Project Appraisal System

Project Appraisal At Surat District Co Operative Bank Ltd.

CHAPTER: 1: INTRODUCTION OF BANK & CO

OPERATIVE BANKS

1.1 Introduction

The development of banking is an inevitable precondition for the healthy and

rapid development of the national economic structure. Banking institutions have

contributed much to the development of the developed countries of the world. Today we

cannot imagine the business world without banking institutions. Banking is as important

as blood in the human body. Due to the development of banking advances are increased

and business activities developing so it is rightly said, " The development of banking is

not only the root but also the result of the development of the business world." After

independence, the Indian government also has taken a series of steps to develop the

banking sector. Due to considerable efforts of the government, today we have a number

of banks such as Reserve Bank of India, State Bank of India, nationalized commercial

banks, Industrial Banks and cooperative banks. Indian Banks contribute a lot to the

development of agriculture, and trade and industrial sectors. Even today the banking

systems of India possess certain limitations, but one cannot doubt its important role in the

development of the Indian economy.

Without a sound and effective banking system in India it cannot have a healthy

economy. The banking system of India should be able to meet new challenges posed by

the technology and any other external and internal factors

1.2 Definition

As per Section 5(c) of Banking Regulation Act, 1949 a "Banking Company"

means any company which transacts the business of banking in India.

As per Section 5(b) of Banking Regulation Act, 1949, “banking means the

accepting, for the purpose of lending or investment, of deposits of money from the

public, repayable on demand or otherwise, and withdraw able by cheque, draft or order”.

1Department of Business & Industrial Management


The first bank in India was established in 1786. From 1786 till today, the journey

of Indian Banking System can be segregated into three distinct phases. They are as

mentioned below.

1) Early phase from 1786 to 1969 of Indian Banks.

2) Nationalization of Indian Banks and up to 1991 prior to Indian banking sector

Reforms.

3) New phase of Indian Banking System with the advent of Indian Financial & Banking

Sector Reforms after 1991.

1.3 Challenges facing Banking industry in India

The banking industry in India is undergoing a major transformation due to

changes in economic conditions and continuous deregulation. These multiple changes

happening one after other has a ripple effect on a bank (Refer fig. 2.1) trying to graduate

from completely regulated sellers market to completed deregulated customers market.

·



Deregulation: This continuous deregulation has made the Banking market

extremely competitive with greater autonomy, operational flexibility, and

decontrolled interest rate and liberalized norms for foreign exchange. The

deregulation of the industry coupled with decontrol in interest rates has led to

entry of a number of players in the banking industry. At the same time reduced

corporate credit off take thanks to sluggish economy has resulted in large number

of competitors battling for the same pie.

New rules: As a result, the market place has been redefined with new rules of the

game. Banks are transforming to universal banking, adding new channels with

lucrative pricing and freebees to offer. Natural fall out of this has led to a series

of innovative product offerings catering to various customer segments,

specifically retail credit.

Efficiency: This in turn has made it necessary to look for efficiencies in the

business. Banks need to access low cost funds and simultaneously improve the

efficiency. The banks are facing pricing pressure, squeeze on spread and have to

give thrust on retail assets

Diffused Customer loyalty: This will definitely impact Customer preferences, as

they are bound to react to the value added offerings. Customers have become

demanding and the loyalties are diffused. There are multiple choices; the wallet

share is reduced per bank with demand on flexibility and customization. Given

the relatively low switching costs; customer retention calls for customized

service and hassle free, flawless service delivery.

Misaligned mindset: These changes are creating challenges, as employees are

made to adapt to changing conditions. There is resistance to change from

employees and the Seller market mindset is yet to be changed coupled with Fear



of uncertainty and Control orientation. Acceptance of technology is slowly

creeping in but the utilization is not maximized.

Competency Gap: Placing the right skill at the right place will determine

success. The competency gap needs to be addressed simultaneously otherwise

there will be missed opportunities. The focus of people will be on doing work but

not providing solutions, on escalating problems rather than solving them and on

disposing customers instead of using the opportunity to cross sell.

