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.

...

2

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

TITLE PAGE

NO 1.

LIST OF TABLES 2

2. LIST OF CHARTS/ FIGURES 3

CHAPTER - I

4. INTRODUCTION OF THE PROJECT 5 5. STATEMENT OF THE PROBLEM 5 6. OBJECTIVE OF THE STUDY 7 7. SCOPE OF THE STUDY 8 8. LIMITATIONS OF THE STUDY 8 CHAPTER - II

9. REVIEW OF LITERATURE 10 CHAPTER - III

10. RESEARCH METHODOLOGY 11 CHAPTER - IV

11. INDUSTRY PROFILE 15 12. COMPANY PROFILE 20 CHAPTER - V

13. DATA ANALYSIS & INTERPRETATION 31 CHAPTER - VI

14. FINDINGS 64 15. SUGGESTIONS 70 16. CONCLUSION 72 17. APPENDICES 73 18. BIBLIOGAPHY 82

4

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

5

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

6

CHAPTER I INTRODUCTION

7

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 long-term 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.

8

A good appraisal justifies spending money on a project. Credit appraisal or project planning must be viewed as a process of decision-making 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.

9

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.

10

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.

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

R

L

Credit AMukher

RE

LIT

Appraisal, R

rjee.

EVI

ER

Risk Analy

EW

RAT

ysis And D

W O

TUR

Decision M

OF

RE

Making by D

1

E

D D

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 decision-making. 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 1the 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.

969. On

24

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.

OORGANISAATION STTRUCTUURE OF IN

NDIAN OVVERSEAS

2

S BANK

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:

26

Loans:

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 two-wheeler. 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

27

5. Lending committee

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.

28

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

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.

29

Also some of the lending committee is formed by bank in which Directors are included and they decide whether to give Loan or not.

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).

30

The mortgage, however, has to be created within a year from the date of the first disbursement.

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.

35

RISK ANALYSIS

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:

36

Name of the unit : XY PVT LTD

Address : SME - GUINDY, CHENNAI

Constitution : NA

Registration Date : 19TH NOVEMBER 96

Name and address of the partners:

NAME OF THE DIRECTORS

DESIGNATION AGE EXPERIENCE

Mr.X Managing Director

48 Both are having 15 years

experience in this line of

activity

Mr.Y Director 44

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:

37

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

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:-

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

YEAR CFAT CUMULATIVECFAT

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

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.

42

If It means Then...

NPV > 0 the investment would add value to the firm

the project should be accepted

NPV < 0

the investment would subtract value from the firm

the project should be rejected

NPV = 0

the investment would neither gain nor lose value

for the firm

We should be indifferent in the decision whether to accept or reject the project. This project adds no monetary value. Decision

should be based on other criteria, e.g.

strategic positioning

or other factors not

explicitly included in

the calculation.

TABLE 3 :-

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

YEAR CFAT PV @ 5% PV OFCFAT

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

TABLE 4:-

YEAR CFAT PV@6% PV OF CFAT

PV@4% 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

45

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.

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 Turnover Financial Solvency

Stockturnover

Drs.turnover

Crs.Turnover

W.capitalturnover

F.Assetstuanover

Sh.termSolvency

Lg.termsolvency

R.O.I

Currentratio

Proprietaryratio

N.Profit

Liquidityratio

Debteqratio

G.Profit

Cash.Pos.ratio

F.Assetsratio

Exp.ratio

Capgearratio

Op.Profit

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:-

47

CURRENT RATIO

0

0.2

0.4

0.6

0.8

1RUPEES(%)1.2

1.4

YEAR

YEAR

RUPEES

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

48

2010-11 = 2311.79 / 2511.80 =0.92

CHART 2:-

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

QUICK RATIO

0

0.2

0.4

0.6

0.8

1

2006-07

2007-08

2008-09

2009-10

2010-11

YEAR

%

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:-

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

PROPREITORY RATIO

2006-0718%

2007-0821%

2008-0924%

2009-1018%

2010-1119%

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:

\

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

DEBT EQUITY RATIO

00.10.20.30.40.50.60.70.8

2006-07

2007-08

2008-09

2009-10

2010-11

YEAR

% RUPEES

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:-

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

0

200

400

600

YEAR

NET WORKING CAPITAL

RUPEES 176.2 140.3 265 346.2 555

2006- 2007- 2008- 2009- 2010-

(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:

53

GROSS PROFIT RATIO

02468

1012141618

2006-07

2007-08

2008-09

2009-10

2010-11

YEAR

% RUPEES

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:-

54

0

0.5

1

1.5

2

YEAR

NET PROFIT RATIO

RUPEES 1.2 0.94 0.82 1.7 1.9

2006- 2007- 2008- 2009- 2010-

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:-

55

OPERATING RATIO

00.5

11.5

22.5

33.5

1 2 3 4 5 6

YEAR

%

RUPEESYEAR

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:-

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

RETURN ON CAPITAL EMPLOYED

0

10

2030

40

50

60

2006-07 2007-08 2008-09 2009-10 2010-11

YEAR

% RUPEES

CHART 10:

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

0

200

400

600

800

2006-07

2007-08

2008-09

2009-10

2010-11

YEAR

TANGIBLE NETWORTH

RUPEES

CHART 11:-

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

0

0.2

0.4

0.6

0.8

1

YEAR

TOTAL OUTSIDE LIABILITY/TNW

RUPEES 0.39 0.1 0.19 0.82 0.62

2006- 2007- 2008- 2009- 2010-

CHART 12:-

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

FUNDED DEBT/TNW

0

0.2

0.4

0.6

0.8

1

2006-07 2007-08 2008-09 2009-10 2010-11

YEAR

%

CHART 13:-

-50

0

50

100

150

YEAR

% INCREASE/ DECREASE IN SALES

RUPEES 8.64 -19.7 57.97 134.3 19.81

2006- 2007- 2008- 2009- 2010-

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:-

61

NP BEFORE TAX/ SALES

0

5

10

15

20

25

2006-07 2007-08 2008-09 2009-10 2010-11

YEAR

%

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:-

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

NP AFTER TAX/ TNW

0

5

10

15

20

25

2006-07

2007-08

2008-09

2009-10

2010-11

YEAR

% RUPEES

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

63

Year (Amount Rs. In lacs)

Particular

CURRENT ASSETS

2006-07

2007-08 2008-09

2009-10

2010-11

1. Inventories 279.31 360.08 474.10 381.19 575.00

64

2.Debtors 886.93 708.55 765.85 1719.00

2300

3. Cash& Bank Balance 7.69 31.11 71.36 13.84 11.79

4. Expenses 0.87 0.22 0 0 0

5. Loans& Advances 54.57 84.99 93.11 90 100

6. Others 35.22 12.26 0 70 80

TOTAL 1264.59

1197.21 1406.82

2274.03

3066.79

Less: CURRENT LIABILITIES

7.Borrowings from IOB 0 393.42 388.59 1008.00

1300

8. From other banks 296.52 97.59 35.67 0 0

9. Commercial paper 25.25 0 0 0 0

10.Crs 636.97 385.75 579.96 767 1000

11. Crs for expenses 27.48 17.22 12.41 0 0

12.Provision for tax 41.42 89.91 94.57 30 40

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

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:-

02468

1012141618

2006-07 2007-08 2008-09 2009-10 2010-11

year

WORKING CAPITAL TURNOVER RATIO

RUPEES

65

TOTAL 1088.43 1056.92 1141.83 1927.80 2511.80

NET WORKING CAPITAL

176.16 140.29 264.99 346.23 554.99

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:-

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

CASH TO NWC

02468

101214161820

2006-07 2007-08 2008-09 2009-10 2010-11

YEAR

% RUPEES

RISK ANALYSIS

RAM RATING

RISK PARAMETER

EXISTING REVISED INTERIM

Industry Business Fiancial Management Overall Rating

SME - 3

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

69

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.

