Investment Office ANRS

Project Profile on the Establishment

of Cosmetic product Producing
plant

Development Studies
Associates (DSA)

October 2008
Addis Ababa

Tables of Contents
1.Executive Summary.....................................................................................................................................1
2.Product Description and Application........................................................................................................1
3.Market Study, Plant Capacity and Production Program........................................................................2
3.1Market Study...........................................................................................................................................2
3.1.1Present Demand and Supply...........................................................................................................2
3.1.2Projected Demand..........................................................................................................................2
3.1.3Pricing and Distribution.................................................................................................................3
3.2Plant Capacity.........................................................................................................................................3
3.3Production Program................................................................................................................................4
4.Raw Materials and Utilities........................................................................................................................4
4.1Availability and Source of Raw materials..............................................................................................4
4.2Annual Requirement and Cost of Raw Materials and Utilities...............................................................4
5.Location and Site.........................................................................................................................................5
6.Technology and Engineering .....................................................................................................................5
6.1.Production Process.................................................................................................................................5
6.2.Machinery and Equipment.....................................................................................................................5
6.3.Civil Engineering Cost...........................................................................................................................6
7.Human Resource and Training Requirement...........................................................................................7
7.1.Human Resource ...................................................................................................................................7
7.2.Training Requirement............................................................................................................................8
8.Financial Analysis........................................................................................................................................8
8.1.Underlying Assumption ........................................................................................................................8
8.2.Investment............................................................................................................................................10
8.3.Production Costs..................................................................................................................................11
8.4.Financial evaluation.............................................................................................................................12
9.Economic and Social Benefit and Justification.......................................................................................13
ANNEXES.....................................................................................................................................................15

1. Executive Summary
This project profile deals with the establishment of cosmetic product producing plant in Amhara
National Regional State. The following presents the main findings of the study
Demand projection divulges that the domestic demand for this product is substantial and is
increasing with time. Accordingly, the planned plant is set to produce 30,000 bottles of vanishing
cream, 120,000 Kg of Soap and 500kg of face powder annually. The total investment cost of the
project including working capital is estimated at Birr 16.75 million and creates 61 jobs and Birr
573,120 household income.
The financial result indicates that the project generates profit beginning from the second year of
operation. Moreover, the project breaks even at 30.7% of capacity utilization and it payback fully
the initial investment less working capital in fourth year of its operation. The results further show
that the calculated IRR of the project is 20.9%.
In addition to this, the proposed project possesses wide range of economic and social benefits
such as increasing the level of investment, tax revenue, employment creation and import
substitution.
Generally the project is technically feasible, financially and commercially viable as well as
socially and economically acceptable. Hence the project is worth implementing.

2. Product Description and Application

The word cosmetics refers to articles to be rubbed, poured, sprinkled or sprayed or introduced
into or otherwise applied to the human body or any part of it for cleansing, beautifying,
promoting attractiveness or altering the appearance. Generally, cosmetics can be divided into
four groups: skin, nail, hair and teeth cosmetics. Skin cosmetics include face powder, talcum
powder, vanishing cream, color cream, lipstick, cold cream, Vaseline. Nail cosmetics include
nail polishes. Hair cosmetics covers hair dye, hair shampoo, coconut oil shampoo, shaving

cream, hair fixer, after shave.

Cosmetics for teeth include tooth powder and tooth paste.

Different cosmetics require different ingredients and different preparation formulas.

3. Market Study, Plant Capacity and Production Program

3.1Market Study
3.1.1

Present Demand and Supply

The Amhara Region is home to about 19.2 million people. In countries where the standard of
living is high, 19.2 million people could have supported a multi-million dodder cosmetics
industry. However, since the standard of living of the people in the Amhara Region is very low
the market for cosmetics is limited to few brands like Vaseline, vanishing cream, cold cream,
hair oils. These cosmetics products are widely used in the urban areas and to some extent in
rural areas. Other cosmetics products such as tooth paste, nail polish, after shave, shaving cream,
etc. are used by people of higher income in the urban areas of the Region. Women are the main
consumers of many types of cosmetics products. Potential customers of cosmetics products in
the Amhara Region are girls and women above age of 5. The number of female in this age group
in the Region is about 8 million of whom 11.5 percent or 921,000 live in urban areas. If we
assume that at least 70 percent of the urban potential customers and 40 percent of the rural
customers, total customers will be about 3.5 million. If on the average one consumer consumes
about 400gm of cosmetics per year, annual aggregate consumption of cosmetics in the Region
could be 1,400 tons. Up to now, all these cosmetics have been imported partly from Addis
Ababa and partly from abroad. The purpose of this project is to substitute imports by regional
production, and the regional demand is sufficient to absorb the production of a number of small
scale cosmetics producing plants.
3.1.2

