Sfm Final Project

8/10/2019 Sfm Final Project

http://slidepdf.com/reader/full/sfm-final-project 1/24

INSTITUTE OF BUSINESS MANAGEMENT

STR TEGIC FIN NCI L M N GEMENT REPORT ON

F ST FOOD REST UR NT

SUBMITTED TO Sir Faisal Dhedhi

DATE OF SUBMISSION 9th

August 2014

GROUP MEMBERS

Asma Sikander

Shoaib Rizvi

Waleed Ahmed

Zohra Hanif

2014



ACKNOWLEDGEMENT

This report is basically on launching a new business and checking its feasibility that whether

it would be profitable for us in both short run and long run. It has been prepared as a part of

the course of STRATEGIC FINANCIAL MANAGEMENT.

We would like to thank our Strategic Financial management faculty Mr. Faisal Dhedhi for

his guidance and help and by providing us the opportunity to work on this project and to let

us practically understand that how a new business can be launched by checking its feasibility

and detailed financial analysis.

This report has been very instrumental in applying the theoretical and numerical concepts

and learning the practical aspects of Strategic Financial Management.

Mr. Faisal Dhedhi demonstrated the real existence of the course, providing us with practical

examples of different companies and clarifying our concepts of how the actually business financial analysis is done.



LETTER OF TRANSMITTAL

August 09, 2014

Mr. Faisal Dhedhi

Instructor of Strategic Financial Management

Institute Of Business Management

Karachi.

Respected Sir

Subject: Report On Fast food Restaurant Pre- Feasibi li ty F inancial Analysis

The group members prepared a report on launching a new business of fast food restaurant in

which a detailed financial analysis is made about whether the business would lead to a

success or failure both in the short run as well as in the long run.

Thank you for giving us the opportunity to prepare a report in which we had an idea of how

actually a new business is setup by analyzing it through different financial requirements.

Asma Sikander

Shoaib Rizwi

Waleed Ahmed

Zohra Hanif



Table of Contents

EXECUTIVE SUMMARY ............................................................................................................ 5

INTRODUCTION .......................................................................................................................... 2

BRIEF ABOUT THE PROJECT ................................................................................................ 2

WINDOW OF OPPORTUNITY ................................................................................................ 2

INDUSTRY ANALSIS ............................................................................................................... 3

FUTURE OF THE INDUSTRY ..................................................................................................... 4

OUR BUSINESS DETAILED ANALYSIS ................................................................................... 4

SWOT ANALYSIS ........................................................................................................................ 6

COSTING ....................................................................................................................................... 7

PROJECT INVESTMENT ......................................................................................................... 7

PRODUCT MIX ......................................................................................................................... 8

MACHINERY AND EQUIPMENT ......................................................................................... 10

FURNITURE ............................................................................................................................ 10

LAND REQUIREMENT .......................................................................................................... 11

STAFFING ................................................................................................................................ 11

MISCELLANEOUS COST ...................................................................................................... 12

VARIABLE COST ....................................................................Error! Bookmark not defined.

FINANCIAL ANALYSIS ............................................................................................................ 13

ASSUMPTIONS ....................................................................................................................... 13

INCOME STATEMENT .......................................................................................................... 14

BALANCE SHEET................................................................................................................... 15

CASH FLOW STATEMENT ................................................................................................... 16

COMMON SIZING ANALYSIS.............................................................................................. 17

RATIO ANALYSIS .................................................................................................................. 18

DUPONT ANALYSIS .............................................................................................................. 18

CAPITAL BUDGETING .......................................................................................................... 19

OVERALL DECISION AND COMMENTS ............................................................................... 19

CONCLUSION ............................................................................................................................. 20



1. EXECUTIVE SUMMARY

In this report our main aim to analyze our new business of fast food in which we will be

offering different variety of products. through our detailed financial analysis we have

made income statement, balance sheet, cash flow statements and capital budgeting

through which we would be analyzing that out business would be successful or not and is

it feasible enough for us to launch a business or not. All values are assumption based

realistically. Our target market would be youth as fast food is growing tremendously

these days and people want convenience due to hectic schedules of their lives. Other than

this a brief intro about the industry has been discussed in this report plus a detailed

financial analysis has been made and then in the end our conclusions and decision of

what we have done has been discussed.



