SRS Tech Feasibility Report

FEASIBILITY REPORT OF SRS TECH

SUBMITTED TO:

SIR WASEEM AHMED

SUBMITTED BY:

SABEEN JAVAID (2007-NUST-BIT-147)

SABA MANZOOR (2007-NUST-BIT-90)

RASHID ALI (2007-NUST-BIT-138)

RIZWAN ALI (2007-NUST-BIT-49)

Feasibility Report for SRS Tech

TABLE OF CONTENT:

Executive Summary

Introduction

1- Market Analysis1.1 Estimated size of Industry1.2 Software and Services sector with 41% Growth1.3 Employment of Professionals by 43% Growth

2- Industry at a Glance

3- Departments

3.1 Prospecting Projects

3.2 Launch of a New Software

4- Market

4.1 Market Segmentation

4.2 Market Analysis

4.3 SWOT Analysis

4.4 Competitive Edge

4.5 Main Objectives

5- Financial Analysis

5.1 Require Assets5.2 Means of Financing5.3 Expenses incurred at start of SRS Tech5.4 Projected Balance Sheet5.5 Projected Income Statement

Net Profit Percentage Operating Capital NOPAT


ROIC Accounting Rate of Return (ARR) Pay-Back Period Discounted Pay-Back Period Net Present Value Internal Rate of Return Time Value of Money Modified Internal Rate of Return

5.6 Ratio Analysis

Liquidity Ratios Current Ratio Quick Ratio Working Capital

Profitability Ratios Gross Profit Margin Net Profit Margin

Debt Management Ratio Debt Ratio

6- References


Executive Summary:

SRS TECH is a start-up organization whose vision is to create the finest education/entertainment software for non-reading individual with developmental disabilities. The software product has been designed and created by IT specialists with vast industrial experience and knowledge, to meet the needs of the targeted customer segments. The software will be constructive by giving customization to the product and will be according to client’s choice and requirements. SRS TECH will be August 2010 as a Customer Oriented IT Platform. Idea founded and owned by partners Ms. Sabeen, Ms. Saba, Mr. Rashid & Mr. Rizwan.


SRS TECH is a software house which is focusing on Pakistani projects specially to participate in the development of Pakistan thus enhancing IT value and strength in the country.

Mission Statement:

To give quality product to the active economy drivers of the market.

Vision:

Focusing on providing quality services to the target market which are playing important role in country’s economy and progress i-e Business concerns, manufacturing concerns, banks and educational institutes. Thus we promote technology within these working concerns which results into their efficient participation in Pakistan’s economy and progress.

1-Market Analysis:

The Pakistan IT industry today has an impressive story to tell. Much like the successful startup that one would have not heard of a few years ago but now it is all of a sudden the talk of the town The Pakistan’s IT industry has started to appear on the radar of firms like Gartner and IDC and in the reports by AT Kearny and the World Bank. It is a transformed industry growing exponentially and creating stir.

1.1 Estimated Size of IT Industry

From its slow beginnings in the late 1980s, the industry has successfully arrived to a point where its value proposition has been validated over and over again. The largest members are grossing 15-25million dollars in revenues, and 100 million dollar valuations. Most tech companies are growing in excess of 30% a year annually. The industry as a whole is doing over 2 billion dollars a year in revenue, up from less than a billion dollars a few years ago.

1.2 Software and Services sector with 41% Growth

For 2007-2008

About half of this growth is coming from foreign, software and high end services projects. IBM, Cisco and Microsoft are expanding there in Pakistan operations aggressively while several startups are now backed by VCs such as e-Planet Ventures, Motorola, and adobe.

1.3 Employment of Professionals by 43% Growth

Sectors and countries have achieved in 15-20years, Pakistan’s technology scene is poised to achieve this in less than a decade.


Putting it all together, now Pakistani Technology industry is very different from what it was in the early 1990’s. From 4 founding companies in 1994, PASHA’s membership exceeds 370. From 4,619full-time employees in 2004, current employees are 12,232 and still rising day by day.

