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95.

PROFILE ON CATTLE FATTENING


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TABLE OF CONTENTS

PAGE

I. SUMMARY 95-3

II. PROJECT DESCRIPTION 95-3

III. MARKET STUDY AND FARM CAPACITY 95-4


A. MARKET STUDY 95-4
B. FARM CAPACITY & PROGRAMME 95-9

IV. FARM INPUTS & UTILITIES 95-10


A. MATERIALS & INPUTS 95-10
B. UTILITIES 95-10

V. TECHNOLOGY & ENGINEERING 95-11

A. TECHNOLOGY 95-11
B. ENGINEERING 95-12

VI. MANPOWER & TRAINING REQUIREMENT 95-16


A. MANPOWER REQUIREMENT 95-16
B. TRAINING REQUIREMENT 95-17

VII. FINANCIAL ANLYSIS 95-17


A. TOTAL INITIAL INVESTMENT COST 95-18
B. FARMING COST 95-19
C. FINANCIAL EVALUATION 95-20
D. ECONOMIC BENEFITS 95-22
Acknowledgements

The authors would like to thank ---- and ---- Employee sponsored by ---
project

and their respective universities for contributing to this document


through their theses

business plan. We would also like to appreciate and recognize the


contributions of the Ox build up business plan and Development
Officers and Research and Development Assistants in the study woredas
for their unreserved support and guidance.

The contributions of the heads and staff members of the Offices of


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Agriculture and Rural Development

of the respective PLWs are acknowledged. Special thanks also go to the


farmers and

pastoralists who participated in these studies through provision of


information and

allowing some of their animals to be used for the studies.

I. Executive summary

Ethiopia is home for a large and diverse livestock resources and favorable production
environments. The vast majority of the rural population’s livelihood is partly based on
livestock production. However, livestock production and productivity and producers
‘benefits from livestock production are far below expectations.
This profile envisages the establishment of a cattle fattening farm with a capacity of
200 heads of cattle per annum. Fattening means controlling what the animals eat so that
valuable high quality feed is used where it will generate better production.
The major inputs required are cattle and feed which are locally available.
Demand for cattle meat increase with the growth of population and income. The present
demand supply gap for the proposed product is estimated at 133,238 heads of cattle per
annum. The supply gap is expected to reach 172,762 heads of cattle by the year 2018.
The total investment requirement is estimated at about Birr 2 million, out of which Birr 1
million is required for plant and machinery. The plant will create employment
opportunities for 23 persons.

The project is financially viable with an internal rate of return (IRR) of 24.65 % and a
net present value (NPV) of Birr 7.68 million, discounted at 8.5%.

The farm will have a forward linkage effect on food industries and a back ward linkage
effect on the animal feed plants and the agriculture sector. The establishment of such farm
will also have a foreign exchange earning effect to the country by exporting its products.
INTRODUCTION
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Ethiopia has the tenth largest livestock inventory in the world. The country has 52 million
cattle including 10.5 million dairy cattle and 47 million shoats.1 Animal ownership is
ubiquitous throughout Ethiopia, including the AGP woredas in the Highlands.
Animals contribute in many ways to household incomes and food security, as draught
animals and through milk production. They are only sold or slaughtered at an advanced
age, or in case of urgent need. If slaughtered, the animal provides the family with meat
and income from hides and skins.
With this immense and potentially productive resource, with such influence on household
incomes as well as the national economy, it is imperative for the Ethiopians to maximize
the economic value of their animal assets, including use of the animal for value added
products. Yet by most economic metrics, this is not yet happening. Animals are not
managed for high off-take, or to maximize their value for meat production. Hides and
skins are not adequately preserved for fine leather production or international
competitiveness, nor are they effectively collected to reach the tanneries and eventual
leather products manufacturing. Milk productivity per cow is particularly low, and only
ineffectively marketed.

II. FARM DESCRIPTION AND APPLICATION

Fattening is the process by which cattle are fed, watered and medicated so that the cattle
grow bigger, costlier and meat consumers may have healthy beef.

