Final Year Project

Group name: Unity Union

Financial Analysis

SUBMITTED BY:

USMAN SALEEM F20BA107

FARHAN QADIR F20BA128
BILAL AZIZ F20BA133
JUNAID SHAKOOR KHAN F20BA137
 Financial Analysis

FINANCIAL STRATEGIES

Here is a detailed balance sheet analysis and cash flow analysis :

Objectives

 Establish a commercial dairy farm with 50 milking cows in the first year, scaling up to 150 cows
over 3 years
 Achieve an average milk production of 25 liters per cow per day
 Build direct relationships with milk processors, retailers, and consumers to sell milk
 Generate annual revenues of PKR 150 million and net profit margin of 20% by year 3
 Adopt sustainable and ethical farming practices for animal welfare and minimal environmental impact.

Overall Budget

Items Year 1 Year 2 Year 3

Land Purchase 10,000,000 - -

Farm Construction 15,000,000 5,000,000 5,000,000

Cows Purchase (50/100/150) 25,000,000 50,000,000 75,000,000

Equipment & Machinery 10,000,000 5,000,000 5,000,000

Working Capital 10,000,000 15,000,000 25,000,000

Total 70,000,000 75,000,000 110,000,000

Funding

Here are some additional details on the funding and capital structure for the dairy farming business:

 There are 5 equal partners who will each contribute PKR 14,000,000 as equity capital.
 Total equity funding in Year 1 is PKR 70,000,000.
 No external debt or loans will be taken initially. The business will be entirely equity financed.
 Each partner will contribute their share of equity upfront before operations commence.
 The partnership agreement will specify the ownership percentages and profit/loss sharing ratio as
20% each for the 5 partners.
 If additional capital is required in future years for expansion, the partners will infuse fresh equity in
proportion to their ownership.
 The partners can also choose to reinvest company profits as retained earnings rather than distribute
dividends.
 External funding from banks may be considered in later years once the business is more established
and profitable.
 The conservative capital structure with no debt helps ensure stability and sustain growth during the
initial years.
 Equity financing allows the partners to retain control over the business strategy rather than being
beholden to lenders.
 The partners will participate in key management decisions based on a unanimous voting structure.
 Any transfer of ownership between partners will be governed by the partnership agreement terms.
 The equity capital gives sufficient cushion to undertake planned investments in cows, machinery,
and facilities over the first 3 years.
 Financial discipline will be important to generate healthy cash flows and return on equity for the
partners.

Balance Sheet
Year 1

Assets

Cash 20,000,000

Accounts Receivable 5,000,000

Inventory 3,000,000

Fixed Assets 60,000,000

Total Assets 88,000,000

Liabilities
 Year 1

Accounts Payable 4,000,000

Total Liabilities 4,000,000

Equity

Partner's Equity 70,000,000

Retained Earnings 11,250,000

Total Equity 84,000,000

Total Liabilities & Equity 88,000,000

Details

 Cash: Includes cash capital injected by partners as well as operating cash flows. Vital for funding
day- to-day operations.
 Accounts Receivable: Outstanding payments from customers for milk sales. Kept at 5-10% of revenue.
 Inventory: Raw materials like cattle feed and supplies kept in stock. Manageable at 3-5% of revenue.
 Fixed Assets: Capital expenditures like land, buildings, equipment. Largest asset, financed by partner
equity.
 Accounts Payable: Outstanding payments owed to suppliers for inventory purchases.
 Partner's Equity: Equal equity contribution from each of the 5 partners.
 Retained Earnings: The profits generated by the business that are reinvested rather than distributed.

Cash Flow Statement

Year 1
Operating Activities
Net Profit 11,250,000
Adjustments to reconcile net profit:
Depreciation 6,000,000
Changes in Working Capital (2,000,000)
Cash from Operations 15,250,000
Investing Activities
Capital Expenditure (70,000,000)
Cash from Investing (70,000,000)
Financing Activities
Equity Investment 70,000,000
Cash from Financing 70,000,000
 Year 1
Net Change in Cash 15,250,000
Beginning Cash 4,750,000
Ending Cash 20,000,000

Details:

 Net Profit: Starting point for calculating cash from operations.

 Depreciation: Non-cash expense added back to net profit.
 Change in Working Capital: Increase in current assets less current liabilities.
 Cash from Operations: Indicates cash generated from day-to-day business operations.
 Capital Expenditure: Investing cash outflows like purchases of fixed assets.
 Equity Investment: Cash inflow from the 5 partners investing their capital.
 Net Change in Cash: The overall increase or decrease in cash balance for the year.