Projected Demand

The demand for cosmetics consumption by region is projected following the above rationale and
3.5% annual growth which are the result of rural - urban migration and total population growth
of the region. Table 1 below indicates the projected demand for the coming ten years.

Table 1: Projected Demand for Cosmetic Products

3.1.3

Year

Projected Demand
for Cosmetics
(in tons)

2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19

1,400
1449
1500
1552
1607
1663
1721
1781
1844
1908
1975
2044

Pricing and Distribution

Based on market research result and the capacity of the envisaged plant, the selling price
estimated Birr 18 per bottle of Vanishing Cream, Birr 480 kg per face powder and Birr 30 per kg
of Soap. The price is set after deduction 25% margin for distributors. The exiting retail and
wholesale network shall be used as distribution outlet.

3.2Plant Capacity
Thus, given the expected demand for cosmetic products presented earlier, and the planned
technology, the envisaged plant is set to produce 30,000 bottles of Vanishing cream, 120,000 Kg
of Soap and 500kg of face powder annually.

3.3Production Program
The program is scheduled based on the consideration that the envisaged plant will work 275 days
in a year in 2 shifts, where the remaining days will be holidays and for maintenance. During the
first year of operation the plant will operate at 75 percent capacity and then it grows to 85
percent in the 2nd year. The capacity will grow to 100 percent starting from the 3 rd year. This
consideration is developed based on the assumption that market and logistics barriers would take
place for the first two years of operation.

4. Raw Materials and Utilities

4.1

Availability and Source of Raw materials

Different cosmetics use different types of inputs with varying proportions. Basically there are
about six types of inputs which constitute the components of many types of cosmetics. These are
waxes, fatty acids, vitamin zed oil, lecithin bentonite and petroleum jelly or Vaseline.
Depending on the type of cosmetics to be made, other inputs are also added to the basic
ingredients. Some of the main inputs such as wax, fatty acids can be obtained from domestic
sources; others have to be imported.

4.2

Annual Requirement and Cost of Raw Materials and

Utilities

The annual raw material and utility requirement and the associated cost for the envisaged plant is
listed in Table 2 hereunder are only assumed by taking the current experience of companies
working in the country. For this project purpose three main products are considered i.e. Soap,
face powder, Vanishing cream.

Table 2: Material and utility Requirements

Items
Waxes
Fatty acids

Total Cost
Quantity ('000 Birr)
(Kg)
L.C. F.C.
55000
27500

684
570

0
0
4

Vitamin zed oil

Lecithin bentonite
Petroleum jelly
Total Material Cost
Utility
Electricity
Furnace Oil
Water
Total Utility Cost

22000
27500
30250

0
0
0
1,254

1,140
1,482
1,254
3,876

6
26.4
24
5.3
40,1

5. Location and Site

The appropriate locations for the envisaged project in view of the availability of input,
infrastructures as well as market for the output are Combolcha and Bahir Dar.

6. Technology and Engineering

6.1.

Production Process

The formulation and production processes of different groups of cosmetics are different. Hence,
since there is no one common process for all cosmetics, no process description is given in this
section.

6.2.

Machinery and Equipment

Machinery and equipment for cosmetics also differ based on the type of cosmetics to be
produced.

The following are the basic types of machines used for different categories of

cosmetics. Heating equipment: electric heaters; boilers, steam stills, water baths and distilled
water heat stills. Equipment for creams: - meters for waxes, greases and fats, mixers for waxes,
greases, fats for milling and mixing operations. Equipment for liquids: - mixers, filters and filter
presses, liquid filling machines of vacuum type, bottle capping machine. There are also different
types of machines for powder cosmetics.
For a plant which will produce 300,000 bottles of vanishing cream, 5000kg of face powder,
12000kgs of scented coconut air, 300,000 bottles of shampoo, 120 ton of soap and 5000 tubes of

toothpaste per year, total investment will be: 1.5 million. However this plant is only planned to
produce three main products i.e. Soap, Vanishing Cream and Face powder.
The machineries and equipment required for producing the stated product is detailed in Table 3
below.
Table 3: Machinery and Equipments
Machinery and Equipment
Heating equipments
Equipment for creams
Equipment for liquids
Total

Quantity
5
5
4
14

The, total cost of machinery and equipment including freight insurance and bank cost is
estimated to be about Birr 1.05 million.
Suppliers Addresses
Distributor

Abdulla Fouad Co. Ltd.

