APPENDIX 6A : VEGETRON LIMITED: A CASE STUDY ON FINANCIAL PROJECTIONS

Cost of Project and Means of Finance

(Rs. In million) Basic Assumptions
Land and site development 10 Installed capacity in TPA 2880
Capacity
Building 15 Year utilisation
Plant and machinery 62 1 50%
Miscellaneous fixed assets 4 2 60%
Preliminary expenses 2 3 70%
Pre-operative expenses
( including interest during
construction) 11.5 onwards

Average sales realisation

per kg of TVP,net of
Contingency margin 8 excise duty, in Rs. 120
Cost of raw materials and
consumables as a
Working capital margin 8.5 percentage of sales 65%
Cost of power as a
TOTAL 121 percentage of sales 4%

The proposed means of (Rs. In Wages & salaries

finance million) during operating year (Rs. in million)
Share capital 50 1 9.0
Term loans 60 2 10.0

State government's special

incentive loan ( Repayable
in 6 instalments after 12
years) 11 3 12.0
Increment per year from
121 4th year 5%
Factory overhead
expenses in year (Rs. in million)
No.of equal term loan
instalments 16 1 0.5
Period of each instalment in Increment per year from
years 0.5 2nd year 6%

First instalment falling due Administrative expenses

at the end of operating year 2 per year in Rs.million 1.0
Interest rate on the Selling expenses per
outsanding term loan year in Rs.as a
amount 12% percentage of sales 10%

Current asset/liability Interest rate on working

requirements Months finance 13%
 Company law
purposes- For income
under tax purposes
Raw materials(including straight line under WDV
consumables) 1.5 Depreciation rates for method method
Stock-in- process 0.03 Building 3.34% 10%
Finished goods 0.5 Plant and machinery 7.42% 15.00%
Miscellaneous fixed
Book debt 1.0 assets 7.42% 15.00%
Trade credit 0.5
No. of equal annual
instalments in which
preliminary expenses will
be written off 10 Dividends
Planned to be paid from
Applicable income tax rate 30% the year 2
Deduction allowed on Rate of dividend planned
Gross total income 0% for the second year 12%
Increase proposed
thereafter once in years 2
Percentage of increase 2%

Exhibit 6A.1 : Interest on Term Loans ( Rs.in million)

Loan
o/s at
Loan the end
o/s at of the
the first Interest for Interest for
beginni half Loan o/s at the end of the first half the second
Year ng year the second half year year half year
1 60 60 60 3.60 3.60
2 60 60 56.25 3.60 3.60
3 56.25 52.5 48.75 3.38 3.15
4 48.75 45 41.25 2.93 2.70
5 41.25 37.5 33.75 2.48 2.25
6 33.75 30 26.25 2.03 1.80
7 26.25 22.5 18.75 1.58 1.35
8 18.75 15 11.25 1.13 0.90
9 11.25 7.5 3.75 0.68 0.45
10 3.75 0 0 0.23 0.00
Exhibit 6A.4 : Sales realisation
Year 1 2 3 4 5
Installed capacity(TPA) 2880 2880 2880 2880 2880
Production(TPA) 1440 1728 2016 2016 2016
Capacity utilisation 50% 60% 70% 70% 70%
Sales realisation(Rs.million) 172.80 207.36 241.92 241.92 241.92
 Exhibit 6A.2 : Working Capital Requirements (Rs.in million)

Norms
in Years
Item months 1 2 3
Raw materials(including
consumables) 1.5 14.04 16.85 19.66

Sock-in-process 0.03 0.32 0.38 0.45

Finished goods 0.5 5.34 6.38 7.46

Book debts 1 14.40 17.28 20.16
Total current assets 34.10 40.89 47.72
Less: Margin for working
capital from long-term
sources(25% of total
current assets) 8.53 10.22 11.93
Less: Trade credit for raw
materials and consumable
stores 0.5 4.68 5.62 6.55
Bank finance for working
capital 20.90 25.05 29.24

Depreciation schedule for income tax purposes ( Written down value method)
Year 1 2 3 4 5
Building 1.821 1.639 1.475 1.328 1.195
Plant & machinery & misc.
fixed assets 12.021 10.218 8.685 7.383 6.275
Total 13.843 11.858 10.161 8.710 7.470

Exhibit 6A.5 Profitability Estimates (Estimates of Working Results)

Year 1 2 3 4 5
A. Sales realisation 172.80 207.36 241.92 241.92 241.92
B.Cost of production
Raw materials 112.32 134.78 157.25 157.25 157.25
Power 6.91 8.29 9.68 9.68 9.68
Wages and salaries 9.00 10.00 12.00 12.60 13.23
Factory overheads 0.50 0.53 0.56 0.60 0.63
C. Administration & selling
expenses
Administration expenses 1.00 1.00 1.00 1.00 1.00
Selling expenses 17.28 20.74 24.19 24.19 24.19
D. Gross profit before
interest 25.79 32.02 37.24 36.61 35.94