1.4 Co-operative banks in India

The Co operative banks in India started functioning almost 100 years ago. The

Cooperative bank is an important constituent of the Indian Financial System, judging by

the role assigned to co operative, the expectations the co operative is supposed to fulfill,

their number, and the number of offices the cooperative bank operate. Though the co

operative movement originated in the West, but the importance of such banks have

assumed in India is rarely paralleled anywhere else in the world. The cooperative banks

in India play an important role even today in rural financing. The businesses of

cooperative bank in the urban areas also have increased phenomenally in recent years due

to the sharp increase in the number of primary co-operative banks.

Co operative Banks in India are registered under the Co-operative Societies Act. The

cooperative bank is also regulated by the RBI. They are governed by the Banking

Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965.

Cooperative banks in India finance rural areas under:

Farming

Cattle

Milk

Hatchery

Personal finance


Central Co-Operative

Banks

Land Development

Banks

State Co-Operative

Banks

Urban Co-Operative

Banks

Primary Agriculture

Credit Banks

State Land Development

Banks


Cooperative banks in India finance urban areas under:

Self-employment

Industries

Small scale units

Home finance

Consumer finance

Personal finance

1.5 Structure of Co-Operative Banks

1.5.1 Primary Credit Societies:-

Primary credit societies lie at the local or base level. In rural areas

There is primary agriculture credit and societies (PACs) which cater to the short and

medium-term credit needs of the farmers.


Co-Operative Bank


In urban areas, to provide non agriculture credit, urban co-operative banks

and employees, credit societies are formed. Urban banks usually provided short term

loans to their members, who are small borrowers. They also accept deposits from

members and non-members, too. Thus, their functions and working are more or less

similar to those of a major distention between these and commercial banks which are

joint stock companies.

1.5.2 The Central Co-operative Banks (CCBs):-

The central Co-operative banks are federation of primary societies

Belonging to specific district, by furnishing credit it the primary societies, central Co-

operative banks serve as an important link between these societies and the money market

of the country. No central co-operative banks lends to individuals. It lends to societies

only.

1.5.3 The State Co-operative Banks (SCBs): -

The state co-operative banks lie at the apex of the entire co-operative

credit structure. Every state co-operative bank’s basic functions to furnish loans to the

central co-operative banks in order to enable them to help promote the lending activities

of the primary credit societies. This state co-operative banks, thus serve as the final link

between the money market and the co-operative sector of the country.

1.5.4 Land Development Banks:-

The lend development banks meet the long credit requirement of the firms

for development purpose, viz.., purchase the equipment like pump set, tractors and other

machineries, reclamation of land, fencing, digging up new wells and repairs of old walls

etc. lend development banks are co-operation institution and they grant loan of the

securities of mortgage of immovable property of the farmers. These banks have a two tire

organization structure at the state level, there are central level lend development banks

and at the district or taluka level, there are primary land development banks.

The financial resources of land development banks are raised by floating

debenture in the market. Such debentures carry the guarantees of the state government,



commercial banks, Life Insurance Corporation and other land development bank as a

measure of mutual support. Lend development banks also avails of the referencing

facilities provided by the national bank for agriculture and rural development in respect

of the term loans granted by them for the schemes of agriculture development. They also

secure short term accommodation from the state governments. Commercial banks and the

state co-operative banks.

1.5.5 The State Land Development Bank:-

The state land development banks rise their resources by floating

debentures in market. These debentures carry the guarantees of the state government and

subscribed by the central and state governments, commercial banks, Life Insurance

Corporation and other land development banks are as a measure of a mutual support. The

land development banks have availed of the refinancing facilities provided by the

national bank for agriculture and rural development is respected of the term loans granted

by them for the schemes of agriculture development. They also secure short term

accommodation from the state government, commercial banks and the state co-operative

banks.



THE SURAT DISTRICT CO-OP.BANK LTD.



