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FINANCIAL FEASIBILITY

The financial feasibility study projects how much

start-up capital is needed, sources of capital, returns on

investment, and other financial considerations. It looks at

how much cash is needed, where it will come from, and how it

will be spent.

MAJOR ASSUMPTIONS USED

 Sales are 100% of the yearly production and it is

assumed to increase 10% annually.

 Selling Price is assumed to increase after four years

of operation.

 Depreciation Formula Used. Straight line Method wherein

it is assumed that the property losses its value by the

same amount every year. A fixed amount of the original

cost is deducted every year, so that at the end of the

utility period, only the scrap value is left.

According to a recent colloquium at the Getty

Center, the average life span of a conventionally built

building (masonry and wood) is about 120 years. But for

modernist buildings (reinforced concrete and glass

curtain wall) it’s half that: 60 years.

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And if you are to consider the typical big box

retail store, the life expectancy is probably a third of

that – if even that. Usually it is cheaper to just tear

down the old box and build a new one when needs change.

That’s part of the reason why the leases usually have

clauses that try and prevent the retailer from just

“going dark” and stopping operation.

PROJECTED FINANCIAL STATEMENT

Pre-Operating Period

Prior to the actual business operation, it is part of

the process to fulfill the necessary pre-operating

requirements and responsibilities such as the following

presented on Table 1. SCING Tailoring & Clothing Shop Pre-

Operating Period Balance Sheet, and on Table 2. SCING

Tailoring & Clothing Shop Pre-Operating Period Cash Flow.

Table 1.
SCING Tailoring & Clothing Shop
Pre-Operating Period
BALANCE SHEET
         
ASSETS    
  Current Assets:  
  Cash on Hand 100,000.00  
  Raw Materials 121,550.00  
  Pre-Paid Expenses 67,338.00  
  Pre-Operating Production Cost 662,250.00  
  Office Supplies 13,800.00  
   
  Fixed Assets:  
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  Land and Site Preparation 63,600.00  

  Building 983,852.00  
Machineries Equipments and
  Accesories 209,216.00  
  Furniture and Fixtures 81,452.00  
  Car 263,750.00  
TOTAL ASSETS 2,566,808.00
   
LIABILITIES AND CAPITAL  
  Liabilities  
  Long Term Liabilities 2,500,000.00  
TOTAL LIABILITIES 2,500,000.00
   
CAPITAL  
  Capital Contribution 66,808.00  
TOTAL CAPITAL 66,808.00
   
TOTAL LIABILITIES AND CAPITAL   2,566,808.00

Table 2.
SCING Tailoring & Clothing Shop
Pre-Operating Period
CASH FLOW
     
CASH INFLOWS :    
  Cash Contribution 66,808.00  
  Loans 2,500,000.00  
Total Cash Inflows   2,566,808.00
       
Less : CASH DISBURSEMENTS:    
  Land and Site Preparation 63,600.00  
  Building 983,852.00  
Machineries, Equipments and
  Accesorries 209,216.00  
  Furniture and Fixtures 81,452.00  
  Car   263,750.00  
  Pre-Paid Expenses 67,338.00  
Pre-Operating Production
  Cost 662,250.00  
  Raw Materials 121,550.00  
  Office Supplies 13,800.00  
Total Cash Disbursement   2,466,808.00
       
CASH BALANCE, END   100,000.00
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Operating Period : Balance Sheet

The cycle of the business activity in which cash is

used to buy resources that are converted into products or

services and then are sold for cash. SCING Tailoring &

Clothing Shop Operating Period Balance Sheet for the year

ended 2025 was presented on Table 3.

Assets : Current Assets

 Cash on Hand is assumed to increase 25% annually.

 Accounts Receivables on the 1st year or operation

is Php. 30,000.00 and is assumed to increase 10%

annually.

 Inventories of Finish Goods, Goods in Process, and

Raw Materials is assumed to increase 10% annually.

 Prepaid Expenses is assumed to increase 5% every

year.

 Operating Production cost is assumed to increase

3% annually.

 Office supplies is assumed to increase 5%

annually.

Assets : Fixed Assets

 The Land is assumed to appreciate 10% annually.

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 The building depreciate Php. 23,346.30 annually

resulted from the computation using the formula

Depreciation = (Original Cost of the Asset) –

(Salvage Value which is Php. 50,000) / 40 years.

 Machineries, Equipments and Accesories depreciates

Php. 19,921.60 annually; Salvage Value - Php.

10,000.00, Number of Years – 10 years.

 Furnitures and Fixtures with a Salvage Value of

Php. 5,000.00 and life of 10 years depreciates

Php. 7,645.00 annually.