E. Total financial expenses

Interest on term loans 7.20 7.20 6.53 5.63 4.73
Inerest on bank borrowing 2.72 3.26 3.80 3.80 3.80
F.Depreciation 6.55 6.55 6.55 6.55 6.55
G. Operating profit 9.32 15.00 20.36 20.63 20.86
H. Preliminary expenses
written off 0.20 0.20 0.20 0.20 0.20
I. Profit/Loss before tax 9.12 14.80 20.16 20.43 20.66
J. Provision for tax 0.55 2.85 4.97 5.48 5.92
K. Profit after tax 8.57 11.95 15.19 14.95 14.74
L. Less: Dividend 6 6 7 7
M. Retained profit 8.57 5.95 9.19 7.95 7.74
N. Add: Depreciation 6.55 6.55 6.55 6.55 6.55
Preliminary expenses
written off 0.2 0.2 0.2 0.2 0.2
O. Net cash accruals 15.32 12.71 15.95 14.70 14.49

Exhibit 6A.6 : Tax Calculation ( Rs. In million)

Year 1 2 3 4 5
Profit/loss before tax 9.12 14.80 20.16 20.43 20.66
Add: depreciation for
company law purposes 6.55 6.55 6.55 6.55 6.55
15.67 21.36 26.72 26.98 27.22
Less: depreciation for tax
purposes 13.84 11.86 10.16 8.71 7.47
1.83 9.50 16.55 18.27 19.75

Less: unabsorbed
depreciation of earlier years
Gross total income 1.83 9.50 16.55 18.27 19.75
Less deduction u/s 80 I at
30% from gross total
income for 10 years
Total income 1.83 9.50 16.55 18.27 19.75
Income tax @ 30% 0.55 2.85 4.97 5.48 5.92

Exhibit 6A.7 : Projected Cash Flow Statements ( Rs. In

Constr
uction
Year period 1 2 3 4
Sources of Funds
Share issue 50
Profit before taxation with
interest added back 19.03 25.26 30.49 29.85
Depreciation 6.55 6.55 6.55 6.55
Preliminary expenses
written off 0.2 0.2 0.2 0.2
Increase in secured
medium and long- term
borrowings 60
Increase in bank
borrowings for working
capital 20.90 4.15 4.19

Increase in the State Govt's

Special Incentive Loan 11
Total ( A) 121.00 46.69 36.17 41.43 36.61
Disposition of Funds
Capital expenditure for the
project 110.50

Increase in working capital 29.42 5.85 5.89

Preliminary expenses 2.00
Decrease in secured
medium & long term
borrowings 3.75 7.50 7.50
Interest on term loans 7.20 7.20 6.53 5.63

Interest on bank borrowings

for working capital 2.72 3.26 3.80 3.80
Taxation 0.55 2.85 4.97 5.48
Dividend 0.00 6.00 6.00 7.00
Total (B) 112.50 39.89 28.91 34.69 29.41
Opening balance of cash in
hand and at bank 8.50 15.30 22.56 29.30
Net surplus/deficit(A-B) 8.50 6.80 7.26 6.74 7.20
Closing balance of cash in
hand and at bank 8.50 15.30 22.56 29.30 36.50

Exhibit 6A.8 : Projected Balance Sheets (R

At the
end of
the
constr
uction
period Years
1 2 3 4
Liabilities
Share capital 50 50 50 50 50
Reserves and surplus 8.57 14.52 23.72 31.66
Secured loans
Term loans 60 60.00 56.25 48.75 41.25
Working capital advance 20.90 25.05 29.24 29.24
Unsecured loans
State Govt. loan 11 11 11 11 11
Current liabilities &
Provisions
Trade credit 4.68 5.62 6.55 6.55
Total 121.00 155.15 162.44 169.25 169.70
Assets
Fixed assets
Gross block 110.50 110.50 110.50 110.50 110.50
Less: Accumulated
depreciation 6.55 13.11 19.66 26.22
Net fixed assets 110.50 103.95 97.39 90.84 84.28
Investments
Current assets, loans and
advances
Raw materials 14.04 16.85 19.66 19.66
Stock-in-process 0.32 0.38 0.45 0.45
Finished goods 5.34 6.38 7.46 7.46
Book debts 14.40 17.28 20.16 20.16
Cash & bank balances 8.50 15.30 22.56 29.30 36.50

Misc. expenditure & losses

Preliminary expenses 2.00 1.80 1.60 1.40 1.20
Total 121.00 155.15 162.44 169.25 169.70
 ( Rs.in million)

