INTRODUCTION

STATEMENT OF THE PROBLEM: 5

To Study the Credit Appraisal for Working Capital Finance to Small and Medium
Enterprises in Bank of India. The following steps that are to be analysed are as follows: 1) To Study & Verify the Borrowers Papers, Documents & Necessary information
required.
2) To Study the Financial Tools required for the Credit Appraisal of the Project :

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a) To Study & Verify the Project Report of the Company.

b) To Study & Analyse the Financial Statements of the Company.
c) To Verify the Statutory Approvals required for the Project.
3) To Study & Analyse the Working Capital Assessment of the Company.
4) To Study & Analyse the Credit Rating of the Account on the basis of which the Credit

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Rating Grade is to be provided to the respective Company.

NEED AND IMPORTANCE OF THE STUDY: 20

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Micro, Small and Medium Enterprises (M.S.M.E) sector has emerged as a highly vibrant
and dynamic sector of the Indian economy over the last five decades. M.S.M.Es not only
play crucial role in providing large employment opportunities at comparatively lower
capital cost than large industries but also help in industrialization of rural & backward
areas, thereby, reducing regional imbalances, assuring more equitable distribution of
national income and wealth. M.S.M.Es are complementary to large industries as ancillary
units and this sector contributes enormously to the socio-economic development of the
country.
The Small and Medium scale enterprises (S.M.Es) play a crucial role in the socioeconomic growth story of India accounting for more than 45% of the manufacturing
output and around 40% of the total export of India as of 2013-14, as per annual report of
Ministry of M.S.M.E. This sector is also the leading provider for employment and
business avenues in rural and urban India, thereby spurting equitable and inclusive
growth across local economies. Yet, the potential of the Indian S.M.Es in creating jobs
and livelihood generation opportunities remains untapped. Inadequate access to
technology, technical and business skills and finance have been highlighted as some of
the key constraints for the M.S.M.Es in the manufacturing sector. The M.S.M.Es
primarily
rely on bank finance for their operations and as such ensuring timely and
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adequate flow of credit to the sector has been an overriding public policy objective.

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Credit Appraisal means an investigation/assessment done by the banks before providing

any Loans & advances/project finance & also checks the commercial, financial &
technical viability of the project proposed, its funding pattern & further checks the
primary & collateral security cover available for recovery of such funds.
The Need for studying the Credit Appraisal for Working Capital Finance to Small and
Medium Enterprises is to ascertain the risks associated with the extension of the credit
facility. It is generally carried on by the financial institutions, which are involved in
providing financial funding to its customers in order to meet the Financial Gap. This will
thus help in setting-up the new M.S.M.Es as a result of which there growth will be
maximised. Also, the Infrastructure needs of the M.S.M.Es will be met if this Financial
Gap is abridged.
Credit risk is a risk related to non-repayment of the credit obtained by the customer of a
bank. Thus it is necessary to appraise the credibility of the customer in order to mitigate
the credit risk. Proper evaluation of the customer is performed, this measures the
financial condition and the ability of the customer to repay back the Loan in future.
Generally the credits facilities are extended against the security known as Collateral
Security. But even though the Loans are backed by the collateral, banks are normally
interested in the actual Loan amount to be repaid along with the interest. Thus, the
customer's cash flows are ascertained to ensure the timely payment of principal and the
interest. It is the process of appraising the credit worthiness of a Loan applicant. Factors
like age, income, number of dependents, nature of employment, continuity of
employment, repayment capacity, previous Loans, credit cards, etc. are taken into account
while appraising the credit worthiness of a person. Every bank or lending institution has
its own panel of officials for this purpose.

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OBJECTIVES OF THE RESEARCH: Credit appraisal of a term loan denotes evaluating the proposal of the loan to find out
repayment capacity of the borrower. The primary objective is to ensure safety of the
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money of the bank and its customers. The process involves appraisal of market,
management, technical, and financial. Getting a term loan from financial institution is not
so easy. The corporate asking for the term loan has to go through several tests. The bank
follows an extensive process of credit appraisal before sanctioning any loan. It analyses
the loan proposal from all angles. The primary objective of credit appraisal is to ensure

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that the money is given in right hands and the capital and interest income of the bank is
relatively secured. While appraising a term loan, a financial institution would focus on
evaluating the credit worthiness of the company and future expected stream of cash flow
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with the amount of risk attached to them. Credit worthiness is assessed with parameters
such as willingness of promoters to pay the money back and repayment capacity of the

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borrower.

