- Present Value
Net Present Value (NPV) means value of future earning today.Rupee today is
worth more than Rupee tomorrow.
So, if U r investing Rs.100000/- today and getting Rs.150000/- after a year,
then before investing , calculate NPV of Rs.150000/- today .If this value
is more than Rs.100000/- , project is worth investing.
To calculate NPV following is the formula:
Expected Value i.e. Rs.150000/- divided by 1 X expected rate of return i.e. if the expected rate of return is 15% on investments
figure would be 1.15. So NPV of Rs.150000/- today would be 150000/1.15 = 130434 i.e. more than investment amount of Rs.100000/-. So
project is worth investing.
NPV is important because it helps in evaluating other alternative options of investments.
- Capital Budgeting
Capital Budgeting is very crucial. Return on Capital depends on this.
Company's Average Cost of Capital =:Debt/(debt plus equity)* rate of return on debt + equity/(equity plus debt)* rate of return on equity
Changing the mix of equity and debt changes the average cost of capital and return on investments.
- Sensivity Analysis
Due to uncertainty more cganges can happen than will happen.So entrepreneur has to
take into consideration what can happen during the course of project implementation.
Prepare your forecats taking into consideration various variables affecting your project
.
You have to examine the project under different scenario.Arrive at different break even point under
different scenarios.
- How much to borrow?
Debt financing is important advantage under the corporate Income Tax. The interest
that the company pays is tax deductible expense.So tax can be saved and that will make
cost of debt lessor.There is no tax on retained earnings.
If your return on capital employed is more than cost of debt, then borrowing more can add
to shareholders value.
- Ratio Analyis
Leverage Ratios:Shows how heavily company is in Debt.
- Debt Ratio = Longterm Debt + Value of Leases / Longterm Debt + Value of Leases + Equity
(Ratio of Longterm debt as compared to total longterm capital)
- Interest Coverage Ratio(Times Interest earned) = Earning before Interest & Taxes / Interest
(No. of times profit is earned compared to total interest liabilities)
Liquidity Ratios:How easily firm can lay its hands on Cash.
- Net Working Capital to Total Assets = Net Working Capital(Current Assets - Current Liabilities)/Total Assets
(Measures company's potential reservoir of cash)
- Current Ratio = Current Assets/ Current Liabilities
(Cover of Current Assets over Current liabilities)
- Quick Ratio = Cash + Shortterm Securities + receivables/ Current Liabilites
(Immediate cash availability to pay off Current Liabilities)
- Cash Ratio = Cash + Shortterm Securities / Current Liabilities
(Most liquid assets to pay off Current Liabilities)
Profitability Ratios:Judge how efficiently the firm is using its assets.
- Sales to Total Assets = Sales/ Average Total Assets
(High ratio indicates better utilisation of firms's assets)
- Sales to Net Working Capital = Sales / Average Working Capital
(How hard working capital is put to use)
- Inventory Turnover = Cost of Goods Sold/Average Inventory
(How fast inventory is turned over. Higher the ratio better it is)
- Average Collection Period = Average Receivables / Average Daily Sales
(How quickly cuetomers pays bills-Lower ratio indicates efficiency of Collection Division)
- Net Profit Margin = Earning Before Interest & Tax(EBIT) - Tax / Sales
(Proportion of profit in sales figure)
- Return on Total Assets = EBIT - Tax / Average Total Assets
(% of return earned on Total Assets)
- Payout Ratio = Dividend per Share / Earning Per Share
(Proportion of earning that is paid out as Dividend)
Market Value Ratios: How firm is valued by investors.
