Business Plan-Ice Candy [PDF]

Zitiervorschau

Sweet Flavours Ice Candy SUBMITTED BY: ALGIE C. DAG-UMAN GLENN MARC DELA CERNA

BUSINESS PLAN INTRODUCTION Objective: To give brief details about the type of business we are engaging.

1.1 Name of Business Our business is name “Sweet Flavours Ice Candy” which is decided by our group for it can catch the customers attention, as well as it is really the true taste of our product. 1.2 Business Address Our business will be located in Children’s Park, San Miguel, Iligan City which is we intend to deliver our products on the stall’s that are currently established in the area. And the production site will be at Purok 2- C Katipunan,Hinaplanon, Iligan City. 1.3 Nature of Business We are manufacturers of Ice Candy and we deliver it to our designated area where stall of store owner’s is our primary customers.

1.4 Form of Business

Our form of business is like we are the producer that delivers the products to our customers. We are the Ice Candy suppliers to our designated stalls.

1.5 Name of Owner/s

Our group is consist of 8 members, we intend to register our business in sole proprietorship under the name of Algie C. Dag-uman with its seven silent owners namely Glenn Marc Dela Cerna, Eliseo Durano, Dale Adam Guadalupe. 1.6 Brief Description of Business This business is planned to be implemented this year 2013, it was planned at the year 2012 by our group members that will take part in running the business. We choose ice candy business because it is suitable to tropical climate and it is a demand in our area. 1.7 Objectives Our objective is to create a sustainable business that could benefit us in the future. And most likely to let our customers enjoy our product that suits their needs in all season.

MARKETING PLAN

OBJECTIVE: To sustain our small business and to have gain more profit for any additional product in the future or for more production. 1.1 Description of the Product Ice candy nowadays are presently mass produced and has less flavors. Now, a new variety of Ice Candy that is especially made with bursting flavors and sold in a reasonable price. This Special Ice Candy will bear the brandname “Sweet Flavours.” 1.2 Comparison of the product with its competitors Sweet Flavours special ice candy aims to satisfy the consumers with its taste and refreshing flavors. Our main goal is to let our consumer appreciate the quality of our product and compare whether we had the better lead toward our competitors. 1.3 Location The production site will be located at Ermac’s Residence, Purok 2 –C Katipunan, Hinaplanon, Iligan City. Where it’s way of transportation and accessibility for our raw materials is at ease. 1.4 Market area and customer Our group plans to sale 8,000 pieces of ice candy per month to our target location area, at Children’s Park, Barangay San Miguel, Iligan City and we contacted a particular stall to display our products. where it is less than 20 minutes ride from our production site. Our group chose this area because there are potential customer we can acquire. The said target location for our business establishment is a place where we can assure that there are lots of customers to be found. The said place is very accessible and the transportation of the goods will be at ease.

1.5 Total Demand The location has the total population of 10,000 including the by-standers, students and other by-passers that are seen as our potential customers. We are targeting about 45% of the total population as our customers. Approximately the target customers have a frequency of purchase of 667 times a year. Year

Population

1 2 3

4,500 4,525 4,550

Frequency Purchase 667 667 667

of Total Market Requirement 3,001,500 3,018,175 3,034,850

1.6 Total Supply

We conducted a survey that there are 10 ice candy producers in the area and they can produce 10,000 pieces of ice candy per month or a total supply of 60,000 ice candy per month. Supply Projections: Year

Producers

1 2 3

10 10 10

Capacities Month 10,000 10,000 10,000

per Available Supply/Year 1,200,000 1,200,000 1,200,000

1.7 Market Share Our group conducted a GAP analysis to determine if we got a shortages of supply in our area which will serve as our basis for our target market share. Market Requirement 3,001,500 3,018,175 3,034,850

Year 1 2 3

Availability Supply 1,200,000 1,200,000 1,200,000

of

GAP 1,801,500 1,818,175 1,834,850

1.8 Selling Price Our selling price well be based on cost that is reasonable and very affordable. And could possibly sustain our business for a long time. Because of its made Special we sell it at P 10.00 per piece. 1.9 Sales Forecast A market share of 5% to 10% is estimated as being reasonable. For our initial operation, we have decided to estimate about 5.33% as our first step. PROJECTED SALES FORECAST (MP Sched I-A) Year

GAP

1 2 3

1,801,500 1,818,175 1,834,850

Market Share 5.33% 5.33% 5.33%

Estimated Units 96,000 96,910 97,798

Unit Price 10 10 10

Sales Amount P 960,000 P 969,910 P 977,980

We believe that the market demand will increased dramatically as our product will be well-known throughout the place.

