FINAL DRAFT - BANANA CHIPS

I. Introduction

Bananas are vigorously growing, herbaceous plants growing in every humid

tropical region. Edible bananas are believed to have originated in the Indo-Malaysian

region reaching to northern Australia. They constitute the fourth largest fruit crop of the

world, following the grape, citrus fruits and the apple. World production is estimated to

be twenty-eight million tons—sixty-five percent from Latin America, twenty-seven

percent from Southeast Asia, and seven percent from Africa. One-fifth of the crop is

exported to Europe, Canada, the United States and Japan as fresh fruit. India is the

leading banana producer in Asia, followed by Indonesia and then by Philippines. The

Philippines produces about one-half million tons, exporting mostly to Japan.

The Philippines, being one of the contenders for the title, “Banana

Capital of the World,” has innumerable banana plantations scattered across Mindanao.

Biggest producing region is Southern Mindanao capturing almost half of the country's

total production. Production of banana is mainly concentrated in Mindanao where the

biggest banana producing provinces of Davao del Norte, Davao del Sur and Davao City

of Southern Mindanao region. Outside Mindanao, the biggest producing provinces are

Iloilo in Western Visayas and Isabela of Cagayan Valley.  Most of the 337,082 hectares

of banana are mostly backyard or smallholder operations.  According to a study

conducted by World Bank, the few commercial plantings are located in Mindanao where

there are about 28,000 hectares of Cavendish bananas being produced for export. 

Banana has many uses especially in the human diet. Utilization of

banana as food can be in many ways -- from simply being peeled and eaten out of-hand

to being sliced and served in fruit cups and salads, sandwiches, custards and gelatins;

being mashed and incorporated into ice cream, bread, muffins, and cream pies. Ripe

bananas are often sliced lengthwise, fried in cooking oil, and re-cooked in sugar

caramel. Banana puree is important as infant food and can be successfully canned by

the addition of ascorbic acid to prevent discoloration. Because of seasonal gluts and

perishability and the tonnages of bananas and plantains that are not suitable for

marketing or export because of overripeness or stained peel or other defects, there has

been tremendous interest in the development of modes of processing and preserving

these fruits.

Unripe banana has many food uses as well. In Zamboanga City, green

unripe bananas, boiled in skin and served with “haleia” or coconut milk caramel, are

popular. Sun-drying slices of unripe fruits and pulverizing make banana or plantain flour

or powder. One of the most popular unripe banana products is banana chips.

Commercial production and marketing of banana chips has been

increasing in various parts of the world over the past 25 years and these products are

commonly found in retail groceries alongside potato chips and other snack foods.

'Carinosa' and 'Bungulan' bananas are favored for chip-making in Latin Amerca. In the

Philippines, the ‘Saba’ and ‘Cardava’ varieties are chosen for this purpose.

This paper proposes a banana chips production business in Zamboanga

City. The idea stemmed from the proponent’s fondness for the product and the

prodigious source of banana in the area. The business and its initial product shall be

named MILES COMPANY and MR. YUMMY BANANA CHIPS, respectively. The banana

chips shall be distributed mainly to the canteens of the different primary, secondary, and

tertiary schools in Zamboanga City. Miles Company will also deliver to the grocery stores

as well as the canteens of the different companies or offices in the city.

II. Product Description

The Mr. Yummy banana chips are delicious, crispy, and healthy snacks.

The banana chips have a sweet taste. They are made from the Filipino banana of

the Saba and Cardava variety. Smooth delicious bananas are picked in their mature

green stage, peeled, thinly sliced, honey sweetened and then fried in vegetable oil.

They are a nutritious snack because of the honey content. They do not contain

artificial additives. They are a nutrient-dense food, contributing to a healthy diet by

providing not only potassium but also calcium, carotene, vitamin C, and vitamin B6.

Each chip has an average size of 25-30 millimeters in diameter and thickness of

3-4 millimeters. The thin chips are deep-fried, and naturally cooled before packaging

restoring the product’s crispiness.

The banana chips are packed by 50 grams in plastics. The label indicates the

business and product name, ingredients, weight, and business address and number.

Each pack is well-sealed to maintain the product’s crispiness.

III. VMO and SWOT Analysis

Vision

In seven to eight years, Miles Company will be the biggest banana chips

manufacturer in Western Mindanao and will contribute to the Philippines banana chips

export market.

.

Mission

Miles Company manufactures honey-dipped banana chips and distributes them

to the different school canteens, office canteens and grocery stores in Zamboanga City.

