PROJECT PROPOSAL ON THE ESTABLISHMENT

OF MODERN BREAD, CAKE & OTHER

CONFECTIONERIES BAKERY

Promotor: Mrs. SEIDA OUSMAN ALLI

Project address: Bahir Dar city, D/M sub city
Telephone:0930035420/0918355916
Submitted to: Bahir Dar city administration
March, 2015, E.C

1
Contents
EXECUTIVE SUMMARY: ................................................................................................................................................. 4
Project & Product: ................................................................................................................................................................ 4
Project Overview:................................................................................................................................................................. 6
Company Description:.......................................................................................................................................................... 7
Company History: ................................................................................................................................................................ 7
Mission Statement: ............................................................................................................................................................... 7
Vision: .................................................................................................................................................................................. 7
Goals: our goal is to reduce out of stock items to improve sales. .......................................................................................... 7
Purpose: ................................................................................................................................................................................ 8
Current Status:...................................................................................................................................................................... 8
Legal Status: ......................................................................................................................................................................... 8
Legal requirements: .............................................................................................................................................................. 8
Legal Restrictions:................................................................................................................................................................ 8
Licenses and Permits: ........................................................................................................................................................... 9
Inspections:........................................................................................................................................................................... 9
Legal Structure: .................................................................................................................................................................... 9
Taxes: ................................................................................................................................................................................... 9
Industry Analysis: .............................................................................................................................................................. 10
Nature of participants and industry structure: .................................................................................................................... 11
Nature of participants and industry structure: .....................................................................Error! Bookmark not defined.
Weaknesses. ....................................................................................................................................................................... 13
Opportunities. ..................................................................................................................................................................... 13
Threats. ............................................................................................................................................................................... 14
Ideal customer: ................................................................................................................................................................... 14
Market needs: ..................................................................................................................................................................... 14
Market Trends: ................................................................................................................................................................... 14
Market segmentation: ......................................................................................................................................................... 14
Organizational Plan: ........................................................................................................................................................... 15
Manager: ........................................................................................................................................................................ 16
Supply Chain Manager: .................................................................................................................................................. 16
Security guard: ............................................................................................................................................................... 16
Project Financing: .............................................................................................................................................................. 17
Project Cost: ....................................................................................................................................................................... 17
Space Requirement:............................................................................................................................................................ 19
Machinery & Equipment Requirement: ............................................................................................................................. 19
Furniture & Fixtures Requirement: .................................................................................................................................... 20

2
 Office Equipment Requirement:......................................................................................................................................... 21
Human Resource Requirement:.......................................................................................................................................... 21
Utilities and other costs: ..................................................................................................................................................... 22
Revenue Generation: .......................................................................................................................................................... 22
Income Statement: .............................................................................................................................................................. 23
Balance Sheet: .................................................................................................................................................................... 25
Cash Flow Statements: ....................................................................................................................................................... 26
Operating Cost Assumptions: ............................................................................................................................................. 27
Revenue Assumptions: ....................................................................................................................................................... 27
Other Assumptions: ............................................................................................................................................................ 28
Ratio Analysis: ................................................................................................................................................................... 29
Amortization of Loan: ........................................................................................................................................................ 30
Calculation of Additional Funds Needed: .......................................................................................................................... 31
AFN = 107,825 ....................................................................................................................................................................... 31
Value of Firms: .................................................................................................................................................................. 32
Present Value of Venture: 2,370,191. ..................................................................................................................................... 32
Conclusion:......................................................................................................................................................................... 33
References: ......................................................................................................................................................................... 34
Picture Gallery: .................................................................................................................................................................. 35

3
EXECUTIVE SUMMARY:
Now adays bakery and Confectionery business are growing in both urban and semi-urban areas.
This pre-project study encompasses the bakery business located in a commercial neighborhood
surrounding and middle-income residential localities. Major products include cakes, snacks,
sweets, bun, pizza, toasts, cream rolls & tea cakes biscuits, bread and general
confectionery items, which will be sold to target customers of the city. The sales outlet will be
supported by an in-house production facility. Selections of adequate product mix and business
location, supported by marketing efforts are the critical success factors. This project is a report
for establishing a bakery. The name of our bakery firm has been decided as ‘Mrs. Seida
Ousmane Bread & Buns Bakery’. This project studies and analyses various parameters that
decide the establishment of a bakery and whether the venture shall be feasible or not. The
project has been divided into four major branches of study, namely, technical, human
resource, marketing and financial. The promotor made an all-out effort to present a
comprehensive project report and depict the feasibility of the project.

