Financial ProjectionPrepared by

Niranjan Chaitanya6ND20445

Submitted to Asmita Joshi

AGENDA

• Financial Projection

• Cost Of The Project

• Means Of Finance

• Estimation Of Profit

• Cost Of Production

• Others

What is projection

• Projection is nothing but the future plan about something for checking feasibility

• Financial Projection is nothing but the financial feasibility measured in terms of cost and benefits

• Financial Projection is process starting from calculation of investment to preparing sample P/L A/C and BALANCE SHEET of project

COST OF PROJECT

COST OF PROJECT

COST OF ASSETS COST OF CAPITAL

Cost of purchasing Means of Finance

Reward paid for providing financeInvestment Subsidies

Cost Assets

• Different Assets Required• Land

• Building

• Plant & machinery

• Misc. Fixed assets

• Pre-operative expenses

• Provision of contingencies

• Technical Know-how Fees

• Estimation of Bank Finance

• Investment subsidy and benefits

Cost Components For Assets

• LAND

• Plant & Machinery

Cost of Imported machinery / cost of machinery = custom duty + excise duty + octroi + freight + clearing forwarding charges + transportation + sales tax

Purchase price 20,00,000

Registration Charges 1,00,000

Taxes 20,000

Total Cost Of Land 21,20,000

Basic Cost 15,00,000

Cost of Imported machinery

20,00,000

Installation charges 2,00,000

Total cost Of P/M 37,00,000

Cost Components For Assets

• BuildingMisc. exp like security gate,

cabin, sheds, other civil work

• Misc Fixed AssetsDo not form part with direct manufacturing process

For instance: testing equipment, meter, DG sets, Furniture, office euipment

Building Material 20,00,000

Labour 1,00,000

Misc. Exp 20,000

Total Cost 21,20,000

Total Misc. FA 10,00,000

Cost Components For Assets Pre- Operative Expenses :-

Expenses till the date of prodcution are included

Expenses like promotional expenses, rent, advertisement expenses, insurance during construction, interest etc.

Provision For Contingencies :-

Rates of siome material increased due to any reason like increase in service tax, increase in import duty or any other contingency

Technical Know-how Fees :-

It includes know-how fees, expenses on foreign technicians, training Indian technicians etc.

If paid in lump sum then treated as part of the project cost If paid periodically then considered as operating cost

Total Cost Of Fixed Asset

Total Cost Of Land 21,20,000

Total cost Of plant & machinery 37,00,000

Total Cost of building 21,20,000

Total Misc. fixed assets 10,00,000

Pre Operative exp 1,00,000

Provision of Contingencies 50,000

Technical Know How 5,00,000

Total( in Rs. ) 95,90,000

ESTIMATION OF BANK FINANCE

• Estimation for current assets:• raw material stocks are estimated in terms of number of

months.

• Margin Money :• promoters have to pay normally 25% of margin money to

bank

(If raw material is required for 1.5 months and consumption is 16.99 lakh then 25% of 16.99 will be paid by industry i.e. 4.25 and rest will be financed by bank)

• Reduce the current liabilities: • promoters also have to pay current liabilities no finance is

available for the same

MEANS OF FINANCE

• EQUITY CAPITAL• Preference capital• Debenture Capital• Term Loan• Deferred Credit• Bill Rediscounting Scheme• Seed capital Assistance• Unsecured Loans• Deposits• Leasing & Hire Purchase

• Preference Capital : fixed rate of dividend on face value of shares.

• redumption period as per Companies Act 1956 is 20 years

• Debenture Capital : holder recieves fixed rate of interest, treated as charge against profit

• Always redeemable (buyback)• Can be converted into shares FCDs, PCDs,

NCDs• Debenture holders have floating charge

against fixed assets

Equity Capital

Amount contributed by owner ( Public and promoters)• It can be raised through IPO, ADR, GDR• Advantage:1)Permanent Capital, carry no repayment obligation2) Cheapest source of finance in case of profit we have

to distribute dividendDisadvantage :1) Divdend is apportionment and charge against profit2) Issue of shares results into dilution of control

• TERM LOANS : Provided by financial institutes, External

commercial borrowing institute (ECB) etc.Carries fixed rate of interest and repayment

period is fixed. Charge against the profitsDEFERRED CREDIT : Buyer allowed to pay in installment to supplier

for purchase of equipment. Credit depend on standing of the buyer

BILL REDISCOUNTING SCHEME : Provided by IDBI, SIDBI for SSI

SEED CAPITAL ASSITANCE : Provided to people who have storng techincal knowledge but no finance is available. Provided at very low rate

Means Of Finance

• UNSECURED LOANS : loans taken by promoters from friends, family. It may carry interest

• DEPOSITS : Fixed Deposits accepted form the public. These are treated as unsecured.

• They are not secured under provision of Deposit Insurance & Credit Gaurantee Corporation (DICGC)

• LEASING & HIRE PURCHASE :

Estimation Of Profit

• Estimation of profit includes projected financial statements, estimation of revenues & corresponding profits

• Product Mix• Installed Capacity• Capacity Utilization• Sales Estimation

ESTIMATION OF PROFIT

• PRODUCT MIX : demand for the product decides the product mix. Determined from demand for each product, contribution towards profitability, adequacy of plant and utility.

• INSTALLED CAPACITY : it depend on the product mix and the capacity of suppliers to provide the goods

• CAPACITY UTILIZATION : 100% capacity utilization is not possible because of technical problems in machinery, changes in product mix or inherent characteristics of industry.

• It depend on avg. capacity utilization by industry

SALES ESTIMATION

• Total sales is estimated from • utilization of capacity,• prices of the product, • rejection while production,• sale of rejected goods at discount.• We don’t consider the inflation all the estimation is at

current prices• Salesmen’s commsion is also not consider while

estimating the profit. It is charged against profit.

COST OF PRODUCTION

Cost Of Raw material (RM,Consumable, chemicals etc) 20000

Cost of Labour (wages, factory supervision salary) 10000

Factory Cost (repairs,electricity, rent,taxes, etc) 5000

Administrative Exp ( electricity, telephone, salary, etc) 5000

Sales Expenses ( advertisement, promotion etc) 7000

Distribution Expenses ( petrol, drivers salary, vehicle repairs, transportation, freight outward etc) 4000

Royalty, Know-how fees if any1000

Total Cost of Production (in Rs.)52000

Others

• Other expenses

• Provision For depreciation

• Provision for Taxation

• Government Subsidy ( no TAX, sales tax, no octrai, Deferred Sales Tax etc. )