Dammam 257
Phone: 00966 3 8332600
Damman, Eastern Province 31411 / 257
Saudi Arabia
Manufacturer
Akzo Nobel nv
Service
Velperweg 76
Phone: +31 26 3664433
PO Box 9300
Arnhem, 6800 SB
Netherlands

6.3.

Civil Engineering Cost

The total site area for the envisaged plant is estimated to be 3,000m 2 where 1200m2 is allocated
to the production place and the remaining space is left for stores (900m2), office buildings and
facilities (500m2).The land lease cost is estimated at Birr 180,000. The civil engineering and
building costs is estimated at Birr 2.4 million.

7. Human Resource and Training Requirement

7.1.

Human Resource

The list of required manpower for the envisaged plant is stated in Table 4 below
Table 4: Human Resource Requirements

Position
General Manager
Mechanical Engineer
Administration
Accountant
Secretary
Sales Clerk
Chemist
Store Keeper
Mechanic and Electrician
Supervisor
Operators
Daily Laborers
Cleaners
Messengers
Driver
Guards
Total
Benefit (20%)
Grand Total

No. Required

Monthly
Salary/Wag
e
(in Birr)

1
1
1
2
3
5
2
2
2
2
12
5
3
2
2
3

3500
2500
2000
1200
850
700
1200
700
750
1500
800
300
300
250
700
400

61

Total
Annual
Salary
(in Birr)
42,000
30,000
24,000
28,800
30,600
42,000
28,800
16,800
18,000
36,000
115,200
18,000
10,800
6,000
16,800
14,400
478,200
95,640
573,840

The envisaged plant therefore, creates 61 jobs and about Birr 573120 of household income. The
professionals and support staffs for the envisaged plant shall be recruited from Amhara region

7.2.

Training Requirement

Training of key personnel shall be conducted. This can be arranged with the suppliers of the
plant machineries. The training should primarily focuses on the production technology and
machinery maintenance and trouble shooting. Birr 90,000 is allocated as training expense in the
working capital.

8. Financial Analysis
8.1.

Underlying Assumption

The financial analysis of Cosmetics producing plant is based on the data provided in the
preceding chapters and the following assumptions.
A. Construction and Finance
Construction period

2 year

Source of finance

40% equity and 60% loan

Tax holidays

2 years

Bank interest rate

12%

Discount for cash flow

18%

Value of land

Based on lease rate of ANRS

Spare Parts, Repair & Maintenance

3% of fixed investment

B. Depreciation
Building

5%

Machinery and equipment

10%

Office furniture

10%

Vehicles

20%
8

Pre-production (amortization)

20%

C. Working Capital (Minimum Days of Coverage)

8.2.

Raw Material-Local

30

Raw Material-Foreign

120

Factory Supplies in Stock

30

Spare Parts in Stock and Maintenance

30

Work in Progress
Finished Products
Accounts Receivable
Cash in Hand
Accounts Payable

10
15
30
30
30

Investment

The total investment cost of the project including working capital is estimated at Birr 16.75
million as shown in Table 5 below. The Owner shall contribute 40% of the finance in the form of
equity while the remaining 60% is to be financed by bank loan.

10

Table 5: Total Initial Investments

Total Initial Investment

Item
Land
Building and civil works
Office equipment
Vehicles

Cost
9,000.00
2,400,000.00
100,000.00
500,000.00

Plant machinery & equipment

10,500,000.00

Total Fixed Investment

13,509,000.00

Pre production capital expenditure

Total Initial Investment
Working capital at full capacity

675,450.00
14,184,450.00
2,566,343.00

Total

16,750,793.00
*Pre-production capital expenditure includes - all expenses for preinvestment studies, consultancy fee during construction and
expenses for companys establishment, project administration
expenses, commission expenses, preproduction marketing and
interest expenses during construction.
The foreign component of the project accounts for Birr 19.1 million or 72% of the total
investment cost.

