CHAPTER 6

FINANCIAL FEASIBILITY

The Financial Aspect of the Project Feasibility Study quantifies results obtained from the
Marketing and Technical Aspect of the Project Study conducted. The Financial Aspect also
provides in peso terms the potential and possible outcome upon the operation of the project.

The major parts of the financial study are:

 Statements of Assumptions;
 Other sources of financing, if total capital required cannot be provided entirely by the
proponent;
 Projected Financial Statements;
 Details pertaining to amounts provided in the projected financial statements.
 Financial Ratios
 Vertical and Horizontal Analysis

6.1 Financial Assumptions:

 Selling Price of "chEATalk's" product can be located on notes to financial statements “Note
18”.
 Sales increases are based on the percentage of the Gross National Income of Philippines
per year. The following years of percentage for 2018-2022 will be computed using
forecasting techniques under QM program.
 The sales will increase base on the forecasted GNI.
 Purchase of Raw materials will and the Sales will also be affected by the Holidays of the
Philippines.
 The business will use FIFO method when handling ending inventory.
 Depreciation Expenses will be computed through a straight-line basis.
 The space of the proposed business is to be rented by the owner for P36,000 per month.
This amount does not include other expenses such as electricity and water bills.
 Interior design will have a budget of 900,000. Including the payment for the
contractor/layout designer.
 “chEATalk” will start its operations by January 2018.

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  There shall be 5% increase in the salaries of employees every two years beginning 2020.
 The business is only open from Tuesdays to Sundays, including holidays.
 There will be no promotion or discounts. Instead, we will be distributing 40 t-shirts in the
1st day of operation and 10 t-shirts will be distributed randomly every month with 5 year
duration.
 The marginal difference of delivery orders is still minimal from 3rd year to 5th year. Hence,
it is not yet considered.
 The excess cash less the allowance of 10% will be invested in trading securities.
 The breakdown of Initial capital requirements can be located in notes to financial
statements (note 22).
 Amounts are in Philippine Pesos

6.2 Initial Capital Requirements:

The capital agreed by the researchers will be 2,000,000. Chua will handle all the capital.

Capital Source Ratio Amount

Chua, Capital 100% 2,000,000.00

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6.3 Pro Forma Statements:
Annual Statement of Financial Position

chEATalk

Statement of Financial Position

As of December, 20XX

Notes 2018 2019 2020 2021 2022

Assets

Current Assets:

Cash 1 1,851,588.47 2,891,038.93 3,408,823.72 3,826,472.65 4,295,082.26

Prepaid Rent (1-month deposit) 2 36,000.00 36,000.00 36,000.00 36,000.00 36,000.00

Investment In trading securities 730,749.41 1,811,516.05 3,127,034.08

Inventories 10 18,255.54 18,255.54 18,255.54 18,255.54 18,255.54

Total Current Assets 1,905,844.01 2,945,294.47 4,193,828.67 5,692,244.25 7,476,371.88

Noncurrent Assets:

Machineries and Equipment 6 327,340.00 327,340.00 327,340.00 327,340.00 327,340.00

Accumulated Depreciation 9 36,188.00 72,376.00 108,564.00 144,752.00 180,940.00

Furniture and Fixtures 7 38,000.00 38,000.00 38,000.00 38,000.00 38,000.00

Accumulated Depreciation 9 7,600.00 15,200.00 22,800.00 30,400.00 38,000.00

Utensils 8 11,250.00 11,250.00 11,250.00 11,250.00 11,250.00

Accumulated Depreciation 9 3,750.00 7,500.00 11,250.00 3,750.00 7,500.00

Leasehold Improvement 16 900,000.00 900,000.00 900,000.00 900,000.00 900,000.00

Accumulated Depreciation 9 90,000.00 180,000.00 270,000.00 360,000.00 450,000.00

Total Noncurrent Assets 1,139,052.00 1,001,514.00 863,976.00 737,688.00 600,150.00

Total Assets
3,044,896.01 3,946,808.47 5,057,804.67 6,429,932.25 8,076,521.88

Liabilities and Equity

Liabilities:

SSS/HDMF/PHIC PAYABLE 4 6,324.00 6,324.00 6,324.00 6,324.00 6,324.00

Vat Payable 14 318,536.55 341,252.46 367,845.47 393,548.91 426,072.17

Withholding Tax Payable (Net) 15 32,186.92 32,186.92 32,186.92 32,186.92 32,186.92

Total Liabilities 357,047.46 379,763.38 406,356.39 432,059.83 464,583.08

Equity:

Chua, Capital 2,000,000.00 2,687,848.55 3,567,045.09 4,651,448.28 5,997,872.43

add: Net Income 687,848.55 879,196.54 1,084,403.19 1,346,424.14 1,614,066.37

Less: Withdrawal -

Total Equity 2,687,848.55 3,567,045.09 4,651,448.28 5,997,872.43 7,611,938.80

Total Liabilities and Equity 3,044,896.01 3,946,808.47 5,057,804.67 6,429,932.25 8,076,521.88