The number of QA (Quality assurance) professionals has doubled in the last 3 years and 20% of those employed in the sector are foreign qualified. Fast becoming a hub of high performance business, the questions that now arise are if this year’s growth will be 28% or 50%, if there will be enough skilled HR to staff demand, if there will be enough office space available in next year.

2- Industry at a Glance:


3- Departments:

Our main idea is to open a software house in Islamabad which would be the biggest software house in Pakistan. We will have mainly two Departments.

Direct Projects:

Projects to create the set of standards and services that

With a policy framework enable us to develop simple,

Directed and easy to use software that are used for

Educational purposes and for meaningful exchange of

Technology skills between Techies and people having

Development disabilities.


Departments

Direct Projects Out Sourcing

Out Sourcing:

Outsourcing is an arrangement in which one company provides services for another company that could also be or usually have been provided in-house. Outsourcing is a trend that is becoming more common in information technology and other industries for services that have usually been regarded as intrinsic to managing a business. In some cases, the entire information management of a company is outsourced, including planning and business analysis as well as the installation, management, and servicing of the network and workstations. Outsourcing can range from the large contract in which a company like IBM manages IT services for a company like Xerox to the practice of hiring contractors and temporary office workers on an individual basis. So we will be providing such kind of services to other institutions as well.

3.1 Prospecting Projects:

Supporting firmsWe will support various projects in collaboration with NADRA by using SQL, Oracle.

Database for InstitutionsWe will be focusing on the projects and solutions for institutions like Educational, Medical Business Growing Institutes.

3.2 Launch of a New Software:

SRS Tech will launch new software and will introduce a new idea in the history of Pakistan.

Our software will help disable people. This idea has been taken from the Research work of Dr. Sue. We were really impressed with his this kind of thought so we decided to implement his idea.

4- Market:

4.1 Market Segmentation:SRS Tech has identified four market segments for its product. They are the most likely consumers of their product. These segments are as follows:

a. IT Intensive Corporate – The corporate and commercial businesses that are focusing on IT software and are having an IT oriented environment like banks, manufacturing concerns.

b. Centers of Independent living - They are typically non-profit organizations that assist individuals with development disabilities. They help their clients with transition skills,


making them more independent. They also provide a wide range of life skills training for the individuals.

c. Proactive Parents and Educational Concerns – Parents and educational institutions (like district schools etc) that are really concern in the education of their kids and students respectively. They will be looking for assistance that can help them with the learning progress of their kids and student at home and at educational places respectively.

d. Agencies - Internationally many countries have their agencies that act as Brokers to connect the service Providers and that individual that are in need of these services. Such agencies generally formed as a result of a settlement or payout from a lawsuit (individual and class actions).

4.2 Market Analysis:

4.3 SWOT Analysis:SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. We briefly pointed out them as below:

Strengths: Highly skilled and focused employees. Providing customizable software products. Satisfying the requirements of the targeted segments.


Quality assurance of value added products. Giving a new flavor to the software development in Pakistan.

Weaknesses: To gain the trust of the people. To get our software house to be renowned among the software techies. Lack of training in the employees at beginning.

Opportunities: To provide a diversified range of products according to customers taste and

demands. To implement the knowledge hidden inside “the untapped stockrooms of our

minds” – G.R.Harrison. Ensure Individual Integrity. Enhance Personal Professional Competence

Threats: Terrorists attacks. Influence of Economy Impairment. Prevailing trends of Globalization. Global Economic Crisis. Rationalism

4.4 Competitive Edge:

As there are several companies present in the market and are providing similar product for educational purposes SRS Tech will Leverage its competitive edge by including Entertainment factor in our software products. By doing so users will spend more time on using our product as it creates a mean of interest while using software.

4.5 Main Objectives: We will follow the strategy of Market Penetration in the first year. Then we will focus

on how to increase our sales up to double or triple of current sales in the next 2-3 years. To assist more than 15000 individuals with development disabilities by the end of 5th

year at max. Achieve up to 20-25% market penetration by the end of 4th year.