Values

1. Excellence – in producing high quality honey-dipped banana chips

2. Honesty - in relating with customers and paying taxes to the government

3. Cleanliness and sanitation – in the preparation of ingredients, cooking of the

chips and in the packaging of the product

4. Hardwork – in devoting energy and talents for the growth and success of the

business

Objectives

1. Generate an annual sale of P 250,000 and net income of P50,000.

2. Produce the best tasting banana chips in Zamboanga City

3. Distribute to 50% of the school canteens in Zamboanga City

4. Gain access to the office canteens and the grocery stores in Zamboanga City

5 .Export products to other countries

SWOT Analysis

A scan of the internal and external environment of the business indicates the

following:

Strengths:

With know-how in the manufacturing of banana chips

Unique in Zamboanga City because bananas are sweetened with honey

before frying

The snack product is nutritious. Its nutritional contents include potassium

and protein

Weaknesses:

Lacks access to grocery stores and office canteens

No established supplier of honey in Zamboanga City

Opportunities:

There are more and more schools that are being put up in the city

A supportive government indicates that there is a bright future for the firm

in the export market

Threats:

The preference of students and young people to eat junk foods

The prices of cooking oil, sugar and honey are increasing

Strategies

Strength-Opportunities:

Extensively promote nutritious product to students of the different schools

by joining trade fairs during school fiesta or palaro

Accumulate profit and reinvest it for expansion of business and

distribution in the neighboring places of Zamboanga City

Weaknesses-Opportunities:

Concentrate marketing efforts on the distribution to school canteens

When sales volume increases due to increased demand for the product,

find suppliers outside Zamboanga City and negotiate terms.

Strengths-Threats:

Invest in Research and Development activities to obtain cost efficiency

and optimal productivity

Package and label product differently to attract even junk food eaters

Weakness-Threats:

Research on the feasibility of processing own honey made from banana

IV. Profile of Target Market(s)

Zamboanga City is the center for education in Western Mindanao. It is a home to

three universities, three computer colleges, ad numerous colleges and institutes in the

Zamboanga Peninsula region. The Department of Education – Zamboanga City Division

records a total of three hundred fifty-two schools in all education level including pre-

school in school year 2007-2008. Two hundred forty-five (245) and one hundred one

(101) of these schools are government-owned and privately-owned, respectively. This

number is six less than the recorded number of schools in school year 2006-2007. The

closing of twelve private elementary schools and the opening of one public high school,

three public pre-elementary schools and two private pre-elementary schools contributed

to the decrease.

The Department of Education – Zamboanga City Division has in record 175,319

and 176,079 students in the preschool, primary and secondary level in school years

2006-2007 and 2007-2008, respectively.

More than ninety percent of the schools in Zamboanga City have their own

school canteens. A survey was conducted to thirty different schools located in the city

proper, east and west coast in Zamboanga City. Twenty-eight of the thirty schools have

canteens located inside the school and these canteens are owned by a cooperative of

teachers and staff members.

Ten students for each of the twenty-eight schools were handed out

questionnaires to determine their purchases and purchase level from the canteens. Five

out of ten (50%) students visit and buy from the school canteen once a day either for

snacks, lunch, or school supplies; three students (30%) seldom go to the canteen (less

frequent than once a weekly) and buy school supplies and drinks. The remaining two

students (20%) never go to the canteen because they bring their own food and school

supplies or because they do not have money at all.

Three out of the five regular canteen goers are likely to buy snack food. Two out

of these three snack buyers prefer commercialized chips like Chippy and Piatos and

other junk foods. One prefers home made snacks like bico, cassava cakes, sandwiches,

and bananaque.

Eleven of the twenty-eight school canteens were selected as targeted place of

distribution of the product. Nine out of eleven pre-selected school canteens committed to

buy the product from the business. The Brent Hospital and College Inc. and Immaculate

Conception Archdiocese School are the two schools who responded “No” when asked if

they will buy the proposed product. All nine prefer the goods to be on consignment

basis. This term provides that each pack of 50 grams honeydipped banna chips is

priced at P6.00. Payment on the delivered goods for the day shall be made on the next

day’s delivery. The schools were chosen for their large population and the nearness of

each school from another. The latter reason will generate efficiency in the delivery and

collection of payment.