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Annual Statement of Comprehensive Income

chEATalk

Statement of Comprehensive Income

For the Year 20XX

Notes 2018 2019 2020 2021 2022

Net Sales 12 4,582,946.00 4,958,747.57 5,380,241.12 5,848,322.09 6,374,671.08

Cost of Goods Sold 10 2,485,775.45 2,689,609.03 2,918,225.80 3,172,111.45 3,457,601.48

Gross Profit on Sales 2,097,170.55 2,269,138.54 2,462,015.31 2,676,210.65 2,917,069.60

Add: Other Income 21 39,710.48 91,942.93 151,045.37

Total Gross Profit 2,501,725.79 2,768,153.57 3,068,114.98

Operating Expenses:

Permits and Licenses 3,700.00 - - - 3,700.00

Rent Expense 2 216,000.00 216,000.00 226,800.00 226,800.00 238,140.00

Advertising Expense 5 20,480.00 20,480.00 20,480.00 20,480.00 20,480.00

13th month pay 3 44,200.00 44,200.00 46,410.00 46,410.00 48,730.50

Salaries and Wages
Expense 3 200,148.00 200,148.00 210,155.40 210,155.40 220,663.17

Depreciation Expense 9 137,538.00 137,538.00 137,538.00 137,538.00 137,538.00

Supplies Expense 17 102,876.00 102,876.00 102,876.00 102,876.00 102,876.00

SSS/HDMF/PHIC 4 52,380.00 52,380.00 52,380.00 52,380.00 52,380.00

Utilities Expense 13 432,000.00 436,320.00 440,683.20 445,090.03 449,540.93

Premiums Expense
(T-Shirts) 19 80,000.00 60,000.00 60,000.00 60,000.00 60,000.00

Professional Fees 120,000.00 120,000.00 120,000.00 120,000.00 120,000.00

Total Operating
Expense 1,409,322.00 1,389,942.00 1,417,322.60 1,421,729.43 1,454,048.60

Net Income 687,848.55 879,196.54 1,084,403.19 1,346,424.14 1,614,066.37

Personal Exemption 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00

Net Income After PE 637,848.55 829,196.54 1,034,403.19 1,296,424.14 1,564,066.37

Income Tax 89,462.14 138,758.96 200,320.96 278,927.24 359,219.91

Net Income After Tax 598,386.41 740,437.58 884,082.23 1,067,496.90 1,254,846.46

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Annual Statement of Cashflows

chEATalk
Statement of Cash Flows
For the Year 20XX

2018 2019 2020 2021 2022

Cash Flow for Operating Activities

Net Income 687,848.55 879,196.54 1,084,403.19 1,346,424.14 1,614,066.37

Depreciation 137,538.00 137,538.00 137,538.00 137,538.00 137,538.00

Increase in Fair Value (Trading
Securities) - - (39,710.48) (91,942.93) (151,045.37)

Increased in Investment Securities (691,038.93) (988,823.72) (1,164,472.65)

Increased in Inventories (18,255.54) - - - -

Increased in Prepaid Rent (36,000.00) - - - -

Increase in SSS/HDMF/PHILHEALTH
PAYABLE 6,324.00 - - - -

Increase in Vat Payable 318,536.55 22,715.92 26,593.01 25,703.44 32,523.26

Increase in Withholding Tax payable 32,186.92 - - - -

Net Cash Provided by Operating
Activities 1,128,178.47 1,039,450.46 517,784.79 428,898.94 468,609.60

Cash Flow for Investing Activities

Purchase of Machineries and Equipment (327,340.00) - - - -

Purchase of Furniture and Fixtures (38,000.00) - - - -

Purchase of Utensils (11,250.00) - (11,250.00) -

Leasehold Improvement (900,000.00)

Net Cash Flow used for Investing
Activities (1,276,590.00) - - (11,250.00) -

Cash flow for Financing Activities

Capital - - - -
Net Cash Flow used for Financing
Activities 2,000,000.00

Net Cash Flows 1,851,588.47 1,039,450.46 517,784.79 417,648.94 468,609.60

Add: Cash beginning - 1,851,588.47 2,891,038.93 3,408,823.72 3,826,472.65

Ending Balance of Cash 1,851,588.47 2,891,038.93 3,408,823.72 3,826,472.65 4,295,082.26

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 Note 1:
Cash and Cash Equivalents
2018 2019 2020 2021 2022
Petty Cash Fund 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00
Cash in Bank 1,841,588.47 2,881,038.93 3,398,823.72 3,816,472.65 4,285,082.26
Total 1,851,588.47 2,891,038.93 3,408,823.72 3,826,472.65 4,295,082.26

Specific Assumptions:

1. Cash and Cash Equivalents are composed of Petty Cash Fund, and Cash in Bank.

2. It has been agreed that 10,000 will be the petty cash yearly while the remainder will be the cash
in bank.

Note 2:
Rent Expense:
Year 2018 2019 2020 2021 2022
Annual Rent 432,000.00 432,000.00 453,600.00 453,600.00 476,280.00

Specific Assumptions

1. There is a scaling of the rent which is 5% every two years.

2. Rent will be paid every end of the month.

3.The monthly rate for rent will be multiplied by 12 to get the annual cost of the rent.