The process involves the purchase of cattle in the rural market or here in Addis at
comparably lower prices and holding them in a well protected environment well equipped
with feeding and medical facilities.
III. MARKET STUDY AND FARM CAPACITY

A. MARKET STUDY

1. Past Supply and Present Demand


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Resource potential surveys show that the supply of cattle for beef production is made
available to the Addis Ababa market from intra-urban cattle breeders and peri-urban
livestock producers using traditional methods. The bulk of the supply comes from rural
areas, through the 5 entry points to the city either by truck transport or trekking.

In 1998 E.C. 135,405 heads of cattle were slaughtered at Addis Ababa and Kara Allo
abattoirs and 14,895 tons of beef supplied to butcheries in Addis Ababa.

The supply of cattle to the market is the function of constant demand for food
consumption and circumstances like national festivals.

Tables 3.1 and 3.2 depict the supply rate of cattle and shoats’ meat processed through
abattoirs and outside of them, and the surge in supply during festivals.

Table 3.1
ADDIS ABABA AND KARA ALLO ABATTOIRS’ SLAUGHTERS OF CATTLE
( HEADS)

Year: Addis Ababa Kara Allo Total


Cattle Shoats Cattle ShoatsCattle Shoats
E.C
1996 153,686 51,935 29,971 798 183,657 52,733
1997 149,229 50,602 19,304 730 168,533 51,332
1998 120,037 412,002 15,368 106 135,405 412,108
Source: IPS; Livestock and Livestock marketing Authority; Resource potential and
opportunity study, vol VI.

According to “Livestock Products Marketing Authority,” during the New Year, Maskal,
Christmas, Eid Al Fatir and Easter festivals, 19,631 or 44% of cattle supplied to the
market were transported by trucks whereas the rest trekked into the city.

Table 3.2
LIVESTOCK SLAUGHTERED IN (2003/04) WITHIN & OUTSIDE OF
ABATTOIRS IN THE FIVE RELIGIOUS FESTIVALS
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Livestock Total Within Outside % of in % of outside


Class Slaughtered Abattoir Abattoir Abattoir Abattoir
Cattle 48,970 13,177 35,793 27 73
Shoats 316,987 2,150 314,837 0.7 99.3
Source: IPS; Livestock and Livestock marketing Authority; Resource potential and
opportunity study, vol VI.

Demand for cattle is generated by the demand for meat. This may be the general
observation, but does not have a direct implication for the project envisaged here. The
issue here is not whether or not to breed more cattle to meet the demand for meat, but
rather to supply fattened and healthier cattle to the Addis Ababa market from within the
city limits by opening a fattening stock farm for intra-urban or peri-urban distribution of
fattened cattle.

To this end a cursory review of, the cattle population figures in rural Ethiopia, on the one
hand and the same index for peasant ownership in peri-urban Addis Ababa, (Table 3.3)
vis-à-vis the number of cattle and shoats slaughtered in Addis Ababa Abattoirs is
sufficient. i.e. the intra urban and peri-urban cattle supply shortage to the market should,
in itself, be an inducement to undertake cattle fattening projects in the city.

The demand for meat is disregarded here as an inducement for investing in cattle
fattening projects since any supply shortage can be countered by bringing in cattle from
outside the city regardless of quality or the health factors.
Table 3.3
CATTLE POPULATION BY OWNERSHIP

Year Class All Ethiopia Addis %age of


Ababa Addis
In 1996 E.C Cattle 38,162,690 67,270 0.17
Sheep 16,575,512 16,500 0.09
Goats 13,834,730 10,820 0.08

In 1997 E.C Cattle 38,749,320 20,700 0.05


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Sheep 18,075,580 7,900 0.043


Goats 14,858,650 3,150 0.021

In 1998 E.C Cattle 40,281,110 26,270 0.065


Sheep 20,721,580 11,050 0.053
Goats 16,248,300 4,080 0.025
Source: IPS; Livestock and Livestock marketing Authority; Resource potential and
opportunity study, vol VI.

We have seen in Table 3.1 that in 1998 alone 135,405 heads of cattle were slaughtered at
the Addis Ababa and Kara Allo Abattoirs.

