abc school business plan

7/31/2019 ABC School Business Plan

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Table of Contents

2

Important Notice 3

Introduction & Background 4

Valuation Methodology 5

Valuation 6

Assumptions 7

Balance sheet Assumptions 8

Profit & Loss Assumptions 10

Projected Financial Statements 18


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Introduction & Purpose of Report

3

ABC school was established in 1997 by Ms N. Initially, ABC School was offering Pre-school education

catering to the needs of the Diplomatic Community, by providing high quality learning to their children.However after September 11, 2001, foreign student population in ABC School significantly reduced which

forced the management to reconsider its target market; and realign itself towards providing services to the

local community. Provisions of high standard curriculum and constantly improving facilities have been the

main goal at ABC School which led to being a favored choice of parents, and thus became the main

reason for the development of ABC Primary School in 2001. Today in 2008, ABC School has already

expanded to a Secondary School, educating a student body of over 300 children. ABC School system is

segmented in two distinct categories - Pre-school and Primary School (Lower and Upper). The school is

conveniently located in XYZ area catering to a niche target market.

Purpose of the study is to prepare financial projections based on financial statements and explanations

provided by the management of ABC School and conduct a valuation based on the projections to

determine an appropriate value for the School.


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Valuation Methodology

Basis of Valuation The valuation methodology is based on generally accepted method for valuation ofbusiness and investment. The methodology used provides estimates of thevaluation based on information available and the underlying assumptions

Indicative valuation for ABC school has been undertaken using Discounted Cash

Flow (DCF) method on projected financial information for ABC prepared on the

basis of relevantassumptions

Discount Cash Flow This DCF valuation method is based on the future earnings potential of thecompany as it values the business by discounting the future cash flow stream fromthe operations of the company at an appropriate discount rate . Key elements in

DCF valuation include:

Forecasted free cash flows

Terminal value

Net Present Value

The discount rate used is estimated by adjusting the risk free rate of return with a

premium for market and business risk and equity risk. This helps compel an in-

depth understanding of the business by deriving values of product lines,

businesses and transactions

4


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Estimated Value of the ABC School System

Growth in Perpetuity

Discount Rate

15% 16% 17% 18%

0% 152,411,088 141,693,582 132,270,282 123,924,244

1% 158,707,863 146,969,833 136,730,217 127,723,471

2% 165,973,373 152,999,835 141,784,809 131,997,601

3% 174,449,800 159,957,529 147,561,485 136,841,615

5

Amount in PKR

On the basis of the valuation methodology adopted, an estimated value of the ABC School System would

be PKR 153 Million based on a discount rate of 16% and a growth in perpetuity factor of 2%. A complete

range of values for various discount rate estimates and varied growth in perpetuity factors is provided as

above


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Assumptions

6

This section of the report report provides an overview of the assumptions having a major impact on the

free cash flow method used in the valuation of ABC School.

The projected financial information is based on information derived from the historical results of ABC

School and explanations provided by the management. As part of the valuation exercise assumptions

used therein have been based on our best understanding of market dynamics and long term strategic

outlook.


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Balance Sheet Assumptions

7

Capital Expenditure

It has been assumed that major capital expenditure will be incurred during 2010, where the management

expects to increase the number of students by offering new classes for O levels, and increase the number of

sections for primary and secondary school - in light of this expansion the management plans to acquire new

rental premises, and the major capital expenditure will comprise of fixtures & fittings, computers, etc.

Capital expenditure in the remaining years comprises primarily purchase of replacement assets for obsolete

and depreciated equipment

Fixed Assets

400

240

1,400

445515

-

500

1,000

1,500

2008 2009 2010 2011 2012

PKR '000'

2,843

2,291

2,674

2,270

1,870

-

500

1,000

1,500

2,000

2,500

3,000

2008 2009 2010 2011 2012

PKR '000'


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Depreciation

8

Particulars Rates

Furniture & fixtures 10%

Office Equipment 20%

Communication & Telecomequipment

33%

Computers & Printers 33%

Electric Fittings20%

Books 20%

Depreciation RatesWDV

Particulars 2008 2009 2010 2011 2012

Furniture & fixtures 814,125 813,667 1,433,209 1,342,750 1,269,292

Office Equipment 1,076,898 887,674 838,449 629,225 405,000

Communication &Telecom equipment 44,202 49,231 47,760 29,910 7,060

Computers & Printers 575,841 292,218 109,095 93,595 84,795

Electric Fittings 123,723 92,792 141,861 122,931 104,000

Books 207,764 155,823 103,882 51,941 -

Total 2,842,554 2,291,405 2,674,256 2,270,351 1,870,146

For the purpose of financial projections we have assumed that depreciation is charged to income

applying straight line method and full year depreciation is charged in the year of purchase.


