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Airex
Financial Projections

The following information presents a summary of projections for the first 5 years of operations, beginning in July 1997. AIREX's first year will begin in July 1997 and will finish in June 1998. The detailed financial data is shown in the Annex 3.

8.1 DEMAND

This analysis began with our main assumptions (as it is shown in the Annex 3.1), including market demand (e.g. volume of recyclable residues, non-recyclable, services and consulting time), necessity of equipment and man power, labor costs and general expenses.

Our forecast for the first five years of operations indicates that AIREX will have 10 customers by the end of the first year, increasing to 20, 30, 45 and 80 respectively in the following years. It is important to mention that the consulting revenues will start only in the second year and will represent approximately 11% of the total sales.

The learning curve and the experience in this market will bring benefits especially after the third year, as can be seen in the next graph:

Cost Reduction

8.2 FINANCIAL STATEMENTS

The income statement, cash flow statement (per year and detailed for the first two years) and balance sheet for the first five years are shown in Annex 3. It is important to mention that all the expenses and investments in the first year of operation will be absorbed by the shareholders' capital and by the positive cash flow generated.

Income statement

The projected income statement for the first five years is shown below. The decrease in costs is mainly due to the increased learning curve and will result in a strong increase in the net income. We will start with a loss of US$40,313 in the first year, which will be converted to a gain in the second of US$219,016, reaching US$979,358 in the fifth year. A more detailed year end income statement is presented in the Annex 3.2.

Year Income Statement

Year 1Year 2Year 3Year 4Year 5
REVENUES
Total of sales649,3802,424,6003,646,9005,470,3509,758,400
COST OF GOODS SOLD
Total604,3571,777,6832,789,0954,085,3137,063,264
GROSS PROFIT45,023646,917857,8051,385,0372,695,136
EXPENSES
Total85,337225,733326,477475,615811,755
OPERATIONAL PROFIT-40,313421,184531,328909,4221,883,381
INCOME BEFORE TAXES-40,313421,184531,328909,4221,883,381
Taxes on income0147,414185,965318,298659,183
NET INCOME AFTER TAXES-40,313273,770345,363591,1241,224,198
Dividends054,75469,073118,225244,840
NET INCOME-40,313219,016276,290472,900979,358

Cash Flow

Year 1Year 2Year 3Year 4Year 5
Beginning Cash Balance-38,43245,617234,836600,445
Total Cash Receipts649,3802,463,0323,692,5175,705,18610,358,845
Total Cash Disbursements636,9482,019,4153,110,9274,603,1688,068,659
Net Cash from Operations12,432443,617581,5901,102,0172,290,186
Total of non-operational expenditures274,000398,000346,754501,5731,085,725
Total of non-operational income300,000----
Net Cash Balance38,43245,617234,836600,4451,204,461

The cash flow statement for the first five years is presented above. It is possible to see a positive net cash balance beginning in the first year and increasing gradually to US$1,204,461 in the fifth year. More details can be seen in the Annexes 3.3 and 3.4.

Balance Sheet

According to the pro forma balance sheet it is possible to see beginning assets of US$259,687 supported only by the capital invested. These assets will increase to US$2,452,090 in the fifth year supported by capital and retained earnings.

A general overview of the balance sheet is presented below. A more detailed version is shown in the Annex 3.5.

Balance Sheet

Year 1Year 2Year 3Year 4Year 5
ASSETS
Current Assets38,43245,617234,836600,4451,204,461
Fixed Assets221,255487,840589,230745,6731,247,630
TOTAL ASSETS259,687533,457824,0661,346,1182,452,091
LIABILITIES & EQUITY
Current Liabilities054,75469,073118,225244,840
Equity259,687478,702754,9931,227,8922,207,251
TOTAL LIABILITIES & EQUITY259,687533,456824,0661,346,1172,452,090

8.3 FINANCIAL RATIOS AND INVESTMENT RETURN

The investment projections for the first five years is shown below. A detailed list of investment items is presented in the Annex 3.6.

Investments

UnitYear 1Year 2Year 3Year 4Year 5
TotalTotal valueUS$322,855322,495518,070836,0051,575,003
EquipmentInvestment per periodUS$66,800189,200395,000662,3001,327,600

Pay Back Analysis

The graph above shows the pay-back analysis. It can be noticed that with an investment of US$300,000, the pay-back will be approximately 3.2 years. It is relevant to mention that the discounted pay-back is 4.1 years, the net present value (NPV) is US$179,901 using a conservative discount rate of 25%, and the internal rate of return (IRR) is 40.9%.

The table below summarizes the main financial ratios projected for the first five years of the company:

Financial Ratios

Year 1Year 2Year 3Year 4Year 5
Return on Equity (ROE)-15.5%51.3%41.9%43.9%49.9%
Return on Total Assets-15.5%41.1%33.5%35.1%39.9%
Total Assets Turnover2.504.554.434.063.98
Gross Profit Margin6.9%26.7%23.5%25.3%27.6%
Operating Profit Margin-6.2%17.4%14.6%16.6%19.3%
Net Profit Margin
(after dividends)
-6.2%9.0%7.6%8.6%10.0%


Net Present ValueUS$179,901
Internal Rate of Return40.90%
Pay Back3.2 years
Discounted Pay Back4.1 years
Discount rate25%

AIREX
Table of ContentsAppendices
1. Executive Summary
2. Business Description
3. Products and Services
4. Marketing Plan
5. Operational Plan
6. Management and Organization
7. Capital Structure
8. Financial Projections
9. Conclusion
Depreciation Schedule
Letters of Reference
Resumes of Management
General Assumptions
Detailed Cash Flow
Investments
All information herein is confidential and belongs to AIREX.