Project & Product:

The proposed Bakery and Confectionery firm are a high scale project with a production area
and sales out-let. It will be equipped with basic machinery and fixtures. The total area of the
project will require an area of 1,500 m2 of land.

The sales outlet will remain open for business for 16 hours per day around the year.

Product mix will include cakes, snacks, sweets, biscuits, bread and general confectionery items.
This merchandise will be prepared and acquired according to the demand of local customers
and in quantities directly proportional to expected sales.

Maximum sales are expected in the morning breakfast time and in evenings. First year revenues
of the project are estimated to be birr 8.35 million. It is expected that production growth rate
will be 5% per annum along with 10% per annum increase in sales price.
4
5
Project Overview:

Name of the project : Mrs. Seida Ousmane Bread, C o n f e c t i o n e r y & Buns Baker B a k e r y .

Products : Breads, Buns, Pizza, Toasts, Cream Rolls & Tea

Cakes and all the items related to bakery Products.

Status : High Scale

Address : Bahir Dar, Ethiopia

Type of firm : sole proprietorship Firm

Date of foundation : 7th, 2015.

Cost of project : 30,981,375

Source of finance : owners’ capital 70% (21,686,962.5)

Bank Loan - 30% (9,294,412.375)

Mission statement : “Our mission is to provide quality products at lowest

Prices”.
Total area required for the project: 1500 m2 of land.

Vision: To be the leader of quality bakery products provider in the region. This will be achieved
by the dedication of each employee in conjunction with Supportive participation from management
at all levels.

6
Company Description:
As the name describes above the venture this is related with the breads and buns industry, we
are stabilizing for providing all kinds of pure wheat, barley, corn and the special thing is that
we are proving these goods in variety of flavors which have low fats as full as proper hygienic
carbohydrates which will boost the energy requirements of the human body. We will
manufacture it locally and will be provided to the public at their door steps by our delivery
team members.

Company History:
Our bread and Buns is a newly formed company with a purpose to provide variety of Breads in
the market. Beside this we are not only just limited to Breads and Buns we will also make
bakery product items such as Pizza, Confectionary items etc.

Mission Statement:
The Mission of "Bread and Buns" is to produce quality bakery products cost effectively; in an
environment that is safe, clean and friendly for our employees and community.

The integrity of our company is based on the principles of quality products, satisfied customers
and consumers, and our commitments to innovative growth and development .

Vision:
Vision for short-term planning

• To gain capital return within two (3.5) years.

Vision for long-term planning

• To become a well-known bakery’s brand name at regional and country level.

• To launch new branches all over the city of Bahir Dar and its surrounding satellite towns.

Goals: our goal is to reduce out of stock items to improve sales.

7
Purpose:
Purpose of bread and buns is that, we feel there is a market gap and we have an opportunity
because our bakery is providing bread in different flavors with low fats and full of nutrition so
the chances of growth are high.

Current Status:
The current status of the company is that the basic feasibility is complete and the project is ready
for the launch.

Legal Status:
The company is a sole proprietorship based business firm in the ownership. The owner is also
office bearer holding key management positions in the company .

Legal requirements:
When planning our bakery business, we will take the legal issues very seriously. For most
people, the legal part of starting a food business can feel overwhelming and scary. Like so
many other aspects of starting our bakery business, the key is to research and compile
checklists. This is certainly not the fun part of starting our business, but it is one of the most
important. As we move toward our opening day, we must check off the required permits,
paperwork, inspections, etc.

Legal Restrictions:
We have a passion for baking, this is the only way i.e., by opening a bakery our dream come true.
But in addition to choosing which recipes to use and what names we will hang over, there are
legal restrictions about which we will definitely inform the concerned departments and we must
abide the rules and regulations. Because we are making and selling food to the general public,
we must conscientiously obey food safety laws and set up our business in line with laws specific
to our city.

8
 Licenses and Permits:
In addition to complying with food safety laws specific to our country, we may be required by
our city laws to acquire special permits and licenses before we can start and run a bakery. The
necessity for some specific types of licenses will depend upon whether we are a full-service
bakery making our own baked goods or whether we simply resell baked goods that we buy
wholesale. For example, Bahir Dar requires a specific license for bakeries while requiring
another license type for retail locations which simply sell baked goods but do not do further
processing of those goods.

