“Credit Appraisal for Working Capital and Project Financing for Expansion” A SUMMER PROJECT STUDY SUBMITTED IN PARTIAL FULFILLMENT FOR THE REQUIREMENT OF THE TWO YEAR POST GRADUATE DIPLOMA IN MANAGEMENT (FULL-TIME) BY Surbhi Sharma 75/10 LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENT, DELHI JUNE, 2011 PUNJAB NATIONAL BANK HO, PNB HOUSE, 7 BHIKAJI CAMA PLACE Dated: 20th May 2011 CERTIFICATE Certified that Surbhi Sharma has successfully completed Summer Project Study entitled “Credit Appraisal for Working Capital and Project Financing for Expansion” under my guidance.
It is her original work, and is fit for evaluation in partial fulfilment for the requirement of the Two Year Post Graduate Diploma in Management (Full-time). Mr. Anil Sharma AGM, PNB HO Surbhi Sharma Declaration I declare that the project entitled “Credit Appraisal for Working Capital and Project Financing for Expansion” conducted at Punjab National Bank, is a record of independent analysis work carried out by me during the academic year 2010-12 under the guidance of my project guide Mr. Anil Sharma, AGM, CD, PNB (HO).
I also declare that this project is the result of my effort and has not been submitted to any other University or Institute for the award of any degree, or personal favour whatsoever. All the details and analysis provided in the report hold true to the best of my knowledge. SURBHI SHARMA LBSIM, Delhi. ACKNOWLEDGEMENTS I wish to express my gratitude to PUNJAB NATIONAL BANK for giving me an opportunity to be a part of their esteemed organization and enhance my knowledge by granting permission to do summer training project under their guidance.
I am deeply indebted to my company guide, Mr. Anil Sharma (Chief Manager), of Punjab national bank for his valuable and enlightened guidance. He provided me with the opportunity to learn in the bank and spared his valuable time to help me. He provided me with immense opportunity to learn about the working at Credit Administration Department (CAD), HO. A special thanks to my faculty guide, Prof. Ajay Kumar Chauhan and Prof. Deepak Tandon who has been the chief facilitator of this project and helped in enhancing my knowledge in the field of banking sector.
I am also thankful to the employees of PNB for providing great support and help in completion of the training. I am also highly thankful to Library staff of PNB who provided me the study materials and helped me during training. The learning during the project was immense and valuable. My work included the study of various aspects of Credit Administration. Regards, Surbhi Sharma LBSIM- New Delhi EXECUTIVE SUMMARY REPORT STUDENT INFORMATION Name: Surbhi Sharma Enrollment No: 75/10 Mobile No: 09999402707 Email Id: surbhi. bsim@yahoo. com ORGANISATION DESCRIPTION Concept: Punjab National Bank has the distinction of being the first Indian bank to have been started solely with Indian capital. From its modest beginning, the bank has grown in size and stature to become a front-line banking institution in India at present. Industry type: Banking Address of the organisation: Head Office: 7, Bhikaiji Cama Place, New Delhi-110006 PROJECT DETAILS Title: Credit Appraisal for Working Capital and Project Financing for Expansion.
Objective: To assess and understand the intricacies involved in assessing permissible bank finance for working capital requirement as per RBI / Bank guidelines and analysis of Term Loan for Corporate. Methodology: Research in the project is conducted with the help of data collected from the CAD and the files of large corporate borrower’s accounts. Also the data is taken from the relevant books and websites. Background: Live project on Working Capital assessment which involves calculation of MPBF (Maximum Permissible Bank Finance), credit rating of the company is done to check the credit worthiness of the company.
Another case study is done to understand the process involved in term loan Financing Conclusion: Credit is a wide subject, which requires industrious efforts to be placed in, to get acquainted with it. However, in the limited span of project work, an effort has been made to comprehend the rationale behind various credit decision taken under Working capital and TL financing Recommendations: Bank should give a final view on the project based on combinations of various factors relating to it.
Various factors which are not accounted such as comparison of operating cycles with peers should be included. For company XYZ Ltd for which I have done working capital assessment should get the working capital loan as company is a existing borrower of PNB but continuous monitoring of the operations of company should be done as operating profit of company is not good as compared to its peers. TABLE OF CONTENTS:
Authorization 3 Acknowledgments 4 Executive Summary 5 1. Abstract| 6| 2. List of Illustrations| 9| 3. Introduction 4. 1. Banking industry at a glance 4. 2. About Punjab National Bank 4. 3. Working of CAD at PNB 4. 4. About the project(Objective) 4. . scope of the study 4. 6. purpose of the study 4. 7. Methodology 4. 8. Limitations of the study 4. 9. Literature Review 4. 10. Background material 4. 11. 1. Brief Note on concepts 4. 11. 2. Methods of Lending 4. 11. 3. Project Appraisal &Financing| 101116171819202122252835-94| 4. Main text 5. 11. Case study 1 Appraisal for M/s XYZ Steel for WC Sanction of Rs. 39. 50 crore 5. 12. Preparation of CMA data for M/s XYZ Limited and understanding WC assessment 5. 13. Explanations of above forms 5. 4. Overview of Credit Rating 5. 15. Credit rating of XYZ PVT Ltd. 5. 16. Style of Credit 5. 17. Case study 2 Appraisal of PQR Power for TL of Rs 250 Cr 5. 18. Calculation of IRR, DSCR, Sensitivity Analysis, Breakeven Analysis | 333636-495862648387-93| 5. Findings, Recommendations & Conclusions| 101-108| 6. References Appendices| 109| 7. Annexure| 110| ABSTRACT This project explains the various policies and procedures followed in extending credit facilities by one of the most reputed bank in the country Punjab National Bank.
Each bank has its own set of policies that must be followed while sanctioning a loan and care must be taken that the money provided by the bank is being used up for the intended purpose only. The task ranging from analysis of the proposal received, acceptance of the loan proposal to sanctioning of the loan is carried out at Credit Division of the bank, Credit Administration Department (CAD) at PNB. Moreover, each loan proposal falls under powers of different levels depending on the size of the proposal. The objective of the study is to analyse in depth, the credit appraisal system followed in PNB.
Different corporate bodies require capital for two main purposes: * To finance their new projects. * To meet their working capital requirements. So this project is undertaken to understand the various aspects of working capital assessment, process of Term Loan and Credit Risk Management carried out at PNB. This project explains in detail both kind of financing: Fund Based financing, for example CASH CREDIT and EXPORT BASED CREDIT and Non Fund Based financing, for example LETTER OF CREDIT and BANK GUARANTEE. Various companies require capital for daily operations.
In order to finance these needs, a company approaches bank for credit facilities. CAD at PNB takes care of these facilities and based on the credit worthiness and other useful parameters, the bank sanctions the loan at a particular rate of interest. In order to understand this, one must be clear with basic topics such as working capital management, balance sheet analysis and forecasting, and cash budget. However in case of working capital financing, the basic task for the bank and the company is to evaluate the Net Working capital, which is done through working capital assessment.
