VCE Internships: Smart Task 02

(Project Finance Analysis and Modelling)

Question-1 While preparing a financial model what are the assumptions we need to take.
Please list down the list of assumptions with the values, assuming the project will be setup in
India.
Answer- Financial Model is a spreadsheets which an analysts uses to depict the future
performance of the business. It comprises of various assumptions which the company need to
made whiling developing a financial model those assumptions are follows:
 Revenue Streams: It plays a very important role as it reflects the company ability to
convert goods into cash. Whiling considering this the company need to forecast the
revenue stream for the business based on the past sales. Since revenue is related with
the economic activities of the country so the company need to have the updated
knowledge about the economic conditions of the country so the correct prediction of
revenues can be made.
 Expenses: It comprises of all the costs associated with the business. It can be
classified into two parts i.e. Operating Expenses and Non-Operating Expenses. The
value of both the expenses need to be identified so as to perform the accurate financial
analysis. Operating expenses includes expenses which are incurred to generate the
sales like building and maintenance, insurance, wages, electricity etc. Non-operating
expenses includes expenses of interest and tax amount which varies based upon the
amount of debt and the prevailing interest rates in the economy.
 Earnings per Share: Since the main objective of any business is to maximize the
shareholders wealth so for that the company need to focus upon increasing the EPS so
that the stock price of the company increases as the demand for the company’s share
in the market increases thus leads to increase in the share prices.
Apart from these the economic and political factors need to be taken into account as these
factors decides the success or failure of the business. Political factors includes: Attitude of the
government towards business.

Question-2 Explain the function of revenue, cost and debt sheet of financial model.
Answer- Revenue is the amount which the company earns by selling the product or services
in the market. It is the most important factor in deciding the success or failure of any
business. The main function of this is to analysis how the revenues are generated over a
period of time and based upon this various sales and marketing strategies can be formulated.
Cost is something which is incurred by the company to make a product. Cost sheet helps the
company in knowing the various attributes of cost and based upon which the company can
formulate strategies regarding how to minimize the cost.
Debt sheet helps in identifies how much payment of interest and principal amount the
company need to repay in future. Based upon this the DCR can be calculated which helps in
knowing the financial liquidity of the company.
Question-3 Explain in detail the various steps involved (with the importance) in the fin flows
sheet. Why and what the bank need to check before financing the project.
Answer-

Expenses
Revenues

EPS,
NPV and
IRR

Fin Flows
Fig: Steps involved
in the fin flows

 Revenues: It plays a very important role as it determines the earning capacity of the
business.
 Cost: It helps the company in knowing the various attributes of cost and based upon
which the company can formulate strategies regarding how to minimize the cost.
At the time of granting loan the bank usually checks the liquidity of the company by
comparing the revenue streams with expenses. Also bank check the EPS, NPV and IRR of
the projects which helps the banks to determines the future scope of business of the company.
If NPV is positive than the project is acceptable. DCR is also another measure which the
banks take into considerations whiling granting, loan as it helps in determining the liquidity
of the business.