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ANALYSIS
Scenario 1 which assumes a 5% decrease in sales shows a rigorous
effect in the financial standing and profitability of the business. The first year of
operations shows that the companys income reduced by 62% compared to the
original income. This indicates that the project is very sensitive to the change of
net sales. However, in the long run, as the years went on, the business slowly
deflating its loss by increasing its net income that signifies that the business can
continue to exist if implemented. Compared to the actual results, the ROE
(Return on Equity) of the business in Scenario 1 dramatically reduced to 40.06 %
in the first year. A 59.94% decrease in ROE indicates that the business, if
decrease the sales by 5% would ineffective in financing its operating activities
using its invested equity. The business shows that, after 5.43 years, invested
capital will be recovered, which is unfavorable because of the longevity of the
period that the initial investments will be recovered. Moreover, the company
shows in the scenario 1 that it need to sell 4,324.58 sacks of flour in the first year
in order to equalize the unit sales to its unit costs.. The increase in breakeven
sales signifies more sales must be incurred to equalize the cost sustained during
the production to its profit. The margin of safety of the business which is Php 20,
98.02 in the first year is 88% lower than the original margin of safety indicates
that excess sales at the breakeven point would realize an 62.36% profit in that
year.
Considering the above-mentioned statements, the proponents conclude
that 5% decrease in sales can create an unfavorable impact to the businesss

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operating activities and profitability. Thus, the business is sensitive to the

percentage change in sales that causes its profitability to decline and other
factors to be potentially unfavorable.
Scenario 2 assumes an increase in cost and expenses by varying rates of
percentages. As shown above, 69.19%, 35.15%, 35.63%, 34.59% and 34.50%
decrease in net income was incurred by the company for five consecutive years,
respectively. The varying trend of the changes of the net income would signifies
that in a long run, the business will be able to continue its operations if
implemented. The ROE shows an unfavorable response due to the decrease of
cost or expenses, this the company is ineffective in generating income fro this
scenario out of its invested capital and therefore, discourages future investors to
invest using equity, The Discounted Payback Period (DPP) significantly boost by
1.75 years and brings with it the unfavorable impact to the business. Also, there
is a timely change in breakeven point in pesos wherein it requires producing
significant units of sales to equalize its cost.
Considering the above situations, the proponents conclude that a increase
in expenses and cost would negatively impact the performance and the
profitability of the business. However, the business is sensitive to the change in
expenses as compared to Scenario 1 in which 69.19% decrease was sustained
by Scenario 2.
Scenario 3 depicts a very unfavorable outcome compared to the last two
scenarios. As shown in the comparatives above, a net loss was incurred due to
the decrease of 5% in sales and an increase of expenses in varying rates.

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However, as the years go by, the business is capable of coping up its losses and
incurs an income starting in the third year. In addition, the return on equity (ROE)
is negative signifies that the company cannot finance its operation through its
invested equity. This pervasive impact would probably discourage the investors
to invest. The discounted payback period (DPP) of the business is a very bad
indicator in which in a span of 12.40 long years the investors have to wait in
order to recover its investment. The breakeven sales of the company is very high
in which, it needs to produce 11,738.07 sacks to equalize its expenses in the first
year. Though, the trend is decreasing but the decrease is not so material. The
breakeven sale in pesos signifies that the business needs to have sales of PHP
6,410,242.35 to equalize its incurred cost. Thus, profitability in the first year is
impossible because the business cannot produce the breakeven sales.
Therefore, the proponents conclude that the combination of the Scenarios
1 and 2 can create an adverse scenario in the companys performance and
profitability. However, comparing the Scenario 1 and Scenario 2, the business is
more sensitive on the adverse change in the revenues than on the increase in
cost and expenses.