A study on the production of Baker's Choice Coconut Flour

Date of Publication

1998

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Accountancy

College

Ramon V. Del Rosario College of Business

Department/Unit

Accountancy

Abstract/Summary

Executive Summary. The current economic crisis necessitated changes in current market structures and reforms in financial institutions. It also highlighted the industry's vulnerability to market and global forces. In particular, the flour industry's dependency on wheat flour imports is emphasized.

Flour is a raw material for many enterprises, such as bakeries, biscuit and cracker manufacturers, snack foods manufacturer, and noodle manufacturers. With the prices of imports going up, an increase in the pieces of these products is to be expected.

There are two options available: a) maintain the status quo and let consumers bear the brunt of the economic crises, or b) find a more affordable and complementary alternative that does not significantly alter the quality structures of the products. The entry of Jetsy Corporation's Bakers Choice Coconut Flour in the flour industry allows the realization of the second option.

Since the 1970s, there have been various conceptualizations in the production of coconut flour. Producing local flour has always been an enticing idea to the Filipinos. It has even tried producing local wheat but this venture produced dismal results. During that time, there were various studies done in the feasibility and acceptability of coconut flour.

A recent technique to be employed in the production of coconut flour was recently introduced by the Philippine Coconut Research and Development Foundation (PCRDF). Sapal, a by-product of coconut milk production is to be used as the main raw material for coconut flour. This would greatly cut the process-time of coconut flour and enhance its quality.

The incorporators, when made aware of such a project, realized the huge possibilities in such a business venture. The incorporators, then, incorporated themselves and created a firm named Jetsy Corporation. The name is based on the names of the innovative and dynamic incorporators that are spearheading this project. The project is a culmination of the synergestic efforts of the incorporators.

A survey was conducted to attain feedback from the firm's potential customers, bakeries in the National Capital Region. Encouraged by the positive feedback, the incorporators decided to forge on with the project. The survey provided important insights that became the foundation of the market study. There are several limitations to the study, however, since the production of coconut flour still remains a concept. Actual marketing and financial aspects may differ from the study itself.

The market study explains exhaustively the market structure of coconut flour, such as supply and demand analysis, the 4Ps (product, price place, and promotion), and SWOT analysis (strengths, weaknesses, opportunities, and threats). Since Jetsy Corporation is the trailblazer in the production of coconut flour, it dominates the coconut flour market. Because the firm will be initially establishing its base in the National Capital Region (NCR), unsatisfied demand still exists. After considerable deliberations, Bakers' Choice Coconut Flour will be initially priced at P300/bag (1 bag = 25 kgs.). The firm would adopt direct marketing strategies. This would eliminate middlemen and unnecessary distribution channels.

An important aspect of the market study is the product positioning. Bakers' Choice Coconut Flour is a pioneer product and will be positioned as a healthy complement to wheat flour. Current trends is healthy living have brought a boom in health products and the healthy lifestyle it promotes. Various studies in coconut flour indicate that coconut flour has higher nutritive value and dietary fiber content than wheat flour. This is one significant advantage of coconut flour over wheat flour.

The firm is located in Laguna. The site includes the factory buildings and administration building. The site is chosen for its proximity to potential suppliers and potential customers.

The project is financed internally and externally. There will be 7 incorporators. One incorporator will be issued stocks in exchange of land. The remaining 6 incorporators will pay cash of P5 million each. Initial internal financing is P40, 422,400. A bank loan of P 10 million will also be incurred, with an interest rate 27%. Long-term notes will be issued for some fixed assets, such as factory equipment and delivery equipment.

The financial study is a significant part of the feasibility study. The worthiness of a project is evaluated in terms of its monetary value. Most of the assumptions made in the financial study are based on the market. The financial study presents the various projections of coconut flour, such as estimated sales and projections. From such data, projected financial statements can be presented. In the preparation of the financial statements, factors that have long-term repercussions are also taken into consideration. These factors include inflation rate, GDP rate, interest rate, and other economic factors.

The financial feasibility of the project is mostly evaluated through the utilization of accounting and financial tools. These are the financial ratio analysis and capital budgeting analysis. Financial ratio analysis provides rare insights in the firm's performance and management's efficiency. It assesses a firm's liquidity, solvency, and profitability. Based on the financial ratios, coconut flour is a laudable and viable project. It performs more efficiently and effectively than the industry leader. Liquidity ratios show a stable trend. Fixed assets and inventory are being utilized efficiently. The firm has a high profit margin due to cheaper and locally based raw materials. This gives the firm a competitive advantage over wheat flour manufacturers. The trends exhibited in the 38.17%, which is considerably higher than the desired rate of return 27%. Investors have average earnings per share of P 68.80, which is significant since the par value of one share of common stock is P 100. Investors also experiences an average of 33.57% divided payout from 2001-2003.

Capital budgeting analysis provides key insights on the attractiveness of the project to investors. Using the discounted payback period, which considers the desired rate of return of 27%, the project needs only 3.34 years to recover project costs. This signifies less risk to investors. Net present value also has an excess of P 18,864,199.25 over the 5-year period. This is an indication that the project can recover initial project costs and at the same time, be able to distribute earnings over the 5-year period.

Almost 20 million Filipinos, an estimated 1/3 of the Philippine population, depend, directly and indirectly, on the coconut industry as a source of livelihood. Unfortunately, coconut production, over the years, has relatively decreased. With the introduction of coconut flour into the market, the people will be made aware of this indigenous product and its myriad number of uses. Indirectly, Jetsy Corporation will be supporting the coconut industry. Production of coconut flour also generates jobs for the residents of San Pedro, Laguna. The process involved in the production of coconut flour is also environmental friendly and uses sapal as its raw material. This promotes a health alternative to end-consumers, which allows Filipinos to support their healthy lifestyles. And ultimately, coconut flour will be a source of pride for Filipinos anywhere.

After the initial 5-year period, the firm will begin expanding its operations and its market base. Pre-expansion activities include establishment of a land fund and appropriation of a portion of retained earnings. Expansion is consistent with the growth strategy of the firm. The firm may also venture in projects that utilize coconut as its main raw material.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU09083

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

130 numb. leaves ; Computer print-out.

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