AO XIANG TEXTILE MANUFACTURING PLC

BUSINESS PLAN

Address:
 Oromia Region
 Dukem Town
 Koticha Kebele
 House No, new/EIZ
 Tell: +251944-29-45-13

Submitted to: - Cooperative Bank of Oromia S. Co.

December 2022
Addis Ababa, Ethiopia
Contents
1.Executive summary 4
2.INTRODUCTION 4
2.1. Background of the study 5
2.3. Intended aim of the Project 5
2.3.1 General objective of the project 5
2.3.2. Specific objectives target market 6
2.4. Ethiopian textile manufacturing economy review 6
2.4.1 General overview 6
3. MARKET STUDY 7
3.1. Textile Demand and Supply Analysis 7
3.1.1. Textile Demand 7
3.1.2. Textile Supply Gap 8
3.3. Marketing strategy of the company 9
3.4. Barriers of manufacturing and pricing 10
4. TECHNICAL STUDY 11
4.1 Description of the business 11
4.2 Location 11
4.2.1. Land and shade area ............................................................................................................ 12
4.2.2. Opportunity rationale 12
4.2.3. Infrastructure and Services. 12
4.2.4. Availability of Work force 13
4.2.5. Machinery and Equipment of the Company 13
4.3. Production process 14
4.3.1. Textile manufacturing process 14
4.3.2. Textile manufacturing process (fiber to fabrics). 15
4.3.3. Yarn manufacturing 15
4.3.4. Processing stages in cotton yarn manufacturing 16
4.3.5. Fabric manufacturing 17
4.4. Production Plan 17
4.4.1. Production Capacity Plan 17
4.4.2. Raw materials Requirement 17
5. Organization and Management 18
 5.1. Organizational structure 18
6. FINANCIAL STUDY 19
6.1. Assumptions and facts of financial study 19
6.2. General & administration Expense 20
6.3. Working capital determination 20
a) sales projection method. 21
b) Contract based working capital required 21
c) Cash flow based Working Capital Required. 22
6.4 SOURCE OF FUND, FACTS AND FINDINGS 22
6.5. Revenue projections 23
Conclusion 23
Annexes 24
Executive summary
This business plan is conducted to assess the working capital requirement determination of
AO XIANG TEXTILE MANUFACTURING PLC. The market, technical and financial study of the
business has been undertaken to show the current requirement of working capital to run
the project so that manufacturing overdraft financial service loan to finance the business
can be secured.
AO XIANG Manufacturing Plc has engaged in manufacturing of fabric for textile industry
since June 2019 G.C and enter in to the market by large in the sector of providing various
different types of fabric to textile production factories, kolfe and the largest market
Merkato. Now The key objective of the owner it to expand the currently operating business
to operate in full capacity by having financial access from the financial institutions and
providing fabric for market with the motive of increasing the benefit of owner of the
business, creating employment opportunity, generating government revenue in the form
of tax and bringing the hard currency which is highly demanded by the country since most
of the commodities are imported from abroad
This business plan of AO XIANG Manufacturing Plc located at Oromia regional states at
Dukem, east industry zone a place for manufacturing excellence and a platform for
developing and transferring skills to manufacture different types of wearing apparels
including sport wears for export and domestic markets. Textile and apparel industry is a
priority investment sector in Ethiopia that targeted to boost export, increase foreign
currency earnings and create abundant job opportunities for the rising young population.
From the fabric manufacturing business economic benefits entertained expected from the
project is employment generation to the skilled and unskilled people, revenue generation in
form of income tax to the government, improvement in the export industry of textile and
apparel and profit for the owner of the project. The study shows that the project is
financial viable, economically sounding and socially desirable. Therefore it is wise decision
for the financial institution to finance for the working capital for manufacture of fabric &
textile business ETB 7,015,000.00 by two shareholders namely Mss. Chen Chen Fan and Mr.
Qilin Huang in 2019.
The General Manger, Mss. CHENCHEN FAN, has long time experience in different business
activities. She has unlimited support from other professional and energetic management
members of the business.

