subbab 3 peningkatan jumlah molekul atom
1
CHAPTER 3
PROFITABILITY AND SENSITIVITY ANALYSIS
3.1
Rate of Return/Return of Investment
Rate of Return (ROR) or Return of Investment (ROI) is the annual interest
rate made by the profits on the original investment. ROI provides a snapshot view
of the profitability of the plant, normally using the estimates of the elements of the
investment and the pre-tax or after-tax earnings. For ROI, and all of the
approximate profitability measures of this section, the production cost is
computed using straight-line depreciation, and after some startup period, the plant
is assumed to operated each year at full capacity (or at some percentage of full
capacity) for the same number of days per year. As was stated earlier, many
definitions of ROI have been suggested and used. Here, the most common
definition is applied.
ROI=
annual net profit
x 100
totalcapital investment
(3.1)
The amount of annual net profit is Rp Rp6,758,518,962.07
while the amount of total capital investment is Rp xxxx. Therefore the
calculation of ROI for Cassathan plant is shown as follows
ROI= ❑ =¿
❑
ROI = %
Based on the amount of ROI (xxxx %) we can see that d-HEEL production
is an interesting investment for investor, considering the relatively high ROI.
3.2
Payback Period
The payback period, or also called as payout period or cash recovery
period is the time required for the annual earnings to equal the original
investment. The advantage of using payback period is more simpler and
comprehensible than ROI. It is also widely used in early evaluations to compare
many alternatives. This parameter is one of the most important to be considered,
because it determines the decision whether to execute the project or not. Longer
payback periods are not typically desirable for investment positions. The
calculation of payback period can be done by using Eq. (3.2
PBP=
Depreciable FCI + Interest onTCI during service life
×100
( avg . profit / year + avg . depreciation/ year )as constant annuity
(3.2)
where the FCI is Fixed Capital Investment and TCI is Total Capital Investment.
The analysis of payback period is calculated in ten years because it is considered
long enough and used in most economic analysis for the material and property
industrial’s service life. Based on the assumptions, the payback period is
calculated as follows.
Table 3.1 Payback Period Calculation
Ye
ar
Cash Flow
(Rp)
Cummulative Cash
Flow (Rp)
0
1
2
3
4
5
6
7
8
9
10
Figure 3.1 Cummulative Cash Flow vs. Year for Payback Period Calculation
The precise calculation of payback period time is done by using
interpolation method between the third and fourth year as follows.
−¿= ❑
❑
PBP− ¿
¿
¿
PBP=days
Based on the calculation, we can conclude that this Shoes’ Smell Remover
Product can get its payback in period less than 4 years, which is classified as
intermediate time that is proper to recover the cost of investment. So, the
production is acceptable.
3.3
Break Even Point
Breakeven point (BEP) is an analysis which is done to define and
determine the amount of goods or services that must be sold to the consumer with
2
Universitas Indonesia
a determined price to cover the costs that emerge and obtain profit. BEP analysis
is very important so that we don’t experience loss during the production. The
payback period of our plant is 2.2 years or equal with 581 days. Therefore, the
amount of production until the 580th day can be used to determine the breakeven
point. The calculation of BEP is shown in Table 3.2
Table 3.2 Breakeven point calculation
Years
Days
Product
Sold Product
s /day
(%)
Sold
Cumulative of
Product
Sold Product
(Units)
(Units)
Based on the calculation in Table 3.2, for a payback period of 581 days, the
breakeven point is reached for 2,421,156 products produced.
3.4
Internal Rate of Return
Internal rate of return is the maximum interest rate paid on a project that
can still be breakeven at the end of the project life. In other words, internal rate of
return is the interest if the net present value equals to zero. Eq. (3.3) can be used
to determine the IRR.
n=T
NPV =∑
CF n
−TCI=0
( 1+ r )n
where r is the value of IRR while TCI is the total capital investment. The
(3.3)
n =1
calculation of IRR is done with the aid of Microsof Excel, because it already has
a function to calculate IRR for economic analysis. Based on the calculation in
Microsoft Excel, the obtained IRR is 26.93%.
