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WORKING
C A P I TA L
 WORKING CAPITAL – DAY - 1
DEFINITION OF WORKING CAPITAL

FACTORS DETERMINING WORKING CAPITAL

WORKING CAPITAL CYCLE / CASH CONVERSION CYCLE

SOURCE OF WORKING CAPITAL FINANCEING

WORKING CAPITAL PRODUCTS

ASSESSMENT OF WORKING CAPITAL

CREDIT MONITORING ARRANGEMENT

FINANCIAL RATIOS
 WORKING CAPITAL – DAY - 2
SPECIAL SITUATIONS FOR ASSESSMENT OF WORKING CAPITAL

MAXIMUM PERMISSIBLE BANK FINANCE (MPBF) - LIMITATION

DRAWING POWER NOT ALLIGEND TO MPBF

SECURITY

WORKING CAPITAL VS. TERM LOAN

LOAN DOCUMENTS PROCEDURE

PREPARATION OF BUSINESS PLAN / PROJECT REPORT (DPR)

 LEARNING
AT THE END OF DAY - 1
Basis of Working Capital

Different component of the Working Capital /

Working Capital Cycle

Computation of the Working Capital

Understanding of Various Ratios

 LEARNING
AT THE END OF DAY - 2
Practical problems in computation of Working
Capital.

Justification of shortfall in Drawing Power in various

situations

Brief of Securities

Basic understanding of Loan Documents

Outline of Detailed Project Report

DEFINITION OF WORKING CAPITAL
Funds deployed for managing Business Operations.

A Short Term Capital which provides MONEY to buy

EARNING ASSETS.

Working Capital refers to that part of the Capital, which is

required for financing short-term or current assets such as
Cash, Debtors and Inventories, Day to Day Operation etc.

Funds thus invested in Current Assets keep REVOLVING

FAST and are constantly converted into cash and this cash
flows out again in exchange for other Current Assets.
DEFINATION OF WORKING CAPITAL
Working Capital refers to the cash a business requires for
day-to-day operations, or, more specifically, for financing the
conversion of raw materials into finished goods, which the
company sells for payment. Among the most important items
of working capital are levels of inventory, accounts receivable,
and accounts payable.

Working Capital is also known as revolving or circulating

capital or short-term capital.

It is the business's life blood.

FACTORS DETERMINING WORKING
CAPITAL
Types of Products Manufactured / Services rendered.
Total Costs incurred on materials.
Wages and overheads.
The period of Raw materials holding before they are issued to production.
The period of the Production Cycle or Work-in-progress / Stock-in-process, i.e., the
time taken for conversion of raw materials to finished goods.
The period of Finished goods holding i.e. finished goods are to be kept waiting for
sales.
The period of Receivable holding i.e. average period of credit allowed to customers.
The amount of cash required to pay day-to-day expenses of the business / operation.
The amount of cash required for advance payments, if any.
The period of credit availed from suppliers.
Time -lag in the payment of wages and other overheads.
 WORKING CAPITAL CYCLE / CASH
CONVERSION CYCLE (CCC)
It is the business's life blood. If a business is operating profitably, then it
should, in theory, generate cash surpluses. If it doesn't generate
surpluses, the business will eventually run out of cash and expire.

There are two elements in the business cycle that absorb cash -

Inventory (Raw Material, Work-in-progress, Finished Goods)

Receivables (Debtors owing you money).

The main sources of cash are –

Payables (your Creditors)
Equity and Loans.
WORKING CAPITAL CYCLE / CASH
CONVERSION CYCLE (CCC)
 WORKING CAPITAL CYCLE / CASH
CONVERSION CYCLE (CCC)
Each component of working capital (namely inventory, receivables and
payables) has two dimensions ........TIME ......... and MONEY. When it comes to
managing working capital - TIME IS MONEY.