4. The monthly rate is composed of 2 rooms which costs 18,000 each.

5. There is a 1-month advance in the payment of the rent.

Note 3:
Salaries and Wages
Position 2018 2019 2020 2021 2022
Direct Labor:
Chef 212,160.00 212,160.00 222,768.00 222,768.00 233,906.40
Total Direct Labor 212,160.00 212,160.00 222,768.00 222,768.00 233,906.40
Indirect Labor:
Service Crew 212,160.00 212,160.00 222,768.00 222,768.00 233,906.40
Cashier 106,080.00 106,080.00 111,384.00 111,384.00 116,953.20
Total Indirect Labor 318,240.00 318,240.00 334,152.00 334,152.00 350,859.60
Total 530,400.00 530,400.00 556,920.00 556,920.00 584,766.00

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Specific Assumptions

1. Salaries and Wages are composed of the salaries of the Chef, the Service Crew and the
Cashier.

2. Salaries and Wages of each employee will increase by 5% every 2 years.

3. The salary of the Chef will be charged to direct labor.

4. The 50% salaries of the Service Crew, Cashier, and Nutritionist will be charged as Salaries and
Wages Expense.

5. The salaries and wages of the employees will be deducted by SSS/PHIC/HDMF contributions.

6. The salaries and wages of the employees are minimum wages.

7. Remaining 50% of indirect labor will be charged to overhead.

Note 4:
SSS/PHIC/HDMF
Monthly Contributions SSS/PHIC/HDMF Contributions
Total Total Total
No. of Amount Total Amount
Yearly Monthly Yearly
Employees (ER) Monthly (ER) (EE)
(ER) (EE) (EE)
2018 5 873 4,365.00 52,380.00 527 2,635.00 31,620.00
2019 5 873 4,365.00 52,380.00 527 2,635.00 31,620.00
2020 5 873 4,365.00 52,380.00 527 2,635.00 31,620.00
2021 5 873 4,365.00 52,380.00 527 2,635.00 31,620.00
2022 5 873 4,365.00 52,380.00 527 2,635.00 31,620.00

Note 5:
Advertising Expenses (2018-2022)
Monthly Cost Annual cost
Social Media Advertisement 1,040.00 12480.00
Flyers/Posters 667.00 8,000.00
Total Cost 1,707.00 20,480.00

Specific Assumptions:

1. Advertising will be held 26 days a month.

2. Advertising will remain constant till 2022.

3. Advertising used social media and posters/flyers as a mode of advertising.

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 Note 6:
Machinery and Equipment
Estimated Useful Depreciation
Item Quantity Price per unit Total Amount
Life in years Expense
Electric Ceramic
Cooktop 1 19,800.00 19,800.00 10 1,980.00
Refrigerator
1 24,990.00 24,990.00 10 2,499.00
Air Conditioner
1 58,950.00 58,950.00 10 5,895.00
CCTV
4 2,150.00 8,600.00 5 1,720.00
POS System
1 15,000.00 15,000.00 10 1,500.00
Generator
1 200,000.00 200,000.00 10 20,000.00
Refractometer 2 2560.00 5120.00 5 1,024.00
Blender 2 3,925.00 7850.00 5 1,570.00
Total
327,340.00 33,594.00

Specific Assumption:

1. Big Machineries and Computers will have 10 years of useful life.

2. Small equipment will have 5 years of useful life.

3. Depreciation will be computed by having the total amount divided by the estimated useful life
in years.

Note 7:
Furniture and Fixtures
Estimated Useful
Item Quantity Price Amount Annual Depreciation Expense
Life in Years
Tables and Chair (Set) 6 3,000.00 18,000.00 5 3,600.00
Signage 1 20,000.00 20,000.00 5 4,000.00
Total 38,000.00 7,600.00

Specific Assumption:

1. The depreciation for the tables and chairs (set), and signage will be 5 years.

2. Depreciation will be computed by having the total amount divided by the estimated useful life
in years.

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 Note 8:
Utensils
Estimated Useful Depreciation
Item Quantity Price per unit Total Amount
Life in years Expense
Bento Box 25 450.00 11250.00 3 3750.00
Total 11250.00 3750.00

Specific Assumptions:

1. Utensils will have a useful life of 3 years.

2. Depreciation will be computed by having the total amount divided by the estimated useful life
in years.

Note 9:
Depreciation Expense
Depreciation
Account Title Total Costs Useful Life

2018 2019 2020 2021 2022

Furniture and
38,000.00 See Note 7 7,600.00 7,600.00 7,600.00 7,600.00 7,600.00
Fixtures
Machinery and
327,340.00 See Note 6 33,594.00 33,594.00 33,594.00 33,594.00 33,594.00
Equipment
Utensils 11,250.00 See Note 8 3,750.00 3,750.00 3,750.00 3,750.00 3,750.00
Leasehold
900,000.00 See Note16 90,000.00 180,000.00 270,000.00 360,000.00 450,000.00
Improvements
Total Depreciation 137,538.00 227,538.00 317,538.00 407,538.00 497,538.00