2.0 Marketing Strategy

a) Product  is has a good quality in terms of flavor.  an appealing brand name which is “Sweet Flavours” where you can really tell after you try the product. b) Pricing  a reasonable price will be placed on our product where it is still affordable. c) Promotion  our customer will be our promoters, where they will serve as our advertisers, through their testimonies with regards of our product.  we will be giving away free samples to our designated area. d) Distribution  regular delivery to our designated stall owner’s. 2.1 Marketing Budget Our group will adopt a considerable cost of promotion and distribution of our product. Since we are delivering our product to our designated area and we are also giving the stall owner a commission. SCHEDULE I-B MARKETING BUDGET

Transportation expenses Stall Owner’s Share Representation’s Expenses Total Marketing expenses

Month P 480 P 3,000 P 1,000 P 4,480

Year 1 P 5,760 P 36,000 P 12,000 P 53,760

PRODUCTION PLAN Objective: To meet our sales forecast requirement. 2.1 Production Process 1. 2. 3. 4. 5.

6.

7.

8.

9.

Place all the ingredients in a blender. Blend the ingredients till the ingredients are well combined. Pour in a large bowl. Place a funnel spout inside the opening of the Ice Candy plastic casing. Stir the mixture before ladling. Pour in a ladleful of the mango mixture. Make sure that you are holding the spout and plastic casing connection tightly so that the mixture won’t spill. Make sure that you have approximately 6-7cm empty gap from the opening of the plastic to make room for the knotting. Twist the plastic just on top of the cased mixture, leaving a little bubble is normal. The Ice Candy has to be firm but not too tight. If it is too tight, it might leak when you freeze it or worst the plastic will rip. Pinching the twisted part with your thumb and forefinger, wrap top end over your thumb and tuck it under towards your inner palm and swing it underneath back to your thumb and forefinger. The wrapping around your thumb has to be tight, slowly withdraw your thumb while you insert the top end part of the plastic through where your thumb has been. Pull it well till you have a tight knot. Once you have done all your Ice Candy, place them in a flat surface in your freezer lying down. You can stack them on top of each other (maximum is 3 layers), but don’t put anything else on top of them as you don’t want them to burst inside your freezer.

2.2 Fixed Assets For us to start our business we need to purchase a double door refrigerator with 18.6 cu.ft capacity which cost P 45,000.00. We also need a blender 1,500 cc with a price of P 2, 300. We rent a small house for 200 per month and we need to pay P 600 as a advanced payment for 3 months for our rental deposit in order for us to start our business. We also be needing utensil used for Ice Candy production that usually cost P 850.Building Improvements for P5,000. We also need to buy table and chairs for P 4,500.We decided to invest our own money to establish our business. Our utensils will last for 4 years and 3 year for our tables and chairs. Our refrigerator will last for 12 years and 4 years for the gas stove. SCHEDULE II-A SCHEDULE OF PLANT MACHINERIES AND EQUIPMENTS COST Building Improvements 5,000 Refrigerator 45,000 Utensils 850 Table and Chairs 4,500 Blender 2,300 TOTAL 57,650 2.3 Repairs and Maintenance

LIFE 6 years 12 years 4 years 3 years 4 years

DEPRECIATION 833.00 3,750 212.5 1,500 575 6,870.50

We expect the difficulty of repairing and maintaining our equipments, so we have decided to incur an amount of P 150 per month for our repair and maintenance. 2.4 Sources of Equipments We can purchase our equipments locally, because it is available in any appliance store and suppliers. 2.5 Planned Capacity We can produce 308 pieces of ice candy per day or 8,000 ice candies each month. Our factory will operate at 92.53% (285/308) (* We choose 285 as our number of unit produce per day as our starting operation over the original amount of 308 pieces per day which is computed as 308 x 26 days = 8008.) 2.6 Factory Location and Layout Plant Layout

MATERIALS

BLENDING/MIXING/ COOKING OF THE INGREDIENTS

ICE CANDY WRAPPING & FREEZING

DELIVERY OF FINISH PRODUCTS (Final QC)

