MINI ICE PLANT NOTES TO AND
ASSUMPTIONS USED
IN THE FINANCIAL PROJECTIONS
The following were the assumptions used in the preparation of the financial
projections:
STARTING BALANCE SHEET (B/S)
The Project’s starting Balance Sheet is based on the estimated total project cost
and the envisaged project financing scheme. These are summarized below.
Amount
Item Php (000)
Current Assets:
Cash 24.0
Fixed Assets:
Plant M&E 5,000.0
Total Assets 5,024.0
Donated/Paid-Up Capital 5,024.0
PRO-FORMA PROFIT & LOSS (P&L) STATEMENTS
Sales
With no provision for year-end finished goods inventories, sales projections are
equal to the production schedule. The production schedule was drawn under the
assumptions shown below.
The annual production quantities were multiplied by the assumed selling price,
which was Php 1.75 per kg of ice produced, to arrive at the annual sales.
Capacity (24 hrs, in kgs) 3,600
No. of Working Days/Month 30
No. of Months/Year 12
Capacity Utilization (Hours):
Year 1 16
Year 2 17
Year 3 18
Year 4 19
Year 5 20
Cost of Production
Cost of production consisted of: (1) energy cost, (2) cost of water, (3)
direct labor cost, (4) annual depreciation charge on the plant machinery and
equipment, and (5) miscellaneous expenses.
Energy Cost
Energy cost per kg of ice was assumed at Php 0.29 per kg of ice produced.
Water Cost
The cost of water was assumed at Php 0.01 per kg of ice produced.
Direct Labor Cost
The mini-ice plant will require only one (1) laborer/utility man per shift. The
wage rate for the laborer was assumed at Php 280 per 8-hour shift per day.
Depreciation Expense
The cost of plant machinery and equipment (i.e., Php 5.0 million) is depreciated
on a straight-line basis over a 20-year period.
Miscellaneous Expenses
Miscellaneous production expenses are assumed at Php 1,000/month.
Operating Expenses
Operating expenses consist of: (1) insurance expense, (2) office supplies and
communications expenses, and (3) other general administrative expenses.
Insurance Expense
The annual premium cost of insurance of the plant machinery and equipment is
assumed to be equivalent to 1.0% of the fixed assets’ net book value.
Office Supplies and Communication Expenses
The provision for office supplies and communication expenses was made at Php
1,000 per month.
Other General Administrative Expenses
Other general administrative expenses are estimated at Php 1,000 per month.
PRO-FORMA BALANCE SHEETS AND CASH FLOW STATEMENTS
Assets
Cash on Hand and In Bank
The minimum cash balance to be maintained is estimated to be equivalent to 30
days’ cash expenses, which was met throughout the projection period. Cash was allowed
to grow freely but, for conservatism purposes, no income from interest-earning
placements of excess cash was recognized.
Accounts Receivable
The members of the fisherfolks’ organization who patronize the mini-ice plant are
extended trade credit equivalent to 2 days’ sales. It is assumed that, of the Total Sales,
80% are accounted for by the members of the fisherfolks’ organization.
Fixed Assets
As noted earlier, the plant machinery and equipment are depreciated on a straight-
line basis over 20 years.
Liabilities
Liabilities consist of: (1) accounts payable, and (2) patronage rebates payable.
Accounts Payable
The venture is assumed to avail of a 30-day trade credit for its power and water
bills.
Patronage Rebates Payable
As the Project Proponent, the fisherfolks’ organization was assumed to apply the
Cooperative concept of patronage rebates. The idea behind this is two-fold, namely:
o to encourage patronage of the mini-ice plant by the organization members,
thereby enhancing the marketing and financial viability of the venture, and
o to encourage non-member fisherfolks to join the organization.
Under this concept, the fisherfolks’ organization will, at the end of every year,
pay out patronage rebates to the members of the organization who patronized the mini-ice
plant. The amount of patronage to be declared will be equivalent to 25% of the year’s
Net Profit. The rebates due the members will be based on the members’ patronage (i.e.,
ice purchases) of the mini-ice plant.
Patronage rebates declared at the end of every year will be paid at the beginning
of the following year.
Capital
For purposes of the financial projections and the investment analysis, the cost of
the mini-ice plant and the working capital will be financed by the Project Proponent as
equity capital of the mini-capital venture.
The original capital is assumed to be maintained throughout the projection period.
The annual Net Profits are accumulated into the Retained Earnings account,
which is reduced to the extent of the patronage rebates declarations.
FINANCIAL RATIOS
One of the financial analyses conducted in the Financial Study is the Financial
Ratio Analysis. This involved the computation of values of certain selected financial
ratios, or financial indicators, based on the results of the financial projections. The
financial ratios computed and the formulae used are set forth below.
Financial Ratio Formula
Net Profit Margin = Net Profit / Sales
Gross Profit Margin = Gross Profit / Sales
Return on Equity (ROE)
Beg. Stockholders’ Equity = Net Profit/Beg. Stockholders’ Equity
Ave. Stockholders’ Equity (SE) = _______Net Profit______
(Beg. SE + Ending SE) / 2
Return on Assets (ROA) = Net Profit / Total Assets (Beginning)
Net Working Capital (NWC) = Current Assets – Current Liabilities
Current Ratio = Current Assets / Current Liabilities
A/R-to-Working Capital = _____Accounts Receivable________
(Current Assets – Current Liabilities)
Debt-to-Total Assets Ratio = Total Debt / Total Assets
Capital-to-Assets Ratio = Stockholders’ Equity / Total Assets
Debt-to-Equity Ratio = Total Debt / Total Stockholders’ Equity