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ORGANISATIONAL PROFILE OF BANK OF INDIA: -

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Bank of India (B.O.I) was founded on 7th September, 1906 by a group of eminent
businessmen from Mumbai. The Bank was under private ownership and control till July
1969 when it was nationalized along with 13 other banks. Beginning with one office in
Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a
rapid growth over the years and blossomed into a mighty institution with a strong
national presence and sizable international operations. In business volume, the Bank
occupies a premier position among the nationalized banks.
The Bank has 4828 branches in India spread over all states/ union territories including
specialized branches. These branches are controlled through 50 Zonal Offices. There are
56 branches/ offices and 5 Subsidiaries and 1 joint venture abroad. The Bank came out
with its maiden public issue in 1997 and follow on Qualified Institutions Placement in
February 2008.
While firmly adhering to a policy of prudence and caution, the Bank has been in the
forefront of introducing various innovative services and systems. Business has been
conducted with the successful blend of traditional values and ethics and the most modern
infrastructure. The Bank has been the first among the nationalized banks to establish a
fully computerized branch and ATM facility at the Mahalaxmi Branch at Mumbai way
back in 1989. The Bank is also a Founder Member of SWIFT in India. It pioneered the
introduction of the Health Code System in 1982, for evaluating/ rating its credit portfolio.
Presently Bank has overseas presence in 22 foreign countries spread over 5 continents
with 56 offices including 5 Subsidiaries, 5 Representative Offices and 1 Joint Venture, at
key Banking and Financial Centres viz., Tokyo, Singapor,Hong Kong, London, Jersey,
Paris and New York.
Performance in F.Y.-2015 as on 31.03.2015 (Rs. In Crores, Except %): DEPOSITES

531,907

ORGANISATION

7,488

GROWTH
ADVANCES
GROWTH
BUSINESS MIX

11.52%
411,726
9.44%
943,633

PROFIT
NET PROFIT
GROSS NPA
NET NPA
PROVISION

1,709
5.39%
3.36%
52.40%

GROWTH

10.60%

COVERAGE
EARNINGS

PER

26.57

RETURN ON EQUITY

6.70

SHARE(RS.)
BOOK VALUE

PER

398.02

CAPITAL ADEQUECY

10.73%

SHARE(RS.)
NIM

2.11

RATIO(BASEL-III)

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REVIEW OF LITERATURE

Kristin Hallberg (2000) Governments in both industrialized and developing countries

provide a wide variety of programs to assist Small- and Medium-scale enterprises
(S.M.Es). Despite the success of S.M.E strategies in a few countries, the majority of
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developing countries have found that the impact of their S.M.E development programs on
enterprise performance has been less than satisfactory? This paper investigates the
economic rationale for intervention in support of small- and medium-scale enterprises, on
both theoretical and empirical grounds. It also suggests a framework for S.M.E
intervention to help the Bank Group's client countries design S.M.E strategies, gauge the
effectiveness of assistance programs, and achieve the objective of raising S.M.E
competitiveness.

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Willam Stoever (2002) The author states that, India has always strategized foreign
investment policies with the motive of being self-reliant. India has always targeted to
import only those items and goods that are not available in the domestic market.

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Krishna Kumar (2003) He views that In India foreign collaborations have generally
been to have the technological transfer which involves high cost. It is very much
important to understand that the M.S.M.Es single handedly cannot afford this cost,
however if a group of M.S.M.Es of similar nature of work come together the burden of
the foreign collaborations can be shared effectively.

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Bodla, B. S. (2004) concluded that S.S.I has produced the maximum attainable output
given the inputs of capital and labour and the available existing technology. It has also
been observed that the S.S.I sector is no way less than its counterpart large scale
industries in so far as the utilization of resources is concerned.
Y. Srinivas (2005) M.S.M.Es play a very significant role in the economy in terms of
balanced sustainable growth, employment generation, development of entrepreneurial
skills and contribution to export earnings. However, despite their importance to the
economy, most S.M.Es are not able to stand up to the challenges of globalisation, mainly
because of difficulties in the area of financing. With the opening up of the Indian
economy, it has become necessary to consider measures for smoothening the flow of
credit to this sector. Small and Medium Enterprises (S.M.Es) play a very significant role
in the economy in terms of balanced and sustainable growth, employment generation,
development of entrepreneurial skills and contribution to export earnings. However,
despite their importance to the economy, most S.M.Es are not able to stand up to the
challenges of globalisation, mainly because of difficulties in the area of financing.