The following are schools/canteens which committed to buy the product,

with their corresponding population and location:

Schools Location Population1 Claret HS San Jose Rd, Baliwasan, Zamboanga City 1,1782 WMSU (Lab High & College) Normal Rd, Baliwasan, Zamboanga City 22,0003 ZNHS West RT. Lim Blvd., Baliwasan, Zamboanga City 5,8074 Pilar College (All levels) RT. Lim Blvd., Baliwasan, Zamboanga City 1,3985 STI College Gov. Lim Ave., Zamboanga City 5946 SCC (HS & Colleges) Pilar Street, Zamboanga City 1,4977 Universidad de Zamboanga City (College)

P. Lorenzo Street, Zamboanga City 5,199

8 Universidad de Zamboanga Tetuan (HS & College)

Don Toribio Street, Zamboanga City 8,609

9 ZCHS Main Don Alfaro Street, Zamboanga City 9,496

V. Marketing Plan

A. Marketing Mix

Product

Mr. Yummy banana chips are healthy and delicious snacks. Bananas are dipped

in honey syrup before fried. The product does not contain any preservative or additive.

The banana chips are packed by 50 grams in plastics and are each pack is

individually labeled.

Price

Each pack of 50 grams of banana chips is priced at P6.00. This is because the

desired gross profit margin is 75%. A unit cost of P2.18 with a gross margin of this rate

will result to a rounded off-price of P6.00.

The price of the Mr. Yummy Banana Chips is not greatly different from the price

of the products of the competitors. In fact, the wholesale price of the Member Food

Dealer and Guiwan Special Banana Chips, which distributes to retail and convenience

stores, is also P6.00. Prices of other competitors range from P6.50 to P10.00.

Such differences in the prices, however, shall have the least significant effect in

the competition. Price is neither the competency nor strategy of the proposed business.

It shall focus instead in delivering banana chips product, unique and special for its honey

content.

Furthermore, the main distribution links of the competitors are the grocery stores

and convenience centers. These stores will sell the products at P9.00 to P15.00. Miles

Company shall do direct delivery of its products to the school canteens and stores at

P6.00.

Place or Distribution

The delicious and healthy banana chips product will be distributed mainly to

canteens of the different schools in Zamboanga City. Initially, it shall deliver to the

canteens of Claret High School, Western Mindanao State University, Zamboanga

National High School West, Pilar College, Brent Hospital and College, STI College

Zamboanga, Southern City College, Universidad de Zamboanga - City Campus and UZ

Tetuan Campus, Zamboaga City High School Main and Immaculate Conception

Archdiocese School.

The first five schools above are located in the west area of the city while the last

three schools are located in the east. STI College, Southern City College and

Universidad de Zamboanga are found within the city proper.

Since the business aims to make it known also to non-school canteen customers,

it will deliver to retail stores in Guiwan, Tumaga, Canelar, Sta. Maria, and San Roque.

Canteens of GSIS and BIR are also targeted.

Cash collection shall be made on the following delivery. Given that delivery shall

be made daily, collection of the day’s delivery shall be made on the following day.

Collection from these non-school canteens and retail stores shall be made on the next

Saturday of delivery. This is to encourage these customers to buy and patronize the

proposed product.

Promotion

The business shall be promoted by word of mouth and through personal selling

efforts of the business proponent. Packaging and labeling will be enhanced more to

further promote the product.

B. Competition

The following are the competitors of the Miles Company;

Competitors 

Business Location

Place of Distribution

Price

(of 50g pack)

1. KuKuh’s Banana Chips Sta. Maria, Zamboanga City

Canteens of schools and offices; Convenience stores

P 7.00

2. Member Food Dealer Banana Chips Canelar, Zamboanga City

Canteens of schools and offices; Convenience stores in ZC

6.00

3. Ecoco Banana Chips Manila City Grocery Stores Nationwide

10.00

4. Guiwan Special Banana Chips Guiwan, Zamboanga City

Retail Stores; Bakeries

6.00

5. Food Trade Center Banana Chips Isabela City Canteens of schools and offices; Convenience stores in Isabela City and ZC

6.50

The banana chips products of the competitors listed in the foregoing page are

almost alike. Except ECOCO banana chips, which uses table banana or sweet plantain

of the Musa acuminata group like the lady finger (sulaybaguio) and ‘’Gros Michael”

(lakatan) bananas, all of the companies use saba and cardava. Peeled and sliced

bananas of these varieties are deep fried and packed in plastics. Miles Company,

however, shall soak the banana in honey syrup before frying. This shall result more

delicious and nutritious banana chips. This gives Miles Company edge over all its

competitors.

C. Factors in the External Environment that Affect the Business

Political Factors

The Local Government of Zamboanga City as well as national government

agencies like the Department of Trade and Industry and Department of Science and

Technology are supportive to entrepreneurs and the whole business sector. The current

political issue involving the ZTE project does affect the business directly or indirectly.

