ANRS INVESTMENT COMMISSIN

www.investamhara.gov.et

Project Profile on the Establishment of iron and

steel Cots making plant

Development Studies Associates

(DSA)

Revised July 2016

Bahir Dar
 Table of Contents

1. Executive Summary............................................................................................1
2. Product Description and Application..............................................................1
3. Market Study, Plant Capacity and Production Program..............................2
3.1 Market Study...................................................................................................................2
3.1.1 Present Demand and Supply....................................................................................2
3.1.2 Projected Demand....................................................................................................3
3.1.3 Pricing and Distribution...........................................................................................3
3.2 Plant Capacity..................................................................................................................4
3.3 Production Program.........................................................................................................4
4. Raw Materials and Utilities..............................................................................4
4.1 Availability and Source of Raw Materials.......................................................................4
4.2 Annual Requirement and Cost of Raw Materials and Utilities.......................................4
5 Location and Site...............................................................................................5
6 Technology and Engineering............................................................................5
6.1 Production Process...........................................................................................................5
6.2 Machinery and Equipment...............................................................................................6
6.3 Civil Engineering Cost....................................................................................................6
7 Human Resource and Training Requirement................................................7
7.1 Human Resource..............................................................................................................7
7.2 Training Requirement......................................................................................................7
8 Financial Analysis.............................................................................................8
8.1 Underlying Assumption...................................................................................................8
8.2 Investment........................................................................................................................9
8.3 Production Costs..............................................................................................................9
8.4 Financial Evaluation......................................................................................................10
9 Economic and Social Benefit and Justification.............................................11
ANNEXES...............................................................................................................13
 1. Executive Summary
This project profile deals with the establishment of production of steel and iron cots making
plant in Amhara National Regional State. The following presents the main findings of the study

Demand projection divulges the presence of substantial demand for the product. Accordingly, the
planned plant is set to produce 7500 units annually. The total investment cost of the project
including working capital is estimated at Birr 1,211,219 thousand and creates 20 job opportunity
and Birr 628,157 of income.

The financial result indicates that the project will generate profit beginning from the first year of
operation. Moreover, the project will break even at 30.4% of capacity utilization and it will
payback fully the initial investment less working capital in 2 years. The result further show that
the calculated IRR of the project is 32% and NPV discounted at 18% rate of Birr 793,498.27

In addition to this, the proposed project possesses wide range of economic and social benefits
such as increasing the level of investment, tax revenue and employment creation.

Generally’ the project is technically feasible, financially and commercially viable as well as
socially and economically acceptable. Hence the project is worth implementing.

2. Product Description and Application

Steel and iron cots are substitute for conventional wooden cots used by people living both in
rural and urban areas. They are small and light beds (fixed or folding) made from mild steel
conduit pipes. These beds are lighter and less cumbersome than beds made from wood. Unlike
wood beds, iron and steel cots cannot be eaten away by moths or white ants and so have longer
life. To save floor space some types of cots can be double decked. The folding type cots have
the additional advantage of being folded and staked away during the day time thus freeing room
space which can be used for other purposes. This is particularly very relevant in big cities of the
region and the country at large.

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 3. Market Study, Plant Capacity and Production Program

3.1 Market Study

3.1.1 Present Demand and Supply

In principle, bed is one of the most important equipment in any homes. It provides a proper rest
for families when they are asleep. Nonetheless, especially in the rural part of the country there
are millions of people who do not have beds in the proper sense of the word. Some families
considered “well-to-do” use beds crudely constructed form eucalyptus poles. Most rural families
sleep on floors or on what is commonly known as “medeb”. With proper and effective
marketing, therefore, it is possible to attract a portion of the demand for the product in the region.

For a number of advantages stated earlier iron and steel cots are more preferable to beds made
from wood. This represents the presence of ample demand to the product throughout the country.
However, there is no documented data that shows the level of domestic production and import of
the product. Therefore, in estimating the present demand for the product it is conservatively
assumed that 5 percent of the urban and 2.5 percent of the rural families demand the product.
Accordingly, table 1 provides the level of demand for the product in the region.