Inspections:
Our bakery may be subject to regular inspections by health officials. We must have excellent
sanitary practices and maintain a bakery providing food which is safe to eat. Hazard Analysis &
Critical Control Points is a management system we should implement which will analyze the safety
of the food we're selling to the public because it allows us to monitor processes starting from raw
materials.

Legal Structure:
We must set up a legal structure for your bakery and establish a tax ID for the business. We
may choose to set up a fictitious name in our county, filing with the county clerk, or you may
establish a corporation and apply for an employer identification number.

Taxes:
We must collect sales tax if our state mandates sales tax on baked goods. This money is then turned
over to our state's revenue department. The collection of sales tax depends on our specific state's
requirements for restaurants and bakeries. Normally, we must file tax forms with our state to obtain a
tax ID number so that we may pay the required sales tax to the revenue department.
9
Industry Analysis:

Industry Size and Growth Rate

Bakery products are one of the most used edible items all over the world, and regular part of
local diet. As the population keeps on increasing, the demand for Bakery products is also
increasing. Since the purchasing power of the consumers has increased considerably, the
potential for growth within a niche segment is very high.

10
 Nature of participants and firm structure:
Bakery products are one of the most used edible items all over the world, and regular part of
local diet. As the population keeps on increasing, the demand for Bakery products is also
increasing. Since the purchasing power of the consumers has increased considerably, the
potential for growth within a niche segment is very high. Bakery business is a fragmented
business that follows a 4tier approach (shown in Figure 1) that involves production unit
(baking of products), packaging unit (packaging of baked products), outlet (selling shop of
products is conducted) and customers (the end users of bakery product)

11
Production unit

Packaging unit

Outlet

Customer

12
Market Analysis:
SWOT Analysis:

Strengths.

 Unique flavor in bread and buns.

 Due to mass production the cost is reduced and it helps maintain the financials on
smooth flow
 Bakery has its own setup and there is independent decision making.
 Our bakery is also planned to work on the basis of ISO 900 standard.
 Bakery owned delivery vans for special occasions.
 Location of our bakery will be placed in suck and area that can easily accessible from
almost all parts of Bahir Dar.
 Experienced staff is hired who has expertise in providing healthy baked products.

Weaknesses.

 Bakery products are perishable items hence needs to be sold as soon as possible and
customers also prefer fresh products.
 Cannot afford stock outs because it is total loss.
 Lack of experience. Will have to face stiff competition.
 Huge amount of investment is through loan,
 Cannot take small orders with reference to delivery.

Opportunities.
 Expansion of the product line in the future.
 Scope of expansion with the development of our outlets.
 Bakery industry is growing very fast and demand for bakery products are also increasing
day by day.
 Potential to become premier bakery products provider in the makers
 Use of technology.
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Threats.
 Competition.
 External changes.
 Price wars.
 Product substitution.
 Inflation.

Ideal customer:
Ideal customer of bake and buns is every person who love bakery products. Children,
youngsters even aged people also love to consume baked products.

Market needs:
In today’s era where there is shortage of time and there is always sense of urgency everywhere,
demand for bakery products is increasing day by day because people usually don’t have time
in brake fast to take cuisine in kitchen. That’s why there is need for bread and buns in market.

Market Trends:
People living in posh areas and following international trends and are getting more health
conscious. With increased awareness, backed by requisite purchasing power people living in
selected areas are making a conscious effort to use products that are more beneficial for health.

Market segmentation:
 Demographic: -
Bakery products are well known among all age group
people. People of all:
• Age
• Gender
• Generation
• Family size
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  Geographic: -

Bread and buns are initially targeting Islamabad. Later on, we will be targeting all rural
areas of Bahir Dar, like Zenzelima, Woramit, Addis Alem, Wereb, Meshenty, Zegie, Tiss
Abay, etc.

 Behavioral: -

Those people having the requisite purchasing power and can afford to buy bakery products at
premium prices.

 Competitor analysis: -

Our competitors are local bakeries operating in the city of Bahir Dar, such as Nahu Girum
bakers, lakeson bakers, Mugera bakers, and peda bakers.

