
Statement of Cash Flows
5-year Projected Statement
Year 1 Year 2 Year 3 Year 4 Year 5
Cash Flow from
Operating Activities
Net Income 2,906,925.70 3,416,098.98 3,964,229.46 3,401,449.80 4,228,721.00
Depreciation 36,147.00 36,147.00 36,147.00 36,147.00 36,147.00
(Increase) Decrease in - - - -
619.00
Supplies 110,835.00 16,515.20 19,294.58 19,754.43
Increase (Decrease) in
50,000.00 5,000.00 5,500.00 9,075.00 10,436.00
Accounts Payable
Net Cash Provided
by Operating 2,882,237.70 3,457,864.98 3,989,361.26 3,427,377.22 4,255,549.57
Activities

Cash Flow From

Investing Activities
Acquisition of
Property Plant and - - - - -
Equipment
Net Cash Used in
- - - - -
Investing Activities

Cash Flows from

Financing Activities
Increase(Decrease in
- - - - -
Long Term Debt)
Cash Received from
- - - - -
Owners
Payment for - - - -
-
Withdrawals 420,000.00 92,500.00 95,098.00 63,500.00
Net Cash Provided
- - - -
by Financing -
420,000.00 92,500.00 95,098.00 63,500.00
Activities

Net Change in Cash 2,882,237.70 3,037,864.98 3,896,861.26 3,332,279.22 4,192,049.57

Cash, Beginning 227,150.00 3,109,387.70 6,147,252.68 10,044,113.94 13,376,393.16
Cash, Ending 3,109,488 6,147,253 9,729,115 13,090,492 17,282,540

Notes and Schedules to Financial Statements

Note 1. Revenue from Archery Range

The archery range will be operating for eight (8) hours a day six (6) days a week, which

is approximately 192 hours per month, and 2,304 hours in a year. The proponents decided to

reduce the approximate annual hours to 2,250 hours since non-working holidays exist. There are

ten (10) lanes in the archery range, however, applying the principle of conservatism, the

proponents assume that the average occupied lanes annually is seven (7). Therefore the total

hours of operations will equal to 2,250 hours times 7 lanes or 15,750 hours. One-on-one

coaching is not included in the annual hour allocation since this is just an additional fee for when

a guest requests for a coaching.

 Additionally, the second floor of the building will be used for intermediate-pro range,

where the customers will be using their own equipment. There will also be a total of ten (10)

lanes in the second floor, however the average lanes used in a year is set to be at 4 lanes. This is

because there is a small population of intermediate to pro archers here in the city. And not all of

these archers will be staying in the range for the entire week. The proponents decided to apply

the principle of conservatism as to not overstate the estimated and projected revenue. If there is

an approximate of 2,250 operating hours in a year, and there is an average of 4 lanes used for the

entire year, the hours used to compute the income for the 2nd floor range is 9,000 hours.

These available hours were allocated to the different packages offered by the Archery

Range. These packages were designed similarly to Arrowland by Gandiva an archery club

located in Ortigas Center, Quezon City, Philippines (Gandiva, n.d.). Each services offered is

applicable in a per lane basis.

Rates Offered Cost Hours Total Revenue

Solo Rate (1 hour; 25 arrows) ₱ 249.00 5,100 ₱ 1,269,900.00
Buddy Pack (2 hours; 55 arrows) 449.00 2,770 621,865.00
Lucky 3 Rate (3 hours; 80 arrows) 659.00 2,200 483,267.00
Barkada Bundle (3 hours; 120 arrows) 859.00 3,980 1,139,607.00
Family Bundle (4 hours;150 arrows) 1059.00 1,700 450,075.00
One on one coaching per hour 200.00 6,500 1,300,000.00
2nd floor intermidiate-pro range (per hour) 200.00 9,000 1,800,000.00
Total Revenue from the Archery Range ₱ 7,064,714.00

The total revenue from the archery range of the entity for year 1 is ₱7,064,714. The

revenue for the succeeding years is summarized in the table below.

