2. WHAT IS FEASIBILITY STUDY?
• Is plan of possible capabilities of a business to be carried out.
• It is necessary to initiate profitable ventures for development
and expansion of actual on- going projects.
• This is done by enhancing the probability of success in this
undertaking.
• Due to the rapid changing times, this Feasibility Study
becomes one of the best instruments to meet the new
challenges of change.
3. This time, the entrepreneur must go down to the
details and take time to consider the following
factors that are contained in a pre- feasibility study:
•Market potential and prospects
•Availability and appropriateness of technology
•Projects investment and detailed cost
estimates
•Financial forecast and determination of
financial feasibility
4. 1. MARKET POTENTIAL AND
PROSPECTS
•Is based on the estimated number of possible
customers who might avail of the product or
service. For a more realistic number, it would
help to narrow down your estimation to the
relevant population or target customers in the
area where you want to operate the business.
5. The customers would, oftentimes, make the final
choice on what to buy according to several factors:
1. Their purchasing power or income;
2. Proximity or accessibility to the goods or service;
3. Individual desires and preferences;
4. Age or general grouping;
5. Social, cultural or ethnic background;
6. Peer group preferences;
7. Their gender;
6. The customers would, oftentimes, make the final
choice on what to buy according to several factors:
8. Season of the year;
9. Educational attainment;
10. Technical proficiency and product expertise;
11. Motivational impetus;
12. Lifestyle preferences;
13. Susceptibility to certain advertising and promotional
appeals, and many others.
7. 1.1 Segmenting the market
Using a set of demographics such as:
• Income Class (A,B,C,D and E)
• Age (infants, toddlers, teenagers, young adults, senior citizen)
• Gender ( male, female)
• Place of Residence
• Level of Education
*some general statistics for these demographics can be found online
*Entrepreneur must be able to do actual research like surveys, focus
group discussion, interviews, observation techniques, etc.
8. 1.2 Assessing Competition
• Market potential is also affected by the number of
establishments supplying and serving your target customers.
• The more suppliers and competitors there are within a
confined area, the greater the level of saturation.
• On the other hand, some prefer to enter the biggest, richest,
and most competitive markets in order to achieve high
visibility and growth potential. However, this is risky unless
the entrepreneur is very confident that he/ she has a
superior product.
9. 1.2 Assessing Competition
•Assessing the competitors will help the
entrepreneur gauge their respective strengths and
weaknesses, enable the entrepreneur to craft a
strategy.
•If not, the entrepreneur should change strategy by
moving to a different location or by shifting to a
less competitive target segment in order to avoid
competition.
10. 1.3 Estimating Market shares and Sales
In a pre- feasibility study, the most important task
is to quantify the market potential in a systematic
way.
First, entrepreneur must to define the market
coverage or reach he or she wants to serve.
Second, entrepreneur must determine the broad
market segments within this area or total targeted
population.
11. •In the assessment of market potential, the
entrepreneur should evaluate the relative strength of
the various suppliers or competitors in the market
place by asking the following questions;
Who has dominance?
Who has greater bargaining power?
Which segments of the total market are
saturated and over served and which ones are
relatively underserved?
12. 2. Technology Assessment and
Operations Viability
1. Quantities Demanded- This would determine the needed
capacity of operations.
2. Quality Specifications demanded- This would dictate the
following:
a. Quality of input or raw materials;
b. Quality assurance process in transforming input to output;
c. Quality output that meet the operations, standards set; and
d. Quality outcomes for the customers who will be looking for
specific results.
13. 2. Technology Assessment and
Operations Viability
3. Delivery expectations- knowing how much, how
frequent, and when to deliver to customers.
4. Price Expectations- the selling price of the
product or service would be evaluated by the
customers according to the value they would
receive( in terms of quality, quantity, and delivery).
14. 3. Investment Requirements
and Production/Servicing Costs
In this respect, there are three investments that
need to be funded:
1. Pre- Operating Costs- these are the costs related
to the preparation for the launch of the business.
These include pre- feasibility study, market
research, product development and etc.
15. 3. Investment Requirements
and Production/Servicing Costs
2. Production/ Service Facilities Investment- this
refers to the long-term investment for the actual
business establishment, including investment in
land buildings, machinery, equipment, computers,
software, furniture, vehicles, etc.
16. 3. Working Capital Investment- this includes the
investment needed to operationalize the business,
composed of cash, accounts receivable, and
inventories. These operating expenses would include
the following:
a. Employee salaries, wages, and benefits
b. Rent and lease expenses
c. Utilities
d. Transportation
e. Fees and licenses
f. Commissions
g. Office supplies, etc.