Note 10:
Statement of Cost of Goods Sold (Yearly)
2018 2019 2020 2021 2022
Beginning 190,644.76 207,976.11 207,976.11 207,976.11 207,976.11
Add: Purchases 1,928,474.79 2,114,977.03 2,314,862.20 2,568,747.85 2,824,069.70
Less: Ending Inventory 207,976.11 207,976.11 207,976.11 207,976.11 207,976.11
RM USED 1,911,143.45 2,114,977.03 2,314,862.20 2,568,747.85 2,824,069.70
Add: Direct Labor 199,512.00 199,512.00 209,487.60 209,487.60 219,961.98
Add: Overhead 375,120.00 375,120.00 393,876.00 393,876.00 413,569.80
Cost of Goods Sold 2,485,775.45 2,689,609.03 2,918,225.80 3,172,111.45 3,457,601.48

Specific Assumptions:

1. Purchases will be made every month.

2. Direct labor compose with 2 chef salaries.

3. The ending inventory of the previous month will be the beginning inventory for the current month

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4. The ending inventory will be 10% of the total Raw Materials.

Note 11:
Product Costing
Total
Products Price Serving Daily Monthly Annual
Per product
Pasta with Sliced Bread 109.00 4 436.00 11,336.00 136,032.00
Chicken Salad 129.00 8 1,032.00 26,832.00 321,984.00
Tuna Salad 129.00 4 516.00 13,416.00 160,992.00
Super Cheat 159.00 52 8,268.00 214,968.00 2,579,616.00
Fruit Shakes 69.00 35 2,415.00 62,790.00 753,480.00
Protein Shakes 79.00 25 1,975.00 51,350.00 616,200.00
Total Sales 14,642.00 380,692.00 4,568,304.00

Note 13:
Utilities Expense
Year 2018 2019 2020 2021 2022
Electricity 396,000.00 396,000.00 396,000.00 396,000.00 396,000.00
Water 36,000.00 36,000.00 36,000.00 36,000.00 36,000.00
Total 432,000.00 432,000.00 432,000.00 432,000.00 432,000.00

Specific Assumption:

1. Utilities expense are estimated at 36,000 per month.

2. The breakdown of 36,000 are 33,000 for Electricity and 3,000 for the water expenses.

Note 14
Vat Payable
2018 2019 2020 2021 2022
Output Vat 549,953.52 595,049.71 645,628.93 701,798.65 764,960.53
Less: Input Vat 254,294.35 278,754.38 302,740.60 333,206.87 363,845.50
VAT Payable 295,659.17 316,295.33 342,888.34 368,591.78 401,115.03

Note 15
Withholding Tax Payable
Monthly Yearly
Withholding Tax 1682.24 20186.92
W/holding Tax (Professional Fees) 1,000.00 12,000.00
Total W/holding Tax Payable 2,682.24 32,186.92

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Specific Assumptions:

1. Monthly withholding tax will be computed by 36,000 divided by 1.07 multiplied by 5%.

2. Monthly withholding tax for professional fees will be computed by 10,000 multiplied by 10%.

Note 16:
Leasehold Improvements
Component Estimated Costs
Interior Design 900,000.00
Breakdown:
Kitchen Design 245,000.00
Dining Area Design 275,000.00
Flooring (Kitchen and Dining) 180,000.00
Lay-out designer/Contractor 200,000.00
Total Cost 900,000.00

Note 17
Supplies Expense
Quantity Price per unit Total Amount
Plastic Cups (100 per set) 62 200.00 12400.00
Food Container (300 per set) 21 2000.00 42000.00
Plastic spoon and fork (100 per set) 62 166 10292.00
Tissue Paper (300 per set) 21 90 1890.00
Menu Board 1 2,000.00 2000.00
Rice Cooker 3 1,500.00 4500.00
Frypan 2 900.00 1800.00
Pot 2 1,900.00 3800.00
Microwave 1 4,300.00 4300.00
Sterilizer 1 3,500.00 3500.00
Weigh Scale 1 325.00 325.00
Dispenser 1 1,095.00 1095.00
Fire Extinguisher 1 1,300.00 1300.00
Vacuum Cleaner 1 2,720.00 2720.00
Glass wiper 1 260 260.00
Plunger and brush 1 359 359.00
Spoon and Fork (set) 5 280.00 1400.00
Chopping Board 1 280.00 280.00
Cooking Set Utensils 1 725.00 725.00
Tray 10 180.00 1800.00
Knife Set 1 400.00 400.00

