TABLE OF CONTENTS

1 INTRODUCTION.................................................................................................................1
1.1 Objectives of The project................................................................................................1
1.1.1 General objective.....................................................................................................1
1.1.2 Specific objectives...................................................................................................2
1.2 Mission of the Project:....................................................................................................2
1.3 Vision of the project:......................................................................................................2
1.4 Why Sheep Farming?.....................................................................................................2
1.5 Description of the proposed area and its potential..........................................................3
1.6 Facilities..........................................................................................................................4
2 MARKET STUDY AND PLANT CAPACITY....................................................................4
2.1 Marketing plan................................................................................................................4
2.2 Our Target market...........................................................................................................4
2.3 Market mix/strategy........................................................................................................5
2.4 Product............................................................................................................................5
2.5 Place or distribution........................................................................................................5
2.6 Promotion.......................................................................................................................6
2.7 Pricing and Distribution..................................................................................................6
3 PLANT CAPACITY AND PRODUCTION PROGRAM....................................................7
3.1 Plant Capacity.................................................................................................................7
3.2 Production Program........................................................................................................7
4 MATERIALS AND INPUTS................................................................................................7
4.1 Raw materials.................................................................................................................7
4.2 Utilities...........................................................................................................................9
5 TECHNOLOGY AND ENGINEERING..............................................................................9
5.1 Technology.....................................................................................................................9
5.1.1 Process Description.................................................................................................9
5.1.2 Environmental Impact...........................................................................................10
5.2 Engineering...................................................................................................................10
5.2.1 Equipment and Machinery....................................................................................10
5.2.2 Land, Buildings and Civil Works..........................................................................11
6 HUMAN RESOURCE AND TRAINING REQUIREMENT.............................................14
6.1 Organizational structure................................................................................................14
6.2 Human resource requirement........................................................................................14
6.3 Training requirement....................................................................................................15

|Page
7 FINANCIAL ANALYSIS...................................................................................................15
7.1 Total initial investment cost..........................................................................................16
7.2 Production cost.............................................................................................................16
7.3 Financial evaluation......................................................................................................17

LIST OF FIGURE

Figure 1 Product Distribution technique.......................................................................................5

Figure 2 Proposed Target market areas.........................................................................................6
Figure 3proposed Fattening plant................................................................................................11
Figure 4 Proposed Fattening farm Architectural design.............................................................13
Figure 5 Company organizational structure................................................................................15

LIST OF TABLE

Table 1 Annual production plan....................................................................................................7

Table 2Feed requirement and estimated costs per production cycle for fattening unit.................8
Table 3 Annual raw materials requirement and costs...................................................................9
Table 4 Annual utilities requirement at full capacity and cost......................................................9
Table 5 Estimated Equipment and Machinery cost.....................................................................10
Table 6 Estimated Vehicle cost...................................................................................................11
Table 7 Incentives for lease payment of industrial projects........................................................13
Table 8 Manpower requirement..................................................................................................15
Table 9 initial investment cost.....................................................................................................17
Table 10 ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR THREE).........18

|Page
I. EXCUTIVE SUMMARY

This sheep fattening farm envisages the establishment of a farm for the fattening of sheep with a
capacity of 1,200 sheep per year. The principal raw material required is sheep to be fattened and
feeding substances, which are locally available.

The total investment cost of the project including working capital is 1.4 million Birr. From the
total investment cost the highest share (Birr 600,000 or 42 %) is accounted by Building and civil
work cost followed by initial working capital (Birr 296.23 thousand or 20%). .

The project is financially viable with an internal rate of return (IRR) of 131 % and a net present
value (NPV) of Birr 9.4 million discounted at 10%.

The project can create employment for 23 persons. The project will also create backward linkage
with the livestock sector and also generates income for the Government in terms of tax revenue
and payroll tax.

From the initial investment 30% which is 426,990.24 will be covered from equity and the rest 70
% which is 996,310.55 will be from loan.

1 INTRODUCTION

Fattening has been defined as intensive feeding of highly nutritious feed to promote fast growth
and fat deposition to achieve desired carcass growth and quality. Such systems can be applied to
sheep as they` can easily adapt to an intensive system of production under feedlots.

Fattening programs aim to realize maximum growth rate and higher carcass yields in a minimum
period of time, which would raise production per unit of land and the value of the livestock.
Traditionally, farmers in Ethiopia are used to fatten a few sheep based on available inputs
targeting sales during festive holidays.

Since Amhara Regional state is establishing new integrated Agro industrial park located in
Amanueal town. There could be a large demanded on live animal and it became a good
opportunity for us to launch such farm.

