BLACKY SHOE AND SOLE PLC

BLACKY SHOE AND SOLE PLC

BUSINESS PLAN
 BLACKY SHOE AND SOLE PLC

NOVEMBER 2020
ADDIS ABABA, ETHIOPIA

Contents
1. EXECUTIVE SUMMARY..........................................................................................................................................4
2. Background and Description of the Business................................................................................................................5
2.1. Introduction.................................................................................................................................5
2.2. Company Profile..........................................................................................................................5
2.3. Location of the Business..............................................................................................................6
2.4. Objective of the company............................................................................................................6
3. Organizational Structure and Management Plan..........................................................................................................6

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3.1. The organizational structure........................................................................................................6

3.2. List of employees and positions...................................................................................................7
3.3. SWOT Analysis.............................................................................................................................8
Strength...................................................................................................................................................8
Weakness.................................................................................................................................................9
Opportunity.............................................................................................................................................9
4. Market Demand and Supply Analysis.........................................................................................................................10
4.1. Global Market............................................................................................................................10
4.1.1. World production...............................................................................................................10
4.1.2. World Consumption...........................................................................................................10
4.2. Domestic market demand projection........................................................................................10
4.3. Domestic Market Supply projection..........................................................................................11
4.4. Import of Plastic Shoes to Ethiopia............................................................................................11
4.5. Demand – Supply Gap................................................................................................................12
4.6. Marketing Strategy....................................................................................................................13
4.6.1. Pricing Strategy..................................................................................................................13
5. Production Plan..........................................................................................................................................................13
5.1. Production Machinery and Moulds...........................................................................................13
5.2. Production Capacity...................................................................................................................13

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5.3. Production Process....................................................................................................................13

5.4. Vehicles.....................................................................................................................................14
5.5. Equipment and Furniture...........................................................................................................14
5.6. Machinery & Material purchase plan........................................................................................14
5.7. Utilities Requirement.................................................................................................................15
Grand Total..................................................................................................................................................................... 15
5.8. Raw Materials & Input Purchase Plan...................................................................................15
6. Financial Projections...................................................................................................................................................16
6.1. Applied Financial Projection Assumptions.................................................................................16
6.2. Projected Working Capital Requirements..................................................................................17
6.3. Projected Income Statement.....................................................................................................17
6.4. Projected Cash Flow............................................................................................................................................18
1. Financial Evaluation...................................................................................................................................................20
2. Production & Sales.....................................................................................................................................................21
3. Conclusion..................................................................................................................................................................22

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1. EXECUTIVE SUMMARY
Ethiopia is a developing country which has introduced free market economy policy and has adopted different
strategies which will enhance to attain sustainable growth of the various sector of the economy. The free
market economic policy currently practiced by the country has opened ample opportunities both for local and
foreign investors encouraging them to invest in various sectors of the economy. The indigenous industries
have also benefited from the free market economy policy since it motivates supplier for mass production,
supplier price and quality.

Blacky shoe and sole PLC is engaged in the production of Plastic Shoes and sole since long time. The
business is located in the capital city, Addis Ababa. Hence, the project is found in prime areas and available
for basic utilities and accessible and easy for the client to get needed product/service. It is established with the
objectives of import and distribute of raw materials and machineries for shoe industries, production of leather
and plastic shoes and distribution to local and foreign market and to engage as commission agent. Currently,
the company is running its business with 65% of its existing capacity due of shortage of working capital to
purchase raw materials from abroad and local market. The company is planned to run at its full capacity and
add additional machineries with the help of financing acquired from CBE since it will boost the company’s
productivity to accomplish the objectives of the company. Running of the factory at its full capacity is
preferable to the promoter and to the country as it gives opportunity for import substitution, saving of foreign
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currency and employment creation as well as lesser product price to the domestic consumer.

The realization of the project as ascertained in the financial projections, enables the promoter to generate
higher net benefits, create employment benefit to the local labor force, generates tax revenue benefit and
import substitution effect that saves hard currency. These parameters are basic indicators of the project’s
social desirability and economic viability. Therefore, it is advisable to finance cost requirements either with
equity or with debt or in a combination of both.