The value of IRR must be compared with the MARR that has been
calculated previously to analyse the feasibility of this project. A project can be
determine as a feasible project if the IRR value is greater than MARR value. From
the previous chapter, the value of MARR is 18%. If we compare both value, we
can conclude that the IRR value is greater than MARR value (26.93% > 18%).
Therefore, we can also conclude that Protect plant is a feasible and acceptable
3
Universitas Indonesia
project because it is considered as an interesting project and can give proper profit
for the investor.
3.5
Net Present Value
Net Present Value (NPV) is a value that shows the net benefits received
by a project over the life of the project at a certain interest rate. NPV can also be
interpreted as the present value of the cash flows generated by the investment.
During the calculation of NPV, the relevant interest rate is also have to be
determined. For this calculation, we also used the MARR value that has been
calculated before, which is 18%.
Net present value can be calculated by Eq. (3.4)
CF n , 0=
C Fn
(3.4)
( 1+i )n
where:
CFn = The net cash flow in time n
i
= Interest rate used in the project
n
= Time of the project
If NPV is greater than zero, it means that the project is profitable if it’s executed
while if the NPV is less than zero it means that project is not profitable to run.
Also, if the NPV equals to zero, it means that the project won’t result in any profit
or loss. From the calculation with Microsoft Excel, the NPV is obtained as Rp
7,757,748,277. Because the NPV is greater than zero, based on NPV calculation
we can conclude that this project is profitable.
Table 3.6 Calculation Information and Assumptions
3.6
Sensitivity Analysis
A sensitivity analysis is conducted to determine the effect of percentage
changes in pertinent variables on the profitability of the project. Such an analysis
indicates which variables are most susceptible to change and need further study
(Perry, 2007).
4
Universitas Indonesia
3.6.1
Selling Price Fluctuations
This type of sensitivity analysis was performed based on the fluctuation
of product sales price. The calculation of this analysis is done and is shown below
in the Table 3.3. The parameter which is observed in this calculation is the change
in economic viability parameter such as IRR, NPV, and PBP if there is a decline in
the level of product sales. When a decline in the selling price is occur, the
percentage of IRR obtained will be smaller, which means the rate of return will
become longer until it is undefined. On the other hand, it is known that lower
selling price will cause a longer payback period.
Table 3.3 Selling Price Fluctuations
Chang
e
0.85
0.9
0.95
1
1.05
1.1
1.15
3.6.2
Product Price per
Unit Tile (Rp)
Rp 42,500
Rp 45,000
Rp 47,500
Rp 50,000
Rp 52,500
Rp 55,000
Rp 57,500
IRR
(%)
38.15%
47.60%
57.05%
66.50%
75.94%
85.39%
94.84%
NPV (Rp)
Rp 3,578,304,547.23
Rp 4,639,345,689.90
Rp 5,700,386,832.57
Rp 6,761,427,975.23
Rp 7,822,469,117.90
Rp 8,883,510,260.57
Rp 9,944,551,403.24
PBP
(Years)
3.69821
3.24068
2.86455
2.53385
2.27452
2.06569
1.86901
Raw Material Cost Changes
Sensitivity analysis was also performed on the change of the operational
costs of this product. One of the most influential factor is the change of the raw
material cost. Change of cost that influences production activities can also affect
the NPV value. If the cost increase, NPV value tends to be smaller, while if the
cost decrease, otherwise will happen. Along with NPV, IRR will also decrease by
the change or increase in cost. A longer payback period will also be obtained if the
cost that influences production process increase. Table 3.4 shows raw material
price fluctuation.
