AFC Consultants International

SOAP FACTORY
TABLE OF CONTENTS

EXECUTIVE SUMMARY .................................................................2

PROJECT DESCRIPTION...............................................................2
2.1
2.2

F ACILITIES AND BEGINNING INVENTORIES .....................................................2

STAFFING STRUCTURE ...........................................................................3
PRODUCT STRATEGY ...................................................................3

3.1
3.2
4

SHAPES AND SCENTS ............................................................................3

PRODUCTION PROCESS ..........................................................................6
MARKET ANALYSIS......................................................................7

4.1
4.2
4.3
4.4

SOAP MARKET OVERVIEW........................................................................7

MAIN COMPETITION ..............................................................................7
T ARGET MARKET .................................................................................7
SWOT ANALYSIS ................................................................................8

MARKETING PLAN .......................................................................9

FINANCIAL PLAN ........................................................................9

6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8

INITIAL INVESTMENT ............................................................................9

MAJOR ASSUMPTIONS ......................................................................... 10
PROJECTED INCOME STATEMENT ............................................................. 13
PROJECTED BALANCE SHEET .................................................................. 14
PROJECTED CASH FLOWS ..................................................................... 15
RATIO ANALYSIS ............................................................................... 16
BREAK- EVEN ANALYSIS ........................................................................ 17
SENSITIVITY ANALYSIS ........................................................................ 17

RECOMMENDATIONS AND KEY SUCCESS FACTORS......................18

ECONOMIC IMPACT EVALUATION ..............................................18

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

Executive Summary

The proposed project consists in establishing a soap factory in Hasbaya caza. The factory will
produce natural and laurel soaps.
The initial investment is at $81,165, which includes $48,320 in equipments, and $32,845 in
working capital needs (including beginning inventories).
The main assumptions are conservative and consider an average yearly sale of 31.2 tons of
natural soaps and 31.2 tons of laurel soaps, which is equivalent to a total of 1 ton per week
(500 Kg of each type).
The projections are taken over a period of 5 years. The soap factory is expected to provide an
average annual net profit of $41,373. The owners will be able to withdraw 90% of net profits
starting in year 2.
The soap factory will provide an internal rate of return (IRR) of 46.3% and a payback period
of 3 years and 9 months. These results show that the project is feasible.
A worst case scenario was developed with the assumption that the factory would produce an
average of 800Kg per week instead of 1 ton per week. These assumptions gave an IRR of
26% and a payback period of 5 years and 10 months.
A best-case scenario was based on the production of 1.4 tons per week. This scenario
provided an IRR of 73% and a payback period of 2 and years 11 months.
In order to achieve satisfactory results, the plant should be well managed with intensive
marketing efforts, high quality soaps, excellent service, as well as tight control over
receivables.
The soap factory will offer 5 job opportunities and will contribute to the development of the
economic and social environment in the region.

Project description

The project aims at establishing a soap factory in Hasbaya caza. The factory will be mainly
specialized in producing natural soaps as well as laurel soaps

2.1

Facilities and beginning inventories

It is assumed that the factory area is 400 m2 and is rented at an annual budget of $2,400.
The following table shows the projected equipment and initial investment requirements. The
total investment required includes the cost of equipment, transport vehicle as well as working
capital requirements.
INITIAL INVESTMENT OF SOAP FACTORY
Cost Items
Quantity Unit cost Total cost
Insulated pan with coils
1
4,800
4,800
Reservoirs for caustic soda, salt, water
3
840
2,520
Boiler for steam generation
1
8,400
8,400
Installation
1
4,800
4,800
Generator incl. connections
1
7,800
7,800
Van
1
12,000
12,000
Office Equipment (computer, phone, fax)
1
3,000
3,000
Office Furniture
1
3,000
3,000
Establishment Costs
2,000
Total Fixed Assets
48,320
Working capital needs
32,845
Total initial investment
81,165

Hasbaya - Feasibility Study Soap Factory

LBN/B7-4100/IB/99/0225/JC20/0105

2.2

AFC Consultants International

Staffing structure

The plant will have 5 employees distributed as follows:

General manager: 1
Sales representative / driver: 1
Workers: 3

Product strategy

The Hasbaya soap factory will seek to deliver high quality natural soaps.
In simple words, soap is a salt produced by mixing an acid (fatty acids of the oils) with an
alkali solution (sodium hydroxide). Every oil has different fatty acids in its structure and
therefore, its benefits to human skin are different. Also, every oil needs different amounts of
alkali solution to have a complete saponification process.
There are many different kinds of soaps in the market today. The majority is the commercial
beauty" or "toilet" soaps. Having different brands, shape, color, scent and packaging, they
are sometimes called "detergents" due to their content of various chemicals, artificial
colorants, scents and other artificial preservatives. They have no curing effect on human skin
and they are mainly used for cleaning purposes. Besides, some studies have proven that such
chemicals are absorbed by the body cells and transferred into the blood circulation system,
causing some health problems in the long run. For this reason, the trend towards the
consumption of "cold process" natural soaps is increasing day by day.