8.3.

Production Costs

The total production cost at full capacity operation is estimated at Birr 8.76 million as detailed in
Table 6 below.

11

Table 6: Production Cost

Total Production Cost at Full Capacity
Items
Cost
1.

Raw materials

2.

Utilities

3.

Wages and Salaries

573,120.00

4.

Spares and Maintenance

405,270.00

40,100.00

Factory costs

6,148,490.00

5.

Depreciation

1,415,090.00

6.

Financial costs
Total Production Cost

8.4.

5,130,000.00

1,206,057.10
8,769,637.10

Financial evaluation
I.

Profitability

According to the projected income statement attached in the annex part the project will generate
profit beginning from the Second year of operation. Ratios such as the percentage of net profit to
total sales, return on equity and return on total investment are -0.37%, 16.33% and -0.47% in the
first year and are gradually rising. Furthermore, the income statement and other profitability
indicators show that the project is viable.
II.

Breakeven Analysis

The breakeven point of the project is estimated by using income statement projection.
Accordingly, the project will break even at 30.7% of capacity utilization.

12

III.

Payback Period

Investment cost and income statement projection are used in estimating the project payback
period. The projects will payback fully the initial investment less working capital in second year.
IV.

Simple Rate of Return

For the envisaged plant the simple rate of return equals to 17.9%.
V.

Internal Rate of Return and Net Present Value

Based on cash flow statement described in the annex part, the calculated IRR of the project is
20.9% and the net present value at 18 % discount is Birr 1.67 million.
VI.

Sensitivity Analysis

The envisaged plant is profitable even with considerable cost increment. That is the plant
maintains to be profitable starting from the first year when 10 % cost increment takes place in
the sector. This result is accompanied by IRR value of 21.55 % with payback period of third
year.

9. Economic and Social Benefit and Justification

The envisaged project possesses wide range of benefits where it promotes the socio-economic
goals and objectives stated in the strategic plan of the Amhara National Regional State. It also
contributes to better health conditions of individuals, and introduces new skills and technology to
the Region. Some of the major specific benefits of this project are listed as follows:
A. Profit Generation
The project is found to be financially viable and earns on average a profit of Birr 1.91 million per
year and Birr 19.18 million within the project life. Such result induces the project promoters to
reinvest the profit which, therefore, increases the investment magnitude in the region.
13

B. Tax Revenue
In the project life under consideration, the region will collect about Birr 7.77 million from
corporate tax payment alone (i.e. excluding income tax, sales tax and VAT). Such result create
additional fund for the regional government that will be used in expanding social and other basic
services in the region
C. Import Substitution and Foreign Exchange Saving
Based on the projected figure we learn that in the project life an estimated amount of US Dollar
10.9 million will be saved as a result of the proposed project. This will create a room for the
saved hard currency to be allocated on other vital and strategic sectors
D. Employment and Income Generation
The proposed project is expected to create employment opportunity to several citizens of the
region. That is, it will provide permanent employment to 61 professionals as well as support
stuffs. Consequently the project creates income of Birr 573,120 per year. This would be one of
the commendable accomplishments of the project.
E. Diversification and InterSectoral Linkage.
The proposed project helps to diversify ANRS and Ethiopian economy. It contributes to
industrialization of the ANRS as well as the country as a whole. It also has a potential to
strengthen the linkage between the manufacturing and the trade sub-sectors.
.

14

ANNEXES

15

Annex 1: Total Net Working Capital Requirements (in Birr)

CONSTRUCTION

Capacity Utilization (%)

