SNVM UNIT 3

ECONOMIC VIABILITY, MARKET

FEASIBILITY,FINANCIAL INSTITUTIONS
AND STATEMENT PREPARATION

Kalyani Wante
M3156056
Megha patel
M3156100

Economic Viability
Viability means: - ability to survive
Viability is the practical potential of a start up

business idea to survive and grow in the

marketplace.
Viability is the study or an investigation of
existing business or proposed ventures
sustainability. It determines whether the
proposal should be approved or not.
Economic Viability-Economic viability means
that market operation is sustainable regarding
current and projected revenues.
The revenues will be greater than or equal to all
current and planned expenditures.

It is also referred as cost/benefit analysis.

It is most frequent method for evaluating the

effectiveness of a new system.

The economic viability will review the expected
costs to see if they are in line with projected
budget or if the project has an acceptable Return
on investment .
A cost benefit analysis and Break even analysis
are used to check the economic feasibility of a
project.
Economic feasibility consist of two tests.1) Is the anticipated value of benefits greater
than projected costs of development ?
2 ) Does the organisation have adequate cash flow
to fund the project during development period?

Techniques for checking Economic Viability

1) Economic Rate of Return(ERR)
2) Social Rate of Return(SRR)

Economic Rate of Return(ERR))Revenue generation for government

)Conservation or earnings of valuable foreign exchange
)Creation of employment
These are the ways that may have impact on economy.
So Costs and benefits of a project to the national
economy can be seen through economic rate of return.
Every ERR calculation considers two scenarios:
)The expected outcome with the project investment;
and
)The expected outcome without the project investment.

Social Rate of Return (SRR)The process of calculating the social rate of

return is also known as Social cost benefit

Analysis(SCBA)
The social cost rate of return is that rate which

equates present value of social benefits to the

present value if social cost.
The project is accepted if SRR is higher than an

alternative project which is foregone due to

shortage of funds OR If SRR is greater than the
consumption rate of interest in the economy.

Market Feasibility
It is process of determining whether and at

what levels a specific market will support a

specific real estate development.
market feasibility study determines the depth
and condition of a particular real estate
market and its ability to support a particular
development.
The market feasibility study must determine the
following:
What is the current condition of the market?
How will the market respond to the proposed

 Elements of Market Feasibility

1) Demand
2) Supply
3) Distribution
4) Prices

Factors considered In Market Feasibility

1)Market potential Identifying the market potential in
terms of current demand for the product an projected future
demand.
2)Cost of project The cost and project at different price
levels have to be taken into consideration.
3)Competitors The competitors have to analysed ,its helps
in identifying their strength and weakness.
4)Economic trends Data relating to general economic
trends such as per capita income, Inventories, have to be
considered.
5)Price structure in market Price structure ,discount
patterns an source of market information have to be collected.

Financial institutions and their

requirement
What are financial institutions?
The term financial institutions include all kinds of

organizations which intermediate and facilitate

financial transactions of both individual and
corporate customers.
It refers to all kinds of FI and investing institutions
which facilitate financial transactions in financial
markets.
They play a significant role in helping new and
first generation new entrepreneurs in setting up

industrial ventures.

Requirement of financial institutions

Financial institutions carry out through a scrutiny

of a project submitted tot hem for financing.

This enables the entrepreneur to present his
project effectively and to concentrate on essential
points in his dialogue with the institution.
Being an external body, the financial institution
brings an independent approach to assessing the
prospects of the project.
Following are the requirements of financial
institutions for financing a project :

Project cost
Present a table detailing each component of the
project cost by category. Discuss contingencies
and timings of cash payments.
Financial plan
Explain the financial plan. Note how much
funding has been raised so far and on what terms
and conditions and how much is expected to be
raised from whom, and in what time frame. Note
how much has been spent and for what purposes.
Discuss cash flow estimates and potential
changes and issues.

Operational and financial projections

Present a summary of financial projections
Explain details of assumptions used to project
the levels of operation of each department or
service unit, as well as details of projected
revenues and expenses.
Present projected financial statements
Summary of financial viability and sensitivity
scenarios
Present the ROI on total investment
Present selected financial ratios such as
current ratio, asset turnover ratio, debt to
asset ratio, as well as profitability measures
for base case and sensitivity measures.

Projected financial statement

preparation
Financial statement preparation is vital to small

business, income tax act and company act place

certain necessities on businesses to provide yearly
online personal financial statements.
It can assist individual to do complete analysis of
financial issues.
They are the most important part of financial
reporting.
Based on financial information, a company
formulates its strategies for revenue enhancement,
cost economies, efficiency and improvements etc.

A complete set of financial statements

comprises of the :
Balance sheet
Income statement
Cash flow statement

Balance sheet
A proforma balance sheet is forecasting of

flow of funds and estimation of every item is

checked accordingly.
How to prepare a proforma balance sheet?
1. First calculation of gross investment amount
should be done to run the business at
planned production level
2. List of liabilities should be prepared
3. The net worth of the company should be
adjusted with net income at the time of
estimation
4. The projected assets are compared with the
total fund for that project.

Proforma of balance sheet :

Income statement
The proforma income statement is a

projection of income for a period of time in the

future.
It need not to be based on cash budget.
Instead one can make direct estimates of all
the items.
Where historical estimates are no longer
appropriate, new estimates should be
employed.

Income statement requirements are :

1. Salaries
2. Rent
3. Discount
4. Bad debts
5. Drawings
6. Carriage outwards
7. Income tax
8. Loss by fire, theft
9. Loss or gain on sale of fixed assets

Proforma of income statement :

Cash flow statement

A statement of changes in the financial

position of a company on cash basis is called

cash flow statement.
It summarizes the causes of changes in cash
position of a business enterprise between
dates of two balance sheets.
Cash flow requirement :
1. sources of funds
2. disposition of funds

Proforma of cash flow statement :

THANK YOU