Economic Factors

Inflation is a problem of all businesses. Although inflation does affect the

business in the costing of the raw materials and pricing of the finished goods to a great

extent, it significantly affects the purchasing power of the money given to students as

allowance.

Socio-Cultural Factors

Mr. Yummy banana chips product competes with other snacks in capturing the

taste and preference of students who are the end customers of its market. These other

snacks include the potato chips of Jack and Jill Corporation, cheese curls and other junk

foods. They are often preferred by students.

Technological Factors

Training on banana chip production in the future, can open doors to the use of

technology in the business. Technology, automation can increase the efficiency of the

production, in volume and quality and can therefore pave the way to banana chips

export.

VI. Operational Plan

A. Production Process

The Mr. Yummy Banana Chips production process shall be as follows:

Raw Materials Inventory

Peeling of the bananas

Slicing of the banana

Soaking in honey and sprinkling of sugar

Cooking in vegetable oil

Cooling

Packaging

Production shall be daily, the cooking in the morning and manual packaging in

the afternoon. Finished goods for the day shall be delivered the following day. Goods

produced on Fridays are distributable to non-school canteens on Saturday while goods

made on Saturdays are to be delivered on Monday the following week.

Bananas will be peeled and sliced. Peeling and slicing of one bunch and two

hands of bananas will take one hour and fifteen minutes. Ten kilograms of peeled and

sliced bananas shall be soaked in honey and sprinkled with sugar. The sliced bananas

will be soaked in honey syrup for thirty minutes and then drained. They shall be fried,

five kilograms first and then the remaining five. A cooking strainer shall be used to

facilitate the emerging and sieving from oil of cooked banana chips. Frying will only take

30 minutes for all ten kilograms. The cooked banana chips will then be spread over large

“bilao” atop with absorbent paper and will be cooled for one hour without manual or

electric fanning to maintain its crispiness.

Cooled banana chips are then packaged by 50 grams in plastics. They are

measured first using a small but precise weighing scale and should be 50 grams in

weight before sealing. Packs are sealed and labeled.

The following table summarizes the banana chips production process with the

length for each step:

Finished Goods

Inventory

B. Suppliers

The business shall buy its weekly supply of seven and a half bunches of bananas

from the farmers in Dungcaan, east of Zamboanga City. The contact person in the area

is Ms. Marie Atilano, a relative of the business proponent. She resides in the area and

knows the residents of the barrage.

C. Schedule of Operations

The business shall operate from Monday to Saturday, from 8 A.M. to 5:00 P.M.

Purchase of raw materials and supplies shall be made every Saturday before the

production week. Banana chips produced during the day shall be sold in the following

day. Products completed during Fridays are made so for distribution to non-school

canteens and retail stores during Saturdays. This is because very few schools operate

on a Saturday. During semester breaks and school holidays, the business shall intensify

selling efforts to non-school canteens and retail stores.

Collection from school canteens shall be made on the following delivery, that is,

on the following day. To encourage non-school canteens and retail stores, however,

collection from these customers shall be made on the next Saturday of delivery.

D. Business Location

The banana chips production shall be home based. The products shall be made

at the place where the proponent resides. It is a 4 meter by 9 meter house being rented

by the proponent from a relative, located in 132 San Jose Road, Baliwasan, Zamboanga

City. It is one of the two houses in the lot with area of 270 square meters. The other is a

two-storey house with a total floor area of 160 square meters.

One-half of the area of house shall be retained as the personal and sleeping

quarter of the proponent and the other half shall be made into a packaging area.

Cooking shall be held outside, in an outdoor kitchen adjacent to the packaging area.

VII. Organizational Plan

A. Business Organization

Initial Organization

The business, a sole proprietorship, shall initially employ only two employees.

The project proponent shall be the first and the manager and shall be responsible for the

purchase of raw materials and supplies, delivery of finished goods, dealing with

customers and prospective customers, and managing the finance of the business.

The second employee shall be responsible for the production: cooking in the

morning and packaging in the afternoon. He shall maintain the cleanliness of the kitchen,

the utensils and cooking wares and the production process in general. He must be:

- knows cooking

- able to work with minimum supervision

- clean and neat in looks and ways

- willing to undergo training

- willing to work and receive per piece wage

- observant and patient

Future Organizational Chart

Five to six year from now, the following will be the business organization chart:

B. Personnel Compensation

Employees of the business shall receive wage equivalent to the minimum daily

wage of employees of retail establishments employing not more than 30 employees in

Zamboanga Peninsula. Wage Order No. RIX-13 prescribes the granting of P195.00

minimum to these employees. The employees of Martin Company are also entitled to

government mandated benefits and privileges: 13th Month Pay, SSS, Phil Health and

Pag-ibig.