Table 1: Estimated Current Demand

No. of Potential
Place Population No. of Families Demand
Urban 2,299,000 459,800 22,990
Rural 17,325,000 3,465,000 86,625
Total 19,624,000 3,924,800 109,615

Source: The no. of population is taken from CSA, Annual Abstract (2006)
* One family is 5 people

The above table shows that the current demand for iron and steel cots in the region is estimated
to be about 109,615. This represents the presence of huge demand in relation to the envisaged
small plant.

2
 3.1.2 Projected Demand
The future demand for the product is expected to grow for two reasons. First and foremost, an
increase in population (and hence family) increases the future demand. Moreover, demand also
increases as a result of replacing old and damaged wooden cots. Accordingly, it is conservatively
assumed that demand will increase by at least 2 percent per year in the future as shown in table 2
here under.

Table 2: Projected Demand for Iron and Steel Cots

Year Projected Demand

2016/2017 111,807
2017/2018 114,043
2018/2019 116,324
2019/2020 118,651
2020/2021 121,024
2021/2022 123,444
2022/2023 125,913
2023/2024 128,431
2024/2025 131,000
2025/2026 133,620
2026/2027 136,292
2027/2028 139,018

As the table shows demand for the product steadily increases in the future. At the same time the
trend suggests the presence of sizable demand for the product

3.1.3 Pricing and Distribution

Based on the market research result and the capacity of the envisaged plant, the selling price of
iron and steel cots is set to be Birr 275 per piece for 2 x 1.2 meters cot while Birr 195 is set for 2
x 1 meter cot. In distributing the product the firm shall make use of the available retail and
wholesale network.

3
 3.2 Plant Capacity
Given the expected demand for the product as presented earlier, and the planned technology, the
envisaged plant is set to produce 7500 units annually of which 5000 cots will have 1.2 meters
width while the remaining 2500 cots shall have 1 meter width. The planned capacity represents
only 6.5% of the demand projected for 2009/10.

3.3 Production Program

The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 1 shift, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 60 percent capacity and then it grows to 75
percent in the 2nd year. The capacity will grow to 90 percent in the 3rd year and 100 percent
starting from the 4th year. This consideration is developed based on the assumption that market
and logistics barriers would be eliminated within the first three years of operation.

4. Raw Materials and Utilities

4.1 Availability and Source of Raw Materials
The main materials used in the manufacturing of cots are steel and wire. These materials will be
imported from abroad. The envisaged plant, however, can purchase the items from local
suppliers

4.2 Annual Requirement and Cost of Raw Materials

and Utilities
The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in table 3 here under.

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 Table 3: Material and Utility Requirement

Total Cost
Material and Input Quantity L.C. F.C.
Steel 92,250 mt 2136195  
Wire 170,000 mt 872440  
Bolt and Nuts 150,000 pcs 57735  
Total Material Cost   3,066,370  
Utility      
Electricity 120,000 kwh 66,000  
Water 3500 9,275  
Total Utility Cost   3,141,645  

The annual material and utility cost at full capacity of operation is estimated to be Birr 1,270,275

5 Location and Site

The appropriate locations for the envisaged project in view of the availability of input,
infrastructure as well as market for the output are towns like Bahir Dar, Gondor and Combolcha.

6 Technology and Engineering

6.1 Production Process

The manufacturing of steel cots is simple. These cots are prepared from mild steel conduit pipe.
These pipes are cut into the size of cots. The pipes are then bent to shape on a pipe bending
fixture. There after the joints are welded and the supporting members are riveted. Once the
frame is completed, holes are drilled in the frames and part of the cot on which the body lies is
fixed using wire.