If you can get money to move faster around the cycle like :
Collect monies due from debtors more quickly
Reduce the amount of money tied up by reducing inventory levels
Increase in credit period from suppliers

The business will generate more cash or need to borrow less money to fund
working capital. As a consequence, you could reduce the cost of interest or
additional free money available to support additional sales growth or
investment. So, you effectively create free finance to help fund future sales.
 Measuring a Company’s Liquidity
Through Cash Conversion Cycle
The Cash Conversion Cycle is a measure of working capital efficiency,
often giving valuable clues about the underlying health of a business.
The cash conversion cycle is comprised of three standard, so-called
activity ratios relating to:

Turnover of inventory (Raw Material – WIP –Finished Goods) (Assets)

Turnover of Trade Receivables (Assets)
Turnover of Trade Payables (liabilities)

The CCC tells us the time (number of days) it takes to convert these two
important assets into cash.
MEASURING A COMPANY’S LIQUIDITY
THROUGH CASH CONVERSION CYCLE
A fast turnover rate of these assets is what creates real liquidity and is a
positive indication of the quality and the efficient management of
inventory and receivables.

Raw Materials - W.I.P - Finished Goods - Debtors

____________________ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Trade Payables Cash Conversion Cycle
___________________
Bank Borrowing +Long Term Fund
 RATIOS OF CASH CONVERSION
CYCLE
Raw Material Holding Period
= Avg. Stock of Raw Material *12/ Total yearly consumption of Raw
material
 WIP Holding Period
= Avg. Stock of WIP *12/ Total cost of production for the year
 Finished Goods Holding Period
= Avg. Stock of Finished Goods*12/ Total cost of sales for the year
 Receivable Turnover Period
= Average Debtors *12 / total sales for the year
 Account Payable Turnover period
= Average Account Payable *12 / total purchase for the years
(for the calculation in days, multiply by 365 in place of 12)
 SOURCE WORKING CAPITAL
FINANCING
Working Capital is financed by following sources:

OWNED FUNDS
A portion of long term funds, equity share capital and reserves &
surplus is utilized to fund working capital

BANK BORROWINGS
Various bank products like cash credit, Overdraft, Working Capital
Demand Loan, Packing Credit, Bills Discounting, Factoring etc.

CREDITORS
WORKING CAPITAL PRODUCTS
Structured
Fund Based Non Fund Based
Products

Letter of Factoring
Domestics Exports
Credit
Forfeiting
Cash Pre- Bank
Credit Shipment Guarantee Corporate
Loan
Post-
Overdraft Shipment Commercial
Paper

Bills Securitization
Discounting of Receivables
Buyer’s/
WCDL Supplier’s
Credit
 NON FUND PRODUCTS

Can be used to reduce cost of borrowed funds

Banks charge a small commission on Non fund based products as

compared to interest on Fund based products

Usage of these tools is subject to a mutual understanding between

the buyer and the supplier
 NON FUND PRODUCTS - BANK
GUARANTEE
Bank guarantee is issued by the bank undertaking the liability of
applicant in case of his default. Guarantees may broadly be divided in
three categories as under:

Financial Guarantees - Guarantee to discharge financial obligation of

the applicant

Performance Guarantees – Guarantee for due performance of a

contract by the applicant

Deferred Payment Guarantees - Guarantee for the deferred payment

in respect of capital item purchase
NON FUND PRODUCTS - LETTER OF
CREDIT (L/C)
A document issued by a financial institution which provides an
irrevocable payment undertaking to a beneficiary against complying
documents as stated in the credit.

L/C facility can be assessed in the following manner:

(Rs. In Cr.)
Total purchases 1000
Purchase under L/C (say 60%) 600
Period under L/C (days) 90
Lead time under L/C (days) 30
L/C Requirement (600 x (90 + 30)/365) 200
 STRUCTURED PRODUCTS -
FACTORING
Sale of receivables to outside agency specialized in the management
of receivables.

Factoring can be with or without recourse basis.

Advantages:
(1) A ready source of short term funds
(2) Simple procedures/ documentation
(3) Require lesser margins
(4) Off balance sheet financing (without recourse)
 STRUCTURED PRODUCTS -
FORFEITING
Risk free option for exporters

Forfeiting agency purchases receivables at a discount from an

exporter on a without recourse basis.

Advantages:
(1) Improved liquidity
(2) Convert credit sales into sales
(3) Credit limit does not get blocked
(4) Free from political risks
 STRUCTURED PRODUCTS -
CORPORATE LOANS
Secured/unsecured loan raised from financial institutions to meet the
working capital requirement of a company.