The following is a summary of the personnel compensation of the business,

indicating basic compensation and personnel benefits, factored annually:

Manager

Marketing Finance Production

- promotes and delivers

products

- deals with customers

and prospective

customers

- maintains the books of

the business

- oversees the overall

financial condition of

the business

- Produces banana

chips and maintains

its quality

- schedules production

to increase

productivity

For the monthly basic pay, the project proponent, the owner of the business

receives an equal pay to that of the other employee. Compensation of the manager is

charged to operating expense while the compensation of the other employee is partly

charged against cost of goods sold and partly against operating expenses. For the

compensation charged to cost of goods sold, he shall receive 15 centavos for every unit

of product completed. The remainder thereof shall be charged to operating expense.

VIII. Financial Plan

A. Unit Costing

Unit cost is derived from the batch cost divided by the number of units each batch

produces. Unit cost is as follows:

Raw Materials      10 kilogram banana (peeled, 1 bunch and 2 hands of bananas) P60 per bunch, 5 per hand P 70.00

2 botles of honey P75.00 per bottle 150.001.5 kilogram brown sugar P26.00 39.00

1liter cooking oil (to be used only twice to maintain quality) P83.75 41.88Total Raw Materials P 300.88Units Produced (of 50 grams) 190Raw Materials Per Unit P 1.58Packaging Cost Per Unit  

Plastic P0.18 per piece P 0.18  Label P0.05 per pice 0.08 0.26

Direct Labor Per Unit 0.15Factory Overhead (Wood Coal)

P15 per cooking, 5 kilogram of banana per cooking) 0.19

Unit Cost P 2.18      * 100% input in kilograms = 95% outputs in kilogram    

One hundred percent of banana as an input will produce only ninety-five percent of

banana chips as an output. This may be due to the loss of moist content of banana when

fried and cooled. The 10,000 kilograms of banana, therefore, will produce 9,500 grams

of banana chips, or 190 packs of 50 grams of banana chips.

B. Production Volume

Daily production for the first year of operation is 190 units. Annual increase is

projected at 40 units for the four (4) additional school canteens to be captured each

year.

C. Mark-up

Desired gross profit per unit is 75%. Price of the banana chips, therefore, for the first

year is P6.00 per unit.

D. Merchandise Inventory

Only the goods produced at the last working day of the year are expected to

remain unsold at year end. This based on the assumption that delivery of goods produce

during the day will be delivered on the following day. Ending merchandise units will be

sold in the first working-school day of the year.

E. On Account

Only goods delivered to non-school canteen customers on the last Saturday of the

year are considered to be on account. For projection, a daily sale multiplied by 6 days

credit term for non-school canteen customers is equal to the Accounts Receivable at

year end.

Since all purchases are on cash basis, there shall be accounts payable at the end of

the year.

F. Fixed Assets

The following the fixed assets to be used in the conduct of the business and their

corresponding acquisition cost, useful life, annual depreciation:

The straight line method of depreciation is used in computing for annual depreciation

expense.

The motorcycle vehicle to be used in the delivery of product shall be purchased from

EMCOR Veterans, Zamboanga City on installment basis. Down payment for the

purchase is P3, 500 and equal monthly installment is P2, 500 inclusive of interest, for 24

months. The present value of this future payments based on the 15% per annum interest

offer of EMCOR is P 51, 560.00. This amount added to the down payment amount is

equal to P56, 560.00, the cost of the motor vehicle.

G. Project Cost and Financing

Initial project cost is estimated at P 29,207.33 and shall be financed through a cash

gift from parents upon graduation of the proponent.

Schedule of Fixed Assets

Assets CostUseful Life (in Years)

Annual Depreciation

Cookware P 2,500.00 5 P 500.00

Steel Tungku- welded 600.00 5 120.00

Sealer 250.00 5 50.00

Other kitchen utensils 500.00 5 100.00

Furniture 1,000.00 5 200.00

Motor Vehicle 55,060.00 10 5,506.00

Total P 59,910.00   P 6,476.00

Working capital of one (1) month is allotted for both production cost and operation

expense. The cost to acquire manufacturing equipment and the necessary down

payment and installment payment for the first month for the delivery equipment are also

factored as a capital expense. Pre-operating expenses include deposit on rental of the

business area and licensing cost.

A breakdown of the initial investment is shown below.