1. Total Inventory

PRODUCTION

Year 1

Year 2

75%

85%

100%

100%

3,245,694

3,678,453

4,327,592

4,327,592

1,371,109

1,553,924

1,828,145

1,828,145

Raw Material-Local

102,600

116,280

136,800

136,800

Raw Material-Foreign

1,268,509

1,437,644

1,691,345

1,691,345

Factory Supplies in Stock

6,188

7,014

8,251

8,251

Spare Parts in Stock and Maintenance

33,158

37,580

44,211

44,211

Work in Progress

154,710

175,338

206,279

206,279

Finished Products

309,419

350,675

412,559

412,559

2. Accounts Receivable

932,727

1,057,091

1,243,636

1,243,636

3. Cash in Hand

50,173

56,862

66,897

66,897

2,857,485

3,238,482

3,809,979

3,809,979

4. Current Liabilities

932,727

1,057,091

1,243,636

1,243,636

Accounts Payable

932,727

1,057,091

1,243,636

1,243,636

TOTAL NET WORKING CAPITAL REQUIREMENTS

1,924,757

2,181,392

2,566,343

2,566,343

INCREASE IN NET WORKING CAPITAL

1,924,757

256,634

384,951

Raw Materials in Stock- Total

CURRENT ASSETS

Annex 1: Total Net Working Capital Requirements (in Birr)

(continued)

PRODUCTION
5

10

100%

100%

100%

100%

100%

100%

4,327,592

4,327,592

4,327,592

4,327,592

4,327,592

4,327,592

1,828,145

1,828,145

1,828,145

1,828,145

1,828,145

1,828,145

136,800

136,800

136,800

136,800

136,800

136,800

1,691,345

1,691,345

1,691,345

1,691,345

1,691,345

1,691,345

8,251

8,251

8,251

8,251

8,251

8,251

44,211

44,211

44,211

44,211

44,211

44,211

Work in Progress

206,279

206,279

206,279

206,279

206,279

206,279

Finished Products

412,559

412,559

412,559

412,559

412,559

412,559

1,243,636

1,243,636

1,243,636

1,243,636

1,243,636

1,243,636

66,897

66,897

66,897

66,897

66,897

66,897

3,809,979

3,809,979

3,809,979

3,809,979

3,809,979

3,809,979

4. Current Liabilities

1,243,636

1,243,636

1,243,636

1,243,636

1,243,636

1,243,636

Accounts Payable

1,243,636

1,243,636

1,243,636

1,243,636

1,243,636

1,243,636

TOTAL NET WORKING CAPITAL REQUIREMENTS

2,566,343

2,566,343

2,566,343

2,566,343

2,566,343

2,566,343

Capacity Utilization (%)

1. Total Inventory
Raw Materials in Stock-Total
Raw Material-Local
Raw Material-Foreign
Factory Supplies in Stock
Spare Parts in Stock and Maintenance

2. Accounts Receivable
3. Cash in Hand
CURRENT ASSETS

INCREASE IN NET WORKING CAPITAL

Annex 2: Cash Flow Statement (in Birr)

CONSTRUCTION

PRODUCTION

Year 1

Year 2

7,092,225

9,658,568

9,482,727

9,814,364

11,586,545

11,400,000

7,092,225

9,658,568

932,727

124,364

186,545

Total Equity

2,836,890

3,863,427

Total Long Term Loan

4,255,335

5,795,141

932,727

124,364

186,545

2. Inflow Operation

8,550,000

9,690,000

11,400,000

11,400,000

Sales Revenue

8,550,000

9,690,000

11,400,000

11,400,000

Interest on Securities

TOTAL CASH OUTFLOW

7,092,225

7,092,225

10,023,818

8,347,527

10,116,337

9,404,134

4. Increase In Fixed Assets

7,092,225

7,092,225

6,754,500

6,754,500

337,725

337,725

5. Increase in Current Assets

2,857,485

380,998

571,497

6. Operating Costs

4,503,507

5,085,392

5,958,221

5,958,221

7. Corporate Tax Paid

906,492

966,795

8. Interest Paid

2,662,827

1,206,057

1,005,048

804,038

9. Loan Repayments

1,675,079

1,675,079

1,675,079

10. Dividends Paid

Surplus (Deficit)

2,566,343

-541,091

1,466,837

1,470,208

1,995,866

Cumulative Cash Balance

2,566,343

2,025,252

3,492,089

4,962,297

6,958,164

TOTAL CASH INFLOW

1. Inflow Funds

Total Short Term Finances

3. Other Income

Fixed Investments
Pre-production Expenditures

Annex 2: Cash Flow Statement (in Birr): Continued

PRODUCTION
5
11,400,000

6
11,400,000

7
11,400,000

8
11,400,000

9
11,400,000

10
11,400,000

Total Equity

Total Long Term Loan

Total Short Term Finances

2. Inflow Operation

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

Sales Revenue

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

TOTAL CASH OUTFLOW

9,263,427

9,193,247

9,052,541

7,236,755

7,236,755

7,236,755

4. Increase In Fixed Assets

Fixed Investments

Pre-production Expenditures

6. Operating Costs

5,958,221

5,958,221

5,958,221

5,958,221

5,958,221

5,958,221

7. Corporate Tax Paid

1,027,098

1,157,928

1,218,231

1,278,534

1,278,534

1,278,534

603,029

402,019

201,010

1,675,079

1,675,079

1,675,079

10. Dividends Paid

Surplus (Deficit)