3.1

Shapes and scents

Natural soaps can have different shapes and scents.

The rounds

The ovals

Hasbaya - Feasibility Study Soap Factory

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

The squares

The bath bars

As for the scents, soaps could offer the following varieties:

CEDAR OF LEBANON: the scent of cedar wood is famous for its calming, restful effect on the
mind and the body.

Rose of Damascus:

Lavender: the lavender is known for its soothing and calming effect.

Hasbaya - Feasibility Study Soap Factory

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

Tea Tree: Thanks to its medicinal properties that encourage the natural healing action of the
epidermis; it is particularly effective for problematic skin. This soap is also a welcome remedy
for insect bites.

Amber: it has a light musky scent.

Olive: This soap is well known to nourish the skin with vitamins, minerals and proteins.

Mastic: It is made with the aromatic resin of the pistacia lentiscus , this soap is known for its
antibacterial and astringent properties.

Tuberose:

Orange Blossom:

Hasbaya - Feasibility Study Soap Factory

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

Honey: this kind of soap seems to be very powerful in removing impurities from the skin's
surface. It fortifies the skin against environmental aggression.

Almond Exfoliant: This soap is rich in protein and vitamin E. It is composed of oat grain and
wheat germ that are known for their energizing and healing action as well as removing
impurities. Pure almond essential oil is also a component of this soap.

Laurel: T h e laurus nobilis is a plant typical of the Mediterranean region that has been
celebrated since antiquity for its renowned healing virtues.
Alghar is a member of the Laurel family of evergreen trees, also known as Bay trees. Laurel
has been used as a symbol of power and victory throughout history; Julius Caesar wore a
crown of laurel.
Cleopatra was also known to use laurel in her beauty regimen. Laurel botanicals have been
used in soaps and beauty enhancers for centuries and the tradition of using laurel extracts in
shampoos, soaps and cosmetics continues to this day.
Laurel soap is considered an effective antiseptic; laurel relieves tired muscles and stimulates
the circulation, easing arthritis pains. Often, these types of soaps are sold in pharmacies for
their healing effects.

3.2

Production Process
1.
2.
3.
4.

The oils are emptied in the pan that is already filled with a little bit of water.
Water and caustic are added and the pan is brought to a boil
Diluted salt is added every day over a period of 3 days
On the 4th day, the bottom of the pan is opened and the nigger (black soap) is thrown
away. The remainder is clean soap and is left to dry.
5. Hand cutting is feasible to obtain crude shaped soaps. For properly shaped soap, a
plodder is needed as well as a stamper.

Hasbaya - Feasibility Study Soap Factory

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

Vapor Coil

Boiler

4
4.1

Caustic

Salt

Water

Market Analysis
Soap market overview

Natural soaps are becoming very trendy in the most distinguished regions of Beirut, where
some stores are becoming specialized in the sale of these items. Moreover, the well-known
Tripoli Souk as well as Saidas soap museum are an important destination for all those seeking
natural soaps.
There are only 2 soap manufacturers in Hasbaya caza; a plant: Al Anwar for Soap and another
informal manufacturer who produces the soap at his home.
Hasbaya caza would be in ideal place to establish a Soap factory since the area provides all
the raw materials needed for soap manufacturing, which are known for their high quality.
Therefore, quality of raw materials and lower transportation costs to all neighboring cazas
would offer the Soap factory a comparative advantage.