1.1 Objectives of The project

1.1.1 General objective  

 The main objective of the project to improve the production fattened sheep both
qualitatively and quantitatively so as to improve the socio- economic status of sheep
rearing communities on one hand and to meet the demand of Sheep meat to maximum
level on other hand by way of extensive fattening program.

1|Page
  To develop a project that will serve as a template to attract more investors towards
similar businesses.

1.1.2 Specific objectives

 Create employment opportunities in farmer households by introducing community level
adoption schemes based on community impact workshops.
 To contribute towards the process of diversification of economic activities, that is aligned
with government policies, through this project and similar project which use this as a
model.
 The project will tune revenue to the treasury of local, regional and federal government in
the form of taxes.
 To develop a model sheep fattening farm which will attract more investors in sheep
breeding and fattening businesses to fulfill the large domestic and international demand
for sheep meat.

 Generate foreign currency from exports to neighboring countries & the Middle East.

1.2 Mission of the Project:

 To bridge the gap between demand and supply in livestock products.

 Improving genetic potential of indigenous stock by utilizing modern scientific tools
available. FINANCIAL ANALYSISFINANCIAL ANALYSIS
 Sustain efforts in livestock sector to attain perceptible change in economic growth of the
State.
 Ensuring a healthy society by safe guarding against disease through surveillance and
monitoring of livestock.

1.3 Vision of the project:

 Within five year of service Bekur Sheep Fattening Farm will successfully satisfy demand
of healthy and quality fattened sheep to the local market and also it will be one of the
major fattened sheep supplier to butchers in Amanueal industrial park and companies
like LUNA and ELFORA
 In 2018 Bekur sheep fattening farm will be equipped to begin sheep meat ( lamp)
delivery service and advanced (large scale) fattened sheep production and our company
will start to deliver export standard meat and fattened sheep to east Africa and middle
east markets

1.4 Why Sheep Farming?

Demand and prices for sheep and goat meat show an increasing trend due to urbanization and
increased income in the cities and increased demand from the Gulf countries. From 2000 to 2008
the price of live sheep and sheep meat increased by 157%; and It is evident that the increasing
demand for sheep meat cannot be met with the current inefficient production and marketing
systems. Although Ethiopian sheep breeds are well adapted to the existing production

2
environments, their full production potential is obviously not being realized due to a combination
of constraints.

 Huge and increasing demand for sheep meat within and outside the country reflected in
increasing prices
 Ethiopia’s strategic location promoting exports to Middle East markets
 Abattoirs in Ethiopia operate only at 40% of their capacity (information from Elfora)
 The majority of rural poor in Ethiopia depend on sheep (and goat) production
 Many market agents along the value chain (input/livestock traders, meat processors and
transporters etc.) provide potential as well as challenge for cooperation
 Sheep farming business require less labor than any other livestock farming business.
 Sheep can survive by consuming low quality grass and turn the feed into meat and wool.
 They are very hardy animal, and can adopt themselves with almost all types of
environment.
 Sheep require less space for living. Even you can raise sheep with your other livestock
animals. By proper care and management, commercial sheep farming business can be a
great source of earning and employment. Unemployed educated young can also make a
good income and employment source through raising sheep commercially.

1.5 Description of the proposed area and its potential

FINANCIAL ANALYSISFINANCIAL ANALYSIS
The Proposal was conducted in East Gojjam zone Machakel woreda. Machakel is one of the
fourteen districts (woreda) of Eastern Gojam Administrative Zone of Amhara National Regional
State. It is found in the North western highlands of Ethiopia. The District town (Amanuel) is
located 30 km north-west of Debre-Markos town on the main road to Bahir Dar. The total area of
the district is about 98400 ha of which 37.5 per cent is under cultivation. The district has a wide
range of agro-climatic zones from semi-arid lowlands (kolla) to cold highlands (wurch). The
altitude ranges from about 1000 m.a.s.l. in the Abay Valley in the southern part of the district to
3200 m.a.s.l. in the Choke Mountains in the northern part. In between the humid-highland
(Dega) and sub-humid highland (Weina Dega) covers the major part of the district. Sample PAs
for this study were drawn from the humid highlands and sub-humid highlands

Based on the 2007 national census conducted by the Central Statistical Agency of Ethiopia
(CSA), this woreda has a total population of 118,097, an increase of -37.34% over the 1994
census, of whom 58,529 are men and 59,568 women; 8,728 or 7.39% are urban inhabitants. With
an area of 746.43 square kilometers, Machakel has a population density of 158.22, which is
greater than the Zone average of 153.8 persons per square kilometer. A total of 27,967
households were counted in this woreda, resulting in an average of 4.22 persons to a household,
and 27,143 housing units.