Improves Net Working Capital.

Tenor 3 to 5 years
 STRUCTURED PRODUCTS -
COMMERCIAL PAPER
Commercial paper is one of the oldest instruments for raising short –
term finance.
Some of the important guidelines issued by the RBI are as under:-
(1) Minimum TNW of Rs. 4 Crores.
(2) Has been sanctioned working capital limits by Banks/ all -India
Financial Institutions
(3) Borrowal account must be standard asset.
(4) Minimum credit rating of P2 by CRISIL or equivalent.
(5) Maturity between 7 days to 1 year
(6) Issued in multiples of Rs. 5 lacs

Cheaper source of finance as compared to traditional bank finance

 STRUCTURED PRODUCTS -
SECURITIZATION OF RECEIVABLES
Discounting of FUTURE CASH FLOW
Cash Flows are not contingent on the performance of the borrowers.
Cash flows are directly collected by the lenders or approved agencies.
Examples:
(1) Rent Discounting
(2) Credit Card Discounting
(3) Royalty fees / Franchisee Fees Discounting
 Advantages:
(1) Better credit quality and hence easy in raising finance
(2) Lower cost of credit
(3) Without recourse financing in certain cases
(4) Balance sheet management
 STRUCTURED PRODUCTS -
SUPPLIERS’CREDIT and BUYERS’CREDIT
Suppliers’ Credit: Short term loans where the credit for imports into
India is extended by the overseas suppliers through a bank.

Buyers’ Credit: Short term loans for payment of imports into India is
arranged by the importer from a bank or FI outside India.

The funding banks primarily depend on the credit worthiness of L/C

opening bank
 ASSESSMENT OF WORKING
CAPITAL
METHODS OF ASSESSMENT OF WORKING CAPITAL

1)TURNOVER METHOD

2)CASH BUDGET SYSTEM

3)COMMITTEE RECOMMENDATIONS
 TURNOVER METHOD
Working Capital Requirement = 25% of Turnover
Promoter Contribution (Margin) = 5% of Turnover
Bank Finance = 20% of Turnover

•Proposed by The Nayak Committee

•Used for assessment of working capital needs of SMALL TRADING

COMPANIES

•Not appropriate for big manufacturing and trading companies

Normally used for the financing of less than Rs. 25.0 lacs
 CASH BUDGET
Cash Inflow –Cash Outflow = Bank Finance in the form of Working
Capital

Cash Inflow as:

Cash Outflow as:
•Operating Income
•Salary
•Capital Infusion
•Adm. & Selling Exp.
•Other operating
Working Capital expenditures
Finance

•Mainly used for service sector companies Like BPO, KPO, Software
companies etc.
•Eliminates traditional requirement of Stock and Debtors for
assessment
 COMMITTEE RECOMMENDATIONS
Tandon Committee has recommended the following methods:
 Method I - Borrowers to bring 25 % of the net working capital
(Current Assets –Current Liabilities)

 Method II - Borrowers to bring 25% of the Current Assets

Method III - Borrowers to bring 100% of hard core assets + 25% of

other current assets.

CORE CURRENT ASSETS, which has been defined by the Study Group as
representing the absolute minimum level of raw materials, process
stock, finished goods and stores which are in the pipeline to ensure
continuity of production
 COMMITTEE RECOMMENDATIONS
Under Method I the promoter has to bring minimum margin whereas
the margin to be brought in under Method III is maximum
Chore Committee has discarded Method III and recommended
Method II
Method II is also known as Maximum Permissible Bank Finance
(MPBF)
Banks mainly use this method for assessment of Working Capital
Requirements
In October 1993, the RBI infused operational autonomy by permitting
banks to determine appropriate levels of inventory and receivables,
based on production, processing cycle, etc. These lending norms were
made applicable to all borrowers enjoying an aggregate (FUND-BASED)
working capital limit of Rs.1 crore and above from the banking system.
 COMMITTEE RECOMMENDATIONS
Example :

Raw Material - Rs. 56.0 cr.

Finished Goods - Rs. 45.0 cr.
Receivables - Rs. 80.0 cr.
Adv. to Suppliers - Rs. 15.0 cr.
Credit Payable - Rs. 30.0 cr.