With a developing economy and many multinational companies coming up, new projects are being undertaken. These projects require huge amount of capital and thus banks come forward to finance these projects depending on the feasibility of the project. PNB carries out an extensive study of the project and checks for its feasibility such as Technical, Economic and Financial Feasibility and if the project seems to be feasible, a decision is taken. This process of carrying out the feasibility test of the project is called Project Appraisal. Around 90% of commercial banking risks take the form of credit risk.
Therefore it is recommended that the process of project financing by PNB should have a thorough Project Appraisal involving feasibility reviews, followed by the Credit Appraisal involving Credit Rating being done so as to bring the risk exposure to the bank within controllable limits. So further this report also covers the Credit Risk Rating carried out at Risk Management Department (RMD) of the bank. Rating is done in order to find out the capability or the willingness of the company to pay its debt. PNB uses its own model to rate a company and this model is one of its kind in the country.
Depending on the type of project, a suitable model is chosen and based on financials of the company and the track record of the management, rating is done. This rating also helps in determining the rate of interest at which the loan should be given. Generally, a company with good ratings is given loan at a lower ROI since the risk involved is lower. The methodology being used involves two basic sources of information primary sources and secondary sources. Primary sources of information include meetings with the Project Guide, other Staff Members, Raters in Risk Rating Division and Appraising Officers in Credit Administration Division.
Secondary sources of information include BASEL II and RBI Guidelines and Credit Policy of the bank. In this report we shall discuss the various aspects that PNB took into consideration before granting term loan and enhancing working capital limits through case studies which explain how the bank prepares a PBF note based on the CMA data given by the company based on which the bank decides how much is to be brought by the borrower and how much is the permissible bank finance. NOTE: Due to security reasons all the names in this report have been changed to fictitious
LIST OF ILLUSTRATIONS S. No. | Particulars| Page No. | 1. | Share of GDP in Banking| 10| 2. | PNB’s organisation structure| 14| 3. | Delivery Channels| 15| 4. | Operating cycle | 25| 5. | Method of Lending| 28-29| 6. | CMA FORMS| 31-47| 7. | Operating Cycle| 50,51. 52| 8. | MPBF Calculation | 54| 9. | Credit Risks Rating at PNB| 57| 10. | Practical flowchart on project appraisal| 75| 11. | IRR, DSCR, Sensitivity, Breakeven analysis| 86-96| 12. | ROCE, Debt to Equity| 97| 13. | MPBF and Sales| 98| 14. | Peer Company Analysis| 99| 5. | Dupont Analysis| 101| 16. | CCA Comparison| 102| INTRODUCTION BANKING INDUSTRY AT A GLANCE There have been major structural changes in the financial sector since banking sector reforms were introduced in India in 1992. Since then Banks have been lending aggressively providing funds towards infrastructure sector. Major policy measures include phased reductions in statutory pre-emption like cash reserve and statutory liquidity requirements and deregulation of interest rates on deposits and lending, except for a select segment.
The diversification of ownership of banking institutions is yet another feature which has enabled private shareholding in the public sector banks, through listing on the stock exchanges, arising from dilution of the Government ownership. Foreign direct investment in the private sector banks is now allowed up to 74 per cent The co-existence of the public sector, private sector and the foreign banks has generated competition in the banking sector leading to a significant improvement in efficiency and customer service. The share of private and foreign banks in total assets increased to 31. per cent at end-March 2007 from 27. 6 per cent at end-March 2006 and less than 10. 0 per cent at the inception of reforms. Today, banking institutions play very important role in the economic growth of the country. They participate in the economy’s payment mechanism i. e. they provide transaction services, their deposit liabilities constitute major part of the national money supply, and they can, as a whole, create deposits or credit, which is money. They focus on aggregating funds from individual investors and analyzing different investment alternatives to make investment decisions.
Banking institutions are characterised as the “creators” of credit. Government uses them to control the money supply in the economy by managing Cash Reserve Ratio (CRR) and government by increasing/decreasing Repo and Reverse Repo rates tries to tame inflation. Therefore, the health of the economy is closely related to the soundness of the banking system. The two most important constituents of the money market in India are the modern banks and the indigenous bankers. Modern banking became an effective force only after 1910. Before that the indigenous bankers dominated the scene.
Share of GDP originating in Banking and Insurance. Period| Share of B & I in GDP| Share of B & I in Services sector| 1970 -71 to 1974 -75| 2. 2%| 5. 7%| 2007 – 08| 7. 1%| 48. 5%| PUNJAB NATIONAL BANK Punjab National Bank (BSE: 532461, NSE: PNB), is the third largest bank in India. It was registered on May 19, 1894 under the Indian Companies Act with its office in Anarkali Bazaar Lahore. PNB has the distinction of being the first Indian Bank to have been started solely with Indian Capital. Bank was nationalized in 1969 along with 13 other banks.
Today, the Bank is the second largest state owned commercial bank in India with about 5000 branches across 764 cities. It serves over 37 million customers. PNB has a banking subsidiary in the UK, as well as branches in Hong Kong, Dubai and Kabul, and representative offices in Almaty, Dubai, Oslo, and Shanghai. Punjab National Bank is one of the Big Four Banks of India, along with ICICI Bank, State Bank of India and Canara Bank. It has five subsidiaries -: PNB Gilts Ltd, PNB Housing Finance Ltd. , Punjab National Bank (International) Ltd. PNB Investment Services Ltd. , Druk PNB Bank Ltd. VISION AND MISSION Vision * To evolve and position the bank as a world class, progressive, cost effective and customer friendly institution providing comprehensive financial and related services. * Integrating frontiers of technology and serving various Segments of society especially weaker section. * Committed to excellence in serving the public and also Excelling in corporate values. Mission * To provide excellent professional services and improve it position as a leader in financial and related services. Build and maintain a team of motivated workforce with high work ethos. * Use latest technology aimed at customer satisfaction and ac as an effective catalyst for socio economic development Products, Service Profile The bank offers a large range of products and services both in retail and corporate sectors. Products and Services are designed to address the requirements of the target groups. Further the bank takes endeavour to innovate new products and services for e. g. branchless banking.
