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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 tonssixty-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 proponents 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 products 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 products 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:

IV.

Research on the feasibility of processing own honey made from banana

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 days
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
1 Claret HS
2 WMSU (Lab High & College)
3 ZNHS West
4 Pilar College (All levels)
5 STI College
6 SCC (HS & Colleges)
7 Universidad de Zamboanga
City (College)
8 Universidad de Zamboanga
Tetuan (HS & College)
9 ZCHS Main

Location
San Jose Rd, Baliwasan, Zamboanga City
Normal Rd, Baliwasan, Zamboanga City
RT. Lim Blvd., Baliwasan, Zamboanga City
RT. Lim Blvd., Baliwasan, Zamboanga City
Gov. Lim Ave., Zamboanga City
Pilar Street, Zamboanga City
P. Lorenzo Street, Zamboanga City

Population
1,178
22,000
5,807
1,398
594
1,497
5,199

Don Toribio Street, Zamboanga City

8,609

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 days 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

1. KuKuhs Banana Chips

Sta. Maria,
Zamboanga City

2. Member Food Dealer Banana Chips

Canelar,
Zamboanga City

3. Ecoco Banana Chips

Manila City

4. Guiwan Special Banana Chips

Guiwan,
Zamboanga City
Isabela City

5. Food Trade Center Banana Chips

Place of
Distribution
Canteens of
schools and
offices;
Convenience
stores
Canteens of
schools and
offices;
Convenience
stores in ZC
Grocery
Stores
Nationwide
Retail Stores;
Bakeries
Canteens of
schools and
offices;
Convenience
stores in
Isabela City

Price
(of 50g
pack)
P 7.00

6.00

10.00
6.00
6.50

and ZC

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

Finished
Goods
Inventory

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:

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:

Manager

Marketing
-

promotes and delivers

Finance
-

products
-

deals with customers and


prospective customers

maintains the books of the

Production
-

business
-

oversees the overall


financial condition of the

Produces banana chips


and maintains its quality

schedules production to
increase productivity

business

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:

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)
2 botles of honey
1.5 kilogram brown sugar
1liter cooking oil (to be used
only twice to maintain
quality)
Total Raw Materials
Units Produced (of 50 grams)
Raw Materials Per Unit
Packaging Cost Per Unit
Plastic
Label
Direct Labor Per Unit
Factory Overhead (Wood
Coal)

P60 per bunch, 5 per hand


P75.00 per bottle
P26.00

P83.75
P
P
P0.18 per piece
P0.05 per pice

0.18
0.08

41.88
300.88
190
1.58

0.26
0.15

P15 per cooking, 5 kilogram of


banana per cooking)

Unit Cost

70.00
150.00
39.00

0.19
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:

Schedule of Fixed Assets


Assets

Cost

Cookware
Steel Tungku- welded
Sealer
Other kitchen utensils
Furniture
Motor Vehicle
Total

P 2,500.00
600.00
250.00
500.00
1,000.00
55,060.00
P 59,910.00

Useful Life
(in Years)

5
5
5
5
5
10

Annual
Depreciation
P 500.00
120.00
50.00
100.00
200.00
5,506.00
P 6,476.00

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.
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
Steel Tungku- welded
Sealer
Other kitchen utensils
Furnitures
Motor Vehicle
Down Payment
1st Month Installment

P 2,500.00
600.00
250.00
500.00
1,000.00
P 3500.00
2500.00

6,000.00

P 10,850.00

2,100.00
4,000.00

6,100.00

4,940
2.18

10,774.40

4,649.80
4,649.80
166.67
2,166.67
700.00

12,332.93

Pre-Operating Expenses
Rental Deposits-3 months
Permits and Licences
Working Capital - Production Cost
(1 month)
Units to be Produced
Unit Cost
Working Capital - Operating Expenses
(1 month)
Wages Expense - Martin
Wages Expense -Worker 1
Office Supplies Expense
Gas, Oil, Transportation
Rent Expense
Total Initial Investment

H. Operating Expenses

P 29,207.33

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 Company
INCOME STATEMENT
2009-2013
(in Philippine Pesos)

Sales
Cost of Goods Sold
Gross Profit
Operating
Expenses
Income before tax
and interest
Interest Expense
Income before tax
Income tax - 35%
NET INCOME

2009

2010

2011

2012

2013

354,540.00
128,816.20
225,723.80

466,085.00
164,146.37
301,938.63

568,292.50
202,344.17
365,948.33

676,692.50
243,951.38
432,741.12

791,332.50
289,213.45
502,119.05

171,913.26

183,938.06

197,099.57

211,513.09

227,305.76

53,810.54
6,137.69
47,672.85
18,833.69
28,839.16

118,000.57
2,301.72
115,698.85
41,300.20
74,398.65

168,848.76
0.00
168,848.76
59,097.07
109,751.70

221,228.04
0.00
221,228.04
77,429.81
143,798.22

274,813.29
0.00
274,813.29
96,184.65
178,628.64

Projected Cash Flows Statements


The business reports its cash flow statements using indirect method.
The cash flow statements summarize the firms 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 companys cash
transactions.