2.7 Cost of Raw Materials Raw materials needed to finish one unit of our product cost P 4.78. The cost of raw material per month (no. of units x cost of raw materials per unit) 8,000 ice candy x 4. 8 = P 38,400.00 List of Ingredients for Sweet Flavours Ice Candy for 25 pieces. Ingredients Fruits (should not be keep more than a week) Sugar Cream Freshmilk Fruit Essence Ice Candy Wrapper Total (* 120 / 25 = 4.8 per piece)

Unit 350 g

Price P 28.00

½ cup or 250 ml ½ cup or 250 ml 500 ml 1 tspn 25 pcs

12.50 25.00 50.00 1.00 3.00 P 119.50

2.8 Raw Materials Availability Thru price canvassing and some conducted group surveys, we know that the availability of the raw materials needed for product is guaranteed. But, for now we are avoiding stocking large quantities of raw materials for we are still starting to make our business. 2.9 Labor Our group decided that anyone one of us is assigned to deliver and do with the production by schedule, so that all of us has a part with the business. We decided to have an even share of monthly salary of 1,500.

Monthly Labor Cost: Direct Labor

Indirect Labor

(3 workers x 1,500)

P

4,500

P

4,500

Manager/Supervisor

P

1,000

Total Labor Cost

P

5,500

2.10 Factory Overhead Expenses Our Ice Candy business will incur the following monthly overhead expenses in manufacturing our products. MANUFACTURING OVERHEAD EXPENSES Indirect Labor Light and Water Repairs and Maintenance Factory rent Depreciation Expenses – Building Improvements Depreciation Expenses – Refrigerator Depreciation Expenses – Utensils Depreciation Expenses – Furniture Depreciation Expenses – Blender Total Factory Overhead Cost

P 1,000.00 500.00 150.00 200.00 833.00 3,750.00 212.50 1,500.00 575.00 P 7,720.50

SCHEDULE II-B PRODUCTION COST

Direct Materials Direct Labor Manufacturing Overhead Total Production Cost

MONTH 1 38,400 4,500 7,720.50 50,620.50

YEAR 1 460,800.00 54,000 92,646 P 607,446.00

2.11 Production Cost Per Unit Total Production Cost/Unit = Number of Units Produced

P 50,620.50 = 6.3275 or 6.35 8,000.00

2.12 Inventory In our case we intend to avoid over production because of our product’s time of preservation which is not more than a month. So this 3 items will be provided. SCHEDULE II-B1 MONTHLY INVENTORIES Units Cost * Raw Materials 8,000 38,400.00 ** Work in Process 285 603.25 *** Finished Goods 142 901.70 TOTAL 39,904.95 * Cost of Raw Materials = quantity needed x purchase price = 8,000 x 4.8 = 34,800 ** Work in Process = (No. of Days x daily production level x production cost) / 3 = (1day x 285 units/day x 6.35)/3 = 603.25 *** Finished Goods = (142 units to kept x 6.35 production cost) = 142 x 6.35 = 901.70

ORGANIZATION AND MANAGEMENT Objective: To transform the marketing and production aspects of Sweet Flavours Ice Candy into a sustainable business.

3.1 Form of Business The business will be registered under the name of Sweet Flavours Ice Candy. Since our group is composed of 8 members only, that are silent owners also, we decided to register our business as a sole proprietorship to Algie C. Dag-uman. 3.2 Organizational Structure Algie C. Dag-uman acts as the General Manager/Supervisor and as one of the production staff. Since our group starts with a small business the manager also acts as the bookkeeper/treasurer and manage the remaining 7 workers. The delivery of finished products is done by the 8 workers, according to a set of schedules. And also we can hire some reliable delivery boys if necessary. ORGANIZATIONAL CHART General Manager (Algie C. Dag-uman)

Marketing Supervisor (Algie C. Dag-uman or Any Member of the Group)

Production Supervisor (Algie C. Dag-uman or Dela Cerna)

Bookkeeper/ Treasurer (Algie C. Dag-uman)

Stall Owner/Vendor

Production Staff (Any member the group)

Production Staff (Any member the group)

Production Staff (Any member the group)

3.3 Business Experience and Qualification of the Entrepreneur Our group has members which had experience and knowledge in Ice Candy business. Due to their previous experiences, we are confident to indulge with such business combined with our resourceful members that conducts researched on improving our product.