The alternative technology is related to the production process. That is, instead of wire, nylon
cord can be used while forming part of the cot on which the body lies. Although this alternative
minimizes the cost of production its durability is very limited when compared to the wire and
hence is not adopted by the proposed plant.

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 6.2 Machinery and Equipment

The machineries and equipment required for producing iron and steel cots is detailed in table 4
below
Table 4: Machinery and Equipment

Machinery and Equipment Quantity

Pipe bending machine hand operated with fixtures 5
  Bench drilling machine 13 mm capacity 4
Fly Press 2
Hand shearing machine 3 mm capacity 2
 Painting Accessories 2 sets

The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about Birr 75,000

The following are some of the machineries suppliers’ address for the envisaged project

       Simplicity Engineers

            B-99 Mayapuri, New Delhi, India

 Batliboi Engineers Pvt. Ltd.

      99/2, 99/3 N.R. Road, Bangalore, West Bengal, India

K.G. Khosla & Co.

         D.G Road, New Delhi, India

6.3 Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 150m 2 where 100m2 is allocated to
the production place and the remaining space is left for stores (25m 2), office buildings and
facilities (25m2).

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7 Human Resource and Training Requirement

7.1 Human Resource

The list of required manpower for the envisaged plant is stated in table 5 below

Table 5: Human Resource Requirement

No. Monthly Total Annual
Position Required Salary Salary
10,26 123,16
Manager 1 4 8
3,07 36,95
Accountant 1 9 0
2,05 24,63
Sales Clerk 1 3 4
2,05 24,63
Store Keeper 1 3 4
2,56 30,79
Technician 1 6 2
2,05 197,06
Operators 8 3 9
1,02 49,26
Laborers 4 6 7
1,02 12,31
Cleaners 1 6 7
1,02 24,63
Guards 2 6 4
104,69
Benefit (20%)   - 3
628,15
 Total 20 - 7

The envisaged plant creates 20 job opportunity and about Birr 244.8 thousand of income. The
professionals and support staffs for the envisaged plant shall be recruited from Amhara region

7.2 Training Requirement

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Training of key personnel shall be conducted in collaboration with the suppliers of the plant
machineries. The training should primarily focuses on the production technology and machinery
maintenance and trouble shooting. Birr 15,000 will be allocated as training expense.

8
8 Financial Analysis
8.1 Underlying Assumption

The financial analysis of iron and steel cots manufacturing plant is based on the data provided in
the preceding chapters and the following assumptions.

A. Construction and Finance

Construction period 2 year

Source of finance 30% equity and 70% loan
Tax holidays 2 years
Bank interest rate 12%
Discount for cash flow 18%
Value of land Based on lease rate of ANRS
Spare Parts, Repair & Maintenance 1% of fixed investment

B. Depreciation

Building 5%
Machinery and equipment 10%
Office furniture 10%
Vehicles 20%
Pre-production (amortization) 20%

C. Working Capital (Minimum Days of Coverage)

Raw Material-Local 30
Raw Material-Foreign 120
Factory Supplies in Stock 30
Spare Parts in Stock and Maintenance 30
Work in Progress 10
Finished Products 15
Accounts Receivable 30
Cash in Hand 30
Accounts Payable 30

9
 8.2 Investment

The total investment cost of the project including working capital is estimated at Birr 710.09 as
shown in table 6 below. The Owner shall contribute 30% of the finance in the form of equity
while the remaining 70% is to be financed by bank loan.
Table 6: Total initial investment
Items L.C F.C Total
Land 45
0   450
Building and civil works 769,80
0   769,800
Office equipment 51,32
0   51,320
Vehicles -    
Plant machinery & 75,00
equipment - 0 75,000
Total fixed investment cost 75,00
821,570 0 896,570
Pre production capital 19,77
expenditure* 3   19,773
Total initial investment 75,00
841,343 0 916,343
Working capital at full 294,87
capacity 6   294,876
Total 75,00
1,136,219 0 1,211,219

*Pre-production capital expenditure includes - all expenses for pre-investment studies, consultancy fee during
construction and expenses for company‘s establishment, project administration expenses, commission
expenses, preproduction marketing and interest expenses during construction.

