A study of comparative

financial analysis between two

small projects supported by
micro credit
Introduction
“Shrimp cultivation has a long and largely quiet history in Bangladesh, but during
its rapid growth over the past two decades, in response to expanding global demand, it
has acquired a highly contested status.” (Bangladesh Centre for Advanced Studies,
2001). Shrimp is a very important resource that supports a large industry in
Bangladesh. Shrimp is the second most important source of export accounting for a
yearly earning of over $US 300 million. Of all the exportable agro-based primary
commodities, shrimp is by far the most important. It alone contributes more than 70%
to the total export earning from
all the agro-based products, including tea, raw jute, vegetables, fruit, etc.

The shrimp industry also provides direct employment to over 600,000 people who in
turn support well over 3.5 million dependents. This sector also supports large varieties
of local level cottage industries (made out of the home) such as bamboo baskets, mats,
traps, nets, rickshaw vans, tempos (tri-wheelers), boats, etc. Despite all these positive
points, there are views that the shrimp industry is not without vices. While its
supporters see it as a valuable way of generating foreign exchange, those against it
point to the environmental damage, social disruption, and rising domestic inequalities
that result from trying to meat the growing luxury demands of distant Western
consumers. The debate has become very polarized between those who support shrimp
farming, and those who are opposed to it.

The purpose of this paper is to highlight some of the key issues that will ultimately
determine whether it is indeed possible for Bangladesh to Meat the international
market, environmental, and social challenges of shrimp cultivation. The consequences
are huge: can the sector thrive and continue to benefit the hundreds of thousands of
people who rely on this multi-million dollar industry for their living?
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Market in Bangladesh
Domestic demand is growing rapidly, based on overall economic growth (Bangladesh’s
annual economic growth in constant prices averaged 5.3% during 1996/7-2002/3),
urban growth, and changes in tastes and agricultural technology. Recent expansion of
the Dairy & Livestock industry, with output increasing 10% - 15% a year reflects what
is occurring and what is possible for a wide range of agribusiness products for domestic
markets, including fresh fruits and vegetables, fish, and processed products. With
increased urbanization as well as some changes in agricultural.

The size and growth of the market for agribusiness products may be roughly estimated
from available data on exports, imports, and GDP. Retail and export value of all
agricultural goods may be estimated at approximately 45% of GDP. Setting aside home
consumption of agricultural goods (estimated at less than half of agricultural value
added), agribusiness sales (the value of marketed agricultural products at retail and
export level) are approximately 40% of GDP.

Value & effectiveness of Agro-Business Sectors in Bangladesh

Based on the evaluation sample survey, the firms have put in place technically sound
programs, they are careful with the health and feeding of their Livestock’s & Shrimp
Larva and processing & marketing are both sound. Several firms have developed
forward & backward linkages into contract farming, feed, day-old chicks and marketing
while others have branched out into other agribusiness fields. The firms are producing
a quality product for a domestic market that has rising incomes and strong demand for
poultry and eggs. The firms are financially strong and their operations are sustainable.

The project worked with more than 500 businesses and 70+ associations. It
concentrated on increasing production with some Attention to processing,
transportation and marketing. In general, the marketing chain in Bangladesh is weak,
with Meats & shrimps often not refrigerated (in a very hot climate) and transported in
unsanitary baskets, harming product quality. Some shrimp have pesticide residue, a
problem which the project has addressed with advice to adopt improved technology to
preserve without pesticides. Quality animals’ food & quality fish food are often not
available. The project has called attention to the problem of in-breeding in hatcheries.

Reimbursement
If agribusiness programs are to succeed, the private sector needs more skilled
managers but few managers know modern management approaches and how to apply
them to agribusiness.
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Significance of this Assignment

The assignment is very important for present economic development of our country.
Government of our country also realizes the importance of these kinds of small projects
which is developing by using small financial facilities. To show the compare of two
projects – fisheries & poultry is very important to prepare a project profile and its
acceptability. In this assignment we show the more profitable and more acceptable
project by compare net present value (NPV) and profitability (PI) ratio between the two
projects of Dairy & Livestock’s & Shrimps. Day by day our populations are increasing
beyond expectation. The requirement of fish & meat are huge quantities. The small
number of firm and natural production is fulfilling in these requirements at presents. In
our country the farmers are use to traditional method for livestock animals. There are a
few livestock’s firms in our country. But there productions are very negligible. So, there
must be an effort of establish a commercial Dairy & Shrimp Culture in the country:
otherwise the demand could not be fulfilling by supply by natural production. The same
condition of meat production exists.

Why this Assignment is done

Our main target is to find out which project is the profitable project between this two
(Dairy Firs or Shrimp Cultivation). To do this we have to do some financial analysis.
We’ll use some financial calculation method to find out the profitable project. Net
Present Value (NPV) and Profitability Ratio (PI) is the process to find out the more
profitable project. After find out these two things, we will be able to accept one project
which is more acceptable.

"To determine the NPV of two projects": At first we have to find out the NPV of
Fisheries & Poultry project. NPV will help us to choose the better project then others.
Base on the following result we’ll choose the project :-

IF NPV > 1, project is accepted

IF NPV = 0, project is neutral

IF NPV < 1 the project will rejected

"Profitability Ratio": Then we’ll go for find out the profitability ratio that is PI. After
knowing the NPV of the two projects we’ll examine the PI of these two projects. The
formula of find out the PI is –

Profitability Ratio = Present Value / Initial cost or Investment

When we find out the PI of this two project we’ll accept that project
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which projects PI is high.

"Recommendation": After calculation of Net Present Value (NPV) & Profitability Ratio
(PI) of Fish & Poultry project, we will come to know which project is financially
profitable, risk free, economically. We’ll go for that project which’s NPV & PI shows
positively high. We’ll reject that project which’s NPV & PI is low.