4.2

Main competition

The most serious competitors for natural and laurel soaps remain the commercial soaps that
have a strong presence in the market.
In general, the known brands represent 76% of the market including Le Chat, Lux, Zest,
Palmolive, and Dove Cream, and other branded soaps.
The natural soaps present on the Lebanese market are not very numerous, among them:
Brand
Weight
Price in LBP
Equiv. in USD
Al Koura (green)
900 gr.
2,900
1.93
Al Koura (white)
900 gr.
3,850
2.57
Al Wazir (green)
900 gr.
2,500
1.67
Souayfan (Misk scent)
500 gr.
3,100
2.07
Laurel
900 gr.
5,500
3.67
Kobayter (white)
900 gr.
4,875
3.25
Non-branded laurel
900 gr.
4,000
2.67
Baladi (non-branded)
1,000 gr.
5,500-7,500
3.67-5

4.3

Target market

The soap factory will produce natural soaps that can be sold to Hasbaya cazas families but
also everywhere in Lebanon.
Natural soaps were mainly used by conservative families. However, nowadays, it is
increasingly gaining in popularity among the trendiest people.
Women seem to be more sensitive to the importance of natural soaps for an esthetic use.
On the other hand, laurel Soaps are used for medicinal reasons as they can cure some
illnesses such as rheumatism.

Hasbaya - Feasibility Study Soap Factory

LBN/B7-4100/IB/99/0225/JC20/0105

4.4

AFC Consultants International

SWOT Analysis

STRENGTHS

WEAKNESSES

Natural soaps are generally preferred in

most villages.
Olive oil soaps are witnessing an increasing
demand in Lebanon for esthetic and beauty
care reasons.
Laurel soaps are highly demanded for their
medical virtues.
Laurel trees
Hasbaya.

are

widely

available

in

Low production costs since Hasbaya caza

has high quality raw materials that are
needed for the manufacturing of the soap.
OPPORTUNITIES
The natural soaps are witnessing a growing
demand
in
Lebanon,
especially
sophisticated natural soaps with exotic
scents such as orange blossom, laurel,
lavender, jasmine

Soap production can be a seasonal

activity that increases mainly in
summer as the demand for soap
increases at this period of the year.
The commercial soaps represent today
the largest share of the market and are
present everywhere.
Laurel soaps are more expensive than
others, so additional marketing efforts
will be needed, focusing on the
numerous advantages of this soap in
order to justify their elevated price.

THREATS
The bigger share gained by commercial
soaps can represent a threat to the
sale of natural and laurel soaps.
The political situation is still relatively
unstable in this region.

The soap production process can offer job

opportunities
to
women
who
can
participate actively in soap making.
Branding and attractive packaging along
with successful marketing strategies can
help in promoting Hasbaya soaps that
could gain a decent reputation.

Hasbaya - Feasibility Study Soap Factory

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

Marketing Plan

The soap factorys main marketing objectives involve:

Intensive public relations efforts, through direct contacts with the supermarkets and
mini markets of the region, to build a reputation of reliable and quality supplier of
natural and laurel soap not only in the caza but also all over Lebanon.
Building a loyal clientele by offering good reliable services (delivery on time) and
quality products.
Pricing the products according to market levels, while offering discounts (2 to 5%) for
cash payments.
Preparing attractive packaging and labeling to give at the same time a natural and
modern look as It is important to develop sales on a wide-scale basis.
Developing contacts with expatriates for the possibility of exporting the soaps.

Financial Plan

This section details the calculations, assumptions and methodology used as a basis for the
projections of the expected financial performance of the soap factory.

6.1

Initial Investment

INITIAL INVESTMENT OF SOAP FACTORY

Cost Items
Quantity Unit cost Total cost
Insulated pan with coils
1
4,800
4,800
Reservoirs for caustic soda, salt, water
3
840
2,520
Boiler for steam generation
1
8,400
8,400
Installation
1
4,800
4,800
Generator incl. connections
1
7,800
7,800
Van
1
12,000
12,000
Office Equipment (computer, phone, fax)
1
3,000
3,000
Office Furniture
1
3,000
3,000
Establishment Costs
2,000
Total Fixed Assets
48,320
Working capital needs
32,845
Total initial investment
81,165

The above table shows the various equipments needed for the establishment of the soap
factory.
The insulated pan with coils is the equipment where all the raw materials will be added. This
machine has a cost of $4,800.
3 reservoirs will contain respectively caustic soda, salt and water. Each one of these reservoirs
will have a cost of $840. Moreover, a boiler whose cost is approximately $8,400 is an
important equipment for the production process.

