CREDIT APPRAISAL SYSTEM

AT
INDIAN OVERSEAS BANK
GUINDY
CHENNAI
A PROJECT REPORT
Submitted to
SCHOOL OF MANAGEMENT
In the partial fulfillment of the requirement
For the award of degree
of

MASTER OF BUSINESS ADMINISTRATION

By
G.MEERA
(35080315)
Under the guidance of
Mrs.Srividhya
(Assistant Professor ( S.G)

SRM SCHOOL OF MANAGEMENT

SRM UNIVERSITY
KAATANKULATHUR 603203
May 2010
1

SRM SCHOOL OF MANAGEMENT

Bonafide certificate
Certified that this project report titled CREDIT APPRAISAL
SYSTEM ,Is the Bonafide work of Mr./MsG.MEERA Who

carried out the research under my supervision. Certified further,

that to the best of my knowledge the work reported herein does
not from part of any other project report or dissertation on the
basis of which a degree or award was conferred on the earlier
occasion on this or any other candidate.

Signature of the supervisor

Signature

Of HOD.

...

Acknowledgment

I offer my sincere thanks to Dr. (Mrs.) Jayashree Suresh, Dean, SRM

University, Kattankulathur 603203 for giving me an opportunity to
undergo a summer project on CREDIT APPRAISAL SYSTEM.

I express my gratitude to Mrs. Srividhya, Faculty, and Department of

Business Administration for her valuable guidance, which helped me in
preparing this report.

I also thank to the administration and faculty of SRM University, for having
required this project from me, as it has provided an invaluable experience to
me.

I am very thankful to the officials of INDIAN OVERSEAS BANK who

helped me by giving complete training in their concern.

I am also thankful to my friends who were a moral support for me from the
very beginning of the project in all circumstances.

Last but not the least i thank the Almighty for the successful completion of
this project.
3

TABLE OF CONTENTS

S.NO
1.

TITLE
LIST OF TABLES

2.

LIST OF CHARTS/ FIGURES

PAGE
NO
2
3

CHAPTER - I
INTRODUCTION OF THE PROJECT
STATEMENT OF THE PROBLEM
OBJECTIVE OF THE STUDY
SCOPE OF THE STUDY
LIMITATIONS OF THE STUDY
CHAPTER - II

5
5
7
8

9.

REVIEW OF LITERATURE
CHAPTER - III

10

10.

RESEARCH METHODOLOGY
CHAPTER - IV

11

11.
12.

INDUSTRY PROFILE
COMPANY PROFILE
CHAPTER - V

15
20

13.

DATA ANALYSIS & INTERPRETATION

CHAPTER - VI

31

14.
15.
16.
17.
18.

FINDINGS
SUGGESTIONS
CONCLUSION
APPENDICES
BIBLIOGAPHY

64
70
72
73
82

4.
5.
6.
7.
8.

LIST OF TABLES

S.NO

List of tables

P.NO

1.

Pay- back period table

37

2.

Average Rate of Return table

38

3.

Net Present Value table

40

4.

Interest rate of return table

41

5.

Working capital Assessment table

60

LIST OF CHARTS
S.NO

List of charts

P.NO

1.

Current ratio chart

44

2.

Quick ratio chart

46

3.

Proprietary ratio chart

47

4.

Debt equity ratio chart

48

5.

Net working capital ratio chart

49

6.

Gross profit ratio chart

50

7.

Net profit ratio chart

51

8.

Operating ratio chart

52

9.

Return on capital employed ratio chart

54

10.

Tangible Net worth ratio chart

55

11.

Total Outside liability ratio chart

56

12.

Funded debt ratio chart

57

13.

Percentage increase ratio chart

58

14.

Npbt/sales ratio chart

58

15.

Npat/tnw ratio chart

59

16.

Working capital turnover ratio chart

62

17.

W.cap/sales ratio chart

63

CHAPTER I
INTRODUCTION

INTRODUCTION OF THE PROJECT

This project is done to understand, analyze and review the CREDIT

APPRAISAL SYSTEM at INDIAN OVERSEAS BANK.
The project is basically done to analyze the appraisal process carried out in
the bank and the criterias set by the bank for obtaining loan. As part of the
project, a proposal has been selected and studied fully whether it satisfies all
the criterias of the bank and suggested whether the proposal can be selected
or not by the bank. It has been done by using appropriate FINANCIAL
TOOLS.
STATEMENT OF THE PROBLEM
Verifying whether all the criterias of the bank has been satisfied by
the company for obtaining the loan from bank and identifying the constraints
if any.
MEANING OF CREDIT APPRAISAL:
Credit appraisal is the assessment of the viability of proposed longterm investments in terms of shareholder wealth and the formal
analysis of all project costs and benefits which is used to justify the
project proposal. Effective project appraisal offers significant benefits
to a firm.

A good appraisal justifies spending money on a project. Credit

appraisal or project planning must be viewed as a process of decisionmaking over time, starting with project identification, and proceeding
through various stages of various feasibility studies (for example,

engineering, financial etc), then the investment phase, and finally

project evaluation. This is the so-called concept of the project cycle.

Getting the design and operation of appraisal systems right is

important. The proper consideration of each of the key components of
project appraisal is essential. These are,

Need, targeting and objectives

Options

Inputs

Outputs and outcomes

Key issues in appraising projects include the following.
Need, targeting and objectives

The starting point for appraisal: applicants should provide a detailed

description of the project, identifying the local need it aims to meet.
Appraisal helps show if the project is the right response, and highlight what
the project is supposed to do and for whom.
Options

Options analysis is concerned with establishing whether there are

different ways of achieving objectives. This is a particularly complex part of
project appraisal, and one where guidance varies. It is vital though to review
different ways of meeting local need and key objectives.
Inputs

Its important to ensure that all the necessary people and resources are
in place to deliver the project. This may mean thinking about funding from
various sources and other inputs, such as volunteer help or premises.
Appraisal should include the examination of appropriately detailed budgets.

 Outputs and outcomes

Detailed consideration must be given in appraisal to what a project does and
achieves: its outputs and more importantly its longer-term outcomes.
Benefits to neighborhoods and their residents are reflected in the improved
quality of life outcomes (jobs, better housing, safety, health and so on), and
appraisals consider if these are realistic.

OBJECTIVE OF THE STUDY:

The main objective of the project training is to study the
CREDIT APPRAISAL SYSTEM IN INDIAN OVERSEAS
BANK

To study entire loan system In Indian Overseas Bank.

To study the procedure of obtaining loan from Indian Overseas

Bank.

To know on what criteria the bank Appraise the loan to the

business.
NEED FOR APPRIASAL:

An important need of appraisal is obtaining an understanding of the

anticipated expenditure and benefits of a project, usually expressed in
terms of its inputs (costs) and outputs (results).

The expected timing of this must also be made clear.

Whilst detailed appraisal is generally necessary before decisions can

be taken and offers made.

It will enable any obviously poor or ineligible ones to be eliminated,

avoid duplication and give an early overall view of the success of the
measure.

10

SCOPE OF THE STUDY

Credit appraisal of a proposal helps the firm to,

Be consistent and objective in choosing projects

Make sure its programme benefits all sections of the community,

including those from ethnic groups who have been left out in the past.

Provide documentation to meet financial and audit requirements and to

explain decisions to local people.