Review of research
The shrimp industry is a relative newcomer to the world economy. Shrimp farming itself
is not a new phenomenon in the southwestern region of Bangladesh. Farmers used to
construct shallow, seasonal enclosures on the banks of rivers and canals, to grow
brackish water finfish and bagda shrimp as an extra source of income. They also
cultivated fresh water galda prawns.

Social and Economic impacts

As is true for most industries, the social impact of shrimp farming in Bangladesh has
both positive and negative implications. The goal should be to find a way for shrimp
farming to continue to develop in Bangladesh while seeking solutions to social and
environmental issues. Key issues include, “human rights, employment, income, access
to common property and other resources, gender, education, and cultural practices.”
Some negative social impacts of shrimp reported in early studies included the declining
attention given by farmers to crop production, too much outside control, “strong-arm”
tactics, growth of new trading groups, and declining land productivity.

How these have to done?

We shall select two project fish culture & poultry. Then we calculate the two projects
Net Present Value (NPV) & Profitability Index (PI). From these financial indicators, we
find out viable project.

Place Selection
In process of urbanizations, the domestic food supply is not able to meet the nation’s
demand. One indicator for the condition of poverty is low protein in take and its
associate affects on the general head standard of population. So, we select the area
situated project in Char fashion, Bhola. Bhola is the best area to set up a Shrimp
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Hatchery or Dairy Firm project because Bhola is a district & it is very close to the
seaport. Raw material, communication & essential other necessary material are
available for our project.

Data Collection
"Primary Data": The primary data are collected from different Dairy Firm & Hatchery
project. Market analysis, visit to the project offices with questionnaires. Mail survey &
telephone survey are also included in this regard.

"Secondary Data": The secondary data are collected from various documents like
annual report. Organizational profile, relevant books, web side, internet, module of the
projects etc

Cost Analysis
Our investment is for both projects are Tk.350,000.00. We’ll consider this project for
Five years. Estimate of cost for each project is as follows:
 Dairy & Livestock Project: Hatchery (Shrimps) Project

(Annex - 1) (Annex - 2)

Total
Sl No. Particulars Total Tk. Sl No. Particulars Tk.
1 Land (10.0 Katha) 257,000 1 Leased Pond 181,000
2 Supervision Cost 20,000 2 Supervision Cost 9,000
Purchase of Shrimp
3 Purchase of Cattle 38,000 3 Larva 30,000
4 Cost of Feed 12,000 4 Fish Feed 14,000
5 Medicine & Other 10,000 5 Medicine (Vaccine) 37,000
6 Utility Charge 13,000 6 Electricity 3500
Total Cost: 350,000 7 Oxygen Equipments 47,500
8 Other Cost 28,000
Total Cost: 350,000

Estimate of Return:

We assume that 1st year we’ll earn 443,000 Tk. by selling Dairy & Livestock from Dairy firm. On the other hand we
assume 1st year we’ll earn 425,000 Tk. by selling fish from the fish project.
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Dairy & Livestoc Project: Hatchery (Shrimps) Project:

Sl No. Particulars Amount (Tk.) Sl No. Particulars Amount

(Tk.)
1 Income from sales 443,000 1 Income from sales 425,000
2 Expenses (Annex – 350,000 2 Expenses (Annex – 1) 350,000
1)
Net Income: 93,000 Net Income: 75,000

Projected cash flow:

Year
Project Name 1 2 3 4 5
Dairy & Livestoc Project 93,000 105,000 97,000 116,000 104,000
Hatchery (Shrimps) Project 75,000 96,000 80,000 85,000 88,000

So we have now five (5) years cash inflow for both project.

Net Present Value (NPV) Calculation:

We assume that Rate of Return is 12% for both projects. We know that –

NPV = PV – Initial Investment or cost

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Calculation NPV of Dairy & Livestock Project:

Year PVIF at 12% Cash Flow DCF Cumalitive DCF

0 1 -350,000
1 0.893 93,000 83,049 -266,951
2 0.797 105,000 83,685 -183,266
3 0.712 97,000 69,064 -114,202
4 0.636 116,000 73,776 -40,426
5 0.567 104,000 58,968 18,542
PV: 368,542
NPV: 18,542

Calculation NPV of Hatchery (Shrimps) Project:

Year PVIF at 12% Cash Flow DCF Cumalitive DCF

0 1 -350,000
1 0.893 75,000 66,975 -283,025
2 0.797 96,000 76,512 -206,513
3 0.712 80,000 56,960 -149,553
4 0.636 85,000 54,060 -95,493
5 0.567 88,000 49,896 -45,597
PV: 304,403
NPV: -45,597
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Calculation of Profitability Index (PI):

Now we are going to calculate Profitability Index (PI). By calculating the PI, we’ll be able to know which project will be
more acceptable. The formula is –

PI = PV/Initial Cost

For Dairy & Livestock project: 368,542 ÷ 350,000 1.052977143

For Hatchery (Shrimps) project: 304,403 ÷ 350,000 0.869722857

Project Choice:

After calculation of NPV & PI we have find the following information:

For Dairy & Livestock Project

NPV 18,542
PI 1.052977143

For Hatchery (Shrimps) Project

NPV -45,597
PI 0.869722857
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CONCLUSION
The shrimp sector has a responsibility to ensure environmental sustainability, economic
liability, and social equality. I believe that with programs such as ATDP and SOQ in
place, it is possible to bring Bangladesh’s shrimp industry up to international standards,
to produce in an environmentally and socially acceptable way. With government
support and greater public awareness concerning shrimp farming, Bangladesh can
become one of the leaders in the shrimp industry and ensure its future.