3
The districts (Machakel Wereda) of East Gojjam zone were selected based on the potential of
sheep distribution in their production environment, the district is characterized by mixed crop-
livestock farming system where livestock are reared to supplement crop production, which is
the main means of sustaining livelihood and facilities that assist the project.

1.6 Facilities

According to a May 24, 2004 World Bank memorandum, 8% of the inhabitants of East Gojjam

have access to electricity, this zone has a road density of 24.2 kilometers per 1000 square
kilometers (compared to the national average of 30 kilometers), the average rural household has
1.1 hectares of land (compared to the national average of 1.01 hectare of land and an average of
0.75 for the Amhara Region)  and the equivalent of 0.6 heads of livestock. 11.4% of the
population is in non-farm related jobs, compared to the national average of 25% and a Regional
average of 21%. 66% of all eligible children are enrolled in primary school, and 13% in
secondary schools.

The Zonal Water Resource Development Office announced that it had completed construction of
water towers, which will benefit people in the town. And using funds from the government,
local NGOs and the public, working on spring development to improve the rate of access
to clean water for inhabitants in the Zone from 39% to 50.6%.

In Amanuel town, there is one well organized Governmental animal clinic with professional
FINANCIAL
expertise that serve the society. It has also and at least oneANALYSISFINANCIAL ANALYSIS
private pharmacy per kebele.

2 MARKET STUDY AND PLANT CAPACITY

2.1 Marketing plan

Marketing is planning and executing the idea of a product, its price and the promotion and
distribution (place) of that product to satisfy the needs of customers. And also it helps us in
determining potentially PROFITABLE market exists and sell at a price high enough to generate
a profit, how to identify the target market and how we are going to reach the target market.

2.2 Our Target market

Producing a product without knowing the target or product consumer is always end up with loss.
As we know in Ethiopia and other countries meat consumption increases exponentially at holy
days in different religions and cultural traditions. And also it is associated with standard of living
mostly in urban areas. As standard of living increases consumption of meat increases. Since we
are going to produce fattened sheep our product gets continuous demand from the market. So, we
will provide/supply fattened sheep to East and West Gojjam hotels, restaurants and individuals at
the beginning then to regional cities and Addis Ababa. After we are organized we will export to
East Africa countries and developed countries with large scale production and also we will

4
involve in exporting meat by adding value. So, from this we can analyze that our target market
begins from local individuals to national and international institutions.

2.3 Market mix/strategy

After fattening process done those sheep needs to be delivered to the target market at the right
time. In the previous fattening practice one of the major constraint in fattening process was lack
of organized market trend. In order to successfully solve the problem this proper market strategy
should be made. So as to solve this problem we classified our market strategy into 4 main
sections. Which we believe those strategies satisfies our goals of supplying fattened sheep to
local, national and international market with quality and quantity.
2.4 Product

Our primary product is providing fatten live sheep to the markets in regular and timely basis.
And then in the near future we will join supplying meat based on market demand. All this going
to happen based on our fattening and supplying criteria’s.

2.5 Place or distribution

We will use different market channels but the one who take volume wise will get preference.
FINANCIAL ANALYSISFINANCIAL ANALYSIS
Relatively liv animal exporters and export abattoirs are better in taking animals volume wise and
they regularly and constantly demand our product. We will reach our customers in our
compound show room and specific place in the market.
Figure 1 Product Distribution technique

5
Figure 2 Proposed Target market areas

2.6 Promotion
FINANCIAL ANALYSISFINANCIAL ANALYSIS

Finally after fattening process, setting place or distribution, selection of best market channel and
setting up fair price the last thing to do is promoting our product to the public using different
methods to reach them easily. Those methods are;

 Advertising in medias like amhara mass media, macha TV and other medias
 Through social media accounts like Telegram and Facebook
 Through web site by displaying everything we have everything we used
 By giving business card to wholesalers, processors, retailors, brokers and enterprises
like LUNA, ELFORA, SAFI &MODJO slaughter.

2.7 Pricing and Distribution

Prices of sheep depends upon the size of fattened sheep. Current average price by the existing
fattening farms is Birr 120 per Kg. Current practice of feed product distribution involves sales at
factory gate and to supply to major

6
 3 PLANT CAPACITY AND PRODUCTION PROGRAM
3.1 Plant Capacity

Based on the projection of unsatisfied demand for dairy products in the market study and the
minimum economic scale of production, the envisaged farm will have a capacity of fattening
1,200 per annum.

The fattening cycle will be in every 120 days/4 months. So, we have 3 cycles in a year
considering the end of fattening should coincide with the Ethiopian anniversaries. This capacity
is proposed on the basis of 300 working days per annum.

