Term Loan

Appraisal

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 Components of Appraisal

• Managerial Appraisal
• Technical Appraisal
• Economic & Commercial Appraisal (Market Appraisal)
• Financial Appraisal

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 Managerial Appraisal

• What is the his past experience ?

• Is he qualified for the project ?
• What is his financial background ?
• What are his managerial qualities like leadership, team work etc ?
• What is his interest and stake in the business ?
• What is his level of endurance ?
• What is his capacity in running the unit ?
• Is he ready for untoward incidents ?
• What is his environment knowledge ?
• What is the level of his negotiating skill ?

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 Technical Appraisal

• Location of the project and environment

• Size and capacity of the plant
• Type of technology used
• The quality of labour force
• Technical support available
• Various statutory compliance
• Availability of all inputs
• Issue of waste disposal
• Breakdown eventuality
• Scope for scaling up of activities

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 Economic appraisal

• KYC –

• What is his product ? Essentials – Comforts -- Luxury

• What is the market ? Present & Future
• What is the product sustainability ?
• What is the target plan and is he able to achieve the same ?
• How he is going to push the sales ?
• What are the competitive products ?
• What is the scope for diversification of the products ?
• What about export potentials ?
• Is the product environment sensitive ?
• Is it an ancillary or final product ?
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 Financial Appraisal

• Reasonableness of Project Cost – costs overrun

• How the margin is to be raised ?
• Realistic estimate of earnings and operation costs
• Acceptable BEP level and margin of safety
• Estimation of DSCR for the project period
• Other relevant ratios Debt Equity Ratio, FA Coverage Ratio,
• Probable escalation of input costs
• Future level of sales revenue

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 Ratios

Net Profit After Tax + Depreciation + Interest on TL

DSCR = ________________________________________

Interest on TL + Installments

Long Term Liability

Debt Equity Ratio = ___________________
Equity

LTL + CL
TOL/TNW = ________
TNW

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 Bench Mark Ratios

• Debt Equity Ratio

• 2:1 for medium and large scale industries

• 3: 1 for MSE
• 4:1 for infrastructure projects

• TOL/TNW

• 4:1 Manufacturing Industries

• 6: 1 Trade and service
• 5:1 Infrastructure and
• 9: 1 for contractors
• 3: 1 for all other cases
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• px = vx + FC + Profit

Where,

p is the price per unit,

x is the number of units,
v is variable cost per unit and
FC is total fixed cost.

• Break-even Sales Units = FC

______
p−v
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 Break Even Point

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• Line R1, R2, R3 represents the variation of income at varying levels of
production activity ("output").

• TC represents the total fixed costs.

• As output increases, variable costs are incurred, meaning that total costs
(fixed + variable) also increase. At low levels of output, Costs are greater
than Income.

• At the point of intersection, a or b or c, costs are exactly equal to

income, and hence neither profit nor loss is made.

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 Thank You

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