Projected sales, gross profit margin and profit for next three years are shown below:


5- Financial Analysis:

Note: All figures are in (000) Rs

5.1 Require Assets:

AssetsCash 610A/C Receivables 500Inventory 190Prepaid Rent 600Bill Boards 100Total Current Assets 2100Furniture 755Fixture 345Computers 500Equipment 450Total Fixed assets 2050Total Assets 4100


5.2 Means of Financing:

Owner’s Equity:

Partner’s Names Equity in RupeesMs. Sabeen Javaid 720Ms. Saba Manzoor 720Mr. Rashid Ali 720Mr. Rizwan Ali 720

Liabilities:

Loan from Bank : 460 Long-term loans : 760

Owner’s equity + Liabilities = Assets(720 × 4) + (460 + 760) = 41004100 = 4100 Therefore Accounting Equation is satisfied.

5.3 Expenses incurred at start of SRS Tech:

Expenses heads Amount in RsLegal formalities 100license 200Marketing Campaign 300furniture 700Fixtures 350Computers

Laptops SRS’s Main Server Network establishment H/w & S/w

2500

Equipment Generator Photocopy Machine Others like telephone

connections etc.

500

R & D Fund 2000Advance Rents 500Other expenses 240Total startup expense 7390


Cash in hand required 610Total 8000

5.4 Projected Balance Sheet:

Projected Balance SheetASSETSCurrent Assets

Year 2010 Year 2011 Year 2012 Year 2013Cash 610 710 850 1000Inventory 500 550 500 550A/C Recv 190 165 200 250Prepaid Rent 600 675 650 600Bill Boards 200 200 250 200Total Current Assets 2100 2300 2450 2600Fixed AssetsFurniture 755 755 855 855Fixture 345 345 345 345Computers 500 500 600 650Equipment 450 450 500 550Less: AccumulatedDepreciation

(100) (100) (100) (100)

Total Fixed assets 2050 2050 2200 2300Total Assets 4100 4350 4650 4900

LIABILITIES AND CAPITALYear 2010 Year 2011 Year 2012 Year 2013

LiabilitiesA/C Payable 250 330 300 250Accrued Expenses 120 290 260 220Current Borrowing 250 300 400 550Total Current liabilities

620 920 960 1020

long termliabilities

600 550 810 1000

Total Liabilities 1220 1470 1770 2020Capital StockMs. Sabeen Javaid 720 720 720 720Ms. Saba Manzoor 720 720 720 720Mr. Rashid Ali 720 720 720 720Mr. Rizwan Ali 720 720 720 720Total Capital 2880 2880 2880 2880Total Liabilities &Capital Stock

4100 4350 4650 4900


NOTE: We have ignored retain earnings and dividends.

5.5 Projected Income Statement:

INCOME STATEMENTYear 2010 Year 2011 Year 2012 Year 2013

Revenue:Sales Revenues 1500 2000 2600 3700Service Revenue 700 1000 1200 1300Total Revenue 2200 3000 3800 5000Expenses:Salaries Expense 300 300 300 400Commissions 20 20 30 20Office Supplies 90 90 70 80Legal Fees 70 70 100 70Advertisement 200 250 200 200Interest 50.6 50.6 100 100R & D 50 70 150 100Other expenses 820 750 1000 1200Total Expenses: 1600.6 1600.6 1950 2170Profit or Net Income Before Income tax

599.4 1399.4 1850 2830

Less Income Tax10%

59.94 139.94 185 283

Profit or Net- Income after Tax

539.46 1259.46 1665 2547

Add: Depreciation 100 100 100 100Net Cash flow 639.46 1359.46 1765 2647

Net Profit Percentage :All companies must consume resources (i.e. incur costs) in order to generate revenue. The Net Income Percentage is simply a measure of management’s ability to control these costs. Net Profit Percentage = (Net Income / Total Revenue) * 100

For Year 2010: Net Profit Percentage = (Net Income / Total Revenue) * 100 = (539.46/2200)*100 = 24.52 %Thus the company will be able to convert 24.52 % of its revenue into net income.