Even if we adapt the standard assumption that 8.2% of cattle out of the 26,270 heads
found in peri-urban Addis Ababa depicted in Table 3.3 were slaughtered every year, they
constitute only 1.60% of cattle slaughtered for a given year. The bulk of the demand,
which is 98.40%, was met by cattle brought in from other parts of the country.

Current demand-supply gap therefore, stands at 133,238 heads of cattle.


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2. Projected Demand

The number of cattle in rural Addis Ababa has increased from the year 1997 E.C to 1998
by 5,570 heads or at 26.9% rate.

On the other hand, the slaughtering of cattle in 1996 to 1998 E.C has decreased from
183,657 heads of cattle to 168,533 heads in 1997 and to 135,405 heads in 1998; whereas
the figure for shoats slaughtered at these two abattoirs has increased from 52,733 in 1996
E.C to 412,108 heads in 1998.

There may be explanations for the consumers diverting to mutton; one reason being
health concerns associated with consumption of meat from uncertified cattle subsequent
to the impact of the news about the Mad Cow disease.

Recent data on the rate of slaughtering is not available. However, close observation on
the voracity of raw meat eaters is a sure indication that future demand for meat will not
abate.

Based on the preceding facts and postulations, future demand for fattened cattle is
forecasted at the rate of 2.2% per annum to coincide with the population growth rate in
the city (see Table 3.4).
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Table 3.4
DEMAND-SUPPLY GAP FORECAST FOR CATTLE FOR BEEF

Year Unit Projected Peri-Urban Projected Supply


Demand Supply Gap
2009 Heads 144,539 2,251 142,288
2010 >> 147,749 2,300 145,449
2011 >> 150,999 2,351 148,648
2012 >> 154,321 2,403 151,918
2013 >> 157,716 2,456 155,260
2014 >> 160,870 2,510 158,360
2015 >> 164,409 2,565 161,804
2016 >> 168,026 2,621 165,405
2017 >> 171,723 2,679 169,044
2018 >> 175,501 2,739 172,762

3. Pricing and Distribution

The present price range for well fattened oxen for beef is between Birr 8,000 and 10,000
a head. The price may occasionally drop to Birr 7,000 a head. An investor in cattle
fattening project should attempt to cut costs and be prepared to adjust pricing to the
fluctuating market price for cattle. For the purpose of this project, an average price of
Birr 7,500 per fattened cattle is adapted.

Unlike cattle brought to the market from outside either by trucks or trekking, a fattening
project owner can not afford to routinely take his cattle to the market. The project owner
should adapt the strategy of contacting individual butcheries or brokers on a supplier-
customer relationship. There ought to be also occasional sales to wedding planners and
“beef sharing associations,” Kirtcha during festivals.

B. FARM CAPACITY AND FARMING PROGRAMME

1. Farm Capacity
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The envisaged fattening project will have a capacity of 50 heads of cattle, per batch and
the objective is to fatten four batches per year with three months feeding period per batch
making the annual capacity of the project 200 heads. Stock mobilization will be arranged
on weekly basis with 12 in the first year and 18 and 25 cattle in the second and third year,
respectively. These levels of operation at three developmental stages, is proposed for
proper management and efficient resources utilization in general. An average weight of
each animal after 90 days feeding period is assumed to be about 300 kilogrammes.

2. Farming Programme

The fattening farm output is expected to be about 50 per cent of its full capacity in the
first year and will grow to 75 per cent and 100 per cent in the second and third year,
respectively. The fattening program of the project is indicated in Table 3.5.

Table 3.5
PRODUCTION PROGRAMME

Sr. Production Year


Product 1 2 3
No.
1 Fattened cattle(heads) 50 150 200
2 Capacity utilization (%) 50 75 100

IV. MATERIALS AND INPUTS

A. MATERIALS AND INPUTS


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The required materials and their corresponding costs for the envisaged fattening farm are
described in Table 4.1. As can be observed from Table 4.1, the materials and inputs for
the project include cattle, feed, vaccines and treatment materials for injection. The cattle
and feed are available locally while vaccines and treatment chemicals are imported. The
total cost of materials and inputs at full operation capacity of the farm is estimated to be
Birr 1,492,813.

