A. Projected revenues, operating costs, and net
income
B. Capital requirements, potential and actual sources of equity,
equity accumulation schedule, investment schedule (land, plant,
equipment, human resources, etc.)
C. Pro forma cash flow statement
D. Income, balance sheet, and sources and uses of funds
statements
E. Equity accumulation plan and financial ratio analysis
F. Financial plan summary (description of how it will all fit
together)
Possible economic outcomes are a prominent part of a feasibility
study and are critical in the overall assessment of a project.
Therefore, it is extremely important to do a thorough and careful
job with the financials. Financial projections are usually made for
3 years. Cash flow statements should be monthly, while income
statements and balance sheets should be monthly or quarterly for
the first year and then annual for the second and third years.
Financial statements and projections stem from valid and objective
assumptions. Financial assumptions, such as capital requirements,
equity needs, prices, human resources needed, and other factors,
will come into play here. Because the economics of the project are
so important to project assessment, assumptions must be in line
with the reality of the situation and should not be overly
optimistic or simplistic. Assumptions such as price
forecasts/projections should be based on solid facts, such as
historical prices and changes that have occurred in the industry
which may affect the outlook. The sources for the facts and the
rationale for key assumptions should be well documented either in
the report body or in an appendix.
Most feasibility studies begin with pro forma cash flow statements
based on the assumptions and other data collected about the
project, such as equity collected, product volume, purchases,
sales, and expenses, for example. Besides equity, revenue streams
and operating costs, the pro forma statements must include
repayment and interest on potential short-term and long-term debt
and/or other investments in the project. The cash flow statements
(usually done on a monthly basis) must clearly show when capital is
introduced and when it is repaid. This is important for indicating
the project's repayment capacity, a critical consideration for a
lender or investor. For a sample pro forma cash flow statement, see
Appendix E.
Also included in this section are income statements, balance
sheets, and sources and uses of funds statements (or statements of
cash flows). These pro forma statements provide important
information beyond the cash flow analysis. The plan for
accumulating needed member equity adds even more information by
providing dates, sources, and amounts of equity expected (this
information will be likely obtained from a potential member
survey). Another useful analysis to include is a ratio analysis
where ratios are developed from the pro forma statements. For
example, current ratios, debt ratios, assets turnover, return on
net worth, return on investment, return on sales, etc., should be
formulated and compared during the projected years. For sample pro
forma operating, balance sheet, and ratio statements, see
Appendices F, G, and H, respectively.
In the financial analysis, the study should show the impact of
varying key project assumptions. This controlled variation, called
sensitivity analysis, permits planners to view which project
elements are the most susceptible to positive and negative changes.
For example, what impact does a 10-percent reduction in sales
volume have on net margins?
The sensitivity analyses conducted should then be studied, and
those that are potentially realistic should be developed into
specific scenarios, which would involve looking at all aspects of
how the proposed possible changes would affect the project. Both
"worst-case" possibilities and optimistic scenarios should be
created for comparison purposes. A comparison table and discussion
should be developed so that it's easy to assess the differences
between scenarios.
The financial section should summarize all the findings of the
financial analyses and provide an overall assessment of the
financial and economic implications of the project. The financial
impacts at both the cooperative and member level should be
detailed.