Hasbaya - Feasibility Study Soap Factory

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

Moreover, a generator will have to be provided in case of electricity power failure. It is

expected to have a cost of $7,800. Installations and piping will cost approximately $ 4,800.
In order to market its products and ensure their distribution all over the Lebanese market, a
van, with a cost of $12,000, will be needed.
Finally, we can consider a budget of $3,000 for the office equipment such as a computer, a
phone line and fax, a budget of $3,000 for the office furniture, and a budget of $2,000 for
establishment costs.
The total assets cost is $ 48,320 while the total investment is evaluated at $ 81,165. This last
figure includes, besides the cost of equipments, the working capital needs at the start of
operations. Working capital needs are calculated by adding beginning inventories to expected
receivables over a period of 4 months and deducting the expected payables over a period of 1
month.

Beginning inventory
Olive kernel oil
Laurel
Salt
Caustic soda (concentration 100%)
Packaging (nylon bags)
Total beginning inventory

Tons
5
1
1
1

Unit cost Total cost

1,000
5,000
13,200
13,200
250
250
500
500
300
300
19,250

Source: Les Fils De Chamel Nasr, Savonnerie Orientale.

Soap factory-Houla
The above table shows the beginning inventory needed to start the business.

6.2

Major assumptions

The assumptions are conservative and are based on market achievable levels.
The prices of natural and laurel soaps are shown in the following table:

prices
Price of 1Kg of Laurel Soap
Price of 1 ton (1000Kg) of Laurel Soap
Price of 1 Kg of Natural Soap
Price of 1 ton (1000 Kg) of Natural Soap

$4.64
$4,643
$2.65
$2,653

Source: soap factory-Houla

The production costs are figured out in the table below:

Production of 1 ton of Laurel soap
Olive oil kernel
Laurel
Salt (16%)
Caustic soda (concentration 100%)
Total

Kgs needed Cost of 1 Kg (in $)

720
160
128
120

Total Cost (in $)

1
13.20
0.25
0.5

720
2,112
32
60
2,924

Source: Les Fils De Chamel Nasr, Savonnerie Orientale, S.A.R.L.

Hasbaya - Feasibility Study Soap Factory

10

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

Sales assumptions
Laurel Soaps Production
Daily production of Laurel Soaps (in tons)
Monthly production of Laurel Soaps (in tons)
Yearly Production of Laurel Soaps (in tons)
Yearly production of Laurel Soaps (in Kgs)

0.1
2.6
31.2
31,200

Natural Soaps Production

Daily production of Natural Soaps (in tons)
Monthly production of Natural Soaps (in tons)
Yearly Production of Natural Soaps (in tons)
Yearly Production of Natural Soaps (in Kgs)

0.1
2.6
31.2
31,200

The above assumptions consider that 0.5 ton of laurel and natural soaps are produced every 5
days. It is assumed that all the production will be sold.

It is assumed that laurel and natural soaps revenues will grow by 5% in year 2, by 5% in year
3, by 3% in year 4, and 2% in year 5. The daily sales of laurel soaps and natural soaps will
grow as follow:

Year 1 Year 2 Year 3 Year 4

Forecasted growth per year
Tons of Laurel Soap / day
Tons of Natural Soap / day

464
265

Year 5

10%

5%

3%

2%

511
292

536
306

552.41
316

563.46
322

Other assumptions
The following table shows the main assumptions for the income statement. The marketing
expenses are assumed to be 2% of annual revenues. An annual increase in general expenses
of 2% is taken into account for inflation factors. The maintenance expenses are taken as 3%
of total fixed assets while the annual increase in salaries is assumed to be of 2% annually. The
increase in rental expenses is estimated to be of 5% every 3 years.
Other assumptions include the cost of packing, which is of $50 for every ton of soap, as well
as the energy cost estimated at $30 for every ton of soap produced.

Income Statement Assumptions

Packaging cost
Energy cost (electricity)
Marketing expenses
Annual increase in general expenses
Maintenance expenses
Annual increase in salaries
Increase in rental expenses
Income Tax Rate

Hasbaya - Feasibility Study Soap Factory

70
50
2%
2%
3%
2%
5%
2%

per ton of soap

per ton of soap
of revenues
of fixed assets
annually

every 3 years

11

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

The following table shows the balance sheet assumptions:

Balance Sheet Assumptions
3
Accounts Receivable
Inventories
2
Accounts payable
1
Expenses payable
20%

months of sales
months of cost of sales
months of cost of sales
of general expenses

The following table shows the depreciation rates, which follow international accounting
standards:

DEPRECIATION RATES
Equipment
Vehicles
Office Equipment
Furniture
Establishment Costs

10%
12%
20%
7.5%
33%

According to professionals in the caza, a budget of $2,400 is needed for annual rent for the
warehouse.