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Sickness and Rehabilitation of M.S.M.Es in India (2005) The author feels that the
S.M.Es will fail in a sector for a variety of reasons. Global competitiveness has strained
Indias already weak infrastructure, which severely hinders the production of small scale
industries. There are a multitude of reasons for failure, however, not all of them related to
competition. Lack of knowledge, available capital, qualified workers or even motivation
on the part of the owner are all viable reasons for business failure. Whatever the reason
for failure, the business must have some sort of recourse to declare its sickness. In India,
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what
constitutes this mechanism is relatively unclear, and despite current progress, has
left much inefficiency.

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Keshab Das (2007) Despite an elaborate and dynamic policy framework, the progress of
Indian M.S.M.Es continues to be hindered by some of the basic constraints as poor credit
availability, low levels of technology (hence, low product quality and limited
exportability) and inadequate or no basic infrastructure, both physical and economic. It is
too early to assess the impact and effectiveness of a plethora of new policy measures,
announced very recently. He says that much of the potential of small firms to grow and
nurture innovativeness is shaped by the kind of infrastructure, both physical and
economic, available and can be accessed at reasonable costs. The M.S.M.E.D Act
attaches importance to networking with stakeholders both upstream and downstream in
the entire global value chain, from raw material procurement to
processing/manufacturing to marketing to customer services.
R.B.Is Report of Working Group on Rehabilitation of Sick S.M.Es (2008) A
Working Group was constituted under the chairmanship of Dr. K. C. Chakraborty,
Chairman and Managing Director, Punjab National Bank to suggest measures for
improving credit flow to the S.M.E sector as well as measures for early implementation
of rehabilitation/nursing of sick S.M.E units by examining feasibility of bringing in
additional capital through alternative routes, such as, equity participation, venture
financing, etc. As an incentive for proper restructuring package at the time of
rehabilitation, necessary support for business restructuring, modernization, expansion,
diversification and technological up gradation as may be felt necessary by the lenders
may also be encouraged. Support schemes like Credit Linked Capital Subsidy Scheme in
case of units in other (than rural) areas, K.V.I.C Margin Money Scheme (for units in rural
areas) may be extended for rehabilitation packages also. Many other recommendations
have also been given.
Shamika Ravi (2009) The M.S.M.E sector has often been termed the engine of growth
for developing economies. We begin with an overview of this sector in India and look at
some recent trends which highlight the development and significance of this sector vis-vis the Indian economy. Over the last few years, there have been major policy changes at
the federal and state level aimed at consolidating and developing this sector. The
M.S.M.E Development Act of 2006 is perhaps the most crucial of these recent policy
changes.
Risk And Capital Management in M.S.M.Es- by S.I.D.B.I (2010) The advent of
globalization offers both challenges and opportunity to M.S.M.Es. The challenge for
them is to remain competitive and consistently deliver value to customers. The
opportunities available include tapping the global markets and growth in scale by forging
strategic partnerships. Internationally, Risk Capital forms the basis of entrepreneurial
ecosystem. Risk Capital is an important instrument for not only start-ups and innovative /
fast growing companies but is also critical to those looking at growth. However the
sources of risk capital are limited in developing countries. It is encouraging to note that
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with
global integration of economy, emerging markets like India are sought after
destinations for successful Private Equity (P.E) funds. However, the P.E Funds continue
to focus on larger investments and bigger corporatized units though there are more
success stories of software and other new economy enterprises in the medium sector
being assisted by Venture Capital (V.C) Funds. Majority of the M.S.M.Es are owner
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driven with lesser inclination towards formal organizational structures. The non-corporate
structure and small size of the majority of M.S.M.Es in India makes the venture
capitalists and other risk capital providers reluctant to investing in them due to higher
transaction costs and difficulties in exits out of such investments. Thus, it is critical to
have appropriate risk capital products and focused funds for M.S.M.Es of different size
and constitution.
Mehul Kapadia (2011) Every bit of capital investment is crucial for an S.M.E. Seasonal
peaks are one of the greatest reasons for companies under-provisioning or overprovisioning. This can later result in a heavy loss and idle resources. All businesses
undergo a transition at various points. Whether you run a full-fledged enterprise, a
medium-sized business venture or even a smaller, relatively newer business, updating
business I.T. processes is a critical step in your enterprise life cycle. In fact, some
businesses even have to undergo multiple transformation phases. Large enterprises have
the capability and the resources to execute such transformations smoothly, but S.M.Es
face a significant challenge in doing so, given their limited resources and capital.
Annual Report of M.S.M.E 2011-2012 gives the overall view of M.S.M.Es with respect
to its performance and growth in production, employment, export, number of industries,
detail view of various schemes and of various departments of M.S.M.Es.
Annual Report of M.S.M.E 2012-2013 gives the overall view of M.S.M.Es with respect
to its performance and growth in production, employment, export, number of industries,
detail view of various schemes and of various departments of M.S.M.Es.