The foreign component of the project accounts for 10.6% of the total investment cost.

8.3 Production Costs

The total production cost at full capacity operation is estimated at Birr 1.59 million as detailed in
table 7 below.

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 Table 7: Production Cost

Items Cost
1.      Raw materials 3066370
2.      Utilities 75,275
3.      Wages and Salaries 628156.8
4.      Spares and Maintenance
10148.53
Factory costs 3,779,950
5.      Depreciation 28,455
6.      Financial costs 42,606
  Total Production Cost
3,851,011

8.4 Financial Evaluation

I. Profitability
According to the projected income statement attached in the annex part (see annex 4) the project
will generate profit beginning from the first year of operation. Ratios such as the percentage of
net profit to total sales, return on equity and return on total investment are 5%, 21% and 28% in
the first year and are gradually rising. Furthermore, the income statement and other profitability
indicators show that the project is viable.

II. Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 30.4% of capacity utilization.

III. Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in 2 years of
time.

IV. Simple Rate of Return

For the envisaged plant the simple rate of return equals to 30.6%.

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12
 V. Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
32% and the net present value at 18 % discount is Birr 793,498.27

VI. Sensitivity Analysis

The envisaged plant is sensitive to an increase in cost of production. That is, the plant incurs loss
amounting to Birr 27,105.06 in the first year when 10 % cost increment takes place in the sector.
This result is accompanied with a payback period of 3 years and 3 months.

9 Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits that help promote the socio-economic
goals and objectives stated in the strategic plan of the Amhara National Regional State. It also
plays positive role in diversifying the economic activity by enhancing the manufacturing sector
of the region. The other major benefits are listed as follows:

A. Profit Generation

The project is found to be financially viable and earns a profit of Birr 4.62 million within the
project life. Such result induces the project promoters to reinvest the profit which, therefore,
increases the investment magnitude in the region.

B. Tax Revenue
In the project life under consideration, the region will collect about Birr 1.73 thousand from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region.

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 C. Employment and Income Generation

The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 20 professionals as well as support
stuffs. Consequently the project creates income of Birr 628.15 thousands per year. This would be
one of the commendable accomplishments of the project.

D. Pro Environment Project

The proposed production process is environment friendly.

ANNEXES

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 Annex 1: Total Net Working Capital Requirements (in Birr)  
CONSTRUCTION    
  Year 1 Year 2 1 2 3 4
Capacity Utilization (%) 0 0 60% 75% 90% 100%
1. Total Inventory 0 0 600,940 751,175 901,410 1,001,566
Raw Materials in Stock- Total 0 0 200,708 250,885 301,062 334,513
Raw Material-Local 0 0 200,708 250,885 301,062 334,513
Raw Material-Foreign 0 0 - - - -
Factory Supplies in Stock 0 0 2,599 3,249 3,899 4,332
Spare Parts in Stock and Maintenance 0 0 1,993 2,491 2,989 3,321
Work in Progress 0 0 64,977 81,222 97,466 108,296
Finished Products 0 0 129,955 162,444 194,932 216,591
2. Accounts Receivable 0 0 312,819 391,023 469,228 521,365
3. Cash in Hand 0 0 53,759 67,198 80,638 89,598
CURRENT ASSETS 0 0 766,809 958,511 1,150,214 1,278,015
4. Current Liabilities 0 0 312,819 391,023 469,228 521,365
Accounts Payable 0 0 312,819 391,023 469,228 521,365
TOTAL NET WORKING CAPITAL REQUIREMENTS 0 0 453,990 567,488 680,986 756,651
INCREASE IN NET WORKING CAPITAL 0 0 453,990 113,498 113,498 75,665