For year 2011:Net Profit Percentage = (Net Income / Total Revenue) * 100 = (1259.46/3000)*100 = 41.982 %Thus the company will be able to convert 41.982 % of its revenue into net income.

For year 2012:Net Profit Percentage = (Net Income / Total Revenue) * 100 = (1665/3800)*100 = 43.82 %Thus the company will be able to convert 43.82 % of its revenue into net income.

For year 2012:Net Profit Percentage = (Net Income / Total Revenue) * 100 = (2547/5000)*100 = 50.94 %Thus the company will be able to convert 50.94 % of its revenue into net income.

Here trend of net profit percentage is shown graphically. That is pretty good, improving every year.

2010 2011 2012 20130

10

20

30

40

50

60

Operating Capital:

Total Operating Capital = NOWC + Operating long term assets = (Cash + A/R +Inventories-(A/P + Accruals)) +Operating long term assets

For year 2010:


Total Operating Capital = (Cash + A/R +Inventories-(A/P + Accruals)) +Operating long term assets = 610 + 500 + 190 – 250 – 120 + 2050 = 2980

For year 2011:Total Operating Capital = (Cash + A/R +Inventories-(A/P + Accruals)) +Operating long term assets

= 710 + 550 + 165 – 330 – 290 +2050 = 2855


= 850 + 500 +200 – 300 -260 + 2200 = 3190


= 1000 + 550 + 250 – 250 – 220 + 2300 = 3630

Here trend of Operating Capital is shown graphically. That is quite positive.

2010 2011 2012 20130

500

1000

1500

2000

2500

3000

3500

4000


NOPAT: NOPAT = EBIT (1 - T)Assuming, T = 10%

For year 2010:NOPAT = EBIT (1 - T)

= 599.4 (1- 0.10) =539.46


= 1399.4 (1- 0.10) =1259.46


= 1850 (1- 0.10) = 1665


= 2830 (1- 0.10) = 2547

Here trend of net profit percentage is shown graphically.

2010 2011 2012 20130

500

1000

1500

2000

2500

3000


ROIC: ROIC= [NOPAT/ Operating Capital]*100Assuming WACC = 10 % If ROIC > WACC, this means company is adding value & will have positive EVA.

For year 2010:ROIC= [NOPAT/ Operating Capital]*100 = [539.46/2980]*100 =18.1 %Since ROIC > WACC, this means company is adding value & will have positive EVA.

For year 2011:ROIC= [NOPAT/ Operating Capital]*100 = [1259.46/2855]*100 = 44.11 %Since ROIC > WACC, this means company is adding value & will have positive EVA.

For year 2012:ROIC= [NOPAT/ Operating Capital]*100 = [1665/3190]*100 = 52.19 %Since ROIC > WACC, this means company is adding value & will have positive EVA.

For year 2013:ROIC= [NOPAT/ Operating Capital]*100 = [2547/3630]*100 = 70.16 %Since ROIC > WACC, this means company is adding value & will have positive EVA.


2010 2011 2012 20130.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

Accounting Rate of Return (ARR):

ARRYears Cash Flow Depreciation Profit0 (4100) 0 01 639.46 100 539.462 1359.46 100 1259.463 1765 100 16654 2647 100 2547Average Profit for 4 years 1502.73Average Investment (4100+0)/2=2050ARR (1502.73/2050)*100 =73.3%

Pay-Back Period:

Pay-Back PeriodYear Cash-Flow0 (4100)1 639.46 3460.542 1359.46 2101.083 1765 336.084 2647Payback Period= 3years and ((336.08/2647)*12) months = 3years and 1month and (0.52*30)days = 3years and 1month and 16 days

Discounted Pay-Back Period :

Assuming WACC=10%


Present Value of Cash-Flow = FV (1/(1+.10)n)

Present Value Factor= 1/(1+.10)n , n=0,1,2,3,4.