Year 1 Year 2 Year 3 Year 4 Year 5

Projected
7,064,714 7,771,185 8,548,304 9,830,550 11,305,132
Revenue
Difference
- 706,471 1,148,590 2,765,836 4,240,418
from Year 1
Note 2. Revenue from Leases Spaces

The business will not make a café per se but would rather leased three (3) spaces to food

stalls which would constitute to the café portion of the business. An equal monthly rent will be

given to all spaces. The monthly rental for the space occupied already includes their payment for

utilities such as water and electricity. The monthly rental is set at ₱8,000.00.

Leased Space Schedule

Monthly Rental Spaces Months Rent Revenue
₱ 8,000.00 3 12 ₱ 288,000.00

The total revenue from the leased spaces of the entity for year 1 is ₱288,000. The revenue

for the succeeding years is summarized in the table below.

Year 1 Year 2 Year 3 Year 4 Year 5

Projected Revenue 288,000 316,800 348,480 400,752 460,865
Difference from
- 28,800 60,480 112,752 171,865
Year 1

Based on the projected revenue of ₱7,064,714 from Note 1 and the calculated revenue for

leased spaces in Note 2, the total revenue or gross profit of the entity is ₱7,352,714. The

proponents calculated the percentage of revenue that is attributed to the archery range and it is at

96%. This would entail that 4% of the profit is from the leased spaces.

Note 3. Operating Expenses

Schedule Year 1 Year 2 Year 3 Year 4 Year 5

Salaries Expense 1 1,680,907 1,680,907 1,680,907 1,680,907 1,680,907

Rent Expense 2 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000

Utilities Expense 3 125,988 125,988 125,988 125,988 125,988

Depreciation Expense 4 36,147 36,147 36,147 36,147 36,147

Supplies Expense 5 120,921.00 120,402.00 136,917.20 156,211.78 175,966.21

Advertising Expense 6 66,000 72,600 79,860 91,839 105,614.85

Miscellaneous Expense 7 18,000 19,800 21,780 25,047 28,804

Total operating expenses 3,199,963 3,207,844 3,233,599 3,268,140 3,305,427

As previously stated in the assumptions portion of the paper, operating expenses of the

entity- except for salaries, rent, utilities, and depreciation, will grow together with the growth in

revenue which is 10% in Year 2 and 3, and 15% in Year 4 and 5. The total operating expenses

for year 1 is ₱3,199,963. It can be observed that the expense at year 5 amounting to ₱3,305,427

has a little difference from year 1 operating expense which is ₱105,464. This is because four

components of operating expense is the same for the next five years. A schedule for the

computation of each component of operating expense is presented in the following discussion.

SCHEDULE 1 SALARIES EXPENSE

13th
SSS SSS PhilHealth PhilHealt Pag-IBIG Pag-IBIG Total Basic Salary Total Salaries
Position (employer) month
(year) (employer) h (year) (employer) (yearl) benefits (per year) Deductions Expense
pay
Manager 15,20
15,410 23,610 3,192 6,384 3,648 7,296 52,490 182,400 15,040 219,850
1 0
Book- 14,00
11,830 18,125 2,940 5,880 3,360 6,720 44,725 140,000 12,595 172,130
keeper 0
10,20
Cashier 1 10,340 15,910 2,142 4,284 2,448 4,896 35,290 122,400 10,160 147,530
0
10,20
Cashier 2 10,340 15,910 2,142 4,284 2,448 4,896 35,290 122,400 10,160 147,530
0
Range 12,50
12,675 19,500 2,625 5,250 3,000 6,000 43,250 150,000 12,450 180,800
Trainer 1 0
Range 12,50
12,675 19,500 2,625 5,250 3,000 6,000 43,250 150,000 12,450 180,800
Trainer 2 0
Range 12,50
12,675 19,500 2,625 5,250 3,000 6,000 43,250 150,000 12,450 180,800
Trainer 3 0
Range 12,50
12,675 19,500 2,625 5,250 3,000 6,000 43,250 150,000 12,450 180,800
Trainer 4 0
Utility 1 8,620 13,260 1,785 3,570 2,040 4,080 8,500 29,410 102,000 8,465 122,945
Security 12,00
10,140 15,535 2,520 5,040 2,880 5,760 38,335 120,000 10,613 147,722
Guard 0
 TOTAL 408,540 1,389,200 116,833 1,680,907