1
 Annex 1: Total Net Working Capital Requirements (in Birr) (continued)  
   
  5 6 7 8 9 10
Capacity Utilization (%) 100% 100% 100% 100% 100% 100%
1. Total Inventory 1,001,566 1,001,566 1,001,566 1,001,566 1,001,566 1,001,566
Raw Materials in Stock-Total 334,513 334,513 334,513 334,513 334,513 334,513
Raw Material-Local 334,513 334,513 334,513 334,513 334,513 334,513
Raw Material-Foreign - - - - - -
Factory Supplies in Stock 4,332 4,332 4,332 4,332 4,332 4,332
Spare Parts in Stock and Maintenance 3,321 3,321 3,321 3,321 3,321 3,321
Work in Progress 108,296 108,296 108,296 108,296 108,296 108,296
Finished Products 216,591 216,591 216,591 216,591 216,591 216,591
2. Accounts Receivable 521,365 521,365 521,365 521,365 521,365 521,365
3. Cash in Hand 89,598 89,598 89,598 89,598 89,598 89,598
CURRENT ASSETS 1,278,015 1,278,015 1,278,015 1,278,015 1,278,015 1,278,015
4. Current Liabilities 521,365 521,365 521,365 521,365 521,365 521,365
Accounts Payable 521,365 521,365 521,365 521,365 521,365 521,365
TOTAL NET WORKING CAPITAL REQUIREMENTS 756,651 756,651 756,651 756,651 756,651 756,651
INCREASE IN NET WORKING CAPITAL - - - - - -

Annex 2: Cash Flow Statement (in Birr)  

         
2
 Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW 532,730 1,289,381 3,180,324 3,662,586 4,379,462 4,831,311
1. Inflow Funds 532,730 1,289,381 312,819 78,205 78,205 52,136
Total Equity 213,092 515,753 - - - -
Total Long Term Loan 319,638 773,629 - - - -
Total Short Term Finances - - 312,819 78,205 78,205 52,136
2. Inflow Operation - - 2,867,505 3,584,381 4,301,258 4,779,175
Sales Revenue - - 2,867,505 3,584,381 4,301,258 4,779,175
Interest on Securities - - - - - -
3. Other Income - - - - - -
TOTAL CASH OUTFLOW 532,730 532,730 3,410,284 3,461,344 4,200,658 4,539,745
4. Increase In Fixed Assets 532,730 532,730 - - - -
Fixed Investments 507,362 507,362 - - - -
Pre-production Expenditures 25,368 25,368 - - - -
5. Increase in Current Assets - - 766,809 191,702 191,702 127,802
6. Operating Costs - - 2,367,130 2,956,239 3,545,348 3,938,087
7. Corporate Tax Paid - - - - 172,071 204,184
8. Interest Paid - - 276,344 131,192 109,327 87,461
9.Loan Repayments - - - 182,211 182,211 182,211
10.Dividends Paid - - - - - -
Surplus(Deficit) - 756,651 (229,960) 201,242 178,804 291,567
Cumulative Cash Balance - 756,651   727,932 906,736 1,198,303

