**Expanded Financial Projections & Analysis for Boaz Trading PLC’s Dry Cleaner Project**
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### **Assumptions & Methodology**
1. **ROI Calculation**:
- **Initial Investment**: 22.6M ETB.
- **Annual ROI**: 9% of total investment = 2.03M ETB/year (pre-tax).
- **Net Cash Flow ≠ Net Profit**: Cash flow excludes depreciation, taxes, and reinvestments.
- **Payback Period**: ~11 years (22.6M ETB ÷ 2.03M ETB/year).
2. **Revenue Drivers**:
- **Customer Growth**: 50% YoY (conservative for Ethiopia’s urban service demand).
- **Pricing**: Localized rates (15% below informal competitors) with premium upcharges (e.g., +20% for express).
3. **Expense Growth**:
- **Inflation Adjustment**: 30% annual inflation (Ethiopia’s 2023 rate) factored into Year 2–3 costs.
- **Energy Costs**: Solar adoption reduces grid dependency by 40% by Year 3.
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### **Year-by-Year Breakdown**
#### **Year 1 (2024)**
| **Metric** | **Amount (ETB)** | **Details** |
|----------------------|-------------------|-----------------------------------------------------------------------------|
| **Revenue** | 3,600,000 | - 1,000 members (1,000 × 1,000 ETB = 1M ETB). |
| | | - 2,600 garments/month × 150 ETB avg. = 3.12M ETB. |
| **Expenses** | 2,800,000 | - **Fixed**: Rent (300k), Salaries (500k), Equipment (944k amortized). |
| | | - **Variable**: Detergents (600k), Delivery (300k), Marketing (156k). |
| **Net Cash Flow** | 800,000 | Excludes taxes, depreciation, and debt servicing. |
| **ROI Realized** | 3.5% | (800k ÷ 22.6M) × 100. Reflects slower initial adoption. |
---
#### **Year 2 (2025)**
| **Metric** | **Amount (ETB)** | **Details** |
|----------------------|-------------------|-----------------------------------------------------------------------------|
| **Revenue** | 7,200,000 | - 2,500 members (2.5M ETB). |
| | | - 5,200 garments/month × 150 ETB avg. = 6.24M ETB. |
| **Expenses** | 4,500,000 | - **Fixed**: Rent (390k), Salaries (650k). |
| | | - **Variable**: Detergents (780k), Delivery (390k), Marketing (1.3M). |
| **Net Cash Flow** | 2,700,000 | Assumes 50% revenue growth and cost controls. |
| **ROI Realized** | 12% | (2.7M ÷ 22.6M) × 100. |
---
#### **Year 3 (2026)**
| **Metric** | **Amount (ETB)** | **Details** |
|----------------------|-------------------|-----------------------------------------------------------------------------|
| **Revenue** | 10,800,000 | - 5,000 members (5M ETB). |
| | | - 7,800 garments/month × 150 ETB avg. = 9.36M ETB. |
| **Expenses** | 6,200,000 | - **Fixed**: Rent (507k), Salaries (845k). |
| | | - **Variable**: Detergents (1.01M), Delivery (507k), Marketing (2.3M). |
| **Net Cash Flow** | 4,600,000 | Reflects economies of scale and brand recognition. |
| **ROI Realized** | 20% | (4.6M ÷ 22.6M) × 100. |
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### **Key Financial Metrics**
| **Metric** | **Year 1** | **Year 2** | **Year 3** |
|---------------------------|-------------------|-------------------|-------------------|
| **Gross Margin** | 55% | 60% | 65% |
| **Operating Margin** | 22% | 37% | 43% |
| **Cumulative Cash Flow** | 800,000 ETB | 3,500,000 ETB | 8,100,000 ETB |
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### **Risk-Adjusted Scenarios**
1. **Optimistic Case**:
- **Revenue**: +20% if corporate contracts exceed targets.
- **ROI**: 15% by Year 3.
2. **Pessimistic Case**:
- **Revenue**: -30% if inflation exceeds 40% or competition emerges.
- **ROI**: 6% by Year 3.
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### **Cash Flow vs. ROI Discrepancy**
- **ROI Target (9%)**: Based on **profit**, not cash flow. Assumes depreciation (1.5M ETB/year) and taxes (30%) reduce net profit to 2.03M ETB/year.
- **Reconciliation**:
- **Year 1**: 800k cash flow – 450k (taxes) – 1.5M (depreciation) = **Net Loss (1.15M ETB)**.
- **Year 2**: 2.7M cash flow – 810k (taxes) – 1.5M (depreciation) = **Net Profit 390k ETB**.
- **Year 3**: 4.6M cash flow – 1.38M (taxes) – 1.5M (depreciation) = **Net Profit 1.72M ETB**.
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### **Break-Even Analysis**
- **Fixed Costs**: 1.2M ETB/year (rent, salaries, equipment amortization).
- **Contribution Margin**: 55% (revenue – variable costs).
- **Break-Even Revenue**: 1.2M ÷ 0.55 = **2.18M ETB/year**.
- **Achieved**: Year 1 (3.6M ETB revenue).
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### **Recommendations**
1. **Refine ROI Model**: Align cash flow projections with net profit by incorporating taxes/depreciation.
2. **Cost Controls**: Lock in detergent contracts to offset inflation.
3. **Debt Financing**: Leverage loans to reduce equity reliance and improve ROI.
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**Conclusion**
While the project shows strong revenue growth, achieving the 9% ROI requires refining profit calculations and mitigating inflation risks. By Year 3, economies of scale and brand loyalty position Boaz for sustainable returns, aligning with Ethiopia’s urban service sector boom.