- Earning Per Share = net profit / No. of Equity Shares
(Total profit earned per share)
- Price Earning Ratio = Stock price/ Earning Per Share
(Price Investors are prepared to pay for each Rupee of earning)
- Dividend Yield = Dividend per Share/ Stock price
(% of Dividend as compared to Stock Price)
- Market to Book value = Stock Price / Book value per share
(Stock price as compared to Book value of shares)
- General Format
Financial figures for the year ended March 00
& Projections for next three years
Profit & Loss Account
|
Year Rs.in Lacs | Year I | Year II | Year III |
| Sales - Local/Export | 0 | 0 | 0 |
| Other Income | 0 | 0 | 0 |
| Total Sales | 0 | 0 | 0 |
| Growth in % | 0 | 0 | 0 |
|
| Purchases | 0 | 0 | 0 |
| Stores/Packing Materials | 0 | 0 | 0 |
| Power & Fuel | 0 | 0 | 0 |
| Transport Charges | 0 | 0 | 0 |
| Cost of Production | 0 | 0 | 0 |
| Gross Profit | 0 | 0 | 0 |
| Administrative Charges | 0 | 0 | 0 |
| Selling Expenses | 0 | 0 | 0 |
| Financial Charges | 0 | 0 | 0 |
| Depreciation | 0 | 0 | 0 |
| Total Overheads | 0 | 0 | 0 |
| Net Profit B4 Tax | 0 | 0 | 0 |
| Taxation | 0 | 0 | 0 |
| Net Profit after Tax | 0 | 0 | 0 |
| Net Profit ratio % | 0 | 0 | 0 |
Balance Sheet
|
Year Rs.in Lacs | Year I | Year II | Year III |
| LIABILITIES
|
| Capital | 0 | 0 | 0 |
| Reserves | 0 | 0 | 0 |
| Secured Loans | 0 | 0 | 0 |
| Working Capital from bank | 0 | 0 | 0 |
| Other Loans | 0 | 0 | 0 |
| Term Loan | 0 | 0 | 0 |
| Unsecured Loans | 0 | 0 | 0 |
| Current liabilities
|
| Sundry Creditors | 0 | 0 | 0 |
| Provisions | 0 | 0 | 0 |
| Debt Payable within One Year | 0 | 0 | 0 |
| Total Liabilities | 0 | 0 | 0 |
| ASSETS
|
| Fixed Assets | 0 | 0 | 0 |
| Investments | 0 | 0 | 0 |
| Current Assets
|
| Inventories | 0 | 0 | 0 |
| Raw Materials | 0 | 0 | 0 |
| Finished Goods | 0 | 0 | 0 |
| Stores | 0 | 0 | 0 |
| Sundry Debtors | 0 | 0 | 0 |
| Cash & Bank Bal. | 0 | 0 | 0 |
| Loans & Advances | 0 | 0 | 0 |
| Total Assets | 0 | 0 | 0 |
Debt Service Coverage Ratio (DSCR)
|
Year Rs.in Lacs | Year I | Year II | Year III |
| Net Profit | 0 | 0 | 0 |
| Add:
|
| Interest | 0 | 0 | 0 |
| Depreciation | 0 | 0 | 0 |
| Income Tax | 0 | 0 | 0 |
| Total Cash Generation A | 0 | 0 | 0 |
| Total Interest for the year | 0 | 0 | 0 |
| Installments of Loan | 0 | 0 | 0 |
| Total Outflow B | 0 | 0 | 0 |
| A/B | 0 | 0 | 0 |
| Average DSCR | 0 |
Sources & Application of Funds
|
Year Rs.in Lacs | Year I | Year II | Year III |
| Sources
|
| Net Profit | 0 | 0 | 0 |
| Depreciation | 0 | 0 | 0 |
| Increase in Capital | 0 | 0 | 0 |
| Increase In Reserves | 0 | 0 | 0 |
| Increase in Term Liabilities | 0 | 0 | 0 |
| Others | 0 | 0 | 0 |
| (1) Total | 0 | 0 | 0 |
| Application
|
| Net Loss | 0 | 0 | 0 |
| Decrease in Term Liabilities | 0 | 0 | 0 |
| Increase in Fixed Assets | 0 | 0 | 0 |
| Dividends | 0 | 0 | 0 |
| Others Investments | 0 | 0 | 0 |
| (2) Total | 0 | 0 | 0 |
| 1-2 | 0 | 0 | 0 |
| Increase in Current Assets | 0 | 0 | 0 |
| Increase in Current Liabilities | 0 | 0 | 0 |
| Increase in Working Capital Gap | 0 | 0 | 0 |
| Net Surplus | 0 | 0 | 0 |
| Increase in bank borrowings | 0 | 0 | 0 |
Working Capital Finance Calculations
|
Year Rs.in Lacs | Year I | Year II | Year III |
| 1) Current Assets | 0 | 0 | 0 |
| 2) Current Liabilities | 0 | 0 | 0 |
| 3) Net Current Assets | 0 | 0 | 0 |
| 4) 25 % of Current Assets | 0 | 0 | 0 |
| 5)Actual Working capital | 0 | 0 | 0 |
| 6) 3-4 | 0 | 0 | 0 |
| 7) 3-5 | 0 | 0 | 0 |
| Lower of 6 & 7 MPBF | 0 | 0 | 0 |
Also add one sheet on various ratio analysis with explanations.
All assumptions in making projections to be stated saperately.