Annex 2: Cash Flow Statement (in Birr): Continued  

   
  5 6 7 8 9 10
3
 TOTAL CASH INFLOW 4779175 4779175 4779175 4779175 4779175 4779175
1. Inflow Funds 0 0 0 0 0 0
Total Equity 0 0 0 0 0 0
Total Long Term Loan 0 0 0 0 0 0
Total Short Term Finances 0 0 0 0 0 0
2. Inflow Operation 4779175 4779175 4779175 4779175 4779175 4779175
Sales Revenue 4779175 4779175 4779175 4779175 4779175 4779175
Interest on Securities 0 0 0 0 0 0
3. Other Income 0 0 0 0 0 0
TOTAL CASH OUTFLOW 4396637.26 4384375.68 4369069.952 4171553.026 4171553.026 4171553.026
4. Increase In Fixed Assets 0 0 0 0 0 0
Fixed Investments 0 0 0 0 0 0
Pre-production Expenditures 0 0 0 0 0 0
5. Increase in Current Assets 0 0 0 0 0 0
6. Operating Costs 3938086.619 3938086.619 3938086.619 3938086.619 3938086.619 3938086.619
7. Corporate Tax Paid 210743.4246 220347.2184 226906.8125 233466.4066 233466.4066 233466.4066
8. Interest Paid 65596.01798 43730.6701 21865.34788 0 0 0
9. Loan Repayments 182211.1725 182211.1725 182211.1725 0 0 0
10.Dividends Paid 0 0 0 0 0 0
Surplus(Deficit) 382537.7404 394799.3201 410105.0482 607621.9744 607621.9744 607621.9744
Cumulative Cash Balance 1580840.649 1975639.944 2385745.018 2993366.966 3600988.941 4208610.915

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED  

         

4
 Year 1 Year 2 1 2 3 4
TOTAL CASH INFLOW - - 2,867,505 3,584,381 4,301,258 4,779,175
1. Inflow Operation - - 2,867,505 3,584,381 4,301,258 4,779,175
Sales Revenue - - 2,867,505 3,584,381 4,301,258 4,779,175
Interest on Securities - - - - - -
2. Other Income - - - - - -
TOTAL CASH OUTFLOW 532,730 532,730 2,821,121 3,069,737 3,830,916 4,217,936
3. Increase in Fixed Assets 532,730 532,730 - - - -
Fixed Investments 507,362 507,362 - - - -
Pre-production Expenditures 25,368 25,368 - - - -
4. Increase in Net Working Capital - - 453,990 113,498 113,498 75,665
5. Operating Costs - - 2,367,130 2,956,239 3,545,348 3,938,087
6. Corporate Tax Paid - - - - 172,071 204,184
NET CASH FLOW (532,730) (532,730) 46,384 514,645 470,342 561,239
CUMMULATIVE NET CASH FLOW (532,730) (1,065,461) (1,019,077) (504,432) (34,090) 527,149
Net Present Value (at 18%) (532,730) (451,467) 33,312 313,229 242,597 245,323
Cumulative Net present Value (532,730) (984,197) (950,885) (637,656) (395,059) (149,736)

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED (Continued)  

   
  5 6 7 8 9 10
TOTAL CASH INFLOW 4,779,175 4,779,175 4,779,175 4,779,175 4,779,175 4,779,175

5
1. Inflow Operation 4,779,175 4,779,175 4,779,175 4,779,175 4,779,175 4,779,175
Sales Revenue 4,779,175 4,779,175 4,779,175 4,779,175 4,779,175 4,779,175
Interest on Securities - - - - - -
2. Other Income - - - - - -
TOTAL CASH OUTFLOW 4,148,830 4,158,434 4,164,993 4,171,553 4,171,553 4,171,553
3. Increase in Fixed Assets - - - - - -
Fixed Investments - - - - - -
Pre-production Expenditures - - - - - -
4. Increase in Net Working Capital - - - - - -
5. Operating Costs 3,938,087 3,938,087 3,938,087 3,938,087 3,938,087 3,938,087
6. Corporate Tax Paid 210,743 220,347 226,907 233,466 233,466 233,466
NET CASH FLOW 630,345 620,741 614,182 607,622 607,622 607,622
CUMMULATIVE NET CASH FLOW 1,157,494 1,778,235 2,392,417 3,000,039 3,607,661 4,215,283
Net Present Value (at 18%) 233,500 194,866 163,396 136,992 116,095 98,386
Cumulative Net present Value 83,764 278,630 442,026 579,018 695,113 793,498
Net Present Value (at 18%) 793,498.27
Internal Rate of Return 32.00%

Annex 4: NET INCOME STATEMENT ( in Birr)  