With a vision of emerging as one-stop financial shop, the bank has been offering various third party financial products under tie-up/agency arrangements with reputed life insurance, non-life insurance and mutual fund companies of India. Services like mutual fund, gold coins, cash management services, depository services, online-trading etc. help the bank to garner sizeable fee based income, enhancing its profitability. Savings Fund Account – Total Freedom Salary Account, PNB Prudent Sweep, PNB Vidyarthi SF Account, PNB Mitra SF
Account Current Account – PNB Vaibhav, PNB Gaurav, PNB Smart Roamer Fixed Deposit Schemes – Spectrum Fixed Deposit Scheme, Anupam Account, Mahabachat Schemes, and Multi Benefit Deposit. Scheme Credit Schemes – Flexible Housing Loan, Car Finance, Personal Loan, Credit Cards Social Banking – Mahila Udyam Nidhi Scheme, Krishi Card, PNB Farmers Welfare Trust Corporate Banking – Gold Card scheme for exporters, EXIM finance Business Sector – PNB Karigar credit card, PNB Kushal Udhami, PNB Pragati Udhami, PNB Vikas Udhami
Apart from these, and the PNB also offers locker facilities, senior citizens schemes, PPF schemes and various E-services. Achievement and Awards * PNB was declared the “Best Public Sector Bank” by a survey conducted by The Financial Express and Ernst & Young. * PNB was ranked 26th amongst India’s top 500 listed companies by “ET 500”. * Globally, the “The Banker Magazine” (London) placed PNB at 239th position amongst the top 1000 Global Banks while Forbes’ ranking of 2000 global giants placed it at 695th position. The Bank was conferred with the “Best Corporate Social Responsibility Practice” award by Bombay Stock Exchange. * The Bank was declared the winner of the Gold trophy of SCOPE Meritorious Award for Excellence in Corporate Governance 2009 by Standing Conference of Public Enterprises amongst the Public Sector Enterprises, a coveted award received by the Bank from the hands of the Honourable President of India. * The Bank also received the Golden Peacock Award for Excellence in Corporate governance for 2009 from the Institute of Directors. The ‘Dainik Bhaskar’ in association with ‘Daily News and Analysis’ presented PNB with India Pride Awards for excellence in PSU category in the year 2009, while Dun & Bradstreet Award for “Priority Sector Lending including Financial Inclusion” was also bagged by the Bank. FINANCIAL PERFORMANCE PNB continues to maintain its frontline position in the Indian Banking Industry. The impressive operational and financial performance has been brought about by the bank’s focus on customer based business with thrust on SME, agriculture, asset liability management and efficiency in core operations.
The financial performance of the bank can be seen in the table below (Rs Cr): Parameters| March 2007| March 2008| March 2009| March 2010| March 2011| Operating Profit| 3617| 4006| 5744| 6918| 9056| Net Profit| 1540| 2049| 3091| 3905. 36| 4433| Deposits| 139860| 166457| 209760| 233,109| 312899| Advances| 96597| 119502| 154703| 170201| 242107| Organizational Structure The bank has its corporate office at New Delhi and 58 circle office and 4267 branches. The delegation of power is decentralized up to the branch level for quick decision making. The top-down approach at PNB can be classified as follows:-
Organizational Structure at PNB CMD – Chief Managing Director ED – Executive Director GM – General Manager AGM – Assistant General Manager DGM – Deputy General Manager Delivery Channels in PNB: ABOUT CREDIT ADMINISTRATION DIVISION (CAD) Credit administration division looks after the proposal for all types of credit which fall within the powers of GM –HO/ED/CMD/BOARD. A Credit proposal goes through different levels of verifications to ensure internal controls and other practices to ensure that exceptions to policies, procedure and limits are reported in a timely manner to the appropriate level of management for action.
The bank has introduced “committee” system in credit sanction process where in every loan proposal falling within vested power is discussed in credit sanction committee. Such committees have been formed both at head office and Zonal levels. The CAD is assisted by the Risk Management Department (RMD), Technical Department and the Industry desk for risk analysis and technical feasibility of credit proposals. Credit Risk Management structure at PNB involves: * Risk Management division * Zonal Risk Management department (ZRMD) * Regional Risk Management Department (RRMD) * Risk Management committee (RMC) Credit risk management committee (CRMC) * Credit Audit Review Division (CARD) ABOUT THE PROJECT OBJECTIVE 1. The objective of this project is to study in depth the credit appraisal procedure followed by PUNJAB NATIONAL BANK, which includes sanctioning of working capital & issuing term loan to corporate, through different case studies, on the job training, understanding various appraisal techniques and live appraisal for better understanding of the intricacies involved in quality decision making including risk analysis and mitigation for different inherent risks in extending working capital advances to diversified industries. To assess the financial position of the company that approach PNB for credit finance purpose. This would entail undertaking of following procedure. * Analysis of past and present financial statements * Analysis of Balance sheet * Analysis of cash flow statements * Critical analysis & evaluation of CMA data 2. To assess the credit risk rating of the company in varied fields viz. * Use of historical data * Identification of peer group * Comparison of financials with peers * Evaluation of management risks * Evaluation of financial risks * Evaluation market industry risk Evaluation of the compliance of sanction terms 3. Study of term loan financing, which comprises understanding of the process involved in the analysis and appraisal of projects for the sanction of term loans to the industry is done. A company requires loan for its new project, expansion/diversification plan, where we make rigorous analysis of the project and check the financial viability of the same, by estimating the anticipated results of operations and cash flows after the funds have been received and invested into the new project, analysis of the projected income statement and the balance sheet.
Calculation of important ratios like: * Repayment schedule * Debt Service Coverage Ratio. * Sensitivity Analysis. And also the process involved in the analysis and appraisal of projects for the sanction of term loans to the industry. SCOPE OF THE STUDY With the opening up of the economy, rapid changes are taking place in the technology and financial sector, exposing banks to greater risks. Thus, in the present scenario efficient project appraisal has assumed a great importance as it can check and prevent induction of weak accounts to our loan portfolio.
All possible steps need to be taken to strengthen pre sanction appraisal as “prevention is better than cure”. The report seeks to present a comprehensive picture of credit management in the bank as its effectiveness is highlighted by the quality of its loan portfolio. The study is also undertaken to understand the process of preparation of CMA data for WC assessment, credit risk management and term loan financing These form important pillars of any financial business. In the Indian financial circumstances, it becomes important to keep a track on borrower’s accounts to prevent from becoming NPA.
This requires a continuous evaluation. Further, the sick units may undergo restructuring as well as bifurcating. Hence the study covers all these aspects. PURPOSE OF THE STUDY: The purpose of the study is to study in depth the sanctioning and analysis of the working capital loan and term loan financing and its appraisal by PUNJAB NATIONAL BANK for Corporate. The working capital assessment includes the following: * To prepare CMA data for WC assessment in order to ensure optimum investment in current assets so that the normal operations are not affected adversely. To track & evaluate the health of borrower accounts on a continuous basis through PMS report that is to detect unsatisfactory/adverse signals/indicators at an early stage in a comprehensive manner and to propose speedy corrective/remedial actions/steps to prevent the account from becoming NPA as well as to minimize the loan losses. * To understand the importance of appropriate and effective risk management along with maintenance of comprehensive risk policies. * To study the treatment of sick units either by their restructuring or by bifurcating the units.