Warehouse to be rented
Warehouse area
400
Annual rent
2,400
In order to ensure the proper distribution of soap all over the Lebanese territory, the soap
factory should take into account the transport expenses.

Transport expenses
Transport expenses (gas)
Maintenance on vehicle

$2,057.14 per month (50 km per day)

$50.00 per month

Staff structure
The soap factory will create 5 job opportunities.

STAFF STRUCTURE
Number of
employees
Management & Sales
General manager
Sale Representative
Workers
TOTAL

1
1
3
5

The General Managers tasks consist in directing the production team, developing new
marketing strategies and establishing contacts with clients.
The sales representative will handle sales and delivery. He is expected to have frequent trips
in order to promote the soap products over all the Lebanese territory.

Hasbaya - Feasibility Study Soap Factory

12

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

Moreover, the soap factory will need three workers.

Thus, the total monthly salaries are around $2,237, including Social Security Charges.

6.3

Projected Income Statement

The following income statement is based on conservative assumptions of revenues as well as

costs.

SOAP FACTORY
Projected Income Statement

Year 1

Year 2
5%
152,119
86,925
239,045
95,790
26,601
4,586
3,276
11,016
25,791
4,272
171,333
67,712

Year 3
5%
159,725
91,272
250,997
100,580
27,931
4,816
3,440
11,236
26,307
4,272
178,582
72,415

Year 4
3%
164,517
94,010
258,527
103,597
28,769
4,960
3,543
11,461
26,833
4,272
183,436
75,091

Year 5
2%
167,807
95,890
263,697
105,669
29,344
5,059
3,614
11,690
27,370
4,272
187,019
76,678

28%

28%

29%

29%

29%

2,400
4,553
1,390
16,038
600
1,492
1,200
27,673
35,580
16%

2,400
4,781
1,417
16,359
630
1,492
1,260
28,339
39,373
16%

2,400
5,020
1,446
16,686
662
1,492
1,323
29,028
43,387
17%

2,520
5,171
1,475
17,020
681
1,025
1,363
29,254
45,837
18%

2,520
5,274
1,504
17,360
695
1,025
1,390
29,768
46,910
18%

712
34,869
15%

787
38,585
16%

868
42,519
17%

917
44,920
17%

938
45,972
17%

Forecasted growth per year

Sales laurel soaps
Sales natural soaps
Total Revenues
COGS (laurel soaps)
COGS (Natural soaps)
Cost of Packaging of soap
Utilities:Electricity
Salaries-production
Transport and vehicle -expenses
Depreciation-factory
Total cost of sales
Gross margin
Gross profit margin%
Expenses
Rental of center
Marketing expenses
Maintenance
Salaries-Administrative
Supplies
Depreciation-administrative
Other expenses
Total General & Administrative Exp
EBIT
Operating Profit Margin
Tax expenses
Net Income
Net profit Margin

144,876
82,786
227,662
91,229
25,334
4,368
3,120
10,800
25,286
4,272
164,409
63,253

The income statement shows satisfactory income levels with an average net profit margin of
17%.

Hasbaya - Feasibility Study Soap Factory

13

LBN/B7-4100/IB/99/0225/JC20/0105

6.4

AFC Consultants International

Projected Balance Sheet

The balance sheet shows the projected assets and liabilities of the company.

SOAP
Projected Balance Sheet

Cash & Equivalents

Accounts Receivable
Inventory
Current Assets
Equipment
Vehicle
Office Equipment
Office Furniture
Establishment Costs
Accumulated Depreciation
Net Fixed Assets
Total Assets
Accounts payable
Expenses payables
Total Liabilities
Invested Capital
Retained Earnings
Owners' Equity
Total Liab. & Owners' Equity

Stat. Of Retained Earnings

Begin. Retained Earnings
Net income
Withdrawals by Owners
Ending Retained Earnings