Appraisal is an important decision making tool

Appraisal involves the comprehensive analysis of a wide range of data,
judgements and assumptions, all of which need adequate evidence. This
helps ensure that projects selected for funding.

LIMITATIONS OF THE STUDY:

The data collected from various sources cannot be considered as correct
information.

The figures shown in the project are just expected figures.

The result of project appraisal can not consider as 100% correct.

All financial tools which are applied in this appraisal have their own
limitations.

Time was also a major constraint for the study.

11

RE
REVIEW
W OF
O
LIT
L ER
RAT
TUR
RE
E
Credit Appraisal,
A
R Analyysis And Decision
Risk
D
M
Making
by D D
Mukherrjee.

1
12

 Banking Strategy, Credit Appraisal and Lending Strategies by

Author(s) : Hrishikesh Bhattacharya
Analyses lending strategies, credit appraisal, risk analysis and lending
decisions keeping in mind the broad framework of corporate banking
strategy, and helps us understand better the vast and significant changes
in the financial market. Numerous examples from the world lof business
have been provided to facilitate better understanding.
Lending Strategy, Credit Appraisal and Lending Decision
by Hrisjikes Bhattacharya

The liberalization of the financial sector demands a new technology to

cope with the rising pressures on the profitability of banks and
financial sector institutions. Analyzing lending strategies, credit
appraisal, risk analysis and lending decisions, while keeping in mind
the broad framework of corporate banking strategy, this book
emphasizes that lending is no longer an activity restricted to the assets
side of the balance sheet. An invaluable tool for practicing managers
and students of business and financial management, this book
demands no prior specialized knowledge of the subject, taking readers
from the rudiments of credit appraisal to advanced levels of decisionmaking. Numerous examples from the world of business have been
provided to facilitate a better understanding of the vast and significant
changes in the financial market.

13

CHAPTER - III
RESEARCH
METHODOLOGY

RESEARCH DESIGN

14

(A)Research method

This research uses non-probability sampling.

Zikmund (1997) stated that in non-probability sampling, the probability
of any particular member of the population being chosen is unknown.
The element in the population does not have any probability attached to
them being chosen as sample subjects.
In choosing the particular client of the bank, no probability was attached.
Amongst the varied client characteristics like small, medium & large,
large was chosen randomly and the company XYZ was also chosen in
a similar way.

(B)Target population:
The target population in this research refers to any one of the client of
the particular branch of Indian Overseas Bank.

(B) Data Collection Method:

The data collection approach was basically structured questioning, that is
personal interview with the bank officials and with the aid of additional
information from the client through journals, websites etc.

Sampling:

15

(A)Sampling plan:
The sample plan was implemented by seeking help from the bank
officials.
(B)Sampling methodology:
The data consists of primary data from the Bank Officials.
The data also consists of secondary data in the form of

articles, journals, and data from websites of the particular

client.
(C)Sampling unit
The sampling unit is client of the particular branch of IOB.
(D)Sample size

The sample size is restricted to studying just one of the client of the branch
of IOB. The client can be from any background- small, medium or large and
also can be a manufacturing, trading or a service organization.
For the purpose of the project, a large manufacturing company was selected.

16

CHAPTER - IV
INDUSTRY PROFILE

17

The development of banking is not only the root but also the result
of the development of the business world." Due to considerable efforts of the
government, today we have a number of banks such as Reserve Bank of
India, State Bank of India, nationalized commercial banks, Industrial Banks
and cooperative banks. Indian Banks contribute a lot to the development of
agriculture, and trade and industrial sectors.
Without a sound and effective banking system in India it cannot have
a healthy economy.
HISTORY OF BANKING IN INDIA
Banking in India originated in the last decades of the 18th century.
PHASES OF BANKS:
1) Early phase from 1786 to 1969 of Indian Banks.
2) Nationalization of Indian Banks and up to 1991 prior to Indian
banking sector reforms.
3) New phase of Indian Banking System with the advent of Indian
Financial & Banking Sector Reforms after 1991.

18

INDIAN BANKING SYSTEM

19

PUBLIC SECTOR BANKS IN INDIA

Public sector bank
The term public sector banks are used commonly in India. This refers to
banks that have their shares listed in the stock exchanges NSE and BSE and
also the government of India holds majority stake in these banks.
They can also be termed as government owned banks.
Ex: State bank of India
List of public sector bank
The following are the list of Public Sector Banks in India

Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharastra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
IDBI Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab & Sind Bank
Punjab National Bank
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Vijaya Bank

20

List of State Bank of India and its subsidiary, a Public Sector Banks

State Bank of India

o State Bank of Bikaner & Jaipur
o State Bank of Hyderabad
o State Bank of Indore
o State Bank of Mysore
o State Bank of Saurastra
o State Bank of Travancore

Among the Public Sector Banks in India, United Bank of India is one of the
14 major banks which were nationalised on July 19, 1969. Its predecessor, in
the Public Sector Banks, the United Bank of India Ltd., was formed in 1950
with the amalgamation of four banks viz. Comilla Banking Corporation Ltd.
(1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd. (1922)
and Hooghly Bank Ltd. (1932).

21

COMPANY PROFILE

22

Indian Overseas Bank

Type

Public (BSE, NSE)

Industry

Banking
Capital Markets and
allied industries

Founded

Madras, February 10, 1937

Headquarters Chennai, India

Key people

Chairman & MD S A Bhat

Products

Loans, Credit Cards, Savings, Investment vehicles etc.

Website

www.iob.in

23

HISTORY OF INDIAN OVERSEAS BANK

Indian Overseas Bank (IOB) was founded on February 10th 1937, by
Shri.M.Ct.M. Chidambaram Chettyar, a pioneer in many fields - Banking,
Insurance and Industry with the twin objectives of specializing in foreign
exchange business and overseas banking. .
Pre-nationalization era (1947- 69)
During the period, IOB expanded its domestic activities and enlarged
its international banking operations.
IOB was the first Bank to venture into consumer credit. It introduced
the popular Personal Loan scheme during this period.

At the time of Nationalization (1969)

IOB was one of the 14 major banks that was nationalized in 1969. On
the eve of Nationalization in 1969, IOB had 195 branches in India
with

aggregate deposits of Rs. 67.70 Crs. and Advances of Rs.

44.90 Crs.

Post - nationalization era (1969-1992)

In 1973, IOB had to wind up its five Malaysian branches as the
Banking law in Malaysia prohibited operation of foreign Government
owned banks.This led to creation of United Asian Bank Berhad in
which IOB had 16.67% of the paid up capital.
COMPUTERAIZATION:
The Bank setup a separate Computer Policy and Planning Department
(CPPD) to implement the programme of computerisation, to develop
software packages on its own and to impart training to staff members
in this field.

24

ORGANISA
ATION ST
TRUCTU
URE OF IN
NDIAN OV
VERSEAS
S BANK

2
25

BOARD OF DIRECTORS OF INDIAN OVERSEAS BANK

1.

Shri.S.A.Bhat

2.

Shri.Y.L.Madan

3.

Smt.Nupur mitra

4.

Dr.Vinita Kumar

5.

Smt.Chitra
chandramouliswaran

6.

Shri.N.Sridharan

7.

Shri.B.V.Appa rao

8.

Shri.Suraj khatri

9.