3.2 Production Program

With an assumption that enough time, during the initial farming period, will be required for
market penetration and technical skill development, the envisaged farming will start fattening at
50 % of its installed capacity which will grow to 90% in the second year.

Full capacity fattening will be attained in the third year and onwards. Details of the annual
production program along with the product mix are shown in Table 2.

FINANCIAL ANALYSISFINANCIAL ANALYSIS

Table 1 Annual production plan

Sr. Description Unit of Production Year

No. Measure 1st 2nd 3rd & Onwards
1 Fattening Sheep No 600 1080 1,200
2 Capacity utilization rate % 50 90 100

4 MATERIALS AND INPUTS

4.1 Raw materials

The principal raw material required for the fattening of sheep is raw (whole) sheep having an
average size of 20 – 25 kg. In addition, feeding is the most important part of fattening. Which is
fattening in short period of time by providing quality and higher volume of food to achieve short
term fattening.

Feeds are classified according to the amount of specific nutrients they supply. Two main classes
of feedstuff are roughages and concentrates.

7
 Roughages: These are bulky feeds containing relatively large amounts of poorly digestible
material, that is, more than 18% crude fiber

Concentrate: A feed or feed mixture which has high amounts of protein, carbohydrates and fat,
contains less than 18% crude fiber and is usually low in moisture. Details of feed requirement
and estimated costs per production cycle for fattening unit the estimated costs are shown in Table
2.

Table 2 Feed requirement and estimated costs per production cycle for fattening unit

Types of feed Unit Concentra Forage Total

te
Amount of feed required per Sheep Kg 0.23 0.34 kg 0.57 kg
per day
No. of sheep per production season No per cycle 400 400 400
Total feed quantity required per day Kg 92 136 228
Total feed quantity required per Kg per 11,040 16,320 27,360
production season (120 Days) cycle(120day)
Cost per Kg of concentrate and forage Birr per kg 8 1 9
in ETB
Cost per unit of Sheep in ETB 1.84 0.34 2.18
Total estimated cost in ETB per day 736 136 872
Total estimated cost in ETB per 88,320 16,320 104,640
production season (120 Days) FINANCIAL ANALYSISFINANCIAL ANALYSIS
Total annual cost in ETB 313,920

*Concentrate: A feed or feed mixture which has high amounts of protein, carbohydrates and fat, contains
less than 18% crude fiber and is usually low in moisture. Concentrates are rich in either energy or
protein and are thus expensive.

*Forage: is a plant material (mainly plant leaves and stems) eaten by grazing livestock.

Sheep fattening feed rations should generally contain about 60% forage (roughages) and 40% legume
crop residues or concentrate feed. The daily feed ration of roughages, the basal feed, should be made
available to the animal ad libitum, corresponding to about 2-3% of its body weight. These could be
millet, sorghum straw or bush hay. The period of time of profitable fattening should be 120 days,
depending on feed availability and the animal’s initial weight.

The sheep to be fattened and raw supplements for feeding are available locally. Details of annual
requirement for raw materials at 100% capacity utilization of the farm and the estimated costs
are shown in Table.

8
Table 3 Annual raw materials requirement and costs

Sr. Unit of Require Unit Price, Cost (Birr)

Description
No. Measure d Qty Birr/Unit F. C. L.C. Total
Sheep to be 1,440,00
1 No. 1,200 1200 1,440,000
fattened 0
Feeding per
2 cycle 3 104,640 313,000 313,000
cycle
1,753,00
Total 1,753,0000
0

4.2 Utilities

The major utilities required by the envisaged project are electric power and water. The annual
requirement for utilities and the estimated costs is indicated in Table 4.3.

Table 4 Annual utilities requirement at full capacity and cost

Sr. No. Description Unit of Require Unit Cost, ('000 Birr)

Measur d Qty Price,
e Birr/Uni F.C. L.C.
FINANCIAL ANALYSISFINANCIAL ANALYSIS
t
1 Electric power kWh 10,384 0.5778   6,000
2 Water m3 500 10.00   5,000
Total   11,000

5 TECHNOLOGY AND ENGINEERING

5.1 Technology
5.1.1 Process Description

The objective in a fattening operation is to convert as much of the feed as possible into body
tissue. It is, therefore, necessary to minimize the movement of animals during the fattening
period, allowing them only limited exercise. Since we are going to apply stall feeding system (no
grazing) the shed will be carefully designed and the space required per animal is about 2 Meter
square.

Fattening shed contains the following program;

 Segregation room for new sheep and sick sheep

 Feeding section for each sheep or separate feeding section.

