Simplified feasibility study

What does this tool answer?

Before you open a branch or start a new activity, you need an answer to one question: Is the project worth the money? You enter the start-up cost, the expected sales, the gross profit percentage, the fixed expenses and the return you require, and you find out when you will recover the start-up cost, how much you will earn over 3 or 5 years, and whether the project beats the return you asked for.

The formulas

• Profit for the year = monthly sales × (1 + growth)^(year − 1) × 12 × gross profit percentage − fixed expenses × 12.
• Payback period: the months until total profits cover the start-up cost, with the profit of the payback year spread over its months.
• Return on investment = (total profits − start-up cost) ÷ start-up cost.
• Net present value = sum of (each year's profit ÷ (1 + required return)^year number) − start-up cost. A riyal a year from now is worth less than a riyal today, and the return you require is the discount rate.
• Internal rate of return: the rate that makes the net present value zero, calculated numerically like the IRR function in Excel.

Worked example

A branch with a start-up cost of 100,000 SAR, expected sales of 50,000 SAR a month, a gross profit percentage of 40%, and fixed expenses of 15,000 SAR a month, over 3 years with no growth, and a required return of 10%:

• Monthly profit = 50,000 × 40% − 15,000 = 5,000 SAR, and annual profit = 60,000 SAR.
• Payback period = 100,000 ÷ 60,000 × 12 = 20 months.
• Return on investment = (180,000 − 100,000) ÷ 100,000 = 80%.
• Net present value = 49,211.12 SAR: the project beats the required return.
• Internal rate of return = 36.31%, higher than the 10% that was required.
• If sales come in 20% higher, the net present value becomes 168,580.02 SAR, and if they come in 20% lower, it turns negative (70,157.78 SAR) and the project does not recover its cost within 3 years.

How to read the result

A positive net present value means the project earns more than the return you required, and a negative one means it does not. The internal rate of return is compared directly with the required return. The two scenarios (20% more and 20% less in sales) reveal how sensitive the project is: a project that loses money if sales fall slightly needs more thought.

Limits of the tool

This is a simplified study: it does not calculate Zakat, financing cost or depreciation, and it assumes that working capital is not recovered at the end of the period and that the gross profit percentage and fixed expenses stay constant. It does not replace an approved feasibility study when you apply for financing. This is an estimate based on the numbers you entered, not financial or investment advice.

Frequently asked questions

Content last reviewed: 2026-10-28