Table 4.1
MATERIALS AND INPUTS AND CORRESPONDING COST

Items Qty Unit Cost(‘000) Total


Sr. Cost Local Foreign cost(‘000)

No.
1 Cattle Head 200 10,000 500,000 - 500,000
2 Feed (Tonnes) 540 1,688 911,520 - 911520
3 Other Feed (Tonnes) 180 450 81,000 - 81,000
4 Vaccine and Treatment Injection Lump - 147 146 293
Sum
Grand Total 1,492,667 146.00 1,492,813

B. UTILITIES

Electricity and water are the predominant utilities required for any fattening programme.
The utilities required and the corresponding cost is given in Table 4.2.

Table 4.2
UTILITIES REQUIREMENT & COST

Sr. Utility Qty. Unit Cost


No. Price
1 Electricity[kWh] 50,000 0.4736 23,680
3 Water[m3] 5000 3.25 16250
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Total 39,930

V. FARM TECHNOLOGY AND ENGINEERING

A. FARM TECHNOLOGY

1. Production Process

Generally speaking, cattle procurement is the initial stage of fattening farm. The second
step is keeping cattle in holding areas for quarantine and treatment purposes. Treatment
includes weighing, vaccination, Deeping, etc. Since animals in the fattening programme
receive adequate treatment against parasite and diseases (external and internal), it is the
most important practice in the production process. Unhealthy and unproductive animals
do not make good use of high quality feed, which is scarce, therefore, animals poorly
performing after 2 weeks, needs to be culled from feed lots and sold in the local market.
Well performing animals kept for three months are expected to gain an average weight of
60 kilogrammes.

2. Source of Technology

The machinery and equipment required can be supplied by Maru metal industry
Moenco, Nazareth Tractors Assembly PLC, etc.

B. ENGINEERING

1. Machinery and Equipment

The required machinery, equipment and tools are shown in Table 5.1. Accordingly the
total costs of machinery and equipment is estimated at Birr 881900, out of which Birr
606900 (68.5%) is required in foreign currency and Birr 275000 (31.5%) in local currency.
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Table 5.1
MACHINERY AND EQUIPMENT REQUIREMENT FOR
FATTENING FARM AND CORRESPONDING COST

Sr. Description Qty. Unit Total Cost (000 Birr)


No. (No.) Price Foreign Local Total
Birr
1. Deeping Vat 1 40,000 10000 30000 40000
2. Crutch 1 5,000 5000 - 5000
3. Syringes 2 600 1200 - 1200
4. Hoof trimmer 2 800 1600 - 1600
5. Burdizzo Crusher 1 900 900 - 900
6. Knapsack sprayer 2 600 1200 - 1200
7. Weighing Scale 1 60,000 60000 - 60000
8. Feeder & Water trough 1 7,000 6,000 1000 7000
9. Tractor 1 210,000 210,000 - 210000
10. Trailer 1 70,000 - 70000 70000
11. Water tank 1 80,000 40000 40000 80000
12. Reservoir 1 250,000 125000 125000 250000
13. Molasses Tank 1 20,000 20000 - 20000
14. Urea Mixer Tank 1 90,000 90000 - 90000
15. Silage Graps 1 45,000 36000 9000 45000
Grand Total 606900 275000 881900

2. Land, Building and Civil Works

In general terms, the total area required for the envisaged fattening farm is estimated at
1500 square meters. The building area required for offices(100m 2), stores(100m2), staff
canteen(50m2), and shade houses construction(300m 2) is expected to be 700 m2. The
total cost for buildings, at the rate of Birr 1000 per m 2, is estimated at Birr 700,000
Furthermore, the total cost for shade house construction, at the rate of Birr 500 per m 2 is
estimated at Birr 500,000. Therefore, the total cost of building and civil works is
estimated at Birr 1.2 million.

According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation
No 272/2002) in principle, urban land permit by lease is on auction or negotiation basis,
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however, the time and condition of applying the proclamation shall be determined by the
concerned regional or city government depending on the level of development.

In Addis Ababa the City’s Land Administration and Development Authority is directly
responsible in dealing with matters concerning land. Regarding the manufacturing
sector, industrial zone preparation is one of the strategic intervention measures adopted
by the City Administration for the promotion of the sector and all manufacturing projects
are assumed to be located in the developed industrial zones.