The term loan Financing involves the following things * To study the process involve in scrutinizing term loan financing and to Judge whether the project is viable or not, i. e. whether it can generate adequate surplus for servicing its debts within a reasonable period of time and still left with some funds for future development. This involves taking an over-all view to analyze the strengths and weaknesses of the project. * To see whether the management and organization can prove effective for successful implementation of the project METHODOLOGY
In order to learn and observe the practical applicability and feasibility of various theories and concepts, the following sources are being used: Primary Sources of Information * Discussions with the project guide and staff members. * Discussions with various other department head. Secondary Sources of Information * RBI guidelines regulating the activities of the banks * Banks Credit policy and related circulars and guidelines issued by the bank. * Research papers, power point presentations and PDF files prepared by the bank and its related officials. * Study of proposals and manuals Website of Punjab national bank and other net sources. How the work was Undertaken 1) Academics Understanding : The project uses the concepts studied in financial management :- Financial Statement Inventory Management Receivables Management Cash Flow Statement Credit Rating Working Capital Management Industry Scenario 2) On the job training- In this we looked upon various cases of working capital financing which were already done by bank to understand how bank does assessment of working capital loans. What are the policies and guidelines on which bank adhere to, what all are the parameters which bank take into consideration. ) The in depth analysis on these topics has been done through case study that provided a better understanding and shown their practical implementation. 4) Brief introduction to the Credit rating of the company. 5) Two case studies have been included: a) XYZ Energy & Steel Ltd. For Working Capital Financing. b) PQR Power Ltd. For Project Financing. LIMITATIONS OF THE STUDY * Assumptions and forecasting are based on the current market conditions and volatility in prices is quite high * Some industries are cyclic in nature and are subject to govt. olicy. * All the information cannot be included as most of the information is confidential and not approachable. * The study is being done keeping in mind the policies of the head office. * The data availability is proprietary and not readily shared for dissemination. * The staff although are very helpful but are not able to give much of their time due to their own job constraints. * The data is used in the study is secondary which can lead to some kind of discrepancy, anomaly or biasness in the study. Due to the ongoing process of globalization and increasing competition, no one model or method will suffice over a long period of time and constant up gradation will be required. The financial statements of the proposed project that we will appraise are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Such risks and uncertainties include, but are not limited to, the following: 1. Changes in Indian laws. 2. Changes in India or global economic conditions. 3. The availability, hiring and retention of qualified staff employees. 4.
Management of patent and trademark growth. 5. Government regulations; disputes with labour organizations 6. Deployment of new technologies LITERATURE REVIEW | | 1) Credit appraisal determines your loan eligibility By: Ashish Gupta, THE ECONOMIC TIMES This report focuses on various stages of the credit appraisal and how bank evaluates eligibility of the borrower. According to this article credit appraisal is an important part of determining the eligibility for a home loan, and the quantum of the loan. A prospective borrower has to go through the various stages of the credit appraisal process of the bank.
Each bank has its own criteria to satisfy itself on the credit worthiness of the borrower. The eligibility for the loan that a person can get depends on his credit worthiness, determined in terms of the norms and standards of the bank. A bank applies the instalment-to-income ratio (IIR). This helps in finding the loan eligibility of the applicant. It is generally expressed as a percentage. This percentage denotes a portion of the monthly instalment on the home loan taken. Usually, the banks fix 33. 33 to 40 percent as the ratio. It is assumed that in normal circumstances, a person can pay an instalment up to 33. 3 to 40 percent of his salary. FIXED OBLIGATION TO INCOME RATIO (FOIR)-Banks also calculated the eligibility based on the fixed obligation to income ratio (FOIR). Here, a bank takes into account the instalments of all other loans already availed of by the applicant and still due, including the home loan applied for. LOAN-TO-COST RATIO (LCR)-A bank also computes eligibility on the basis of a loan-to-cost ratio (LCR). This ratio is used to calculate the loan amount that an applicant is eligible for on the basis of the total cost of the property. 2) Reflections on credit risk
This news was published in “The Banker” magazine in year 2007 and very well elaborates on emerging trends and challenges faced by lender banks. Retail loans like home mortgage backed loans and loans against equity, disbursed by the SCB’s registered good growth but price bubble in property and equity market increased the risk weight bank loans to retail sector from 125% to 150%. Financial scam also came into picture wherein few individuals cornered shares that were reserved for small investors in IPO by opening multiple bank accounts. RBI fined about nine banks for deviating from KYC norms while opening bank accounts.
Amid all those turbulences, the focus of RBI shifted to Credit quality, debt collection and recovery. Identity theft was one of the prominent challenges that the lender banks were facing. To better know about their borrowers, SBI along with ICICI, HDFC and other major lenders set up the Credit Information Bureau India Ltd (CIBIL), India’s first and only credit information bureau. This database provides credit reports on more than 55 million individual borrowers at a very nominal fee and usually available in a day. Previously the Branch Manager owning the responsibility of debt collection but most of the banks have stablished city level recovery centres and with well trained recovery agents employed in them. As my case study is based upon Energy & Steel sector so brief study of this sector has also been done about this sector 3) Detailed Analysis of Steel Industry in India. Publication: Business Wire. According to this paper Indian Steel industry has shown the second highest growth rate for steel production in Asia after China in 2006. With a GDP growth of around 8% in 2005-06, Indian economy as well as the industrial development got a boost and this helped to shape the increasing steel demand and production in India.
This paper gives a detailed analysis of steel industry in India. It looks into the factors that have influenced the industry over a period of time, like steel production and raw materials, steel consumption, and export-import of steel products etc. The section also puts forth a comprehensive analysis on the fluctuating performance of the Indian steel industry. The key findings from this paper are – -Indian steel industry is closely linked with domestic economic growth. – India housing and construction industry is likely to grow in India, which is one of the major steel consuming industries. Growing Indian automobile industry, which depends on steel industry for parts manufacturing, will lead to a strong steel demand in future. – The high cost of electricity in India may hamper the steel industry’s production level. – Recent increase in production capacity and foreign investment in India is pushing the Indian steel production. – Demand is expected to rise in future with economic and industrial growth. 4) DUBLIN- Research and Markets: Indian Steel Industry Outlook to 2012 This report helped me in knowing the future of steel industry in the country and also helped me in doing projections.
The report presents an insight into the future outlook of Indian steel industry. According to this report Indian steel Industry plays a significant role in the country’s economic growth. The major contribution directs the attention that steel is having a stronghold in the traditional sectors, such as infrastructure & constructions, automobile, transportation, industrial applications etc. Moreover, steel variant stainless steel is finding innovative applications due to its corrosion resistive property. India is the fifth largest steel producer at the global front and struggling to become the second largest roducer in the coming years. The country has acquired a central position on the global steel map with its giant steel mills, acquisition of global scale capacities by players, continuous modernization & up gradation of old plants, improving energy efficiency, and backward integration into global raw material sources. Global steel giants from across the world have shown interest in the industry due to its phenomenal performance. For instance – the crude steel production in India registered a year-on-year growth of 6. 4% in 2010 and reached 66. 8 Million Metric Tons.