Year 1

Year 2

Year 3

Year 4

14,494 21,024 27,790 34,490

56,915 59,761 62,749 64,632
15,205 15,965 16,763 17,266
86,615 96,750 107,303 116,388
28,320 28,320 28,320 28,320
12,000 12,000 12,000 12,000
3,000
3,000
3,000
4,000
3,000
3,000
3,000
3,000
2,000
2,000
2,000
2,000
5,764 11,527 17,291 22,588
42,556 36,793 31,029 26,732
129,171 133,543 138,332 143,120
7,602
7,983
8,382
8,633
5,535
5,668
5,806
5,851
13,137 13,650 14,187 14,484
81,165 81,165 81,165 81,165
34,869 38,727 42,979 47,471
116,034 119,893 124,144 128,637
129,171 133,543 138,332 143,120

Year 1
34,869
34,869

Year 2
34,869
38,585
34,727
38,727

Year 3
38,727
42,519
38,268
42,979

Year 4
42,979
44,920
40,428
47,471

Year 5

43,022
65,924
17,612
126,558
28,320
12,000
4,000
3,000
2,000
27,885
21,435
147,993
8,806
5,954
14,759
81,165
52,068
133,234
147,993

Year 5
47,471
45,972
41,375
52,068

The owners can start withdrawing around 90% of net profits annually starting in year 2.

Hasbaya - Feasibility Study Soap Factory

14

LBN/B7-4100/IB/99/0225/JC20/0105

6.5

AFC Consultants International

Projected Cash Flows

The following table shows the projected cash flows of the hotel.

SOAP
STATEMENT OF CASH FLOWS

Year 1

Year 2

Year 3

Year 4

Year 5

Net income
Adjustments to reconcile net income
to cash provided by operating activities
Depreciation
Changes in accounts receivable
Changes in inventory
Changes in accounts payable
Changes in expenses payable
Total Adjustments
Cash provided by operating activities

34,869

38,585

42,519

44,920

45,972

5,764
(56,915)
(15,205)
7,602
5,535
(53,220)
(18,351)

5,764
(2,846)
(760)
380
133
2,671
41,256

5,764
(2,988)
(798)
399
138
2,514
45,034

5,297
(1,882)
(503)
251
45
3,208
48,129

5,297
(1,293)
(345)
173
103
3,935
49,907

Cash Flow from Investing Activities

Capital expenditures
Investment in fixed assets
Net cash used in investing activities

(48,320)
(48,320)

Cash flow from financing activities

Net Investment by owners
Dividends distributed
Cash provided by financing activities

81,165
81,165

(34,727)
(34,727)

(38,268)
(38,268)

(40,428)
(40,428)

(41,375)
(41,375)

Cash at beginning of year

Changes in cash
Cash at end of year

14,494
14,494

14,494
6,530
21,024

21,024
6,766
27,790

27,790
6,700
34,490

34,490
8,532
43,022

(1,000)
(1,000)

The projected cash flows show the initial net investment in fixed assets. It also shows the net
invested capital by the owners. The owners' withdrawals are shown starting in year 2.

Hasbaya - Feasibility Study Soap Factory

15

LBN/B7-4100/IB/99/0225/JC20/0105

6.6

AFC Consultants International

Ratio analysis

Ratio Analysis
Liquidity Ratios
Current Ratio
Quick Ratio
Working Capital
Profitability Ratios
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Financial Strength
Total Debt to Owners' Equity
Management Effectiveness
Return on Assets=ROA
Return on Equity=ROE
Return on Investment = ROI
Sales / Business Days (360)
Asset Management (Efficiency)
Total Assets Turnover: Sales/tot
assets
Total Debt to Total Assets
Working Capital Cycle
Days Sales Outstanding
Days of Inventory
Days of payables