9
  Elevated bedding
 Open areas are secured by fence
 Feed storage room
 Cleaning, feeding, and inspection ways
 Dipping and Medication room

In fattening process securing the sheep from health problem is the major consideration for the
continuity of fattening. The most well-known diseases of sheep in the moist highland zones are
pasteurellosis, fasciolosis, coenerosis, o rf, anthrax and sheep pox. coenerosis, anthrax and black
leg are high ranking diseases. Consideration we are going to apply;

 Segregation of new and sick sheep for some time before joining the others.
 Dipping to protect pests
 Vaccination with the help of veterinary especially when they arrived to the site.
 Cleaning feeding and watering facilities on daily basis.

5.1.2 Environmental Impact

The sheep farm will produce huge volume of waste product which needs to be disposed properly.
As we all know well- rotted sheep manure is an excellent natural fertilizer. Aged sheep manure is
believed to benefit crops much more than the average cow manure. Since East Gojjam is well
known in crop production this manure FINANCIAL
will help the ANALYSISFINANCIAL
farmers maximizing production
ANALYSISas a
compost. So, we will dispose those waste product as follows;

 Work with small enterprises which produce natural fertilizers

 Sell to merchant
 Work with plant breeder cooperatives work in near areas.
 Apply will be extracting energy by using bio gas technology.

5.2 Engineering
5.2.1 Equipment and Machinery

The list of equipment required for the envisaged project and the estimated costs are given in
Table

Table 5 Estimated Equipment and Machinery cost

Sr. Description Unit of Required Total

No. Measur Qty
e
1 Employer Uniform set 10 6000

10
 Sr. Description Unit of Required Total
No. Measur Qty
e
2 Handcart set 20 24,000
3 Torch Light set 4 400
4 Shovel Pc 30 3000
5 Feeding Equipment’s set 50 50.000
6 Health Care equipment set 4 30,000
7 West treatment unit set 1 120,000
Total 183,450.00

5.2.2 Land, Buildings and Civil Works

Total land area required is 3,200 square meters out of which 1200 square meters are built – up
area.

Table 8 proposed program development and land use

No Name Area in Msq

1 Production room FINANCIAL ANALYSISFINANCIAL

885.3 ANALYSIS
2 Raw material store 103
3 Equipment store 73

1 Management office 48
2 Marketing and finance office 20
3 Vet office 20
4 Employers change room 18
5 Guard House 20

1 Open air area 720

2 Parking 65
3 Circulation 1270
Grand Total 3,242

11
According to the Federal Legislation on the Lease Holding of Urban Land (Proclamation No
721/2004) in principle, urban land permit by lease is on auction or negotiation basis, however,
the time and condition of applying the proclamation shall be determined by the concerned
regional or city government depending on the level of development.
Figure 3proposed Fattening plant

FINANCIAL ANALYSISFINANCIAL ANALYSIS

Figure 4 Proposed Fattening farm Architectural design

12
The legislation has also set the maximum on lease period and the payment of lease prices. The
lease period ranges from 99 years for education, cultural research health, sport, NGO , religious
and residential area to 80 years for industry and 70 years for trade while the lease payment
period ranges from 10 years to 60 years based on the towns grade and type of investment.

Moreover, advance payment of lease based on the type of investment ranges from 5% to
10%.The lease price is payable after the grace period annually. For those that pay the entire
amount of the lease will receive 0.5% discount from the total lease value and those that pay in
installments will be charged interest based on the prevailing interest rate of banks. Moreover,
based on the type of investment, two to seven years grace period shall also be provided.

However, the Federal Legislation on the Lease Holding of Urban Land apart from setting the
maximum has conferred on regional and city governments the power to issue regulations on the
exact terms based on the development level of each region.

Table 6 Incentives for lease payment of industrial projects

FINANCIAL ANALYSISFINANCIAL ANALYSIS

Payment Completion Down

Scored Point Grace Period Period Payment
Above 75% 5 Years 30 Years 10%
From 50 - 75% 5 Years 28 Years 10%
From 25 - 49% 4 Years 25 Years 10%

For the purpose of this project profile, the average i.e. five years grace period, 28 years payment
completion period and 10% down payment is used. The land lease period for industry is 60
years.

Accordingly, the total land lease cost at a rate of Birr 100 per m 2 is estimated at Birr 32,000 of
which 10% or Birr 3,200 will be paid in advance. The remaining Birr 28,800 will be paid in
equal installments within 28 years i.e. Birr 1,028.42 annually.

13
6 HUMAN RESOURCE AND TRAINING REQUIREMENT
6.1 Organizational structure

Bekur Sheep Fattening Share Company has an organizational structure comprised of the
following setups; namely general assembly, chief executive officer/CEO and staff. General
assembly is the supreme body that decides overall issues of the company. The CEO is
responsible for the day to day activities of the Company and under him there are five
departments; Business Development, Sales and Marketing, Procurement, Shareholder Service
and Finance and Administration. The plant manager is in charge of managing the physical and
financial activities of the factory together with its team and he/she is directly accountable to the
CEO of the Company.