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 Potato Masher 1 80.00 80.00
Glass (Drinking) 25 20.00 500.00
Glass (Shake) 25 65.00 1625.00
Microwavable Plate 4 75.00 300.00
Light Cheat Meal Plate 20 150.00 3000.00
Ice Box 1 225.00 225.00
Total 102876.00

Note 18
Product Pricing
Super Cheat
Light Cheat Meal
Meal
Pasta w/ slice bread (wheat) Chicken Salad Tuna Salad
Direct Materials 72.95 41.75 50.47 52.22
Direct Labor 10.12 10.12 10.12 10.12
Overhead 20.75 20.75 20.75 20.75
Total Costs 103.83 72.62 81.34 83.09
Mark-up 50% 51.91 36.31 40.67 41.55
Price 155.74 108.93 122.01 124.64
Rounded (Psychological Pricing) 159.00 109.00 129.00 129.00

Fruit Shakes Protein Shakes

Mutant Mass Serious Mass MP Combat Syntha 6
Direct Materials 14.18 61.18 76.29 42.17 43.58
Add: Markup 54.82 27.82 22.71 26.83 25.42
Price (Benchmarking w/
69.00 89.00 99.00 69.00 69.00
psychological pricing)

Note 19
Premiums Expense (T-shirt)
Cost Free 40 Monthly (10 shirts) Yearly (120 total shirts)
T-shirt 500.00 20,000.00 5,000.00 80,000.00

Specific Assumptions:

1. All the t-shirts will be given randomly each year

2. All the t-shirts will be assumed to be distributed yearly.

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 Note 20:
Professional Fees:
Monthly 2018 2019 2020 2021 2022

Nutritionist 10,000.00 120,000.00 120,000.00 120,000.00 120,000.00 120,000.00

Specific Assumption

1. The nutritionist will be subject to 10% withholding tax.

Note 21:
Investment in Trading Securities (Aboitiz Power Corporation)
2018 2019 2020 2021 2022

Stock Price 51.10 54.12 57.23 60.29 63.35

Year Price Fair Value Increase (Decrease)

2020 691,038.93 730,749.41 39,710.48

2021 730,749.41 769,821.45 39,072.05

988,823.72 1,041,694.60 52,870.88
1,719,573.13 1,811,516.05 91,942.93

2022 769,821.45 808,893.50 39,072.05

1,041,694.60 1,094,565.48 52,870.88
1,164,472.65 1,223,575.10 59,102.44
2,975,988.71 3,127,034.08 151,045.37

Specific Assumptions:

1. The stock prices were forecasted using the QM software.

2. The stock prices that serves as basis for forecasting are the stocks of Aboitiz Power
Corporation.

3. There is an allowance of 10% accumulated every year.

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 Note 22:
Initial Investment Breakdown
Initial Investment 2,000,000.00
Account Title Total Costs
Prepaid Rent 36,000.00
Furniture and Fixtures 38,000.00
Machinery and Equipment 327,340.00
Utensils 11,250.00
Leasehold Improvements 900,000.00
Total Noncurrent Assets 1,276,590.00
Permits and Licenses 3,700.00
Rent Expense 18,000.00
Advertising Expense 1,706.67
13th month pay -
Salaries and Wages Expense 16,679.00
Depreciation Expense 11,461.50
Supplies Expense 8,573.00
SSS/HDMF/PHIC Contributions 4,365.00
Utilities Expense 36,000.00
Premiums Expense (T-shirts) 25,000.00
Professional Fees 10,000.00
Total Monthly Operating Expenses 135,485.17
Total Monthly Purchases 204,185.50
Total Initial Costs 1,652,260.67
Working Capital 347,739.33

Specific Assumptions

1. The remaining balance will serve as an allowance.

6.4 Financial Ratios

Total Asset Turnover Ratio

Asset Turnover Ratio

2018 2019 2020 2021 2022
Revenue 4,582,946.00 4,958,747.57 5,380,241.12 5,848,322.09 6,374,671.08
Total Assets 3,044,896.01 3,946,808.47 5,057,804.67 6,429,932.25 8,076,521.88

Ratio 1.505 1.256 1.064 0.910 0.789

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 The total asset turnover ratio computes the efficiency of the business to use its resources
to generate income. To compute for the ratio, the formula is used:

Total Assets Turnover Ratio= Revenue Divided by Total Assets

The company’s total assets turnover ratio shows a decreasing fluctuation for the first four
years while the food service industry fluctuates. This shows an early slow progress for the
business but in the fifth year of business it already shows an increasing ratio and will still have a
probability to show increase in ratios.

Gross Profit Ratio

Gross Profit Ratio

2018 2019 2020 2021 2022
Gross Profit 2,097,170.55 2,269,138.54 2,462,015.31 2,676,210.65 2,917,069.60
Revenue 4,582,946.00 4,958,747.57 5,380,241.12 5,848,322.09 6,374,671.08

Ratio 0.458 0.458 0.458 0.458 0.458

Gross profit margin expresses the relationship between gross profit and sales revenue. It
shows the percentage of each peso of the company’s revenue that is able to cover for the costs
after paying for the costs of goods sold. To compute for the ratio, the formula is used:

Gross Profit Ratio = Gross Profit Divided by Revenue

The business shows minimal differences of the fluctuations as well as the industry on the
1st two years of operation. The minimal income is due from most costs covers almost half of the
income which is comprised most of the wages and rent expense. The following years of operations
shows an increasing ratio due to having a high increase on sales.