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Profit & Loss Assumptions

9

Total Revenue

Total Revenue comprises of tuition fee, admission fee and income from club activities

Income from club activities constitutes of after school activities such as Karate, Yoga and Health training

programmes for students and their parents

Revenue has been projected based on our understanding of the market dynamics, past trends andstrategy of ABC School, the increase can be attributed to:

Number of students, which are assumed to increase with increase in number of sections and grades

Increase in admission fee and tuition fee per student, which is assumed to increase every two years

Increase in number of classes, which will increase with addition of one grade each year over the projected period

up to grade 11

Increase in number of sections per grade.

Revenue- Break up

47,022

60,614

77,709

97,094105,558

-

20,000

40,000

60,000

80,000

100,000

120,000

2008 2009 2010 2011 2012

PKR '000'

36,32249,704 59,918

80,424 85,8348,600

8,600

15,250

13,87516,650

2,100

2,310

3,0752,795

2,541

-

20,000

40,000

60,000

80,000

100,000

120,000

2008 2009 2010 2011 2012

PKR '000'

Tuition fees Admission Fees Club activities


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Revenue

10

Total Tuition Fee

Total Income from Club Activities

Net Profit After Tax

Total Admission Fee

11,717

16,600

19,474

25,866 26,196

-

5,000

10,000

15,000

20,000

25,000

30,000

2008 2009 2010 2011 2012

PKR '000

36,322

49,704

59,918

80,42485,834

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2008 2009 2010 2011 2012

PKR 000'

2,1002,310

2,541

2,795

3,075

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2008 2009 2010 2011 2012

PKR 000'

8,600 8,600

15,250

13,875

16,650

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2008 2009 2010 2011 2012

PKR 000'


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Tuition Fees

Particulars 2008 2009 2010 2011 2012

Pre Nursery 1 5,500 6,500 6,500 7,500 7,500

Pre Nursery 2 6,500 7,500 7,500 8,500 8,500

Nursery 1 6,500 7,500 7,500 8,500 8,500

Nursery 2 7,000 8,000 8,000 9,000 9,000

Prep 8,200 10,200 10,200 12,200 12,200

Grade 1 8,800 10,800 10,800 12,800 12,800

Grade 2 8,800 10,800 10,800 12,800 12,800

Grade 3 9,200 11,200 11,200 13,200 13,200

Grade 4 9,700 11,700 11,700 13,700 13,700

Grade 5 9,700 11,700 11,700 13,700 13,700

Grade 6 9,700 11,700 11,700 13,700 13,700

Grade 7 9,700 12,700 12,700 15,700 15,700Grade 8 9,700 12,700 12,700 15,700 15,700

Grade 9 - 15,000 15,000 18,000 18,000

Grade 10 - - 18,000 21,000 21,000

Grade 11 - - - 18,000 18,000 11

Tuition fee per grade per month Grade wise increase in tuition fee

Particulars 2008 2009 2010 2011 2012

Pre Nursery 1 - 1,000 - 1,000 -

Pre Nursery 2 - 1,000 - 1,000 -

Nursery 1 - 1,000 - 1,000 -

Nursery 2 - 1,000 - 1,000 -

Prep - 2,000 - 2,000 -

Grade 1 - 2,000 - 2,000 -

Grade 2 - 2,000 - 2,000 -

Grade 3 - 2,000 - 2,000 -

Grade 4 - 2,000 - 2,000 -

Grade 5 - 2,000 - 2,000 -

Grade 6 - 2,000 - 2,000 -

Grade 7 - 3,000 - 3,000 -Grade 8 - 3,000 - 3,000 -

Grade 9 - 3,000 - 3,000 -

Grade 10 - - - 3,000 -

Grade 11 - - - 3,000 -

The table below illustrates tuition fees per student and increase in tuition fees per student for each grade

