7 Financial Analysis

7.1 Total investment requirement

Capital cost requirement

The total capital cost will contain furniture, machines and equipment, the table below show the cost for
each one.

Capital Cost
Furniture 2584
Machinery & Equipment 1278.9
Total 3862.9

Pre-opening expenses

The pre-opening period is estimated to be three months. The total amount of pre-opening expense is
estimated to 12730 OMR the pre-opening expenses are shown in the below table

pre-opening expenses
Training 1500
salary 10080
Trade license 150
miscellaneous 1000
Total 12730

Working capital requirement

Working Capital 4294.1

-Capitalized interest of our loan during pre-opening period will be 67.5 OMR

Capitalized interest of our loan during 67.5 OMR

pre-opening period

Total investment

Total investment
Capital Cost 3862.9
 Pre- opining cost 12730
Working Capital 4294.1
Total investment 20887

7.2 Capital Structure

We will finance our business by using equity and by taking loan from bank. the source for equity is

From our own fund and the source for our loan is from Oman Development Bank we choose this bank

Because Oman Development Bank is the best bank in Oman in finance Small and Medium Enterprises.

the table below show the capital structure for our business:

Particulares value
equity 11887
Oman Development Bank 9000
Cost of long term borrowing ( per annum) 0.03
Repayment period for long term borrowing 5

-The total investment is 20887 OMR

- The dept / equity ratio is 75.7 %

-The contribution equity is 11887 OMR

-The remaining amount will be finance through Oman Development Bank

- Oman Development Bank charges an interest rate of 3%

-The repayment period is 5 years

- The loan amortization table is shown below

Year Big Balance PPMT IPMT PMT End Balance

1 9000 1695.15 270 1965.19 7304.85

2 7304.85 1746.04 219.1455 1965.19 5558.81

3 5558.81 1798.42 166.76 1965.19 3760.39

4 3760.39 1852.38 112.81 1965.19 1908.01

5 1908.01 1907.95 57.24 1965.19 0

 Big End
Year Balance PPMT IPMT PMT Balance
1 9000 1695.15 270 1965.19 7304.85
2 7304.85 1746.04 219.1455 1965.19 5558.81
3 5558.81 1798.42 166.76 1965.19 3760.39
4 3760.39 1852.38 112.81 1965.19 1908.01
5 1908.01 1907.95 57.24 1965.19 0

7.3 Financial Statement

-Revenue is coming from selling our products

- The total annual revenue is calculated by adding the annual sales for all products

- we assume that Sales will be increase in the second year by 3.488%, in the third year will be increase
by2.247%, in the fourth year will increase by3.296%, in the fifth year will be increase by 2.12%

- the below table shown the total revenue for five years

Years Year 1 Year 2 Year 3 Year 4 Year 5

Product 1 (different types of hot
coffee) 22000 23000 23500 24000 24500
Product 2 (different types of cold coffee) 21000 21500 22000 23000 23500
Total sales 43000 44500 45500 47000 48000

-Cost are coming from the price of raw materials

- The total annual cost is calculated by adding the annual cost for each product

- we assume that cost will be increase in the second year by 3.488%, in the third year will be increase
by2.247%, in the fourth year will increase by3.296%, in the fifth year will be increase by 2.12%

- The below table shown the cost of goods sold for 5 years

Years
Year 1 Year 2 Year 3 Year 4 Year 5
Product 1 (different types of hot
coffee) 6600 6830.23256 6983.7209 7213.9535 7367.44186
Product 2 (different types of cold coffee) 6300 6519.76744 6666.2791 6886.0465 7032.55814
 Total COST 12900 13350 13650 14100 14400

-Straight line method is used to compute the depreciation of the fixed assets

- The years of depreciation for furniture is 10 years

- The years of depreciation for machinery & equipment is 5 years

- the table below shown the total depreciation for 5 years

Depreciation
Year1 Year2 Year3 Year5 Year5
Furniture 258.4 258.4 258.4 258.4 258.4
Machinary & Equipment 255.78 255.78 255.78 255.78 255.78
Total 514.18 514.18 514.18 514.18 514.18

-The loan interest is 825.96 OMR

-The net profit was estimated to be as the table shows

Year 1 Year 2 Year 3 Year 4 Year 5

-4448.18 9416.395 10087.27 11074.49 11748.09
-income statement

Income Statement
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue
Product 1 (different types of hot coffee)
22000 23000 23500 24000 24500
Product 2 (different types of cold coffee)
21000 21500 22000 23000 23500
Gross Revenue 43000 44500 45500 47000 48000
less:
COGS -12900 -13350 -13650 -14100 -14400
Promotion & Advertising -860 -890 -910 -940 -960
Sales commission -2150 -2225 -2275 -2350 -2400
mentainance and checkups -250 -250 -250 -250 -250
Direct expenses -16160 -16715 -17085 -17640 -18010
Gross Profit 26840 27785 28415 29360 29990
Salaries -10080 -10080 -10080 -10080 -10080
rent -6000 -6000 -6000 -6000 -6000
Utilities -1044 -1055.28 -1066.7856 -1078.521312 -1090.491738
Insurance -500 -500 -500 -500 -500
Trade license -150
Depreciation -514.18 -514.18 -514.18 -514.18 -514.18
Pre-opening expenses -12730
EBIT -4178.18 9635.54 10254.0344 11187.29869 11805.32826
Interest -270 -219.1455 -166.76 -112.81 -57.24
Net Income -4448.18 9416.3945 10087.2744 11074.48869 11748.08826
Cumalative net income -4448.18 4968.2145 15055.4889 26129.97759 37878.06585
 -Cash flow statement