Shri.A.k.Bhargava

10. Dr.Chiranjib sen

11. Shri.A.Vellayan

SERVICES OFFERED BY INDIAN OVERSEAS BANK

Current Account:

Savings Accounts:
Fixed Deposit:
Recurring Deposit:
Loans:

26

The different type of loans as specified below:

Pushpaka Vehicle Finance Scheme:
Loan to buy a new or used car (not more than 5 years old)or new twowheeler.

Subha gruha scheme:

Loan to buy, build or renovate the house.
Vidhya Jyothi scheme:
Loan for Graduation/Post graduation/Diploma/Computer education in
any recognised State/Central Government/University.
Clean Loan to Salaried individual:
It is for any purpose including any social / financial commitment.
PROCEDURE FOR TAKING LOAN FROM BANKS:The procedure associated with a term loan involves the following principle
steps.
Process of loan
1. Submission of application
2. Primary assessment
3. Branch head recommendation
4. Final assessment of various level of bank
5. Lending committee

27

6. Documentation of loan application

7. Disbursement of loan
8. Creation of security
Submission of application
The main & the first step is the submission of the duty
filled form or the loan application it is the choice customer that which
types of application he wants to give depending upon the needs.
Primary assessment
When the application is received, an officer of the recipient institution
reviews it to ascertain whether it is complete for processing. If it is
incomplete the borrower is asked to provide the required additional
information.
When the application is considered complete, the recipient
institution prepares of flash report, which is essentially a
summarization of the loan application, to be evaluated at the
Senior Executive Meeting (SEM). Once the SEM, on the basis of
its evaluation of the flash report, decides that the project
justifies a detail appraisal, it nominates lead financial
institutions.
The factors taken in to account for designating lead institution
are: location of the project, prior experience of institution in
handling similar projects, representation of institutions in the

28

state and promoter group, and existing work load of the

institutions.

Branch head recommendation

The appraisal is moving one step ahead that is to analysis the
applicants eligibility as per the norms provided by the considering his
gross income after detecting his liabilities, his actual repayment
capacity is checked as per norms.

Final assessment of various level of bank

After referring the application form and appraisal branch head
put his recommended action whether to accept the application or not
& send it the corporate office.

Lending committee
At the corporate office the final assessment is to be done &
decision is taken to reject the application is forwarded to the
particular branch from where the application has been received.
Before it also lending committee decide whether to give loan or not.
Example
Loan for more than 10 lac Rs all BOD need to agree for that
particular Loan.
Also some of the lending committee is formed by bank in
which Directors are included and they decide whether to give
Loan or not.

29

The branches have the power to take the major decision on the
sanctioning of the loan if it is less than Rs 1 lack.
Documentation of loan application
Once the Loan is Sanction Banks need to check all the document
of borrower as well as guarantor once again and only than and than they can
proceed ahead.
Disbursement of loan
If loan is sanction than Bank open the account of borrower in their
bank and issue the check. Before the entire term loan is disbursed the
borrowers must fully comply with all terms and condition of the loan
agreement.
Creation of security
The term loans (both rupee and foreign currency) and the
differed guarantee assistance provided by the All-India
financial institutions are secured through the first mortgage, by
way of deposit of title deeds of immovable properties and
hypothecation of movable properties.
As the creation of mortgage, particularly in the case of land,
tends to be a time consuming process, the institutions permit
interim disbursement against alternate security (institution the
form of guarantees provided by the promoters).
The mortgage, however, has to be created within a year from
the date of the first disbursement.

30

 Otherwise the borrower has to pay an additional charge of 1

percent interest
Feasibility of The Project

Project Should Be Feasible And This Is Done By Detail Appraisal Of

The Project Into The Following Different Environment.

(a) Market and Demand analysis

The first step in project analysis is to estimate the potential size of the
market for the product proposal and gets an idea about the market share that
is likely to be capture. Market and demand analysis is concerned with two
broad issues:
What is the likely aggregate demand for the product/service?
What share of the market will the proposed project achieve?

The importance of market and demand analysis, it should be carried

out in orderly and systematic manners. The key steps in such analysis are,
Situation analysis and specification of objectives

Collection of secondary information

Conduct of market survey

Characterization of the market

Demand forecasting

Market planning

31

(b) Technical Analysis

Technical analysis of a project idea includes designing the
various processes, installing equipment, specifying material and
prototype testing.

The project manager has to be careful in finalizing the technical

aspects of the project as the decision is irreversible and the
investments involved may be high.

The project manager has to select the technology required in

consultation with technical experts and consultants.

Technical analysis is concerned primarily with:

Material inputs and utilities

Manufacturing process/technology

Product mix

Plant capacity

Location and site

Machineries and equipments

Structures and civil works

Project charts and layouts

Work schedule

32

 Financial Analysis

To judge a project from the financial angle, we need information

about the following:

Cost of project

Means of financing

Estimates of sales and production

Cost of production

Working capital requirement and its financing

Estimates of working results

Projected profitability statements

Projected balance sheets

33

CHAPTER - V
DATA ANALYSIS
&
INTERPRETATION

34

ANALYSIS OF THE PROPOSAL

USE OF FINANCIAL TOOLS:
The following tools are used for analyzing the given Project proposal.
CAPITAL BUDGETING TECHNIQUES
Pay back period method
Average rate of return

Net present value

Profitability index

Internal rate of return.

RATIO ANALYSIS
Current ratio
Quick ratio

Proprietary ratio

Debt equity ratio

Gross profit ratio

Net profit ratio

Operating profit ratio

WORKING CAPITAL ANALYSIS.
Working Capital Assessment.
RISK ANALYSIS

35

CASE STUDY
XY COMPANY PROFILE

XY pvt ltd is engaged in the manufacture and marketing of multi purpose

Internal Combustion (IC) engines, a range of its applications such as
Pumpsets, Sprayers, Vibrators, etc.. and Agricultural Implements.

The company is also engaged in the manufacture and marketing of power

tiller. XY pvt ltd first devloped IC engines manufacturing plant and the first
product was an engine meant for needle vibrator in the construction industry.

Since the beginning, the company has been availing credit limits for both
term funding and WC purposes under multiple banking arrangement. The
long term requirement of the bank was met by the bank along with another
reputed bank
The company has been enjoying credit facilities with the bank for the past
ten years. Besides IOB, the company has availed the facility from some of
the other top financial institutions as well.

Purpose of loan:
XY pvt ltd requires a term loan for the expansion and purchase of
machinery as a part of development of the company.

Project profile:
Name of the unit

: XY PVT LTD

36

Address

: SME - GUINDY, CHENNAI

Constitution

: NA

Registration Date

: 19TH NOVEMBER 96

Name and address of the partners:

NAME OF THE DESIGNATION AGE

EXPERIENCE

DIRECTORS
Mr.X

Managing

48

Director
Mr.Y

Director

Both are having

15 years

44

experience in
this line of
activity

Nature of project
XY ltd is considering
Expansion of the unit by constructing a factory building.
Development of prototype higher capacity 12HP engine.
Installation of new machinery.
Cost of project and means of finance:
The cost of project will be around Rs.4.80 crores which include cost
of installation of new machine and other expenses. The company also
applied for loan to other banks to cover rest of the amount. Loan sanctioned
by IOB is 4.80

37

Any other firm or branch which is presently being run by the partners:
XY Pressure Castings.
XY Accessories Ltd.
Security Offered against the loan:
Primary

: Hypothecation of machineries.