Net Profit Ratio

Net Profit Ratio

2018 2019 2020 2021 2022
Net Profit 687,848.55 879,196.54 1,084,403.19 1,346,424.14 1,614,066.37
Revenue 4,582,946.00 4,958,747.57 5,380,241.12 5,848,322.09 6,374,671.08

Ratio 0.150 0.177 0.202 0.230 0.253

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 The net profit margin is one of the key probability ratios. It measures the part of the
business’ revenue that it is able to keep in earnings. To compute for the ratio, the formula is
used:

Net Profit Ratio = Net Profit Divided by Revenue

As a business currently starting up a minimal profit is earned and will be acceptable.

This is due to high costs from the rental expense and the wages. This also shows that the net
profit ratio is increasing due to the increasing sales revenue per year.

Return on Assets

Return on Assets
2018 2019 2020 2021 2022
Net Profit 687,848.55 879,196.54 1,084,403.19 1,346,424.14 1,614,066.37
Total Assets 3,044,896.01 3,946,808.47 5,057,804.67 6,429,932.25 8,076,521.88

Ratio 0.226 0.223 0.214 0.209 0.200

Return on assets measures of how efficiently the company is using its assets to earn
returns. To compute for the ratio, the formula is used:

Return on Assets = Net Profit Divided by Total Assets

The Return on assets Ratio of the business shows an increase each year. The business
shows efficiency upon using its assets to convert into income.

Return on Equity

Return on Equity
2018 2019 2020 2021 2022
Net Profit 687,848.55 879,196.54 1,084,403.19 1,346,424.14 1,614,066.37
Equity 2,687,848.55 3,567,045.09 4,651,448.28 5,997,872.43 7,611,938.80

Ratio 0.256 0.246 0.233 0.224 0.212

Return on equity measures the rate of return on the money invested by the owner onto
the business. Also, the return on equity shows how effectively a business uses the money
invested to generate growth. To compute for the ratio, the formula is used:

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 Return on Equity = Net Profit Divided by Equity

As the industry for food fluctuates the business’ ratio for the return on equity fluctuates in
a manner not different from the industry. This results from the effective management upon
generating profit from the resources provided by the business owner.

6.5 Financial Analysis

chEATalk
Statement of Financial Position
Vertical Analysis

Assets Notes 2018 2019 2020 2021 2022

Current Assets
Cash 1 60.81% 73.25% 67.40% 59.51% 53.18%
Prepaid Rent (1-month deposit) 2 1.18% 0.91% 0.71% 0.56% 0.45%
Investment in Trading Securities 0.00% 0.00% 14.45% 28.17% 38.72%
Inventories 10 0.60% 0.46% 0.36% 0.28% 0.23%
Total Current Assets 62.59% 74.62% 82.92% 88.53% 92.57%
Noncurrent Assets:
Machineries and Equipment 6 10.75% 8.29% 6.47% 5.09% 4.05%
Accumulated Depreciation 9 1.19% 1.83% 2.15% 2.25% 2.24%
Furniture and Fixtures 7 1.25% 0.96% 0.75% 0.59% 0.47%
Accumulated Depreciation 9 0.25% 0.39% 0.45% 0.47% 0.47%
Utensils 8 0.37% 0.29% 0.22% 0.17% 0.14%
Accumulated Depreciation 9 0.12% 0.19% 0.22% 0.06% 0.09%
Leasehold Improvement 16 29.56% 22.80% 17.79% 14.00% 11.14%
Accumulated Depreciation 9 2.96% 4.56% 5.34% 5.60% 5.57%
Total Noncurrent Assets 37.41% 25.38% 17.08% 11.47% 7.43%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%

Liabilities and Equity

Liabilities:
SSS/HDMF/PHIC PAYABLE 4 0.21% 0.16% 0.13% 0.10% 0.08%
Vat Payable 14 10.46% 8.65% 7.27% 6.12% 5.28%
Withholding Tax Payable (Net) 15 1.06% 0.82% 0.64% 0.50% 0.40%
Total Liabilities 11.73% 9.62% 8.03% 6.72% 5.75%
Equity:
Chua, Capital 65.68% 68.10% 70.53% 72.34% 74.26%
add: Net Income 22.59% 22.28% 21.44% 20.94% 19.98%
Less: Withdrawal 0.00% 0.00% 0.00% 0.00% 0.00%
Total Equity 88.27% 90.38% 91.97% 93.28% 94.25%
Total Liabilities and Equity 100.00% 100.00% 100.00% 100.00% 100.00%

