FINANCIAL

ANALYSIS
SUBMITTED TO SUBMITTED BY
Ms. KIRAN UDAY MALHOTRA
UBS, PU LALIT SONDHI
 Table of contents
• Project Planning
• Financial analysis
• Cost of project
• Means of finance
• Estimates of sales and production
• Cost of production
• Working capital requirements and its financing
• Profitability projections
• Projected cash flow statement
• Projected balance sheet
• Multi year projections
 PROJECT PLANNING
Before stating a project, we need to answer
certain questions like
• Can we produce?
• Can we sell?
• Can we earn?
 FINANCIAL ANALYSIS
To answer previous questions a lot of attention is
given towards financial analysis which includes the
following:-
1. Cost of project
2. Means of financing
3. Estimates of sales & production
4. Cost of production
5. Working capital requirement & its financing
6. Profitability projections
7. Projected cash flow statements
8. Projected balance sheet
 COST OF PROJECT
It represents the total of all items of outlay
associated with a project which are supported by
long term funds. It is the sum of outlays of the
following:-
• Land and site development
• Building and civil works
• Plant and machinery
• Engineering fees
• Misc. fixed assets
• Preliminary and capital issue expenses
• Pre-operative expenses
• Initial cash losses
 MEANS OF FINANCE

To meet the cost of the project the following

means of finance are available:-
• Share capital
• Term loans
• Debenture capital
• Deferred credit
• Incentive sources
• Miscellaneous sources
 ESTIMATES OF SALES AND
PRODUCTION

In estimating sales revenues, the following

considerations should be borne in mind:-
• The capacity utilization is assumed to be low in
the initial stages of production.
• It is not necessary to make adjustments for stocks
of finished goods.
• The selling price should be inclusive of all the
taxes and indirect expenses.
• The changes in selling price is directly
proportional to the cost of production.
 COST OF PRODUCTION
The major components of cost of production are:-
• Material costs
• Utilities cost
• Labour costs
• Factory overhead costs
 WORKING CAPITAL
REQUIREMENTS

It consists of:
• Raw materials and components
• Stocks of goods in process (also called work -in-
process)
• Stocks of Finished goods
• Debtors
• Operating expenses
• Consumable stores
 Working Capital
Requirements
Principal Sources of Working capital Finance are:
• Working capital advances provided by commercial banks
• Trade credit
• Accruals and Provisions
• Long term source of financing

Limits to obtaining working capital advances from a

commercial bank are:
• The aggregate permissible bank finance is specified as per the norms
of lending.
• Against each current asset a certain amount of margin money has to
be provided by the firm.
 Profitability Projections
They are prepared along the following lines:
A. Cost of production
B. Total administrative expenses
C. Total sales expenses
D. Royalty and know-how payable
E. Total cost of production (A+B+C+D)
F. Expected sales
G. Gross profit before interest
H. Total financial expenses
I. Depreciation
J. Operating profit (G-H-I)
K. Other income
L. Preliminary expenses written off
M. Profit/Loss before taxation (J+K-L)
N. Provision for taxation
O. Profit after tax (M-N)
P. Retained Profit
Q. Net cash accrual (P+I+L)
 Projected cash flow
statement
• The cash flow statement shows the movement of
cash into and out of the firm and its net impact on
the cash balance within the firm.
• It is helpful to prepare it on a quarterly basis rather
than half-yearly or annual basis.
• It facilitates better financial planning, project
evaluation and fund control.
• An illustration is shown in the next slide.
Cash flow statement
 Projected Balance Sheet
• It shows the balance in various asset and liability
accounts.
• Also reflects the financial condition o a firm at a
given point of time.
• The liabilities side of the balance sheet shows the
sources of finance employed by the business.
• The asset side of the balance sheet shows how
funds have been used in the business.
• An illustration of a balance sheet is shown in the
next slide.
Balance sheet
 Multi year projections
• In this statement the financial projections are shown
over a longer time frame.
• It shows the cash flows, the balance sheet and the
profit and loss account statements over a period of
time.
• It helps in estimating a leap in the financial
condition of a firm early hand.
• It also helps in comparing performance of the firm
as it passes through a period of time.
Thank you