The entity will be paying its employees a 13th month pay which is equal to their monthly

salaries. As aforementioned in the previous chapter, each employee will receive an SSS,

PhilHealth, and Pag-IBIG benefits. The rate for each benefits is based on the 2021 rates provided

by each agency. The deductions from the salary of the employee for each benefit were no longer

presented. Instead a total deduction was shown in the schedule above. The entity will be having a

total of ten (10) employees, composed of a manager, an on-call bookkeeper-who will reconcile

the accounts on a monthly basis, two cashiers, four range trainers, a utility personnel, and a

security guard. Based on the schedule, the total salaries expense of the entity, provided that no

salary increase and no additional employees will be hired for the next five (5) years, is

₱1,680,907.

SCHEDULE 2 RENT EXPENSE

monthly Year 1 Year 2 Year 3 Year 4 Year 5
Rent Expense 96,000 1,152,000 1,152,000 1,152,000 1,152,000 1,152,000

As shown in the schedule above, the rent expense of the entity will be the same

throughout the projected five years of business operations. The lease agreement with the owner

of the building denotes a rent payment of ₱96,000 on a monthly basis. Therefore the total annual

rent is at ₱1,152,000.

For the utilities expense of the entity, schedule 3 below shows that for Year 1 to 5,

provided that the business will have a steady consumption for water and electricity as well as

there will be no change in the internet subscription plan, is ₱125,988.

SCHEDULE 3 UTILITIES EXPENSE

Amount Year 1 Year 2 Year 3 Year 4 Year 5
Electricity Expense 5,000 96,000 96,000 96,000 96,000 96,000
Water Expense 2,500 9,600 9,600 9,600 9,600 9,600
 Internet Expense 1,299 20,388 20,388 20,388 20,388 20,388
Total Annual ₱ ₱ ₱ ₱ ₱
₱ 125,988
Utilities Expense 8,799 125,988 125,988 125,988 125,988

SCHEDULE 4 DEPRECIATION EXPENSE

Depreciable Useful Annual
Cost Salvage Value
Cost Life Depreciation
Interior Design
150,000 15,000 135,000 10 13,500
(Capitalized)
Monobloc Chairs 20,900 2,090 18,810 8 2,351
Wooden Tables 9,800 980 8,820 10 882
Office Chair 1,100 110 990 5 198
Filing Cabinet 1,300 130 1,170 10 117
Office Tables 4,000 400 3,600 10 360
Safe 3,960 396 3,564 5 713
Aggregated Bathroom
10,000 1,000 9,000 10 900
Fixtures
Emergency Related
7,200 720 6,480 5 1,296
Fixtures
Arrows 22,384 2,238 20,146 7 2,878
Junxing Archery Bow Set 54,000 5,400 48,600 10 4,860
Armguards 3,600 360 3,240 8 405
Archery Dyneema String 4,500 450 4,050 5 810
Chest Guard 2,232 223 2,009 8 251
Cartel Pro Finger Tab 2,400 240 2,160 10 216
Bamboo Arroe Tube
600 60 540 10 54
Stand
Bow sight 3,348 335 3,013 10 301
Custom Made Bow stand 1,800 180 1,620 10 162
Queuing Display System 12,500 1,250 11,250 10 1,125
Cash Register 15,000 1,500 13,500 10 1,350
Computer Desktop 12,000 1,200 10,800 10 1,080
Printer 3,600 360 3,240 8 405
Television 11,200 1,120 10,080 8 1,260
Fire Extinguisher 2,240 224 2,016 5 403
Maintenance Tool Box 3,000 300 2,700 10 270
362,664 36,266 326,398 36,147.00

Schedule 4 above presents the annual depreciation of the entity for the next five years.