2,136,573

2,206,753

2,347,459

4,163,245

4,163,245

4,163,245

Cumulative Cash Balance

9,094,737

11,301,490

13,648,949

17,812,194

21,975,440

26,138,685

TOTAL CASH INFLOW

1. Inflow Funds

Interest on Securities
3. Other Income

5. Increase in Current Assets

8. Interest Paid
9. Loan Repayments

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

CONSTRUCTION
Year 1

PRODUCTION

Year 2

TOTAL CASH INFLOW

8,550,000

9,690,000

11,400,000

11,400,000

1. Inflow Operation

8,550,000

9,690,000

11,400,000

11,400,000

Sales Revenue

8,550,000

9,690,000

11,400,000

11,400,000

Interest on Securities

TOTAL CASH OUTFLOW

7,092,225

7,092,225

6,428,264

5,342,027

7,249,665

6,925,016

3. Increase in Fixed Assets

7,092,225

7,092,225

Fixed Investments

6,754,500

6,754,500

337,725

337,725

4. Increase in Net Working Capital

1,924,757

256,634

384,951

5. Operating Costs

4,503,507

5,085,392

5,958,221

5,958,221

6. Corporate Tax Paid

906,492

966,795

NET CASH FLOW

-7,092,225

-7,092,225

2,121,736

4,347,973

4,150,335

4,474,984

CUMULATIVE NET CASH FLOW

-7,092,225

-14,184,450

-12,062,714

-7,714,741

-3,564,406

910,578

Net Present Value (at 18%)

-7,092,225

-6,010,360

1,523,798

2,646,311

2,140,697

1,956,057

Cumulative Net present Value

-7,092,225

-13,102,585

-11,578,787

-8,932,477

-6,791,780

-4,835,723

2. Other Income

Pre-production Expenditures

Annex 3: DISCOUNTED CASH FLOW-TOTAL CAPITAL INVESTED

(Continued)

PRODUCTION
5

10

TOTAL CASH INFLOW

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

1. Inflow Operation

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

Sales Revenue

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

6,985,319

7,116,149

7,176,452

7,236,755

7,236,755

7,236,755

3. Increase in Fixed Assets

Fixed Investments

Pre-production Expenditures

5. Operating Costs

5,958,221

5,958,221

5,958,221

5,958,221

5,958,221

5,958,221

6. Corporate Tax Paid

1,027,098

1,157,928

1,218,231

1,278,534

1,278,534

1,278,534

NET CASH FLOW

4,414,681

4,283,851

4,223,548

4,163,245

4,163,245

4,163,245

CUMULATIVE NET CASH FLOW

5,325,259

9,609,110

13,832,659

17,995,904

22,159,150

26,322,395

Net Present Value (at 18%)

1,635,337

1,344,808

1,123,625

938,629

795,448

674,109

-3,200,386

-1,855,578

-731,953

206,676

1,002,124

1,676,233

Interest on Securities
2. Other Income
TOTAL CASH OUTFLOW

4. Increase in Net Working Capital

Cumulative Net present Value

Net Present Value (at 18%)
Internal Rate of Return

1,676,232.89

20.9%

Annex 4: NET INCOME STATEMENT ( in Birr)

PRODUCTION
Capacity Utilization (%)
1. Total Income

75%

85%

100%

100%

100%

8,550,000

9,690,000

11,400,000

11,400,000

11,400,000

8,550,000

9,690,000

11,400,000

11,400,000

11,400,000

4,192,206

4,751,167

5,589,608

5,589,608

5,589,608

VARIABLE MARGIN

4,357,794

4,938,833

5,810,392

5,810,392

5,810,392

(In % of Total Income)