2. Background and Description of the Business

2.1. Introduction
The plastic shoe manufacturing sector is one amongst other sectors which has shown rapid development in
supplying various sizes and fashions of shoes required both by urban and local people. The economic policy
has also enabled the development of cooperation, competition and integration between companies of similar
and varied nature. Footwear production plays a significant role in the development process of both developed
and developing countries. World footwear production has crossed 35 billion pairs and more than 30 million
pairs in Ethiopia. Global production last year was 36.18 billion pairs, including shoes made from a variety of
materials like Leather, rubber, plastics, textiles, waterproof material, etc.

2.2. Company Profile

Blacky Shoe and Sole PLC was a company established in Ginbot 1, 1997 E.C by domestic firms with a share
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capital of Birr 8,400,000 divided into 8,400 shares of Birr 1,000 par value each business having vast
experience in Management, Marketing & Production of Shoes, Slippers and various Plastics. Blacky Shoe &
Sole PLC was registered 14 years back for the purpose of manufacturing plastic shoes and other plastic
products like Canvas, PVC & EVA slipper shoe.
Blacky shoe and sole plc is one of the leading industries in the plastic shoe and shoe sole manufacturing
sector. It is engaged in the production of canvas, PVC and Eva slipper shoe. It has stayed in this business for
long time and developed wide reputation and excellence in this line of business activities. Currently, the
company employed about 50 permanent and 25 contract employees.
The installed machineries and equipment is injection machine of Chinese origin. In addition to the existing
EVA and rotary machine, the company is in the process of importing additional canvas shoe rotary machine.
This will increase the capacity to produce and output better than the existing ones.
It imports 90% of its raw materials from different foreign countries to maintain reliable quality standard
output, to assist its endeavors to supply high standard products for both local and to shoe manufacturing
industries which engaged in the export market. Its organizational structure is designed in such a way to enable
for achieving its objective. It is also staffed with qualified personnel to run its operation.

2.3. Location of the Business

Company Name: Blacky Shoe and Sole PLC
Address : Addis Ababa city Administration
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Akaki Kality Sub city Woreda 07 House No: 1206

Tel. No.: +251911208039
Commercial Registration Certification Agency: Addis Ababa city Administration, Akaki Kality Trade
Bureau
License Number : AKK/AA/2/
Tin Number: 0001763259
Registration date: 30/04/1997 E.C.

2.4. Objective of the company

 Produce durable and fashionable different plastic slipper shoes.
 Maintain sustainable growth and increase its share in the market by means of providing quality shoes
at competitive price.
 Contribute to employment opportunities in the country.

3. Organizational Structure and Management Plan

3.1. The organizational structure
The organizational structure of the company is designed in such a way that it will enable efficiency and

control to achieve the desired objective. Its current organizational stricter comprise finance & administration,

technical & production and stores administration. It is staffed with skilled personnel to handle both technical
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and administrative matters of the company.

The organizational chart of the company is presented as follows

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Managing Director

Finance and Human Resource and

Production and techn
Administration Marketing

Finance Production Sales

Administration

Technic Market Research

Finance

Human Resource

3.2. List of employees and positions

no Position No. of Monthly Annual
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staffs Salary/employee salary

1 General manager 1 20,000 240,000
2 Executive secretary 1 6,500 78,000
3 Production and technical 1 12,000 144,000
manager
4 Finance and administration 1 12,000 144,000
manager
5 Typist 1 4000 48,000
6 Purchaser 1 5500 66,000
7 Sales person 1 5500 66,000
8 Personnel 1 3500 42,000
9 General service head 1 4500 54,000
10 Time keeper 1 3500 42,000
11 Store keeper 1 3500 42,000
12 Mechanics 1 6500 78,000
13 Electrician 1 6500 78,000
14 Supervisor 2 4500 108,000
15 Skilled operator 10 3500 420,000
16 Laborers 42 1845 930,000

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17 Cashier 1 3500 42,000

18 Accountant 2 6500 156,000
19 Guard 4 2300 110,400
20 Drivers 1 4300 51,600
Employees benefits 11% pension 13266 323,400
Grand total 75 120600 2,940,000

3.3. SWOT Analysis

Strength
The manufacturing area is located at a favorable site, Kality near to the near road leading to the port of
Djibouti. It has started its business sometimes 14 years back and hence, has developed the capability to
produce quality products, good reputation and good will by its customers.
The factory is equipped with machineries and equipment of the state of the art-technology, capable of
producing quality products in large volume to satisfy customer’s needs.
It has been conductive working environment and also good management and workers relationship .it is also
staffed with qualified persona capable of handling and managing high level tasks.
It gathers comments and feed backs on its products which enabled it to improve the quality of its products to
the best satisfaction of its customers.