Discounted Pay-Back PeriodYear FV of Cash Flow PV Factor PV of Cash-Flow0 (4100) 11 639.46 0.909 581.27 3518.542 1359.46 0.826 1122.91 2395.633 1765 0.751 1325.5 1070.134 2647 0.683 1807.9Discounted Payback Period= 3years and ((1070.13/1807.9)*12) months = 3years and (0.59*30)days = 3years and 18 days

Net Present Value:

Net Present ValueYear FV of Cash Flow PV Factor PV of Cash-Flow0 (4100) 1 (4100)1 639.46 0.909 581.272 1359.46 0.826 1122.913 1765 0.751 1325.54 2647 0.683 1807.9NPV = Inflow - Outflow = 737.58NPV is positive so we will accept this project

Internal Rate of Return (IRR):

Internal Rate Of ReturnYear FV of Cash Flow PV Factor (10%) PV of Cash-Flow PV Factor (20%)0 (4100) 1 - 4100 1 (4100)1 639.46 0.909 581.27 0.833 532.672 1359.46 0.826 1122.91 0.6944 9443 1765 0.751 1325.5 0.578 1020.174 2647 0.683 1807.9 0.4822 1276.38NPV = Inflow - Outflow 737.58 -326.78

This means IRR is between 10% & 20% so now we will use interpolation technique.

IRR= 10% + [(737.58/(737.58-(-326.78)))*(20-10)]


IRR= 16.93 %

Time Value of Money:

Assuming: Interest rate =10%

Present Value

Present Value of Cash-Flow = FV (1/ (1+.10) n )

Present Value Factor= 1/ (1+.10)n , n=0, 1, 2, 3, 4.

Present ValueYear FV of Cash Flow PV Factor PV of Cash-Flow0 (4100) 11 639.46 0.909 581.272 1359.46 0.826 1122.913 1765 0.751 1325.54 2647 0.683 1807.9 PV of future inflows = 4837.58

Future Value

Future Value of Cash-Flow = PV *(1+.10) n

Where n=0, 1, 2, 3, 4.

Future ValueYear PV of Cash Flow FV Factor FV of Cash-Flow0 (4100)1 639.46 1.331 851.1212 1359.46 1.21 1644.953 1765 1.10 1941.54 2647 1 2647 FV of inflows = 7084.57


Modified Internal Rate of Return (MIRR):

We select this project if its MIRR is greater than WACC because greater the MIRR than WACC, greater will be the security margin.

Future ValueYear PV of Cash Flow FV Factor FV of Cash-Flow0 (4100)1 639.46 1.331 851.1212 1359.46 1.21 1644.953 1765 1.10 1941.54 2647 1 2647 FV of inflows = 7084.57

Now we will find that discount rate on terminal value (i.e. 7084.57) for which our answer equals the outflow.

Find i=?

Future Value of Cash-Flow = PV *(1+.10) n

n=0, 1, 2, 3, 4.

7084.57=4100(1+i) 4

MIRR = i = 14.65 %

5.6 Ratio Analysis:

1. Liquidity Ratios:Liquidity measures a company's capacity to pay its debts as they come due. There are three ratios for evaluating liquidity.

a. Current Ratio:The current ratio gauges how capable a business is in paying current liabilities by using current assets only. Current Ratio = CA / CLIdeally it should be 2:1

For year 2010:


Current Ratio = CA / CL = 2100 / 620 = 3.38 times

For year 2011:Current Ratio = CA / CL

= 2300/ 920 = 2.5 times


= 2450 / 960 = 2.55 times


= 2600 / 1020 = 2.54 times

Here we have shown the trend of Current Ratio graphically:

2010 2011 2012 20130

0.5

1

1.5

2

2.5

3

3.5

4

b. Quick Ratio:It indicates the extent to which you could pay current liabilities without relying on the sale of inventory. Quick Ratio = Quick Assets / CL = (CA – Inventory – Prepayments) / CLIdeally it should be > 1.