INSTITUTE OF BUSINESS MANAGEMENT | Pre-Feasibility Report (Fast Food Restaurant)

2. INTRODUCTION

In this report, we have basically launched a new business of fast food having variety of

food items offered to the consumers. This report is a pre-feasibility report which would

help us to give an idea about our business launch in terms of planning, setting up andoperating. It is a kind of decision making report that whether this business would be

feasible to open or not and will it be profitable in the long run or not.

3. BRIEF ABOUT THE PROJECT

These days fast food is increasing among youth especially and is almost served at all the

fast food restaurants. This industry is running in profitable terms and would increase to

grow in upcoming years. Food cooked in such restaurants is cooked in bulk beforehand

and kept warm and reheated to order. In Pakistan small individually owned fast food

restaurants have become common and are continuing to grow as well.

4. WINDOW OF OPPORTUNITY

As Fast food is one of the growing markets in Pakistan which changes according to the

lifestyle patterns of the target market as well as the population. These days’ consumers

want to have delicious and tempting food whenever they want to go to some restaurant.

As life is becoming hectic for almost each and every individual in Pakistan, people look

for convenience in terms of getting quick meals rather than spending whole day in

kitchen and preparing for it. Rate of growth in consumer expenditures on fast food is

growing throughout the whole country and is still in the process of growth because of

demand of convenience is rising. Therefore fast food restaurants act as a time saving

mechanism.

Even through observations, it is found that whenever any person is working he or she

wants something to eat along with it like if a person goes for shopping he would stop at a

place to have some fast food and other activities too. Hence growth of fast food has taken

place and still in process to grow.




5. INDUSTRY ANALSIS

One of the reasons of fast food restaurants in Pakistan is growing because of its

innovation and there are even international franchises which have been opened up like

McDonalds, Burger King, Pizza Hut, Fat burger and other restaurants too. In local there

are Red Apple, Eaton, Hot and Spicy and others. The target market of international

franchises is mostly high income consumers whereas local restaurants target middle and

high level income consumers. Multinational franchises have modified their menus

according to the local tastes.

a) GROWTH OF FAST FOOD OUTLETS IN PAKISTAN

The number of outlets during the last one decade has increased tremendously

because of the demand for convenience and demand of fast food thus making it

accessible and affordable for consumers. Almost local restaurants do not havemuch sitting capacity as compared to international franchises because they are

small in size and most of them are located in malls, office buildings and so on.

b) CONSUMER CENTRIC

Fast food has become popular among the youth because of easy access,

affordability, convenience and now businesses have increased their delivery

services too at low cost. People these days are too much hygiene conscious too so

they want to go to such a restaurant which focuses on cleanliness plus they want

restaurants to provide them with fast and quick services. Therefore now a day’s businesses and restaurants are focusing on these issues through innovation and

how to control these kinds of problems.

c) POPOLATION GROTH

Pakistan is ranked 6th

in terms of total population as its total population at the end

of 2013 was 182,589,000 people, which represents an increase of 3,428,889

people compared to 2012. The male population is greater, with 93,572,561 men,

representing 51.24% of the total, compared to 88,570,033 or 48.50% women.

The growth rate in food consumption has also increased between the ages of 20-

29 years mostly which leads to greater income contribution to the overall income

and thus tends to increase in future as well.




6.

FUTURE OF THE INDUSTRY

Day by day the economic situation of the country is becoming service oriented and is

focusing on how to meet the needs of the consumers by providing them satisfaction and

convenience facilities and those businesses who are able to do it are having strong sales

growth. With time the population growth is also increasing as mentioned above therefore

income levels are also raising along with difficult and rough and tough work schedules

due to which demand for convenience is also increasing. Fast food businesses therefore

are now moving towards accessibility factor.

Big and large restaurants who are working on full capacity are likely to capture a large part of the market offering other services as well like take away and delivery services. In

this way the demand will rise and the shape of fast food industry will likely to grow in

future.