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Weakness
The major weakness of the company is shortage of working capital to finance the operational needs of the
factory.

Opportunity
Several opportunities could be cited particularly with those associated with the growth in the economy which
has led to increased level of consumption for plastic shoes.
Continuous development in infrastructure and utilizes thus creating easy access to the nearest market.
Favorable change in the economic, Social and political environment that the country is undergoing.
The development in infrastructure and utilities also a significant opportunity to bring about attitudinal change
particularly in rural areas to get more familiarized and accessed products easily & conveniently.
 Threat
New plastic industries are emerging which is creating a threat to the market share of the products.
Lack of securing foreign currency requirement in time.
Price distortion the market caused by cottage industries engaged in similar line of business.
In general, it can be concluded that the strength and opportunity out weight the threat. The threats could be
overcome by developing different strategies which will enable the company to create distinctive capability in
the market.
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4. Market Demand and Supply Analysis

4.1. Global Market
4.1.1. World production
According to APICCAPS estimates, the worldwide production of footwear in 2018 reached 24.2billion pairs,
up by 2.7% from the previous year. Asia added one more percentage point to its dominant production share,
climbing to 90%. At the country level, last year, China slightly reinforced its leadership of footwear producing
countries, getting closer to the two-thirds share threshold.

4.1.2. World Consumption

Over the last decade footwear consumption patterns have changed to reflect the international demographic and
economic dynamics. Asia now buys most of the shoes sold around the world. Its share of the total world
consumption has increased by 5% since 2010. China continues to lead the rank of the 10 largest footwear
consumers with 18.4% share. From a continental perspective, Asia continues to be the main region for footwear
consumption (54%), followed by Europe (15%) and North America (15%) according to World Footwear Yearbook
2018.

4.2. Domestic market demand projection

The total number of population in the country is believed to reach 110 million of which 82% lives in rural
areas. According to the statically information from CSA bulletin it is estimated that some 65% people of this
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rural population are adults above the age of 18 and thus are economically active. It is also reported that the
population is growing at 3% every year. For the purpose of forecasting it is assumed that only 30% of this
economically active persons are capable of satisfying their needs for shoes at available fair market price and
the assumption is that they consume two pairs of shoes per annum(with under estimation).
Hence, the following is projected potential demand for plastic shoes that will be available in the market with
fair price.

Table 4.2: Market Demand Projection

Year Annual estimated consumption Projected target Quantities
per individual population demanded(pairs)
2020/21 2 17,275,239 32,567,138
2021/22 2 17,793,496 33,544,152
2022/23 2 18,327,301 34,550,478
2023/24 2 18,877,120 35,586,992
2024/25 2 19,443,434 36,654,602
2025/26 2 20,445,200 37,754,240

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4.3. Domestic Market Supply projection

Based on central static agency bulletin shows that the production of plastic foot wear during the year between
2020/21 to 2025/26 estimated as follows:
Table 4.3: Market Supply Projection
Year Unit of supply Plastic foot wear production
Locally
2020/21 Pairs 14,123,113
2021/22 Pairs 14,546,806
2022/23 Pairs 14,983,210
2023/24 Pairs 15,432,707
2024/25 Pairs 15,895,688
2025/26 Pairs 16,213,602

4.4. Import of Plastic Shoes to Ethiopia

Plastic shoes import of Ethiopia shows geometric average annual growth rate of 25% and an average annual
import quantity of 321.6 tons of plastic shoes per year. Plastic shoe import to Ethiopia continuously increased
both by quantity and value in years under review, see table below:
Table 4.4: Import of plastic Shoe
Year Unit of production Plastic foot wear production
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2014/15 Pairs 7,061,560

2015/16 Pairs 7,273,407
2016/17 Pairs 7,491,609
2017/18 Pairs 7,716,358
2018/19 Pairs 7,947,848
2019/20 Pairs 8,106,804

Considering the effort exerted by local producers to improve capacity utilization and also the new entrants into
the market it is envisaged that the supply will grow by about 3% annually for the coming 5years.

