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72 views19 pagesSmall Enterprises Fesability Studies
The document discusses the key components of a feasibility study for small enterprises, including legal, market, technical, financial, economic, and social feasibility analyses. It provides details on the objectives and types of information gathered in an initial feasibility study and subsequent detailed feasibility studies, which examine factors such as market demand, production requirements, funding sources, economic criteria, social impacts, and sensitivity to uncertainty.
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0% found this document useful (0 votes)
72 views19 pagesSmall Enterprises Fesability Studies
The document discusses the key components of a feasibility study for small enterprises, including legal, market, technical, financial, economic, and social feasibility analyses. It provides details on the objectives and types of information gathered in an initial feasibility study and subsequent detailed feasibility studies, which examine factors such as market demand, production requirements, funding sources, economic criteria, social impacts, and sensitivity to uncertainty.
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Mina Samy abd el zaherCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter two
Small enterprises feasibility study
• Introduction
• The feasibility study can be identified as the
study that enables us to recognize the profits
of the project in comparison to its costs; and
the extent of the market need of this project.
Thus; feasibility study views a project from the
many aspects:
• - Legal
• - Market
• - Technical
• - Financial
• - Economical
• - Social
• Information resources
• In general; information can be collected from
many sources, the most important of which are:
• - Field resources: such as personal interviews with
sales men, potential clients, government officials,
commercial chambers, labor syndicates … etc.
• - Desk resources: represented in the statistics and
data published in brochures issued by
governmental entities and agencies, ministries,
information and statistics associations,
publications of the central bank and commercial
banks; in addition to scientific researches.
Projects objectives
• Private projects:
• Although gaining profits is essential to the
continuation and development of the project; but
it is not the only objective and there are many
other purposes such as:
• - Accomplish as much sales as possible in order to
obtain a larger market and a wider reputation.
• - Preserve the project activity from the danger of
halted production (working without achieving
profits at the balance point).
Initial feasibility study
The initial feasibility study tends to clarify the
following information; or some of it:
- Are there any legal or social constraints for the
project establishment?
- The extent of the need of the project
products.
- The availability of the main production factors.
- Initial estimation of the volume of required
investment and operation costs.
• - Initial estimation of the project expected net
profits.
• - Summary of the problems that might face
the project, and the types of danger that may
occur by its establishment.
• - Specify the stage; or stages; that need a
higher emphasis in the detailed feasibility
study (market – production – funding … etc.).
• - Estimated costs of the detailed feasibility
study.
Detailed Feasibility study
This study details all the points summarized in
the initial study, so we shall review some of
these detailed studies; as follows:
Market feasibility study
Studying the demand of the project products is an
important factor in the market study, it includes the
following aspects:
- Study the specifying factors of the supply and demand
in regards to the project product.
- Identify the market structure, its size, its features and
its organization procedures.
- Analyze the previous and current supply in regards of
its source: imported, locally produced, sales volume,
price stability and the market policies of the competitors.
- Evaluate the project share of the market in light of
supply and demand and the project position among its
competitors; and determine the guidelines of the
marketing policy to be followed.
Technical feasibility study
This study includes the following:
- Study and analyze the location of the project.
- Study the production process and specify the required spaces.
- Specify the project needs of machinery and tools.
- Specify the project needs of materials and requirements.
- Estimate the project needs of power.
- Estimate the project needs of furniture and transportations.
- Estimate the project needs of direct employees, the
supervision and administration needs and the organizational
structure.
- Estimate the project investment and operation costs.
Funding feasibility study
If the investment and operation costs were estimated;
the feasibility study specialists can suggest the
appropriate funding structure for the project.
Therefore; the following financial statements must be
prepared:
- Statement of project capital and partners.
- The proposed time schedule of capital injection.
- The proposed time schedule for loans.
- The time schedule to pay off the loans.
- A list of cash resources and uses.
- Sources and uses budget statement in foreign
currency (if any).
Economical feasibility study
There are many criterions used to evaluate and arrange
the spending methods of the available capital funding,
they vary; in regards to their accuracy and difficulty;
between standards based on personal estimation and
subjective estimations based on quantitative basis.
These standards are:
a) Balance analysis.
b) Payback period (time standard).
c) Average rate of return (accounting or financial
standard).
d) Economical standards:
1- Net present value 2- Internal rate of return
A) Balance analysis:
It is a method to study the relation between the
income and costs, to evaluate the minimum
production volume needed to achieve balance
(without any profit or loss).
In fact; the balance point of the studied project
can be specified after sales estimation through
the marketing study, and costs estimation
through the technical study.
B) Payback period
It means the amount of time after which the
project recovers the spent invested costs; the
comparison between projects is based on which
project enables the investor to regain their
money as soon as possible.
C) Average rate of return
This standard is based on calculating the
percentage of the yearly accounting (financial)
net profit average; after deducting depreciation
and taxes; to the average investment value of
the project.
D) Economical standards
:1- Net present value
The net present value of the investment project
refers to the difference between the present value
of the inbound cash flows of the project and the
present value of its outbound flows, so; if the net
present value is positive; this means that the
investment project is profitable; and on the
contrary; the investment project is considered
unprofitable when the net present value is
negative.
2- Internal rate of return
This is one of the standards used to evaluate
and compare different investment projects.
It is represented in the rate at which the
present value of the internal cash flows
balances with the present value of the
outgoing cash flows of the investment project.
In other words; it is the discount rate at which
the present net value of the investment project
equals zero.
Social feasibility study
The social feasibility study aims to analyze the social
benefits and costs of different projects, in order to
choose the projects with the highest social advantages,
by studying the project contribution in achieving the
society’s economical and social objectives.
These objectives can be limited in:
- National income growth.
- Increase employment.
- Achieve social justice in distribution.
- Provide rare foreign currencies.
Sensitivity analysis
The problem is mainly caused by the unavailability
of data that enables accurate estimation of cash
flows; so the project is in a state of uncertainty; as
there are some unexpected events that might affect
the accuracy of the forecasts that the project has
no effect on them.
Some of which are:
- Events on an international level.
- Events on a national level.
- Events on the industry level.
- Events on the project level.