Financal feasibility study

Biography
 Site Manager “LEONI Wiring System”
 19 years of experience
 Mechanical Engineering Bachelor
 Project Management Diploma
 Human Resource Diploma
 NGO “None Governmental Organization” Management Diploma
 MBA with thesis in “Cost controlling in Manufacturing Org.”
 DBA in progress

Financial Feasibility Study
Fundamentals of FS
Finance Feasibility Study

Fundamentals of FS
 is an analysis of the viability of an idea.
 focuses on helping answer the essential question…
o “Should we proceed with the proposed project
idea?”
All activities of the study are directed toward
helping answer this question.

What is Finance?
Fundamentals of FS

Finance is a management of money and other valuables, which
can be easily converted into cash.
• Finance is concerned with the maintenance and creation of
economic value or wealth.
• A science that describes the management, creation and study of
money, banking, credit, investments, assets and liabilities.
Fundamentals of FS

Assets
Liability
Equity
Revenue
Expenses
5
Adams
Fundamentals of FS

5 Financial statement
1. Income statement (P&L)
2. Balance Sheet
3. Cash Flow statement
4. Change Equity Statement
5. Comprehensive Statement
Fundamentals of FS

Balance sheet :
a statement of the financial position
of a company at a single specific
time
(often at the close of business on
the last day of the month, quarter,
or year.)
The balance sheet normally lists all
assets on the left side or top while
liabilities and capital are listed on
the right side or bottom. The total
of all numbers on the left side or
top must equal or balance the total
of all numbers on the right side or
bottom.
A balance sheet balances according
to this equation:
Assets = Liabilities + Equity
Fundamentals of FS

Resources owned by the business
 Cash
 Accounts receivable
 Supplies
 Inventories
 Furniture and fixtures
 Equipment
Assets
Fundamentals of FS

Obligations or debts of business
 Notes payable
 Accounts payable
 Interest payable
 Salaries payable
 Unearned revenue
Liabilities
Fundamentals of FS

Ownership claims on assets
 Paid-in capital
 Common stock
 Retained earnings
Stockholders’ Equity
Fundamentals of FS

An income statement is a financial
statement that reports a company's
financial performance over a
specific accounting period.
Financial performance is assessed by
giving a summary of how the
business incurs its revenue and
expenses through both operating
and non-operating activities. It also
shows the net profit or loss incurred
over a specific accounting period.
Income Statement:
Net Margin = Income - Expenses
Fundamentals of FS

Is a financial statement that shows
how changes in balance sheet
accounts and income
affect cash and cash equivalents,
and breaks the analysis down to:
 Operating activities
 Investing activities
 Financing activities
Cash flow statement:
Fundamentals of FS

Finance definitions
Fundamentals of FS

Debit
Asset
Credit
Liability Equity
Dividend
Account
Payable
Account
Receivable
Budget Balance
sheet
Depreciation
Amortization
Depletion
Working
Capital
COGS
PBP ROI ROA ROE RRR IRR
Fundamentals of FS

Accountant ‐‐ a person who trained to prepare and maintain financial
records.
Accounting ‐‐ a system for keeping score of all financial transaction in
business.
Accounts payable ‐‐ amounts owed by the company for the goods
or services it has purchased from outside suppliers.
Accounts receivable ‐‐ amounts owed to the company by its
customers.
Fundamentals of FS

Assets:
are economic resources owned by a business are expected to benefit future
operations (cash, A/R, inventories, l&, building, equipment, patent, trade marks, or
copyrights…..).
Financial position: balance sheet, a summary of a firm’s financial position on a
given date that shows total assets = total liabilities + equity
 Liabilities: are obligations of a business to pay cash, transfer assets, or
provide services to other entities in the future (A/P, accruals, loans payable,
salaries & wages payable to employees, taxes owed to the government).
 Owners’ equity: are the claims by the owners of a business to the assets
of the business. It equals the residual interest, or residual equity, in the
assets of an entity that remains after deducting the entity’s liabilities.
Owners’ equity = assets – liabilities
 The owners’ equity of a corporation is called stockholders’ equity or share-
holders’ equity.
Fundamentals of FS

Current Assets are those assets that can be expected to turn into
cash within a year or less.
Current assets include cash, marketable securities, accounts
receivable, and inventory.
Fixed Assets cannot be quickly turned into cash without interfering
with business operations.
Fixed assets include land, buildings, machinery, equipment,
furniture, and long‐term investments.
Fundamentals of FS

 Cost of goods sold: product costs (inventory costs) that become period
expenses only when the products are sold, equals beginning inventory +
cost of goods purchased during the period (or manufactured) – ending
inventory.
 Net assets: assets minus liabilities; owners’ equity or stockholders’ equity.
 Net income: the difference between revenues & expenses when revenues
exceed expenses.
 Net loss: the difference between expenses & revenues when expenses
exceed revenues.
Fundamentals of FS

A debit is an accounting entry that either increases
an asset or expense account, or decreases a liability or equity account.
It is positioned to the left in an accounting entry.
A credit is an accounting entry that either increases a liability or
equity account, or decreases an asset or expense account. It is
positioned to the right in an accounting entry.
Fundamentals of FS