3.4 Pre – operating activities 1. Preparing the Business Plan 2. Investing our Capital from our own pocket 3. Canvassing the materials, equipments and purchase 4. Constructing building improvements and finish touches 5. Installation of Equipments 6. Contacting the raw materials suppliers

4 weeks 12 weeks 4 weeks 2 weeks 1 day 3 days

GANTT CHART Timetable in weeks

Pre - Operating Activities

WEEKS 1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

D

1. Preparing the Business Plan 2. Investing the Capital from own pocket 3. Canvassing the materials, equipments and purchase 4. Constructing Building improve ments and finish touches 5. Installation of Equipments 6. Contacting the raw materials suppliers

3.5 Pre – Operating Expenses The following expenses will be incurred in the initial phase of operation. SCHEDULE III-B SCHEDULE OF PRE-OPERATING EXPENSES Cost Training cost Transportation Business DTI registration Business Permit & Clearances Total

P 1,000 480 200 P 3,000 P 4,680

3-year Amortization

Amortization Year

3 years

1,760

Our group decided to have one of our staff to conduct a 1 week culinary training for additional knowledge and can be passed on our production staff. Our group decided to capitalize the pre-operating expense for a period of 3 years.

3.6 Office Equipment Our group intends to minimize expenses as much as possible. So equipments like calculator, computers, etc. are initiatively provided upon availability by the members.

per

Chair and tables are also provided by the group and some were purchased that last for 3 years. 209884.30048SCHEDULE III-A SCHEDULE OF OFFICE MACHINERIES AND EQUIPMENT Cost Office Equipment (Calculator) Computer Set Tables and Chairs Total

Life

Depreciation

750

3 years

P

20,000 2,100 P 22, 850

5 years 3 years

P 4,000 700 P 4,950

P

250

(*Note: PC unit P 16,000 ; Calculator P 500; Furnitures 1,400) 3.7 General and Administrative Expenses The following administrative expenses are expected to be incurred by the business. SCHEDULE III-C GENERAL EXPENSES AND ADMINISTRATIVE EXPENSES Communication Miscellaneous expenses Depreciation of Calculator Depreciation of Computer Depreciation of Tables and Chairs Total General & Administrative Expenses

Month 1 P 520 100 20 333 58 P 511

Year 1 P 6,240 1,200 250 4000 700 P 6,150

Other Information: Our group decided to have our share of Php 20,000.00 per year ending. (8 x 20,000 = 160,000)

FINANCIAL PLAN Objectives: To coordinate the marketing, production, organization and management aspects of Sweet Flavours Ice Candy into a viable financial plan.

SWEET FLAVOURS ICE CANDY PROJECTED TOTAL PROJECT COST

FIXED ASSETS Building Improvements Refrigerator Utensils Tables and Chairs Blender Office Tables and Chairs Office Equipment Computer Total Fixed Assests WORKING CAPITAL Raw Materials Direct Labor Manufacturing Overhead Work in Process Inventory Finished Goods Inventory Selling/Marketing Expenses General and Admin Expenses Total Working Capital OTHER ASSETS Rental Deposit Pre-operating expense Total Other Assets

TOTAL PROJECT COST DEBT-EQUITY RATIO

EQUITY

(PP II-A) (PP II-A) (PP II-A) (PP II-A) (PP II-A) (OM III-A) (OM III-A) (OM III-A)

5,000.00 45,000.00 850.00 4,500.00 2,300.00 2,100.00 750.00 20,000.00 80,500.00

5,000.00 45,000.00 850.00 4,500.00 2,300.00 2,100.00 750.00 20,000.00 80,500.00

(PP II-B) (PP II-B) (PP II-B) (PP II-B) (PP II-B) (PP II-B) (OM III-C

76,800.00 4,500.00 7,720.50 603.25 901.70 4,480.00 5,050.00 100,055.45

76,800.00 4,500.00 7,720.50 603.25 901.70 4,480.00 5,050.00 100,055.45

600.00 4,680.00 5,280.00

600.00 4,680.00 5,280.00

(PP 2.2) OM III-B

185,835.45 100%

*Net of Depreciation Expenses Total Equity 185,835.45 Non-cash equity 17,900.00 Cash Equity

TOTAL

167,935.45

185,835.45 100%

LOAN

SWEET FLAVOURS ICE CANDY PROJECTED INCOME STATEMENT

A. SALES ( 10 X 8,000 pcs.) B. Less: Cost of Goods Sold C. Gross Profit (A-B) D. Less: Operating Expenses Selling expenses General and Admin Expenses Total Operating Expenses E. Operating Income (C-D) F. Less: Other expenses Interest expense Amortization of pre-op. Total other expenses G. Income before income tax (E-F) H. Less Income Tax I. Net Income