The salvage value for all items that needs to be depreciated were assumed to be at 10% of their

original cost. Their useful life were also estimated conservatively. The total annual depreciation
of the business is ₱36,147. This is under the assumption that no additional property, plant, and

equipment will be added and that no impairment will occur in span of 5 years.

SCHEDULE 5 SUPPLIES EXPENSE

monthly Year 1 Year 2 Year 3 Year 4 Year 5
Store and Office Supplies
Target 4,000.00 48,000.00 52,800.00 58,080.00 66,792.00 76,810.80
Waste Basket 2,700.00 2,700.00 - 2,700.00 - 2,700.00
Calculator 2,844.00 2,844.00 - - 2,844.00 -
Bond Paper 2,160.00 25,920.00 28,512.00 31,363.20 36,067.68 41,477.83
Stapler 2,500.00 2,500.00 - - 2,500.00 -
Staple Wire 780.00 9,360.00 10,296.00 11,325.60 13,024.44 14,978.11
Pencil 1,560.00 1,560.00 1,560.00 1,560.00 1,560.00 1,560.00
Fastener 200.00 2,400.00 2,400.00 2,400.00 2,400.00 2,400.00
Light Bulb 200.00 2,400.00 - 2,400.00 - 2,400.00
Whiteboard Marker 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00
Folder 150.00 1,800.00 1,980.00 2,178.00 2,504.70 2,880.41
Cleaning Supplies
Pail 348.00 348.00 - - 348.00 -
Dipper 50.00 50.00 - 50.00 - 50.00
Dustpan 300.00 3,600.00 3,960.00 4,356.00 5,009.40 5,510.34
Recycling Bins 1,290.00 1,290.00 1,290.00 1,290.00 1,290.00 1,290.00
Lobby Broom 300.00 3,600.00 3,960.00 4,356.00 5,009.40 5,510.34
Hand Soap 320.00 3,840.00 4,224.00 4,646.40 5,343.36 5,877.70
Multi-purpose Cleaner 600.00 7,200.00 7,920.00 8,712.00 10,018.80 11,020.68
Total Supplies 21,802.0 120,921.0 120,402.0 136,917.2 156,211.7 175,966.2
Expense 0 0 0 0 8 1

The value for the monthly expense of supplies were based on the assumed values

presented in Chapter 3 of this paper and in the computation for the initial cost of operating the

business. These monthly expenses were then multiplied to 12 months to get the annual expense

for the first year. However, this assumption is not entirely applicable to some items of supplies,

which is why some has assumed values as to when will the company need to replace the items.

The amount therefore of supplies expense for the each year varies.

SCHEDULE 6 ADVERTISING EXPENSE

monthly Year 1 Year 2 Year 3 Year 4 Year 5
 Advertising Expense 5,500 66,000 72,600 79,860 91,839 105,614.85

SCHEDULE 7 MISCELLANEOUS EXPENSE

monthly Year 1 Year 2 Year 3 Year 4 Year 5
Miscellaneous Expense 1,500 18,000 19,800 21,780 25,047 28,804

Schedule 5 and 6 above, present the advertising expense and miscellaneous expense for

the next five years of the business operations, respectively. Similar with the other component of

operating expenses, the values of Year 2 to 5 has been increased in accordance to the projected

increase in revenues.

Note 4. Cash
Year 1 Year 2 Year 3 Year 4 Year 5
Cash in Bank 3,080,000 6,120,000 9,700,000 13,060,000 17,260,000
Petty Cash 29,488 27,253 29,115 30,492 22,540
Total Cash 3,109,488 6,147,253 9,729,115 13,090,492 17,282,540

The cash account of the entity will be composed of a petty cash and the cash in bank. The

petty cash fund is set up in order to cover for petty expenses that the company will be incurring

during business operations.