CHAPTER 2 COMPANY PROFILE

2.1 Introduction of the Surat Dis. Co-Operative Bank Ltd:

In the year 1909 on 17th June with the strenuous efforts of late Shri B.A.MODI &

Shri K.G.DESAI society viz, “the Surat District Co-Operative Union Limitation” was

registered. In the year 1921, this society has undertaken banking activities in absolute

terms and in the year 1923. The Surat district co-operative union ltd. was converted in to

“THE SURAT DISTRICT CO-OPERATIVE BANK LTD.” The work extended to

the entire Surat District, which included city of Surat has also towns like Navasari,

Valsad, Billimora and Sizable tribal areas with hiss & dense forests.

The vast Surat District was bifurcated in 1965 & district of Valsad was separated.

At present there are 14 Taluka in Surat District of which 9 are in tribal areas.

Banks had separate department for agriculture advance from the year 1944, and

become an effective central agency for co-ordinate and smooth flow of finance to co-

operative sector in district.

ALL CO-OPERATIVE ORGANIZATION LIKES:-

The Surat District Milk Producer’s Co-operative Union Ltd.

The Purushottom Farmers Co-operative. Ginning and pressing society ltd.

The Surat District Co-operative Spinning Mills ltd.

Cotton Co-operative societies of Olpad taluka.

Surat central Co-operative stores Ltd.

Having since been developed and bank had provided timely to them. During this period,

forest labors co-operative society were also capital in tribal and were engaged in crop

cutting activity for which substantial finance was provided to them.

After1960, when shri Khedut Sahakari Khand Udhyog Mandali ltd Bardoli, came

existence the entire Sugar factories has tooting financial trouble in the beginning.

However bank had provided them enough finance as also assisted even for meeting share

capital also. The sugar cane crop has now become principal crop in District, and out of



total capable area of 490000 Hectares, 83745 Hectares is under sugar cane cultivation.

The Surat District co-operative bank ltd. amply supported this economics structure of the

crushing capacity of 35500 tones per day. Annual sugar production exceeds to 400 corers

in this sector.

Bank has been enjoying privilege of having prominent citizens in field like social,

co-operative and agriculture, on its board included outstanding lawyers and members of

parliament District Panchayat, major of Surat City and lenders from various walker of life

including ministers.

Immediate past chairman of the board shri Pramodbhai K Desai was award “Kaka

Saheed Godgil Award” for his outstanding services to society as also awarded by the

Gujarat state Co-operative union by Sahakari award. Shri Popatbhai Vyas, the present

director on the board, remained as home minister of the state. Shri Dilipbhai Bhalta, the

present chairman is also the Chairman of “Madhi Vibhag Khand Udhyog Sahakari

Mandali ltd” and also enjoying key position in different co-operative societies

functioning in various fields.

Board has formed committees for loans, staff matters, legal matters and new

construction etc... Also power has been delegated properly to smoothen day-to-day

working.

Bank has been committed for overall up to lift man of the society developing

upon the profit made by the bank, donation from a special platinum jubilee fund, to the

extend of exceeding Rs. 40 lakh every year in made to the hospital, schools, colleges and

charitable institutions.

Also separate fund has been created for donating the educational organization

only. Another trust is also created for donation to the charitable and social service

organization viz. Surat District Co-operative Bank Charitable Trust. Last year bank has

donated Rs. 50 Lakh for ultimate benefit of people affected with natural calamities in

addition to Rs. 36 lakh or so to the different organization setup, for betterment of medical

education etc.


Assistant General Manager

(Manager)


(Loan & Adv)


(A/C)

Assistant General Manager(Banking)

Assistant General Manager(ADM)

Manager(Super vision&

Recovery)

Manager (Industry)

Assistant Manager(Housing)

Assistant Manager

(Supervision)

Assistant Manager

(Recovery)

(Recovery)

Assistant Manager(Industry)


2.2 Organization Structure of the bank: -

ORGANISATION STRUCTURE OF SURAT DIS. CO-OPERATIVE BANK LTD.


Managing Director

Manager

(loan)


2.3 BOARD OF DIRECTORS OF SURAT DIS. CO-OPERATIVE

BANK LTD.