Income Statement
Year 1
Revenue 90,000,000
Cost of Goods Sold 63,000,000
Gross Profit 27,000,000
Operating Expenses 12,000,000
EBIT 15,000,000
EBT 15,000,000
Tax @ 25% 3,750,000
Net Profit 11,250,000

Details:

 Revenue: This is the total sales generated from selling dairy milk. The target for year 1 is 500,000
liters sold at Rs. 180 per liter.
 Cost of Goods Sold: This includes costs directly related to milk production like feed, labor, utilities,
etc. Budgeted at 70% of revenue.
 Gross Profit: Revenue minus COGS. This is the leftover profit after paying for direct production costs.
 Operating Expenses: Overhead costs like salaries, marketing, insurance, transportation, etc.
Budgeted at 13% of revenue.
 EBIT: Earnings before interest and tax. This represents operational profitability.
  Net Profit: The final bottom line after accounting for taxes. Net margin is targeted at 12-13% in the
projections.

Seven Accounting Ratios

Here are the key financial ratios for Year 1 with explanations, for the all-equity structure:

Return on Investment (ROI)

ROI = Net Profit / Total Assets

Year 1 ROI = 11,250,000 / 88,000,000 = 12.8%
Explanation: This measures the return earned on total capital invested. The 12.8% ROI indicates an healthy
return in the first year.

Profit Margin

Profit Margin = Net Profit / Revenue

Year 1 Profit Margin = 11,250,000 / 90,000,000 = 12.5%
Explanation: This shows the percentage of revenue retained as net profit. The 12.5% profit margin meets
the 12-13% target.

Asset Turnover

Asset Turnover = Revenue / Average Total Assets

Year 1 Asset Turnover = 90,000,000 / 88,000,000 = 1.02 times
Explanation: This indicates how efficiently assets are used to generate revenue. The 1.02 ratio is reasonable
for a capital intensive dairy farm.

Break-even Quantity

Break-even Quantity = Fixed Costs / Contribution Margin per Unit

Year 1 Break-even Quantity = 12,000,000 / (180 - 120) = 500,000 liters
Explanation: This is the sales volume required to cover fixed costs. 500,000 liters indicates a reasonable
break-even point.
Earnings Per Share
“ As our Business is private partnership , so there will be no earning per share”
Debt-to-Equity Ratio

Debt-to-Equity Ratio = Total Liabilities / Total Equity

Year 1 D/E Ratio = 0
Explanation: With no debt funding, the D/E ratio is zero. This shows the business is entirely equity financed.

Three Years Projected or estimated Statements:

3 Year Projections

Year 1 Year 2 Year 3 Year 4 Year 5

Revenue 90,000,000 120,000,000 150,000,000 187,500,000 234,375,000

Expenses 63,000,000 84,000,000 105,000,000 131,250,000 164,062,500

EBIT 15,000,000 21,000,000 27,000,000 33,750,000 42,187,500

Net Profit 11,250,000 15,750,000 20,250,000 25,312,500 31,640,625

This analysis shows steady growth in revenues, expenses and profits over the next 3 years. Net profit margin
is maintained between 12-13%. The projections aim to continue growing the business by reinvesting profits
into more cows, equipment and increased working capital.

Vertical and Horizontal Analysis of all statements:

Income Statement - Vertical Analysis
Year 1 Year 2 Year 3
Revenue 100% 100% 100%
 Year 1 Year 2 Year 3
Cost of Goods Sold 70% 70% 70%
Gross Profit 30% 30% 30%
Operating Expenses 13% 13% 12%
EBIT 17% 17% 18%
EBT 17% 17% 18%
Net Profit 12% 13% 13%

Income Statement - Horizontal Analysis

Year 2 Year 3
Revenue 33% 25%
Cost of Goods Sold 33% 25%
Gross Profit 33% 25%
Operating Expenses 25% 20%
EBIT 40% 29%
EBT 40% 29%
Net Profit 40% 29%

Balance Sheet - Vertical Analysis

Year 1 Year 2 Year 3
Cash 23% 24% 22%
Accounts Receivable 6% 10% 10%
Inventory 3% 5% 4%
Fixed Assets 68% 62% 64%
Total Assets 100% 100% 100%
Accounts Payable 5% 8% 8%
Total Liabilities 5% 8% 8%
Partner's Equity 80% 67% 45%
Retained Earnings 13% 26% 30%
Total Equity 95% 92% 92%
Total Liabilities & Equity 100% 100% 100%

