FINANCIAL

FEASIBILITY
STUDY
By: Ariadne Cordero
A FINANCIAL FEASIBILITY STUDY
 Projects how much start-up capital is needed,
sources of capital, returns on investment and
other financial considerations.
 It considers how much cash is needed, where
it will come from, and how it will be spent.
 It assesses the economic vaibility of the
proposed venture by evaluating also the
operating expenses cash flow and forecast of
future performance.
3 parts preparation of a
financial feasibility study
 Determining the start-up costs
 Preparing a profit plan and making cash
flow projections
 Assessing the return on invested capital
Identify the Start up Costs
 Purchases of land and building
 Acquisition of equipments
 Licenses and permits
 Deposits required for office space leases
 Initial purchases for materials
 Office furniture and supplies
 Employee wates
 Utilities
 Legal, accounting fees for incorporations
 Insurance premiums
Determine the Return on
Invested Capital
 Net present value – this method uses a
percentage rate of discount future cash
flow to the present. If the NPV of the
discounted cash flows exceeds the cost
of the initial investment, then the
project is feasible and should be
accepted
 InternalRate of Return – the IRR method
uses the same formula for calculating
the NPV of cash flows. The ITT is the
discount rate that makes the NPV of
cash outflows and inflows equal to zero.
This IRR can be used to compare the
attractiveness of several projects.
 Payback Period – the payback period is
the number of years that it takes for the
return from a project to recover the
costs of the investment. Shorter
payback periods are preferred.
Explain Negative Cash Flows
 Ifthe project will experience a negative
cash flow during the early months, this
amount should be calculated and
explanations provided that show how
these cash flow deficits will be financed.
Pinpoint needs for Additional
Funding
 Use,sales, profits and cash flow
projections to calculate periods of
negative cash flow and pinpoint when
additional funding will be needed to
finance growth if internal cash flow
generation isn’t sufficient.
Prepare 3 years projection of
Financial Statements
 Income Statement
 Statement of Financial Position
 Statement of Cash Flows
 Statement of Owner’s Equity
Notes to Financial Statements
 Sales
 Cost of Sales
 Selling Expense
 Operating Expenses
 Cash
 Prepaid Expenses
 Organizational Cost
 Property, Plant and Equipment
Schedules
 Revenues
 Cost
 Depreciation
 UtilityExpense
 Payroll
Ratio Analysis
 Profitability
Ratios
 Liquidity Ratios
 Asset Management Ratios
 Debt Management Ratios