Financial feasibility

important view point of financial feasibility

1. Financial feasibility

2. A financial feasibility study looks at how much cash is needed, where it will come from, and how it will be spent. (1)Purpose of a Financial Feasibility

3. A financial feasibility study is an assessment of the financial aspects of something. If this case, for starting and running a business. It considers many things including Expenses &Revenues. Assets &liabilities Cash in & cash out. Other portions of a complete feasibility study will also contribute data to your basic financial study. What is a Financial Feasibility Study?

4. A financial feasibility study can focus on one particular project or area, or on a group of projects (such as advertising campaigns). However, for the purpose of establishing a business or attracting investors, you should include at least three key things in your comprehensive financial feasibility study: Start-Up Capital Requirements, Start-Up Capital Sources, and Potential Returns for Investors. What is a Financial Feasibility Study?

5. Investors can be a friends, family members, client, partners, share holders, or investment institutions. Any business or individual willing to give you cash can be a potential investor. Investors give you money with the understanding that they will receive “returns” on their investment, that is, in addition to the amount that is invested they will get a percentage of profits. Potential Returns for Investors Feasibility

6. Financial statements provide an overview of a business or person's financial condition in both short and long term. All the relevant financial information of a business enterprise, presented in a structured manner and in a form easy to understand, are called the financial statements. There are three basic financial statements: Balance sheet Income statement Statement of cash flow (2)Financial statements

7. The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions."Financial statements should be understandable, relevant, reliable and comparable. 7 Purpose of financial statements

8. Balance sheet : referred to as statement of financial position or condition, reports on a company's assets, liabilities, and net equity as of a given point in time. Another definition: is an accountant snapshot of the firms accounting value on a particular date, as through the firm stood momentarily still. The balance sheet shows what assets the firm controls at a point in time and how it financed the assets. Assets= Liabilities + owners equity Balance sheet :

9. Notes receivable – This account is similar in nature to accounts receivable but it is supported by more formal agreements such as a "promissory notes" (usually a short term-loan that carries interest). Furthermore, the maturity of notes receivable is generally longer than accounts receivable but less than a year. Notes receivable is reported at its net realizable value (what will be collected). Inventory – This represents raw materials and items that are available for sale or are in the process of being made ready for sale. These items can be valued individually by several different means - at cost or current market value - and collectively by FIFO (first in, first out), LIFO (last in, first out) or average-cost method. Inventory is valued at the lower of the cost or market price to preclude overstating earnings and assets. BALANCE SHEET COMPONENTS - ASSETS

10. 2 . Long-term assets – These are assets that may not be converted into cash, sold or consumed within a year or less. The heading "Long-Term Assets" is usually not displayed on a company's consolidated balance sheet. However, all items that are not included in current assets are long-term Assets. These  are: BALANCE SHEET COMPONENTS - ASSETS

11. Fixed assets – These are durable physical properties used in operations that have a useful life longer than one year. This includes: Land – The land owned by the company on which the company's buildings or plants are sitting on. Land is valued at historical cost and the only fixed asset that has no depreciation. Fixed assets

12. Income statement : also referred to as Profit and Loss statement reports on a company's income, expenses, and profits over a period of time. Profit & Loss account provide information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state. The income statement indicates the flow of sales, expenses, and earnings during a period of time. Revenues- Expenses= Income Income statement :

13. 1. Cash Flow from Operating Activities (CFO) CFO is cash flow that arises from normal operations such as revenues and cash operating expenses net of taxes. This includes: Cash inflow (+) Revenue from sale of goods and services Cash outflow (-) Payments to suppliers Payments to employees Payments to government Payments to lenders Payments for other expenses Statement of cash flows

14. Financial ratios can be used to estimate systematic risk. Financial analysis often assess the firm's: 1. Profitability - its ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations; 2. Solvency or effeciency. - its ability to pay its obligation to creditors and other third parties in the long-term. (3)Financial analysis

15. 3.Liquidity - its ability to maintain positive cash flow, while satisfying immediate obligations; Both 2 and 3 are based on the company's balance sheet, which indicates the financial condition of a business as of a given point in time. 4. Stability - the firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of both the income statement and the balance sheet, as well as other financial and non-financial indicators. 15 Financial analysis

16. A. Liquidity Ratios: Ratios that show the relationship of a firm's cash and other current assets to its current liabilities. 1. Current Ratio : Indicates the extent to which current liabilities are covered by assets expected to be converted into cash in the near future. Current Ratio= Current Assets / Current Liabilities 2. Quick (Acid Test) Ratio : It is a measure of the firm's ability to pay off short-term obligations without relying on the sale of inventories. Quick Ratio= Current Assets – Inventories / Current Liabilities 3. Working Capital : A firm's investment in short term assets. Working Capital= Current Assets – Current Liabilities Financial ratios

17. Pay back period Net present value Internal rate of return Appraisal methods

18. The payback, also called pay-off period, is defined as the period required to recover the original investment outlay through the accumulated net cashflow earned by the project. Year+ cumulative net cash flow in previous period\ Net cash flow in the next period Pay back period

19. The net present value of a project is defined as the value obtained by discounting, at a constant interest rate and separately for each year, the differences of all annual cash outflows and inflows accruing throughout the life of a project. NPV= ∑ NCFn \ (1 + r)n Accept a project if the NPV is greater than Zero Reject a project if the NPV is less than Zero Net present value

20. The internal rate of return is the discount rate at which the present value of cash inflows is equal to the present value of cash outflows. Internal rate of return