Professional Documents
Culture Documents
following
Technical Appraisal
Commercial Appraisal
Financial Appraisal
Economic Appraisal
Management Appraisal
It’s a tool which enables the banker or
lender to arrive at the following factors :
Liquidity position
Profitability
Solvency
Financial Stability
Quality of the Management
Safety & Security of the loans & advances
to be or already been provided
As Percentage - such as 25% or 50% .
For example if net profit is Rs.25,000/- and
the sales is Rs.1,00,000/- then the net profit
can be said to be 25% of the sales.
As Proportion - The above figures may be
expressed in terms of the relationship
between net profit to sales as 1 : 4.
As Pure Number /Times - The same can
also be expressed in an alternatively way
such as the sale is 4 times of the net profit or
profit is 1/4th of the sales.
Balance Sheet P&L Ratio or Balance Sheet
Ratio Income/Revenue and Profit &
Statement Loss Ratio
Ratio
Financial Ratio Operating Ratio Composite Ratio
Current Ratio Gross Profit Ratio Fixed Asset
Quick Asset Ratio Operating Ratio Turnover Ratio,
Proprietary Ratio Expense Ratio Return on Total
Debt Equity Ratio Net profit Ratio Resources Ratio,
Stock Turnover Return on Own
Ratio Funds Ratio,
Earning per Share
Ratio, Debtors’
Turnover Ratio,
LIABILITIES ASSETS
NET WORTH/EQUITY/OWNED FUNDS FIXED ASSETS : LAND & BUILDING, PLANT
Share Capital/Partner’s Capital/Paid up& MACHINERIES
Capital/ Owners Funds Original Value Less Depreciation
Reserves ( General, Capital, Revaluation &Net Value or Book Value or Written down
Other Reserves) value
Credit Balance in P&L A/c
LONG TERM LIABILITIES/BORROWEDNON CURRENT ASSETS
FUNDS : Term Loans (Banks & Investments in quoted shares & securities
Institutions) Old stocks or old/disputed book debts
Debentures/Bonds, Unsecured Loans, FixedLong Term Security Deposits
Deposits, Other Long Term Liabilities Other Misc. assets which are not current or
fixed in nature
Example :
Cash 50,000
Debtors 1,00,000
Inventories 1,50,000 Current Liabilities
1,00,000
Total Current Assets 3,00,000
-----------------------------------------
2
10. DEBTORS TURNOVER RATIO : This is also
called Debtors Velocity or Average Collection Period or
Period of Credit given .
--------------------------------------------------------------
-------------------
Annual interest on Long Term Loans &
Liabilities + Annual Installments payable on
EXERCISE 1
LIABILITES ASSETS
Capital 180Net Fixed Assets 400
Reserves 20Inventories 150
Term Loan 300Cash 50
Bank C/C 200Receivables 150
Trade Creditors 50Goodwill 50
Provisions 50
800 800
LIABIITIES ASSETS
Equity Capital 200Net Fixed Assets 800
Preference Capital 100Inventory 300
Term Loan 600Receivables 150
Bank CC (Hyp) 400Investment In Govt. 50
Secu.
Sundry Creditors 100Preliminary Expenses 100
Total 1400 1400
Q . If Net Sales is Rs.15 Lac, then What would be the Stock Turnover
Ratio in Times ? Ans : Net Sales / Average Inventories/Stock
1500 / 128 = 12 times approximately
Exercise 4. contd…
LIABILITIES ASSETS
Capital + Reserves 355 Net Fixed Assets 265
P & L Credit Balance 7Cash 1
Loan From S F C 100Receivables 125
Bank Overdraft 38Stocks 128
Creditors 26Prepaid Expenses 1
Provision of Tax 9Intangible Assets 30
Proposed Dividend 15
550 550
Q. What is the Debtors Velocity Ratio ? If the sales are Rs. 15 Lac.
Answer : 4 x - 1 x = 30,000
Therefore x = 10,000 i.e. Current Liabilities is Rs.10,000
Hence Current Assets would be 4x = 4 x 10,000 = Rs.40,000/-
Ans : We can easily arrive at the amount of Current Asset being Rs. 30 Lac
i.e. ( Rs. 100 L - Rs. 70 L ). If the Current Ratio is 1.5 : 1, then Current
Liabilities works out to be Rs. 20 Lac. That means the aggregate of Net
Worth and Long Term Liabilities would be Rs. 80 Lacs. If the Debt Equity
Ratio is 3 : 1 then Debt works out to be Rs. 60 Lacs and equity Rs. 20 Lacs.
Therefore the Long Term Liabilities would be Rs.60 Lac.
Ans : When Total Assets is Rs.22 Lac then Current Assets would be 22 – 10
i.e Rs. 12 Lac. Thus we can easily arrive at the Current Liabilities figure
which should be Rs. 10 Lac
Questions on Fund Flow Statement
1.Application of Funds
2.Sources of Funds
3.Surplus of sources over application
4.Deficit of sources over application
Q . In Fund Flow Statements the Liabilities are represented by ?
1.Sources of Funds
2.Use of Funds
3.Deficit of sources over application
4.All of the above.
Q . When the long term sources are more than long term uses, in the
fund flow statement, it would suggest ?
Q . When the long term uses in a fund flow statement are more than the
long term sources, the n it would mean ?