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Chapter-5 - Financial
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Chapter 5

FINANCIAL ASPECT

This chapter shows and discusses the financial forecast for the
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proposed “Camp Obadiah” including the financial assumptions, the

investment costs, the financial statements and the financial analysis.

Moreover, this chapter also summarizes the source and uses of funds.

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5.1 Financial Forecast

This section discusses the financial assumptions, the net investment

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financial useful?
statements, and financial analysis.

5.1.1 Financial Assumptions

This section states the financial assumptions to be

implemented by “Camp Obadiah” regarding financial related issues

of the entity. These are based on the data gathered by the

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researchers from interviews in their competitors in the business

industry.

5.1.1.1 Revenue

This portion of the study states the financial assumption

with regards to the computation of the revenues for the

proposed “Camp Obadiah” 

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1. Sales will increase by 5% annually starting

from its second operation.

2. All service transaction will be on cash

basis.

3. The proposed business will be operating at

its practical capacity 80%..

4. Net income will be divided equally to the

two partners.

5.1.1.2 Expenses

This portion of the study states the financial assumption

with regards to the computation of the expenses for the

proposed “Camp Obadiah”. 

1. All expenses are on cash basis other than

depreciation expense.

2. Pre-operating cost will be expensed as

incurred based on PAS 38 par.69.

3. Purchases of supplies will increased by

2.6% starting year 2 based on inflation rate

and will be expensed outright.

4. The advertising expense will be expensed

outright.Tarpaulin printing and leaflets will

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be used as advertisement with an increase

of 2.6% based on the inflation rate after first

year of operation.

5. Utilities will be expensed outright each year.

6. The researchers use straight line

depreciation method. The depreciation is

constant from first year to fifth year.

7. Business permits and licenses will be

constant every year except for community

tax.

8. 13th  month pay will be provided to the

personnel.

9. Salaries and wages will be constant for

three years of operation and increases at

the beginning of fourth year. Increase in

salaries and wages will be in the form of

fringe benefits under de minimis.

10. Payment of SSS, Philhealth, and Pag-ibig

will be made every first week of the

following month.

11. Income tax of employee for the month will

be withheld.

12. Repairs and Maintenance will be 5% of the

cost of the asset during the first year and

will be increased by 2.6% in the next years.

13. Other expenses will increased by 2.6%

after the first year of operation except for the

fire extinguisher which is expense by the

same amount every two years. 

5.1.1.3 Others

This portion of the study states the financial

assumptions that may affect the other sections of the

projected financial statements of the proposed “Camp

Obadiah”. 

1. Philippine Peso will be used as the currency in

preparing the financial statements of the

proposed business.

2. The proposed business will be in a form of

partnership.

3. The partners will invest Php16,892,000 each

or a total of Php33,784,000 in order to start the

business.

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4. Income taxes will be paid every first month of

the succeeding quarter.

5.1.2 Investment Cost

The total capitalization of “Camp Obadiah” will be

Php.33,784,000. The partners will contribute the cash investment

to the entity. The investment will be used in the acquisition of

machineries and equipment. This will also be used in purchasing

other expenditures necessary for the establishment of “Camp

Obadiah” especially during the pre-operating years. Presented on

the next page is the table of investment cost of “ Camp Obadiah”. 

Table no. 13

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Projected Investment Cost 

Particular Amount

Land 2,000,000.00

Building 30,000,000

Machinery &
377,584.00
Equipment

Furniture & Fixture 1,345,050.00

Pre-operating
11,155.00
expense

Cash 50,211.00

Total Investment 33,784,000.00

5.1.3 Financial

Statements

This section provides information about the financial

statements of the proposed “Camp Obadiah”. Financial

statements provide information that is useful to a wide range of

users. These are Balance Sheet, Income Statement, Cash Flows

and Changes in Partners Equity. In line with this, a summary of

these statements are presented in the next page and its detailed

information are shown in exhibit section.

5.1.3.1 Projected Statement of Financial Position

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This section pictures out the financial condition of

the firm as a whole. It shows the control asset, owned

liability and the partners’ equity of the business on given

dates. The purpose of the balance sheet is to show the

financial pattern of the business. The researcher

prepared a 5 year period of the financial position and

condition of the business showing assets, liabilities and

partners’ equity at the year end. 

The table on the next page shows the summary

of the Projected Statement of Financial Position.

Figure No. 15

Summary of Projected Statement of Financial Position

5.1.3.2. Projected Statement of Financial Performance

This section shows the financial performance of the proposed

“Camp Obadiah”. Statement of Financial Position provides

information about the summarized earned revenue and expenses

incurred in a particular period of time to measure the profitability of

the business.

The researcher prepares a five (5) year periods of financial

performance for the proposed “Camp Obadiah” showing the

comparison and the expenses incurred.

The figure on the next page shows the summary of Projected

Statement of Financial Performance of the proposed business.

Figure No.16

Summary of Projected Statement of Financial Performance

5.1.3.2 Projected Statement of Cash Flow

This section pictures out the cash flow

activities, particularly operating, investing and

financing. Statement of Cash Flows shows the

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inflows and outflows of cash during the operation.

It also shows the liquidity of the firm in a given

period of time. Aside from that it also assesses

the ability of the business to generate cash in

order to pay its obligations.

The figure on the next page shows the

summary of Projected Statement of Cash Flows

of the proposed business.

Figure No. 17

Summary of Projected Statement of Cash Flows  

5.1.3.4 Projected Statement of Changes in Equity

This explains the changes in partners’

capital which results from earnings and losses. It

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also provides on how the capital or fund has been

used.

The table on the next page shows the

Summary of Projected Statement of

Shareholders’ Equity.

Figure No. 18

Summary of Projected Statement of Changes in Equity

5.2. Financial Analysis

The researcher used ratio analysis showing the liquidity ratio, the

profitability ratio, the solvency or stability ratio and period, discounted cash

flow adequacy and investment analysis using the payback period and

internal rate of return methods in analyzing the financial performance,

position and cash flows of “Camp Obadiah” for five years of operation. 

5.2.1. Ratio Analysis

This is a method of financial evaluation whereby the

relationship between the items found in the Statement of

financial Performance, Statement of financial Position, and

Statement of Comprehensive Income or both are being

established.

5.2.2. Current Ratio

Current ratio indicates the extent to which current

liabilities are covered by the current assets expected to be

converted to cash in the near future.

Figure below shows the current ratio analysis of the

proposed “Camp Obadiah”.

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Figure No. 19

Current Ratio Analysis

Figure 19 shows that “Camp Obadiah” has an increasing

current ratio which indicates that it has enough assets to pay its

maturing obligations for five years. It indicates that the said project

business is capable in paying back its short-term assets.  

5.2.3. Debt to Equity Ratio

This is a measure of a company's financial leverage. It

indicates what proportion of equity and debt the company is

using to finance its assets.

Figure No. 20

Debt to Equity Ratio

5.2.4 Rate of Return on Sales

Rate of Return on Sales is used to evaluate an entity’s

operating performance. It indicates how much profit an entity makes

after paying for variable cost of service before tax. 

Figure No. 21

Rate of Return on Sales Analysis