7. OUR BUSINESS DETAILED ANALYSIS

a) LOCATION

We have planned to launch a new fast food business in Defence at Khayaban-e-Badar because on that road there is only one restaurant and that is Gloria jean’s

whereas in other parts of Defence like Khadda market there are many fast food

restaurants in which the competition would be high.




b) TARGET MARKET

We would be targeting youth ages from 18-35 as this age bracket are mostly

likely to explore new places and are too much into socializing with friends and

others and are into building relationships.

c) SERVICE STYLE AND FOOD CONCEPT

As it is a fast food business we would be offering burgers, sandwiches, special

products like toasted cheese tomato sandwich, drinks and broast chicken. As

demand for fast food is increasing we tend to offer these products at the initial

phase and then with time we would be increasing our product mix with new and

different items.

d)

SOURCE OF FINANCING

Our source of financing would be 50 percent debt and 50 percent equity. We

would present our business plan to bank for loan to set up a business whereas 50

percent equity would be divided equally among each partner. As we are four

members we would equally invest the amount and then at the end of the year we

would divide the profit and loss equally.

e) LAUNCH STRATEGY

We would advertise our business through different billboards, TVCs, brochures inwhich our target market could become aware of our newly launched business.




8. SWOT ANALYSIS

STRENGTHS WEAKNESSES

It would be cost advantage as its prices would be

comparatively a bit lower or similar to competitors

If a consumer likes our food than there are chances

that he would come again and in this way loyalty

would be built.

With time financial position would become a

strength

Our pricing would be economical that consumers

are willing to pay

We will train our staff in such a way that

consumers would be happy with the behavior and

service provided to them.

We would be consistent in our quality as there

won’t be any compromise in the quality factor

If any staff misbehaves with the staff

there are chances that consumers would

be disappointed and in this way we can

lose our customers

Because of debt there are chances of

risk and if we are unable to pay off the

debt in case of loss it would be a

disaster for the business

As it is a fast food restaurant therewon’t be too much R&D involved

which would result into low innovation

As it is newly launched business there

won’t be any online webpage created

for online deliveries

Weak management team

OPPORTUNITY THREATS

Acquisitions

Emerging markets and expansion abroad

Innovation at a low scale

Online

Product and services expansion

Diversification into new categories other than fast

food

Competition

Cheaper technology

Economic slowdown

External changes (government,

politics, taxes, etc)

