all that a business needs - project financing for new entrepreneur
TRANSCRIPT
Project Financing
PRESENTED BY- Radha Khandelwal
From : A.C SURANA & Co
CHARTERED ACCOUNTANTS
1
What is Project Financing?
Project finance is the financing of long-term infrastructure, industrial projects and public services.
Based upon a non-recourse or limited recourse financial structure.
In which project debt and equity used to finance the project.
Paid back from the cash flow generated by the project.
Why use Project Finance?
To start & establish a business.
To run day to day activities of business like
payment for raw material
To acquire assets.
Steps in project finance
PLAN
PREPARE
PAY
PLANNING
Nature of Business
Size of Business
Technical Feasibility
Market Feasibility
Capacity to be installed
Assets to be acquired
Identification of Location
Project Identification
Project Identification
Identification of Project
Government Announced
Self Conceived
Identification of Market
Product of the Project
Users of the Product
Marketability of the project
Marketing Plan
Technical & Financial Feasibility
A feasibility study is an analysis of how successfully a project can be completed, accounting for factors that affect it such as economic, technological, legal and scheduling factors.
Technical feasibility
– Location
– Design
– Equipment
– Operations/Processes
Financial Feasibility
– Business plan/Model
– Projected financial Statement with assumptions
– Financing structure
– Pay- back, IRR, NPV etc.
PREPARE Preparing a project report
Estimated Cost of Project
Debt : Equity
Credit-worthiness
Estimated Cost of Project
Cost of Land & Building
Cost of Plant & Machinery, Equipment, Utilities etc.
Contingencies.
Pre- operative Expenses.
Working Capital Margin.
Financial Leverage.
Financial leverage is the degree to which a company uses fixed-income securities such as debt and preferred equity.
The more debt financing a company uses, the higher its financial leverage.
A high degree of financial leverage means high interest payments, which negatively affect the company's bottom-line earnings per share.
Degree of financial Leverage.
The formula for calculating a company's degree of financial leverage (DFL) measures the percentage change in earnings per share over the percentage change in EBIT. DFL is the
measure of the sensitivity of EPS to changes in EBIT as a result of changes in debt
Formula : %age change in EPSEBIT
Example:
Pariculars Company A Company B
Share Capital 10 Lakhs 04 Lakhs
Loan @ 15% p.a. Nil 06 Lakhs
Total 10 Lakhs 10 Lakhs
Profit before Interest + Tax 03 Lakhs 03 Lakhs
Interest Nil 0.09 Lakhs
Profit before Tax 03 Lakhs 02.01 Lakhs
Tax @ 50% 1.50 Lakhs 1.05 Lakhs
Profit after Tax 1.50 Lakhs 1.05 Lakhs
Share Capital 10 Lakhs 04 Lakhs
Rate of Return on Share 15.00% 26.25%
Planning a Project.
While Planning one needs to prepare Profitability
Projection and Cash Flow.
Arrangement Of Equity/Debt/Loan.
• A variety of funding sources are as follows:
- export credits
- development funds
- specialised asset finance
- conventional debt and
- equity finance
Debt Service Coverage
Ratio.
The Debt- Service Coverage Ratio (DSCR) indicates cash flow available to pay current debt obligations.
Formula :
DSCR =
Net Operating Income
Total Debt Service
(Principal + Interest repayment)
DSCR >1 Sufficiency of Funds for repayment
DSCR<1 Insufficiency of Funds for repayment
BANK FINANCE
Types of Bank Finance
Term Loan
For Acquiring Plant & Machinery
For setting infrastructure
Cash Credit (Working Capital )
For procurement of Raw material
Other overheads
Documentation.
Term Loan.
1.Quotation of Plant & Machinery
2. Estimate of Civil Construction
3. Quotations of Electrical installation
4. Quotation for Other items
A. Computer & peripherals
B. Other
5. Project report
A. Security Documents
B. Disbursement Plan
6. Permissions & Licenses from authorities
Government Subsidies
Central Government
NABARD
SIDBI
MOFPI(Ministry of Food Processing Industries)
State Government
Industrial Policy 2014-19
Monitoring & Review
Why?
Project is Running on schedule
Project is running with planned cost
Project is receiving adequate cost
😊
Thank you …….