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.

70

( ii) NET PROFIT RATIO:

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

SUUGGEEST

TION

NS

773

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

77

PARTICULARS (Rs.In

lac) (Rs.In

lac) (Rs.In

lac) (Rs.In

lac) (Rs.In lac) 1. NET SALES Audited Audited Audited Audited Projection Projection

Domestic sales - cash 0 0 0 0 0

Domestic sales - credit 2063.17 1745.41 2631 6394 7673

Exports 258.6 176.7 111.27 108 119

less Excise duty 160.01 185.68 0 140 170

Total Net Sales 2161.76 1736.43 2743.07 6362 76222.COST OF SALES Opening stock finished goods 108.3 83.63 242.98 14.8 19.06

Opening stock work in

progress 33.95 66.67 0 61.6 95.3

Op. stock RM- indigenous 80.48 129 117.09 258.4 266.83

Op. stock RM- imported 0 0 0 0 0

Add purchases RM- indigenous 1359.72 1100.31 2025.27 5040 6000

Add purchases RM- imported 0 0 0 0 0

Stores consumed 0 0 0 0 0

Manufacturing Exp 469.03 389.25 435.72 520 695

78

Depreciation 39.32 33.31 23.83 48 90

Add: Purchases Finished 0 0 0 0 0

goods

Less: Closing stock finished goods 83.63 76.42 192.05 19.06 50

Less: Closing stock WIP 66.67 166.56 0 95.3 155

Less: Closing stock RM- Indigen 129 117.09 282.05 266.83 370

Less: Closing stock RM-

Imported 0 0 0 0 0

Cost of Sales 1811.5 1442.1 2370.79 5561.61 6591.19Cost of Production 1786.83 1434.89 2319.86 5565.87 6622.133.GROSS PROFIT(+)/LOSS(-) 350.26 294.33 372.28 800.39 1030.814. SELLING& ADMIN.EXP. 259.99 199.83 239.8 475 570

5.INTEREST & FIN CHARGES 43.46 68.99 102.19 154 210.83

TOTAL(4+5) 303.45 268.82 341.99 629 780.03

6.OPERATING PROFIT/LOSS 46.81 25.51 30.29 171.39 256.787.(i) OTHER INCOME Sale of Scrap 0 0 0

Interest received 0.32 1.09 1.45 1 8

79

Profit on sale of FA/INV 0 0 0 0 0

Others 0.89 2.18 4.94 8 3

Total other income 1.21 3.27 6.39 9 11

7.(ii)LESS OTHER EXPENSES

Loss on sale of FA/INV 0 0 0 0 0

Loss on currency fluctuation 0 0 0 0 0

Misc.Exp Written off 0 0 0 0 20

Others 0 0 0 0 0

Total other expenses 0 0 0 0 20

Other Income Net of

Expenses 1.21 3.27 6.39 9 -9

8.PROFIT BEFORE TAX/LOSS 48.02 28.78 36.68 180.39 241.78

9.INCOME TAX 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

DEP&TAX 12.N.P BEFORE DEP .TAX &INT 130.8 131.08 162.7 382.39 541.8113.CASH GENERATION 65.25 49.69 46.29 156.23 255.0714.DIVIDEND 0 0 0 0 0

15.PREFERENCE DIVIDEND 0 0 0 0 0

16.RETAINED PROFIT 25.93 16.38 22.46 108.23 145.0717.NET CASH ACCRUAL 65.25 49.69 46.29 156.23 255.07

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

1.ASSETS Audited Audited Audited Projection Projection1.1 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 0 19.06 50Consumable spares 0 0

80

0 0 0

TOTAL INVENTORIES 279.31 360.08 474.1 381.19 575

(ii) Trade Debtors

Domestic Debtors over six months 0 0 0 0 0

Domestic Drs less than 6 months 886.93 708.55 767.85 1719 2300

81

Export Debtors over than 6 months 0 0 0 0 0

Export Debtors less than 6 months 0 0 0 0 0

TOTAL DEBTORS 886.93 708.55 767.85 1719 2300(iii)OTHER CURRENT ASSETS Cash & Bank balance 7.69 31.11 71.36 13.84 11.79