Depreciation
Amortization
Depletion
‫اﻻھﻼك‬
‫اﻻﺳﺗﮭﻼك‬
‫اﺳﺗﻧﻔﺎذ‬
PP&E Property, Plant & Equipment
Intangible assets
Natural resources
Fundamentals of FS

a sum of money paid regularly (typically annually) by a company to its
shareholders out of its profits
Dividend
Fundamentals of FS

The capital of a business which is used in its day-to-day trading
operations, calculated as:
Current assets - Current liabilities.
Working Capital
Fundamentals of FS

Sole Proprietorship
• One Owner Organization ………. Cost is Minimal
• Income is Personal Unlimited Liability
• Life is limited Lacks fund-raising ability
• 100% Profits and Control Full Confidentiality
Partnership
• Multiple Owners Minimal ……… Organizational Costs
• Informal Arrangement Rights are defined
• Each partner is an agent Dissolves upon Withdrawal or
Death
Corporation
• Separate Entity ……………………… Limited Liability
• More Organization Needed Unlimited Life
• Transfer of Ownership Raise Capital easier
• Hybrid Structures
• Limited Partnership S-Corporation
‫ﻓردﯾﮫ‬
‫ﺷــــرﻛﺎء‬
‫ﺣﺻص‬/‫اﺳﮭم‬
Business Organizations
Fundamentals of FS

Fundamentals of FS

Big 4 Financial auditors
1. KPMG
2. EY “Ernst & Young”
3. PWC “Price Water House”
4. Deloitte
5. Arther Anderson (Inron case)
Fundamentals of FS

GAP …….. ‫اﻟﻣﺣﺎﺳﺑﮫ‬ ‫ﻣﻌﺎﯾﯾر‬ ‫ﻣﺑﺎديء‬
IASB ……. International Accounting Standard Board
IFRS …….. International Financial Reporting Standard
EAS …….. Egyptian accounting standard
ESAA ……. Egyptian Society of accounting & auditing
‫اﻟﻣﺻرﯾﮫ‬ ‫واﻟﻣراﺟﻌﯾن‬ ‫اﻟﻣﺣﺎﺳﺑﯾن‬ ‫ﺟﻣﻌﯾﮫ‬
CAA …….. Central audit authority
‫ﻟﻠﻣﺣﺎﺳﺑﺎت‬ ‫اﻟﻣرﻛزي‬ ‫اﻟﺟﮭﺎز‬
FSA …….. The Financial Supervisory Authority
‫اﻟﻣﺎﻟﯾﮫ‬ ‫ﻟﻠرﻗﺎﺑﮫ‬ ‫اﻟﻌﺎﻣﮫ‬ ‫اﻟﮭﯾﺋﮫ‬
Fundamentals of FS

General Organization Structure of Financial Function
Fundamentals of FS

• Treasurer:
He is concerned mainly with financing and investment activities
including cash management, relationship management with
bankers, credit ,management, portfolio management, inventory
management, dividend disbursement, etc.
• Controller:
His functions are related to management and control of assets
like cost and financial accounting, taxation, auditing, budget
preparation, etc.
Fundamentals of FS

 Direct Material
 Direct Labor
 Overhead
 Opportunity Cost
 Operating Costs
 Selling Expenses
 Research and Development
 General and Administrative
 Government Costs
 Product Costs: Costs are charged to products upon sale of the
product
 Fixed Costs: Costs remain constant regardless of product activity
 Variable Costs: Costs change with respect to the activity being
supported
Types of Costs
Fundamentals of FS

Planning Cycle
Fundamentals of FS

Financial Ratios
Fundamentals of FS

Fundamentals of FS

Fundamentals of FS
Financial Ratios Formula

Fundamentals of FS
Feasibility Study Financial Ratios:
 Break Even Point “BEP”
 Return On Investment “ROI”
 Payback Period “PBP”

Break Even Point
Fundamentals of FS

•Financial Feasibility Study
Breakeven point ‐:
the amount of revenue from sales which exactly equals the amount of
expense. Breakeven point is often expressed as the number of units
that must be sold to produce revenues exactly equal to expenses.
Sales above the breakeven point produce a profit; below produces a
loss.
Fundamentals of FS

•Financial Feasibility Study
Fundamentals of FS

Return On Investment
Fundamentals of FS

Return on investment (ROI)
measures the gain or loss generated on an investment relative to the
amount of money invested.
ROI is usually expressed as a percentage and is typically used for
personal financial decisions, to compare a company's profitability or to
compare the efficiency of different investments.
The return on investment formula is:
ROI = (Net Profit / Cost of Investment) x 100
Fundamentals of FS

Return on Investment
is the ratio between the net profit and cost of investment resulting
from an investment of some resource.
A high ROI means the investment's gains compare favorably to its
cost.
Cost - Investment
Fundamentals of FS

ROI Example
Is it Good or Bad ROI ?
Fundamentals of FS

Pay Back Period
PBP
Fundamentals of FS

The number of years required to recover a project’s cost,
or how long does it take to get the business’s money
back?
What is the payback period?
Fundamentals of FS

Payback period Formula
Fundamentals of FS

Payback period example
Fundamentals of FS

Financial feasibility
Study
Fundamentals of FS

• Estimate of capital expenditures
• Estimate of operational expenditures
• Estimate of revenues for the coming 5 years
• Estimate the sales over the life of the project
• Propose financing plan and equities structure
• Projection of the expected profits under various assumptions
• Financial analysis and ratios
Financial Feasibility Analysis
Fundamentals of FS

Financal feasibility study

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