Table 3.4 Raw Material Price Fluctuation
Change
0.85
0.9
0.95
1
Raw Material
Price (Rp)
IRR (%)
NPV (Rp)
PBP (Years)
73.90%
71.43%
68.96%
66.50%
Rp 7,603,824,779.02
Rp 7,323,025,844.43
Rp 7,042,226,909.83
Rp 6,761,427,975.23
2.28314
2.36165
2.44507
2.53385
5
Universitas Indonesia
1.05
1.1
1.15
3.6.3
64.03%
61.56%
59.09%
Rp 6,480,629,040.64
Rp 6,199,830,106.04
Rp 5,919,031,171.45
2.62856
2.72979
2.83824
Operational Cost Changes (Labor Cost Deviation)
This sensitivity analysis was performed on the change of the operational
costs of the product. One of the most important cost is the cost of the labor salary.
The observed parameter in this analysis is also the change in economic viability
parameter (NPV, PBP, and IRR). The increase in operating expenses to support the
production activities will cause a change in NPV. NPV value will be smaller by
the increase of operational costs. The change in operational cost will also cause
the change in IRR value. Increasing labor cost or operating cost will decrease the
value of IRR. Lower IRR value means that the return will be smaller (become less
profitable). Aside from NPV and IRR, PBP value will also change as the result of
change in labor cost. PBP tends to be longer if the labor cost increases.
Table 3.5 Operating Labor Wage Fluctuation
Chang
Operational
IRR
e
Labor Wage
(%)
NPV (Rp)
PBP
(Years)
(Rp)
0.85
0.9
0.95
1
1.05
1.1
1.15
3.6.4
72.34%
70.39%
68.44%
66.50%
64.55%
62.60%
60.65%
Rp 7,426,756,822.46
Rp 7,204,980,540.05
Rp 6,983,204,257.64
Rp 6,761,427,975.23
Rp 6,539,651,692.83
Rp 6,317,875,410.42
Rp 6,096,099,128.01
2.33210
2.39610
2.46326
2.53385
2.60813
2.68639
2.76897
Fluctuation Graphics
The graphics shown below are described in three section. The first graphic
is about the NPV, the second graphic is about the IRR, and the third graphic is
about PBP.
3.6.4.1 Net Present Value
6
Universitas Indonesia
Cost Sensitivity Chart Based on NPV
Rp12,000,000,000.00
Rp10,000,000,000.00
NPV
Rp8,000,000,000.00
Rp6,000,000,000.00
Rp4,000,000,000.00
Rp2,000,000,000.00
Rp0.85
0.9
0.95
1
1.05
1.1
1.15
Change
Product Price
Raw Material Price
Labor Salary
Figure 3.2 Graphic of Net Present Value Fluctuation
From the graphic above, it can be seen that the influence of labor cost
and the advertising cost are not significant but it causes changes in NPV. Protec
raw materials and product price cost caused NPV changed significantly. The
increasing of product price causes the increase of NPV, whereas the increase of
raw materials cost causes a decline of NPV.
7
Universitas Indonesia
3.6.4.2 Internal Rate of Return
IRR
Cost Sensitivity Chart Based on IRR
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
0.85
0.9
0.95
1
1.05
1.1
1.15
Change
Product Price
Raw Material Price
Labor Salary
Figure 3.3 Graphic of Internal Rate of Return Fluctuation
From the graphic above, it can be seen that the influence of operating
labors and advertising is not significant but it causes changes in IRR. The increase
of product price cause a bigger value of IRR while the increase of raw materials
cost causes a decreasing IRR.
8
Universitas Indonesia
3.6.4.3 Payback Period
Cost Sensitivity Chart Based on PBP
4
Payback Period
3.5
3
2.5
2
1.5
1
0.5
0
0.85
0.9
0.95
1
1.05
1.1
1.15
Change
Product Price
Raw Material Price
Labor Salary
Figure 3.4 Graphic of Payback Period Fluctuation
From the graphic above, it can be seen that the influence of labor cost and
advertising cost is not that significant but it causes changes in PBP. The product
price causes the highest fluctuation at value about 4-5 years change of payback
period. The increasing of raw material cost causes a rise of PBP while an increase
of product price results in a decline of PBP.