 The business bought second hand Car amounting to

Php. 263,750.00 with a Salvage Value of Php.

30,000.00 and 5 years life depreciates Php.

46,750.00 annually.

Liabilities

 Accounts Payable is assumed to increase by 5%

annually.

 The Interest Payable to the bank where the

business owes amounts to Php. 106,105.28

 Accrued Expenses is assumed to increase 5%

annually.

 Loans decrease Php. 250,000 every year.

Stockholders Equity
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 Owner’s Equity is assume to increase 10% annually.

 Drawings is assumed to increase 15% annually.

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Operating Period : Projected Cash Flow Statement

Projected Cash Flow Statement is used to evaluate cash

inflows and outflows to determine when, how much, and for

long cash deficits or surpluses will exist for a tailoring

and clothing shop during an upcoming period. Table 4.

presented the Operating Period Projected Cash Flow of SCING

Tailoring & Clothing Shop for the year ended 2025.

 Beginning Cash Balance is assumed to increased 25%

annually.

 Net Sales is assumed to increased 10% annually.

By adding the Beginning Cash Balance and the Net Sales

will result to the Total Cash Available for Cash

Disbursement.

 Cost of Sales is assumed to increased 5% annually.

 Expenses is assumed to increased 5% annually.

 Other Expenses such as the Interest Expenses

amounts to Php. 106,105.28 yearly.

 Income Tax Payable is assumed to increased 3%

annually.
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The Total Cash Available less the Cash Disbursement

will result to the Ending Cash Balance of the Cash Flow

Statement.
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Table 5. Shows the Schedule of Cash Disbursement Table.

 Cost of Sales is the result of the sum of Purchases and

Freight In less by the Purchase Returns, Purchase

Discounts, and Purchase Allowances.

 Purchases is assumed to increase by 5% annually

from Php. 121,550 from the first year of

operation.

 Freight In is assumed to increased by 5% annually.

 Purchase Returns is assumed to increase by 2%

annually.

 Purchase Allowances is assumed to increased by 3%

annually,

 Purchase Discounts is assumed to increased by 4%

annually.

 Expenses is the total sum of Operating Expenses,

Selling Expenses, Travelling Expenses ,Advertising

Expenses, Delivery Expenses, and Office Supplies, which

is assumed to increased by 5% annually.

 Other Expenses: Interest Expenses is the amount added

by the bank in paying the business’ loan.

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Operating Period : Projected Income Statement

Projected Income Statement shows the business revenues

and expenses during a particular period. It indicates how

the revenues, the money receive from the sale of the

products and
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services before expenses are taken out, are transformed into

the net income which is the result after all revenues and

expenses have been accounted for. The purpose of the income

statement is to show managers and investors whether the

business made or lost money during the period being

reported. Table 6. Shows the Operating Period Projected

Income Statement of SCING Tailoring & Clothing Shop for the

year ended 2025.

 Sales is assumed to increased by 10% annually.

 Sales Returns and Allowances is assumed to

increased by 5% annually.

 Sales Discounts is assumed to increased by 5%

annually.

 Net Sales is Sales less of Sales Returns and

Allowances and Sales Discounts. Net Sales is

assumed to increased 10% annually.

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 Cost of Goods Manufactured and Sold is assumed to

increased 5% annually.

 Gross Income is the result of Net Sales deducted

by the Cost of Goods Manufactured and Sold.

 Operating Income is the difference between the

Gross Income less by Operating Expenses, Selling

Expenses, Traveling Expenses, Advertising

Expenses, Delivery Expenses, and Office Supplies.

 Interest Income is assumed to increased by 5%

annually.

 Interest Expenses amounts to Php. 106,105.28 every

year.

 Net Income is the result after deducting Interest

Expense from the total sum of Interest Income and

Operating Income.

Table 7. Shows the schedule of Cost of Goods Sold.

 Materials used, Beginning Raw Materials Inventory

Purchases and Freight In less by Purchase Returns,

Purchase Allowances, and Purchase Discounts will

reslut to Raw Materials Available for Use.

 Raw Materials Available for Use less by Raw

Materials Ending Inventory will result to Cost of

Materials Used.
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 Cost of Materials Used plus Direct Labor will

result to the Total Manufacturing Cost.

 Total Manufacturing Cost plus Beginning Goods in

Process is equal to the Total Goods in Process.

 Total Goods in Process deducted by the Ending

Goods in Process Inventory is equal to Cost of

Goods Manufactured.
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 Cost of Goods Manufactured plus Beginning Finished

Goods Inventory will result to Goods Available for

Sale.

 Goods Available for Sale less by Finished Goods

Ending Inventory will result to Cost of Goods

Manufactured and Sold.