Note 5. Property, Plant and Equipment

Account Year 1 Year 2 Year 3 Year 4 Year 5

Interior Design
136,500.00 123,000.00 109,500.00 96,000.00 82,500.00
(Capitalized)
Monobloc Chairs 18,549.00 16,198.00 13,847.00 11,496.00 9,145.00
Wooden Tables 8,918.00 8,036.00 7,154.00 6,272.00 5,390.00
Office Chair 902.00 704.00 506.00 308.00 110.00
Filing Cabinet 1,183.00 1,066.00 949.00 832.00 715.00
Office Tables 3,640.00 3,280.00 2,920.00 2,560.00 2,200.00
Safe 3,247.00 2,534.00 1,821.00 1,108.00 395.00
Aggregated Bathroom
9,100.00 8,200.00 7,300.00 6,400.00 5,500.00
Fixtures
Emergency Related
5,904.00 4,608.00 3,312.00 2,016.00 720.00
Fixtures
Arrows 19,506.00 16,628.00 13,750.00 10,872.00 7,994.00
Junxing Archery Bow
49,140.00 44,280.00 39,420.00 34,560.00 29,700.00
Set
Armguards 3,195.00 2,790.00 2,385.00 1,980.00 1,575.00
Archery Dyneema
3,690.00 2,880.00 2,070.00 1,260.00 450.00
String
Chest Guard 1,981.00 1,730.00 1,479.00 1,228.00 977.00
Cartel Pro Finger Tab 2,184.00 1,968.00 1,752.00 1,536.00 1,320.00
Bamboo Arroe Tube
546.00 492.00 438.00 384.00 330.00
Stand
Bow sight 3,047.00 2,746.00 2,445.00 2,144.00 1,843.00
Custom Made Bow
1,638.00 1,476.00 1,314.00 1,152.00 990.00
stand
Queuing Display
11,375.00 10,250.00 9,125.00 8,000.00 6,875.00
System
Cash Register 13,650.00 12,300.00 10,950.00 9,600.00 8,250.00
Computer Desktop 10,920.00 9,840.00 8,760.00 7,680.00 6,600.00
Printer 3,195.00 2,790.00 2,385.00 1,980.00 1,575.00
Television 9,940.00 8,680.00 7,420.00 6,160.00 4,900.00
Fire Extinguisher 1,837.00 1,434.00 1,031.00 628.00 225.00
Maintenance Tool Box 2,730.00 2,460.00 2,190.00 1,920.00 1,650.00
Total 326,517 290,370 254,223 218,076 181,929

Projected Financial Statements Ratio Analysis

Liquidity Ratios

Year 1 Year 2 Year 3 Year 4 Year 5

Current Assets 3,230,409 6,267,655 9,866,032 13,246,704 17,458,506
Current
50,000 55,000 60,500 69,575 80,011
Liabilities
Current Ratio 64.61x 113.96x 163.07x 190.39x 218.20x

Current Ratio

The business's current ratio for its projected financial statements is increasing. The

increase in the ratio is very high since the cash account of the entity is increasing in huge

amounts. The increase in the amount of cash is highly attributable to the less expenses incurred

by the entity and that the accounts payable account is significantly lesser. By the nature of the
entity’s business, as part of the services industry, lesser accounts payable is indeed significantly

lower as compare to those involved in merchandising or manufacturing business. The ratios are

above 1.0x, which indicates that the business’s current assets are more than enough to pay off its

current liabilities. The entity could possibly expand in year 3 if it would like to do so and if the

projected statements is true to the actual financial situation of the entity at that time.

Profitability Ratios

Operating Profit Margin

The operating profit margin of the business is expected to gradually increase over the

years. The gross profit margin is not computed because the revenue of the firm is equal to its

gross profit. The gradual increase is attributed mainly to the greater increase in revenue as

compared to the increase in operating expenses. Using the data in Year 2, the increase in revenue

is ₱753,271 while the increase in EBIT is only ₱727,390.