However, the project under consideration is an urban agriculture project. Therefore, it is


assumed that the project will be located outside the industrial zones. Accordingly, the
initial land lease rate in Addis Ababa set by the City’s Land Administration and
Development Authority based on the location of land is as shown in Table 5.1.

Table 5.1
INITIAL LAND LEASE RATE IN ADDIS ABABA

Sr. Land Initial Price in


No. Location of the land Grade m2
1 Central Business zones 1 1167.3
2 1062.9
3 916.2
4 751.5
5 619.2
Places That are Under
2 Transit 1 716.4
2 647.1
3 559.8
4 472.5
5 384.3
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3 Expansion Zones 1 245.7


2 207
3 150.3
4 132.3

Source; Addis Ababa City Land Administration Authority.

As can be seen from Table 5.2, the initial land lease rate ranges from Birr 1,167.3 to
132.3 per m2 .

Considering the nature of the project the expansion zones of the city are recommended
as the best locations. Accordingly, the highest land lease rates in the expansion zones of
the city which is Birr 132.3/ m2 is adopted.

The Federal Legislation on the Lease Holding of Urban Land legislation has also set the
maximum on lease period and the payment of lease prices (see Table 5.2 and Table 5.3).

Table 5.2
LEASE PERIOD

Lease Period
Type of Service ( Years)
Residential area 99
Industry 80

Education, cultural research health, sport,


NGO and religious 99
Trade 70
Urban Agriculture 15
Other service 70
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Table 5.3
LEASE PAYMENT PERIOD

Sr. Period of Payment


No. Service Type According to the Grade of
Towns

Private residential are obtained


1 through tender or negotiation 50 - 60 years
2 Trade 40 - 50 years
3 Industry 40 - 50 years
4 Real estate 40 -50 years
5 Urban Agriculture 8 - 10 years
6 Trade and social service 40 - 50 years
7 Others 40 – 50 years

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%. For those that pay the entire amount of the lease will receive 0.5% discount from
the total lease value and those that pay in installments will be charged interest based on
the prevailing interest rate of banks. Moreover, based on the type of investment, two to
seven years grace period shall also be provided. The lease price is payable after the grace
period annually.

Regarding, the terms and conditions of land lease the Addis Ababa City Government have
adopted Article 6 of the Federal Legislation with very minimal changes. Therefore, for
the purpose of this project profile since the project is urban agriculture, 15 years lease
period, 10 years lease payment completion period, 10% down payment and two years
grace period is used.

Accordingly, the land lease cost of the project, at rate of Birr 132.3 per m 2 for 15 years of
holding is estimated at Birr 2.9 million. Assuming 10% of the total cost (Birr 297,675)
will be paid in advance as down payment and the remaining Birr 2.6 million will be paid
in equal installments with in 10 years, the annual lease payment is estimated at Birr
267,907.5.
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VI. MANPOWER AND TRAINING REQUIREMENT

A. MANPOWER REQUIREMENT

The manpower requirement of the envisaged project is 23 persons. The list of required
manpower and corresponding labour cost is given in Table 6.1.

Table 6.1
MANPOWER REQUIREMENT AND LABOUR COST

Sr. Description Req. Salary ( Birr)


No. No. Monthly Annual
1 Farm Manager 1 2,500 30,000
2 Secretary 1 700 8,400
3 Unit Leaders 1 900 10,800
4 Cattle Attendant 6 3,600 43,200
5 Salesperson 1 1,200 14,400
6 Ass. Feed Specialist 1 900 10,800
7 Veterinarian 1 1,500 18,000
8 Record Keeper 1 600 7,200
9 Driver 1 500 6,000
10 Store Keeper 1 600 7,200
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11 Generator Operator 1 500 6,000


12 Tractor Operator 1 700 8,400
13 Ass. Tractor Operator 1 500 6,000
14 Janitor 1 350 4,200
15 Guard 3 1,050 12,600
Total 23 193,200
Employee's Benefit 25% 48,300
Grand Total 23 241,500

B. TRAINING REQUIREMENT

No Special training is required for the envisaged project.