9
Universitas Indonesia
10
CHAPTER 4
CONCLUSION
Based on the text before, the conclusions of this report are
The
Universitas Indonesia
11
REFERENCES
Universitas Indonesia
CHAPTER 3
PROFITABILITY AND SENSITIVITY ANALYSIS
3.1
Rate of Return/Return of Investment
Rate of Return (ROR) or Return of Investment (ROI) is the annual interest
rate made by the profits on the original investment. ROI provides a snapshot view
of the profitability of the plant, normally using the estimates of the elements of the
investment and the pre-tax or after-tax earnings. For ROI, and all of the
approximate profitability measures of this section, the production cost is
computed using straight-line depreciation, and after some startup period, the plant
is assumed to operated each year at full capacity (or at some percentage of full
capacity) for the same number of days per year. As was stated earlier, many
definitions of ROI have been suggested and used. Here, the most common
definition is applied.
ROI=
annual net profit
x 100
totalcapital investment
(3.1)
The amount of annual net profit is Rp Rp6,758,518,962.07
while the amount of total capital investment is Rp xxxx. Therefore the
calculation of ROI for Cassathan plant is shown as follows
ROI= ❑ =¿
❑
ROI = %
Based on the amount of ROI (xxxx %) we can see that d-HEEL production
is an interesting investment for investor, considering the relatively high ROI.
3.2
Payback Period
The payback period, or also called as payout period or cash recovery
period is the time required for the annual earnings to equal the original
investment. The advantage of using payback period is more simpler and
comprehensible than ROI. It is also widely used in early evaluations to compare
many alternatives. This parameter is one of the most important to be considered,
because it determines the decision whether to execute the project or not. Longer
payback periods are not typically desirable for investment positions. The
calculation of payback period can be done by using Eq. (3.2
PBP=
Depreciable FCI + Interest onTCI during service life
×100
( avg . profit / year + avg . depreciation/ year )as constant annuity
(3.2)
where the FCI is Fixed Capital Investment and TCI is Total Capital Investment.
The analysis of payback period is calculated in ten years because it is considered
long enough and used in most economic analysis for the material and property
industrial’s service life. Based on the assumptions, the payback period is
calculated as follows.
Table 3.1 Payback Period Calculation
Ye
ar
Cash Flow
(Rp)
Cummulative Cash
Flow (Rp)
0
1
2
3
4
5
6
7
8
9
10
Figure 3.1 Cummulative Cash Flow vs. Year for Payback Period Calculation
The precise calculation of payback period time is done by using
interpolation method between the third and fourth year as follows.
−¿= ❑
❑
PBP− ¿
¿
¿
PBP=days
Based on the calculation, we can conclude that this Shoes’ Smell Remover
Product can get its payback in period less than 4 years, which is classified as
intermediate time that is proper to recover the cost of investment. So, the
production is acceptable.
3.3
Break Even Point
Breakeven point (BEP) is an analysis which is done to define and
determine the amount of goods or services that must be sold to the consumer with
2
Universitas Indonesia
a determined price to cover the costs that emerge and obtain profit. BEP analysis
is very important so that we don’t experience loss during the production. The
payback period of our plant is 2.2 years or equal with 581 days. Therefore, the
amount of production until the 580th day can be used to determine the breakeven
point. The calculation of BEP is shown in Table 3.2
Table 3.2 Breakeven point calculation
Years
Days
Product
Sold Product
s /day
(%)
Sold
Cumulative of
Product
Sold Product
(Units)
(Units)
Based on the calculation in Table 3.2, for a payback period of 581 days, the
breakeven point is reached for 2,421,156 products produced.
3.4
Internal Rate of Return
Internal rate of return is the maximum interest rate paid on a project that
can still be breakeven at the end of the project life. In other words, internal rate of
return is the interest if the net present value equals to zero. Eq. (3.3) can be used
to determine the IRR.
n=T
NPV =∑
CF n
−TCI=0
( 1+ r )n
where r is the value of IRR while TCI is the total capital investment. The
(3.3)
n =1
calculation of IRR is done with the aid of Microsof Excel, because it already has
a function to calculate IRR for economic analysis. Based on the calculation in
Microsoft Excel, the obtained IRR is 26.93%.