Year 1 Year 2 Year 3 Year 4 Year 5

EBIT 4,152,751 4,880,141 5,663,185 4,859,214 6,041,030
Revenue 7,352,714 8,087,985 8,896,784 8,127,354 9,346,457
Operating
56.48% 60.34% 63.65% 59.79% 64.63%
Profit Margin

Net Income 2,906,925.70 3,416,098.98 3,964,229.46 3,401,449.80 4,228,721.00

Revenue 7,352,714 8,087,985 8,896,784 8,127,354 9,346,457
Net Profit
39.54% 42.24% 44.56% 41.85% 45.24%
Margin

Net Income 2,906,925.70 3,416,098.98 3,964,229.46 3,401,449.80 4,228,721.00

Total Assets 3,556,926 6,558,025 10,120,255 13,464,780 17,640,435
Return on
81.73% 52.09% 39.17% 25.26% 23.97%
Asset

EBIT 4,152,751 4,880,141 5,663,185 4,859,214 6,041,030

Total Assets 3,556,926 6,558,025 10,120,255 13,464,780 17,640,435
Basic Earning
116.75% 74.41% 55.96% 36.09% 34.25%
Power
Net Profit Margin

Similarly, the net profit margin of the firm also projected to gradually increase in the next

five years. An increasing profit margin is an indication that the business is growing and is in a

good financial position. This could possible lead for the firm to decide to expand at Year 3 or at

the end of Year 5. An increasing profit margin means that the firm is making more money per

unit of revenue. The company could then increase the wages of the employee if it would like to

do so or hire additional employees.

Return on Asset

The firm is projected to show a decreasing return on assets. This can be directly attributed

to the increase in cash. According to Chan (2017), this may also be due to the “heaviness” in an

entity’s asset holdings. A decline in ROA would mean that the business failed to produce

revenue growth and may signal trouble for the company. However, this is not entirely the truth

when it comes to the entity’s business because the increase in assets is mainly due to the fact that

the company has lesser expenses and has a huge volume of cash on hand. A huge amount of cash

is not advisable, and so as aforementioned, the entity may opt for an expansion such as opening a

new branch here in Bacolod City, within Negros Occidental, or in Iloilo City.

Basic Earning Power

Similar to the business’s projected ROA it is projected that there would be a decline in its

basic earnings power. This is primarily because of the increase in the Total Assets of the firm.

According to Lumen (n.d.), a decrease in BEP reflects the ineffective generating of income. It

reflects that the company is poor in the management of its assets when trying to create value. The
poor management of asset refers to the management of cash. Because it is just a projected

statement it would be difficult to project how the entity will manage its cash in the near future.

Nevertheless, this would serve as a guide that when operating the business, the partners should

be aware of its cash management system.

Breakeven Point Analysis

Breakeven point analysis according to Woodruff (2020), is a method that determines the

number of units needed to be sold in order to cover all the variable and fixed costs. It is helpful

in determining the minimum units to sell and the amount of sales needed to pay all the expenses

before making a profit.

In computing the breakeven point of the entity or the business it is important to be able to

determine the variable and fixed costs of the business. However, there is an increased

complication, due to the fact that our business proposal is a service business and not a

manufacturing business (Calleja, 2018). This means that the ‘unit’ should be properly identified.

In computing the breakeven point, the proponents identifies the ‘unit’ as the number of hours that

the business is operating. This is in accordance to the discussion of Calleja (2018) regarding the

calculation of the breakeven point for a service business. Therefore, the business has a total of

15,750 units.

Moving to the variable and fixed cost, the variable costs of the business includes the

supplies expense, advertising expense, and miscellaneous expense. While variables costs is

compose of salaries expense, utilities expense, rent expense and depreciation expense. The

breakeven point is computed by dividing the total fixed cost with the difference between the

revenue per unit and variable cost per unit.

Breakeven point computation
  Year 1 Year 2 Year 3 Year 4 Year 5
Total Fixed Costs 2,955,042 2,955,042 2,955,042 2,955,042 2,955,042
Variable Cost Per Unit 13.01 13.51 15.15 17.34 19.71
Sales Price Per Unit 466.84 513.52 564.87 516.02 593.43
Breakeven Point
6,511 5,910 5,376 5,926 5,151
(units)
Based on the computation made above, the breakeven point of the business is projected to

be decreasing for the next five years, this is because the total fixed costs, as the name suggests is

constant in this period, while the sales per unit of the business is increasing. The increase in sales

per unit is due to the increase in the projected revenue of the company. Based on the results, the

variable cost per unit of the entity is increasing from ₱13.01 to ₱19.71. Which equates to an

increase of ₱6.7. On the other hand, the sales price per unit of the business in Year 5 at ₱593.43

is a huge increase from sales price per unit in Year 1 which is at ₱466.84. The difference

between the values is ₱126.59. The huge amount of sales price per unit is attributable to the

revenue generated from the 2nd floor of the range.