4
2. INTRODUCTION
2.1. Background of the study
The AO XIANG Textile Manufacturing Plc has engaged in producing different types of
textile fabric products for local and international market by using the convenient
investment policy environment of the country which encourages investment
activities of incentives such as tax exemption for specified period of time availability
and easy access to institutional banking credit are important elements for the
development of private investment in the country. By doing this the company has
retaining hard currency in which the country is in acute shortage, reduces
unemployment by creating job opportunities and generate revenue for the
government in the form of tax.
Moreover due to labor wage increasing in developed countries, the apparel
manufacturing has been migrating from the high wage developed world to
developing countries like Ethiopia due to availability of low wage labor.
Following these, different trading means such as Cut, Make and Trim and FOB,
outsourcing of the production activity, have been formed by developed countries.
Hence low wage labor is one of the competitiveness advantages of the industry.
Furthermore due to the US and EU customers requirement the Chinese apparel
manufacturers are under limited restriction of exporting to these countries which
provides more opportunity for other garment manufacturers.
The AO XIANGTextile Manufacturing Plc has engaged in producing different types
of textile fabric products with paid up capital of birr 50,300,000.00 in 2011 E.C and
the company has able to generate lucrative profit and capable the country to gain
tax ,foreign currency, employment opportunity and knowledge transfer.
2.3. Intended aim of the Project
2.3.1 General objective of the project
The rationale behind establishing AO XIANG Textile Manufacturing Plc project has
more or less discussed above. Thus, the study is made for securing Overdraft loan to
alleviate working capital shortage of the company to run its operation smoothly
without interruption.

5
 2.3.2. Specific objectives target market
The project is socially desirable and economically very useful. This can be justified from
various angles like:
To fill the gap observed in the market through providing raw materials for textile &
garment manufacturers locally.
To gain reasonable profit for business shareholders
To provide Employment opportunity for local labor market
To Generating foreign currency and tax income for the government
To create Market opportunity for local demand and to increase quality and price
competition in the local market.
2.4. Ethiopian textile manufacturing economy review
2.4.1 General overview
Besides the globally increasing demands for textile products, there are also a number of advantages
and incentives that motivate and engaged in the business promoters in Africa in general and in
Ethiopia in particular. The global market has become increasingly accessible to countries such as
Ethiopia. New export opportunities are created through initiatives such as the African Growth and
Opportunity Act (AGOA), the Common Market of Eastern and Southern Africa (COMESA) and
bilateral trade agreements established with Western countries. Ethiopia is also part of “Everything
but Arms” program providing access to the EU market for Lesser Developed Beneficiary Countries.
The global home textile market retail value is enormous. It was USD 42.33 billion in 2013 and is
expected to reach USD 117.10 billion in 2019. However, Ethiopia’s economic growth has not been
benefiting from it. Recently, due to the priority given to the sector, the quality of textile products is
improving and items are being sold in domestic as well as international markets. Successive
government policies have consistently encouraged measures to exploit comparative advantages to
increase exports.
In Ethiopia manufacturing sector accounts 4.5% of national GDP that is very low. The Government
wants to change this percent through Growth and Transformation Plan. In the second GTP, the
government plans to increase the share of the manufacturing industry from 4.5% to 8%. The
government strategy to promote the manufacturing sector through choosing of the winners based
on the existing comparative advantage.
The daily production of different apparel products of the AOFAN Manufacturing plc is on average
4.5 million and annual production is around 1.4 billion.

6
 3. MARKET STUDY
3.1. Textile Demand and Supply Analysis
3.1.1. Textile Demand
In Ethiopia polo shirt, Jeans trousers, under wear, T-shirts and different uniforms and
sportswear has casual and permanent demand. Casual demand for those products comes
from different government sectors, students, and from all class of the societies.
Besides the globally increasing demands for textile and apparel products, there are also a
number of advantages and incentives that motivate the promoters in Africa in general and
in Ethiopia in particular. Among these are:

 Tax free and unlimited quota market for textile products in economic giant
continents like US and Europe.
 70% by 30% loan scheme of Development Bank of Ethiopia
 Provision of land necessary for investment at reduced rate
 Duty free import of machineries and equipment’s, construction materials
(those not available locally), and spare parts (whose value not greater than 15%
of that of investment capital goods)
 Exemption from export tax on local products
 Duty drawback schemes on export sales
 2 to 7 or more years’ income tax exemption, for exporting investors
 3 to 5 years holyday for loan repayment
 Provisions of loss carry forward privileges, for about half of the tax exemption
period, and other.
Along with the above incentives and motivations the textile and apparel manufacturing
industries are migrating to Africa and other poor countries due to the increase of labor cost
in countries like Turkey, Italy and others. On the contrary, Ethiopia has relatively lower cost
labor force and good source of raw material. All the listed reasons fueled the textile sector
to show up dramatic change in number and influence the economy of the country.
Even though, there is apparel production capacity of about 20 million pieces of woven

7
garment and 53 million pieces of knitted garments per year in the country, there is still
bigger domestic and international apparel product demand.
The market segment for proposed project is 69% targeted to the international market and
31% to local market for the coming 10 years. Ethiopia has exported few amount of apparel
products for the past 10 years despite the fact that the market for developing nations are
still at large and the government had planned in its Growth and transformation plan to
export apparel products. (Source CSA: 2021 Volume-2 )
Export on apparel products in general and some products like: polo shirt, shirts, sportswear,
uniforms, women’s blouses, skirts, trousers shorts, and Men’s shirts, trousers and shorts in
particular had been increasing from year to year for the last ten years.

Year World Import (USD) National Import World /Except Ethiopia/

(USD) Import (USD)
2018 226,045,360,000.00 109,648,699.60 225,935,711,300.40
2019 230,566,267,200.00 114,034,647.60 230,452,232,552.40
2020 235,177,592,600.00 118,596,033.50 235,058,996,566.50
2021 239,881,144,400.00 123,339,874.80 239,757,804,525.20
2022 244,678,767,300.00 128,273,469.80 244,550,493,830.20

We can predict that the demands of fabric and textile products in general to have the
following trends.
World and Ethiopian textile &Apparel Import projections for years 2018 -2022
Considering the export and import situations of apparel products at national and global
levels, we can reasonably conclude that there is very huge market demand for the
mentioned products both locally and globally.
Therefore, it will be the matter of competing and taking the market share.
3.1.2. Textile Supply Gap
As the demand and supply gap analysis discloses beneath, there is a huge supply gap to fulfill the
market demand for the fabric industry in the local as well as the international market.
It is also ease to observe that the entrance of textile industry in the country is on infant stage and
needs better participation of government and private sector to the business line.

8
Fabric Supply Gaps Projected for the years 2018-2022
A/ National supply gap
Year World Import (USD) National Import World /Except Ethiopia/
(USD) Import (USD)
2018 226,045,360,000.00 109,648,699.60 225,935,711,300.40
2019 230,566,267,200.00 114,034,647.60 230,452,232,552.40
2020 235,177,592,600.00 118,596,033.50 235,058,996,566.50
2021 239,881,144,400.00 123,339,874.80 239,757,804,525.20
2022 244,678,767,300.00 128,273,469.80 244,550,493,830.20
A/ National supply gap

Year National Import (USD) National Supply (USD) Supply Gap (USD)

2018 109,648,699.60 83,324,000.00 26,324,699.60

2019 114,034,647.60 83,324,000.00 30,710,647.60
2020 118,596,033.50 83,324,000.00 35,272,033.50
2021 123,339,874.80 83,324,000.00 40,015,874.80
2022 128,273,469.80 83,324,000.00 44,949,469.80

B/World supply gap

Year World /Except Ethiopia/ World /Except for World Supply Gap
Import (USD) Ethiopia/ Supply (USD) (USD)
2018 225,935,711,300.40 196,702,765,000.00 29,232,946,300.40
2019 230,452,232,552.40 196,702,765,000.00 33,749,467,552.40
2020 235,058,996,566.50 196,702,765,000.00 38,356,231,566.50
2021 239,757,804,525.20 196,702,765,000.00 43,055,039,525.20
2022 244,550,493,830.20 196,702,765,000.00 47,847,728,830.20
(Source: CSA: 2021. )
3.3. Marketing strategy of the company
Market of fabric can mainly for local market. The company already has established good
market relationship to local markets mainly to its sister company known as AOFAN
Manufacturing Company and at Merkato the largest market area. Currently, the company
has intended to enlarge its market share by increasing its production and through providing
quality products to potential markets.

