7.1. Financial hypothesis / assumptions
The assumptions to consider are for the first 5 years. That includes the income of which are:
income from rooms from the 20 rooms available with a minimum capacity of 2 people and maximum of 4 people, income from restaurant and bar offer F&B that includes breakfast, lunch and dinner; with a capacity of 60 people, and the other income, including workshops, activities and adventure activities.
The following tables show that total income for the first year (1.547.969€) is low compared to the following years. Beginning in the second year, income gradually increases.
Of the operating expenses, the costly ones are the marketing expenses (Sales & marketing) due to booking fees and other commercial expenses. And for F&B the expenses are expensive because the restaurant and the bar will be open almost all day for breakfast, lunch and dinner.
The other expenses come from human resources (employee wages), room expenses and operating expenses. [See Annex 11 to see full excel]
Table 38. Main hypothesis and assumptions
Source: Own Source
7.2. Project financing: needs and sources
Alwa Eco hotel LLC. requires an investment of 761.553€. It will be financed by shareholders who will contribute 36.553€, the crowdfunding campaign that will raise 700.000€ and a loan to the bank of 25,000€. The total investment consists of: land (30.000€), construction (314.975€), applications (1.149€), FF&E (95.000€), legal aspects (429€) and initial working capital (50.000 €).
The construction will be amortized in 25 years and the FF&E will be amortized in 10 years. [See Annex 10 for more detail].
The loan will be paid in 10 years and it has an interest of 4.5%.
Table 39. Initial Investment and finance
Table 40. Loan payment
Source: Own Source
7.3. Financial statements forecast
Regarding the Profit and Loss account this is a financial statements forecasts for the first 5 years.
The first year the total net profit is 660.131 €, which allows to pay the debt (quote) because the Ebitda is higher than the quote (903.399€ > 3.625€). In the following years, an increase in Ebitda is observed, which means that our business is profitable since it represents the gross operating profit calculated before the deductibility of financial expenses.
Due to the increase in occupancy ratio, income from F&B, adventure activities, workshops and other activities. A slight increase in income is observed in the following years.
Table 41. P&L
Source: Own Source
The balance sheet forecast shows the first total year of assets and liabilities and equity of 1.419.184€, based on treasury and equity. There are no short-term liabilities only long-term.
This is positive since the non-current liabilities provide liquidity to the company and allow that capital to be used in new investments and to make it grow.
What refers to the treasury results, it is shown that from the second year (2.146.834€) to the following ones the treasury is higher which means; the economic outlook is better.
We also note that our net fixed asset is low in the fifth year. That is why we propose to make a long-term investment in non-current assets from the sixth year. The investment could be in furniture, IT system, etc.
Table 42. Balance Sheet
Source: Own Source
Cash flow refers to the net inflows and outflows of money from the company. The cash flow over 5 years is then calculated, with the information in the previous tables of income, expenses and amortization. It is important to note that the corporate tax rate to be paid is 25% on profits.
Table 43. Net cash flow and accumulated over 5 years.
Source: Own elaboration
7.4. Feasibility analysis
ROE (Return on Equity) is an indicator measuring the rentability over the total capital invested.
It appears so that the results obtained are positive and it is higher than the minimum profitability. So, in accordance to that the possible “shareholders” may keep on investing and probably it may attract other entrepreneurs as well to invest. The profitability in regards of percentages is higher than the minimum profitability required by the shareholders
Table 44. ROE (return on equity)
Source: Own elaboration
ROA (Return on Assets) is an indicator referring to the efficiency of the total assets to measure the profitability of the company. In relation to the table it is shown that the “roa ratio” is much higher than the minimum that is 5%. So, when asking for financing with the bank loan because they value positively the company. There will not be any inconvenient from them to provide it to us.
Table 45. ROA (return on assets)
Source: Own Elaboration
We have to say that our leverage ratio is negative. That is as it is seen in the tables above the ROE is lower than the ROA. This means that our average cost of the debts we have are higher than the economic rentability we have. So, what it can be said is that the relation between the two ratios what does not interest us is to get into debts from the point of view of the financial profit, because to be in debt would end up harming us.
ROE = ROA + L (ROA -i)
L: leverage ratio → liabilities / net
i: financial cost of the debt → debts / financing / liabilities L: (ROA - i): leverage effect
“As the leverage ratio increases, meaning that as we are getting more into debts, the roe decreases.”
So, with these ratios we have enough to conclude that the capacity of our assets to generate renting is much higher than the 5%, which is positive. But, the roe is lower than “ROA” which means it is not convenient for us to get into debts.
We consider more important the information the “ROA” is providing us for the fact that the ROE does not consider the “leverage ratio” and for “ROA”; the focus is on give the general vision of the company without considering the other financing sources.