The value of IRR must be compared with the MARR that has been
calculated previously to analyse the feasibility of this project. A project can be
determine as a feasible project if the IRR value is greater than MARR value. From
the previous chapter, the value of MARR is 18%. If we compare both value, we
can conclude that the IRR value is greater than MARR value (26.93% > 18%).
Therefore, we can also conclude that Protect plant is a feasible and acceptable
3
Universitas Indonesia
project because it is considered as an interesting project and can give proper profit
for the investor.
3.5
Net Present Value
Net Present Value (NPV) is a value that shows the net benefits received
by a project over the life of the project at a certain interest rate. NPV can also be
interpreted as the present value of the cash flows generated by the investment.
During the calculation of NPV, the relevant interest rate is also have to be
determined. For this calculation, we also used the MARR value that has been
calculated before, which is 18%.
Net present value can be calculated by Eq. (3.4)
CF n , 0=
C Fn
(3.4)
( 1+i )n
where:
CFn = The net cash flow in time n
i
= Interest rate used in the project
n
= Time of the project
If NPV is greater than zero, it means that the project is profitable if it’s executed
while if the NPV is less than zero it means that project is not profitable to run.
Also, if the NPV equals to zero, it means that the project won’t result in any profit
or loss. From the calculation with Microsoft Excel, the NPV is obtained as Rp
7,757,748,277. Because the NPV is greater than zero, based on NPV calculation
we can conclude that this project is profitable.
Table 3.6 Calculation Information and Assumptions
3.6
Sensitivity Analysis
A sensitivity analysis is conducted to determine the effect of percentage
changes in pertinent variables on the profitability of the project. Such an analysis
indicates which variables are most susceptible to change and need further study
(Perry, 2007).
4
Universitas Indonesia
3.6.1
Selling Price Fluctuations
This type of sensitivity analysis was performed based on the fluctuation
of product sales price. The calculation of this analysis is done and is shown below
in the Table 3.3. The parameter which is observed in this calculation is the change
in economic viability parameter such as IRR, NPV, and PBP if there is a decline in
the level of product sales. When a decline in the selling price is occur, the
percentage of IRR obtained will be smaller, which means the rate of return will
become longer until it is undefined. On the other hand, it is known that lower
selling price will cause a longer payback period.
Table 3.3 Selling Price Fluctuations
Chang
e
0.85
0.9
0.95
1
1.05
1.1
1.15
3.6.2
Product Price per
Unit Tile (Rp)
Rp 42,500
Rp 45,000
Rp 47,500
Rp 50,000
Rp 52,500
Rp 55,000
Rp 57,500
IRR
(%)
38.15%
47.60%
57.05%
66.50%
75.94%
85.39%
94.84%
NPV (Rp)
Rp 3,578,304,547.23
Rp 4,639,345,689.90
Rp 5,700,386,832.57
Rp 6,761,427,975.23
Rp 7,822,469,117.90
Rp 8,883,510,260.57
Rp 9,944,551,403.24
PBP
(Years)
3.69821
3.24068
2.86455
2.53385
2.27452
2.06569
1.86901
Raw Material Cost Changes
Sensitivity analysis was also performed on the change of the operational
costs of this product. One of the most influential factor is the change of the raw
material cost. Change of cost that influences production activities can also affect
the NPV value. If the cost increase, NPV value tends to be smaller, while if the
cost decrease, otherwise will happen. Along with NPV, IRR will also decrease by
the change or increase in cost. A longer payback period will also be obtained if the
cost that influences production process increase. Table 3.4 shows raw material
price fluctuation.