Collateral

:EM

of

Land

at

no.21, ramanujapuram village,

Sriperumbudur taluk SR no: 110/1 and SR no:

108/4,109/2,109/3.
Guarantors:

(1) Mr. X
Age: 48 years
Cast: Hindu
Business: Mfg of portable engines, Pump sets, Sprayers
& other Agricultural Implements.
(2) Mr. Y
Age: 40 years
Cast: Hindu
Business: Mfg of portable engines, Pump sets, Sprayers
& other Agricultural Implements.

38

ANALYSIS USING FINANCIAL TOOLS

CAPITAL BUDGETING

Capital budgeting (or investment appraisal) is the planning process

used to determine a firm's long term investments such as new machinery,
replacement machinery, new plants, new products, and research and
development projects.

Capital Budgeting is a project selection exercise performed by the

business enterprise.

Capital budgeting uses the concept of present value to select the projects.
Capital Budgeting Tools:
The following are the capital budgeting tools used for appraisal process.
Net Present Value

Profitability Index

Payback Period

Internal Rate of Return

Accounting Rate of Return.

1. PAY BACK PERIOD:
Payback period in business and economics refers to the period of time
required for the return on an investment to "repay" the sum of the original
investment. It measure that how long something takes to "pay for itself".

Payback period = Initial investment/ Annual cash inflow

39

TABLE 1:YEAR

CFAT

CUMULATIVE
CFAT

2006-07 65.25

65.25

2007-08 49.69

114.94

2008-09 54.60

169.54

2009-10 156.23

325.77

2010-11 255.07

572.53

Payback period = Initial investment/ Annual cash inflow

= 4 + 480-325.77/255.07
= 4 + 154.23/255.07
= 4 + 0.65
= 4. 65 years
Pay back period = 4.65 years
Inference:
PB period of this project is 4 years and 6 months and it consider to be a
short period and short periods are more preferable to long period.
Therefore this project is feasible and should be accepted for appraising
loan because the initial cost of the project is recovered within 4 years.
2. AVERAGE RATE OF RETURN METHOD:

Average Rate of return (ARR) or return on investment (ROI),

or sometimes just return, is the ratio of money gained or lost on
an investment relative to the amount of money invested.

40

 The amount of money gained or lost may be referred to as

interest, profit/loss, gain/loss, or net income/loss. ROI does not
indicate how long an investment is held.
With the help of the ARR, the financial decision maker can decide whether
to accept or reject the investment proposal. The actual ARR would be
compared with a predermined or minimum required rate of return or cut-off
rate.
TABLE 2:YEAR

PAT

2006-07 25.93
2007-08 16.38
2008-09 30.82
2009-10 108.23
2010-11 145.07
TOTAL 318.07

Average Rate of return on Original Investment = Average Annual Net

Earnings/ Original Investment.
= 63.61/ 4.80* 100
ARR ON ORIGINAL INVESTMENT= 13.25%.
Average Investment = 4.80/2 = 2.40
= 63.61/ 2.40* 100
ARR ON AVERAGE INVESTMENT = 26.50%

41

Inference:
This project can be accepted as the actual ARR is higher than the
minimum desired ARR. Here the actual ARR is higher than the cut off
rate that is 5%. So the project should be accepted.
3. NET PRESENT VALUE:
NPV is an indicator of how much value an investment or project adds to the
value of the firm.
If
NPV > 0

It means

the investment would add the project should be

value to the firm
the

NPV < 0

Then...

investment

accepted
would

subtract value from the

firm

the project should be

rejected
We

should

indifferent

in

be
the

decision whether to
accept or reject the
the
NPV = 0

investment

would

neither gain nor lose value

for the firm

project. This project

adds
value.

no

monetary
Decision

should be based on
other

criteria,

e.g.

strategic positioning
or other factors not
explicitly included in

42

the calculation.

TABLE 3 :YEAR

CFAT

PV @ 5% PV OF
CFAT

2006-07 65.25

0.952

62.12

2007-08 49.69

0.907

45.07

2008-09 54.60

0.864

47.17

2009-10 156.23

0.823

128.58

2010-11 255.07

0.784

199.97

Present Value Of Cash Inflow

482.91

Initial Investment

480.00

Net Present value

(+)2.91

Net Present value = Rs. 2.91lacs

Inference:
As the proposal shows positive (+)

NPV the proposal should be

accepted. Here NPV is greater than 0 i.e. 2.91 (in lac), it means it would
add more value to the firm and proposal is feasible so it should be
accepted.
4. INTERNAL RATE OF RETURN:
The internal rate of return is a capital budgeting matrix used by the firm to
decide whether they should make investment or not. A project is good
investment proposition if IRR is greater than the rate of return. In general if
IRR is greater than the cost of capital, the project will add value for the
money.
43

TABLE 4:YEAR

CFAT

PV@6%

PV

OF PV@4%

CFAT

PV

OF

CFAT

2006-07

65.25

0.943

61.53

0.962

62.77

2007-08

49.69

0.890

44.22

0.925

45.96

2008-09

54.60

0.840

45.86

0.889

48.54

2009-10

156.23

0.792

123.73

0.855

133.58

2010-11

255.07

0.747

190.54

0.822

209.67

TOTAL

465.88

500.52

IRR (F) = I/C

F = Factor to be located
I = Investment
C= Cash Inflow

= 4% + 500.52 - 480.00/ 500.52 465.88 * ( 6% - 4%)

= 4% + 2052/ 3464* (2)
= 4 % + 1.18%
= 5.18%
IRR = 5.18%
Interpretation:
The IRR is usually the rate of return that a project earns. Here IRR i.e.
5.18% is greater so the project will add good value therefore this
proposal should be accepted.

44

5. PROFITABILITY INDEX:
Profitability index identifies the relationship of investment to payoff
of a proposed project.
Profitability index is a good tool for ranking projects because it allows
you to clearly identify the amount of value created per unit of investment,
thus if you are capital constrained, you wish to invest in those projects which
create value most efficiently first. The project will qualify for acceptance if
the PI exceeds one.
The ratio is calculated as follows:

P. I = Present Value of Cash Inflow/ Present Value Of Cash Outflow

P.I = 482.91/ 480.00
P. I = 1.006%

Inference:
The PI of this project is 1.006 % which is equal to 1. Therefore this
project is feasible and it will create value for the firm so it should be
accepted.
RATIO ANALYSIS

Ratio analysis is a widely used tool of financial analysis. It can be

used to compare the risk and return relationships of different sizes. It is
defined as the systematic use of ratio to interpret the financial statements so
that the strengths and weaknesses of a firm as well as its historical
performance and current financial condition can be determined.

45

A ratio is a quantity that denotes the proportional amount or magnitude of

one quantity relative to another. The ratios show the relationship in the more
meaningful way so as to enable us to draw conclusion from than a single
figure.

CLASSIFICATION OF RATIOS
Ratios serve as a tool for financial analysis and they are classified on the
basis of their function and purpose.

Ratios

Profitability

R.O.I

Turnover
Stockturn
over

Drs.turn
over

Crs.Turn
over

Financial
W.capital
turnover

F.Assets
tuanover

Sh.term
Solvency

Solvency

Lg.term
solvency

N.Profit

Current
ratio

Proprietary
ratio

G.Profit

Liquidity
ratio

Debteq
ratio

Exp.ratio

Cash.Pos.
ratio

F.Assets
ratio

Op.Profit

Capgear
ratio

46

(i) LIQUIDITY RATIOS

1.CURRENT RATIO;

The current ratio is the ratio of the total current liabilities to

total current liabilities.