Prepaid Expenses 0.87 0.22 0 0 0

Advance Tax 0 0 0 0 0

Deposits with Exise & Sales

Tax 0 0 0.4 0 0

Loans & Advances 54.57 84.99 93.11 90 100

Others 35.22 12.26 0 70 80

Total Other Current Assets 98.35 128.58 164.87 173.84 191.79

SUB TOTAL(a) 1264.59 1197.21 1406.82 2274.03 3066.79

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

82

Capital Work In Progress 0 0 0 0 0

1.3.NON- CURRENT ASSETS (i)Investment in/loans to subsidies 0 0 0 0 0

(ii)Others Non Current Assets Investment in other

companies 9.71 9 9 9 9

loans and advances 0 0 0 0 0

Overdue Debtors 10.85 15.92 28.67 10 10

Deposits with EB etc.. 0 0 5.68 0 0

Non- Moving Inventories 0 0 0 0 0

Others 7.93 0 0 0 0

Total Other Non Current

Assets 28.49 24.92 43.35 19 19

SUB TOTAL 28.49 24.92 43.35 19 19

Deferred Tax Asset(d) 0 61.71 53.99 0 01.4 INTANGIBLE ASSETS(e) 15.21 12.24 15.14 50 60

TOTAL ASSETS(a+b+c+d+e) 1488.13 1442.53 1681.59 2977.58 3709.84

83

2.LIABILITIES 2006-07 2007-08 2008-09 2009-10 2010-112.1.CURRENT LIABILITIES Audited Audited Audited Projection Projection

(i) Borrowings from IOB 0 393.42 388.59 1008 1300From other banks 296.52 97.59 35.67 0 0

Commercial Paper 25.25 0 0 0 0

Sub-Total 321.77 491.01 424.26 1008 1300(ii) Creditors for purchases 636.97 385.75 579.96 767 1000

(iii)Other Current Liabilities Creditors for expenses 27.48 17.22 12.41 0 0

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

Outstanding expenses 0 0 0 0 0

Others 32.23 44.47 6.98 66 95

Total other Current Liabilities 129.69 180.16 137.61 152.8 211.8

(iv)Creditors On Capital Account 0 0 0 0 0

SUB-TOTAL(e) 1088.43 1056.92 1141.83 1927.8 2511.82.2.DEFERRED

LIABILITIES (i)Term loan from IOB 0 2.56 0 380.92 344.12

(ii)Term loan from institutions 39.29 4.7 9.32 9.5 9.5(iii)Other long term liabilities 0 0 0 0Preference shares 0 0 0 0

Long-term loans from other

banks 0 0 0 0

Foreign currency loans 0 0 0 0

NCD borrowings 0 0 42.75 0 0

Others 69.3 26.95 29.94 60 80

Other l.liability take as quasi equity 0 0 0 0 0

Total other l. term liabilities 69.3 26.95 72.69 60 80

SUB-TOTAL(f) 108.59 34.21 82.01 450.42 433.622.3 CAPITAL &SURPLUS

(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 0 0 0 0 0(iv)Loss Bought Forward 0 0 0 0 0SUB-TOTAL(g) 291.11 351.4 457.75 599.36 764.42Deferred tax liability(h) 0 0 0 0 0TOTAL LIABILITIES(e+f+g+h) 1488.13 1442.53 1681.59 2977.58 3709.84Off Balance Sheet Debt 0 0 0 0 0Current Portion of L.t Debt 28.56 28.56 23.65 56.8 76.8

84

BIBLIOGRAPHY

85

86

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.

Lending Strategy, Credit Appraisal and Lending Decision byHrisjikes BhattacharyaThe sample plan was implemented by seeking help from the bank officials.(D)Sample size