Organizational Plan:
➔ No. of Employees:

Our business is based on sole proprietorship. There one person who will be investing in this
business. Apart from the management staff the organization is divided into two activities i.e.,
production and selling. For selling purpose salesmen who will deal with customers. The
production house (Kitchen) will be managed by bakers who will do their best. All the
employees will be hired through contract, duration of contract depends upon the growth of the
business. Initially we hire our employees for 6 months after that the extension of contract takes
place.

CEO:
CEO being highest ranking officers and administrator will be in charge of total management
of the organization; having the vast range of responsibilities as a communicator, decision maker,
leader, manager and executor. Chief Executive Officer will develop annual planning
guidelines; will oversee the development of the corporation’s annual service, will make plans
15
and recommend strategies to achieve the organizations goals and objectives.
Mrs. Seida Ousman will act as CEO. she is liable to take affirmative consent from other
partners before execution of all major activities.

Manager:
The newly hired manager will provide his/her services as a manager of the bakery. He/she will
manage all the activities in a bakery to keep customers happy and satisfy. He/she will look upon
employee’s attitude and behavior towards customers. Also, his/her duty to be in contact with
Supply Chain Manager so that He/she will timely and properly manage the purchasing of stock.

Supply Chain Manager:

The newly hired supply chain manager will also act as a Supply Chain Manager. His/her duty
to provide all the needed stock on time and to purchase things cheaply to earn as more as
possible. The purchasing of stock like wheat, barley etc. will cost minimum if the relation
between suppliers and manager is good. As a Supply Chain Manager, he/she should not rely
only on one supplier, he/she must have contacts with different suppliers so in case of emergency
it would manage the order and deliver it on time.

Security guard:
There will be 6 security guards who will be responsible of the security of the bakery premises.
They are required because of the bakery security to prevent any mishap.

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Project Financing:
Following table provides details of the equity required and variables related to bank loan:
Project Financing
Description Details

Total Equity (70%) Birr 21,686,962.5

Bank Loan (30%) Birr 9,294,412.375

Markup to the Borrower (%age / annum) 15%

Tenure of the Loan (Years) 5

Project Cost:
Following fixed and working capital requirements have been identified for operations of the
proposed business:
Project Cost

Description Amount Rs.

Capital Investment
Machinery & 3,294,400
Equipment Furniture & 3,440,000
Fixtures Office 8,610,000
Vehicles 2,141,500
Office Equipment 2,180,000
Pre-operating 500,000
Costs Training 19,666,400
Costs
Total Capital Costs
Working Capital
Raw Material Inventory 1,329,475
Upfront Building Rent 225,000

17
 Cash 1000,000
Total Working Capital 2,000,000

6,760,499.87
Contingency
Total Investment 30,981,375.00

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Space Requirement:
The space requirement for the proposed Bakery and Confectionary Unit mainly includes the
production hall, store room and a retail outlet. For this purpose, it is recommended a minimum
of 1500 m2 of land. From this area of land, the promotor has 750 m2 of land and the remaining
area of 750 m2 of land is requested as an expansion from the city municipality.

The production space and bakery outlet could be acquired at separate places. However, it should be
ensured that both the facilities are located closely for easy supply of produced goods to the outlet.

Space Requirement
Description Estimated
Area (Sq.)

Production Unit 750

Outlet Space 750

Total area 1500

Machinery & Equipment Requirement:

Plant, machinery and equipment for the proposed project are stated below:

Machinery & Equipment Requirement (10% Straight Line)

No. Description No. of Cost per Item Original Value/birr

1. Flour Sifter 1 250,000 250,000

2. Mixer Cakes and Cream Type 1 250,000 250,000
3. Oven (8x8 ft) 1 400,000 400,000
4. Dyes 30 80 2,400
5. Deep Freezers 2 35,000 70,000
6. Frier and Burner 4 6,000 24,000
7. Ceiling Machine 1 3,000 3,000
8. Moving Trollies 7 5,000 35,000
9. UPS and Batteries 5 30,000 150,000
10. Trays 50 200 10,000
11. Misc. Tools & Equipment’s (Pans, Knives 1 100,000 100,000
and others)
1,294,400
19
The required machinery is easily available in the local markets. Used and new machinery can
be purchased from different whole sale markets. Including Walia capital lease financing.