Exchange rate fluctuations

Lower cost competitors or imports

Price wars Product substitution




9. PROJECT PARAMETES

Business Details

Small Business

No construction, place taken on rentLocated in Defense

Seating arrangement for 30-35 people maximum at a time

Initially Dine in and Take away only

All sales on cash basis i.e. No account receivables

Debt to Equity Ratio 50:50

Restaurant is based on a size of 800 SQ FT

The outlet will operate 7 days a week

There will be 2 peak hours in a day

10. COSTING

10.1. PROJECT INVESTMENT

Below is the total cost of the project

Table 9.1. Project Investment

Description Amount

Renovation Cost 1,000,000

Furniture 550,000

Equipment and Machinery 2,460,000

Rent Deposit 1,440,000

Cash at Bank 300,000

Miscellaneous 240,000

TOTAL 5,990,000




10.2. PRODUCT MIX

Table 9.2. Product Mix

Broast Cost Price Unit Sales Total Cost Total Sales

Chicken Broast (Qtr.) 70 180 20 1,400 3,600

Chicken Broast (Half)100 300 8 800 2,400

Burgers

Chicken Burger 100 230 20 2,000 4,600

Chicken Cheese Burger 110 250 10 1,100 2,500

Beef Burger 80 200 8 640 1,600

Beef Cheese Burger 90 220 6 540 1,320

Zinger Burger 110 270 30 3,300 8,100

Fries

Normal fries 30 70 30 900 2,100

Masala fries 32 75 20 640 1,500

Mayo fries 45 90 10 450 900Masala vinegar fries 45 80 5 225 400

Sandwiches

Chicken Sandwich 50 80 20 1,000 1,600

Club Sandwich 60 120 15 900 1,800

Chicken Mayo sandwich 70 90 10 700 900

Chicken cheese sandwich 50 85 5 250 425

Toasted cheese tomato sandwich 70 150 5 350 750

Hot Dogs

Normal hot dog 40 100 5 200 500

Hot dog with cheese 60 130 5 300 650Soft drinks

Cola 30 60 30 900 1,800

Sprite 30 60 30 900 1,800

Miranda 30 60 15 450 900

Diet coke 30 60 10 300 600

Diet 7up 30 60 10 300 600

Mineral water (small) 20 50 10 200 500

Mineral water (large) 30 80 10 300 800

TOTAL 19,045 42,645

It is preferable to keep a variety of fast food items in order to capture our target market but at the

initial phase we have planned to keep low variety of fast food items in order to cover our initial

setup costs and achieve profits. Once the fast food business starts to establish a number of items

would be included in the product mix like Chinese, barbeque, pizza and other items.




10.3. SALES

Following are the expected sales based on certain assumptions and market

research

Table 10.3. Sales

DESCRIPTION DAILY MONTHLY ANNUAL

TOTAL SALES 42,645 1,279,350 15,352,200

TOTAL RM 19,045 571,350 6,856,200

GROSS PROFIT 23,600 708,000 8,496,000




11. MACHINERY AND EQUIPMENT

Table 11. Equipment and Machinery

Description Units Cost Total Cost

Freezer 2 45,000 90,000

Baking Oven 1 50,000 50,000

Burger Grill 1 300,000 300,000

Broast Machine 2 950,000 1,900,000

Microwave 2 10,000 20,000

Deep Well Fryer 1 60,000 60,000

Working Table & Shelves 2 20,000 40,000

Total 2,460,000

Machinery and equipment is an essential part of any project in order to satisfy their

needs and wants. As through machinery and equipment, quality of food depends.

11.1 MACHINERY MAINTENANCE

As it is important that any equipment in a company needs to be maintained in

order to remain clean and produce the same quality product therefore

maintenance would be done every month of the miscellaneous cost meaning that

yearly it would cost Rs.120000.

12. FURNITURE

Table 12. FurnitureDescription Units Cost Total Cost

Dining Table (2*2) 8 1000080,000

Chairs (14") 40 5,000 200,000

Air Conditioner (2ton) 2 120,000 240,000

Waiting Sofa 2 10,00020,000

Cutlery Set 20 50010,000

Total 550,000




At one time the restaurant would be able to serve maximum of 30-35 people per day

which would be good enough to avoid any kind of conflict in the initial phase.

13. LAND REQUIREMENT

The land requirement is around 1200 Square Fit as there is no such rush on that road

where we have decided to start up a business.

14. RENTAL BASIS

The proposed premises will be acquired on a rental basis with 6 month deposit and 6

months advance rent after which rent will be payable on a monthly basis. The

monthly rent is PKR 120,000 per month for the proposed fast food outlet.

Table 14. Rent

Description Total Frequency

Rent 120,000 Monthly

15. STAFFING

There are some basic people required to run any fast food restaurant and according

to internal policies of the company following is the monthly requirement of workersalong with their monthly salary.

Table 15. Workers

Description Unit Cost Total Cost

Kitchen Supervisor 1 20,000 20,000

Cook 4 40,000 160,000

Waitors 4 15,000 60,000

Cashier 1 15,000 15,000

Cleaner 1 12,000 12,000

Guard 1 12,000 12,000

Total 279,000




It is the duty of human resource to control the business therefore as per our project

size the above table shows the distribution of the staff we would wish to hire to

control the management affairs. Cashier would be responsible for handling the

payment.

16.

VARIABLE COST

Table 16. Variable Cost

Description Total Cost

Electricity 100,000

Water 10,000

Gas 70,000

Telephone 15,000

Raw Material Cost (chicken, bun, potato etc.) 571,350

Maintenance Cost 10,000Total 776,350

17. MISCELLANEOUS COST

After all other cost there is some kind of miscellaneous things required in every

business. In fast food business following are the things required for day to day

activities.

