Page 187 - PARAMETER E

Part 4- Income Generating Projects

6.5. Profitability Analysis
To evaluate/analyze the project’s profitability, some ratios can be considered. These are as
follows:

6.5.1. Return on Working Capital = Net income_____
Operating Expenses

It is the ratio of net income over project’s working capital (equivalent to the total operating
expenses incurred in generating the total revenues of the project) during the production period.

6.5.2. Net Income = Total Revenues – Total Operating Expenses
The profitability of a project, regardless of its size, can be determined by considering its net
income on a per unit basis, as indicated below:

Table 4.3. Net Income of Project on a per unit Basis
Type of Project Profitability Index (P)
1. Crops Net Income per hectare
2.Poultry and livestock Net Income per hectare
Per sow
Per cattle
Per goat
Net Income per sack of feed
Per sack of milled rice
Per kg of meat processed
Per kg of tilapia

6.5.3. Net Profit Margin = Net Income
TOTAL REVENUES

This ratio tells us how much net profit margin the project will realize for every peso sale.

6.5.4. Return On Investment (ROI) = NET INCOME________
TOTAL ASSETS OR CAPITAL

6.5.4.1. Investment
This ratio shows the amount of net earnings per peso invested in the project. It is a more
realistic estimate of the project’s earning power during the production period since all
resources/assets are considered in the profitability analysis.
It can be noted that incentives are only given to the college/university/project personnel if
the project’s ROI is 15% or higher.

6.5.5. Return on Equity (ROE) = NET INCOME _____
TOTAL PROJECT’S EQUITY

This ratio shows the earning rate of the project’s equity. The project is profitable if ROE is
greater than the opportunity cost of capital.

6.5.6. Return to Labor = Total Revenues – All Costs Other Than Labor
Total Labor Cost

This ratio shows the net earnings realized per peso labor cost incurred in the project.

174
IFSU Code