Furniture & Fixtures Requirement:

In addition to the above plant machinery and equipment, following necessary items will be required for the
proposed venture:

Furniture & Fixture Requirement (10% Straight Line)

Sr. Description No. of Cost per Item Original
Item Value/BIRR

1 Tables for Production 2 5,000 10,000

2 Chairs & Other Furniture 1 20,000 20,000
3 Cost of Renovation and Interior Designing 1 200,000 200,000
4 Air Conditioner 1 60,000 60,000
5 Freezers 1 40,000 40,000
6 Weighing Scales (For Cash Counter & Production) 2 5,000 10,000
7 Micro Wave Oven 2 15,000 30,000
8 Sign Board 1 20,000 20,000
9 Miscellaneous 1 50,000 50,000
440,000

20
Office Equipment Requirement:
Following office equipment will be required for the proposed bakery and confectionery shop:

Office Equipment Requirement (10% Straight Line)

Description Quantity Unit Cost (Rs.) Total Cost (BIRR)
Computer with servers 1 125,000 125,000
Billing Machine 1 15,000 15,000
Telephone set 1 1,500 1,500

Total 141,500

Human Resource Requirement:

Details of human resource required to run the operations of the proposed business are as under:

Human Resource Requirement

Description No. of Employees Monthly Salary
per Person
(BIRR.)

Owner Manager 1 25,000

Master chefs 10 20,000
Salesmen 30 4,000
15 4,000
Driver
10 2,000
Janitors
6 15,000
Supplies chain managers
60 5,000
Ordinary bakers

promotors 6 4,000

security 6 2500

Total number of emp. 156 854,000

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Above HR composition shall be engaged in order to manage the operational affairs of this
project under the supervision of the Owner Manager. Appropriate experience for chef and
salesmen would be required.

Utilities and other costs:

An essential cost to be borne by the company is the cost of electricity and gas. The electricity
expenses are estimated to be around Birr. 50,000 per month, whereas, gas expenses are
estimated to be Birr. 345,139 / year (including both natural gas and LPG at 70% capacity
utilization). Considering the non- availability or low pressure of natural gas alternate burning
fuels i.e., LPG, wood or kerosene oil may need to be considered. Advance procurement of raw
materials and packing material for at least 10 days along with 05 days finished goods stock level
will be maintained for uninterrupted sales of goods, at the production and outlet facility.

Revenue Generation:
Following table provides the details of sales revenues for year one:

Revenue Generation – Year 1

Product Mix 1st Year Sales Revenue (Birr.)

Bakery Sales (70%) 14,113,575

General Item Sales (30%) 4,234,072

Total Sales 18,347,647

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Income Statement:
Detail Monthly Year 1 Year 2 Year 3
Sales/Revenue 1,528,970 18,347,647 21,908,272 25,707,195
Cost of Sales:
Raw Material Cost 988,425 11,861,105 14,162,923 16,618,792
Operation costs 1 (direct 197,222 2,366,667 2,637,556 2,901,479
labor)
Operating costs 3 (direct 20,000 240,000 264,000 290,400
electricity)
Operating costs 4 (direct 2,071 24,850 29,673 34,818
water)
Operating costs 5 (direct 28,762 345,139 412,118 483,580
gas)
Total Cost of Sales 1,236,480 14,837,760 17,506,269 20,329,069
Gross Profit 292,491 3,509,887 4,402,003 5,378,126
General administration &
selling expenses
Administration expense 73,000 876,000 963,600 1,059,960
Administration benefits 7,300 87,600 96,360 105,996
expense
Building rental expense 75,000 900,000 990,000 1,089,000
Electricity expense Outlet 30,000 360,000 396,000 435,600
Travelling expense 7,645 91,738 109,541 128,536
Communications expense 1,460 17,520 19,272 21,199
(phone, fax, mail, internet,
etc.)
Office expenses 730 8,760 9,636 10,600
(stationary,
entertainment, janitorial
services, etc.)
Promotional expense 15,290 183,476 219,083 257,072
Depreciation expense 23,987 287,840 287,840 287,840
Amortization of pre- 1500 18,000 18,000 18,000
operating costs

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Amortization of legal, 83.3 1,000 1,000 1,000
licensing, and training
costs
Subtotal 235,995 2,831,935 3,110,332 3,414,803
Operating Income 56,496 677,952 1,291,671 1,963,323
Gain / (loss) on sale of - - -
office equipment
EBIT 56,496 677,952 1,291,671 1,963,323
Interest expense on long 18,907 226,886 193,368 148,262
term debt (Project Loan)
Interest expense on long 6,812 81,740 69,665 53,414
term debt (Working
Capital Loan)
Subtotal 25,719 308,627 263,033 201,676
EBT 30,777 369,325 1,028,638 1,761,647
Tax - 76,796 199,829
NOPAT 30,777 369,325 951,843 1,561,818