Capital Outlay - Production      and Delivery Equipment  

Cookware P 2,500.00  Steel Tungku- welded 600.00  Sealer 250.00  Other kitchen utensils 500.00  Furnitures 1,000.00  Motor Vehicle  

Down Payment P 3500.00  1st Month Installment 2500.00 6,000.00 P 10,850.00

   Pre-Operating Expenses  

Rental Deposits-3 months 2,100.00  Permits and Licences 4,000.00 6,100.00

Working Capital - Production Cost  (1 month)  

Units to be Produced 4,940  Unit Cost 2.18 10,774.40

Working Capital - Operating Expenses  (1 month)  

Wages Expense - Martin 4,649.80  Wages Expense -Worker 1 4,649.80  Office Supplies Expense 166.67  Gas, Oil, Transportation 2,166.67  Rent Expense 700.00 12,332.93

Total Initial Investment     P 29,207.33

H. Operating Expenses

Operating expenses include wages expense, licenses and permits, oil, gasoline, and

transportation expense, supplies, and rent expense.

All operating expenses, except wages expense, increase by 5% annually. This is

based on the inflation rate of 5%. Wages expense increases by 10% annually.

I. I. Financial Statements (send me your excel file)

Projected Income Statements

The following income statements summarize the revenue, cost of goods sold and

expenses of the business. The profitability report shows increasing annual sales and

steady operating expenses. Annual net income increases every year, by more than

P25, 000.00.

Miles CompanyINCOME STATEMENT2009-2013(in Philippine Pesos)

2009 2010 2011 2012 2013

Sales 354,540.00 466,085.00 568,292.50 676,692.50 791,332.50Cost of Goods Sold 128,816.20 164,146.37 202,344.17 243,951.38 289,213.45Gross Profit 225,723.80 301,938.63 365,948.33 432,741.12 502,119.05Operating Expenses 171,913.26 183,938.06 197,099.57 211,513.09 227,305.76Income before tax and interest 53,810.54 118,000.57 168,848.76 221,228.04 274,813.29Interest Expense 6,137.69 2,301.72 0.00 0.00 0.00Income before tax 47,672.85 115,698.85 168,848.76 221,228.04 274,813.29Income tax - 35% 18,833.69 41,300.20 59,097.07 77,429.81 96,184.65NET INCOME 28,839.16 74,398.65 109,751.70 143,798.22 178,628.64

Projected Cash Flows Statements

The business reports its cash flow statements using indirect method.

The cash flow statements summarize the firm’s cash inflows and cash outflows or

cash receipts and cash disbursements, respectively. Cash inflows include cash

investments and cash from customers for products sold, while cash outflow include cash

paid for manufacturing costs and operating expenses, income tax payment to BIR, and

cash used in acquiring fixed assets.

There are no additional cash investments. Payment of tax for the current year

operation shall be paid on the following year before the deadline, April 15 of the year.

Miles Company will have an increasing cash balance at year end because of

increasing sales. The table in the next page is a summary of the company’s cash

transactions.

Miles CompanyCASH FLOWS STATEMENTS2009-2013(in Philippine Pesos)

2009 2010 2011 2012 2013

Cash, Beginning of the Year 0.00 43,889.73 117,290.40 249,227.57 415,616.20Add; Cash Inflows

Cash Initially Invested in Business 29,207.33

Cash from customers 347,700.00 463,955.00 566,327.50 674,607.50 789,127.50

Total Inflows 376,907.33 463,955.00 566,327.50 674,607.50 789,127.50Less : Cash Outflows

Cash paid for manufacturing cost 129,230.40 164,258.64 202,466.63 244,084.77 289,358.56

Cash paid for operating expense 165,437.20 177,462.00 190,623.51 205,037.03 220,829.70

Cash used to acquire manufacturing equipment 4,850.00

Cash used to acquire motor vehicle 27,362.31 27,698.28 0.00 0.00 0.00

Cash paid for interest 6,137.69 2,301.72 0.00 0.00 0.00

Cash paid to BIR for Income Tax 0.00 18,833.69 41,300.20 59,097.07 77,429.81

Total Outflows 333,017.60 390,554.33 434,390.34 508,218.86 587,618.07Cash, End of the Year 43,889.73 117,290.40 249,227.57 415,616.20 617,125.63

Projected Balanced Sheets

Miles CompanyBALANCE SHEETS2009-2013(in Philippine Pesos)