Sr. no Board of directors

1 Shri Dilipbhai B Bhakta

2 Shri Amarshinh J Chaudhari

3 Shri Bhagabhai P Patel

4 Shri Maganbhai R Patel

5 Shri Narayanbhai H Doanwala

6 Shri Haribhai L Patel

7 Shri Ramanbhai A Patel

8 Shri Shradhbhai S Patel

9 Shri Narendrabhai D Solanki

10 Shri Maganbhai B Vasava

11 Shri Jayshigh D Vasava

12 Shri Kiritbhai R Desai

13 Shri Pravinchandra C. Parekh

14 Shri Parbhubhau N Vasava

15 Mrs. Dr. Vikasben K Desai

16 Shri Chhotubahi L Patel

17 Shri Nayanbhai N Bhartiya



18 Shri Leelachand V. Patel

19 Shri Sureshbhai J Patel

20 Shri Ajaybhai J Shah

21 Shri Pradipshigh G Atodaria

2.4 Staff details of Surat Dis. Co-operative Bank Ltd.

Designation Total staff members

Manager 137

Clerk/cashier/inspector/go. Manager 246

Peon/Driver etc. 103

2.5 Branches:-

Bank’s registered office is at the J. P. Road, near the Athwagate. Bank’s main branch is

in the Surat city. It is near to Chautapul (kanpith). Bank has other 56 (total 57) branches

which is located in two (Surat and Tapi) district and bank thinking for start 6 new

branches in two year.



2.6 Computerization: -

All 57 branches of Surat district co-operative bank are fully computerized.

2.7 Growth Table of Surat Dis. Co-operative Bank Ltd.

(Rs. In lacs)

Year

Share

capital &

fundsDeposits Advances Profits Dividends

1997-98 5641.49 70787.16 29301.44 375.00 15%

1998-99 6113.07 86035.83 23666.51 161.76 15%

1999-00 6528.11 91513.49 25889.64 210.09 15%

2000-01 6934.59 99824.76 35388.69 386.38 15%

2001-02 7654.09 110574.59 46008.14 425.54 15%

2002-03 8233.94 113999.72 39434.34 451.39 15%

2003-04 9616.36 120979.51 36868.87 471.15 15%

2004-05 10084.04 111604.22 24592.07 305.00 15%

2005-06 10434.40 129343.18 22346.28 246.00 15%

2006-07 10940.52 120340.60 35005.31 293.00 15%

2007-08 12257.00 151929.97 73007.29 555.00 15%

2008-09 14984.00 174318.79 56689.93 700.00 15%



2.8Auditors:-

The audit of the bank shall be conducted only by the Chartered Accountants from

the Panel approved by NABARD.

The auditor is Parikh Mehta and Association (C.A), Baroda.

2.9 Bankers:-

The Gujarat State Co-operative ltd. (Ahmedabad)

State Bank of India. (Surat & Bardoli)

2.10 Customer Service Available in Surat Dis. Co-operative Bank.

Current Account:

The current accounts with The Surat Dist. Co-op. bank Ltd., promises you a

unique banking experience through innovative features and best services for

businessmen, firms, companies, public enterprises etc. that have numerous daily banking

transact.

Savings Accounts:

A safe and easy way to save your money is with a bank savings account. Interest

will be earned on the money you have on deposit at the bank.

Fixed Deposit:

Bank fixed deposits are one of the most common savings scheme open to an

average investor. Fixed deposits also give a higher rate of interest than a savings bank

account. Monthly interest facility also available in this scheme.

Recurring Deposit:

Recurring Deposit Scheme is meant for investor who wants to deposit a fixed

amount every month. The scheme, a systematic way for long term savings is one of the

best investment options for the low income group.



Bank Enter In Insurance Sector:

Bank is affiliated with AVIVA LIFE INSURANCE COMPANY INDIA PVT.

LTD. for their customers’ life insurance. Bank is also affiliated with UNITED

GENERAL INSURANCE COMPANY for their customer's general insurance

Gold Coin Selling:

Bank has taken distributorship for pure gold coins under the terms of MOU.