24
Balance Sheet:
Assets Year 1 Year 2 Year 3
Current assets
Cash & Bank 1,346,629 2,201,161 3,693,989
Finished goods inventory 208,983 243,368 282,593
Raw material inventory 432,756 558,576 718,156
Pre-paid building rent 247,500 272,250 299,475
Total Current Assets 2,235,867 3,275,355 4,994,214
Fixed assets
Machinery & equipment 1,164,960 1,035,520 906,080
Furniture, fixtures and Office 396,000 352,000 308,000
Equipment
Office vehicles 774,900 688,800 602,700
Office equipment 113,200 84,900 56,600
Total Fixed Assets 2,449,060 2,161,220 1,873,380
Intangible assets
Pre-operation costs 162,000 144,000 126,000
Legal, licensing, & training costs 9,000 8,000 7,000
Total Intangible Assets 171,000 152,000 133,000
TOTAL ASSETS 4,855,927 5,588,575 7,000,594
Liabilities & Shareholders'
Equity
Current liabilities
Accounts payable 505,227 604,993 712,477
Other liabilities
Total Current Liabilities 505,227 604,993 712,477
Other liabilities
Deferred tax - 76,796 276,625
Long term debt (Project Loan) 1,463,450 1,172,510 836,465
Long term debt (Working Capital 527,238 422,421 301,353
Loan)
Total Long-Term Liabilities 1,990,688 1,671,727 1,414,443
Shareholders' equity
Paid-up capital 1,990,688 1,990,688 1,990,688
Retained earnings 369,325 1,321,168 2,882,985

25
 Total Equity 2,360,013 3,311,855 4,873,673
TOTAL CAPITAL AND 4,855,927 5,588,575 7,000,594
LIABILITIES

Cash Flow Statements:

Details Year 1 Year 2 Year 3
Operating activities
Net profit 369,325 951,843 1,561,818
Add: depreciation expense 287,840 287,840 287,840
Amortization of pre-operating costs 18,000 18,000 18,000
Amortization of training costs 1,000 1,000 1,000
Deferred income tax - 76,796 199,829
Finished goods inventory (208,983) (34,385) (39,226)
Raw material inventory (103,281) (125,820) (159,580)
Pre-paid building rent (22,500) (24,750) (27,225)
Accounts payable 505,227 99,766 107,484
Cash provided by operations 846,629 1,250,289 1,949,941
Financing activities
Project Loan - principal repayment - (290,940) (336,045)

Working Capital Loan - principal - (104,817) (121,067)

repayment
Issuance of shares - - -
Purchase of (treasury) shares

Cash provided by / (used for) financing - (395,756) (457,113)

activities
Investing activities
Capital expenditure - - -
Acquisitions

Cash (used for) / provided by investing - - -

activities
NET CASH 846,629 854,532 1,492,828

26
 KEY ASSUMPTIONS.
Operating Cost Assumptions:
Description Details
Cost of goods sold growth rate 10%
Days operational per year – Factory 355
Days operational per year – Outlet 340
Operating costs growth rate 10%
Administration benefits expense 10% of administration expense
Travelling expense 0.5% of administration expense
Communication expense 2% of Sales
Office expenses (stationary, entertainment, 1% of administration expense
janitorial services, etc.)
Promotional expense 1% of revenue

Revenue Assumptions:
Description Details
Sale price growth rate 10%
Production capacity utilization 70%
Production capacity utilization growth rate 5%
Maximum capacity utilization 95%
Days operational / year for Shop 340
Hours operational / day 16
Shift length (hours) 8