9
There are potential customer regularly buying fabric products at Merkato and kolfe for the
local small scale garment production.
Accordingly the company selling strategies are direct selling and point-of-purchase
marketing strategy, which are very preferred for the business nature and the availability of
surplus demand. The company has already received a lot of orders for the coming two
months production.
3.4. Barriers of manufacturing and pricing
Local price distortions have been tempered since the implementation of a directive by the
Ministry of Trade and Industry (MOTI) that enforces registration and execution of export
contracts.
The inexistence or interruption of power on the site of manufacturing area, the instability of
the country due to different reason, the difficulty of easily accessibility of infrastructures
like road, water, telecom services and etc forces the continuity production at full capacity
that pressure the company to pay extra expenses which in turn brings higher pricing.
Therefore the manufacturing sector faces some artificial and natural difficulties while
engaging in the sector including service bureaucracy that directly or indirectly increases
cost of production that result unfair price of the product in the market.
However, AO XIANG Manufacturing Plc tries to supply its product with competitive price by
reducing its profit range.

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 4. TECHNICAL STUDY
4.1 Description of the business
There are possibilities for undertaking different manufacturing business activities in the
Dukem town and surroundings. Besides the favorable environmental conditions of the
proposed area, the ruling policy of investment is highly conducive to attract and support
those entities that have the desire to engage in private investment activities since it is the
major means of obtaining of foreign currency for the country. It is in pursuant to these
working groups that the promoter has already engaged in providing fabric products to local
large and small scale textile manufacturing companies, waving finishing & printing textile.
The AO XIANG Textile Manufacturing Plc is established in June 2019 by two shareholders
known as ChenChen Fen and Qilin Huang with an initial capital of 7,015,000.00. The
company is established to produce textile and accessories for the local market. Currently,
the company has more than 324 employees. And its daily sales reached 2-3 million birr. The
existing textile fabric machinery has a capacity of producing 15 tons within a day and the
underwear production machinery has a capacity of producing 5 ton per day.
Now the company has completed expansion to increase fabric production capacity to 25
ton per day through installing a new machinery and construction of two manufacturing
building in 15000 square meter of land.
4.2 Location
The factory of AO XIANG Textile Manufacturing PLC is located in Oromia National Regional
State, which is found in Addis Ababa surrounding special administrative zone, in eastern
industrial zone located in Dukem to Bishotu road, a 44 Kilometers from the center of Addis
Ababa, the capital.
The location is preferable for the availability of trained manpower, better infrastructure,
and ease of getting various resources in the vicinity.
In addition, the site is selected mainly due to the existence of other manufacturing
factories, which can be a potential market and considering easy transportation for raw
materials and delivery of final products.

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 4.2.1. Land and shade area
The total area of the factory is estimated at 15,000 m2; of the land acquired through lease
agreement from eastern industrial zone. Currently, the company has constructed multiple
two floor factory buildings in the industrial zone and engaged in manufacturing different
fabric &textile products.
Cost of the building 129,920,000.00
Cost of Land 40,000,000.00
Total 169,920,000.00
4.2.2. Opportunity rationale
The fundamental reasons that underlie for undertaking of this business are:
 high demand supply gap of company products ‘observed in the local textile
production market,
 Already established markets and proximity to potential markets,
 The availability of the loan facility in the financial institution of the country.
 Prevailing demand of the company products, and moreover, taking in to account the
financial capability of the promoter, the bank loan and already developed and easily
accessible infrastructure in the area are quite promising to expand the already
existing business.
4.2.3. Infrastructure and Services.
The town and surroundings has all weather roads, an automatic telephone service
and manual telephone stations, hydropower supply. 100% of the people have access
to tap water supply and the major sources of supply include tap water, wells, rivers
and springs. There are a number of wholesales and rental trades. There are small
and big industries, large and small scale farms, fuel stations, financial institutions,
constructions, shops, and health and education services. Moreover, internet service
is provided merely with required level of data speed for the industry compound.
Currently, two banks are giving financial service in the compound and Cooperative
Bank of Oromia, one which is the most preferable bank has commenced operation
at the site.