Figure 5 Company organizational structure

FINANCIAL ANALYSISFINANCIAL ANALYSIS

6.2 Human resource requirement

The total human power requirement of the plant at 100% capacity utilization will be 12 (of which
4 persons will be Daily farm Labors). This number will be increased when additional line is
installed. The proposed human power and the estimated annual labor cost including fringe
benefits are shown under Table 7.

Table 7 Manpower requirement

Job Description No of Monthly Annual Salary in Remark

Employee Salary in ETB
s per unit

14
 ETB
Manager 1 4000 48,000
Supervisor 2 2,500 60,000
Guard 4 1,000 48,000 Two Guards with day and
night Shift
Accountant 2 1000 24,000
Veterinarian 2 1500 36,000
Daily farm 10 1,200 144,000 Three persons will be
Labor employed for feeding and
cleaning in Two Shift
Sales and 2 1,5000 36,000
marketing
Total 360,000

6.3 Training requirement

The production supervisor, 4 Daily farm Labor and Veterinarian should be given a two weeks on
– the – job. The total training cost is estimated at Birr 5,000.

7 FINANCIAL ANALYSIS
The financial analysis of the dairy products project is based on the data presented in the previous
chapters and the following assumptions:- FINANCIAL ANALYSISFINANCIAL ANALYSIS

Construction period 365 day

Source of finance 30 % equity & 70% loan
Bank interest 10%
Discount cash flow 10%
Accounts receivable 30 days
Raw material local 30 days
Work in progress 1 day
Finished products 30 days
Cash in hand 5 days
Accounts payable 30 days

15
7.1 Total initial investment cost

The total investment cost of the project including working capital is estimated at Birr 1.4 million
(See Table 10). From the total investment cost the highest share (Birr 600,000 or 42.16 %) is
accounted by Building and civil work cost followed by initial working capital (Birr 296.238 or
20 %).

Table 8 initial investment cost

Local Foreign Total %

Sr. No Cost Items Cost Cost Cost Share
1 Fixed investment        
1.1 Land Lease 32,000 32,000 2.25%
1.2 Building and civil work 600,000 600,000 42.16%
1.3 Machinery and equipment 183,450 183,450 12.89%
1.4 Vehicle cost 0 0 0.00%
1.5 Office furniture and equipment 162,500 162,500 11.42%
  Sub total 977,950 977,950 68.71%
2 Pre operating cost *
2.1 Pre operating cost 56,000 56,000 3.93%
2.2 Interest during construction 93,113 93,113 6.54%
FINANCIAL ANALYSISFINANCIAL
149,113 149,113ANALYSIS
10.48%
  Sub total
3 Working capital ** 296,238 296,238 20.81%
  Grand Total 1,423,301 1,423,301 100.00%

* N.B Pre operating cost include project implementation cost such as installation, startup,
commissioning, project engineering, project management etc and capitalized interest during
construction.

** The total working capital required at full capacity operation is Birr 592,475.30. However,
only the initial working capital of Birr 296,238 during the first year of production is assumed
to be funded through external sources. During the remaining years the working capital
requirement will be financed by funds to be generated internally (for detail working capital
requirement see Appendix .A.1).

7.2 Production cost

The annual production cost at full operation capacity is estimated at Birr 1.9 million (see Table
10). The cost of raw material account for 92.21% of the production cost. The other major
components of the production cost are utility (0.58%) , labour (6.42 %), administration Costs
(0.53 %) and financial cost (0.16 %). For detail production cost see Appendix A.2.

16
Table 9 ANNUAL PRODUCTION COST AT FULL CAPACITY (YEAR THREE)

Items Cost %
Raw Material and Inputs 1,753,000 75.06%
Utilities 11,000 0.47%
Maintenance and repair 62,000 2.65%
Labor direct 360,000 15.41%
Administration Costs 60,000 2.57%
Land and Lease Cost - 0.00%
Cost of marketing and distribution 5,000 0.21%
Total Operating Costs 2,251,000 96.38%
Depreciation 101,250 4.34%
Cost of Finance 84,489 3.62%
Total Production Cost 2,335,489 100.00%

7.3 Financial evaluation

A. Profitability FINANCIAL ANALYSISFINANCIAL ANALYSIS

Based on the projected profit and loss statement, the project will generate a profit throughout its
operation life. Annual net profit after tax will grow from Birr 949 thousand to Birr 1.9 million
during the life of the project. Moreover, at the end of the project life the accumulated net cash
flow amounts to Birr 17.92 million. For profit and loss statement and cash flow projection see
Appendix A.3 and A.4, respectively.