Year0 Year1 Year2 Year3 Year4 Year5

Cash flow from operating
-
Net income 4448.18 9416.395 10087.27 11074.49 11748.09
Pre-opening expenses 12730
Depreciation 514.18 514.18 514.18 514.18 514.18
Interest 270 219.1455 166.76 112.81 57.24
Operating cash flow 9066 10149.72 10768.21 11701.48 12319.51
Cash flow from investing
Furniture -2584
Machinary & Equipment -1278.9
Working Capital -4294.1
Pre-opening expenses -12730
Investing Cash flow -20887
Cash flow from financing
Equity 11887
Debt 9000
Interest -270 -219.146 -166.76 -112.81 -57.24
-
Principal repayment 1695.15 -1746.04 -1798.42 -1852.38 -1907.95
-
Financing cash flows 20887 1965.15 -1965.19 -1965.18 -1965.19 -1965.19
Net cash flow - 7100.85 8184.535 8803.034 9736.289 10354.32
Cumulative cash flows 7100.85 15285.38 24088.42 33824.71 44179.03
 -Balance sheet

Balance Sheet
Year1 Year2 Year3 Year4 Year5
Assets
Non-current assets
Machinary & Equipment 1023.12 767.34 511.56 255.78 0
Furniture 2325.6 2067.2 1808.8 1550.4 1292
Total non-current assets 3348.72 2834.54 2320.36 1806.18 1292
Current assets
Cash 7100.85 15285.3845 24088.4189 33824.70759 44179.02585
Account recievable
Inventory 6450 6675 6825 7050 7200
Total current assets 13550.85 21960.3845 30913.4189 40874.70759 51379.02585
Total assets 16899.57 24794.9245 33233.7789 42680.88759 52671.02585
Liabilities ans Equity
Liabilities
Non-current liabilities
Long-term debt 7304.85 5558.81 3760.39 1908.01 0
Total non-current
liabilities 7304.85 5558.81 3760.39 1908.01 0
current liabilities
Account payable 1965.19 1965.19 1965.19 1965.19 1965.19
Others 190.71 415.71 565.71 790.71 940.77
Total current liabilities 2155.9 2380.9 2530.9 2755.9 2905.96
Total liabilities 9460.75 7939.71 6291.29 4663.91 2905.96
Shareholders' Equity
Equity 11887 11887 11887 11887 11887
Legal Reserve -444.818 496.82145 1505.54889 2612.997759 3787.806585
Retained earnings -4003.362 4471.39305 13549.94001 23516.97983 34090.25926
Total equity 7438.82 16855.2145 26942.4889 38016.97759 49765.06585
Total liabilities & equity 16899.57 24794.9245 33233.7789 42680.88759 52671.02585
 7.4 Financial Ratios

Year1 Year2 Year3 Year4 Year5

Profitability Indicators NI -4448.18 9416.3945 10087.2744 11074.48869 11748.09
ROE -0.5979685 0.558663582 0.37440024 0.291303765 0.236071
ROA -0.2632126 0.37977105 0.30352475 0.259471846 0.223047
NPM -0.103446 0.211604371 0.22169834 0.235627419 0.244752
Project IRR 40%
Equity IRR 62%
Total Investment 11887
NPV $21,099.70
Payback Period 2.15520493

The required rate of return was used is 8.55% and the risk free rate (5 years’ government bonds) is 6%

and the risk premium that was estimated is 2.55%. The above table indicate that NPV is 21099.70 which

is positive. As the rule of NPV if the NPV is positive we should accept the project. Also we can see from

the table the project IRR is 40% and as the rule of IRR say accept the project if required return less than

IRR. Also we found that the equity IRR is equal 62% which mean the required rate of return is less the

equity IRR. In addition, payback period is 2.15520493 year which means our business will generate cash

flow that cover initial cost during 2.15520493 year. Also there are other financial ratios were calculated

such as return on equity, return on assets and net profit margin and the result are shown in above table.
7.5 Sensitivity Analysis:

-Varying cash flow

Varying
Cash
Flows 8%,-8%
Year0 Year1 Year2 Year3 Year4 Year5 IRR NPV
Best -20887 9791.28 10961.7 11629.67 12637.6 13305.07 45% $24,458.64
Normal -20887 9066 10149.72 10768.21 11701.48 12319.51 40% $15,470.33
Worst -20887 8340.72 9337.742 9906.757 10765.36 11333.95 36% $28,797.53

The first sensitivity analysis is about varying cash flows we can see from the above table the NPV still
positive in all economic case and also all IRR still greater than required rate of return this means the
project still feasible in all economic condition .

- Varying the discount rate:

Varying
Discout
Rate
Year0 Year1 Year2 Year3 Year4 Year5 NPV
0.06 -20887 9066 10149.72 10768.21 11701.48 12319.51 $24,214.77
0.0855 -20887 9066 10149.72 10768.21 11701.48 12319.51 $21,099.70
0.14 -20887 9066 10149.72 10768.21 11701.48 12319.51 $15,470.33

The second sensitivity analysis is about varying the discount rate we make the discount rate for
6%,8.55%and 14% and we found that the NPV still positive in all this mean the project still
feasible in all condition
8 Feasibility Study Conclusion
To conclude this report, this report shows that Take Coffee is feasible project and also profitable
project in all economic condition based to the net present value, internal rate of return and
profitability indicators the project is feasible and will generate good profit even in worse
economic condition