Balance Sheet - Horizontal Analysis

Year 2 Year 3
Cash 25% 40%
Accounts Receivable 100% 50%
Inventory 67% 40%
Fixed Assets 8% 54%
 Year 2 Year 3
Total Assets 19% 49%
Accounts Payable 100% 50%
Total Liabilities 100% 50%
Partner's Equity 0% 0%
Retained Earnings 140% 75%
Total Equity 16% 49%
Total Liabilities & Equity 19% 49%

Cash Flow Statement - Vertical Analysis

Year 1 Year 2 Year 3
Cash from Operations 22% 25% 18%
Cash from Investing -99% -15% -49%
Cash from Financing 148% 0% 0%
Net Change in Cash 100% 100% 100%

Cash Flow Statement - Horizontal Analysis

Year 2 Year 3
Cash from Operations 10% 7%
Cash from Investing -86% -50%
Cash from Financing -100% 0%
Net Change in Cash -56% -224%

Analysis of Cash Flow statement:

 Operating cash flows are positive, providing around 20-25% of total cash generated. This funds day-
to-day business needs.
 Investing cash flows are negative due to capital expenditures, accounting for the bulk of cash outflows.
 Financing cash inflows are only in Year 1 from equity partners. Subsequent years have no financing
activities.
 Net change in cash balances can be volatile based on the timing of capex. But overall cash levels are
maintained.
 Horizontal analysis shows operating cash flows growing steadily while capex varies each year.
 The variance in cash flows highlights the importance of planning for liquidity needs.
 This analysis will help assess the cash flow patterns and improve forecasts. Please let me know if
you need any clarification or have additional questions

Analysis of Balance sheet:

 Cash accounts for 22-24% of total assets, indicating a healthy cash position to cover current
liabilities and operating needs. Cash balances grow 25-40% annually with strong cash flow
generation.
  Accounts receivable remains steady at 6-10% of assets. Tight credit control is essential to ensure
collectability. Accounts receivable growth at 50-100% indicates rising sales volumes on credit.
 Inventory is consistently low at 3-5% of assets, minimizing tying up capital in raw materials.
Inventory growth of 40-67% matches the expansion in farm operations.
 Fixed assets comprise the majority at 62-68% of total assets, reflecting the capital-intensive nature of
dairy farms. Fixed asset growth is lower in the range of 8-54% as major investments occur in Year 1.
 Total liabilities are negligible at 5-8% of total assets. The business relies heavily on partner equity
rather than debt. Liabilities growth at 50-100% is in line with the growth in expenditures and
inventory purchases.

Analysis of Income Statement:

 Gross profit margin holds steady at 30% of revenue, based on targeted production costs. Top line
revenue growth drives profitability based on volume increases.
 Operating expenses are maintained around 12-13% of revenue through cost control measures.
Production costs and operating expenses grow in proportion to revenue.
 EBIT and net profit margins are also consistent in the 17-18% and 12-13% ranges respectively.
Bottom line net profit growth aligns with the top line expansion.

In summary, the business demonstrates disciplined growth in assets, liabilities, revenues, and costs over the
initial 3-year period, with strong cash positions, controlled credit policies, and a capital-intensive focus on
fixed assets contributing to its overall financial health. These trends provide a solid foundation for
forecasting and projections.
 Objectives and costing

Creating objectives and costing for a dairy milk farm involves careful planning and financial analysis.

FINANCIAL PLAN
Estimated data for financial plan:
 Proposed Breed: Jersey Cow
 No. of cows – 25
 Cost of the cow – Rs.250,000
 Average milk produced per day will be 600 liters
 Price for the milk will be Rs.170 / liter

FARM REQUIREMENTS
Land:
 About 3 kanals of land will be required. (25-120 animals maximum)
 The agricultural land cost per Marla in our proposed location (Raiwind, Muqaddas Park, Lahore)
is Rs.800,000.
Labor:
 A supervisor (farm manager) will be hired to supervise all the farm activities
 Three farm workers will be hired for handling 30-animals.
Machinery&Equipment:
 Water pumps
 Milk utensils.
 Fodder Chopper
 Freezers
 Tanks

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 FARM OUTPUTS
Lactation Period
 The lactation period is the period during which the animals yield milk. Generally the lactation
period of cows is from 280 days to 300 days.
 The average milk yield of Cow is estimated at 5,600 to 6,000 liters per lactation.
Male Calves

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  3 months old male calves will be sold at the farm sooner after birth for Rs.10,000 - 15,000 per
animal.
Milk
 The milk will be sold to Gawalas, milk processing companies,
 house holds & milk shops @ price range Rs.190/liter.
 Milk can be stored in a milk chiller / freezer, if milk collection is not possible in the evening.