(Minimum requirement of Raw Material and Finished Goods is Rs. 15.0

cr. and 10.0 cr. respectively)
 COMMITTEE RECOMMENDATIONS
Computation of MPBF:
Method I : A - Total Current Assets 196.0
B - Less: Current liab. 30.0
C - Net Current Assets (A-B) 166.0
D – Less 25% margin on NCA 41.5
E – MPBF (C-D) 124.5

Method II :
A - Total Current Assets 196.0
B - Less: Current liab. 30.0
C - Net Current Assets (A-B) 166.0
D – Less 25% margin on TCA 49.0
E – MPBF (C-D) 117.0
COMMITTEE RECOMMENDATIONS
Method III :

A - Total Current Assets 196.0

B – Core Current Assets 25.0
C - Less: Current liab. 30.0
D - Net Current Assets (A-C) 166.0
E – Less 25% margin on TCA other than CCA 42.75
(196.0-25.0)
F – Less 100% margin on CCA (25.0) 25.0
G – MPBF (D-E-F) 98.25
 CREDIT MONITORING
ARRANGEMENT
RBI has mandated a certain way of analyzing the financial statement i.e.
CMA.
The break-up of assets and liabilities in CMA differ slightly from that
mandated by the company law board (CLB)

Form I Particulars of Existing & Proposed Limits

 Form II Operating Statement
 Form III Analysis of Balance Sheet
 Form IV Comparative Statement of Current Assets & Current
Liabilities
 Form V Computation of Maximum Permissible Bank Finance
(MPBF)
 Form VI Funds Flow Statement
 CREDIT MONITORING
ARRANGEMENT
Example of difference in
Particulars As per Schedule VI As per CMA
Liabilities
Int. on TL accrued Long term Liabilities Current Liabilities
Install. Of TL due within 1 year Long term Liabilities Current Liabilities
Debentures/bonds/Pref. Shares Long term Liabilities Current Liabilities
due in next 1 year
Assets
FDRs as margin for non fund Current Assets Non –Current Assets
based limit
Debtors with more than 180 Current Assets Non –Current Assets
days
Old stock Current Assets Non –Current Assets
Short term Advance or loan to Current Assets Non –Current Assets
other corporate
 FINANCIAL RATIOS
In general, there are 4 kinds of financial ratios that a financial analyst
will use most frequently, these are:

Performance ratios
Working capital ratios
Liquidity ratios
Solvency ratios

These 4 financial ratios allow a good financial analyst to quickly and

efficiently address the following questions or concerns:
 FINANCIAL RATIOS -
PERFORMANCE RATIOS
What return is the company making on its capital investment?
What are its profit margins?
•Operating Profit to Net Sales = Operational Profit / Net Sales

•Gross Profit to Net Sales = Gross Profit / Net Sales

•Net Profit to Net Sales = Net Profit / Net Sales

•Net Profit to Networth = PAT /Networth (Shareholder Fund)

•Return of Capital Employed = PAT / Net Worth + Net WC

•Net Sales to Total Assets = Net Sales / Total Assets

 FINANCIAL RATIOS - WORKING
CAPITAL RATIOS
How quickly are debts paid?
How many times is working capital cycle turned?
•Debt Service Coverage Ratio (DSCR) =

PAT + Depreciation +Interest on TL/ Install. of TL +Int. on TL

•Interest Service Coverage Ratio (ISCR) =

PAT + Depreciation + Interest / Interest

•Stock Turnover Ratio = Cost of sales / Average Inventory

•Debtors Turnover Ratio = Credit Sales or Sales/ Average Debtors

•Creditor Turnover Ratio = Credit purchase or purchase / Avg creditors

 FINANCIAL RATIOS - LIQUIDITY
RATIOS
How quickly are Current Assets can be realized and Current
Liabilities can be paid off?

•Can the company continue to pay off its liabilities and debts?

•Current Ratio = Current Assets / Current Liabilities

•Quick Ratio = Quick Assets / Quick Liabilities

 FINANCIAL RATIOS - SOLVENCY
RATIOS (LONGER TERM)
What is the level of debt in relation to other assets and to equity?
Is the level of interest payable out of profits?