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Final Report of Fourth All India Census of M.S.M.E gives a sound, accurate and
comprehensive database of M.S.M.Es for sound policy formation.
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Garg, Ishu. And Walia, Suraj. (2012) confirms that the significant growth of M.S.M.Es
have been taken place over a period of time and this sector is the major donor to Gross
Domestic Product (G.D.P), employment and exports in Indian economy using the O.L.S
technique.

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FINANCIAL STATEMENTS OF THE COMPANY: -

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6 the Financial Statements, the Bank goes for the following: - Estimation of Sales,
In
Estimation of Profit, Calculation of various types of Ratios (i.e. Ratio Analysis) such as: the Current Ratio, the Debt-Equity Ratio (D.E.R), the Debt Service Coverage Ratio

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(D.S.C.R), the Interest Service Coverage Ratio (I.S.C.R) & finally the Calculation of the
Break-Even Point (B.E.P).
EXPLANATION: 5

a) Estimation of Sales: - Here, the Bank inspects that whether the Sales Estimation
provided by the Company is Achievable or not. The Bank then calculates the
future projected Sales of the Company & comes to a necessary conclusion.
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b) Estimation of Profit: - Here, the Bank inspects that whether the Profit Estimation
Provided by the Company is Achievable or not. The Bank then calculates the future
projected Profit of the Company & comes to a necessary conclusion.
c) Current Ratio: - The Current Ratio is defined as: -

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CURRENT RATIO= TOTAL CURRENT ASSETS

TOTAL CURRENT LIABILITIES
d) Debt-Equity Ratio (D.E.R): - The Debt-Equity Ratio is defined as: 20

DEBT-EQUITY RATIO = TOTAL OTSIDERS LIABILITIES(T.O.L)

TANGIBLE NET WORTH(T.N.W)
OR,
D.E.R= TOTAL CURRENT LIABILITIES + TOTAL TERM LIABILITIES
TANGIBLE NET WORTH

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e) Debt Service Coverage Ratio (D.S.C.R): - It is calculated in order to know the Cash
Profit Availability so as to repay the debt including the interest. It is calculated when a
Company/Firm takes Loan from Bank/Financial Institution/any other Loan Provider. The
following items that are required for calculating the D.S.C.R. are as follows: - Profit After
Tax (P.A.T), Non-Cash Expenses (such as: Depreciation, Miscellaneous Expenses
Written-off, Amortization etc.), Interest for the Current Year, Instalment for the Current
Year.
The formula for D.S.C.R is: D.S.C.R= P.A.T+NON CASH EXPENSES+INTEREST(current year)
INSTALMENT+INTEREST
f) Interest Service Coverage Ratio (I.S.C.R): - It is used to determine how easily a
company can pay interest on outstanding debt. The formula for I.S.C.R is: -

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I.S.C.R = PROFIT BEFORE TAX+INTEREST+DEPRECIATION

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INTEREST COST
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g) Break-Even Point (B.E.P): - It is defined as the Point in time (or in number of units
sold) when forecasted revenue exactly equals the estimated total costs; where loss ends
and profit begins to accumulate. This is the point at which a business, product, or project
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becomes financially viable. The various formulae associated with the Break-Even Point
calculation are as follows: -

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CONTRIBUTION = (TOTAL REVENUE - VARIABLE COST)=(FIXED COST +

PROFIT)
PROFIT RATIO = TOTAL REVENUE-VARIABLE COST 100
VOLUME
TOTAL REVENUE
BREAK-EVEN SALES(in RS.) = FIXED COST SALES
SALES-VARIABLE COST
BREAK-EVEN POINT(IN %)=FIXED COST 100
TOTAL CONTRIBUTION
BREAK-EVEN POINT(IN %)=BREAK-EVEN SALES(IN RS.) 100
100% CAPACITY SALES