Table 16. Miscellaneous Cost

Description Unit Cost Total Cost

Potato Cutter 2 24,000 48,000

Working crockeryset 2 60,000 120,000

Aprons 4 1,200 4,800

Gloves 10 960 9,600

Table Cloth & Napkins 16 2,400 38,400

Hand Sanitizer 4 1,200 4,800

Kitchen Tissue Roll 6 2,400 14,400

Total 240,000




18. FINANCIAL ANALYSIS

18.1. ASSUMPTIONS

For our project the following assumptions have been made:

Table 18.1. Assumptions

1 All sales on cash basis i.e. No account receivables

2 Debt to Equity Ratio 50:50

3 Tax Rate are varying (those applicable on a sole proprieter)

4 Increase in Sales 15 % per year

5 Increase in Cost of Raw Materials 10 % per year

6 Increase in Staff Salaries 10 % per year

7 Increase in Utility Expenses 10 % per year

8 Increase in Rent 10 % per year

9 Depreciation of Building, Furniture and Machinery at 10 % Straight Line Method)

10 Food Inventory 3 days

11 Cash initially placed in bank will be 300,000 (liquidity requirements)

12 Interest on Debt is assumed to be 18%

13 Rent will be paid on monthly basis

14 After year 5, Net Profit will increase 10 % annually from previous year

15 Business will continue for a forseeable future

16 Renovation cost will be 1,000,000 for the first year

17 Prepaid Rent Deposit of Rs 1,440,000 will be paid in advance

18 Opportunity cost of capital will be 18.80% (WACC)

The 15% annual increase in revenue is expected to result from a part increase in

population increase and demand for convenience.

As rent would be paid Rs.120000 per month it would be assumed that Rs.1440000 would

be given in advance before the business launches. This amount would include 6 months

deposit and 6 months advance rent. It would increase at a rate of 10% every year because

of the economic indicators and inflationary pressures.

All sales will be made strictly on cash basis. It is not wise to operate a fast food restauranton credit basis.

Source of long term debt finance would be for 5 years at a rate of 18% interest paid

annually. Installments are paid at the end of every year.




18.2. INCOME STATEMENT

Year 1 Year 2 Year 3 Year 4 Year 5

Sales 15,352,200 17,655,030 20,303,285 23,348,777 26,851,094

less: COGS

Opening Balance - 57,135 62,849 69,133 76,047

Add Purchases 6,913,335 7,604,669 8,365,135 9,201,649 10,121,814

Closing Balance 57,135 62,849 69,133 76,047 83,651

Sub Total 6,856,200 7,598,955 8,358,851 9,194,736 10,114,209

Gross Profit 8,496,000 10,056,075 11,944,434 14,154,042 16,736,885

less: Operating Expenses

Rent 1,440,000 1,584,000 1,742,400 1,916,640 2,108,304

Wages 3,348,000 3,682,800 4,051,080 4,456,188 4,901,807

Electricity 1,200,000 1,320,000 1,452,000 1,597,200 1,756,920

Water 120,000 132,000 145,200 159,720 175,692

Gas 840,000 924,000 1,016,400 1,118,040 1,229,844

Telephone 180,000 198,000 217,800 239,580 263,538

Depreciation 401,000 401,000 401,000 401,000 401,000

Maintenance Cost 120,000 120,000 120,000 120,000 120,000

Subtotal 7,649,000 8,361,800 9,145,880 10,008,368 10,957,105

Operating Income 847,000 1,694,275 2,798,554 4,145,674 5,779,780

Financial Charges (18%) 539,100 463,746 374,827.8 269,904.5 146,095.1

Earnings before Taxes 307,900 1,230,529 2,423,726 3,875,769 5,633,685

Tax (varying slabs) - 65,553 249,152 568,942 1,049,263

Earnings after Taxes 307,900 1,164,976 2,174,574 3,306,827 4,584,421

Earnings after Taxes –

Monthly25,658.33 97,081.36 181,214.51 275,568.90 382,035.12




18.3. BALANCE SHEET

Projected Balance Sheet Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Assets