•Debt Equity ratio = Debt/ Equity

•Equity to Net Fixed Assets Ratio

= Shareholder Fund (Capital + reserve) / Net Fixed Assets (Net Block)
 SPECIAL SITUATIONS FOR
ASSESSMENT OF WORKING CAPITAL
CYCLICAL PRODUCTION/SALES

 PHASED EXPANSION PROGRAMS

 MAJOR ORDERS

 ENHANCEMENT DURING THE YEAR

 CORPORATE LOAN

 DRAWING POWER NOT ALLIGNED TO MPBF

 DEVALUATION / EROSION OF CURRENT ASSETS

 CYCLICAL PRODUCTION/SALES
CASE
•The company’s business is cyclical in nature
•May –Aug: Peak Level Activity
•Seasonal Production and Seasonal Sales
 ACTION
•Use of average production or sales to assess Working Capital will not
give proper assessment of Working Capital requirement in Peak level as
well as normal activity.
•Both normal and peak level working capital requirements should be
assessed separately.
 Advantages: Better operations management and prevent liquidity
crunch during peak level.
 PHASED EXPANSION PROGRAMS
CASE
•The company is undergoing a Phased Expansion
•Expansion is on a machine-by-machine basis
•Current Assets and Current Liabilities will build up gradually
 ACTION
•Assessment of Working Capital on the basis of average sales will not
reflect actual Working Capital requirement.
•Assessment should be done based on the peak level activity.
•Drawing Power will be released on the built up of Current assets and
Current Liabilities
•As initially low working capital is required and later higher working
capital is required
Advantages: No under-finance and no multiple assessment
 MAJOR ORDERS
CASE
•The company’s major sales and purchases take place in bulk orders
•Bulk orders are not very frequent
•Basic Working Capital requirements prevail throughout the year

ACTION
•Assessment of Working Capital requirement on the basis of average
level of activity will not reflect actual Working Capital Requirement.
•Assessment should be done on order-to-order basis.

Advantage: Prevents liquidity crunch while handling major orders.

 CORPORATE LOAN
Corporate loan is an effective Working Capital Management tool,
when:
•Short term funds used in acquisition of long term assets
•Low current ratio, with very low debt equity gearing
•Acquisition of business
EXAMPLE - Current Financial Position of the Company
Net Worth Rs. 100 cr Net Block Rs. 100 cr
Term Loan Rs. 20 cr Current Assets Rs. 145 cr
WC Limits Rs. 110 cr Creditors Rs. 15 cr
Current ratio: 1.16 Debt to Equity: 0.20
Company may avail a Corporate Loan of Rs. 20 crores or more to shore
up the Current Ratio to 1.33 subject to adequate FACR / ACR.
 MAXIMUM PERMISSIBLE BANK
FINANCE (MPBF) LIMITATION
Represents position on a particular date

Not tuned to Peak Time Assessment

Not applicable for service industries

In practice, may differ with Drawing Power

 DRAWING POWER NOT ALLIGNED
TO MPBF
Many times Drawing Power is not aligned with MPBF due to various
reasons:

Margin stipulations

Amount of current assets other than Stock and Debtors

Sub Limits Stipulation

Number of days stipulation

 DRAWING POWER NOT ALLIGNED
TO MPBF
EXAMPLE
Current Assets and Liabilities of the Company are:
Creditors : RS. 50 crores
Stock: Rs. 140 crores
Book Debts: Rs. 200 crores (Rs. 20 crores more than 90 days)
Other Current Assets: Rs. 10 crores
Total Current Assets: Rs. 350 crores
Sanctioned Bank Limit : Rs. 210 Crores (sub limits on Debtors Rs. 100 crores)

Stipulations:
Margins:
Stock 25%
Debtors 35% (up to 90 days)
 DRAWING POWER NOT ALLIGNED
TO MPBF
MPBF A - Total Current Assets 350.0
B - Less: Current liab. 50.0
C - Net Current Assets (A-B) 300.0
D – Less 25% margin on TCA 87.5
E – MPBF (C-D) 212.5

Drawing Power
A – Paid Stock (140-50)*75% 67.5
B – Debtors (200-20)*65% 117.0
C – Drawing Power (A+B) 184.5