2009 2010 2011 2012 2013

ASSETS

Cash 43,88

9.73 117,29

0.40 249,22

7.57 415,61

6.20 617,125

.63 Accounts Receivable

6,840.00

8,970.00

10,935.00

13,020.00

15,225.00

Merchandise Inventory

414.20

526.47

648.93

782.32

927.43

Total current assets 51,14

3.93 126,78

6.87 260,81

1.50 429,41

8.53 633,278

.06

Fixed Assets 59,91

0.59 59,91

0.59 59,91

0.59 59,91

0.59 59,910

.59 Less : Accumulated Depreciation

6,476.06

12,952.12

19,428.18

25,904.23

32,380.29

53,434.53

46,958.47

40,482.41

34,006.35

27,530.29

TOTAL ASSETS 104,57

8.46 173,74

5.34 301,29

3.91 463,42

4.88 660,808

.36

LIABILITIES & CAPITAL

Installment Payable 27,69

8.28 -

-

-

-

Income Tax Payable

18,833.69

41,300.20

59,097.07

77,429.81

96,184.65

Total Liabilities 46,53

1.97 41,30

0.20 59,09

7.07 77,42

9.81 96,184

.65

Capital, Beginning of the Year

29,207.33

58,046.49

132,445.14

242,196.84

385,995.06

Add: Net Income 28,83

9.16 74,39

8.65 109,75

1.70 143,79

8.22 178,628

.64 Capital, End of the Year

58,046.49

132,445.14

242,196.84

385,995.06

564,623.70

TOTAL LIABILITIES & CAPITAL

104,578.46

173,745.34

301,293.91

463,424.88

660,808.36

The table in the preceding page shows a summary of the assets and the corresponding

liabilities and capital of the business. It shows an increasing asset value due primarily to

the increase of cash balance. Its only liability is the income tax payable which increases

as net income increases. Capital or net worth also increases because of the increasing

profitability of the business.

J. Financial Ratio

K.

APPICABLE FINANCIAL STATEMENT RATIOS

1. Current Ratio 2.7

2 3

.07 4

.41 5

.55 6

.58

Current Assets 51,143.93 126,786.87 260,811.50 429,418.53 633,278.06Current

Liabilities 18,833.69 41,300.20 59,097.07 77,429.81 96,184.65

2. Debt Ratio 0.1

8 0

.24 0

.20 0

.17 0

.15

Total Liabilities 18,833.69 41,300.20 59,097.07 77,429.81 96,184.65

Total Assets 104,578.46 173,745.34 301,293.91 463,424.88 660,808.36

3. Equity Ratio 0.5

6 0

.76 0

.80 0

.83 0

.85

Total Equity 58,046.49 132,445.14 242,196.84 385,995.06 564,623.70

Total Assets 104,578.46 173,745.34 301,293.91 463,424.88 660,808.36

4. Debt to Equity Ratio 0.3

2 0

.31 0

.24 0

.20 0

.17

Total Liabilities 18,833.69 41,300.20 59,097.07 77,429.81 96,184.65

Total Equity 58,046.49 132,445.14 242,196.84 385,995.06 564,623.70

5. Gross Profit Margin 0.64 0.65 0.64 0.64 0.63

Gross Profit 225,723.80 301,938.63 365,948.33 432,741.12 502,119.05

Sales 354,540.00 466,085.00 568,292.50 676,692.50 791,332.50

6. Operating Profit 0.1 0. 0. 0. 0.

Margin 5 25 30 33 35 Income before Interest Tax 53,810.54 118,000.57 168,848.76 221,228.04 274,813.29

Sales 354,540.00 466,085.00 568,292.50 676,692.50 791,332.50

7. Cash Flow Margin 0.1

0 0.

17 0.

20 0.

22 0.

23 Cash flow from operations 35,315.22 80,874.71 116,227.76 150,274.28 185,104.70

Sales 354,540.00 466,085.00 568,292.50 676,692.50 791,332.50

8. Net Profit Margin 0.0

8 0.

16 0.

19 0.

21 0.

23

Net Income 28,839.16 74,398.65 109,751.70 143,798.22 178,628.64

Net Sales 354,540.00 466,085.00 568,292.50 676,692.50 791,332.50

9. Asset Turnover 3.3

9 2.

68 1.

89 1.

46 1.

20

Net Sales 354,540.00 466,085.00 568,292.50 676,692.50 791,332.50

Ave. Total Assets 104,578.46 173,745.34 301,293.91 463,424.88 660,808.36

10. Rate of Return On Assets

0.28

0.43

0.36

0.31

0.27

Net Income 28,839.16 74,398.65 109,751.70 143,798.22 178,628.64

Ave. Total Assets 104,578.46 173,745.34 301,293.91 463,424.88 660,808.36

Current ratio measures the ability of the business to meet current obligations as

they become due. The increasing balance of cash and non-incurring of liability to trade

creditors and lenders contribute to the increasing solvency or current ratio of the

business. The increasing current ratio of Miles Company indicates that the company will

be more and more liquid in the coming years.