B. Ratios

In financial analysis financial ratios and efficiency ratios are used as an index or yardstick for
evaluating the financial position of a firm. It is also an indicator for the strength and weakness of
the firm or a project. Using the year-end balance sheet figures and other relevant data, the most
important ratios such as return on sales which is computed by dividing net income by revenue,
return on assets (operating income divided by assets), return on equity (net profit divided by
equity) and return on total investment (net profit plus interest divided by total investment) has
been carried out over the period of the project life and all the results are found to be satisfactory.

17
 C. Break-even Analysis

The break-even analysis establishes a relationship between operation costs and revenues. It
indicates the level at which costs and revenue are in equilibrium. To this end, the break-even
point for capacity utilization and sales value estimated by using income statement projection are
computed as followed.

Break- Even Sales Value = Fixed Cost + Financial Cost = Birr 426,257

Variable Margin ratio (%)

Break- Even Capacity utilization = Break -even Sales Value X 100 = 8.46 %

Sales revenue

D. Pay-back Period

The pay-back period, also called pay – off period is defined as the period required for recovering
the original investment outlay through the accumulated net cash flows earned by the project.
Accordingly, based on the projected cash flow it is estimated that the project’s initial investment
will be fully recovered within 3 years.

E. Internal Rate of Return FINANCIAL ANALYSISFINANCIAL ANALYSIS

The internal rate of return (IRR) is the annualized effective compounded return rate that can be
earned on the invested capital, i.e., the yield on the investment. Put another way, the internal rate
of return for an investment is the discount rate that makes the net present value of the
investment's income stream total to zero. It is an indicator of the efficiency or quality of an
investment. A project is a good investment proposition if its IRR is greater than the rate of return
that could be earned by alternate investments or putting the money in a bank account.
Accordingly, the IRR of this project is computed to be 131% indicating the viability of the
project.

F. Economic and social benefits

The project can create employment for 23 persons. The project will generate Birr 8.7 million in
terms of tax revenue. The project will also create backward linkage with the livestock sector and
also generates income for the Government in terms of payroll tax.

18
 Appendix .A

FINANCIAL ANALYSES SUPPORTING TABLES

Appendix 7.A.1
NET WORKING CAPITAL ( in 000 Birr)

Items Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Ye

Total inventory 120,838 217,508 241,675 241,675 241,675 241,675 241,675 24
Accounts receivable 201,250 362,250 402,500 402,500 402,500 402,500 402,500 40
Cash-in-hand 24,150 43,470 48,300 48,300 48,300 48,300 48,300 4
CURRENT ASSETS 346,238 623,228 692,475 692,475 692,475 692,475 692,475 69
Accounts payable 50,000 85,000 100,000 100,000 100,000 100,000 100,000 10
CURRENT
50,000 85,000 100,000 100,000 100,000 100,000 100,000 10
LIABILITIES
TOTAL WORKING
296,238 538,228 592,475 592,475 592,475 592,475 592,475 59
CAPITAL FINANCIAL ANALYSISFINANCIAL ANALYSIS

Appendix 7.A.2

PRODUCTION COST ( in Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year

Raw Material and
876,500 1,577,700 1,753,000 1,753,000 1,753,000 1,753,000 1,753,000 1,753,0
Inputs
Utilities 5,500 9,900 11,000 11,000 11,000 11,000 11,000 11,00

1
 Maintenance and
31,000 55,800 62,000 120,000 120,000 120,000 120,000 120,00
repair
Labour direct 180,000 324,000 360,000 122,000 122,000 122,000 122,000 122,00
Administration
30,000 54,000 60,000 60,000 60,000 60,000 60,000 60,00
Costs
Land lease cost - - - - 1,028 1,028 1,028 1,028

2,500 4,500 5,000 5,000 5,000 5,000 5,000 5,000

Cost of marketing
Total Operating
1,125,500 2,025,900 2,251,000 2,071,000 2,072,028 2,072,028 2,072,028 2,072,0
Costs
Depreciation 125,000 112,500 101,250 91,125 82,013 73,811 66,430 59,78
Cost of Finance 96,558 84,489 72,419 60,349 48,279 36,209 24,14
Total Production
1,125,500 2,122,458 2,335,489 2,143,419 2,132,377 2,120,308 2,108,238 2,096,1
Cost

FINANCIAL ANALYSISFINANCIAL
Appendix 7.A.3 ANALYSIS

INCOME STATEMENT ( in 000 Birr)