•Present Drawing Power Rs.184.5 Crores is much less than sanctioned

Limit Rs. 210 Crores
•The Company should approach the Bank to reduce margin on Debtors
to 25%
 DRAWING POWER NOT ALLIGNED
TO MPBF
Example -2
Creditors : RS. 50 crores
Stock : Rs. 140 crores
Book Debts : Rs. 170 crores (Rs. 20 crores more than
90 days)
Advances to suppliers : Rs. 90 crores
Other Current Assets : Rs. 10 crores
Total Current Assets : Rs. 400 crores
Sanctioned Bank Limit : Rs. 210 Crores
Stipulations: Margins:
Stock 25%
Debtors 35% (up to 90 days)
 DRAWING POWER NOT ALLIGNED
TO MPBF
MPBF A - Total Current Assets 400.0
B - Less: Current Liab. 50.0
C - Net Current Assets (A-B) 350.0
D – Less 25% margin on TCA 100.0
E – MPBF (C-D) 250.0
Drawing Power
A – Paid Stock (140-50)*75% 67.5
B – Debtors (170-20)*65% 97.5
C – Drawing Power (A+B) 165.0

•Present Drawing Power Rs.165.0 Crores is much less than sanctioned

Limit Rs. 210 Crores
•Approach the Bank to - Reduce margin on Debtors to 25%
•Take the Overdraft facility against Advance to supplier to Fund WC.
 DRAWING POWER NOT ALLIGNED
TO MPBF
Example -3
For the transport company having 300 vehicles financed from bank for the tenor of 4
years
Creditors : RS. 50 crores
Other current liabilities : Rs. 15 crores
Stock : Rs. 100 crores
Book Debts : Rs. 210 crores (Rs. 20 crores more than 90 days)
Other Current Assets : Rs. 40 crores
Total Current Assets : Rs. 350 crores
Sanctioned Bank Limit : Rs. 180 Crores
(Total Term Loan outstanding is Rs. 322.0 crores, payable within 1 years is Rs. 65.0 cr.)
Stipulations: Margins:
Stock 25%
Debtors 35% (up to 90 days)
 DRAWING POWER NOT ALLIGNED
TO MPBF
Profit & Loss Data

Turnover - Rs. 828.0 cr.

Total operating Cost - Rs. 678.96 cr.
Interest On WC - Rs. 21.0 cr.
Interest on Term Loan - Rs. 26.1 cr.
Depreciation - Rs. 54.74 cr.
PBT - Rs. 47.2 cr.
 DRAWING POWER NOT ALLIGNED
TO MPBF
MPBF A - Total Current Assets 350.0
B - Less: Current liab. 130.0
C - Net Current Assets (A-B) 220.0
D – Less 25% margin on TCA 87.5
E – MPBF (C-D) 132.5
Drawing Power
A – Paid Stock (100-50)*75% 37.5
B – Debtors (210-20)*65% 123.5
C – Drawing Power (A+B) 161.0

•Present Drawing Power Rs.161.0 Crores is much less than sanctioned

Limit Rs. 180 Crores
•Approach the Bank to Reduce margin on Debtors to 25%
•Not to include the TL inst. Payable in 1 year in CL to calculate the MPBF
 DRAWING POWER NOT ALLIGNED
TO MPBF
Revised MPBF
A - Total Current Assets 350.0
B - Less: Current liab. 65.0
C - Net Current Assets (A-B) 285.0
D – Less 25% margin on TCA 87.5
E – MPBF (C-D) 197.5
 SECURITIES
Primary
• Working Capital Loan – Charge on the Current Assets
• Term Loan - Charge on the fixed Assets, mainly the assets financed by
the loan

Collateral
• Mortgage over the immovable property
• Hypothecation on the movable machineries like vehicles etc.

 Guarantee
• Personal
• Corporate
WORKING CAPITAL vs. TERM LOAN

Term WORKING LOAN TERM LOAN

Nature Short Term Long Term

Period 1 year and thereafter renewed More than 1year and reviewed
annually annually

Purpose Meeting the working capital Mainly for capital expenditure

gap of the firm like purchase of Fixed Assets,
establishment of business etc.