over the projected period


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Admission Fees

Particulars 2008 2009 2010 2011 2012

Pre Nursery 1 20 20 20 20 20

Pre Nursery 2 20 20 20 20 20

Nursery 1 10 10 10 10 10

Nursery 2 10 10 30 30 30

Prep 10 10 26 15 15

Grade 1 2 2 2 2 2

Grade 2 2 2 2 2 2

Grade 3 2 2 2 2 2

Grade 4 2 2 2 2 2

Grade 5 2 2 2 2 2

Grade 6 2 2 2 2 2

Grade 7 2 2 2 2 2

Grade 8 2 2 2 2 2

Grade 9 - - - - -

Grade 10 - - - - -

Grade 11 - - - - -

Total 86 86 122 111 111

12

No. of admissions per grade Admission fee per new student

125

100

150

It is assumed that the admission fee will be

increased in alternate years by PKR 25,000

In line with the strategy of ABC School the bulk

of the students are admitted in pre-school

grades. Admissions in subsequent grades are

assumed on the basis of vacancies if existing

students leave

It has been assumed that no admissions will be

taken in grades 9, 10 and 11

80

90

100

110

120

130

140

150

160

2008 2009 2010 2011 2012

PKR '000'


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Student Population

Particulars 2008 2009 2010 2011 2012

Pre Nursery 1 1 1 1 1 1

Pre Nursery 2 1 1 1 1 1

Nursery 1 1 1 1 1 1

Nursery 2 1 1 2 2 2

Prep 2 2 3 3 3

Grade 1 2 2 2 3 3

Grade 2 2 2 2 2 3

Grade 3 2 2 2 2 2

Grade 4 2 2 2 2 2

Grade 5 2 2 2 2 2

Grade 6 2 2 2 2 2

Grade 7 2 2 2 2 2

Grade 8 1 2 2 2 2

Grade 9 - 1 2 2 2

Grade 10 - - 1 2 2

Grade 11 - - - 1 2

13

Number of Sections per grade Number of Students per Grade

The tables below illustrate the total of number of sections and total number of students per grade

Particulars 2008 2009 2010 2011 2012

Pre Nursery 1 20 20 20 20 20

Pre Nursery 2 20 20 20 20 20

Nursery 1 20 20 20 20 20

Nursery 2 20 20 40 40 40

Prep 32 32 48 48 48

Grade 1 32 32 32 48 48

Grade 2 32 32 32 32 48

Grade 3 32 32 32 32 32

Grade 4 32 32 32 32 32

Grade 5 32 32 32 32 32

Grade 6 32 32 32 32 32

Grade 7 32 32 32 32 32

Grade 8 16 32 32 32 32

Grade 9 - 16 32 30 30

Grade 10 - - 16 32 30

Grade 11 - - - 16 32

As part of the expansion strategy the school plans to expand its operations by offering classes up to

O'levels and expand the student population for which it plans to increase the number of sections over the

projected period.


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Administrative Expenses

Particulars Assumptions 2008 2009 2010 2011 2012

Salaries & allowance 10 % increaseper annum 16,806,000 20,697,000 26,754,300 33,208,722 38,944,085

Rent & rates10% increase per annum and acquisitionof new premises in 2010 @ PKR 3.6 MNper annum 5,001,500 5,501,650 9,651,815 10,616,997 11,678,696

Staff training PKR 200,000every year 200,000 200,000 200,000 200,000 200,000

School function 1 % ofrevenue 470,216 606,140 777,094 970,941 1,055,582

Electric & gas 3 % ofrevenue 1,410,648 1,818,420 2,331,282 2,912,823 3,166,746

Telephone charges 1 % ofrevenue 470,216 606,140 777,094 970,941 1,055,582

Stationary & photocopies 1.5 % of revenue 705,324 909,210 1,165,641 1,456,412 1,583,373

Internet expenses 0.1 % of revenue 47,022 60,614 77,709 97,094 105,558

Traveling expense 0.1 % of revenue 49,149 63,356 81,225 101,487 110,334

Software expenses 20 % of computer equipment in the yearpurchased 20,000 - 30,000 20,000 22,000

