Financial Appraisal

Adequacy of rate of return

IRR

Financing pattern
Debt equity ratio
Promoters contribution should be in the
range of 30 to 50 %

Financial Appraisal
Project Cost Estimation- It is the
process of determining the total cost
of the project which is supported by
long term funds.

Land and site development

Building and civil works
Plant and machinery
Technical know how and engineering fees
Expenses on foreign and local technicians

Financial Appraisal
Working Capital Requirement- It is the
difference between current assets and
current liabilities.

Raw material and components

Stocks of goods in process
Stocks of finished goods
Debtors
Operating expenses
Consumable stores

Financial Appraisal
Sources of Funds
Share Capital- equity capital and preference capital
Term loans- Loans provided by the banks and financial
organization. (Rupee and Foreign currency loans)
Debenture capital- Capital produces by Debentures.
(Non convertible and Convertible)
Deferred Credits- Credit taken from suppliers.
Incentive Sources- Financial support provided by the
government agencies.
Miscellaneous sources- Public deposits, unsecured
loans, Leasing and hire purchase finance. ( Unsecured
loan is given by promoters for maintain a connection
between promoters and equity capital the promoter
can promise)

Financial Appraisal
Appropriate composition of Funds (Capital
Budgeting)
Material Cost- Cost of raw materials, chemicals,
components, and consumable stores necessary for
production.
Utilities- Utilities Cost include the cost incurred on
power, water and fuel.
Labour- Labour Cost is the cost of manpower
employed in a factory.
Factory overheads- It includes the repair and
maintenance, rent , taxes, insurance on factory assets.

Preparation for Project Financial

Statement
.

All the financial activity via a series of

numerical reports that is called, in
general, financial statements.
A Financial Statement includes balance
sheet, an income statement, a
statement of cash flows and an auditors
report.
It is a detailed description of the
company operations and prospects for
the upcoming year.

Projected Balance Sheet

A financial statementthatsummarizes a
company's assets, liabilities andshareholders'
equityat a specific point intime. These three
balance sheet segments give investors an idea
as to what the company owns andowes, as well
as the amount invested by the shareholders.
The balance sheetmust follow the following
formula:
Assets = Liabilities + Shareholders' Equity
Balance Sheet is the snap shot of financial
strength of any company at any point of time.

Projected Balance Sheet

Liabilities
A liability is an obligation, which legally binds an
individual or an organization to pay off its debt.
Liabilities in the balance sheet are the financial
obligations of an organization, which it owes to
other parties.
Liabilities also include amounts received in
advance for future services. Since the amount
received (recorded as the asset Cash) has not yet
been earned, the company defers the reporting of
revenues and instead reports a liability such as
Unearned Revenues or Customer Deposits.

Projected Balance Sheet

Liabilities
Share Capital- It comprises of authorized capital,
issued capital, subscribed capital, called up capital, paid
up capital.
Authorized capital: It is the maximum amount of
capital which a company can collect or raise by selling
it's shares to the general public. Authorized capital is
known as nominal capital or registered capital.
Issued capital: It is that part of the authorized
capital which is actually issued to the general public.
Unissued capital: It is that part of the authorized
capital which is not being issued to the general public.
Subscribed capital: It is that part of the issued
capital which is actually subscribed by the general
public

Projected Balance Sheet

Liabilities
Share Capital
Unsubscribed capital: It is that part of the issued capital
which is not subscribed by the general public.
Called up capital: It is that part of the subscribed capital
which is actually called up by the company.
Uncalled up capital: It is that part of the subscribed
capital which is not being called up by the company. It may
be called up as and when the company need funds.
Reserve capital: Reserve capital is that part of the
uncalled capital which is reserved to be called up only at
the time of winding up or liquidation of the company. It
cannot be called during the life time of a company. It is to
be used only for meeting extra- ordinary situation such as
liquidation of the company. The purpose of reserve capital
is to meet the interests of the creditors at the time of
winding up of the company.

Projected Balance Sheet

Liabilities
Share Capital
Paid up capital: It is that part of the called up
capital which is actually paid up by the
shareholders.
Unpaid up capital: It is that part of the called
up capital which is not being paid by the
shareholders. Unpaid up capital is also known
as Calls in Arrears.

Projected Balance Sheet

Liabilities
Reserves and Surplus- They are the accumulated retained
earnings and consists of capital reserve, investment
allowance reserve, share premium, general reserve and other
reserve
Reserve and Surplus are profits which have been retained in
the firm. There are two types of reserves - revenue reserves
and capital reserves.
Revenue reserves represent accumulated retained earnings
from the profits of normal business operations. These are held
in various forms like general reserve, investment allowance
reserve, dividend equalization reserve, etc.
Capital reserves arise out of gains which are not related to
normal business operations. For example, premium on issue
of shares or gain on revaluation of assets.

Projected Balance Sheet

Liabilities
Types Of Reserves
Capital reserves When the assets of a company are
revalued to a higher value than the present net book
value, the difference between them is a notional gain
and shown as Revaluation Reserve. Revaluation
Reserve is a capital reserve. A company is prohibited
to pay dividends from the capital reserve.
Share Premium Account When the shares of a
profitable company are offered to public, the company
may decide to offer the shares at a price higher than
par value. Also at times the shares maybe issued at
discount. The shares when offered at premium, the
amount of premium collected is shown in a 'Premium
Account'. Dividend cannot be paid from this reserve.