According to this report, Indian crude steel production will grow at a CAGR of around 10% during 2010-2013. Moreover, with the government proactive incentive plans to boost economic growth by injecting funds in various industries, such as construction, infrastructure, automobile, and power will drive the steel industry in future. The report also reveals that, steel consumption in India is expected to grow significantly in coming years as per capita finished steel consumption is far less than its regional counterparts. BRIEF NOTE ON CONCEPTS USED IN THE PROJECT Financial Statements
Financial statement analysis is a process of evaluating past and current financial data for the purpose of evaluating performance and estimating future risks and potential. The basic output of the financial accounting process is presented in the following interrelated financial statements: 0 Balance Sheet–summarizes the financial position of a business at a particular point in time 1 Income Statement–summarizes the results of operations for a given period of time 2 Statement of Cash Flows–summarizes the operating, financing and investing activities, as well as cash receipts and disbursements over a given period of time
Financial Ratio Analysis Overview Any successful business owner is constantly evaluating the performance of his or her company, comparing it with the company’s historical figures, with its industry competitors and even with successful businesses from other industries. To complete a thorough examination of your company’s effectiveness, however, you need to look at more than just easily attainable numbers like sales, profits and total assets. You should be able to read between the lines of your financial statements and make the seemingly inconsequential numbers accessible and comprehensible.
Major types of ratios used in financial analysis: income, profitability, liquidity, working capital, coverage and leverage. GROWTH PARAMETER – Gross sales Growth rate : this refers to the compounded annual growth of the gross sales of a company over the past years ,this parameter helps in assessing the performance of a company. PROFITABILITY PARAMETER – OPBDIT/SALES: This ratio measures the operating profit before depreciation, interest & tax and as a proportion of the net sales. This ratio throws light on the current operating performance and efficiency of the company.
EFFICIENCY PARAMETER – Short term borrowings / Net sales: This ratio measures the quantum of net sales achieved per unit of short term bank borrowings, this ratio explains the efficiency of a company in utilizing its working capital. CASH FLOW PARAMETER – Operating Cash Flow/ Total debt: This calculates the cash generated by a company from its operations in proportion to its total debt. This ratio indicates the extent to which a company’s cash flows are sufficient to meet its debt obligations.
SOLVENCY PARAMETER – Debt Equity Ratio : This ratio measures a company’s long term debt in proportion to its tangible net worth and indicates owner’s stake in the company compared to the long term obligations of the company TOL/TNW: This ratio measures the total liabilities as a proportion of tangible net worth. LIQUIDITY PARAMETER – Current Ratio: This ratio measures the proportion of a company’s current assets to its current liabilities and thus gives a measure of the short term liquidity. Liquidity is a very important factor for a business as poor liquidity may force the company out of business.
DEBT COVERAGE PARAMETERS – Interest coverage: This measures number of times a company’s earnings cover its interest payment liability. DSCR: DSCR measures the number of times a company’s earning cover its total long term debt, including interest and principal repayments in term debts, over a period of one year. This ratio is a good indicator of the long term solvency of a company and its ability to service its debt obligations. RETURN ON CAPITAL EMPLOYED: This ratio measures the income earned per unit of capital committed in the business. Receivables Management
Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know…. who owes them money…. how much is owed…. how long it is owing…. for what it is owed. Inventory Management Managing inventory is a juggling act. Excessive stocks can place a heavy burden on the cash resources of a business. Insufficient stocks can result in lost sales, delays for customers etc. The key is to know how quickly overall stock is moving or, put another way, how long each item of stock sit on shelves before being sold.
Obviously, average stock-holding periods will be influenced by the nature of the business. For example, a fresh vegetable shop might turn over its entire stock every few days while a motor factor would be much slower as it may carry a wide range of rarely-used spare parts in case somebody needs them. Factors to be considered when determining optimum stock levels include: * What are the projected sales of each product? * How widely available are raw materials, components etc.? * How long does it take for delivery by suppliers? * Can you remove slow movers from your product range without compromising best sellers?
WORKING CAPITAL ASSESSMENT PRE SANCTION APPRAISAL WORKING CAPITAL is defined as the total amount of funds required for day to day operations of a business unit. Inadequate working capital may result in under-utilization of firm’s capacity and serious financial consequences where as excessive working capital may also deteriorate financial health of the entity by unnecessary interest burden on the unit. Thus for soothing and profitable operations of the conglomerate, optimum assessment of the working capital requirements are very much required It is often classified as gross Working capital and net working capital.
Gross working capital refers to the fund required for financing total current assets whereas NWC refers to the difference between the total current assets and current liabilities which is same as surplus of long term sources of funds over its uses. This NWC can be positive or negative however it is always desirable to have a positive NWC. Each business unit has an operating cycle which indicates that a unit procures raw material from its funds, converts it into stock in process, which is again transformed into finished goods. Finally these finished goods are transformed back into cash.
Alternatively these finished goods are converted into receivables if sales are made on credit, which are later realized. Operating cycle is illustrated below This cycle continues and in order to keep the operating cycle going on, certain level of current assets has to be maintained. Thus the total working capital can be obtained by assessing the level of various current assets in terms of time and their value as shown. Stage| Time| Value| Raw materials| Holding period| Value of RM consumed| Work in progress| Time taken in converting RM to FG| RM + Mfg. xpenses (Cost of production)| Finished goods| Holding period of FG before being sold| RM + Mfg. expenses + adm. Overhead (Cost of sales)| Receivables | Credit allowed to buyer| RM + Mfg. expenses + adm. Overhead + profit(sales)| DETERMINANTS OF WORKING CAPITAL There are lot many factors that affect the quantum of working capital as desired by a business entity. Following are the main factors common to most of the conglomerates: 1. Nature of business – Need for working capital is highly depends on what type of business, the firm in. There are trading firms, which needs to invest a lot in stocks, ills receivables, liquid cash etc.
Public utilities like railways, electricity, etc. , need much less inventories and cash. Manufacturing concerns stands in between these two extends. Working capital requirement for manufacturing concerns depends on various factors like the products, technologies, marketing policies. 2. Production policies – Production policies of the organization effects working capital requirements very highly. Seasonal industries, which produces only in specific season requires more working capital. Some industries which produces round the year but sale mainly done in some special seasons are also need to keep more working capital. . Size of business – Size of business is another factor to determine the need for working capital. 4. Length of operating cycle – Operating cycle of the firm also influence the working capital. Longer the operating cycle, the higher will be the working capital requirement of the organization. 5. Credit policy – Companies following liberal credit policies need to keep more working capital with them. Efficiency of debt collecting machinery is also relevant in this matter. Credit availability from suppliers also effects the companies’ working capital requirements.
A company that doesn’t enjoy a liberal credit from its suppliers will have to keep more working capital. 6. Business fluctuation – Cyclical changes in the economy also influence the level of working capital. During boom period, to avail the advantage of rising prices, the management intends to pile up inventories of raw materials and finished goods. This creates demand for more capital. On contrary, during depression when the prices and demand for manufactured goods constantly reduce, the industrial and trading activities show a downward trend. Thus the demand for working capital is low. 7.