Debt ratio, equity ratio, and debt to equity ratio measure the proportion of liability

to assets, capital to assets, and liability to capital, respectively. These ratios measure the

financial strength of the business and cautions to creditors. The debt ratio of Martin

Company increases because of the increasing income tax payable and shall result to

increase in the debt to equity ratio. Inversely, the increasing debt ratio of the business

results to decreasing equity ratio. The financial ratios table in the preceding page shows

that the company will be financially strong in the coming operating years because of the

larger proportion of capital than liabilities in the financial structure of the business.

Gross profit margin, operating profit margin, cash flow margin and net profit margin

ratios used to measure the profitability of the business. Gross profit margin measures

the ability of a firm to control manufacturing costs and to pass along price increases

through sales to customers. But since pricing of the Martin Honeydipped Banana Chips

is based on a desired gross profit rate, the gross profit margin of the business is

relatively consistent throughout the years.

The operating profit margin of the Miles Company is on an increasing trend. This

indicates the ability of the company to control operating expenses while sharply

increasing sales. Also, the increasing cash flow margin shows that the business shall

have no problem in converting sales to cash to enable it to expand and obtain market

share. There is also an increasing trend of the net profit margin of the business due to

increased sales and control in all costs and expenses.

The rate of return of investment shall assure prospective investors or partners that

there is money in the business. Miles Company has an increasing rate of return of

investment because of its overall efficiency in managing assets and generating profits.

L. Capital Budgeting Analysis

For the purpose of capital budgeting analysis, net future cash inflows of the business

shall be matched with the initial project cost of P 29,207.33. The following cash flow

table shows the short payback period, positive net present vale and a high internal rate

of return of the proposed business:

CAPITAL BUDGETING CASH FLOW SCHEDULE

For the Years 2008-2013

(In Philippine Peso)

 Pre-

Operating 2009 2010 2011 2012 2013Initial Investment (29,207.33)          Amortization - Vehicle   (21,362.31) (27,698.28)      

             Net Income after taxes   28,839.16 74,398.65 109,751.70 143,798.22 178,628.64 add: depreciation   6,476.06 6,476.06 6,476.06 6,476.06 6,476.06  Add: salvage value of motor           32,380.29 

Net Cashflow (29,207.33) 13,952.91 53,176.43 116,227.76 150,274.28 217,484.99

Cash Balance   (15,254.42) 37,922.01      

PAY BACK PERIOD 1.29

NET PRESENT VALUE

P 327,280.02

INTERNAL RATE OF RETURN* 145%*25% is the most likely rate of return is the the computed rate of return on investment

The above table shows that the high cash inflows provided by the business

operation shall result to a payback period of 1.29 years. This means that initial

investment shall be recovered by Miles Company within 1.29 years.

The net present value of a project is the present value of the expected cash flows

that the business will receive as result of investing into the project. The Net Present

Value of the project is P 327,280.02, and this is the value that will be added to the initial

investment. Since, the NPV is positive, the project could be considered financially viable.

Internal rate of return is defined as the discount rate that equates the present value

of the project's future net cash flows with the project's initial cash outlay. If the IRR is

compared with the interest offered by banks or other risk-free investment instruments,

the IRR of 145% is much higher than the rate offered by investing to government bonds

such as T-bills. This means that this project is a more attractive investment.

IX. CONCLUSION

The business has a market and will grow in the future. Its honey content makes it

unique and thus be patronized by the target market. The target markets of Miles

Company are school canteens and retail stores. There are numerous schools existing

and being put up and canteens of these schools shall be the market of the business and

at the same time its network of distribution links. The Mr. Yummy Banana Chips shall

only be priced at P6.00, very affordable for school canteens who shall sell the same

products to students and other customers at mark-up of one to two pesos.

Operationally, the proposed business is viable. Banana chips are easy to make

and it does not require highly technical equipments.

The business also requires very minimum number of personnel to run and its

organization need not be complex.

Financially, it is feasible considering its low project cost and it profitability. Within

a period 1.29 years, the business capitalist can recover its initial investment of P

29,207.33. The business’ cash flows obtain a positive net present value adding

P327,280.02, to the initial investment and its internal rate of return is 145%. These figures

further conclude that the business is financially feasible.

Most importantly, the business will contribute to the society by making available a

healthy product and employing unemployed individuals. It may start with only one, but

when it will grow, it will make a significant impact on the country’s workforce and in the

society.