Financial Assumptions:
Description Details
Debt 50%
Equity 50%

Interest Rate on Debt 15%

Debt Tenure 5 Years

27
Other Assumptions:
1. Bakery industry is highly fragmented and frequent rate fluctuations are common, that the rates that are
calculated are best possible estimations under the given circumstances.
2. The price of the product is set on the basis of the price taken from Bahir Dar market + 10% addition is
made in that price.
3. It is assumed that for summer season, the average consumption of Bakery Products in a household of
6 is 58 kg per month.
4. It is assumed that for winter the average consumption of vegetables in a household of 6 will be 42 kg
per month.
5. Financial calculations are based on assumption that households not individual will purchase. For ease
of revenue calculation, a consumption package is designed and the price of that consumption package
is calculated. This price is used to get the sales revenue.
6. The method of depreciation is assumed to be 10 years straight line.
7. The loan will be taken from Bank and loan will be amortize according to their requirements but we
are taking the assumption of amortization of loan on fully own based.
8. For the purpose of ratio calculations, wherever applicable we have used average balances rather than
taking end of the year data except year 1.
9. The marketing expense amount are very small and will be outlaid when we start selling because of it
very minute nature, we have taken average monthly expense for advertisement.
10. The wages and the commissions will be paid immediately so we will have any accruals regarding both
of them.
11. Sales are assumed on the basis of survey of the city market.
12. Packaging of Goods is totally depended on the Production departments.
13. Detailed Financial Assumptions has been shown above for better understanding.

28
Ratio Analysis:
Following are the ratio Analysis of the projects which are taken by assumptions:

Description Year # 1 Year # 2 Year # 3

Current Asset Ratio. 4.4 times 5.4 times 7 times

Gross Profit Ratio 19.1% 20.09% 20.90%

Operating Profit Ratio. 3.69% 5.8% 7.6%

Return on Investment 9.27% 23.90% 39.28%

Overall Profitability Ratio. 0.076 0.17 0.22

Assets Turnover Ratio. 3.78 3.92 3.67

Working Capital Turnover 17.40 20.77 24.37

Ratio
Profitability Ratio 0.02 0.04 0.06

Return on Assets Ratio 0.76 0.18 0.15

Interest Coverage Ratio 2.98 6.67 13.24

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Amortization of Loan:
Following are the details of the Amortization of loan:

Given Data;
Details Values
Loan Amount 1,990,688
Annual Interest Rate 15%
Loan period in years 5 Years

Yearly Payment 593,853

Monthly Payments 47,358

Loan Schedule.
Years Loan Amount Principal Interest Total Remaining
(15%) Payments Balance
1. 1,990,688 295,250 298,603 593,853 1,695,438

2. 1,695,438 339,537 254,316 593,853 1,355,901

3. 1,355,901 390,468 203,385 593,853 965,433

4. 965,433 449,038 144,815 593,853 516,395

5. 516,395 516,395 77,459 593,853 0

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Calculation of Additional Funds Needed:
For the Calculation of Additional funds, we are going to use the formula approach and taking
the assumption that we are using Days Payable Outstanding (DPO) 25% as for the calculation
purpose:

AFN = (7,000,594 / 25,707,195 * 6,426,799) – (712,477 /

25,707,195 * 6,426,799) – (32,133,994 * 1,561,818 / 25,707,195
* (1-0.25)

AFN = 107,825 every month

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Value of Firms:
For a Venture it is important to know that what the Value of the firm is. For this purpose, the
following are the cash flows and the growth rate are as follows and R assumption is 25%. We
are assuming that after 3rd year the growth rate will be constant @ 20%.

CASH FLOWS 846,629 854,532 1,492,828

GROWTH 10% 19% 17%

Cash flow 4 = CF3 (1+g).

= 1,492,828 (1+0.20).

Cash Flow4 = 1,791,394.

Terminal Value = FCF4 / R – G.

TV = 1,791,394 / 25 – 20
TV = 358,279.

PVCF1 = 705,524.
PVCF2 = 593,425.
PVCF3 = 1,071,242

Present Value of Venture: 2,370,191.

**PVCF3 = TV3 + FC3 / (1+G) 4

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Conclusion:
We would finally like to conclude the project with a great feeling of having gained enormous
knowledge about bakery industry.

By conducting extensive research on all the aspects of establishing a bakery, we conclude that
the project is feasible as per capital budgeting techniques.

While making the project we learnt how to communicate or deal with people and how to
maintain contacts with them. We saw all the marketing factors and were able to understand more
about it because of seeing them practically. It has been said that practical knowledge is more
important than theoretical knowledge.

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References:
www.bakerybazaar.com

www.wikipedia.org

www.justdial.com

www.fao.org

www.blog.franchiseindia.

com www.google.com

E.T, C.

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