12
 4.2.4. Availability of Work force
The work force required for the business is abundantly available in the town and nearby
rural settlements. Most of the management team of every department is professional
Chinese.
4.2.5. Machinery and Equipment of the Company
To keep abreast with the latest in fashion world, the company possesses a well-equipped
production, backed by hi-tech machines and latest technology. It has a retinue of modern
machinery.
The core of textile manufacture is fabric production. Fabrics can be created in many
different ways, the most common being weaving, knitting or through production of non-
woven fabrics. To prevent the yarn from breaking during these processes, it is important to
strengthen the yarn and reduce friction. Sizing chemicals and lubricants are therefore
added.

 Weaving machine - Weaving machine or Loom is the machine or mechanical device

which is used to manufacture or produce woven fabric by the interlacing of warp
and weft yarn. In weaving technology; weaving machine is the principle mechanical
device for weaving.
 Knitting - A Flat Knitting operator is responsible to operate industrial knitting
machines; repair yarn-related faults at the knitting head and fabric press-offs;
operate process machines ancillary to the knitting production; identify and sort
wastes; and demonstrate knowledge of yarn-related faults in knitted fabrics. This job
requires the individual to have thorough knowledge in process flow and material
flow in a knitting machine for fabric production and should know the important
functions and operations of knitting machines.
 Non-woven - Non woven fabric making machine is unlike the other smaller machines,
as it is a composite machine that performs various tasks in making non woven fabric
The machinery and equipment’s required to manufacture Textile fabric products are
conventional and available in different technological levels, in general.

13
Selection among alternatives was made based on the competitive advantages it provides to
the stakeholder in the context of the country. The major criterions taken in to consideration
are: resource utilization (especially labor), job opportunity, operability, and maintainability.
Therefore; the labor intensive machineries and equipment’s are selected for the envisaged
plant. Suppliers of labor intensive technologies are available in Europe, Asia and Far East.
The cost of machineries of the company is$4.5 million, which is estimated to be ETB 130
million.
4.3. Production process
Textile fibers provided an integral component in modern society and physical structure
known for human comfort and sustainability. Man is a friend of fashion in nature. The desire
for better garment and apparel resulted in the development of textile fiber production and
textile manufacturing process.
Primarily the natural textile fibers meet the requirements for human consumption in terms
of the comfort and aesthetic trends. Cotton, wool, and silk were the important natural
fibers for human clothing articles, where cotton for its outstanding properties and versatile
utilization was known as the King Cotton.
Today the textile industry encompasses a significant number and variety of processes that
are adding value in fiber. These processes may range over the yarn making through the
garment stitching, fabric embossing, and composite production. However, considering the
textile fiber as the basic building unit of any textile product, the textile manufacturing may
clearly be identified as the conventional and technical textiles.
The conventional textile manufacturing process has a long history of converting the natural
fiber into useful products including fabric, home textiles, and apparel and more recently
into a technical textile through the utilization of special finishing effects
4.3.1. Textile manufacturing process
Today the textile industry encompasses a significant number and variety of processes that
are adding value in fiber. These processes may range over the yarn making through the
garment stitching, fabric embossing, and composite production. However, considering the
textile fiber as the basic building unit of any textile product, the textile manufacturing may
clearly be identified as the conventional and technical textiles.

14
The conventional textile manufacturing process has a long history of converting the natural
fiber into useful products including fabric, home textiles, and apparel and more recently
into a technical textile through the utilization of special finishing effects.
4.3.2. Textile manufacturing process (fiber to fabrics).
The synthetic and semi synthetic fiber manufacturing is diversified with the utilization of
monomer, chemical agent, precursor, catalyst, and a variety of auxiliary chemicals resulting
in the formation of fiber or yarn. However, such man-made fibers are perceived as a
separate specialized subject and beyond the scope of this book. Therefore, the man-made
fiber manufacturing is not discussed.
The innovation in textile manufacturing introduced variety in raw materials and
manufacturing processes. Therefore, process control to ensure product quality is desired.
Monitoring and controlling of process parameters may introduce reduction in waste, costs,
and environmental impact.
All the processing stages in textile manufacturing from fiber production to finished fabric
are experiencing enhancement in process control and evaluation. It includes textile fiber
production and processing through blow room, carding, drawing, and combing; and fabric
production including knitted, woven, nonwoven, and subsequent coloration and finishing
and apparel manufacturing.
Apparel production is another important area in textile manufacturing around the textile
industry chain. Probably the apparel is what an individual wear for the purpose of body
coverage, beautification, or comfort. Apparel and garment terms are used interchangeably.
However, the two terms may be differentiated as apparel is outerwear clothing and
garment is any piece of clothing.
4.3.3. Yarn manufacturing
Traditionally, yarn manufacturing comprises a series of processes involved in converting the
fiber into yarn. It was rooted in natural fibers obtained from natural plant or animal sources.
Natural fibers are produced with natural impurities that were removed from the yarn in
subsequent pretreatment processes.