VII. FINANCIAL ANALYSIS

The financial analysis of the cattle fattening project is based on the data presented in the
previous chapters and the following assumptions:-

Construction period 1 year


Source of finance 30 % equity
70 % loan
Tax holidays 3 years
Bank interest 8.5%
Discount cash flow 8.5%
Accounts receivable 30 days
Raw material local 30 days
Work in progress 90 days
Finished products 15 days
Cash in hand 5 days
Accounts payable 30 days
Repair and maintenance 5% of machinery cost

A. TOTAL INITIAL INVESTMENT COST


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The total investment cost of the project including working capital is estimated at Birr
8.53 million, of which 20 per cent will be required in foreign currency. The major
breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1
INITIAL INVESTMENT COST ( ‘000 Birr)

Sr. Cost Items Local Foreign Total


No. Cost Cost Cost
1 Land lease value 921.38 - 921.38
2 Building and Civil Work 2,830.00 - 2,830.00
3 Plant Machinery and Equipment 1,719.00 2,705.80
986.8
4 Office Furniture and Equipment 100.00 - 100.00
5 Vehicle 450.00 - 450.00
6 Pre-production Expenditure* 584.37 - 584.37
7 Working Capital 946.44 - 946.44
Total Investment cost 6,818.99 1,719.00 8,537.99
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* N.B Pre-production expenditure includes interest during construction ( Birr 484.37)


thousand, and Birr 100 thousand costs of registration, licensing and formation of
the company including legal fees, commissioning expenses, etc.

B. PRODUCTION COST

The annual production cost at full operation capacity is estimated at Birr 27.15 million
(see Table 7.2). Farm input accounts for 91 per cent of the production cost. The other
major components of the production cost are land lease, depreciation and utilities which
account for 3.05%, 2.0% and 1.28% respectively. The remaining 5.72 % is the share of
direct labour , repair, maintenance, financial cost and other administration cost.

Table 7.2
ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Cost %
Raw Material and Inputs
24,711.00 91.00
Utilities 348.68 1.28
Maintenance and repair
135.29 0.50
Labor direct 115.92 0.43
Labour overheads
48.30 0.18
Administration Costs 77.28 0.28
Land lease cost
829.24 3.05
Total Operating Costs 26,265.71 96.73
Depreciation 542.08 2.00
Cost of Finance 346.54 1.28
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Total Production Cost


27,154.33 100

C. FINANCIAL EVALUATION

1. Profitability

Based on the projected profit and loss statement, the project will generate a profit through
out its operation life. Annual net profit after tax will grow from Birr 777.64 thousand to
Birr 1.78 million during the life of the project. Moreover, at the end of the project life the
accumulated cash flow amounts to Birr 16.70 million.

2. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick
for evaluating the financial position of a firm. It is also an indicator for the strength and
weakness of the firm or a project. Using the year-end balance sheet figures and other
relevant data, the most important ratios such as return on sales which is computed by
dividing net income by revenue, return on assets ( operating income divided by assets),
return on equity ( net profit divided by equity) and return on total investment ( net profit
plus interest divided by total investment) has been carried out over the period of the
project life and all the results are found to be satisfactory.

3. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues.
It indicates the level at which costs and revenue are in equilibrium. To this end, the break-
even point of the project including cost of finance when it starts to operate at full capacity
( year 3) is estimated by using income statement projection.
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BE = Fixed Cost = 20%


Sales – Variable Cost

4. Payback Period

The pay back period, also called pay – off period is defined as the period required to
recover the original investment outlay through the accumulated net cash flows earned by
the project. Accordingly, based on the projected cash flow it is estimated that the
project’s initial investment will be fully recovered within 4 years.

5. Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that
can be earned on the invested capital, i.e., the yield on the investment. Put another way,
the internal rate of return for an investment is the discount rate that makes the net present
value of the investment's income stream total to zero. It is an indicator of the efficiency or
quality of an investment. A project is a good investment proposition if its IRR is greater
than the rate of return that could be earned by alternate investments or putting the money
in a bank account. Accordingly, the IRR of this porject is computed to be 24.65 %
indicating the vaiability of the project.