Item Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9

2,415,000 4,725,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,0
Sales revenue
Less variable costs 1,062,000 1,911,600 2,124,000 1,886,000 1,886,000 1,886,000 1,886,000 1,886,0
VARIABLE
1,353,000 2,813,400 2,916,000 3,154,000 3,154,000 3,154,000 3,154,000 3,154,0
MARGIN
in % of sales revenue 56% 60% 58% 63% 63% 63% 63% 63%

32,500 155,058 149,489 137,419 125,349 113,279 101,209 89,140

Less fixed costs
OPERATIONAL
1,320,500 2,658,342 2,766,511 3,016,581 3,028,651 3,040,721 3,052,791 3,064,8
MARGIN
55% 56% 55% 60% 60% 60% 61% 61%
in % of sales revenue
Financial costs 0 96,558.32 84,488.53 72,418.74 60,348.95 48,279.16 36,209.37 24,139.
1,320,500 2,561,783 2,682,023 2,944,163 2,968,302 2,992,442 3,016,581 3,040,7
GROSS PROFIT
in % of sales revenue 55% 54% 53% 58% 59% 59% 60% 60%
Income (corporate) tax 462,175 896,624 938,708 1,030,457 1,038,906 1,047,355 1,055,803 1,064,2
858,325 1,665,159 1,743,315 1,913,706 1,929,396 1,945,087 1,960,778 1,976,4
NET PROFIT

2
 36% 35% 35% 38% 38% 39% 39% 39%
in % of sales revenue

Appendix 7.A.4

CASH FLOW FOR FINANCIAL MANAGEMENT ( in Birr)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ASH 1,033,95
2,953,228 4,760,000 5,055,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000
0
1,033,95
538,228 35,000 15,000 - - - - - -
s 0
0 2,415,000 4,725,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000

0 0 0 0 0 0 0 0 0 0
me
ASH 1,033,95
2,576,255 3,904,615 3,959,786 3,747,218 3,743,597 3,739,976 3,736,355 3,732,734 3,729,113
W 0
1,033,95
0 0 0 0 0 0 0 0 0
0
296,237.6
0 241,990.12 54,247.53 -FINANCIAL
- ANALYSISFINANCIAL
- - ANALYSIS
- -
ts 5

osts 0 1,062,000 1,911,600 2,124,000 1,886,000 1,886,000 1,886,000 1,886,000 1,886,000 1,886,000

0 2,500 4,500 5,000 5,000 5,000 5,000 5,000 5,000 5,000

and
896624.174 938708.028 1030456.88 1038905.73 1047354.58 1055803.44 1064252.29 1072701.14
0 462175
9 1 1 4 7 1 4 7

osts 0 0 96,558 84,489 72,419 60,349 48,279 36,209 24,140 12,070

ment 0 753,342 753,342 753,342 753,342 753,342 753,342 753,342 753,342 753,342
0 376,973 855,385 1,095,214 1,292,782 1,296,403 1,300,024 1,303,645 1,307,266 1,310,887
)
TIV
0 376,973 1,232,358 2,327,572 3,620,355 4,916,758 6,216,782 7,520,427 8,827,694 10,138,581

3
 Appendix 7.A.5
DISCOUNTED CASH FLOW ( in Birr)
1 2 3 4 5 6 7 8 9

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
0 2,415,000 4,725,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000
INFLOW
0 2,415,000 4,725,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000 5,040,000
n
0 0 0 0 0 0 0 0 0 0

1,033,950 1,526,675 2,812,724 3,067,708 2,921,457 2,929,906 2,938,355 2,946,803 2,955,252 2,963,701

1,033,950 0 0 0 0 0 0 0 0 0
d assets
working
0 0 0 0 0 0 0 0 0 0

0 1,062,000 1,911,600 2,124,000 1,886,000 1,886,000 1,886,000 1,886,000 1,886,000 1,886,000

Distribution
0 2,500 4,500 5,000 5,000 5,000 5,000 5,000 5,000 5,000

938708.028 1038905.73 1055803.44 1072701.14

462175 896624.1749 1030456.881 1047354.587 1064252.294
te) tax 1 4 1 7

OW -1,033,950 888,325 1,912,276 1,972,292 2,118,543 2,110,094 2,101,645 2,093,197 2,084,748 2,076,299
E NET
-1,033,950 -145,625 1,766,651 3,738,943 5,857,486 7,967,580 10,069,226 12,162,422 14,247,170 16,323,469

-1,033,950 793,147 1,524,455 1,403,838 FINANCIAL

1,346,372 ANALYSISFINANCIAL
1,197,324 1,064,759 ANALYSIS
946,856 841,995 748,734
e
present
-1,033,950 -240,803 1,283,652 2,687,490 4,033,863 5,231,187 6,295,946 7,242,802 8,084,796 8,833,531

9,499,32
VALUE 3
131%
BACK 3 years