The ideal C.R. is 2:1.It means that C.A is twice than its C.L and
this is generally considered to have good short-term financial
strength means the company may not have problems meeting its
short-term obligations.
CR= Current Assets/ Current liabilities
2006-07 = 1264.59 / 1088.43 = 1.16.
2007-08 = 1197.21 / 1056.92 = 1.13
2008-09 = 1406.82 / 1141.83 = 1.23
2009-10 = 2274.03 / 1927.80 = 1.18
2010-11 = 3066.79 / 2511.80 = 1.22.

CHART 1:CURRENT RATIO

1.4
1.2
RUPEES(%)
1
YEAR

0.8

RUPEES
0.6
0.4
0.2
0
YEAR

47

Inference:
Current ratio, though below the benchmark level, is hovering around
1.20.The CR is fluctuating from 2006-07 but in 2010-11 it is quite high
compared to the previous year, so it shows good capabilities of the firm
in meeting the current obligation. So it suggests that project should be
accepted.

2. QUICK RATIO:
Quick Ratio measures the ability of a company to use its quick assets
to immediately extinguish its current liabilities.
Quick Ratio of 1:1 is considered satisfactory. It refers that liquid
Assets are equal to C.L.
The Ratio less than 1:1 shows the companies condition to be unsound
& the higher ratio shows good financial position.

QR = Current Assets (stock + prepaid expenses)

Current liabilities BOD
2006-07 = 894.62 / 1088.43 = 0.82.
2007-08 = 739.66 / 1056.92 = 0.70
2008-09 = 839.21 / 1141.83 = 0 .73
2009-10 = 1732.84 / 1927.80 = 0.90
2010-11 = 2311.79 / 2511.80 =0.92
48

CHART 2:QUICK RATIO

1
0.8
%

0.6
0.4
0.2
0
200607

200708

200809

200910

201011

YEAR

Inference:
Here, in all five years, the ratio is nearer to the original standard
that is 1:1. So it is found to be quite satisfactory and it suggests that
project should be accepted.
3. PROPREITORY RATIO:
Proprietary ratio shows the relationship between shareholders
funds and total assets.
The ideal proprietory ratio is 1:3.
It means companys Total Assets should be 3 times more than
its Owners Fund.
PROPRITARY RATIO = Shareholders fund
Total Assets

49

2006-07 = 291.11/1488

= 0.20

2007-08 = 351.40/1442.53 = 0.24

2008-09 = 457.75/1681.59 = 0.27
2009-10 = 599.36/2977.58 = 0.20
2010-11 = 764.42/3709

= 0.21

CHART 3:PROPREITORY RATIO

2010-11
19%

2009-10
18%

2006-07
18%

2007-08
21%
2008-09
24%

Inference:
Here in all three years company's Shareholder Fund is less compare to
its total assets. So it is good for the firm and project should be accepted.
4. DEBT EQUITY RATIO:

The relationship between borrowed fund and owners capital is a

popular measure of the long term financial solvency of a firm.
This relationship is shown by the debt equity ratios.
This ratio reflects claims of creditors and shareholders against the
assets of the firms.

50

 Alternatively this ratio indicates the relative proportion of debt and

equity in financing the assets of a firm.
Debt Equity Ratio = long term Debt/Share Holders Equity

2006-07 = 108.59 / 291.11 = 0.37

2007-08 = 34.21 / 351.40

= 0.10

2008-09 = 82.01 / 457.75

= 0.18

2009-10 = 450.42 / 599.36 = 0.75

2010-11 = 433.62 / 764.42 = 0.57
CHART 4:
\

DEBT EQUITY RATIO

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

RUPEES

2006- 2007- 2008- 2009- 201007

08
09
10
11
YEAR

Inference:
Here in all years the ratios are less than 2:1 so this implies high safety
margin for the creditors and the firm would be able to meet the
creditors claims. So the project should be accepted.

51

5. NET WORKING CAPITAL RATIO:

Net working capital= Current assets- Current liabilities

2006-07 = 176.16%
2007-08 = 140.29%
2008-09 = 264.99%
2009-10 =346.23 %
2010-11 = 554.99%

CHART 5:NET WORKING CAPITAL

600
400
200
0

2006- 2007- 2008- 2009- 2010-

RUPEES 176.2 140.3

265

346.2

555

YEAR

Inference:
The ratio shows that the company has good working capital in hand to
meet its obligations and it also increasing gradually and hence the
project looks feasible.

52

(ii) PROFITABILITY RATIOS

1. GROSS PROFIT RATIO:

It is also known as gross margin. It is calculated by dividing gross

profit by sales.

Gross profit is the result of the relationship between price, sales

volume and costs.
A higher ratio of gross profit to sales is a sign of good management as
it implies that the cost if production of the firm is relatively low.
A relatively low gross profit is definitely a danger signal.
Gross Profit Ratio = Gross profit/ Sales*100
2006-07 = 350.26 / 2161.76 = 16.20.
2007-08 = 294.33 / 1736.43 = 16.95
2008-09 = 372.28 / 2743.07 = 13.57
2009-10 = 800.39 / 6362.00 = 12.58
2010-11 = 1030.81 / 7622

= 13.52

CHART 6:

GROSS PROFIT RATIO

18
16
14
12
10
8
6
4
2
0
200607

RUPEES

200708

200809

200910

201011

YEAR

53

Inference:
In all the above years the GP ratio is fluctuating resulting to instability.
The reason may be due to increase in the cost of goods sold thereby
decreasing the value of the sales.
2. NET PROFIR RATIO:

Profit margin is an indicator of a company's pricing policies and its

ability to control costs.

Higher the ratio, better is the operational efficiency of the firm.. it

gives to measure overall profitability of the firm.
Net Profit Ratio = Net profit after tax/ Net sales*100
2006-07 = 25.93 / 2161.76

= 1.20.

2007-08 = 16.38 / 1736.43

= 0.94

2008-09 = 22.46 / 2743.07

= 0.82

2009-10 = 108.23 / 6362.00 = 1.70

2010-11 = 145.07 / 7622

= 1.90

CHART 7:NET PROFIT RATIO

2
1.5
1
0.5
0
RUPEES

2006- 2007- 2008- 2009- 20101.2

0.94

0.82

1.7

1.9

YEAR

54

Inference:
Here in all 5 years, ratios are increasing. So this shows the good ability
of firm over control it costs and its profitability so the project should be
accepted.
3. OPERATING PROFIT RATIO:

This ratio is a complementary of net profit ratio.

This ratio is the test of the operational efficiency with which the
business is being carried.
Operating profit ratio = op .costs / net sales * 100.
Operating cost = Cost of goods sold + op. exp/ net sales * 100
2006-07 = 46.81 / 2161.76

= 2.17

2007-08 = 25.51 / 1736.43

= 1.47

2008-09 = 30.29 / 2743.07

= 1.10

2009-10 = 171.39 / 6362.00 = 2.69

2010-11 = 250.78 / 7622

= 3.29

CHART 8:OPERATING RATIO

3.5
3
2.5
2
%

RUPEES

1.5

YEAR

1
0.5
0
1

YEAR

55

Inference:
The operating ratio should be low enough to leave a portion of sales to
give a fair return to the investors. Compared to other years 2010-11 is
very high thus decreasing the efficiency of the comapany. The increase
may be due to increase in overhead and other financial charges and the
management should check the increase.