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WORKING CAPITAL ASSESSMENT: -

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The Working Capital Assessment refers to the day-to-day expenses required for the
proper functioning of an organization. Here, the Bank goes for the assessment of Working
Capital of the Company in order to know whether the Loan amount proposed by the
respective Company is Acceptable or not.
The following tools required for the Assessment of the Working Capital are: - the
Holding Period (otherwise known as the Operating Cycle Time-period) & the various
methods of Working Capital Assessment are: Turnover Method & Second Method of
Lending (otherwise known as the Maximum Permissible Bank Finance Method
(M.P.B.F)).

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HOLDING PERIOD: - It refers to the time between an Assets Purchase & its Sales. It is
otherwise known as Operating Cycle Time-period. The various formula associated for
the calculation of various types of Holding Period are: 30

a) Raw Material Holding Period (R.M.H.P): R.M.H.P(in months)= COST OF THE RAW MATERIAL 12
COST OF RAW MATERIAL CONSUMED

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Where; Raw Materials Consumed = (Opening Stock + Purchases Closing Stock)

b) Work-in-Progress Holding Period (W.I.P.H.P): -

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W.I.P.H.P(IN MONTHS) = WORK - IN - PROGRESS 12

COST OF PRODUCTION
c) Finished Goods Holding Period (F.G.H.P): 8
F.G.H.P(IN MONTHS) = FINISHED GOODS 12
TOTAL COST OF SALES
d) Receivables Holding Period (R.H.P): -

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R.H.P(IN MONTHS)= RECEIVABLES 12

TOTAL SALES
e) Creditors Holding Period (C.H.P): 5

C.H.P(IN MONTHS)= CREDITORS 12

TOTAL PURCHASE AMOUNT

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f) Holding Period or Operating Cycle Time-period: HOLDING PERIOD=(R.M.H.P + W.I.P.H.P + F.G.H.P + R.H.P - C.H.P)

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VARIOUS METHODS OF ASSESSING WORKING CAPITAL: A. TURNOVER METHOD: -

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Under this Method, Working Capital is assessed at 25% of the Projected Turnover
based on the assumption of a Three Month Operating Cycle. 20% of the Turnover is
provided by the way of Bank Finance & Balance 5% or 1/5th of the Working Capital
required should be brought in by the Borrower by the way of Net Working Capital
Contribution. Here, if the Holding Period or Operating Cycle Period is Less than 3
Months or if the Working Capital

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Requirement is Less than 5 Crores then the Working Capital of the Company will be
assessed under the Turnover Method.
EXAMPLE: Condition: - The Holding Period or Operating Working Capital Time-period for a
particular Fiscal Year is less than 3 Months & its Working Capital Requirement is less
than Rs. 5 Crores.
Calculation: Let, the Projected Sales/Turnover = Rs. 100 lakhs.
Here, the Working Capital Requirement is 25% of the Projected Turnover/Sales i.e. 25%
of Rs. 100 lakhs = Rs. 25 lakhs.
Then, 20% of the Turnover is provided by way of Bank Finance i.e. 20% of Rs. 100 lakhs
= Rs. 20 lakhs.
And Balance 5% will be the Borrowers Margin i.e. 5% of Rs. 100 lakhs = Rs. 5 lakhs.
B. SECOND METHOD OF LENDING: The Second Method of Lending is otherwise known as: - Maximum Permissible Bank
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Finance
Method (M.P.B.F). It is the Conventional Method of assessing Working Capital
for Units with Longer Operating Cycle (Holding Period) i.e. Greater than 3 Months
and/or for Units requiring working Capital in excess of Rs. 5 Crores. The assessment is
based on the build-up of Current Assets & Current Liabilities. 25% of Current Assets

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should be brought in by the Borrower/Promoter by way of Net Working Capital

Contribution.
EXAMPLE: Condition: - The Holding Period or Operating Working Capital Time-period for a
particular Fiscal Year is more than 3 Months & its Working Capital Requirement is more
than Rs. 5 Crores.
Calculation: Let, Total Current Assets = Rs. 100 lakhs.
And Total Current Liabilities (Excluding Bank Borrowings) = Rs. 50 Lakhs.