(MP I-A)

(MP-I-B) (OM III-C)

(OM III-B)

MONTH 1 80,000.00 50,620.50 29,379.50

YEAR 1 960,000.00 607,446.00 352,554.00

4,480.00 511.00 4,991.00

6,132.00 59,892.00 66,024.00

24,388.50

292,662.00

146.67 146.67 24,241.83 24,241.83

1,760.04 1,760.04 290,901.96 32,680.39 258,221.57

SWEET FLAVOURS MANUFACTURING Projected Statement of Cost of Goods Manufactured and Sold Month 1

a. Direct Materials Materials beginning Purchases Less: Purchases returns & allowance Purchase discounts

78,304.95 -

78,304.95 -

Year 1

500,704.95

500,704.95 -

Materials available for use Less: Materials end

78,304.95 38,400.00

500,704.95 38,400.00

Direct materials used/consumed

39,904.95

462,304.95

b. Direct Labor

4,500.00

54,000.00

c. Factory Overhead

7,720.50

92,646.00

d. Total Manufacturing Cost Add: work in process beginning

52,125.45

608,950.95

e. Goods placed in progress Less: Work in Process end

52,125.45 603.25

608,950.95 603.25

f. Cost of Goods manufactured Add: finished goods inventory beg.

51,522.20 -

608,347.70

g. Cost of Goods available for sale Less: finished goods inventory - end

51,522.20 901.70

608,347.70 901.70

h. Cost of Goods Sold

50,620.50

607,446.00

SWEET FLAVOURS MANUFACTURING Projected Cash Flow Statement Pre-Op.Ex CASH INFLOW Cash Equity Cash Sales Credit Sales Total Cash Flow CASH OUTFLOW Const. of Bldg. Improv. Pur. of Refrigerator Pur. of Utensils Pur. of Tables and Chairs Pur. of Blender Pur. of Raw Materials Payment for Dir. Labor Payment for Rent Dep. Payment for Mftg. Ovhd Inv. of Raw Materials Inv. of Finished Goods Selling Expenses Gen. Adm. Expenses Payment of pre-operating Payment of Income Tax W/drawal of Group Share Total Cash Outflow Net Cash Flow Add: Cash Balance Beginning CASH BALANCE END