Current asset policies – The quantum of working capital of a company is significantly determined by its current assets policies. A company with conservative assets policy may operate with relatively high level of working capital than its sales volume. A company pursuing an aggressive amount assets policy operates with a relatively lower level of working capital. 8. Fluctuations of supply and seasonal variations – Some companies need to keep large amount of working capital due to their irregular sales and intermittent supply. Similarly companies using bulky materials also maintain large reserves of raw material inventories.
This increase the need of working capital. Some companies manufacture and sell goods only during certain seasons. Working capital requirements of such industries will be higher during certain season of such industries period. 9. Other factors – Developed transportation and communication infrastructure help to reduce the working capital requirement. Effective co-ordination between production and distribution can further lower the need for working capital. A series of committees were established to assess the working capital requirements of a business unit to suggest appropriate modalities of financing working capital.
These are: TANDON COMMITTEE A Committee headed by Shri P. L. Tandon, the ex-chairman of PNB, was constituted with view to suggest improvement in existing cash credit system. It suggested three methods of lending Ist method of lending According to this method, banks would finance up to a maximum of 75% of working capital gap (WCG), which is the difference between the current assets and current liabilities excluding bank borrowings and the balance 25% was considered as a margin which would be bought through long term funds. IInd method of lending
As per this method, bank would finance maximum of 75% of total current assets (TCA) and borrowers have to provide a minimum of 25% of TCA as margin out of long term uses. This will give a minimum current ratio of 1. 33 IIIrd method of lending It is same as IInd method, with a difference that TCA excludes core current assets which is financed through long term funds. EXAMPLE: CURRENT LIABILITIES| Amount (Rs. )| CURRENT ASSETS| Amount (Rs. )| CREDITORS| 100| RAW MATERIAL| 200| OTHER CURRENT LIABILITIES | 50| STOCK IN PROCESS | 20| BANK BORROWINGS| 200| FINISHED GOODS | 90| | RECEIVABLES| 50| | | OTHER CURRENT ASSETS | 10| Total| 350| Total| 370| 1ST METHOD| 2ND METHOD| 3RD METHOD| TOTAL C/A 370 LESS CL-BANK BORROWING 150 ______W C GAP 220 ______ 25% OF WCG FROM LONGTERM SOURCES 55 ______ MPBF 165CURRENT RATIO 1. 7 : 1 | TOTAL C/A 370 LESS 25% OF CA 92 ______ 278 ______ LESS CL-BANK BORROWING 150 ______ MPBF 128CURRENT RATIO 1. 3 : 1 | TOTAL C/A 370 LESS CORE CA FROM LT 95 ______ 275 LESS 25% FROM LTS 69 LESS CL 150 ______MPBF 56CURRENT RATIO 1. 79 : 1 |
NAYAK COMMITTEE This method is also known as simplified turnover method and it focuses on small scale Industries and other tiny industries having an aggregate fund based working capital limits up to Rs 5 crores. For such companies, the working capital requirement is calculated solely on the basis of their sales turnover. The sanctioning authority may satisfy themselves about the reasonableness of the projected turnover of the company based on their annual statements and assumptions. These units would require bringing in 5% of turnover as the margin.
In other words, according to Nayak committee recommendations 25 % of the projected turnover would be the working capital requirements of the company, of which 4/5th would be financed by the bank and the remaining 1/5th has to be brought by the owner as margin. FOR EXAMPLE, ABC is a company with a projected sales turnover of 100 crores. Then, working capital requirement is 25% of 100 i. e. 25 crores Of the above amount, bank would give 4/5th or 20 crores and the rest 5 crores is to be arranged by the owner as margin. CHORE COMMITTEE The RBI constituted, in 1979, a working group under the chairmanship of Mr.
K. B. Chore, to review the cash credit system with particular reference to the gap between sanctioned limit and the extent of their utilization. It was also asked to suggest alternative types of credit facilities which would ensure greater flexibility. Recommendations given were i) Continuance of the existing system: – it was not considered feasible to replace the cash credit system altogether by any other system. It was however, existing system be streamlined and a periodical review of limits fixed under the system be made compulsory.
With this end in view, banks were advised to enforce review of all borrowed accounts with working capital limits of Rs. 10 lakhs and over from the banking system at least once a year. ii) No bifurcation of cash credit accounts: – RBI’s earlier instruction to bifurcate the cash credit (as recommended by the tandom committee) into demand loan component and cash credit portion and to maintain a differential in interest rate between these two components be withdrawn. In cases, where the cash credit accounts have already been bifurcated , the banker be asked to take steps to abolish the differential interest rates with immediate effect. ii) Separate limit for peak level and non peak periods: – While assessing the credit requirement of borrowers, bank should fix separate limits, where feasible, for the normal non peak level as also for the peak level credit requirements indicating the period during which the separate limits would be utilized by borrowers. However, in cases where there is no pronounced seasonal trend, peak level and normal requirements would be treated as identical and limit fixed on that basis. Maximum Permissible Bank Finance Method
In this method, the working capital is calculated by on the basis of level of inventories and receivables of the entity. Banks can calculate these levels either for the single entity or for the entire industry as a whole. To calculate it separately, the bank of India seeks last 2 years’ of actual data from the borrower. However, the bank also permits the usage of industry level data as issued by RBI from time to time. Deviations from these industry levels may be permitted depending upon merits of each case by the sanctioning authority.
While going for this method the bank generally asks for following documents: 1. Audited Financial Statements. 2. Full set of CMA data form. CMA DATA (Credit Monitoring Arrangement) Companies approaching bank for working capital financing need to assess their working capital requirements. This assessment forms the most basic part of working capital and companies must present a clear picture of this assessment to the banks for sanction of loan. CMA data is one of the resource used to assess working capital for a company and it involves preparation of number of forms.
These forms have a prescribed format in which they are presented and these forms clearly define financial position of the company. CMA data distinguishes current assets and current liabilities and determines the net working capital for a particular period. This net working capital is then used to determine one of the most important variable i. e. Maximum Permissible Bank Finance. The bank adopts a suitable method for the determination of MPBF using any of one method, Tandon or Chore Committee. In PNB, MPBF is assessed by using the method recommended by Chore Committee.
Preparation of CMA data forms an integral part of CAD and it is based on this data that the further steps are taken. CMA consists of six Forms and they are: * FORM – I: Break up of facility: This form give details regarding the different forms in which credit has been asked by company such as Cash Credit, Packing Credit, Letter of Credit, Bank Guarantee, etc. * FORM – II: Operating statement or Profit and Loss statement: This help banker to know about the expenses and tells about the expenses and income generated during the year. FORM – III: Analysis of Balance sheet: This helps bankers to assess the financial health of an entity on date of documentation of the business entity * FORM – IV: Comparative Statement of Current assets and current liabilities: This form explains the operating cycle of the company. * FORM – V: Maximum permissible bank finance: This forms will show how much loan bank is eligible to give to company. * FORM – VI: Fund flow statement: Many companies do window dressing in their financial statements and fudge with their accounting figures. A profitable firm may have negative operative cash flows.