Security expenses 0.5 % of revenue 235,108 303,070 388,547 485,471 527,791

Postage expenses 0.1 % of revenue 47,022 60,614 77,709 97,094 105,558

Entertainment expenses 0.5 % of revenue 235,108 303,070 388,547 485,471 527,791

Conveyance 0.1 % of revenue 47,022 60,614 77,709 97,094 105,558

Water charges 0.5 % of revenue 235,108 303,070 388,547 485,471 527,791

Book & subscription 1 % ofrevenue 470,216 606,140 777,094 970,941 1,055,582

Fees & subscription charges PKR. 25,000/- per annum 25,000 25,000 25,000 25,000 25,000

Professional charges 1 % ofrevenue 470,216 606,140 777,094 970,941 1,055,582

Repairs & maintenance 10% ofcost ofassets 359,050 383,050 523,050 487,507 526,507Generator expense 10 % increaseper annum 231,867 255,053 280,559 308,615 339,476

Advertising expenses 0.5 % of revenue 235,108 303,070 388,547 485,471 527,791

Bank charges 0.05 % of cash and bank balances 6,041 7,285 15,940 25,566 38,841

Others / miscellaneous 1 % ofrevenue 470,216 606,140 777,094 970,941 1,055,582

Depreciation As per Capex Schedule 747,949 791,149 1,017,149 848,905 915,205

Total 28,995,105 35,075,996 47,748,748 57,299,902 65,256,013

14


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Administrative Expenses

15

Increase in the number of teachers and other

employees is due to addition of new classes

for Olevels and increase in sections for

primary and secondary school.

Currently there are two teachers per section

for grades Pre-Nursery 1 Grade 5, and

three teachers per section from Grade 6

Grade 11.

Salaries have been assumed to increase at a

rate of 10% per annum

Rent per annumPayroll

In light of ABC School expansion strategy the

management plans to acquire new rental

premises in FY 2010 at PKR 3.6 MN per annum

Rent expense has been assumed to increase at10% per annum.

118113105

9487

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2008 2009 2010 2011 2012

PKR '000'

0

20

40

60

80

100

120

140

Total Salaries Total Staff

5,002 5,502

9,65210,617

11,679

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2008 2009 2010 2011 2012

PKR '000'


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Payroll Expenses

Particulars 2008 2009 2010 2011 2012

Principle 125,000 137,500 151,250 166,375 183,013

Vice Principle 60,000 66,000 72,600 79,860 87,846

Helpers 8,000 8,800 9,680 10,648 11,713

Management Staff 12,000 13,200 14,520 15,972 17,569

Non-management Staff 7,500 8,250 9,075 9,983 10,981

Security Guards 6,500 7,150 7,865 8,652 9,517

Pre Nursery 1 18,000 19,800 21,780 23,958 26,354

Pre Nursery 2 18,000 19,800 21,780 23,958 26,354

Nursery 1 18,000 19,800 21,780 23,958 26,354

Nursery 2 18,000 19,800 21,780 23,958 26,354

Prep 18,000 19,800 21,780 23,958 26,354

Grade 1 18,000 19,800 21,780 23,958 26,354

Grade 2 18,000 19,800 21,780 23,958 26,354

Grade 3 18,000 19,800 21,780 23,958 26,354

Grade 4 18,000 19,800 21,780 23,958 26,354

Grade 5 18,000 19,800 21,780 23,958 26,354

Grade 6 18,000 19,800 21,780 23,958 26,354

Grade 7 20,000 22,000 24,200 26,620 29,282

Grade 8 20,000 22,000 24,200 26,620 29,282

Grade 9 - 35,000 38,500 42,350 46,585

Grade 10 - - 40,000 44,000 48,400

Grade 11 - - - 45,000 49,500

16

Total number of Teachers Staff monthly salaries

Total Annual Salaries

47

53

63

7176

-

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012

16,806

20,69726,754

33,209

38,944

-

10,000

20,000

30,000

40,000

50,000

2008 2009 2010 2011 2012

PKR '000'


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Projected Balance Sheet Statement

Particulars 2008 2009 2010 2011 2012

Fixed Assets (as per schedule attached) 2,842,554 2,291,405 2,674,256 2,270,351 1,870,146

Current Assets

Cash & Bank Balances 14,570,334 31,880,398 51,132,803 77,681,584 104,540,232

Deposits, Prepayments & Other Receivables 786,937 951,974 1,295,917 1,555,138 1,771,070