Total
interest for
the term
loan
7.20
7.20
6.53
5.63
4.73
3.83
2.93
2.03
1.13
0.23
ation
6 7 8 9 10
2880 2880 2880 2880 2880
2016 2016 2016 2016 2016
70% 70% 70% 70% 70%
241.92 241.92 241.92 241.92 241.92

Exhibit 6A.3: Depreciation Schedules (Rs.in million)

 Asset valuation for depreciation
Sharepurposes
of
Share of continge
Asset Basic preoperat ncy
expenses cost ive cost margin Total
Land 10 1.26 0.88 12.14

Building 15 1.90 1.32 18.21

Plant &
machinery 62 7.84 5.45 75.29
Misc.fixed
assets 4 0.51 0.35 4.86

Depreciation schedule for Company Law purposes

Building 3.34% 0.61 (Rs.in millions)

Plant &
machinery 7.42% 5.59
Misc.fixed
assets 7.42% 0.36
Annual
depreciation 6.55

wn value method) (Rs.in millions)

6 7 8 9 10
1.076 0.968 0.871 0.784 0.706

5.334 4.534 3.854 3.276 2.784

6.410 5.502 4.725 4.060 3.490

Working Results) ( Rs. In millions)

6 7 8 9 10
241.92 241.92 241.92 241.92 241.92

157.25 157.25 157.25 157.25 157.25

9.68 9.68 9.68 9.68 9.68
13.89 14.59 15.32 16.08 16.89
0.67 0.71 0.75 0.80 0.84

1.00 1.00 1.00 1.00 1.00

24.19 24.19 24.19 24.19 24.19

35.24 34.51 33.74 32.93 32.07

3.83 2.93 2.03 1.13 0.23

3.80 3.80 3.80 3.80 3.80
 6.55 6.55 6.55 6.55 6.55
21.06 21.23 21.36 21.44 21.49

0.20 0.20 0.20 0.20 0.20

20.86 21.03 21.16 21.24 21.29
6.30 6.62 6.90 7.12 7.31
14.56 14.40 14.26 14.12 13.99
8 8 9 9 10
6.56 6.40 5.26 5.12 3.99
6.55 6.55 6.55 6.55 6.55

0.2 0.2 0.2 0.2 0.2

13.31 13.16 12.01 11.88 10.74

( Rs. In million)
6 7 8 9 10
20.86 21.03 21.16 21.24 21.29

6.55 6.55 6.55 6.55 6.55

27.42 27.58 27.71 27.80 27.85

6.41 5.50 4.72 4.06 3.49

21.01 22.08 22.99 23.74 24.36

21.01 22.08 22.99 23.74 24.36

21.01 22.08 22.99 23.74 24.36

6.30 6.62 6.90 7.12 7.31

( Rs. In million)

5 6 7 8 9 10

29.19 28.49 27.75 26.98 26.17 25.32

6.55 6.55 6.55 6.55 6.55 6.55

0.2 0.2 0.2 0.2 0.2 0.2

 35.94 35.24 34.51 33.74 32.93 32.07

7.50 7.50 7.50 7.50 7.50 3.75

4.73 3.83 2.93 2.03 1.13 0.23

3.80 3.80 3.80 3.80 3.80 3.80

5.92 6.30 6.62 6.90 7.12 7.31
7.00 8.00 8.00 9.00 9.00 10.00
28.95 29.43 28.85 29.22 28.55 25.08

36.50 43.49 49.31 54.97 59.48 63.86

6.99 5.81 5.66 4.51 4.38 6.99

43.49 49.31 54.97 59.48 63.86 70.85

( Rs.in million)

Years
5 6 7 8 9 10

50 50 50 50 50 50
39.40 45.96 52.36 57.62 62.74 66.73

33.75 26.25 18.75 11.25 3.75 0.00

29.24 29.24 29.24 29.24 29.24 29.24

11 11 11 11 11 11

6.55 6.55 6.55 6.55 6.55 6.55

169.94 169.00 167.90 165.66 163.28 163.52
110.50 110.50 110.50 110.50 110.50 110.50

32.77 39.33 45.88 52.44 58.99 65.55

77.73 71.17 64.62 58.06 51.51 44.95

19.66 19.66 19.66 19.66 19.66 19.66

0.45 0.45 0.45 0.45 0.45 0.45
7.46 7.46 7.46 7.46 7.46 7.46
20.16 20.16 20.16 20.16 20.16 20.16
43.49 49.31 54.97 59.48 63.86 70.85

1.00 0.80 0.60 0.40 0.20 0.00

169.94 169.00 167.90 165.66 163.28 163.52
(Rs.in millions)