15
Possibly, cotton is the fiber that has rooted the yarn manufacturing from fiber bale opening,
followed by the series of continuous operations of blending, mixing, cleaning, carding,
drawing, roving, and spinning. Yarn manufacturing using cotton fibers through a sequence
of processing stages may be shown by process flow diagram. All these operations are
mechanical and do not require chemical application.
4.3.4. Processing stages in cotton yarn manufacturing
Each processing stage in yarn manufacturing utilized the machine of specialized nature and
provided quality effects in yarn production.
The advancement in fiber processing and machine technology for yarn manufacturing is
continuous. The manual picking of cotton fiber is now replaced with machine picking.
However, conventional systems of blending, carding, drawing, roving, and spinning are
indicated important in the future.
Yarn diameter, hairiness, linear density, permeability, strength properties, etc. depend upon the
end-use requirement of fabric to be produced for woven or knitted end products (e.g., apparel
or industrial fabrics), sewing thread, or cordage.
Several interesting works on the production of yarn are available that provide details of the
material processing and technological control. Introductory spinning technology is described by
Lawrence. It covers the rudiments of staple-yarn technology, the manufacturing process, the
raw materials, and the production processes for short-staple, worsted, semi-worsted, woolen
spinning, doubling, and specialty yarn. Some of the useful advanced topics discussed are staple-
yarn technology, including new development in fiber preparation technology, carding
technology, roller drafting, ring spinning, open-end rotor spinning, and air-jet spinning.
Peter described the yarn production technology in combination with the economics. The study
is useful for yarn manufacturing and its development in the textile industry. Important topics
covered include review of yarn production, filament yarn production, carding and prior
processes for short-staple fibers, sliver preparation, short-staple spinning, long-staple spinning,
post-spinning processes, quality control, and economics of staple-yarn production.

16
 4.3.5. Fabric manufacturing
Textile fabric is at least a two-dimensional structure produced by fiber/yarn interlacing. The
interlaced fibrous structure mainly used is woven, nonwoven, and knitted. Traditionally, the
weaving technology was the principal source for fabric production.
The important types of woven fabric produced are the basic weaves, such as plain or tabby,
twill, and satin, and the fancy weaves, including pile, jacquard, dobby, and gauze.
Knitted fabric is the second major type of fabric used following the woven. It has a
characteristic of accommodating the body contour and provided the ease of movement. It is
particularly a comfortable form of fabric structure for sports, casual wear, and undergarment.
Knitted fabrics include weft types and the warp types, raschel, and tricot.
Net, lace, and braid are other useful interlaced fabric structures. Nonwoven fabrics are rapidly
increasing in market consumption. These fabrics are finding interesting uses in industrial and
home applications. Nonwoven fabrics include materials produced by felting and bonding.
Laminating processes are also increasing in importance, and fairly recent developments include
needle weaving and the sewing-knitting process.

4.4. Production Plan

4.4.1. Production Capacity Plan
As explained above, the company is producing quality fabric products currently. The
existing plan has a capacity of producing 15 ton of fabric per day. The newly installing
machinery has a capacity of producing 10 ton per day. Totally the current installed
production capacity reached 25 ton per day. Furthermore, additional machinery is on
transit, which will enhance the total capacity to 30 ton per day. According the existing
trend of product selling price, 1 kg of fabric is sold at average price of 230 Ethiopian birr.
4.4.2. Raw materials Requirement
The productions of fabric, which will be used for production of wearing apparels, are many
in types. The most commonly used are fiber, wool, silk, hair, cotton, linen, nylon, polyester,
dyes, chemicals and etc. AO XIANG Textile manufacturing Plc is using manufactured and
imported yarn, dyes and different chemicals to produce fabric which may costs 1.27 million
per annum.