Table 3.4 Raw Material Price Fluctuation
Change
0.85
0.9
0.95
1
Raw Material
Price (Rp)
IRR (%)
NPV (Rp)
PBP (Years)
73.90%
71.43%
68.96%
66.50%
Rp 7,603,824,779.02
Rp 7,323,025,844.43
Rp 7,042,226,909.83
Rp 6,761,427,975.23
2.28314
2.36165
2.44507
2.53385
5
Universitas Indonesia
1.05
1.1
1.15
3.6.3
64.03%
61.56%
59.09%
Rp 6,480,629,040.64
Rp 6,199,830,106.04
Rp 5,919,031,171.45
2.62856
2.72979
2.83824
Operational Cost Changes (Labor Cost Deviation)
This sensitivity analysis was performed on the change of the operational
costs of the product. One of the most important cost is the cost of the labor salary.
The observed parameter in this analysis is also the change in economic viability
parameter (NPV, PBP, and IRR). The increase in operating expenses to support the
production activities will cause a change in NPV. NPV value will be smaller by
the increase of operational costs. The change in operational cost will also cause
the change in IRR value. Increasing labor cost or operating cost will decrease the
value of IRR. Lower IRR value means that the return will be smaller (become less
profitable). Aside from NPV and IRR, PBP value will also change as the result of
change in labor cost. PBP tends to be longer if the labor cost increases.
Table 3.5 Operating Labor Wage Fluctuation
Chang
Operational
IRR
e
Labor Wage
(%)
NPV (Rp)
PBP
(Years)
(Rp)
0.85
0.9
0.95
1
1.05
1.1
1.15
3.6.4
72.34%
70.39%
68.44%
66.50%
64.55%
62.60%
60.65%
Rp 7,426,756,822.46
Rp 7,204,980,540.05
Rp 6,983,204,257.64
Rp 6,761,427,975.23
Rp 6,539,651,692.83
Rp 6,317,875,410.42
Rp 6,096,099,128.01
2.33210
2.39610
2.46326
2.53385
2.60813
2.68639
2.76897
Fluctuation Graphics
The graphics shown below are described in three section. The first graphic
is about the NPV, the second graphic is about the IRR, and the third graphic is
about PBP.
3.6.4.1 Net Present Value
6
Universitas Indonesia
Cost Sensitivity Chart Based on NPV
Rp12,000,000,000.00
Rp10,000,000,000.00
NPV
Rp8,000,000,000.00
Rp6,000,000,000.00
Rp4,000,000,000.00
Rp2,000,000,000.00
Rp0.85
0.9
0.95
1
1.05
1.1
1.15
Change
Product Price
Raw Material Price
Labor Salary
Figure 3.2 Graphic of Net Present Value Fluctuation
From the graphic above, it can be seen that the influence of labor cost
and the advertising cost are not significant but it causes changes in NPV. Protec
raw materials and product price cost caused NPV changed significantly. The
increasing of product price causes the increase of NPV, whereas the increase of
raw materials cost causes a decline of NPV.
7
Universitas Indonesia
3.6.4.2 Internal Rate of Return
IRR
Cost Sensitivity Chart Based on IRR
100.00%
90.00%
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
0.85
0.9
0.95
1
1.05
1.1
1.15
Change
Product Price
Raw Material Price
Labor Salary
Figure 3.3 Graphic of Internal Rate of Return Fluctuation
From the graphic above, it can be seen that the influence of operating
labors and advertising is not significant but it causes changes in IRR. The increase
of product price cause a bigger value of IRR while the increase of raw materials
cost causes a decreasing IRR.
8
Universitas Indonesia
3.6.4.3 Payback Period
Cost Sensitivity Chart Based on PBP
4
Payback Period
3.5
3
2.5
2
1.5
1
0.5
0
0.85
0.9
0.95
1
1.05
1.1
1.15
Change
Product Price
Raw Material Price
Labor Salary
Figure 3.4 Graphic of Payback Period Fluctuation
From the graphic above, it can be seen that the influence of labor cost and
advertising cost is not that significant but it causes changes in PBP. The product
price causes the highest fluctuation at value about 4-5 years change of payback
period. The increasing of raw material cost causes a rise of PBP while an increase
of product price results in a decline of PBP.
9
Universitas Indonesia
10
CHAPTER 4
CONCLUSION
Based on the text before, the conclusions of this report are
The
Universitas Indonesia
11
REFERENCES
Universitas Indonesia