SALES FORECAST
Income From Milk
Milk per day 30 Cows * 20.00 liters = 600
liters Rate of Milk Rs.190 per liter
Daily Income from Milk 600 liters * Rs.190 = Rs.114,000.

FINANCIAL PROJECTIONS
 We have invested 5.0 million rupees for our proposed dairy farm.
 100% of the money is invested equally by five friends.
 We will achieve breakeven at the start of second year.
 The second year will increase the profits and at the end of second year,

Layout

 Land area: 2 kanals.

 Cattle shed with individual feeding places and separate milking parlor.
 Fodder plot and store room.
 Milk storage and chill room.
 Store room for equipment.
 Office space.
 Staff quarters.
 Soak pits and compost pits at rear end.

Capacity
Here is detailed documentation of “capacity” for our business:
Land Capacity

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  Total land acquired: 2 kanals
 Land allocated for cattle shed & milking parlor: 1 kanals
 Land allocated for fodder cultivation & plots: 0.5 kanals
 Land allocated for equipment store, office etc.: 0.25 kanals
 Land allocated for soak pits & compost pits: 0.25 kanals
Cattle Capacity
Current Capacity:
 50 milking
cows/buffaloes Scope for
Expansion:
 Land can support shed construction for 100 cattle
 Initial planned capacity: 60 cattle units
 Phase 1 expansion (Yr 3): 80 units
 Max capacity: 100 units
Milk Storage Capacity
 Initial capacity: 600 liters
 Phase 1: 1000 liters
 Max capacity: 1500 liters
Feed & Fodder Capacity
 Initial: 0.5 kanals allocated, sufficient for 50 cattle
 Phase 1: Purchase additional fodder
Milk Chilling Capacity
 Initial capacity: Chiller sufficient to hold 1,000 liters
 Will be upgraded along with milk storage capacity
Milking Capacity
 Initial: Manual milking of 50 animals
 Phase 1: Installation of 8 milking machines
 Phase 2: Addition of 12 more milking machines
 Phase 3: Automated rotary milking parlor

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 HRM Costs
 Salaries: Rs. 1.2 million per annum (5 direct staff + temporary workers)
 Incentives & benefits: Rs. 200,000 per annum
 Training & development: Rs. 150,000 per annum
 Workmen compensation: Rs. 100,000 per annum
 Total cost: Rs. 1.65 million per annum.

PROFIT LOSS, AND BREAK-EVEN ANALYSIS:

Assumptions:
 10 buffaloes producing 22 liters milk per day
 15 cows producing 20 liters milk per day
 Milk price = Rs. 190 per liter
Total annual milk production:
 Buffaloes: 10 x 22 liters x 365 days = 80,300 liters
 Cows: 15 x 20 liters x 365 days = 109,500 liters
 Total = 80,300 + 109,500 = 189,800 liters
Revenue at Rs. 190 per liter: 189,800 liters x Rs. 190 per liter = Rs. 36,062,000
Fixed costs: Rs. 10,000,000 Variable costs: Rs. 15,000,000 Total costs: Rs. 25,000,000
Net profit = Revenue - Total costs = 36,062,000 - 25,000,000 = Rs. 11,062,000
ROI = Net profit / Investment x 100 = 11,062,000 / 25,000,000 x 100 = 44.25%
Assuming 50% liabilities, Debt/Equity ratio = 12,500,000 / 12,500,000 = 1
Break-even quantity = Fixed costs / Contribution margin per unit = 10,000,000 / (190 - 60) = 58,823 liters
In summary, with the revised information, the ROI is 44.25%, debt-to-equity ratio is 1, break-even quantity is 58,823
liters, and total sales are Rs. 36,062,000. Initial Investment: This includes the cost of land, infrastructure (barns,
milking equipment, etc.), purchase of dairy cows, and other operational expenses.
Market Conditions: Dairy milk prices can fluctuate, so consider how market conditions may affect your income.

Future Growth and Expansion: If you plan to expand the farm, factor in those costs and potential additional income.

Our vision is to operate an ethical, environmentally-responsible model dairy farm known for its top-quality products
and humane standards. Our goal is to expand and serve more communities while upholding our values.

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