17
 5. Organization and Management
5.1. Organizational structure
The success of a company depends on heavily on management and human resource.
The management plays a significant role in the performance of the organization. Hence,
the management has to be strong and organized in such a way that it has a
responsibility and accountability in the area of its sphere of influence.
The company is structured in a simplified way so as to control unnecessary costs,
facilitate prompt communication and to elevate effective control, which helps to drive
the company to address its goals and objectives.
Accordingly the structure of the management team of the factory is depicted as follows:
The management is also expected to properly identify the opportunities and the ways
to exploit them; too well forecast risks and know threats and thereby to design ways to
diversify the risks; and also the capacity of the management in changing the threats to
opportunities is also very important.
Currently the company has around 300 permanent and temporary employees. However,
the company needs additional 200 employees for the newly installing machinery.

No of
employees
Profession Monthly salary Annual Salary
required for
the position
General Manager 1 45,000.00 540,000.00
Factory Manager 1 35,000.00 420,000.00
Production Manager 2 48,000.00 576,000.00
Finance Manager 1 24,000.00 288,000.00
Sales & Marketing Manager 1 30,000.00 360,000.00

Purchasing & Supplies Manager 1 25,000.00 300,000.00

HR & General Service Manager 1 21,000.00 252,000.00

Quality Assurance Expert 1 24,000.00 288,000.00

Accountant 1 16,000.00 192,000.00
Marketing Officer 1 18,000.00 216,000.00
Secretary 1 9,000.00 108,000.00
Drivers 2 9,000.00 108,000.00
Production officers 500 2,000,000.00 24,000,000.00
Total 514 2,304,000.00 27,648,000.00

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 6. FINANCIAL STUDY
6.1. Assumptions and facts of financial study

The following major assumptions are considered to forecast fund required for the business.
 Required working capital overdraft facility is for a period one year based on renewal
considering utilization performance.
 The working overdraft facility is used to import raw material at major portion and
some for internal manufacturing overhead cost coverage.
 Bank Interest rate the requested OD is assumed to be 14%.
 The company will import twice in a year as availability of foreign currency is a bottle
neck as national level
 Production capacity of the plant is 85%& and estimated to increase 5% per annum.
 Straight line depreciation used for building and fixed equipment based on the service life
of each component.
 Raw material requirement will increase 5% per annum from the prior business year.
 The annual cost of spare parts, repair and maintenance usually increases with the
increase in service life of machinery and equipment and other facilities. Considering the
routine activity of the machines, a value equivalent to 5% of the cost of the machinery is
assumed to be cost of spare parts and lubricants. The annual cost of repair and
maintenance of the building is estimated 0.5% of the initial investment cost. In addition,
the total repair and maintenance cost is assumed to increase at a rate of 5% per annum.
 Corporate profit tax is 30% on gross income.
 Estimated 300 working days per annum.
 1kg of fabric is sold at a price of ETB220.
 90% of manufactured fabric is estimated to be sold daily.

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 6.2. General & administration Expense
The general & Administration expense for each depot of AO XIANG textile manufacturing PLC is
estimated to be Birr 1,368,000 as shown below. And it is estimated to be increased by 10% annually.
Sr. No Description Annual Cost Remark
1 Property Insurance 220,000.00
0.1% of fixed cost
2 Audit & Legal Fee 42,000.00 Br 3500 per month
3 Telephone, Fax & Postal 42,000.00 Br.3500 per month
4 Cleaning goods Supplies 48,000.00 2500 per month
5 Repair & Maintenance 66,000.00 0.003% of fixed
investment cost
6 Stationary & other office supplies 460,000.00 Br. 38000 per month
7 Oil & lubricants 360,000.00 1500lt/month
8 Miscellaneous expense 14,400.00 1200 per month
9 Industrial Management fee 121,600.00 Fixed
Total 1,368,000.00

6.3. Working capital determination

Working capital for the project is needed to cover overhead and operating cost of the project and is
projected to be birr 339,277,709.92 for first year of operation. Operating costs include all expenses
other than fixed investment. They are expenditures to be spent on annual operating items. In
estimating the operating costs, an attempt has been made to depend on current market
information and the prevailing experience of the company similar business. The major share of the
cost expected from the working capital is cost of raw materials, which are yarn, different type of
chemicals and dyes. According to the previous trend, these raw materials are bought from foreign
market, which needs a hard currency from banks. The shortage of foreign currency will drag the
company to plan the cycle of working capital twice only. The other component of working capital is
insignificant comparing with the raw material.