Thus fund flow and cash flow analysis helps the bankers to check the sources of inflow and points of outflow. The CMA is prepared by both the company as well as the bank. The bank uses the CMA prepared by the company to analyse the correctness of the working capital requirements and understand its validity. However, it must be noted that the entire CMA data is prepared using the balance sheet of the company and certain other documents submitted by the company to the banks. Here we explain the preparation of CMA data using a balance sheet of a XYZ ENERGY & STEEL Ltd.
CASE STUDY 1 XYZ ENERGY & STEEL Ltd has proposed for enhancement of existing working capital limit from Rs. 24. 50 crore to Rs 39. 50 crore for rolling mill division and induction furnace. So, the project comprises of understanding the financial position of the company, to assess the suitability of the company for disbursement of credit and economic scenario of the steel sector. Also, a study on the past and future outlook of the company with regards to the industry is done. A short gist on the study that will be undertaken to complete the project is provided below.
XYZ LTD is a private limited company, was incorporated six years back for manufacturing of iron & steel products Viz. M. S. Angle, Flat, and Channels etc in automatic Re- rolling mills. Where Rolling Mill capacity – 61000 TPA and Induction Furnace Capacity – 30000 TPA . The company was sanctioned CC (H) limit of Rs 18. 00 crore in December 2008 but due to increased rates of RM and FG working capital needs of the company increased manyfold and accordingly on its request CC (H) limits increased. During 2009 the company approached PNB for enhancement of cash credit limit from Rs. 8. 00 Crore to Rs. 20. 00 in rolling mill division and proposed backward integration. The present proposal is for enhancement of existing CCH limit from Rs. 24. 50 to Rs. 39. 50 crore for rolling mill division and induction furnace division. Now to make the recommendation to sanction or reject the loan proposal the credit proposal goes through different level of sanctioning. Firstly the operation of the company and the purpose for which the company has applied for loan should be clearly stated for this purpose annual report of the company should be read thoroughly.
In this stage we analyse financial statements of the company which helps us to know what an enterprise owns and what it owes at a particular point of time, Here we see the past financial performance , reliability of operational data and key financial ratios like Debt Equity ratio, Debt service coverage ratio , Profit sales ratio, current ratio ,sales tangible asset ratio, Bank Borrowing / total current liabilities ,Return on capital employed , Net profit to Net worth ratio as they tell us a lot about company’s liquidity position, management stake in the business, capacity to serve the debts etc. e do the detailed study of current assets and current liabilities , details of authorised/issued/paid-up capital along with share application money to be given. Now the CMA is prepared using company’s balance sheet for the year 2009-10 which is given in Annexure. * Credit Monitoring Arrangement SUMMARY OF FINANCIAL ANALYSIS | M/S. | | | | | | | | Rs. In Lakh| | | 31. 03. 07| 31. 03. 08| 31. 03. 09| 31. 03. 10| | | Audited| Audited| Audited| Estimates| | | | | | | | CURRENT ASSETS| | | | | | | | | | | | Cash & Bank Balance| | | 495. 95| 299. 11| | Inventory| | | 993. 90| 1871. 7| | Debtors| | | 1349. 35| 1703. 18| | Adv. to suppliers/Loans & Advances| | | 7. 13| 367. 80| | Other Current Assets| | | 107. 23| 225. 93| A| Total Current Assets | 0. 00| 0. 00| 2953. 56| 4467. 29| | | | | | | | CURRENT LIABILITIES| | | | | | | | | | | | Bank Borrowing| | | | | | Creditors for purchase| | | | | | Interest accrued but not due| | | | | | Dividend Payable| | | | | | Other Statutory Liabilities| | | 40. 72| 50. 15| | Provisions| | | | | | Book Overdraft| | | | | | Advance Payment| | | | | | Other Current Liabilities| | | 191. 2| 502. 21| B| Total Current Liabilities (B)| 0. 00| 0. 00| 232. 34| 552. 36| | | | | | | C| C = A – B | 0. 00| 0. 00| 2721. 22| 3914. 93| | | | | | | | FIXED ASSETS| | | | | | | | | | | | Net Block| | | 532. 85| 498. 81| | Capital WIP| 0. 00| | 121. 73| 174. 95| D| Total Fixed Assets | 0. 00| 0. 00| 654. 58| 664. 76| | | | | | | E| E = C + D | 0. 00| 0. 00| 3375. 80| 4579. 69| | | | | | | | TERM LIABILITIES| | | | | | | | | | | | Term Loans| 0. 00| 0. 00| 1947. 29| 2800. 42| | Unsecured Loans| 0. 00| 0. 00| 323. 98| 249. 44| F| Total Term Liabilities| 0. 00| 0. 0| 2271. 27| 3049. 86| | | | | | | G| Capital Employed = E –F| 0. 00| 0. 00| 1104. 53| 1529. 83| | | | | | | | NON CURRENT ASSETS| | | | | | | | | | | | Investments| | | | | | Security Deposits| | | | | | Debtors beyond 6 months| | | | | H| Total Non Current Assets| 0. 00| 0. 00| 0. 00| 0. 00| | | | | | | I| Tangible Networth = G + H| 0. 00| 0. 00| 1104. 53| 1529. 83| | | | | | | | INTANGIBLE ASSETS| | | | | | | | | | | | Misc. exp. not written-off| | | 0. 41| 0. 34| | Cr. Balance in P & L a/c. | | | | | | Deferred Tax Assets| | | 6. 51| 12. 48|