50.97

50.97

50.97

50.97

50.97

1,726,391

1,749,316

1,783,703

1,783,703

1,783,703

OPERATIONAL MARGIN

2,631,403

3,189,518

4,026,689

4,026,689

4,026,689

(In % of Total Income)

30.78

32.92

35.32

35.32

35.32

2,662,827.11

1,206,057.10

1,005,047.58

804,038.06

603,028.55

-31,423.96

1,983,460.47

3,021,641.62

3,222,651.14

3,423,660.65

0.00

0.00

906,492.49

966,795.34

1,027,098.20

-31,423.96

1,983,460.47

2,115,149.13

2,255,855.80

2,396,562.46

Sales Revenue
Other Income
2. Less Variable Cost

3. Less Fixed Costs

4. Less Cost of Finance

5. GROSS PROFIT
6. Income (Corporate) Tax
7. NET PROFIT
RATIOS (%)
Gross Profit/Sales

-0.37%

20.47%

26.51%

28.27%

30.03%

Net Profit After Tax/Sales

-0.37%

20.47%

18.55%

19.79%

21.02%

Return on Investment

16.33%

19.49%

18.63%

18.27%

17.91%

Return on Equity

-0.47%

29.60%

31.57%

33.67%

35.77%

Annex 4: NET INCOME STATEMENT (in Birr): Continued

PRODUCTION
6

10

Capacity Utilization (%)

100%

100%

100%

100%

100%

1. Total Income

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

Sales Revenue

11,400,000

11,400,000

11,400,000

11,400,000

11,400,000

Other Income

2. Less Variable Cost

5,589,608

5,589,608

5,589,608

5,589,608

5,589,608

VARIABLE MARGIN

5,810,392

5,810,392

5,810,392

5,810,392

5,810,392

(In % of Total Income)

50.97

50.97

50.97

50.97

50.97

3. Less Fixed Costs

1,548,613

1,548,613

1,548,613

1,548,613

1,548,613

OPERATIONAL MARGIN

4,261,779

4,261,779

4,261,779

4,261,779

4,261,779

(In % of Total Income)

37.38

37.38

37.38

37.38

37.38

4. Less Cost of Finance

402,019

201,010

5. GROSS PROFIT

3,859,760

4,060,770

4,261,779

4,261,779

4,261,779

6. Income (Corporate) Tax

1,157,928

1,218,231

1,278,534

1,278,534

1,278,534

7. NET PROFIT
RATIOS (%)

2,701,832

2,842,539

2,983,245

2,983,245

2,983,245

Gross Profit/Sales

33.86%

35.62%

37.38%

37.38%

37.38%

Net Profit After Tax/Sales

23.70%

24.93%

26.17%

26.17%

26.17%

Return on Investment

18.53%

18.17%

17.81%

17.81%

17.81%

Return on Equity

40.32%

42.42%

44.52%

44.52%

44.52%

Annex 5: Projected Balance Sheet (in Birr)

CONSTRUCTION
TOTAL ASSETS
1. Total Current Assets
Inventory on Materials and Supplies
Work in Progress
Finished Products in Stock
Accounts Receivable
Cash in Hand
Cash Surplus, Finance Available
Securities
2. Total Fixed Assets, Net of Depreciation
Fixed Investment
Construction in Progress
Pre-Production Expenditure
Less Accumulated Depreciation
3. Accumulated Losses Brought Forward
4. Loss in Current Year
TOTAL LIABILITIES
5. Total Current Liabilities
Accounts Payable
Bank Overdraft
6. Total Long-term Debt
Loan A
Loan B
7. Total Equity Capital
Ordinary Capital
Preference Capital
Subsidies
8. Reserves, Retained Profits Brought Forward
9.Net Profit After Tax
Dividends Payable
Retained Profits

Year 1
7,092,225
0
0
0
0
0
0
0
0
7,092,225
0
6,754,500
337,725
0
0
0
7,092,225
0
0
0
4,255,335
4,255,335
0
2,836,890
2,836,890
0
0
0
0
0
0

Year 2
16,750,793
2,566,343
0
0
0
0
0
2,566,343
0
14,184,450
6,754,500
6,754,500
675,450
0
0
0
16,750,793
0
0
0
10,050,476
10,050,476
0
6,700,317
6,700,317
0
0
0
0
0
0