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AO XIANG TEXTILE MANUFACTURING PLC
Working Capital Determination

a) Sales forecast method.

Description In birr
current year sales
1,034,190,900.00
Projected sales for Production
period (25%) 1,292,738,625.00
Direct Raw material requirement 1,176,392,148.75
Salary expense 27,648,000.00
General & Admin Expense 39,367,570.32
Total annual working capital 1,243,407,719.07
Working capital cycle 2
Working capital per cycle 621,703,859.54
Net current asset as of June 18,415,756.00
07,2021
Working capital requirement 603,288,103.54

The assumptions are taken from company’s previous financial history and capacity of the
company to run the business smoothly using its sales projection method.

AO XIANG TEXTILE MANUFACTURING PLC

Working Capital Determination
b) Contract based working capital required

one cycle cost of yarn(54*USD 5,709,600.00) 308,318,400.00

Loading unloading, Commissions…(15%) 46,247,760.00
Other related cost of production 246,654,720.00
Semi- annual salary of employees 13,824,000.00
Total cash required for operation 615,044,880.00
Less: cash at bank (18,415,756.00)
596,629,124.00

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AO XIANG TEXTILE MANUFACTURING PLC
Working Capital Determination
c) Cash flow based Working Capital Required.
Description In birr
current year sales
1,034,190,900.00
Projected sales for Production period (25%)
1,292,738,625.00
working days 300
working days per one cycle 150

Cost of production (90%) 1,163,464,762.50

Cost of sale (3%) 51,709,545.00

Total Cost of goods sold 1,215,174,307.50

intercept slope 150/300 0.5

working Capital required 607,587,153.75

add: Cash @BANK 18,415,756.00

Total working Capital required 626,002,909.75

6.4 Source of Fund, Facts and Findings

 Through different three methods of working capital determination the company
observes as it required birr 600,000,000.00 to operate its business from external and
internal sources on average.
 From its business sector character the company determine to get financial loan of
overdraft facility type of loan that will enhance its operation without difficulty
 The company prefers to strengthen its relationship with Cooperative bank of Oromia
S.C due to its excellence in service delivery, proximity to the industry, capacity to
finance our company and the relationship the company has with bank
 The company’s cycle of importing raw material like dye& chemicals, yarn and other
related products assumed to be twice a year (semi-annual ) due to availability of foreign
currency is difficult.
 The company determines to channel its domestic and international sales proceeds
and other transactions through Cooperative bank of Oromia S.C to support the bank
in deposit mobilization.
 The company determines to continuo and improves its encouraging loan repayment
trend as usual.

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 6.5. Revenue projections
Sales of the company are done through direct order of customers. Currently, the company received
different company orders from its customers.
This implies finished goods stock is not stored for a long time. Having this in mind, the plan
considers only 92% of daily production will be sold. Consequently, the forecasted revenue expected
from the project over its operational life during which it finance its debt is calculated. It is expected
to generate about ETB 1,292,738,625.00 over the operation period.

Conclusion
The company AO XIANG TEXTILE MANUFACTURING PLC has the benefit of
 generating foreign currency,
 creating employment opportunity,
 Transfer of technological knowledge and the economy to industry.
 Generating revenue of income tax
 Helps to substitute the import products to save foreign currency
 Supports the bank in resource mobilization and FCY earnings and etc
Based on the above benefits the proposal under taken, assumes that the company’s business as
financially viable, economically sounding, and socially desirable and concludes that the Bank
will consider the above factors and will grant Overdraft Facility of birr 600,000,000.00 (six
hundred million birr) the AO XIANG TEXTILE MANUFACTURING PLC

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 Annexes

 Financial statements

 Bank statements

 Legal documents

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