PROJECT REPORT

Introductory information

Name of project

Project location

Type of ownership

Type of business

Loan amount recommended

Period of loan recommended

Grace period recommended

Project Description

Brief description of business and nature of project financed

Going concern or new start up

Assessment of project risk from the point of view of newness, something

common in the industry in local economy or general project risk perception (like
minibuses at one time were a definite no go area! But this was later reversed
after seeing the performance of UDC loans)

Management of the project

Description of the organisation structure of the business and its personnel

requirements

The structure and qualifications and depth of experience of the management

team

Assessment of management training needs

Assessment of management risk from the point of view of depth and breadth of
experience of senior management personnel in line of business or similar project,
and analyst’s perception of management capability in the project being financed

Market Assessment

Description of key target market; any methods of segmentation

Distribution channels for a manufacturing/production business

Means of effectively targeting and reaching out for customers; promotional
activities

Estimation of market size and the assumptions behind the sales forecasts

Any published industry and market data to support market size estimates

Forecast sales for year 1

Market risk assessment (I can’t remember the basis for risk assessment here. It
might just have been the caprice of the individual analyst!)

Project Size

Project requirements in terms of physical assets (Fixed, movable and liquid

assets)

The cost of the project’s requirements

Owners’ contribution

Loan finance required

Financial Analysis

Key assumptions to the financial statements

An overview of results of analysis on financial forecasts covering key decision

criteria such as cash flow analysis, debt service ratio, profitability analysis
(internal rate of return, net present value and payback period).

Recommendations

Recommended decision

Recommended terms of the loan (repayment period, loan amount, grace period,
monthly instalment)

Any special conditions for disbursement (registration of SEDCO interest on assets

used as security, proof of equity contribution, later – whole life policies as an
excuse for HIV testing loan applicants, and other conditions deemed necessary
by the evaluating analyst)
FINANCIALS

Loan amortisation schedule

Loan amount $x000.00

Loan term x years

Grace periodx months

Interest rate x% per annum

Monthly instalment $x000.00

Year Principal Repayment Interest Payment Balance Total

Payment for Year

(a) (b) (c) (d) (e)=(b) + (c)

Etc.
Income Statement
Assumptions to the income statement, especially the level of forecast sales
generated were predominantly dealt with in the main report.

Year 1 Year 2 Year 3 etc

Sales X

Cost of sales -X

Gross Profit X

Expenses

Salaries and wages X

Depreciation X

Transport X

Rent X

Packaging X

Insurance X

Interest X

Electricity X

Telephone X

Licences X

Etc X X

Net profit X

Corporate tax -X

Profit after tax X

Dividends/Drawings -X

Retained profit for year X

Balance Sheet
Year 0 Year 1 Year 2 Year 3 etc

Liabilities (= capital + long term loans)

Equity/Share capital X

Retained profit brought forward X

Retained profit for the year X

Loan balance X

Other long term loans X

Total liabilities X

Assets

Land and fixed assets X

Equipment X

Motor vehicles +X

Accum. Depreciation -X = X

Current assets

Raw materials X

Consumables X

Stock X

Cash (match cashflow) X

Total current assetsX

Current Liabilities

Current part of loan X

Trade creditors X

Bank o/d (cashflow) X

Other short term debts X

Total current liabilities X

Net current assets

(= total current assets less total

Current liabilities) X

Total assets X
Cashflow Statement
Month0 Month1 Month2 ... Month12 Total for
year

Inflows

Equity X 0 0 0 0 X

Loan X 0 0 0 0 X

Other cash sourcedX 0 0 0 0 X

Sales (cash receipts) 0 X X X X

X

Total for month X X X X X

X

Outflows

Assets bought X 0 0 0 0
X

Purchases X X X X X X

Salaries and wages 0 X X X X X

Transport 0 X X X X X

Rent 0 X X X X X

Packaging 0 X X X X X

Insurance 0 X X X X X

Loan payments 0 0 0 X X
X

Electricity 0 X X X X X

Telephone 0 X X X X X

Licences 0 X X X X X

Etc (cash) 0 X X X X X

Taxes paid 0 0 0 0 X X

Dividends/drawings 0 0 0 0 X
X
Total outflows -X -X -X -X -X
-X

Net inflow X X X X X X

Balance b/f +0 +X +X +X +X +0

Balance c/f X X X X X X

Notes on the cash flow statement

(a) b/f = brought forward

(b) c/f = carried forward

(c) Month 0 is when everything is brought into place in terms of finance,

assets and all the necessities for starting the business.

(d) Month 1 onwards: payments are assumed to be made as they are

consumed for simplicity’s sake and according to the agreements with both
customers and our suppliers of goods and services

(e) Month 12 balance c/f = Total for Year net inflow = cash/bank overdraft for
year in the Balance Sheet (Remember ndiyo part yaiti onesa moto ku
SEDCO!) & the Balance Sheet should balance.

(f) Taxes and dividends are assumed to be paid in Month 12, but this can be
varied in line with both legislation and reality

(g) Net inflow = Total inflows – Total outflows

Debt Service Ratios

DSR = Profit after tax + Depreciation

Principal repayment + Interest payment + Dividends/Drawings

(I understood the DSR as the capability of a business to meet the requirements

of the providers of capital (owners and lenders) from its cash generation
capacity).

Year 1 Year 2 Year 3 etc

DSR X X X X

Average DSR = Sum of all DSR = ∑DSR/n years

Number of years
Other Financial Analysis
(a) Project sensitivity analysis (covered in the PROEMP Excel Spreadsheet
attached was never used at SEDCO)

(b) Accept project if net present value (NPV) is positive (calculated using
financial calculator)

(c) Accept project if internal rate of return (IRR) is greater than SEDCO loan
interest (25%), but this was rarely used for as long as NPV was positive
(IRR calculated using financial calculator & later MS Excel)

(d) Accept project if payback period is less than or equal to the period of the
loan (How long it took for accumulated profit after tax to equal or exceed
initial investment, in this case SEDCO loan)

(e) Accept project if average DSR is greater than or equal to 1.5. If it less than
1.5 in any given year, it should be greater than 1 and should not be less
than 1.5 for two or more consecutive years.

(f) Accept project if Year 1 net cash flows are positive from month to month.

(g) Minimum equity contribution was 15% for SEDCO

(h) Accept project if adequately secured. Security cover was 1 and above (if I
remember well). Security was assessed at value = 85% market value less
legal costs (I can’t remember percentage – 1.5 or 3% or a fixed figure, I
am not sure).

(i) Liquidity ratios : Accept project if Current ratio (Current

assets/Current liabilities) is

greater than or equal to 1.5

Quick ratio (Cash/Current liabilities) = 1 (Was no longer

used when we joined)

These are all I can remember. I don’t think there is anything else that was
important that I might have left out.