J| Total Intangible Assets| 0. 00| 0. 00| 6. 92| 12. 82| | | | | | | K| Networth = I + J| 0. 00| 0. 00| 1111. 45| 1542. 65| | | | | | | | REPRESENTED BY:| | | | | | | | | | | | Equity| | | 1036. 85| 1416. 86| | Reserves| | | 74. 62| 125. 81| | Revaluation Reserve| | | | | | Deferred Tax Liabilities| | | | | L| Total Net worth| 0. 00| 0. 00| 1111. 47| 1542. 67| | | 0. 00| | | | | Sales- Domestic| 0. 00| 0. 00| 0. 00| 0. 00| | Sales- Export| 0. 00| 0. 00| 0. 00| 449. 30| | Gross Sales| 0. 00| 0. 00| 0. 00| 449. 30| | Growth %| | | | | | Other Income| | 0. 01| 12. 65| 1. 74| Profit before tax | | -1. 99| 1. 24| 3. 43| | Profit after tax | | -2. 08| 1. 51| 2. 17| | Depreciation| | 0. 81| 2. 34| 2. 34| | Cash Profit| 0. 00| -1. 18| 3. 58| 5. 77| | Return On Capital Employed (%)| | | 0. 11| 0. 22| | Paid up share capital| 0. 00| 0. 00| 1036. 85| 1416. 86| | Reserve & Surplus (excluding Rev. Reserve)| 0. 00| 0. 00| 74. 62| 125. 81| | Tangible Net worth | 0. 00| 0. 00| 1111. 47| 1542. 67| | Debt/Equity Ratio| | | 2. 06| 1. 99| | Total Outside Liabilities/Tangible Net Worth | | | 2. 27| 2. 35| | Current Ratio| | | 12. 71| 8. 09| | Bank borrowing/ sales (%)| | -| -| -| Bank borrowing/Total Current Liabilities (%)| | | 0. 00| 0. 00| | Net Profit to Net worth %| | | 0. 14| 0. 14| | Net Working Capital| 0. 00| 0. 00| 2721. 24| 3914. 95| | | | | | | Assessment of Working Capital Requirements| Form – I I : Operating Statement ( Rs. In Lacs )| As per Profit & Loss actual / estimates for the year ending | | | | | | 2005-06| 2006-07| 2007-08| 2008-09| 2009-10| GOYAL ENERGY & STEEL PVT. LTD. | Last| Last| Last| Last| Last| (CONSOLIDATED) Rolling Mill & Induction Furnace| year-Act. | year-Act. | year-Act. | year-Act. | year-Act. | | | | | (1)| (2)| (1)| (2)| (3)| 1 | Gross Sales -| Domestic Sales| | | 76. 17| 106. 91| 125. 36| | | | Export Sales| | | | | | | | | Sales under SIDBI-BRS| | | | | | | Add other revenue income| | | | | | | | Total| | | | | 76. 17| 106. 91| 125. 36| 2 | Less Excise Duty & Sales Tax| | | 10. 16| 12. 16| 9. 32| | Deduct Other Items | | | | | | | 3 | | Net Sales (Item1 – Item2 )| 774. 50 | 3785. 61 | 66. 01| 94. 75| 116. 04| 4 % age rise ( + ) or fall( – ) in net sales as compaired to previous year (annualised )| NA| 388. 78%| -98. 26%| 43. 54%| 22. 46%| | | | | | 5 | Cost of Sales| | | | | | | | | Raw materials(including stores & spares and| 728. 78| 3506. 76| 61. 78| 84. 91| 102. 83| | | other items used in the process of manufacture| | | | | | | | (a) Imported| | | | | | | | | (b) Indigenous| | 728. 78| 3506. 76| 61. 78| 84. 91| 102. 83| | (ii)| Other Spares| | 39. 98| 175. 89| 3. 26| 4. 60| 5. 57| | | (a) Imported| | | | | | | | | (b) Indigenous| | 39. 98| 175. 89| 3. 26| 4. 60| 5. 57| | (iii)| Power & Fuel| | 17. 91| 66. 81| 0. 76| 0. 78| 1. 35| | (iv)| Direct Labour(Factory wages & salary )| 3. 0| 18. 85| 0. 32| 0. 33| 0. 40| | (v)| Other manufacturing expenses| 7. 76| 43. 91| 0. 59| 1. 17| 1. 19| | (vi)| Depreciation| | 13. 70| 51. 06| 0. 41| 0. 85| 1. 46| | (vii)| Repairs & Maintenance| 0. 41| 6. 79| 0. 02| 0. 05| 0. 03| | (vii)| SUB – TOTAL ( I to vi )| 812. 14| 3870. 07| 67. 14| 92. 69| 112. 84| | (viii)| Add : Opening stocks – in – process| | | 0. 00| | | | | | | Sub – total| 812. 14| 3870. 07| 67. 14| 92. 69| 112. 84| | (ix)| Deduct : Closing stock – in – process| | | | | | | (x)| Cost of Production| 812. 14| 3870. 07| 67. 14| 92. 69| 112. 4| | (xi)| Add : Opening stock of Finished goods| 0. 00| 50. 55| 2. 15| 4. 90| 5. 42| | | | | Sub – total| 812. 14| 3920. 62| 69. 29| 97. 59| 118. 25| | (xii)| Deduct : Closing stock of finished goods| 50. 55| 214. 67| 4. 90| 5. 42| 4. 06| | (xiii)| SUB – TOTAL ( Total cost of Sales )| 761. 59| 3705. 95| 64. 39| 92. 17| 114. 19| | | | Gross Profit| 12. 91| 79. 66| 1. 62| 2. 59| 1. 85| 6 | Selling , general and administrative expenses| 2. 60| 19. 79| 0. 46| 0. 75| 0. 43| 7 | | SUB – TOTAL ( 5 + 6 )| 764. 19| 3725. 74| 64. 85| 92. 92| 114. 62| 8 | Operating Profit before interest ( 3 – 7 )| 10. 1| 59. 87| 1. 16| 1. 83| 1. 42| 9 | Interest| | | 10. 93| 50. 93| 0. 88| 1. 55| 0. 73| 10 | Operating Profit after interest ( 8 – 9 )| -0. 62| 8. 94| 0. 27| 0. 28| 0. 69| 11 | (I)| Add other non – operative income| | | | | | | | (a) Bank Interest| | | | | | | | (b) Miscellaneous Income| 0. 56| 0. 57| | 0. 22| 0. 07| | | (d) Previous Year Adjustments| | | | | 0. 06| | | Sub – Total ( Income )| 0. 56| 0. 57| 0. 00| 0. 22| 0. 13| | (ii)| Deduct Other non – operative expenses| | | | | | | | DEP. OF EARLIER YEARS| | | | | | | | (b) Preliminary Exp.
W/off| 0. 07| 0. 07| 0. 00| 0. 00| 0. 00| | | © Deferred Revenue Exp. | | | | | 0. 01| | | Sub – Total ( Expenses )| 0. 07| 0. 07| 0. 00| 0. 00| 0. 00| | (iii)| Net of other non – operating Income / Expenses| 0. 49 | 0. 50 | (0. 00)| 0. 21 | 0. 13 | 12 | Profit before Tax / Loss { 10 + 11 (iii) }| -0. 13| 9. 44| 0. 27| 0. 49| 0. 82| 13 | Provision for Taxes| | 0. 03| 0. 21| 0. 05| 0. 06| 0. 30| 14 | Net Profit / Loss { 12 – 13 }| -0. 16| 9. 23| 0. 23| 0. 44| 0. 52| 15 | (a)| Equity dividend paid – amt(already paid + b. s. prov. )| | | | | | | (b)| Dividend Rate| | 0%| | 0%| 0%| | ( c)| Deferred Tax Assets/(Liability)| 2. 28| -1. 32| | | | 16 | Retained Profit { 14 – 15 }| -2. 44| 10. 55| 0. 23| 0. 44| 0. 52| 17 | Retained Profit / Net Profit ( % age )| 1525%| 114%| 100%| 100%| 100%| FORM I I I | ANALYSIS OF BALANCE SHEET ( AMOUNT IN : Rs. Lacs )| 0 | |