PRODUCTION
1
17,683,520
4,882,736
1,410,456
154,710
309,419
932,727
50,173
2,025,252
0
12,769,360
13,509,000
0
675,450
1,415,090
0
31,424
17,683,520
932,727
932,727
0
10,050,476
10,050,476
0
6,700,317
6,700,317
0
0
0
0
0
0

2
18,084,841
6,730,571
1,598,517
175,338
350,675
1,057,091
56,862
3,492,089
0
11,354,270
13,509,000
0
675,450
2,830,180
0
0
18,084,841
1,057,091
1,057,091
0
8,375,396
8,375,396
0
6,700,317
6,700,317
0
0
-31,424
1,983,460
0
1,983,460

3
18,711,456
8,772,276
1,880,608
206,279
412,559
1,243,636
66,897
4,962,297
0
9,939,180
13,509,000
0
675,450
4,245,270
0
0
18,711,456
1,243,636
1,243,636
0
6,700,317
6,700,317
0
6,700,317
6,700,317
0
0
1,952,037
2,115,149
0
2,115,149

4
19,292,233
10,768,143
1,880,608
206,279
412,559
1,243,636
66,897
6,958,164
0
8,524,090
13,509,000
0
675,450
5,660,360
0
0
19,292,233
1,243,636
1,243,636
0
5,025,238
5,025,238
0
6,700,317
6,700,317
0
0
4,067,186
2,255,856
0
2,255,856

Annex 5: Projected Balance Sheet (in Birr):

Continued

PRODUCTION
TOTAL ASSETS
1. Total Current Assets
Inventory on Materials and Supplies
Work in Progress
Finished Products in Stock
Accounts Receivable
Cash in Hand
Cash Surplus, Finance Available
Securities
2. Total Fixed Assets, Net of Depreciation
Fixed Investment
Construction in Progress
Pre-Production Expenditure
Less Accumulated Depreciation
3. Accumulated Losses Brought Forward
4. Loss in Current Year
TOTAL LIABILITIES
5. Total Current Liabilities
Accounts Payable
Bank Overdraft
6. Total Long-term Debt
Loan A
Loan B
7. Total Equity Capital
Ordinary Capital
Preference Capital
Subsidies
8. Reserves, Retained Profits Brought Forward
9. Net Profit After Tax
Dividends Payable
Retained Profits

5
20,013,716
12,904,716
1,880,608
206,279
412,559
1,243,636
66,897
9,094,737
0
7,109,000
13,509,000
0
675,450
7,075,450
0
0
20,013,716
1,243,636
1,243,636
0
3,350,159
3,350,159
0
6,700,317
6,700,317
0
0
6,323,041
2,396,562
0
2,396,562

6
21,040,469
15,111,469
1,880,608
206,279
412,559
1,243,636
66,897
11,301,490
0
5,929,000
13,509,000
0
675,450
8,255,450
0
0
21,040,469
1,243,636
1,243,636
0
1,675,079
1,675,079
0
6,700,317
6,700,317
0
0
8,719,604
2,701,832
0
2,701,832

7
22,207,928
17,458,928
1,880,608
206,279
412,559
1,243,636
66,897
13,648,949
0
4,749,000
13,509,000
0
675,450
9,435,450
0
0
22,207,928
1,243,636
1,243,636
0
0
0
0
6,700,317
6,700,317
0
0
11,421,436
2,842,539
0
2,842,539

8
25,191,174
21,622,174
1,880,608
206,279
412,559
1,243,636
66,897
17,812,194
0
3,569,000
13,509,000
0
675,450
10,615,450
0
0
25,191,174
1,243,636
1,243,636
0
0
0
0
6,700,317
6,700,317
0
0
14,263,975
2,983,245
0
2,983,245

9
28,174,419
25,785,419
1,880,608
206,279
412,559
1,243,636
66,897
21,975,440
0
2,389,000
13,509,000
0
675,450
11,795,450
0
0
28,174,419
1,243,636
1,243,636
0
0
0
0
6,700,317
6,700,317
0
0
17,247,220
2,983,245
0
2,983,245

10
31,157,665
29,948,665
1,880,608
206,279
412,559
1,243,636
66,897
26,138,685
0
1,209,000
13,509,000
0
675,450
12,975,450
0
0
31,157,665
1,243,636
1,243,636
0
0
0
0
6,700,317
6,700,317
0
0
20,230,466
2,983,245
0
2,983,245

10