Rollover It is rollover facility It is a non rollover facility

Primary Security Charge over the current assets Charge over the fixed assets
and mainly the assets financed
by the loan
 LOAN DOCUENTS PROCEDURE
Post Sanction Documents are an integral part of the financing.
The documents will be dependent upon the condition as well as security to be created.
Accepted Copy of Sanction letter.
Copy of Board Resolution for the acceptance of the sanction with authorization to
sign the bank documents and creation of the security as per the sanction letter.
Copy of MOA/AOA of the company
Main Facility Agreement / Master Facility Agreement
Demand Promissory note on the letter head of the Company (with Revenue Stamp)
Deed of Hypothecation on Stamp Paper As applicable
Deed of Guarantee on stamp Paper as applicable (Personal / Corporate)
Various undertaking on the stamp paper as per the terms of the sanction letter
Certificate u/s 281 (1) of the Income Tax Act 1961.
Signing of Form 8 and 13 under the Companies Act, 1956, with regard to creation of
the charge in ROC.
In case of Multiple or Consortium Arrangement, exchange of the pari - passu charge
/ second charge on the security, as per the term of the sanction letter
PREPARATION OF BUSINESS PLAN /
PROJECT REPORT (DPR)
Business Plan / Project report is a critical activity for every project
whether for the new venture or the enhancement in the current
operation of the business.

It is the basic data which is very important for taking the decision for
capital investor, State Holder, Creditors and Bank, NBFC and FIIs.

The Broad Line of the DPR will depend on the activity of the business
and ultimate objective of the DPR. The DPR should includes the
following information:
PREPARATION OF BUSINESS PLAN /
PROJECT REPORT (DPR)
Index of the Contents of DPR
1. Executive Summary
Mission
Vision
Objective
Overview of the entire project
2. Brief of the project
3. Brief about the demand / justification of the project
Past Trend
Industry Data
Change in the technology / policy to raise the demand for new
project
Project rational
Specific advantage of the project to company
PREPARATION OF BUSINESS PLAN /
PROJECT REPORT (DPR)
4. Market and Sales
Basic market orientation: local, national, regional, or export.
Projected production volumes, unit prices, sales objectives,
and market share of proposed venture.
Potential users of products and distribution channels to be
used. Present sources of supply for products.
Future competition and possibility that market may be
satisfied by substitute products.
Tariff protection or import restrictions affecting products.
Critical factors that determine market potential.
PREPARATION OF BUSINESS PLAN /
PROJECT REPORT (DPR)
5. Technical feasibility, manpower, raw material resources,
and environment:
Brief description of manufacturing process.
Comments on special technical complexities and need for know-how and special
skills.
Possible suppliers of equipment. Ideally three competitive quotations to be enclosed.
Availability of manpower and of infrastructure facilities (transport and
communications, power, water, etc.).
Breakdown of projected operating costs by major categories of expenditures.
Source, cost, and quality of raw material supply and relations with support industries.
Import restrictions on required raw materials.
Proposed plant location in relation to suppliers, markets, infrastructure and
manpower.
Proposed plant size in comparison with other known plants.
Potential environmental issues and how these issues are addressed.
PREPARATION OF BUSINESS PLAN /
PROJECT REPORT (DPR)
6. Promoters, Management and Technical Assistance
Shareholding pattern
Promoter’s profile including financial information
Directors and other key personal profiles
Description of technical arrangement ( Production, Marketing,
Finance etc.)

7. Project Plan

8. Implication Schedule
PREPARATION OF BUSINESS PLAN /
PROJECT REPORT (DPR)
9. Project Cost
Estimate of total project cost, broken down into
•Land,
•Construction of buildings and civil works,
•Plant and machinery,
•Miscellaneous fixed assets,
•Preliminary and preoperative expenses and
•Working capital.
10. Means of Finance
Equity
Debt
Loan
PREPARATION OF BUSINESS PLAN /
PROJECT REPORT (DPR)
11. Financial Assumptions
12. Financial projections
 Profit & Loss account
 Balance Sheet
 Cash Flow
 Fund Flow
 Project IRR / Equity IRR
 Pay Back Period
 Debt Service Coverage Ratio/Int. service Coverage Ratio
13. SWOT Analysis
 Strength
 Weakness
 Opportunities
 Threats
THANK
YO U