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 chEATalk
Statement of Comprehensive Income
Vertical Analysis

Notes 2018 2019 2020 2021 2022

Net Sales 12 100.00% 100.00% 100.00% 100.00% 100.00%
Cost of Goods Sold 10 55.55% 55.55% 55.55% 55.55% 55.55%
Gross Profit on Sales 44.45% 44.45% 44.45% 44.45% 44.45%
Add: Other Income 21 0.74% 1.57% 2.37%
Total Gross Profit 46.50% 47.33% 48.13%
Operating Expenses:
Permits and Licenses 0.08% 0.00% 0.00% 0.00% 0.06%
Rent Expense 2 4.71% 4.36% 4.22% 3.88% 3.74%
Advertising Expense 5 0.45% 0.41% 0.38% 0.35% 0.32%
13th month pay 3 0.96% 0.89% 0.86% 0.79% 0.76%
Salaries and Wages Expense 3 4.37% 4.04% 3.91% 3.59% 3.46%
Depreciation Expense 9 2.51% 2.32% 2.14% 1.97% 1.80%
Supplies Expense 17 2.33% 2.15% 1.99% 1.83% 1.68%
SSS/HDMF/PHIC 4 1.14% 1.06% 0.97% 0.90% 0.82%
Utilities Expense 13 9.43% 8.80% 8.19% 7.61% 7.05%
Premiums Expense (T-Shirts) 19 1.75% 1.21% 1.12% 1.03% 0.94%

Total Operating Expense 27.73% 25.23% 23.77% 20.91% 20.63%

Net Income 16.73% 19.22% 20.69% 23.54% 23.82%

Personal Exemption 1.09% 1.01% 0.93% 0.85% 0.78%
Net Income After PE 13.92% 16.72% 19.23% 22.17% 24.54%
Income Tax 1.95% 2.80% 3.72% 4.77% 5.64%
Net Income After Tax 13.06% 14.93% 16.43% 18.25% 19.68%

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Vertical Analysis

In this type of analysis, each specific accounts of the financial statements are examined
relative to the totals of the related accounts. The following is the summary of important points
identified upon the five-year comparative financial statements:

 Most of the business’ resources regarding assets are Cash which consists 60.81%
in the first year then up to 53.18% in the fifth year. In other words, the business
having more cash means a larger opportunity for the business for future options
and gives protection at tough times. But because the business invested in trading
securities the cash from 2020 to 2022 are decreasing.
 The business’ capital structure revolves more on equity rather than have debt,
which is actually 100%. This type of structure gives the business no potential
problems upon unpaid obligations.
 The income statement shows that the company’s expenses comprises up to
30.75% of its total sales. This represents that the company is managing the
resources properly and will be far from having losses.
 The net income or loss is determined after all the costs, expenses and taxes have
been deducted to sales. In the first five years, it can be observed that the business
is doing well with a high income and is able to sustain its growth for the next years
to come.

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 chEATalk
Statement of Financial Position
Horizontal Analysis
Notes 2018 2019 2020 2021 2022
Assets
Current Assets
Cash 1 100% 56.14% 84.10% 106.66% 131.97%
Prepaid Rent (1-month deposit) 2 100% 0.00% 0.00% 0.00% 0.00%
Investment in Trading Securities 100% 147.90% 327.92%
Inventories 10 100% 0.00% 0.00% 0.00% 0.00%
Total Current Assets 100% 54.54% 120.05% 198.67% 292.29%
Noncurrent Assets:
Machineries and Equipment 6 100% 0.00% 0.00% 0.00% 0.00%
Accumulated Depreciation 9 100% 100.00% 200.00% 300.00% 400.00%
Furniture and Fixtures 7 100% 0.00% 0.00% 0.00% 0.00%
Accumulated Depreciation 9 100% 100.00% 200.00% 300.00% 400.00%
Utensils 8 100% 0.00% 0.00% 0.00% 0.00%
Accumulated Depreciation 9 100% 100.00% 200.00% 0.00% 100.00%
Leasehold Improvement 16 100% 0.00% 0.00% 0.00% 0.00%
Accumulated Depreciation 9 100% 100.00% 200.00% 300.00% 400.00%

Total Noncurrent Assets 100% -12.07% -24.15% -35.24% -47.31%

Total Assets 100% 29.62% 66.11% 111.17% 165.25%

Liabilities and Equity

Liabilities:
SSS/HDMF/PHIC PAYABLE 4 100% 0.00% 0.00% 0.00% 0.00%
Vat Payable 14 100% 7.13% 15.48% 23.55% 33.76%
Withholding Tax Payable (Net) 15 100% 0.00% 0.00% 0.00% 0.00%
Liabilities and Equity 100% 6.36% 13.81% 21.01% 30.12%
Equity
Chua, Capital 100% 34.39% 78.35% 132.57% 199.89%
add: Net Income 100% 27.82% 57.65% 95.74% 134.65%
Less: Withdrawal 100%