Projected Balance Sheet

Liabilities
Types Of Reserves
General Reserve The total earnings of a
company after deducting dividends paid out and
any losses suffered, is called retained earnings.
Retained earnings can be appropriated to create
reserves for such things as future declines in
inventory value, future plant expansion. Sinking
fund reserve or the retained earnings not
transferred to any specific reserve account is
appropriated to general reserve. In other words,
undistributed profit not required to be transferred
to any specific reserve account is usually
accumulated in the General Reserve Account.

Projected Balance Sheet

Liabilities
Secured loan- A secured loan is a loan in which the
borrower pledges some asset (e.g. a car or property) as
collateral for the loan, which then becomes a secured
debt owed to the creditor who gives the loan. The debt is
thus secured against the collateral in the event that the
borrower defaults, the creditor takes possession of the
asset used as collateral and may sell it to regain some or all
of the amount originally lent to the borrower.
Unsecured loan- An unsecured loan means the lender
relies on your promise to pay it back. They're taking a
bigger risk than with a secured loan, so interest rates for
unsecured loans tend to be higher. You normally have set
payments over an agreed period and penalties may apply if
you want to repay the loan early. Unsecured loans are often
more expensive and less flexible than secured loans, but
suitable if you want a short-term loan (one to five years).

Projected Balance Sheet

Liabilities
Current liabilities are often understood as all
liabilities of the business that are to be settled in
cash within the fiscal year or the operating cycle
of a given firm, whichever period is longer.
A more complete definition is that current
liabilities are obligations that will be settled by
current assets or by the creation of new current
liabilities.
For example, accounts payable for goods, services
or supplies that were purchased for use in the
operation of the business and payable within a
normal period of time would be current liabilities.

Projected Balance Sheet

Liabilities
Provision made for known or
specified liabilities which may occur in
future is provision for liabilities.
Contingent liability is provision
made for unknown liabilities which
may or may not occur in future.

Projected Balance Sheet

Assets
Anything of value. Assets can be in the form of money,
such as cash at the bank or amounts owed to you; they
can be fixed assets such as property or equipment; or
they can be intangibles such as your company's
goodwill or brand-names.
Any item of economic value owned by an individual or
corporation, especially that which could be converted to
cash. Examples are cash, securities, accounts
receivable, inventory, office equipment, real estate, a
car, and other property.

Projected Balance Sheet

Assets
Types of assets
Fixed Assets- A long-term tangiblepiece of
propertythata firm owns and uses in the
production of its incomeand isnot expected to
be consumed or converted into cash any sooner
than at least one year's time.
A long-term, tangible asset held for business use
and not expected to be converted to cash in the
current or upcoming fiscal year, such as
manufacturing equipment, real estate, and
furniture.( also called property, plant, and
equipment (PP&E)).

Projected Balance Sheet

Assets
Types of assets
Investment- In finance, the purchase of a
financial product or other item of value with an
expectation of favourable future returns. In
general terms, investment means, the use money
in the hope of making more money.
An investment is a monetary asset purchased with
the idea that the asset will provide income in the
future or appreciate and be sold at a higher price.
Investments include the purchase of bonds, stocks
or real estate property.

Projected Balance Sheet

Assets
Types of assets
Current asset - A current asset is an asset on
the balance sheet which can either be converted
to cash or used to pay current liabilities within 12
months. Typical current assets include cash, cash
equivalents, short-term investments, accounts
receivable, inventory and the portion of prepaid
liabilities which will be paid within a year.
A balance sheetaccountthat represents the
value of all assets that arereasonably
expectedto be converted into cash within one
year in the normal course of business.

Projected Balance Sheet

Assets
Current asset
o Cash and Equivalents- Legal tender or coins that can be
used in exchange goods, debt, or services. Sometimes
also including the value of assets that can be converted
into cash immediately, as reported by a company.
o Short-Term Investment- Investment that matures in, or
is held for, 12 months or less.
o Prepaid Expense- A type ofasset that arises on a
balance sheet as a result ofbusiness makingpaymentsfor
goods and services to be received in the near future.
While prepaid expenses are initially recorded as assets,
their value isexpensed over time, asthe benefit is
received onto the income statement, because unlike
conventional expenses, the business will receive
something of value in the near future.

Projected Balance Sheet

Assets
Current asset
o Stock in trade- Goods held by a business for sale.
o Accounts Receivable (A/R)- Money which is owed to
a company by a customer for products and services
provided on credit. A specific sale is generally only
treated as an account receivable after the customer is
sent an invoice.

Projected Balance Sheet

Assets
Miscellaneous Expenditure- Miscellaneous expenses are
those expenses which are very minor/small in nature. Any
expense which cannot be debited to any expense account is
debited to misc exp a/c.
These items can be debited to any particular a/c as well. But if
they are too small then they are debited to misc exp a/c. The
control over this account becomes easier if all such expenses are
consolidated into one account. Else if all these expenses are
debited to different accounts then one will need to put a lot of
efforts to ascertain how much expense really has occurred under
which head.
They may be carried forward to the next year if they are unpaid
or paid in advance.

Projected Balance Sheet

Assets
Debit Balance of Profit and loss- If there is

net loss in an organisation and general

reserve is given, net loss will be deducted
from it, But if there is no such reserve, then
the loss will be shown under this
category/head.