6. Net Present Value

Net present value (NPV) is defined as the total present ( discounted) value of a time
series of cash flows. NPV aggregates cash flows that occur during different periods of
time during the life of a project in to a common measuring unit i.e. present value. It is a
standard method for using the time value of money to appraise long-term projects. NPV
is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.
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Accordingly, the net present value of the project at 8.5% discount rate is found to be
Birr 7.68 million which is acceptable.

D. ECONOMIC BENEFITS

The project can create employment for 23 persons. In addition to supply of the domestic
needs, the project will generate Birr 2.70 million in terms of tax revenue. The
establishment of such farm will also have a foreign exchange earning effect to the
country by exporting its products. The farm will have a forward linkage effect on food
industries and a back ward linkage effect on the animal feed plants and the agriculture
sector

Financial Plan

Pro Forma Income Statement

Year 1 Year 2 Year 3


Sales $395650 $610000 $750000
Direct Cost of Sales $50370 $82000 $105000
Other Production Expenses $50370 $82000 $105000
Total Cost of Sales $100740 $164000 $210000
Gross Margin $294910 $446000 $540000
Gross Margin % 74.54% 73.11% 72%
Expenses
Payroll $177600 $192600 $212000
Sales and Marketing and Other Expenses $0 $130000 $150000
Depreciation $7140 $7140 $7140
Leased Equipment $0 $0 $0
Utilities $6000 $6000 $6000
Insurance $6000 $6000 $6000
Rent $24000 $24000 $24000
Payroll Taxes $26640 $28890 $31800
Other $0 $0 $0
Total Operating Expenses $247380 $394630 $436940
Profit Before Interest and Taxes $47530 $51370 $103060
EBITDA $54670 $58510 $110200
Interest Expense $13830 $12750 $12570
Taxes Incurred $10110 $11586 $27147
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Net Profit $23590 $27034 $63343


Net Profit/Sales 5.96% 4.43% 8.45%

Pro Forma Cash Flow

Year 1 Year 2 Year 3


Cash Received
Cash from Operations
Cash Sales $395650 $610000 $750000
Subtotal Cash from Operations $395650 $610000 $750000
Additional Cash Received
Sales Tax, VAT, HST/GST Received $0 $0 $0
New Current Borrowing $0 $0 $0
New Other Liabilities (interest-free) $0 $0 $0
New Long-term Liabilities $0 $0 $0
Sales of Other Current Assets $0 $0 $0
Sales of Long-term Assets $0 $0 $0
New Investment Received $0 $0 $0
Subtotal Cash Received $395650 $610000 $750000
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending $177600 $192600 $212000
Bill Payments $103957 $364975 $463540
Subtotal Spent on Operations $281557 $557575 $675540
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out $0 $0 $0
Principal Repayment of Current Borrowing $0 $0 $0
Other Liabilities Principal Repayment $0 $0 $0
Long-term Liabilities Principal Repayment $21600 $1800 $1800
Purchase Other Current Assets $19800 $19800 $19800
Purchase Long-term Assets $0 $0 $0
Dividends $0 $0 $0
Subtotal Cash Spent $322957 $579175 $697140
Net Cash Flow $72693 $30825 $52860
Cash Balance $137293 $168118 $220978

Projected Balance Sheet


95-25

Year 1 Year 2 Year 3


Assets
Current Assets
Cash $137293 $168118 $220978
Inventory $6270 $10207 $13070
Other Current Assets $19800 $39600 $59400
Total Current Assets $163363 $217926 $293448
Long-term Assets
Long-term Assets $50000 $50000 $50000
Accumulated Depreciation $7140 $14280 $21420
Total Long-term Assets $42860 $35720 $28580
Total Assets $206223 $253646 $322028
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable $9633 $31822 $38661
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $9633 $31822 $38661
Long-term Liabilities $128400 $126600 $124800
Total Liabilities $138033 $158422 $163461
Paid-in Capital $200000 $200000 $200000
Retained Earnings -$155400 -$131810 -$104776
Earnings $23590 $27034 $63343
Total Capital $68190 $95224 $158567
Total Liabilities and Capital $206223 $253646 $322028
Net Worth $68190 $95224 $158567

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