Financial Projection

Prepared by
Niranjan Chaitanya
6ND20445
Submitted to
Asmita Joshi
AGENDA

• Financial Projection

• Cost Of The Project

• Means Of Finance

• Estimation Of Profit

• Cost Of Production

• Others
What is projection

• Projection is nothing but the future plan about

something for checking feasibility

• Financial Projection is nothing but the financial

feasibility measured in terms of cost and benefits

• Financial Projection is process starting from calculation

of investment to preparing sample P/L A/C and
BALANCE SHEET of project
COST OF PROJECT

COST OF PROJECT

COST OF ASSETS COST OF CAPITAL

Cost of purchasing Means of Finance

Investment Subsidies Reward paid for providing finance

Cost Assets

• Different Assets Required

• Land
• Building
• Plant & machinery
• Misc. Fixed assets
• Pre-operative expenses
• Provision of contingencies
• Technical Know-how Fees
• Estimation of Bank Finance
• Investment subsidy and benefits
Cost Components For Assets
• LAND Purchase price 20,00,000

Registration Charges 1,00,000

Taxes 20,000

Total Cost Of Land 21,20,000

• Plant & Machinery Basic Cost 15,00,000

Cost of Imported machinery / cost of Cost of Imported 20,00,000

machinery = custom duty + excise machinery
duty + octroi + freight + clearing Installation charges 2,00,000
forwarding charges + transportation
+ sales tax
Total cost Of P/M 37,00,000
Cost Components For Assets
Building Material 20,00,000
• Building
Misc. exp like security gate, Labour 1,00,000
cabin, sheds, other civil work
Misc. Exp 20,000
Total Cost 21,20,000

Total Misc. FA 10,00,000

• Misc Fixed Assets
Do not form part with direct manufacturing process
For instance: testing equipment, meter, DG sets, Furniture,
office euipment
Cost Components For Assets
Pre- Operative Expenses :-
Expenses till the date of prodcution are included

Expenses like promotional expenses, rent, advertisement expenses,

insurance during construction, interest etc.

Provision For Contingencies :-

Rates of siome material increased due to any reason like increase
in service tax, increase in import duty or any other contingency

Technical Know-how Fees :-

It includes know-how fees, expenses on foreign technicians,

training Indian technicians etc.

If paid in lump sum then treated as part of the project cost If paid
periodically then considered as operating cost
Total Cost Of Fixed Asset
Total Cost Of Land 21,20,000

Total cost Of plant & machinery 37,00,000

Total Cost of building 21,20,000

Total Misc. fixed assets 10,00,000

Pre Operative exp 1,00,000

Provision of Contingencies 50,000

Technical Know How 5,00,000

Total( in Rs. ) 95,90,000

 ESTIMATION OF BANK FINANCE
• Estimation for current assets:
• raw material stocks are estimated in terms of number of
months.

• Margin Money :
• promoters have to pay normally 25% of margin money to
bank
(If raw material is required for 1.5 months and
consumption is 16.99 lakh then 25% of 16.99 will be
paid by industry i.e. 4.25 and rest will be financed by
bank)
• Reduce the current liabilities:
• promoters also have to pay current liabilities no finance is
available for the same
MEANS OF FINANCE

• EQUITY CAPITAL
• Preference capital
• Debenture Capital
• Term Loan
• Deferred Credit
• Bill Rediscounting Scheme
• Seed capital Assistance
• Unsecured Loans
• Deposits
• Leasing & Hire Purchase
• Preference Capital : fixed rate of
dividend on face value of shares.
• redumption period as per Companies Act
1956 is 20 years

• Debenture Capital : holder recieves

fixed rate of interest, treated as charge
against profit
• Always redeemable (buyback)
• Can be converted into shares FCDs, PCDs,
NCDs
• Debenture holders have floating charge
against fixed assets
Equity Capital

Amount contributed by owner ( Public and promoters)

• It can be raised through IPO, ADR, GDR
• Advantage:
1)Permanent Capital, carry no repayment obligation
2) Cheapest source of finance in case of profit we have
to distribute dividend
Disadvantage :
• Divdend is apportionment and charge against profit
• Issue of shares results into dilution of control
• TERM LOANS :
Provided by financial institutes, External
commercial borrowing institute (ECB) etc.
Carries fixed rate of interest and repayment
period is fixed. Charge against the profits
DEFERRED CREDIT :
Buyer allowed to pay in installment to
supplier for purchase of equipment. Credit
depend on standing of the buyer
BILL REDISCOUNTING SCHEME :
Provided by IDBI, SIDBI for SSI
SEED CAPITAL ASSITANCE : Provided to
people who have storng techincal
knowledge but no finance is available.
Provided at very low rate
Means Of Finance

• UNSECURED LOANS : loans taken by

promoters from friends, family. It may carry
interest
• DEPOSITS : Fixed Deposits accepted form
the public. These are treated as unsecured.
• They are not secured under provision of
Deposit Insurance & Credit Gaurantee
Corporation (DICGC)
• LEASING & HIRE PURCHASE :
Estimation Of Profit

• Estimation of profit includes projected financial

statements, estimation of revenues & corresponding
profits
• Product Mix
• Installed Capacity
• Capacity Utilization
• Sales Estimation
ESTIMATION OF PROFIT

• PRODUCT MIX : demand for the product decides the

product mix. Determined from demand for each product,
contribution towards profitability, adequacy of plant and
utility.
• INSTALLED CAPACITY : it depend on the product
mix and the capacity of suppliers to provide the goods
• CAPACITY UTILIZATION : 100% capacity utilization
is not possible because of technical problems in
machinery, changes in product mix or inherent
characteristics of industry.
• It depend on avg. capacity utilization by industry
SALES ESTIMATION

• Total sales is estimated from

• utilization of capacity,
• prices of the product,
• rejection while production,
• sale of rejected goods at discount.
• We don’t consider the inflation all the estimation is at
current prices
• Salesmen’s commsion is also not consider while
estimating the profit. It is charged against profit.
COST OF PRODUCTION
Cost Of Raw material
(RM,Consumable, chemicals etc) 20000
Cost of Labour (wages, factory
supervision salary) 10000
Factory Cost (repairs,electricity,
rent,taxes, etc) 5000
Administrative Exp ( electricity,
telephone, salary, etc) 5000
Sales Expenses ( advertisement,
promotion etc) 7000
Distribution Expenses ( petrol,
drivers salary, vehicle repairs,
transportation, freight outward etc) 4000
Royalty, Know-how fees if any
1000
Total Cost of Production (in Rs.)
52000
Others

• Other expenses
• Provision For depreciation
• Provision for Taxation
• Government Subsidy ( no TAX, sales tax, no
octrai, Deferred Sales Tax etc. )