4.5. Demand – Supply Gap

The demand-supply gap depicted in the table 4.5 below shows excess demand that ranges from 9.6 million
pairs in the year 2021 up to 12.7 million pairs in the year 2026. This indicts that the project product to have
sufficient market in the coming Six years even in addition to substituting an increasing import of plastic shoe
from different corner of the world.
Table 4.5: Demand supply gap in pair of plastic shoes
Year Total Demand Total Supply Demand Supply-Gap
2021 32,567,138 22,950,063 9,617,075

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2022 33,544,152 23,373,756 10,170,396

2023 34,550,478 23,810,160 10,740,318
2024 35,586,992 24,259,657 11,327,335
2025 36,654,602 24,722,638 11,931,964
2026 37,754,240 25,040,552 12,713,688

4.6. Marketing Strategy

To ensure that the project operates at its full capacity, the company will use various ways of promotional
works. The company is expected to use advertising through various media and networking which will enable
them to gain market share and operate at its full capacity.

4.6.1. Pricing Strategy

As there is a large volume of import in this industry, the company plans to manufacture quality product and
charge competitive price so that it can compete with and substitute imported products. When the factory starts
exporting of the product, selling price will be established through negotiation with importing companies. It
plans to manufacture quality product by using quality raw materials and the currently available production
technology. The planned selling price of the factory products is presented in the following table by comparing
with competitors price.

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5. Production Plan
5.1. Production Machinery and Moulds
The following machineries are installed within the factory promise: PVC air blowing Machine with Different
Moulds, Color Mixer, Oil Mixers, Cooling Towers, Air Compressor, plastic Crusher, Recycling Machine,
Direct High Speed Mixer, Vertical Injection Machine, EVA Compression Moulding Machines, Horizontal
Injection Machines, Blow Moulding Machine, Rotary PVC and Air blowing slipper Machine. The value for
plant machinery is shown as birr 15,951,262.78 million.

5.2. Production Capacity

Currently, the company has a daily production capacity of 7000 pairs of shoes using 9 machineries that the
company owns. But, for a time being the company is running its business by daily production of 1,200 pairs
due to shortage of raw materials and inputs caused by working capital gaps.

5.3. Production Process

PVC and EVA shoes are produced in Rotary Injection machines, EVA full slippers and Shoes are produced on
Compression Molding machines and Vertical Injection Machines and also all Rejected Pairs of slippers are
recycled and reused for same production of items. These shoe and Slipper Pairs are packed in Polythene bags
and then 60 Pairs put in one Large Woven sack and delivered & sold to Market places around full Ethiopia.

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Production process of the company: upper cutting---upper in diffren way stitching---labeling---printing---then

lasting----direct injection sole in to upper---packing---sales.

5.4. Vehicles
For the transportation of raw materials and final products from and to the factory and to the sales centers as
well as marketing works, the company owns vehicles. It has One Toyota Hiace 15 Seated Minibus which has
book value of Birr 106,662.69 and One Toyota Hilux pick-up which has book value of Birr 832,098.31.

5.5. Equipment and Furniture

The factory has to be equipped with the necessary office equipment and furniture for the administrative and
finance staffs as well as for the market integration of input supply and finished product. So far, it has acquired
a lot of equipment and furniture that have book value of Birr 381,237.8. In order to use as supplemental
source for power supply during interruption, Diesel generator is also required.
5.6. Machinery & Material purchase plan
In addition to the existing capacity, the company has planned to increase production through purchase of the
following additional machinery and materials.
Machinery Purchase Plan For the year 2020/2021
DESCRIPTION Unit of QTY Currency AVERAGE AMOUNT(foreign AMOUNT IN
measure UNIT currency) plus 20% cost
PRICE

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PER/KG
Machinery Set 1 USD 80,000.00 80,000.00 3,552,000

Mould Set 12 USD 2500.00 30,000.00 1,332,000

PVC compound Kg 163,800 Birr 40.00 0 6,552,000.00

Canvas shoe Pair 280,800 Birr 45.00 0 12,636,000.00

upper
Total 24,072,000

5.7. Utilities Requirement

The basic utility items of the factory are Electric Power and Water while fuel is required for vehicles operation
as well as for generator in case of electric power interruption. The power consumption of the leather shoe
machinery is 1,250KWH. The following table summarizes the utility requirement and annual consumption
with relevant assumptions.
Sr. Description Unit of Qty Unit price Cost ('000 Birr)
No. Measure (Birr)
1. Electricity Kwh 199,549.44
2. Water m3 70,000.00
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3. Fuel oil m3 100,678.97

Grand Total 370,228.41

5.8. Raw Materials & Input Purchase Plan

The raw material and inputs required for production Canvas & plastic shoes are different types of PVC and
canvas shoe upper material granules 90% of which are sourced from abroad.
The type and quantity required is as shown in the material purchase plan.