Total Current Assets 15,357,271 32,832,372 52,428,720 79,236,722 106,311,302

Total Assets 18,199,825 35,123,777 55,102,976 81,507,073 108,181,448

Capital & Liabilities

Current Liabilities

Accrued salaries 1,400,500 1,724,750 2,229,525 2,767,394 3,245,340

Total Current Liabilities 1,400,500 1,724,750 2,229,525 2,767,394 3,245,340

Capital Account

Opening balance 5,082,102 16,799,324 33,399,026 52,873,450 78,739,679

Add: Excess of receipts over expenditure 11,717,222 16,599,702 19,474,424 25,866,229 26,196,428

Less: Drawing & Taxes

Closing Balance 16,799,324 33,399,026 52,873,450 78,739,679 104,936,107

Total Liabilities 18,199,825 35,123,777 55,102,976 81,507,073 108,181,448 17

Amount in PKR


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Projected Profit & Loss Statement

Particulars 2008 2009 2010 2011 2012

Revenue

Tuition Fee 36,321,600 49,704,000 59,918,400 80,424,000 85,833,600

Admission fee 8,600,000 8,600,000 15,250,000 13,875,000 16,650,000

Income from Club Activities 2,100,000 2,310,000 2,541,000 2,795,100 3,074,610

Total Revenue 47,021,600 60,614,000 77,709,400 97,094,100 105,558,210

Cost of Services 28,995,105 35,075,996 47,748,748 57,299,902 65,256,013

Net Profit Before Tax 18,026,495 25,538,004 29,960,652 39,794,198 40,302,197

Tax expense 6,309,273 8,938,301 10,486,228 13,927,969 14,105,769

Net Profit After Tax 11,717,222 16,599,702 19,474,424 25,866,229 26,196,428

18

Amount in PKR


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Projected Cash Flow Statements

Particulars 2008 2009 2010 2011 2012

Cash Flow from Operating Activities

Profit before tax 18,026,495 25,538,004 29,960,652 39,794,198 40,302,197

Adjustment of non-cash charges

Depreciation 747,949 791,149 1,017,149 848,905 915,205

18,774,444 26,329,153 30,977,801 40,643,103 41,217,402

Working capital Changes

Increase / decrease in current assets

Deposits, Prepayments & Other Receivables (308,788) (165,037) (343,943) (259,222) (215,932)

Advance Tax 25,295

(283,493) (165,037) (343,943) (259,222) (215,932)Increase / decrease in current Liabilities

Liabilities (9,293,300) 324,250 504,775 537,869 477,947

Tax payments (6,309,273) (8,938,301) (10,486,228) (13,927,969) (14,105,769)

Net Cash flows from Operating Activities 2,888,378 17,550,064 20,652,405 26,993,781 27,373,648

Cash Flow from Investing Activities

Investments in operating f ixed assets (400,000) (240,000) (1,400,000) (445,000) (515,000)

Net Cash flows from Investing Activities (400,000) (240,000) (1,400,000) (445,000) (515,000)

Increase / decrease in cash and cashequivalents 2,488,378 17,310,064 19,252,405 26,548,781 26,858,648

Cash and cash equivalents at beginning ofperiod 12,081,956 14,570,334 31,880,398 51,132,803 77,681,584

Cash and cash equivalents at the end ofperiod 14,570,334 31,880,398 51,132,803 77,681,584 104,540,232

19

Amount in PKR


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Free Cash Flow and NPV

Particulars 2008 2009 2010 2011 2012EBT 18,026,495 25,538,004 29,960,652 39,794,198 40,302,197

Add:

Depreciation 747,949 791,149 1,017,149 848,905 915,205

Gross Cash Flows 18,774,444 26,329,153 30,977,801 40,643,103 41,217,402

Less:

Cash Taxes Paid (6,309,273) (8,938,301) (10,486,228) (13,927,969) (14,105,769)

Capital Expenditure (400,000) (240,000) (1,400,000) (445,000) (515,000)

Free Cash Flows 12,065,171 17,150,851 19,091,573 26,270,134 26,596,633

Terminal Value 189,975,949

Total Cash Flow 12,065,171 17,150,851 19,091,573 26,270,134 216,572,582

Net Present Value (NPV) 152,999,835

20

Amount in PKR

abc school business plan

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