4. RETURN ON CAPITAL EMPLOYED RATIO:

This Ratio is used in finance as a measure of the returns that a

company is realizing from its capital employed.
The ratio can also be seen as representing the efficiency with which
capital is being utilised to generate revenue.
The higher the ratio, more efficient use of the capital employed.

Return on capital employed = Net Profit Before Interest & Tax *100
Total Capital Employed
2006-07 = 130.80/ 365.71 = 36%
2007-08 = 131.08/ 295.74 = 44%
2008-09 = 162.70/436.28

= 37%

2009-10 = 382.89/989.78

= 39%

2010-11 = 541.81/1128.04 = 48%

56

CHART 9:RETURN ON CAPITAL EMPLOYED

60
50

40
RUPEES

30
20
10
0
2006-07 2007-08 2008-09 2009-10 2010-11
YEAR

Inference:
Here the ratios are increasing in each year so it shows the good
efficiency of capital employed to be used which will generate good
revenue. It means projected loan will generate good revenue for the
firm.
(iii) FINANCIAL RATIOS:
(i) Tangible net worth = net working capital - intangible assets

2006-07 = 186.76 + 104.35 - 15.21 = 275.90

2007-08 = 230.66 + 120.75 - 12.24 = 339.16
2008-09 = 417.76 + 39.99 - 15.14 = 442.61
2009-10 = 442.76 + 156.60 - 50 = 549.36
2010-11 = 462.76 + 301.66 - 60 = 704.42.

57

CHART 10:
TANGIBLE NETWORTH
800
600
400
200

RUPEES

0
2006- 2007- 2008- 2009- 201007 08 09 10 11
YEAR

Inference:
The net worth of the company is increasing over years and the entire
profit earned by the company is retained to improve the net worth of
the company and hence the proposal should be accepted.

2. Total outside liability/ tangible net worth.

It indicates size of stake, stability and degree of solvency.

It Indicates how high is the stake of the creditors.

It shows what proportion of the companys finance is represented by

the tangible net worth

The lower the ratio the greater the solvency.

2006-07 = 4.34%
2007-08 = 3.22%
2008-09 = 2.77%
2009-10 = 4.33%
2010-11 = 4.18%

58

CHART 11:TOTAL OUTSIDE LIABILITY/TNW

1
0.8
0.6
0.4
0.2
0
RUPEES

2006- 2007- 2008- 2009- 20100.39

0.1

0.19

0.82

0.62

YEAR

Inference:
The ratio has increased in the last two years which is quite high when
comparing to the previous years. Lower the ratio higher the solvency
position of the company. The ratio is not satisfactory and is expected to
decrease in the future.

3. Funded debt/ tangible net worth

2006-07 = 0.39%
2007-08 = 0.10%
2008-09 = 0.19%
2009-10 = 0.82%
2010-11 = 0.62%

59

CHART 12:-

FUNDED DEBT/TNW
1
0.8

0.6
0.4
0.2
0
2006-07

2007-08

2008-09

2009-10

2010-11

YEAR

Inference:-

The long term debt and the total outside liabilities are quite low
compared to equity. Hence, the financial position of the unit is good.

4. Percentage increase/ decrease in sales

2006-07 = 8.64%
2007-08 = -19.68%
2008-09 = 57.97%
2009-10 =134.28%
2010-11 = 19.81%

60

CHART 13:% INCREASE/ DECREASE IN SALES

150
100
50
0
-50
RUPEES

2006- 2007- 2008- 2009- 20108.64 -19.7 57.97 134.3 19.81

YEAR

5. Net profit before tax/ sales.

2006-07 = 2.22
2007-08 = 1.66
2008-09 = 1.34
2009-10 =2.84
2010-11 = 3.17
CHART 14:NP BEFORE TAX/ SALES
25
20

15
10
5
0
2006-07

2007-08

2008-09

2009-10

2010-11

YEAR

61

6. Net profit after tax/ TNW

2006-07 = 9.40
2007-08 = 4.83
2008-09 = 5.07
2009-10 =19.70
2010-11 = 20.59
CHART 15:NP AFTER TAX/ TNW
25
20
%

15
RUPEES

10
5
0
200607

200708

200809

200910

201011

YEAR

WORKING CAPITAL ASSESMENT

The objective of running any industry is earning profits. An industry will
require funds to acquire fixed assets like land and building, plant and
machinery, equipments, vehicles etc and also to run the business i.e. its
day to day operations.

62

Working capital is defined, as the funds required carrying the required levels
of current assets to enable the unit to carry on its operations at the expected
levels uninterruptedly.

Working Capital turnover ratio indicates the velocity of utilization of

net working capital.

The ratio indicates the number of times the working capital is turned
over in the course of the year.

The ratio measures the efficiency with which the working capital is
used by the firm.

Thus working capital required (WCR) is dependent on

i.

The volume of activity (viz. level of operations i.e. Production and

Sales)

ii.

The activity carried on viz. manufacturing process, product,

production programme, and the materials and marketing mix.

TABLE 5:WORKING CAPITAL ASSESMENT

Year (Amount Rs. In lacs)

Particular
CURRENT ASSETS
1. Inventories

2006-

2007-08

07
279.31

360.08

2008-

2009-

09

10

474.10

381.19

2010-11

575.00

63

2.Debtors

886.93

708.55

765.85

1719.0

2300

0
3. Cash& Bank Balance

7.69

31.11

71.36

13.84

11.79

4. Expenses

0.87

0.22

5. Loans& Advances

54.57

84.99

93.11

90

100

6. Others

35.22

12.26

70

80

TOTAL

1264.5

1197.21

1406.8

2274.0

3066.79

388.59

1008.0

9
Less: CURRENT
LIABILITIES
7.Borrowings from IOB

393.42

1300

0
8. From other banks

296.52

97.59

35.67

9. Commercial paper

25.25

636.97

385.75

579.96

767

1000

11. Crs for expenses

27.48

17.22

12.41

12.Provision for tax

41.42

89.91

94.57

30

40

10.Crs

13. Term loan o/s

28.56

28.56

23.65

56.80

76.80

14. Others

32.23

44.47

6.98

66

95

64

TOTAL

1088.43 1056.92

1141.83 1927.80 2511.80

NET WORKING

176.16

264.99

140.29

346.23

554.99

CAPITAL

WORKING CAPITAL RATIOS

WORKING CAPITAL TURNOVER RATIO = COST OF GOODS
SOLD/ NET WORKING CAPITAL.

CASH TO NET WORKING CAPITAL = NET SALES/ NET

WORKING CAPITAL
(i)

Working capital turnover ratio = Cost of goods sold/ net working

capital

2006-07 = 10.28%
2007-08 = 10.28%
2008-09 =8.95%
2009-10 =16.06%
2010-11 = 11.88%
CHART 16:WORKING CAPITAL TURNOVER RATIO
18
16
14
12
10
8

RUPEES

6
4
2
0
2006-07 2007-08 2008-09 2009-10 2010-11
year

65

Inference:
The ratio has increased gradually showing effective utilization of
working capital by the company. The companys current assets is more
than that of current liabilities and hence there is less chance of the ratio
to decrease.