Description QUANTITY TOTAL PRICE PER PER YEAR TOTAL VALUE IN

PER MT IN USD X REQUIRED BIRR: 1 USD:
MONTH QUANTITY BIRR 37.00
PVC Resin 20 MT 1050 X 20=21,000.00 252,000 9,324,000
HDPE 15MT 1,800 X 15=27,000.00 324,000 11,988,000
PPCP 15MT 1,850 X 15=27,750 333,000 12,321,000
MOULDS 8SETS 4,800 X 8= 38,400.00 460,800 17,049,600
Pigments 1MT 2,600 X 1= 2,600.00 31,200 1,154,400

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Master batches 2MT 2,200 X 2= 4,400.00 52,800 1,953,600

Color
DOP 10MT 1,700 X 10=17,000.00 204000 7548000
Other Spares and Various USD 4,000.00 48,000 1776000
Misc. Materials
Total Birr 63,114,600

6. Financial Projections
6.1. Applied Financial Projection Assumptions
The following relevant assumptions are considered to draw financial projections. The company will raise its
revenue from sales of manufactured products and items. Thus will be attained:

 It is considered 300 working days per annum.

 The factory has an attainable production capacity of 2,100,000 pairs of plastic shoes.
 The factory through maintenance, efficient time utilization has planned to increase its capacity to 50% in
the first year, 60% in the second year, 70 in the third year, 80% in the fourth year ,90% in the fifth year
and 90% thereafter.
 It is assumed selling prices of the products and purchase costs of the raw materials and inputs will increase
by 10% per annum.
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 It is assumed that the factory will generate net revenue of Birr 81 million per annum and increases by 10%
per annum.
 It is assumed that the factory will incur raw materials purchase cost of Birr 50.7 million per annum and
expected to increase by 10% per annum.
 Other costs are estimated based on historical cost
 It is assumed that for smooth business operation the factory will hold imported raw material for six
months.
 Bank loan interest rate is assumed to be 11.5% per annum.
 Income tax of 30% is applied on profit.
 The fresh term loan of Birr 40 million to be obtained from bank. It is assumed that the term loan to be
repaid within 7 years at equal quarterly repayments.

6.2. Projected Working Capital Requirements

The working capital requirement for the company is determined only for major cost items. When it starts
producing the leather shoes at 50% capacity it requires Birr 54 million and grows to Birr 59.4 million after a
year. The minimum days coverage considered is 26 days.

The following table shows the summary of the working capital schedule for the major cost items.

Cost Items/Year Year 1 Year 2 Year 3 Year 4

MDO
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C
Raw Materials 26 50,725,555 55,798,110.5 61,377,921.55 67,515,713.70
Salary and Wage
expenses 26 2,940,000 3,234,000 3,557,400 3,913,140
Power and Light, Fuel
and Water 26 370,228.41 407,251.25 447,976.37 492,774.01
Total 54,035,783.41 59,439,361.75 65,059,897.92 71,921,627.71
Incremental WC 5,403,578.34 5,620,536.17 6,861,729.79

6.3. Projected Income Statement

Years
Today
1 2 3 4 5
Expected Sales Amount - 80,971,200 89,068,320 97,975,152 107,772,667 118,549,934 130,404,927
Cost Total - 56,679,840 62,347,824 68,582,606 75,440,867 82,984,954 91,283,449
of Raw material
sales costs - 50,725,555 55,798,111 61,377,922 67,515,714 74,267,285 81,694,014
Labor costs for
production - 2,940,000 3,234,000 3,557,400 3,913,140 4,304,454 4,734,899
Cost for - 0 0 0 0 0
production
space
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Depreciation on
invested 1,872,68
equipment - 1,872,684 4 1,872,684 1,872,684 1,872,684 1,872,684
Other expenses
for production - 1,141,601 1,443,030 1,774,601 2,139,329 2,540,531 2,981,852
Gross margin - 24,291,360 26,720,496 29,392,546 32,331,800 35,564,980 39,121,478
Administrative expenses
(related to the Project) - 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000 1,500,000
Operating profit - 22,791,360 25,220,496 27,892,546 30,831,800 34,064,980 37,621,478
Financial costs (Interest
payment) - 4,372,068 3,888,839 3,347,597 2,741,375 2,062,373 1,301,854
Other expenses - 12,000 12,000 12,000 12,000 12,000
Profit before tax - 18,407,292 21,319,657 24,532,949 28,078,425 31,990,607 36,307,624
Tax - 5,522,188 6,395,897 7,359,885 8,423,528 9,597,182 10,892,287
Net profit after tax - 12,885,104 14,923,760 17,173,064 19,654,898 22,393,425 25,415,337