Miles Company
CASH FLOWS STATEMENTS
2009-2013
(in Philippine Pesos)
2009

Cash, Beginning of the


Year
Add; Cash Inflows
Cash Initially
Invested in Business
Cash from
customers
Total Inflows
Less : Cash Outflows
Cash paid for
manufacturing cost
Cash paid for
operating expense
Cash used to
acquire manufacturing
equipment
Cash used to
acquire motor vehicle
Cash paid for
interest
Cash paid to BIR
for Income Tax
Total Outflows
Cash, End of the Year

0.00

2010

2011

2012

2013

43,889.73

117,290.40 249,227.57

415,616.20

347,700.00 463,955.00
376,907.33 463,955.00

566,327.50 674,607.50
566,327.50 674,607.50

789,127.50
789,127.50

129,230.40 164,258.64

202,466.63 244,084.77

289,358.56

165,437.20 177,462.00

190,623.51 205,037.03

220,829.70

29,207.33

4,850.00
27,362.31

27,698.28

0.00

0.00

0.00

6,137.69

2,301.72

0.00

0.00

0.00

41,300.20
59,097.07
434,390.34 508,218.86
249,227.57 415,616.20

77,429.81
587,618.07
617,125.63

0.00
18,833.69
333,017.60 390,554.33
43,889.73 117,290.40

Projected Balanced Sheets


Miles Company
BALANCE SHEETS
2009-2013
(in Philippine Pesos)
2009

2010

2011

2012

2013

ASSETS
Cash
Accounts
Receivable
Merchandise
Inventory
Total current assets
Fixed Assets
Less : Accumulated
Depreciation

TOTAL ASSETS

43,88
9.73
6,84
0.00
41
4.20
51,14
3.93

117,29
0.40
8,97
0.00
52
6.47
126,78
6.87

249,22
7.57
10,93
5.00
64
8.93
260,81
1.50

415,61
6.20
13,02
0.00
78
2.32
429,41
8.53

617,125
.63
15,225
.00
927
.43
633,278
.06

59,91
0.59
6,47
6.06
53,43
4.53
104,57
8.46

59,91
0.59
12,95
2.12
46,95
8.47
173,74
5.34

59,91
0.59
19,42
8.18
40,48
2.41
301,29
3.91

59,91
0.59
25,90
4.23
34,00
6.35
463,42
4.88

59,910
.59
32,380
.29
27,530
.29
660,808
.36

27,69
8.28
18,83
3.69
46,53
1.97

41,30
0.20
41,30
0.20

59,09
7.07
59,09
7.07

77,42
9.81
77,42
9.81

96,184
.65
96,184
.65

29,20
7.33
28,83
9.16
58,04
6.49
104,57
8.46

58,04
6.49
74,39
8.65
132,44
5.14
173,74
5.34

132,44
5.14
109,75
1.70
242,19
6.84
301,29
3.91

242,19
6.84
143,79
8.22
385,99
5.06
463,42
4.88

385,995
.06
178,628
.64
564,623
.70
660,808
.36

LIABILITIES &
CAPITAL

Installment Payable
Income Tax
Payable
Total Liabilities
Capital, Beginning
of the Year
Add: Net Income
Capital, End of the
Year
TOTAL LIABILITIES
& CAPITAL

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
2.7
2

3
.07

4
.41

5
.55

6.
58

51,143.93

126,786.87

260,811.50

429,418.53

633,278.06

18,833.69

41,300.20

59,097.07

77,429.81

96,184.65

0.1
8

0
.24

0
.20

0
.17

0.
15

18,833.69

41,300.20

59,097.07

77,429.81

96,184.65

104,578.46

173,745.34

301,293.91

463,424.88

660,808.36

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

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

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

1. Current Ratio
Current Assets
Current
Liabilities

2. Debt Ratio
Total Liabilities
Total Assets

3. Equity Ratio

4. Debt to Equity Ratio

5. Gross Profit Margin

6. Operating Profit Margin


Income before Interest
Tax

0.15

0.25

0.30

0.33

0.35

53,810.54

118,000.57

168,848.76

221,228.04

274,813.29

354,540.00

466,085.00

568,292.50

676,692.50

791,332.50

0.10

0.17

0.20

0.22

0.23

35,315.22

80,874.71

116,227.76

150,274.28

185,104.70

354,540.00

466,085.00

568,292.50

676,692.50

791,332.50

0.08

0.16

0.19

0.21

0.23

28,839.16

74,398.65

109,751.70

143,798.22

178,628.64

354,540.00

466,085.00

568,292.50

676,692.50

791,332.50

3.39

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

0.28

0.43

0.36

0.31

0.27

28,839.16

74,398.65

109,751.70

143,798.22

178,628.64

104,578.46

173,745.34

301,293.91

463,424.88

660,808.36

Sales
7. Cash Flow Margin
Cash flow from operations
Sales
8. Net Profit Margin
Net Income
Net Sales
9. Asset Turnover

10. Rate of Return On


Assets
Net Income
Ave. Total Assets

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)
PreOperating
Initial
Investment
Amortization Vehicle
Net Income
after taxes
add:
depreciation
Add: salvage
value of motor
Net
Cashflow
Cash
Balance

2009

2010

2011

2012

2013

(21,362.31)

(27,698.28)

28,839.16

74,398.65

109,751.70

143,798.22

178,628.64

6,476.06

6,476.06

6,476.06

6,476.06

6,476.06

(29,207.33)

32,380.29
(29,207.33)

PAY BACK
PERIOD
NET PRESENT
VALUE
INTERNAL RATE OF
RETURN*

13,952.91

53,176.43

(15,254.42)

37,922.01

116,227.76

150,274.28

217,484.99

1.29
P 327,280.02
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 countrys workforce and in the
society.