17. In effect, this part of the Pre- feasibility
study asks two questions:
1. Do I have enough resources to cover
the necessary investments?
2. Would my sales estimates be
significantly higher than my monthly
production/ service costs in order to
produce profits?
18. Feasibility Study: Market Potential and Prospects
1. Choose a product or service /company/ enterprise
2. Then, try to assess its market potential and prospects by :
A. Segmenting the market
Income class (A,B,C,D and E)
Age (infants, toddlers, teenagers, young adults, senior citizen)
Gender (male or female)
Place of residence
Level of education
B. Assessing Competition
C. Estimating market shares and prospects
19. Feasibility Study: Technology Assessment and Operations
Viability
1. Choose at least 2 Service Businesses you knew about and try to assess their
technology and its operations.
2. Examples:
Bank( Landbank, BDO)
Bus operator (Partas, Genesis)
Caterer/ Food Industries( Jollibee, Mcdo, Restaurant)
Funeral (Joces, Real, Dacanay)
Salon (David)
Money transfer agencies ( Palawan express)
Bakery (Manna Bakeshop)
20. Jollibee’s Operations
Jollibee Foods Corporation’s (“JFC” or the “Company”) core
business is the development, operation and franchising of its
quick-service restaurant brands. It offers a wide variety of
affordable and delicious dishes and great tasting food
prepared to satisfy customers of all ages and from all walks of
life.
Food quality, service, price-value relationship, store location
and ambience, and efficient operations continue to be critical
elements of the Company’s success in the quick-service
restaurant industry.
21. SALON- Technology Assessment
Aside from cohesive online systems to track her
employees’ schedules, inventory and appointments,
the salon itself is decked out with chargers for everyone
to use. She even offers up a couple tablets for
customers to grab for beauty inspiration, instead of the
traditional magazines. With all her steps toward better
tech, Mayer said she’s never been more excited to see
what’s around the corner.
22. 4. Financial forecasts and
Determination of Financial Feasibility
-Refers to the monetary transactions that the business
expected to engage in.
-Financial forecasting calls for the creation of the four
critical financial statements:
1. Income Statement
2. Balance Sheet
3. Cash flow statement
4. Funds flow statement
23. INCOME STATEMENT
Is a financial statement that measures an
enterprise’s performance in terms of revenue and
expenses over a certain period. Simply put the
formula is:
INCOME or PROFIT = Revenue – Expenses
( LOSS)
24. Table 1. Monthly Income Statement of
Mang Juan’s Manufacturing
*Note that cost
of goods sold
refers to the
materials , labor
costs, and
overhead of
making a
product
25. BALANCE SHEET
Shows clearly the value of the business. It is a
statement of assets, liabilities and owners equity
Assets- are anything of value owned by the business
such as cash, receivables, building, furniture, machines,
land, equipment, inventories, and supplies.
Liabilities- represent the enterprise’s debts to
suppliers, to banks, to government, to employees, and
other financiers.
Stockholders Equity- represents the investors
investment in the stock ( or shares) of the business.
26. BALANCE SHEET
The Balance Sheet Equation is:
ASSETS= LIABILITIES + EQUITY
Note: Retained Earnings are the accumulated
profits or loss of the enterprise over the years,
which have not yet been given back to investors as
dividends.
28. Financial Ratios and
Measurements
Payback Period - or how long will it take for him or
her to get back what he or she invested in the
enterprise. The income payback period can be
computed as follows.
PAYBACK PERIOD = Total Investment
Annual Net Income After Taxes
29. Example:
ABC Company’s financial statements, which specify
investments of P1,500,000 and a net income after
taxes of P500,000 a year.
INCOME PAYBACK PERIOD= 1,500,000 = 3 Years
500,000
30. RETURN ON SALES (ROS)
A ratio where the entrepreneur calculates how
much profit the enterprise is earning for each peso
sold. The formula is as follows:
RETURN ON SALES = Net Profit after Taxes
SALES
Substituting the variables into ABC Company’s estimated
figures:
RETURN ON SALES = 500,000 = 10 %
5,000,000
31. Return on Assets (ROA) or Return on
Investment (ROI)
ROA or ROI shown by the formula:
ROA or ROI = Net Profit After taxes
Total Assets/ Investment
Substituting the variables into ABC Company’s estimated
figures:
Return on Assets = 500,000 = 33%
1,500,000
32. Compute for the f.f: Payback Period, ROS and
ROA
3,750
Total Expenses
15,000
Total Investment
TOTAL NET AFTER TAXES