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Month 7

Month 8

Month 9

Month 10

Month 11

Month 12

Year 1

167,935.45 80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

960,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

80,000.00

960,000.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

38,400.00 4,500.00

7,720.50 38,400.00 901.70 4,480.00 511.00

7,720.50

7,720.50

7,720.50

7,720.50

7,720.50

7,720.50

7,720.50

7,720.50

7,720.50

7,720.50

7,720.50

4,480.00 511.00

4,480.00 511.00

4,480.00 511.00

4,480.00 511.00

4,480.00 511.00

4,480.00 511.00

4,480.00 511.00

4,480.00 511.00

4,480.00 511.00

4,480.00 511.00

4,480.00 511.00

460,800.00 54,000.00 600.00 92,646.00 38,400.00 901.70 53,760.00 6,132.00

55,611.50 24,388.50 309,588.75 333,977.25

160,000.00 215,611.50 (135,611.50) 333,977.25 198,365.75

160,000.00 866,639.70 93,360.30 105,005.45 198,365.75

5,000.00 45,000.00 850.00 4,500.00 2,300.00

600.00

4,680.00

62,930.00 105,005.45 105,005.45

94,913.20 (14,913.20) 105,005.45 90,092.25

55,611.50 24,388.50 90,092.25 114,480.75

55,611.50 24,388.50 114,480.75 138,869.25

55,611.50 24,388.50 138,869.25 163,257.75

55,611.50 24,388.50 163,257.75 187,646.25

55,611.50 24,388.50 187,646.25 212,034.75

55,611.50 24,388.50 212,034.75 236,423.25

55,611.50 24,388.50 236,423.25 260,811.75

55,611.50 24,388.50 260,811.75 285,200.25

55,611.50 24,388.50 285,200.25 309,588.75

SWEET FLAVOURS MANUFACTURING Projected Balance Sheet Pre-Operating/Expansion ASSETS Current Assets Cash Inventories Raw Materials Work-in-Process Finished Goods Total Current Assets Fixed Assets Refrigerator Less: Accu. Dep'n-Ref. Building Improvements Less: Accu. Dep'n-BI Factory Utensils Less: Accu. Dep'n-Utensils Blender Less: Accu. Dep'n - Blender Tables and Chairs Less: Accu. Dep'n- T and C Office Equipment Less: Accu. Dep'n-Office Equipment Office Tables and Chairs Less: Accu. Dep'n Office T and C Computer Set Less: Accu. Dep'n Computer Set Total Fixed Assets Other Assets Rental Deposit Pre-operating Expenses Total other Assets TOTAL ASSETS LIABILITIES AND OWNERS EQUITY Current Liabilities Taxes Payable Total Current Liabilities Total Liabilities Owner's Equity Owner's Equity - Beginning Add: Net income TOTAL Less: Group Share per Annum Owner's Equity End TOTAL LIABILITIES AND OWNER'S EQUITY

Month 1

105,005.45

90,092.25 38,400.00 603.25 901.70

105,005.45 45,000.00 45,000.00 5,000.00 5,000.00 850.00 850.00 2,300.00 2,300.00 4,500.00 4,500.00 750.00 250.00 2,100.00 700.00 20,000.00 4,000.00

500.00 1,400.00 16,000.00

600.00 4,680.00

Year 1

45,000.00 312.50 5,000.00 69.42 850.00 17.71 2,300.00 47.92 4,500.00 125 750.00 291.67 2,100.00 816.67 20,000.00 5,333.33

39,904.95 129,997.20

44,687.50 4,930.58 832.29 2,252.08 4,375.00 267.36 748.61 4,888.89

600.00 4,680.00 5,280.00 185,835.45

358,365.75 38,400.00 603.25 901.70

45,000.00 3,750.00 5,000.00 833.00 850.00 212.50 2,300.00 575.00 4,500.00 1,500.00 750.00 313.95 2,100.00 879.05 20,000.00 5,740.74

39,904.95 398,270.70

41,250.00 4,167.00 637.50 1,725.00 3,000.00 436.05 1,220.95 14,259.26

600.00 3,520.00 5,280.00 198,259.52

4,120.00 469,086.46

32,680.39 32,680.39 32,680.39 185,835.45

185,835.45 24,241.83 210,077.28

185,835.45 185,835.45 185,835.45

185,835.45 290,901.96 476,737.41 160,000.00 210,077.28 210,077.28

(since we don’t have a loan that makes it into a liability, our total liabilities and owner’s equity would definitely not equal to the Total Assets)

316,737.41 349,417.80

FINANCIAL RATIOS ANALYSIS -

Is the systematic uses of ratios to interpret financial statements in order to determine strengths and weakness of a firm as well as historical and current condition.

Type of Financial Ratios 1. Liquidity Ratios 2. Profitability Ratios 3. Leverage Ratios

1. LIQUIDITY RATIOS – reflects the firms capacity to meet short term obligations

a. Current Ratio – measures the ability to meet maturing and short term obligation. b. Quick ratio – measures the firm’s ability to pay off short-term obligations without relying on the sales of inventories (since we don’t have liabilities we neglect this two ratios)

2. PROFITABILTY RATIOS – indicates the margin on sales and overall efficiency of assets and capital employed. a. GROSS PROFIT MARGIN – reflects the firm’s policy relating to pricing and production efficiency. Indicates average mark-up of product sold. Month 1 = Sales – Cost of Goods Sold = 80,000 – 50,620.50 = 36.72% mark-up SALES 80,000 b. RETURN ON OWNER’S EQUITY – measures the profit generated on funds provided by the owner.

= NET PROFIT OWNER’S INVESTMENT

Month1

Year 1

24, 241.83 185,835.45

258,221.57 185,835.45

13%

139%

c. RETURNS ON TOTAL ASSETS - measures the earning power of the business

= PROFIT BEFORE INTEREST AND TAXES TOTAL ASSETS

Month 1

Year 1

24,388.50 210,077.28

292,662 317,737.41

12%

92%

3. DEBT RATIO ( SOLVENCY RATIO) – reflects the firm’s degree of dependence on external debt fund and its ability to meet the corresponding debt – service. a. DEBT EQUITY RATIO - determine the extend of use of long-term debt to finance firm’s requirements. - high ratio is not desirable/rule of thumb : 32:68