   
  1 2 3 4 5
Capacity Utilization (%) 60% 75% 90% 100% 100%
1. Total Income 2,867,505 3,584,381 4,301,258 4,779,175 4,779,175

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 Sales Revenue 2,867,505 3,584,381 4,301,258 4,779,175 4,779,175
Other Income - - - - -
2. Less Variable Cost 2,205,677 2,757,096 3,308,515 3,676,128 3,676,128
VARIABLE MARGIN 661,828 827,285 992,742 1,103,047 1,103,047
(In % of Total Income) 59 59 59 59 59
3. Less Fixed Costs 234,468 272,157 309,846 334,973 334,973
OPERATIONAL MARGIN 427,361 555,128 682,896 768,074 768,074
(In % of Total Income) 38 38 41 41 41
4. Less Cost of Finance 276,344 131,192 109,327 87,461 65,596
5. GROSS PROFIT 151,016 423,936 573,569 680,613 702,478
6. Income (Corporate) Tax - - 172,071 204,184 210,743
7. NET PROFIT 151,016 423,936 401,498 476,429 491,735
RATIOS (%)  
Gross Profit/Sales 5% 12% 13% 14% 15%
Net Profit After Tax/Sales 5% 12% 9% 10% 10%
Return on Investment 28% 34% 29% 31% 31%
Return on Equity 21% 58% 55% 65% 67%

Annex 4: NET INCOME STATEMENT (in Birr):Continued  

   

  6 7 8 9 10

Capacity Utilization (%) 100% 100% 100% 100% 100%

1. Total Income 4,779,175 4,779,175 4,779,175 4,779,175 4,779,175
Sales Revenue 4,779,175 4,779,175 4,779,175 4,779,175 4,779,175
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 Other Income - - - - -
2. Less Variable Cost 3,676,128 3,676,128 3,676,128 3,676,128 3,676,128
VARIABLE MARGIN 1,103,047 1,103,047 1,103,047 1,103,047 1,103,047
(In % of Total Income) 59 59 59 59 59
3. Less Fixed Costs 324,825 324,825 324,825 324,825 324,825
OPERATIONAL MARGIN 778,221 778,221 778,221 778,221 778,221
(In % of Total Income) 41 41 41 41 41
4. Less Cost of Finance 43,731 21,865 - - -
5. GROSS PROFIT 734,491 756,356 778,221 778,221 778,221
6. Income (Corporate) Tax 220,347 226,907 233,466 233,466 233,466
7. NET PROFIT 514,143 529,449 544,755 544,755 544,755
RATIOS (%)    
Gross Profit/Sales 15% 16% 16% 16% 16%
Net Profit After Tax/Sales 11% 11% 11% 11% 11%
Return on Investment 31% 30% 30% 30% 30%
Return on Equity 71% 73% 75% 75% 75%

Annex 5: Projected Balance Sheet (in Birr)

     
  year 1   year 2   1 2 3 4
TOTAL ASSETS 532730.4675   1,822,112   2,285,947 2,605,876 2,903,368 3,249,722
1. Total Current Assets 0   756,651   1,293,500 1,686,444 2,056,950 2,476,318
Inventory on Materials and Supplies 0   -   205,300 256,624 307,949 342,166

