VCE Summer Internship Program 2024

Smart Task Submission

Intern’s Details
Name Krishnaja Prakash

Email-ID krishnajaprakash@gmail.com

Smart Task No. 2

Project Topic Financial Modelling (Infra)

Smart Task (Solution)

Task Q1 : While preparing a financial model what are the assumptions we need to take. Please list
down the list of assumptions with the values, assuming the project will be set up in India.

Task Q1 Solution : When preparing a financial model for a project in India, these are the
assumptions we'll need to consider:
Assumptions Values
Inflation 6.70%
DDT - Dividend
Distribution Tax 15%
Tax Holiday 0
Tax Rate (Corporate Tax
Rate) 25%
Debt Rate 10%
Moratorium 0.25 yrs
Debt Tenure 10
Depreciation 7%
USD/INR 83.33
Discount 10%
Construction Time 0.25 yrs
MAT 15%

Task Q2 : Explain the function of revenue, cost and debt sheet of the financial model

Task Q2 Solution : A financial model is a blueprint used to assess a company's financial health
and predict its future performance. Three key components of a financial model are the revenue
sheet, cost sheet, and debt sheet, which work together to tell the financial story of the company.

Revenue (Income Statement): This sheet typically includes projections for a company's sales,
detailing the sources of revenue and the expected amounts from each source. It helps in estimating
the future income of the company. This sheet focuses on the money coming into the business. It
details all the income streams, including sales of products or services, interest earned on

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Smart Task Submission

investments, and any other revenue sources. By analysing revenue trends, you can gauge the
company's growth potential and market position.

Cost: The cost sheet outlines the various expenses that a company is expected to incur, including
production costs, operating expenses, and other financial obligations. It helps in understanding the
cost structure of the business and in estimating future expenses. This sheet tracks all the expenses
incurred by the company to generate revenue. It includes costs of goods sold, salaries, marketing
expenses, rent, and other operational costs. Understanding the cost structure helps determine how
efficiently the company operates and identify areas for cost savings.

Debt (Balance Sheet): The debt sheet provides information about the company's outstanding
debts, including loans, bonds, and other forms of borrowing. It helps in analyzing the company's
leverage and its ability to meet its debt obligations. This sheet provides a snapshot of the
company's financial position at a specific point in time. It lists all the assets (what the company
owns) and liabilities (what the company owes). The debt sheet also shows the shareholders' equity,
which is the difference between assets and liabilities. The debt sheet helps assess the company's
financial stability and its ability to meet its obligations.

These sheets are crucial components of a financial model as they help in projecting the financial
performance of a company, assessing its financial health, and making informed decisions about
investments, operations, and strategic planning.

Task Q3 : Explain in detail the various steps involved (with the importance) in the fin flows sheet.
Why and what the bank needs to check before financing the report?

Task Q3 Solution :

(a) Fin flows statement format

Year 1 year 2 year 3
Revenue Collection
Rent xxx xxx xxx
Interest on Deposit xxx xxx xxx
Other Sources xxx xxx xxx
Total Revenue (A) xxx xxx xxx

Operating expenses
Building Maintenance xxx xxx xxx
Utilities (Electric + Water + Internet) xxx xxx xxx
Salary (Maid + Accountant) xxx xxx xxx
Plumber + Electrician + Misc etc xxx xxx xxx
Insurance xxx xxx xxx
Total Operating Expenses (B) xxx xxx xxx

EBITDA (A) -(B) xxx xxx xxx

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Non-Operating Expenses
Interest Payment xxx xxx xxx
Depreciation xxx xxx xxx
Total Non-Operating Expenses xxx xxx xxx
Income before taxes xxx xxx xxx
Tax xxx xxx xxx
Net Income (Ebitda - non operating expenses) xxx xxx xxx

Cash Flow
Equity xxx xxx xxx
Net Income xxx xxx xxx
Add back depreciation xxx xxx xxx
Principal Payment (-) xxx xxx xxx
CSR (-) xxx xxx xxx
Final Project Cashflow (Equity) xxx xxx xxx
DSCR xxx xxx xxx
Final Project Cashflow xxx xxx xxx

Steps:

 Gather Financial Data: Collect data from the income statement and balance sheet for the
period being analysed.

 Classify Cash Flows: Directly identify cash receipts and cash disbursements associated with
operating, investing, and financing activities. For operating activities, adjustments are made
to net income to account for non-cash expenses like depreciation.

 Calculate Net Cash Flow: Sum the cash flows from each category (operating, investing,
financing) to arrive at the net cash flow for the period.
Importance:

 The cash flow statement provides a clear picture of a company's ability to generate cash
from its core operations.
 It shows how well the company manages its cash inflows and outflows, impacting its ability
to pay bills, invest in growth, and distribute dividends.
 This information is crucial for understanding a company's short-term financial health and
liquidity

The specific cash flow items generally follow these categories: -

 Operating Activities:
 Cash received from customers (revenue collection)
 Cash paid to suppliers and employees (operating expenses)
 Investing Activities:
 Cash received from selling assets or investments

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 Cash paid to purchase assets or investments

 Financing Activities:
 Cash received from issuing debt or equity (e.g., loans or stock offerings)
 Cash paid for dividends or repurchasing stock

Some other terms in the statement: -

 Debt Schedule: This section may detail the specific debt obligations a company has coming
due and the related principal payments.

 Cash Flow from Equity: This section may show cash inflows from issuing stock and cash
outflows for dividends or stock repurchases.

 Cash Flow Before Taxes (EBITDA): This is a non-GAAP measure that shows a company's
operating cash flow before accounting for income taxes.

 Non-Operating Expenses: This section may include cash outflows for interest payments or
other expenses not directly related to a company's core operations.

(b)

Banks need to check various factors before providing financing to ensure responsible lending and
mitigate risks. These checks, including assessments of creditworthiness, cash flow, collateral,
financial ratios, and compliance, help banks manage risk, protect depositors' funds, maintain
profitability, and build trust with stakeholders. By thoroughly evaluating loan applicants, banks can
make informed decisions, comply with regulations, and demonstrate their commitment to sound
financial management and customer protection, ultimately contributing to the stability and
sustainability of the banking system.

Before providing financing, banks need to check several factors:

 Creditworthiness: Assess if the business can repay the loan based on past performance and
future prospects.
 Cash Flow: Review cash flow statements to ensure the business generates enough cash to
cover debt payments.
 Collateral: Evaluate the quality and value of assets offered as security for the loan.
 Financial Ratios: Analyse various ratios to gauge financial health and risk.
 Business Plan: Assess growth strategy, market analysis, and revenue projections.
 Industry Analysis: Evaluate industry trends, market demand, and competition.
 Management Team: Evaluate the competence and experience of the management team.
 Legal Compliance: Ensure the business complies with laws and regulations.

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