Year 1

Year 2

Year 3

Year 4

Year 5

Average

6.59
5.44
73,478

7.09
5.92
83,100

7.56
6.38
93,115

8.04
6.84
101,905

8.57
7.38
111,799

7.57
6.39
92,679

28%
16%
15%

28%
16%
16%

29%
17%
17%

29%
18%
17%

29%
18%
17%

29%
17%
17%

11%

11%

11%

11%

11%

11%

27%
30%
82%
632

29%
32%
105%
664

31%
34%
137%
697

31%
35%
168%
718

31%
35%
214%
732

30%
33%
141%
688.85

176%
10%

179%
10%

181%
10%

181%
10%

178%
10%

179%
10%

90
60
30
2.9

90
60
30
2.7

90
60
30
2.5

90
60
30
2.4

90
60
30
2.71

90
60
30
Working Capital Turnover=Sales/Working Capital
3.1

The current ratio, which is computed by dividing current assets by current liabilities, witnesses
a major increase over the years led by higher levels of inventories and receivables.
The quick ratio, which is the same as the current ratio except that it excludes inventories
increases rapidly over the years as accounts receivable increase. The current and quick ratios
demonstrate the capability of the company to quickly meet its short term liabilities.
The gross profit margin increases and stabilizes at 29% in year 3. The operating margins and
the net profit margins increase slowly as well and reach an average of 17%.
The return on average assets, which is computed by dividing net profits by total assets, shows
how much profit the company is able to achieve from the use of its assets. This ratio reaches
an average of 30%.
The return on average investment shows healthy levels fueled by the growth in profitability.
The ratio shows increasingly high levels that reach 214% in year 5.
The total assets turnover shows how well the management is making use of its assets. The
assets turnover is computed by dividing sales over total assets. This ratio increases rapidly to
reach 179% in year 5.
The internal rate of return is 46% and the payback period, which is the period necessary to
pay back the investment, is 3 years and 9 months.

Hasbaya - Feasibility Study Soap Factory

16

LBN/B7-4100/IB/99/0225/JC20/0105

6.7

AFC Consultants International

Break-even analysis

The following table shows the annual revenue levels needed for the plant to break even. Thus,
an average of $155,222 per year is a minimum level of revenues for the soap factory.

BREAK-EVEN ANALYSIS

6.8

Year 1

Year 2

Year 3

Year 4

Year 5

Total Revenues
Total Variable Costs
Total Fixed Costs

227,662
124,051
68,030

239,045
130,254
69,418

250,997
136,766
70,843

258,527
140,869
71,820

263,697
143,687
73,100

Break-even revenues

149,482

152,531

155,663

157,810

160,622

Sensitivity analysis

A worst case scenario is taken by assuming that the daily production of natural soaps and
laurel soaps is of 800Kg/week, thus the yearly production is of 24.96 tons for each type of
soaps.
In this case, the soap factory has an average profitability of $ 20,225 annually. The internal
rate of return is 26%. The payback period is 5 years and 10 months.
A best-case scenario is developed considering that 104 tons will be produced weekly. These
assumptions will give as a result a yearly production of 43.68 tons for each type of soap.
This scenario gives an average profitability of $ 83,670 annually. The internal rate of return is
73% and the payback period is 2 years and 11 months.

Yearly Production Laurel Soap (in tons)

Yearly Production Natural Soap (in tons)
Average net income
Average net profit margin
Internal rate of return
Payback period in years

Worst-case
Most likely
Best-case
24.96
31.20
43.68
24.96
31.20
43.68
20,225
10%

41,373
17%

83,670
24%

26%
46%
73%
5 yrs 10 months 3 yrs 9 months 2 yrs 11 months

These results confirm the viability of the project, especially if it is well-managed providing
quality soaps at affordable prices.

Hasbaya - Feasibility Study Soap Factory

17

LBN/B7-4100/IB/99/0225/JC20/0105

AFC Consultants International

Recommendations and key success factors

In order to achieve satisfactory results, there are some key success factors that should be
highlighted:
The soap factory should focus on delivering quality soap products.
Intensive marketing efforts should be deployed in order to gain market share. It is
also necessary to develop public relations and direct contacts with supermarkets,
mini-markets, specialized retailers for natural soaps, etc Also, advertising in local
cooperatives could be a good tool to attract new clients.
Prices should be equal or less than the competition. In fact, discounts should be
applied for cash payments, in order to manage cash flows. Discounts of 2% to 5%
could be provided to those customers that pay in cash.
Eventually, the soap factory should develop contacts with expatriates to try to open up
new markets abroad.

Economic Impact Evaluation

The soap factory is expected to deliver very satisfactory results, contributing in promoting the
Hasbaya soap production into other markets.
Moreover, it will create 5 new jobs, thereby contributing positively to society by offering new
opportunities to young Hasbaya citizens and discouraging them from emigrating. Also, the
soap factory can offer job opportunities for women as they can contribute effectively in this
kind of production.
On the other hand, it will help in revitalizing the industrial sector of Hasbaya. The soap factory
will contribute in propping up the soap production as well as the demand for the local soap.
This will pave the way for further new developments in Hasbaya as the success of the soap
industry can encourage other investments in new industries. It can promote also the export of
Hasbaya soaps to Arab countries and some European countries in the long run.
Besides its expected business performance, the soap factory will be seen as an organization
that is contributing to enhance the social good of Hasbaya.

Hasbaya - Feasibility Study Soap Factory

18