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 Work in Progress 0   -   64,977 81,222 97,466 108,296
Finished Products in Stock 0   -   129,955 162,444 194,932 216,591
Accounts Receivable 0   -   312,819 391,023 469,228 521,365
Cash in Hand 0   -   53,759 67,198 80,638 89,598
Cash Surplus, Finance Available 0   756,651   526,691 727,932 906,736 1,198,303
Securities 0   -   - - - -
2. Total Fixed Assets, Net of Depreciation 532730.4675   1,065,461   992,447 919,432 846,418 773,404
Fixed Investment 0   507,362   1,014,725 1,014,725 1,014,725 1,014,725
Construction in Progress 507362.35   507,362   - - - -
Pre-Production Expenditure 25368.1175   50,736   50,736 50,736 50,736 50,736
Less Accumulated Depreciation 0   -   73,014 146,028 219,043 292,057
3. Accumulated Losses Brought Forward 0   -   - - - -
4. Loss in Current Year 0   -   - - - -
TOTAL LIABILITIES 532730.4675   1,822,112   2,285,947 2,605,876 2,903,368 3,249,722
5. Total Current Liabilities 0   -   312,819 391,023 469,228 521,365
Accounts Payable 0   -   312,819 391,023 469,228 521,365
Bank Overdraft 0   -   - - - -
6. Total Long-term Debt 319638.2805   1,093,267   1,093,267 911,056 728,845 546,634
Loan A 319638.2805   1,093,267   1,093,267 911,056 728,845 546,634
Loan B 0   -   - - - -
7. Total Equity Capital 213092.187   728,845   728,845 728,845 728,845 728,845
Ordinary Capital 213092.187   728,845   728,845 728,845 728,845 728,845
Preference Capital 0   -   - - - -
Subsidies 0   -   - - - -
8. Reserves, Retained Profits Brought Forward 0   -   - 151,016 574,952 976,450
9.Net Profit After Tax 0   -   151,016 423,936 401,498 476,429
Dividends Payable 0   -   - - - -
Retained Profits 0   -   151,016 423,936 401,498 476,429

9
 Annex 5: Projected Balance Sheet (in Birr): Continued
   
  5 6 7 8 9 10

TOTAL ASSETS 3,559,246 3,891,178 4,238,416 4,783,171 5,327,926 5,872,681

1. Total Current Assets 2,858,856 3,253,655 3,663,760 4,271,382 4,879,004 5,486,626

Inventory on Materials and Supplies 342,166 342,166 342,166 342,166 342,166 342,166
Work in Progress 108,296 108,296 108,296 108,296 108,296
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 108,296

Finished Products in Stock 216,591 216,591 216,591 216,591 216,591 216,591

Accounts Receivable 521,365 521,365 521,365 521,365 521,365 521,365

Cash in Hand 89,598 89,598 89,598 89,598 89,598 89,598

Cash Surplus, Finance Available 1,580,841 1,975,640 2,385,745 2,993,367 3,600,989 4,208,611

Securities - - - - - -

2. Total Fixed Assets, Net of Depreciation 700,390 637,523 574,656 511,789 448,922 386,055

Fixed Investment 1,014,725 1,014,725 1,014,725 1,014,725 1,014,725 1,014,725

Construction in Progress - - - - - -

Pre-Production Expenditure 50,736 50,736 50,736 50,736 50,736 50,736

Less Accumulated Depreciation 365,071 427,938 490,805 553,672 616,539 679,406

3. Accumulated Losses Brought Forward - - - - - -

4. Loss in Current Year - - - - - -

TOTAL LIABILITIES 3,559,246 3,891,178 4,238,416 4,783,171 5,327,926 5,872,681

5. Total Current Liabilities 521,365 521,365 521,365 521,365 521,365 521,365

Accounts Payable 521,365 521,365 521,365 521,365 521,365 521,365

Bank Overdraft - - - - - -

6. Total Long-term Debt 364,422 182,211 - - - -

Loan A 364,422 182,211 - - - -

Loan B - - - - - -

7. Total Equity Capital 728,845 728,845 728,845 728,845 728,845 728,845

Ordinary Capital 728,845 728,845 728,845 728,845 728,845 728,845

Preference Capital - - - - - -

Subsidies - - - - - -

8. Reserves, Retained Profits Brought Forward 1,452,879 1,944,614 2,458,758 2,988,207 3,532,962 4,077,717

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9. Net Profit After Tax 491,735 514,143 529,449 544,755 544,755 544,755

Dividends Payable - - - - - -

Retained Profits 491,735 514,143 529,449 544,755 544,755 544,755

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