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Then, the Working Capital Gap = (Total Current Assets Total Current Liabilities) = Rs.
(100-50) lakhs= Rs. 50 lakhs.
Now, Working Capital Requirement (Net Working Capital Contribution by the Promoter)
= (25% of the Total Current Assets) = 25% of Rs. 100 lakhs = Rs. 25 lakhs.
And Bank Finance = (Working Capital Gap Working Capital required) = Rs. (50-25)
lakhs = Rs. 25 Lakhs.
Note: - After the Assessment of Working Capital then finally the Credit Rating of the
Account is performed in order to know the Status of the respective

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DATA ANALYSIS
TYPE OF RESEARCH: 35

Here, the Type of Research is both Descriptive and Analytical.

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It is Descriptive as the Project deals with various theories regarding the Bank of Indias
(B.O.Is) Credit Policy (which includes both the Credit Lending and Credit Rating
Policies) while providing the Term Loan to the Micro, Small and Medium Enterprises
(M.S.M.E) and also regarding the various ways of assessing the Working Capital Finance
to
10the Micro, Small and Medium Enterprises (M.S.M.E).

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And it is Analytical as the Project deals with the Study and Analysis of the Sales
Estimation, the Ratio Analysis, the Break-Even Point Calculation, the Working Capital
Assessment and finally, the Credit Rating of the Account on the basis of which the Credit

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will be appraised by the bank for providing the Working Capital Finance to Micro, Small
and Medium Enterprises (M.S.M.E).

DATA COLLECTION: 5

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Here, the data collected is both from the Primary Source as well as from the Secondary
Source, so the Data Collection is both Primary and Secondary Data. Primary Data as the
informations are collected directly from the Banker and Secondary Data as the Project is
referred from various Books, Bank of Indias (B.O.Is) Website and Customer files at
B.O.I.

SOFTWARE USED FOR DATA ANALYSIS: 15

Here, the Software Used for Data Analysis is: - Microsoft Excel (M.S. EXCEL) Version2013.

DATA PRESENTATION: 20

Here, the Presentation of Datas includes: Brief Introduction regarding the ABC Limited
Cashew Processing Unit, the Companys C.M.A Data and Financial Projections in the
form of Excel Sheet. It also includes the Calculation of Sales Estimation, Calculation of
various Ratios (Current Ratio, Debt-Equity Ratio and Debt Service Coverage Ratio),
Calculation of Break Even Point, Calculation of Working Capital Assessment and finally
the Calculation of Credit Rating of the Account.

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BRIEF INTRODUCTION OF THE FIRM: -

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The Firm is a sister concern of M/s. A.B.C Pvt. Ltd. M/s A.B.C Industries is a
Proprietorship concern owned by Mr. XYZ who is also a Promoter Director in A.B.C Pvt.
Ltd. The Main Objective of the Firm is Processing of Cashew Nut to produce Quality
Cashew. The Main Aim of the Govt. Policy is to increase the flow of investments across
the supply chain from farm to market, increase the value addition and reduce wastage of
farm production and increase the income of farmers. There are very few local competitors
to face in the eastern region. So, the Company can get good exposure over the Eastern
Zone Market.
11 Company has requested for Credit Facilities of Rs. 99.50 Lakhs for Division-1
The
(Cashew Processing Unit) which consists of Term Loan of Rs. 57 Lakhs and Working
Capital Loan of Rs. 42.50 Lakhs.

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The Company has submitted herewith the Complete Project Report along with the
Projected C.M.A Data and other requisite information/documents. The Company expects
a maximum Rate of Interest on above Credit Facilities to be availed to them as follows: a. Credit Limit 12.50% (If needed, the bank will allow interest concession of 1% as
applicable).
b. Term Loan 12.50% (rate, being an Agro-Based Manufacturing Unit).

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Coverage under C.G.T.M.S.E Scheme: - Adequate Principal Security will be created after
availment of proposed bank loan. However, since presently the Firm is not in a position
to offer any Collateral Security, the Firm requests the Bank to cover their proposed Credit
Facility under C.G.T.M.S.E Scheme. The Firm agrees to abide by the terms and
conditions of above scheme.
Products and Services: - The Firm has the following Products and Services: - Whole
Cashew Nuts, Broken Cashew Nuts, Small Bits and Letting out Godown.
Availability of Raw Material: - The only Raw Material required will be Cashew Fruits.

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Capacity and Production: - Here, the Installed Capacity is 750 Kg per Day, No. of
Working Days is 300 and Working Hour per Day is 8 hours.