(ii)

Cash to net working capital = Net sales/ Net Working Capital.

2006-07 = 12.27%
2007-08 = 12.38%
2008-09 =10.35%
2009-10 =18.38%
2010-11 = 13.73%
CHART 17:-

CASH TO NWC
20
18
16
14
%

12
10

RUPEES

8
6
4
2
0
2006-07

2007-08

2008-09

2009-10

2010-11

YEAR

Inference:
The ratio measures the efficiency with which the working capital is used
by the firm. It shows that the company is maintaining the working
capital efficiently.
66

RISK ANALYSIS

RAM RATING

RISK
PARAMETER

Industry
Business
Fiancial
Management
Overall
Rating

EXISTING

SME - 3

REVISED
INTERIM
SME - 3
SME - 2
SME 7
SME 2
SME - 3

Comment on risk analysis:

The account is continued to be rated SME 3 as per CRISIL and the
applicable rate of Interest is BPLR 0.50%
Critical risk factors:
Promoter risk:
The unit is promoted by technocrats who have long years of experience.
The unit has also been successful. As such the promoter risk is perceived
to be very low.
Construction risk:
The companys expansion plan is inn its area of core competency and
they have demonstrated their inability to implement projects. Hence the
risk is perceived to be low.
Operational risk:
The promoters and their team are highly experienced and are operating
the unit very successfully. As such the operating risk is low.
Marketing risk:
The unit is receiving constant orders and it is evident from the steady
increase in sales and profit recorded by the company. As such the risk is
considered to be low.
Thus the company is an existing profit making entity and is promoted by
persons experienced in the line and their financial position is satisfactory.

67

CHAPTER - VI

68

CAPITAL BUDGETING

PAY- BACK PERIOD :

PB period of the project is 4 years and 6 months. The project

investment can be recovered in 4 years.. Short periods are more
preferred to get back the amount invested in the business and hence
the project looks feasible.

AVERAGE RATE OF RETURN:

The percentage of ARR is very high which is said to be good for the
company as it is expected to give good return for the money invested
in the business.
NET PRESENT VALUE:

Net present value 2.91> 0, which is said to be a very good for the
company. Companies will generally accept a project with (+) NPV
and hence this project will add more value to the firm.
INTERNAL RATE OF RETURN:

IRR shows 5.18% which is a good percentage that this project gives
and it is also a favorable one to accept this proposal.
PROFITABILITY INDEX:

As per the standard norms PI should be 1 or >1. The calculated PI is

1.006 which is equal to 1 which shows that this project is expected
to give good return and more value for the firm

Thus the Capital Budgeting tool is one of the appropriate tool to

use for selecting the proposal as it will clearly show the financial
picture and also the advantages and disadvantages in the selection
of the project.
69

RATIO ANALYSIS
(I) LIQUIDITY RATIOS:
(i) CURRENT RATIO:
The CR is fluctuating and it is quite high compared to the previous years
so it shows good capabilities of the firm in meeting the current
obligation.
(ii) QUICK RATIO:
The ratio is nearer to the original standard that is 1:1 and it is found to
be Satisfactory.
(iii) PROPREITORY RATIO:
The company's Shareholder Fund( liability) should always be less
compared to its total assets and this ratio is more favorable to the
company.
( iv) DEBT EQUITY RATIO:
The ratio is low thereby showing high safety margin for the creditors
and the company will be able to meet its claims.
On the whole the liquidity ratios are satisfactory. They also compare
favorably with industry average.
(II) PROFITABILITY RATIOS:

( i) GROSS PROFIT RATIO:

The GP ratio is not stable resulting to instability and not much

favourable to the firm.

( ii) NET PROFIT RATIO:

70

 The ratio shows that the company has good control on the costs and
its profitability as it is increasing over years.
( iv) OPERATING RATIO:

The ratio is increasing thereby decreasing the efficiency of the

company and not favorable to the company.
(v) RETURN ON CAPIATAL EMPLOYED RATIO:

The ratio shows a good utilization of capital employed in the

business and will generate good revenue to the firm.
The profitability ratio shows good result except the GP ratio
which is low and the same is also expected to increase in the
future.
( III) FINANCIAL RATIOS:
( i) TANGIBLE NET WORTH:
The net worth of the company is GOOD as it is increasing over years
and the company is expected to earn good return in the future.
( ii) TOTAL OUTSIDE LIABILITY:
The ratio is not favorable as it is quite high compared to the previous
years but it is expected to decrease in the future.
( iii) FUNDED DEBT:
The proportion of the long term debt is low and hence it is good and
favorable for the company.
The financial ratios shows a positive sign on the financial position
of the company and thus the company is expected to continue the
same in the future. Hence it is suggested to accept the Proposal..

71

WORKING CAPITAL ANALYSIS

Working Capital is done to assess the utilization of capital employed in

the business. The analysis shows the effective utilization of working
capital by the company.
Both working capital ratios shows that the company is utilizing the
working capital efficiently in the business.

The current ratio shows that the current assets are more than the
Current liability which will not affect the proportion of Current
ratio.

It enables the bank to sanction more working capital in the future by

considering this criteria.

72

SU
UGGE
EST
TION
NS

73

SUGGESTIONS

Bank provide loan on the basis of only re-payment capacity of the

borrower and hence it is suggested to adopt some modern methods
to appraise the loan to the business to check the feasibility of the
project for appraising such high amount of loan.
The analysis done in this project will give a good idea about the
appraisal system which is done by using various financial tools that
has not been carried on by bank as a part of appraisal process.

74

CONCLUSION

75

CONCLUSION
As per the analysis done the result that has been got is good
enough to justify that this Proposal has all the required
Criterias and Qualities required by the bank. And it is also
expected to give a very good return and value to the company.
The financial tools used for assessing is more appropriate to
this project and the values are also favorable to the company to
be considered by the bank for sanctioning the loan.
I like to conclude by saying that this Project Proposal should be
accepted as it is seems to be good and looks more feasible by
satisfying the criteria of the bank.

76

APPENDICES
Projected Profitability Working For 5 Years

PARTICULARS

(Rs.In

(Rs.In

(Rs.In

(Rs.In

lac)

lac)

lac)

lac)

(Rs.In lac)

1. NET SALES
Audited

Domestic sales - cash

Domestic sales - credit
Exports
less Excise duty
Total Net Sales

Audited Audited Audited Projection

Projection

2063.17 1745.41

2631

6394

7673

258.6

176.7

111.27

108

119

160.01

185.68

140

170

2161.76 1736.43 2743.07

6362

7622

2.COST OF SALES
Opening stock finished goods

108.3

83.63

242.98

14.8

19.06

progress

33.95

66.67

61.6

95.3

Op. stock RM- indigenous

80.48

129

117.09

258.4

266.83

1359.72 1100.31 2025.27

5040

6000

Opening stock work in

Op. stock RM- imported

Add purchases RMindigenous
Add purchases RM- imported

Stores consumed

469.03

389.25

435.72

520

695

Manufacturing Exp

77

Depreciation

39.32

33.31

23.83

48

90

goods

83.63

76.42

192.05

19.06

50

Less: Closing stock WIP

66.67

166.56

95.3

155

129

117.09

282.05

266.83

370

1442.1 2370.79

5561.61

6591.19

1786.83 1434.89 2319.86

5565.87

6622.13

Add: Purchases Finished

goods
Less: Closing stock finished

Less: Closing stock RMIndigen

Less: Closing stock RMImported
Cost of Sales
Cost of Production

1811.5

3.GROSS
PROFIT(+)/LOSS(-)