For year 2010:Quick Ratio = (CA – Inventory – Prepayments) / CL

= (2100-500-600) / 620 = 1.61 times



= (2300 – 550 - 675) / 920 = 1.19 times


= (2450 – 500 – 650) / 960 = 1.35 times

For year 2013:Quick Ratio = (CA – Inventory – Prepayments) / CL = (2600 – 550 – 600) / 1020

= 1.42 times

Trend of quick ratio is shown below:

2010 2011 2012 20130

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

c. Working Capital:Working capital = CA – CLIt should be positive.

For year 2010:Working capital = CA – CL


= 2100 – 620=1480


=2300 – 920=1380


= 2450 – 960= 1490


= 2600 – 1020=1580

Trend of working capital is as follows:

2010 2011 2012 20131250

1300

1350

1400

1450

1500

1550

1600

2. Profitability Ratios:Profitability ratios measure the company's ability to generate a return on its resources.

a. Gross Profit MarginGross profit margin indicates how well the company can generate a return at the gross profit level. It addresses three areas -- inventory control, pricing and production efficiency.


Gross Profit Margin = Gross Profit / Total Sales = (Sales – Cost of Goods Sold) / Total Sales

Assuming: Cost of Goods Sold to be as follows:

For year 2010, cost of goods sold is = 800For year 2010, cost of goods sold is = 1200For year 2010, cost of goods sold is = 1500For year 2010, cost of goods sold is = 2000

For year 2010:Gross Profit Margin= (Sales – Cost of Goods Sales) / Total Sales

= (1500 - 800)/ 1500= 0.46


= (2000 - 1200)/2000= 0.40


= (2600 - 1500) / 2600= 0.42


= (3700 - 2000) / 3700= 0.45

Trend of GPM is shown below:


2010 2011 2012 20130.37

0.38

0.39

0.4

0.41

0.42

0.43

0.44

0.45

0.46

0.47

Gross Profit Margin

Gross Profit Margin

b. Net Profit MarginNet profit margin shows how much net profit is derived from every dollar of total sales. It indicates how well the business has managed its operating expenses.

Net Profit Margin =Net Profit / Total Sales

For year 2010:Net Profit Margin =Net Profit / Total Sales

= 539.46 / 1500= 0.37


= 1259.46 / 2000= 0.62


= 1665 / 2600= 0.64



= 2547 / 3700= 0.68

It is graphically shown below:

2010 2011 2012 20130

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

Net Profit Margin

Net Profit Margin

3. Debt Management Ratio:This is an indication of the company's ability to satisfy its debt obligations and its capacity to take on additional debt without impairing its survival.

a. Debt Ratio:A ratio that indicates what proportion of debt a company has relative to its assets.

Debt Ratio = Total Liabilities / Total Assets

For year 2010:Debt Ratio = Total Liabilities / Total Assets

= 1220 / 4100= 0.29


=1470 / 4350 = 0.34



= 1770 / 4650=0.38

For year 2013:Debt Ratio = Total Liabilities / Total Asset s

= 2020/ 4900= 0.41

Trend of debt ratio is shown below:

2010 2011 2012 20130

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

Debt Ratio

Debt Ratio

6- References

www.wikipedia.com www.pasha.org.pk www.scribed.com http://womeninbusiness.about.com/od/freebusinesscourses/a/

finfeasibility_2.htm www.whatis.com IT professional’s reviews from www.Google.com


http://www.Google.com/

http://www.whatis.com/

http://womeninbusiness.about.com/od/freebusinesscourses/a/finfeasibility_2.htm

http://womeninbusiness.about.com/od/freebusinesscourses/a/finfeasibility_2.htm

http://www.scribed.com/

http://www.pasha.org.pk/

http://www.wikipedia.com/

SRS Tech Feasibility Report

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