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Here, the Repayment Period is in 28 Quarterly Instalments, Loan Duration is 96 Months

and Total No. of Instalments is 84 Nos.
The Input-Output Ratio is 4:1. The Firm has presently considered the Selling Price of Rs.
450 per kg, Rs. 250 per kg and Rs. 175 per kg of Whole Cashew Kernels, Broken
Cashews and Small Bits respectively.

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Note: - The Firm has Projected to start its operations from the month of July, 2015,
hence, Firm will be operating for 9 months during next F.Y. 2016-17 and F.Y. 2017-18
will be Firms first full year of operations.

CALCULATION OF FINANCIAL TOOLS: 35

A. CALCULATION OF SALES ESTIMATION: We know that, from the D.I.C. Registration Report;

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Installed Capacity (In KG's Per Day) ---------750 kg/day

No. of Days of Working-------------------------300.00
No. of Working Hours---------------------------8.00
Total
12 Installed Capacity per Annum----------- (750300) = 225000 kg p.a.
Now, for 2016, the Bank has proposed an Utilisation Capacity of 60%.
I.e. 60% of 225000 kg p.a. = 135000 kg p.a.
Since the No. of Working Months for 2016 is 9 Months, thus for 9 Months the Annual
Production in Kgs becomes = 135000 (9/12) = 101250 kg p.a.

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Now, the Industry says;

No. of Days for Work in Progress is 4.
No. of Months of Finished Goods is 0.5.
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Calculation of Closing Stock of Work-in-Progress (in 2016): Closing Stock of work in progress=Annual productionNo.of days for W.I.P
No. Of days worked
That implies, C.S. of W.I.P = 1012504300 = 1,350 kg.

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300
Calculation of Closing Stock of Finished Goods (in 2016): Closing Stock of = .
That implies, C.S. of F.G. = 1012500.512 = 4,219 kg.
Thus, Annual Sales Production for 2016 = (101250 1350 - 4219) = 95,681 Kg P.a.

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Calculation of Total Sales (in 2016): The Ideal Industrial Production is in the Ratio of 4:1.
(I.e. If 100 pieces of Input items are given then the Output items obtained will be only of
25 pieces, which is in the Ratio of 4:1).
Now,
Selling Price/Kg and % of Total Production of: Whole Cashew Kernels (Qty in KGs) ------- 450.00 70.00%
Broken Cashews (Qty in KGs) ----------------250.00 20.00%
Small Bits (Qty in KGs) ------------------------175.00 10.00%, respectively.
Then,
Amount of Whole Cashew Kernels Produced = (70% of 95,681) = 66,977 kg p.a.
Amount of Broken Cashews Produced = (20% of 95,681) = 19,136 kg p.a.
Amount of Small Bits Produced = (10% of 95,681) = 9,568 kg p.a.
We know that,
Selling Price of 1 kg of Whole Cashew Kernels = Rs. 450/Then, Selling Price of 66,977 kg of Whole Cashew Kernels = Rs. (45066,977) = Rs.
301.3965 Lakhs. -------Equn. (1)
Similarly,
S.P. of 1 kg of Broken Cashews = Rs. 250/Then, S.P. of 19,136 kg of Broken Cashews = Rs. (25019,136) = Rs. 47.84 Lakhs--Equn.
(2)
Lastly,
S.P. of 1 kg of Small Bits = Rs. 175/Then, S.P. of 9,568 kg of Small Bits = Rs. (1759,568) = Rs. 16.744 Lakhs. ---Equn. (3)
Thus, Adding Equn. (1) + (2) + (3), we get: Total Sales = Rs. (301.3965+47.84+16.744) Lakhs = Rs. 365.98 Lakhs = Rs. 370 Lakhs
(Rounded off).
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Similarly in this way, the Projected Sales figures for 2017, 2018, 2019, 2020, 2021, 2022,
and 2023 are found out to be: Rs. 510 Lakhs, Rs. 520 Lakhs, Rs. 640 Lakhs, Rs. 770
Lakhs, Rs. 770 Lakhs, Rs. 770 Lakhs and Rs. 770 Lakhs respectively.

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Note: - Similarly, the Sales Estimation for the Simultaneous (Projected) Years are
calculated in the same manner.
B. CALCULATION OF CURRENT RATIO: We know, =
370
510
520
640
770
770
770
770
0
100
200
300
400
500
600
700
800
900
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23

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