Taking the units into account, it is highly remarkable that at Year 2, the minimum

number of unit in order to reach a breakeven is approximately 1/3 the amount of units that the

company is projected to operate. And at Year 5, the minimum breakeven units is even lesser than

the breakeven units of year 2. At this point, it can be concluded that the entity will be in a good

financial position for the next five years and will be earning a huge amount of profit.

Investment Analysis

Year 1 Year 2 Year 3 Year 4 Year 5

Net Income 2,906,925.70 3,416,098.98 3,964,229.46 3,401,449.80 4,228,721.00
Total Investment 3,230,409 6,267,655 9,866,032 13,246,704 17,458,506
 Return on
89.99% 54.50% 40.18% 25.68% 24.22%
Investment

Net Income 2,906,925.70 3,416,098.98 3,964,229.46 3,401,449.80 4,228,721.00

Total Equity 3,506,926 6,503,025 10,059,755 13,395,205 17,560,424
Return on Equity 82.89% 52.53% 39.41% 25.39% 24.08%

Return on Investment

The return on investment financial ratio is a measure of the benefits that the investor or

partners receives in relation to the amount of investment that they have given to operate the

business. The higher the ratio implies that there is a greater benefit earned for every peso of

investment. However, as observed in the table above, the ROI of the business is decreasing for

the next five years. In connection with the discussion on the result for ROA below and ROE

previously, the declining ROI is highly attributable to the stagnant cash that the business will be

creating if cash for the next five years will not be utilized properly.

Since the partners has no huge acquisition for the next five years such as an acquisition of

additional property, plant, and equipment, and that expenses is only gradually increasing, the

cash account of the entity continues to grow. Added also that the partners’ only incur minimal

withdrawals. As constantly discussed, at Year 2 or Year 3, the entity should determine how to

properly handle and manage their cash account.

Return on Equity

The entity is projected to have a declining return on equity. Similar to the ROA, this is

attributable to the greater increase in the firm’s assets. According to Henricks (2020), a declining

ROE would mean that the company is less efficient at turning partners’ investment into profits

and at increasing the partners’ value. This warrants an evaluation of management decisions

towards generating of profits. As further discussed earlier, this should signal the management
that in the future, when the business is already operating, it should be very careful in managing

its assets, especially its cash.

Net Present Value

The net present value is the difference between the present value (PV) of cash inflows

and the present value (PV) of cash outflows for a specific period of time, in this case, five years.

It is usually used to analyse the profitability of a projected investment or project (Fernando &

Mansa, 2021). In this case, it will be used to determine the profitability of the proposed business

idea. Net present value accounts for time value of money which can be used to compare to other

investments. A discount rate needs to be identified, in this case, the proponents assumed that the

applicable discount rate in computing the NPV of the business is 10%.

Net Present Value

Initial Investment -600,000
Discount Rate 0.1
Year 1 Cash flows 2,882,237.70
Year 2 Cash flows 3,037,864.98
Year 3 Cash flows 3,896,861.26
Year 4 Cash flows 3,332,279.22
Year 5 Cash flows 4,192,049.27
Net Present Value ₱11,215,947.43

The cash flows for each year is determined from the net change in cash flows computed

and presented in the statement of cash flows. The initial investment is the total invested amount

of ₱600,000 which is from the equal investment of the partner amounting to ₱120,000. Based on

the table above, the net present value of the future cash flows of the business at as discount rate

of 10% is ₱11,215,947.43. The positive result for NPV indicates that the earnings or revenue in
this project-in present peso value- exceeds the anticipated costs, also in present per value

(Fernando & Mansa, 2021). This only means that the business in its entirety is profitable and will

be a good form of investment for those who would like to open a similar business.

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