6.4. Estimated Cash flow Statement on the

Investment Project
Operating Cash flow 0 14,757,788 16,796,444 19,045,748 21,527,582 24,266,109 27,288,021
Investing Cash flow -11,436,000
Free Cash flow -11,436,000 14,757,788 16,796,444 19,045,748 21,527,582 24,266,109 27,288,021
Free Cash flow Balance -11,436,000 3,321,788 20,118,232 39,163,981 60,691,562 84,957,671 112,245,692
Financial Loan 40,000,000
Cash Repayment 0 -3,964,037 -4,439,940 -4,972,977 -5,570,008 -6,238,716 -6,987,706
Flow for loan
principal
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Debt balance 40,000,000 36,035,963 31,596,024 26,623,047 21,053,038 14,814,322 7,826,616

Others
TOTAL 40,000,000 -3,964,037 -4,439,940 -4,972,977 -5,570,008 -6,238,716 -6,987,706
Net Cash flow 28,564,000 10,793,752 12,356,504 14,072,771 15,957,573 18,027,393 20,300,315
Discounted free cash flow -11,436,000 12,298,157 11,664,197 11,021,845 10,381,743 9,752,005 9,138,703
Discounted Free Cash
flow Balance -11,436,000 862,157 12,526,354 23,548,199 33,929,942 43,681,947 52,820,650

1. Financial Evaluation
a) Profitability
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 12.9 million to Birr 14.9 million after expansion plan of the
industry. Moreover, at the end of the project life the accumulated cash flow amounts to Birr 70 million.

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
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divided by total investment) has been carried out over the period of the project life and all the results are found
to be satisfactory.

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 of the project including cost
of finance when it starts to operate at full capacity (year 5) is estimated by using income statement projection.

BE = Fixed Cost = 22 %
Sales – Variable Cost

d) Payback Period
The payback period, also called pay – off period is defined as the period required 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 3.6 years.

e) Internal Rate of Return

The internal rate of return (IRR) is the annualized effective compounded return rate that can be earned on the

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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 porject is computed to be 141.9 % indicating the vaiability of the
project.

f) Net Present Value

Net present value (NPV) is defined as the total present ( discounted) value of a time series of cash flows. NPV
aggregates cash flows that occur during different periods of time during the life of a project in to a common
measuring unit i.e. present value. It is a standard method for using the time value of money to appraise long-
term projects. NPV is an indicator of how much value an investment or project adds to the capital invested. In
principal a project is accepted if the NPV is non-negative.

Accordingly, the net present value of the project at 11.5% discount rate is found to be Birr 61.3 million which
is acceptable.
g) Economic Benefits
The industry by now creates employment for 75 persons. In addition to supply of the domestic needs, the

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project will generate Birr 3.5 million in terms of tax revenue per year. The establishment of such factory will
creates backward linkage with tanneries that produce crust leather and a forward linkage with plastic and
leather products manufacturers. The establishment of such factory will have aimport substitution effect to the
country by supplying the products to local market.

2. Production & Sales

A. The newly additional imported canvas shoes machine will increase the output of canvas shoes by about 100%.
Aggressive market assessment will be conducted to attract new customers. Particularly in areas where
customers are engaged in local shoes selling activities.
B. Aggressive market research will be conduct to attract new customers, particularly in areas where customers
are engaged in shoe export activities.

3. Conclusion
As per projected income and cash flow statement reveals, the company will have the capacity to generate
profit in the first year and will continue to generate profit thereafter. It also shows a positive cash flow starting
from the base year and progress on wards up to end of the forecasted period, indicating its capacity to finance
its operational expense & fulfill its loan repayment commitment. It is also worth noting at this juncture that the
company has long years of healthy relation with bank in that, it has no record of default to repay its bank loans

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as per schedule.

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BLACKY SHOE AND SOLE PLC
BLACKY SHOE AND SOLE PLC