Aspects of Project Appraisal

Prashanta K. Banerjee, Ph.D.

Professor and Director (RD&C),BIBM
Fulbright Scholar
 Types of Finance
• Prime Conduits of Finance
• Working Capital
• Trade Finance - LTR , LIM, IBP, EBP,
• Term Loan
• Project Loan
• Other Conduits of Finance
Lease Finance, House Building, Short Term Loan, Non-
Funded Finance, etc

2
Pre-requisites of Project Appraisal
• Discussion of Borrowers / CFO of Borrowers
• Verification of Information ( Suppliers , Buyers,
Business man in the same industry, spouse , society )
• Knowing the Industry/ Business
• Appraisal
• Security Analysis
• Sanction Letter
• Review All Documentation
• Disbursement

3
 Managerial Aspect
• Sincerity
• Honesty
• Integrity
• Educational Background
• Experience of the Borrower
• Succession and
• Team Work/ Ability of the Management to
Run the Project Efficiently.
4
 Case -1 : Sufi Mohammed Mizanur Rahman
Established in 1970s
Attributes Status
Sincerity Tax File
Honesty Simple life style and no extravagancy

Integrity To fill up the vacuum of entrepreneur after liberation

Educational Background HSC in 1965 and Graduating in Banking Diploma

Experience of the Borrower Bankers , Traders , Manufacturers and A variety of

Business (18 Units in its Groups )

Succession ---

Motto/ Slogans ( Service Above Self )

Team Work/ Ability of the
management to run the
project efficiently. 5
 JMI Group ,Md. Abdul Razzaq
Establishment Year : 1999
Sincerity Serving Society
Honesty Simple life style and no extravagancy
Integrity Giving due importance to perseverance and value of
time/To fill up the vacuum in the medical and allied
Fields (Syrings, Vaccine . Hollow Block ,etc)

Educational Background Abdur Razzaque , M.A. in Economics from the

Experience of the Borrower
University of Chittagong
Twelve (12) years working experience at Japan in a
Disposable Syringe Factory/ Technical know-how,
practical experience in machine installation, process
flow, etc.

Succession ---
Team Work/ Ability of the Innovative Products at Affordable Costs
management to run the project
efficiently.
6
 Organizational Aspect
• Sole Proprietorship or
• Partnership,
• Private limited,
• Public Limited Company/ Listed
With Stock Exchanges .

7
 Organizational Structure
Private Limited Company + Public Limited
Company + Listed with DSE

• PHP Glass = Public Limited Company/ Listed

• JMI Syringes and Medical Services Ltd = Public
Limited Company / Listed .

8
 Technical Aspect
• Location of the Business (Rice Bran)
• Land and Building (Valuation, Responsible
Person)
• Machineries Equipment (Name , Brand ,
Origin and Number , Local, Imported
• Power, Fuel, Water, Materials, etc.
 Technical Aspects

• Training
• Spare Parts + Machines
• Capacity (Product wise )
• Building Code
• Labor Intensive and Capital Intensive
• Generator
• Solar System
• Availability of Raw materials (Origin- local+
Imported)
 Marketing Aspect
• Aggregate Demand of Proposed Product / Service in
the Future
• Possible Market Share of the Project Under Appraisal .
• Business Outlook + Industry Growth + Entry and Exit
Barrier
• Projected Sales Volume
• Scope of Market Expansion
• Cross Border Risk
• Dominant Player/ Possible Threat of Competition

11
Financial Aspect : Working Capital
• Assessment of Working Capital
Finance
• Utilization Limit
• Credit Risk Grading Score sheet

12
 Assessment of Working Capital Finance

• Raw Materials (Imported +Local )

• Working in Process
• Finished Goods
• Stores and Spares
• Receivables
• Cash
• (Sundry Credits )

13
 Utilization Limit
Norm : 60 % and Above is expected

Formula :
Average Debit Summation/ Average Credit Summation * 100
Limit

14
 Credit Risk Grading Score sheet

• Financial Risk
• Business Risk
• Management Risk
• Security Risk
• Relationship Risk
• Environmental, Social and Governance

15
 Term Loan / Project Loan
• Cost of the Project and Means of Financing
• Ratio Analysis
• Capital Budgeting
• Break Even Point
• CRGS

16
 Cost of the Project and Means of Financing

• Cost of the Project : Local Currency and

Foreign Currency (Appraisal, Page -3 )
• Means of Financing : Equity and Debt ( LC and
FC) (Loan and Equity )

17
Ratio Analysis (Appraisal –Page -2)

• Current Ratio
• Quick Ratio
• Profitability Ratio
• Leverage / Debt Equity Ratio
• Fixed Asset Coverage Ratio
• Coverage Ratio
• Debt Service Coverage Ratio

18
 Capital Budgeting (Page -2 )
Techniques Decision Making
Process
Pay Back Period Less is better
Net Present Value Positive
Internal Rate of Return (IRR) More than Cost of
Capital
Modified Internal Rate of Return Do
(MIRR)
Economic Rate of Return Do
Important Issues : Cash Flow , Cost of Capital and Capacity
 Sensitivity Analysis
• Assuming Sales will be decreased by 5%
• Assuming production Costs Will be increased
by 5%.

20
 Break Even Point (Page -2)
• BEP-Sales
• Margin of Safety
• BEP-Assumed Capacity

21
 Economic Aspect (Page 21 )
• Contribution to GDP,
• Creation of Employment,
• Foreign Currency Savings/ Earnings
• Capital Investment
• Indirect Benefit of the Society

22
Thanks

23