VCE Summer Internship Program 2021

Smart Task Submission Format

[ Download This Format in .DOCX format and then Edit it and SUBMIT ]
Intern’s Details
Name NIHARIKA MATHUR

Email-ID mathurnihu99@gmail.com

Smart Task No. 2

Project Topic FINANCIAL MODELLING

Smart Task (Solution)

Task Q1 : 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 set up in India.

Task Q1 Solution :
here is a whole range of assumptions and these will vary on the type of project and the industry. You
will have some generic economic and financial assumptions:

 exchange rate
 inflation
 interest rate
 etc
And then a very different set of industry and project-specific assumptions e.g. the assumptions for
building a shopping centre vs developing an eCommerce marketplace vs building a new ERP software
system vs financial model for delivering the Olympic Games vs SaaS startup vs expanding product
ranges vs digital twin for business optimisation simulations will each be very different.

In order to get input on relevant assumptions, you need to be specific about the exact financial model.
Not only the type of industry and sector but also on the purposes and objectives of the financial model
eg:

 Internal management information

 Venture capital
 Bank loan
 Listing on stock exchange
 Due diligence for a sale or merger

ST Solution Page 1 https://techvardhan.com

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Smart Task Submission Format

500 Words (Max.)

Task Q2 : Explain the function of revenue, cost and debt sheet of the financial model.

Task Q2 Solution :

 It includes historical revenue cost, fixed costs, and variable costs.

 The financial model helps to forecast the performance, revenue growth rate,
interests, and taxes.
 Such financial models are really helpful for business as they can evaluate
and take future decisions to further improve the business.  

500 Words (Max.)

Task Q3 : Explain in detail the various steps involved (with the importance) in the fin flows sheet. Why and what the
bank needs to check before financing the project.

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Task Q3 Solution :STEPS INVOLVED IN PREPARING FINANCIAL FLOW STATEMENT :-

1. Determine the starting balance - The first step in preparing a cash flow statement is determining the
starting balance of cash and cash equivalents at the beginning of the reporting period. This value can
be found on the income statement of the same accounting period. The starting cash balance is
necessary when leveraging the indirect method of calculating cash flow from operating activities.
However, the direct method doesn’t require this information.
2. Calculate cash flow from operating activities - One you have your starting balance, you need to
calculate cash flow from operating activities. This step is crucial because it reveals how much cash a
company generated from its operations. Cash flow from operations are calculated using either the
direct or indirect method.
3. Calculate cash flow from investing activity - After calculating cash flows from operating activities, you
need to calculate cash flows from investing activities. This section of the cash flow statement details
cash flows related to the buying and selling of long-term assets like property, facilities, and
equipment. Keep in mind that this section only includes investing activities involving free cash, not
debt.
4. Calculate cash flow from financial activity - The third section of the cash flow statement examines
cash inflows and outflows related to financing activities. This includes cash flows from both debt and
equity financing—cash flows associated with raising cash and paying back debts to investors and
creditors. When using GAAP, this section also includes dividends paid, which may be included in the
operating section when using IFRS standards. Interest paid is included in the operating section under
GAAP, but sometimes in the financing section under IFRS as well.
5. Determine the ending balance - Once cash flows generated from the three main types of business
activities are accounted for, you can determine the ending balance of cash and cash equivalents at
the close of the reporting period. The change in net cash for the period is equal to the sum of cash
flows from operating, investing, and financing activities. This value shows the total amount of cash a
company gained or lost during the reporting period. A positive net cash flow indicates a company had
more cash flowing into it than out of it, while a negative net cash flow indicates it spent more than it
earned.

Bank need to check the following criteria before financing a project :-

1. Calibre of business principals - Principals are the primary source of fuel for business projects. Their
vision, energy and the effort they are willing to make are the factors that make or break a project.
2. Business environmental risks - Lenders make sure that your industry is not perceived to be subject to
inordinate risk. The upcoming lifting of a tariff barrier, a procedure that creates pollution or the fact
that your business is situated within a fragile sector of the economy may cause a lender to be overly
cautious. The company should also be adequately covered by insurance that is tailored to the nature
of its activities.
3. Project creditability - If lenders or investors decide to put money in your project, it's because they
hope the investment will pay off. They'll make sure your previsions are based on verifiable facts and
are realistic.
4. Company’s ability to pay and financial structure - You'll have to prove to lenders that the company is
able to meet all of its financial obligations. The company's financial structure should therefore show a
healthy balance between loans and assets.
5. Principals’ financial history - In lenders' eyes, the future can largely be predicted by the past. It is
more than likely that they will run a credit check on the business principals to see if principals

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effectively met past financial obligations. A bankruptcy or unpaid debt may negatively impact a
principal's credibility.
6. Security - Debt financing is usually secured against company assets, which should be sufficient to
allow lenders to cover their risk.

500 Words (Max.)

Task Q5 :

Task Q5 Solution :

500 Words (Max.)

Task Q6 :

Task Q6 Solution :

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Smart Task Submission Format

500 Words (Max.)

Please add / delete blocks if needed.

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