350.26

294.33

372.28

800.39

1030.81

259.99

199.83

239.8

475

570

43.46

68.99

102.19

154

210.83

303.45

268.82

341.99

629

780.03

46.81

25.51

30.29

171.39

256.78

0.32

1.09

4. SELLING&
ADMIN.EXP.
5.INTEREST & FIN
CHARGES

TOTAL(4+5)

6.OPERATING
PROFIT/LOSS
7.(i) OTHER INCOME
Sale of Scrap
Interest received

0
1.45

78

Profit on sale of FA/INV

Others

0.89

2.18

4.94

Total other income

1.21

3.27

6.39

11

Loss on sale of FA/INV

Loss on currency fluctuation

Misc.Exp Written off

20

Others

Total other expenses

20

1.21

3.27

6.39

-9

48.02

28.78

36.68

180.39

241.78

PROVISION

22.09

12.4

14.22

72.16

96.71

10.N.P AFTER TAX/LOSS

25.93

16.8

22.46

108.23

145.07

11.N.P BEFORE

87.34

62.09

60.51

228.39

331.78

7.(ii)LESS OTHER
EXPENSES

Other Income Net of

Expenses

8.PROFIT BEFORE
TAX/LOSS

9.INCOME TAX

79

DEP&TAX
12.N.P BEFORE DEP .TAX
&INT

130.8

131.08

162.7

382.39

541.81

13.CASH GENERATION

65.25

49.69

46.29

156.23

255.07

16.RETAINED PROFIT

25.93

16.38

22.46

108.23

145.07

17.NET CASH ACCRUAL

65.25

49.69

46.29

156.23

255.07

14.DIVIDEND
15.PREFERENCE
DIVIDEND

Projected Balance Sheets Working For 5 years (Rs. In Lacs)

1.ASSETS

Audited Audited Audited Projection Projection

1.1 CURRENT ASSETS

(i) Inventories
Raw materials

129

117.1

282.05

266.83

370

Stock in progress

66.67

166.56

192.05

95.3

155

Finished Goods

83.64

76.42

19.06

50

279.31

360.08

474.1

381.19

575

886.93

708.55

767.85

1719

2300

Consumable spares
TOTAL INVENTORIES

(ii) Trade Debtors

Domestic Debtors over six
months
Domestic Drs less than 6
months

80

Export Debtors over than 6

months

886.93

708.55

767.85

1719

2300

Cash & Bank balance

7.69

31.11

71.36

13.84

11.79

Prepaid Expenses

0.87

0.22

0.4

Loans & Advances

54.57

84.99

93.11

90

100

Others

35.22

12.26

70

80

Total Other Current Assets

98.35

128.58

164.87

173.84

191.79

1264.59 1197.21 1406.82

2274.03

3066.79

Export Debtors less than 6

months
TOTAL DEBTORS
(iii)OTHER CURRENT
ASSETS

Advance Tax
Deposits with Exise & Sales
Tax

SUB TOTAL(a)

1.2 FIXED ASSETS

(i)Land Buildings

46.17

47.72

64.08

385.31

385.31

(ii)Plant & machinery

184.13

179.71

186.56

366.56

376.56

(iii)Sundries

118.16

120.95

137.41

156.05

166.05

Gross Fixed Assets

348.46

348.38

388.05

907.92

927.92

Less: Depreciation to date

168.62

201.93

225.76

273.37

363.87

Net Fixed Assets(b)

179.84

146.45

162.29

634.55

564.05

81

Capital Work In Progress

9.71

10.85

15.92

28.67

10

10

Deposits with EB etc..

5.68

Non- Moving Inventories

7.93

Assets

28.49

24.92

43.35

19

19

SUB TOTAL

28.49

24.92

43.35

19

19

61.71

53.99

15.21

12.24

15.14

50

60

1488.13 1442.53 1681.59

2977.58

3709.84

1.3.NON- CURRENT
ASSETS
(i)Investment in/loans to
subsidies
(ii)Others Non Current Assets
Investment in other
companies
loans and advances
Overdue Debtors

Others
Total Other Non Current

Deferred Tax Asset(d)

1.4 INTANGIBLE
ASSETS(e)

TOTAL
ASSETS(a+b+c+d+e)

82

2.LIABILITIES

2006-07 2007-08 2008-09

2009-10

2010-11

2.1.CURRENT
LIABILITIES

(i) Borrowings from IOB

Audited Audited Audited Projection Projection

393.42

388.59

1008

1300

From other banks

296.52

97.59

35.67

Commercial Paper

25.25

Sub-Total

321.77

491.01

424.26

1008

1300

(ii) Creditors for purchases

636.97

385.75

579.96

767

1000

Creditors for expenses

27.48

17.22

12.41

Provision for Tax

41.42

89.91

94.57

30

40

TL due within one year

28.56

28.56

23.65

56.8

76.8

32.23

44.47

6.98

66

95

129.69

180.16

137.61

152.8

211.8

1088.43 1056.92 1141.83

1927.8

2511.8

380.92

344.12

(iii)Other Current Liabilities

Outstanding expenses
Others
Total other Current Liabilities

(iv)Creditors On Capital
Account
SUB-TOTAL(e)
2.2.DEFERRED
LIABILITIES
(i)Term loan from IOB

2.56

83

(ii)Term loan from institutions

39.29

4.7

(iii)Other long term liabilities

Preference shares

9.32

9.5

9.5

banks

Foreign currency loans

NCD borrowings

42.75

69.3

26.95

29.94

60

80

69.3

26.95

72.69

60

80

108.59

34.21

82.01

450.42

433.62

(i)Paid up capital

186.76

230.66

417.76

442.76

462.76

(ii)Reserves and Surplus

104.35

120.74

39.99

156.6

301.66

(iii)Revaluation Reserves

(iv)Loss Bought Forward

291.11

351.4

457.75

599.36

764.42

1488.13 1442.53 1681.59

2977.58

3709.84

Long-term loans from other

Others
Other l.liability take as quasi
equity
Total other l. term liabilities
SUB-TOTAL(f)
2.3 CAPITAL &SURPLUS

SUB-TOTAL(g)
Deferred tax liability(h)
TOTAL
LIABILITIES(e+f+g+h)
Off Balance Sheet Debt
Current Portion of L.t Debt

28.56

28.56

23.65

56.8

76.8

84

BIBLIOGRAPHY

85

NAME OF THE BOOK:

M.Y.Khan & P.K.Jain, Financial Management,5th edition
Principles of Management Accounting by DR.S.N.Maheshwari

WEBSITES:
en.wikipedia.org/wiki/Project appraisal tech
Http://en.wikipedia.org/wiki/NPV/IRR/ARR/PI/PB
http://www.banknetindia.com
www.indianimagesbank.com/
www.indianbanksguide.com
en.wikipedia.org/wiki/List_of_banks_in_India
Finance.indiamart.com/investment_in_india/banks.html
en.wikipedia.org/wiki/Banking_in_India
www.mckinsey.com/.../india/mckinseyonindia/.../india_banking_2
010.

86