Total Equity 100% 32.71% 73.05% 123.15% 183.20%

Total Liabilities and Equity 100% 29.62% 66.11% 111.17% 165.25%

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 chEATalk
Statement of Comprehensive Income
Horizontal Analysis
Notes 2018 2019 2020 2021 2022

Net Sales 12 100% 8.20% 17.40% 27.61% 39.10%

Cost of Goods Sold 10 100% 8.20% 17.40% 27.61% 39.10%

Gross Profit on Sales 100% 8.20% 17.40% 27.61% 39.10%

Add: Other Income 21 100.00% 131.53% 280.37%
Total Gross Profit 100.00% 10.65% 22.64%

Operating Expenses:
Permits and Licenses 100% -100.00% -100.00% -100.00% 0.00%
Rent Expense 2 100% 0.00% 5.00% 5.00% 10.25%

Advertising Expense 5 100% 0.00% 0.00% 0.00% 0.00%

13th month pay 3 100% 0.00% 5.00% 5.00% 10.25%
Salaries and Wages Expense 3 100% 0.00% 5.00% 5.00% 10.25%
Depreciation Expense 9 100% 0.00% 0.00% 0.00% 0.00%
Supplies Expense 17 100% 0.00% 0.00% 0.00% 0.00%
SSS/HDMF/PHIC 4 100% 0.00% 0.00% 0.00% 0.00%
Utilities Expense 13 100% 1.00% 2.01% 3.03% 4.06%
Premiums Expense (T-Shirts) 19 100% -25.00% -25.00% -25.00% -25.00%
Total Operating Expense 100% -1.38% 0.57% 0.88% 3.17%

Net Income 100% 27.82% 57.65% 95.74% 134.65%

Personal Exemption 100% 0.00% 0.00% 0.00% 0.00%
Net Income After PE 100% 30.00% 62.17% 103.25% 145.21%
Income Tax 100% 55.10% 123.92% 211.78% 301.53%
Net Income After Tax 100% 23.74% 47.74% 78.40% 109.71%

Horizontal Analysis

PERCENTAGE CHANGE:

Proportional= there is a certain observable pattern in the percentage change

Constant= the same percentage change in every period

Diminishing= reduced percentage changes (increase/decrease) in every period

Increasing= increased percentage changes (increase/decrease) in every period

Fluctuating= exhibited both reduced and increased percentage changes (increase/decrease) over
the periods

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CURRENT ASSETS: Increasing growth. This consists of Cash and inventories only. Therefore,
the entirety of the current assets exhibits the same behavior as cash and Inventories.

Cash: Increasing growth. There is an increasing inflow in cash as the business sales progress
year by year. Yet it is diminished during 3rd to 5th year because it is invested in trading securities.

Prepaid Rent: The prepaid rent remains constant every year.

Inventories: The inventories remain constant every year.

NONCURRENT ASSETS: Negative Fluctuating growth. The proportional behavior of the

depreciation provides the non-current assets section a tolerable decrease in growth

TOTAL ASSETS: Positive Fluctuating growth

SALES: Positive Slightly Fluctuating growth. The figures reflected are all dependent on the
demand for the product/service. In this analysis, differences in growth show slight significant
increase.

COST OF GOODS SOLD: Positive Slightly Fluctuating growth. Since the cost of goods is in
relation to sales, it is justifiable that it follows the same pattern or behavior.

GROSS PROFIT ON SALES: Positive Slightly Fluctuating growth. The same is true for Gross
revenue since the cost of goods is only deducted to sales to get the gross revenue.

OPERATING EXPENSES: Positive Minimal Fluctuating growth. It can be observed that in the 5-
year period, the relevant range for fluctuations (increase/decrease) is just within or below 1.53%.
It is based on the premise that a significant amount of the company’s expenses is used on rentals
and wages

Advertising expense: From 1st year to 5th year the advertising expense is constant and
diminishing.

Rent Expense: From 1st year to 5th year the rent expense is increasing. Shows that the cost of
rent will increase as time passes by.

Permits and licenses: Permits are only paid on the first year and the fifth year.

Salaries and Wages: Positively increasing every 2 years.

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13th Month Pay: Follows the same pattern as salaries and wages.

Depreciation Expense: Remains constant every year.

Premiums Expense: From 1st year to 5th year it is diminishing and constant.

NET INCOME: Positive fluctuations over the years. Increasing yearly.

Payback Period
Years Cash Inflow (Outflow) Balance
- (2,000,000.00)
1 735,924.41 (1,264,075.59)
2 877,975.58 (386,100.01)
3 1,021,620.23 635,520.23 3.38 years
4 1,205,034.90 1,840,555.13
5 1,392,384.46 3,232,939.59

Payback Period

The project’s technique in the determination of the return on capital of the investing
company is Payback Period. This capital budgeting technique uses the annual income of the
company to estimate the number of years that can compensate the initial working capital outlay.
The researchers have determined that the payback period for the company is 3.38 years. Yet, it
has its limitations since it doesn't consider the time value of money.

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