Current Assets

Cash at Bank 300,000 533,130 1,599,404 3,585,787 6,598,870 10,765,0

Inventory 0 57,135 62,849 69,133 76,047 83,651

Prepaid

Rent

Deposit

1,440,000 1,440,000 1,440,000 1,440,000 1,440,000 1,440,00

Total Current Assets 1,740,000 2,030,265 3,102,253 5,094,920 8,114,917 12,288,6

Fixed Assets

Equipment

and

Machinery

2,460,000 2,214,000 1,968,000.0 1,722,000.0 1,476,000.0 1,230,000

Furniture 550,000 495,000 440,000 385,000 330,000 275,00

Renovation

Cost1,000,000 900,000 800,000 700,000 600,000 500,000

Total Fixed Assets 4,010,000 3,609,000 3,208,000 2,807,000 2,406,000 2,005,00

Miscellaneo

us Expenses240,000 240,000 240,000 240,000 240,000 240,00

Total Asset's 5,990,000 5,879,265 6,550,253 8,141,920 10,760,917 14,533,6

Equity 2,995,000 2,995,000 3,302,900 4,467,876 6,642,450 9,949,27

Retained Earnings 307,900 1,164,976 2,174,574 3,306,827 4,584,42

Total Equity 2,995,000 3,302,900 4,467,876 6,642,450 9,949,277 14,533,6

Liability

Long Term Liability 2,995,000 2,576,365 2,082,376 1,499,470 811,640 (0)

Total Equity and Liabilities 5,990,000 5,879,265 6,550,253 8,141,920 10,760,917 14,533,6




18.4. CASH FLOW STATEMENT

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year

Cashflow from Operating Activities

Net Profit 0 307,900 1,164,976 2,174,574 3,306,826.82 4,584,421.435,042,8

57

Add: Depreciation Expense 0 401,000 401,000 401,000 401,000 401,000 401,00Change In Inventory 0 (57,135) (5,714) (6,285) (6,913) (7,605) (92,01

Net Cashflow from Operations 0 651,765 1,560,263 2,569,289 3,700,913 4,977,817 5,351,8

Cashflow from Financing Activities

Receipt of Long-Term Debt 2,995,000

Repayment of Long-Term Debt (418,635) (493,989) (582,907) (687,830) (811,640)

Owner's Equity 2,995,000

Net Cashflow from Financing Activities 5,990,000 (418,635) (493,989) (582,907) (687,830) (811,640) -

Cashflow from Investing Activities

Construction Cost (1,000,000)

Furniture (550,000)

Equipment and Machinery (2,460,000)

Rent Deposit (1,440,000)

Miscelleneous (240,000)

Net Cashflow from Investing Activities (5,690,000) 0 0 0 0 0 0

Net Cash Flow 300,000 233,130 1,066,274 1,986,382 3,013,083 4,166,177 5,351,8

Cash at the Beginning of the Year 0 300,000 533,130 1,599,404 3,585,787 6,598,87010,765,

7




18.5. COMMON SIZING ANALYSIS




18.6. RATIO ANALYSIS

18.7. DUPONT ANALYSIS

DuPont Analysis Year 1 Year 2 Year 3 Year 4 Year 5

RoE0.09 0.26 0.33 0.33 0.32

NPM2.01 6.60 0.09 0.17 0.17

Leverage ratio1.78 1.47 1.23 1.08 1.00

DuPont0.33 2.52 0.04 0.06 0.05




18.8. CAPITAL BUDGETING

19. OVERALL DECISION AND COMMENTS

NPV is positive so we should pursue this project. Our profitability ratios are increasing

year by year which shows a positive sign of starting this project. Return on equity is more

or less similar each year. Debt is decreasing which shows that we are paying the debt on

time.




20. CONCLUSION

NPV = RKR 18,215,590

IRR = 19%

WACC 18.80%

Payback period = 3.7084 years

PI = 4.04

Therefore we can start up this project because of the above assumptions.

Documents

Sfm Final Project