Bank is selling gold coins under ICICI bank's pure and international 24 carat gold coins

scheme.

Loans:

The Surat Dist. Co-operative Bank provides different types of loan at less interest

rate. The different type of loans as specified below:

Loans Against Government Securities:

Facility to get loan or overdraft against government securities like National

Saving Certificates (N.S.C.), Kishan Vikas Patra (K.V.P.) Interest rate 8% and 9%

subsequently.

Individual Home consumable Loan:

Loan on purchase of home consumable product like Refrigerator, Washing

Machine, Television etc. 75% to 90% of purchase bill or maximum limit to 1 lakh

rupees. 36 to 60 monthly installments. Interest Rate 9.50%.

Individual Vehicle Loan:

Up to 75% to 90% of purchase bill. Maximum limit of Rs.1 lakh for two wheeler

vehicle purchase Maximum limit of Rs.10 lakh for heavy vehicle like Car, Jeep,

Tempo, Truck, and Trailor. For 3 to 5 years on interest rate 9.50%.

Loan for higher education studies:

Provides education loan for business education like Medical, Engineering etc.

Maximum limit up to 5 lakh for study in country and up to 15 lakh for abroad

study. Interest Rate 9% to 10%.



Individual Housing Loan:

Loan available for employee, merchants and farmers for construction of new

building and flats, Construction on their plots. Maximum installment credit is up

to 10 years. Interest rate is 9% to 10%

Loan against Fixed Deposit:

Facility to get quick loan/ overdraft for accidental requirement on Fixed Deposit

slip for bank fixed depositor.

Business Loan:

Merchants can get cash based on their current product stock.

Interest rate is 9.50% to 11.25%.

Loan for small Scale Industrial (S.S.I.) unit:

Loan for individual/partnership firm, company, textile, engineering, printing press

unit etc. Installment limits up to 5 years.

Interest rate is 10% to 11%.

Technology Up gradation Fund Scheme:

Scheme by Central Government, valid up to 31 March 2007. Businessmen can

get benefits by taking the scheme as follow:

a) 5% interest subsidiary or 15% Credit licked Capital subsidiary OR

b) 20% Credit licked Capital subsidiary (Maximum investment amount Rs.100

Lakh and Maximum subsidiary amount Rs.60 lakh).

This loan is pplicable to Textile S.S.I. and non S.S.I. Unit.



2.11 Procedure of taking loan from banks:-

The procedure associated with a term loan involves the following principle steps.

Process of loan

1. Submission of application

2. Primary assessment

3. Branch head recommendation

4. Final assessment of various level of bank

5. Lending committee

6. Documentation of loan application

7. Disbursement of loan

8. Creation of security

(1) Submission of application

The main & the first step is the submission of the duty filled form or

the loan application it is the choice customer that which types of application he

wants to give depending upon the needs.

(2) Primary assessment

When the application is received, an officer of the recipient

institution reviews it to ascertain whether it is complete for processing. If it

is incomplete the borrower is asked to provide the required additional

information. When the application is considered complete, the recipient

institution prepares of flash report, which is essentially a summarization of

the loan application, to be evaluated at the Senior Executive Meeting (SEM).

Once the SEM, on the basis of its evaluation of the flash report, decides that

the project justifies a detail appraisal, it nominates lead financial institutions.

The factors taken in to account for designating lead institution are: location



of the project, prior experience of institution in handling similar projects,

representation of institutions in the state and promoter group, and existing

work load of the institutions.

(3) Branch head recommendation

The appraisal is moving one step ahead that is to analysis the applicants

eligibility as per the norms provided by the considering his gross income after

detecting his liabilities, his actual repayment capacity is checked as per norms.

(4) Final assessment of various level of bank

After referring the application form and appraisal branch head put his

recommended action whether to accept the application or not & send it the

corporate office.

(5) Lending committee

At the corporate office the final assessment is to be done & decision is

taken to reject the application is forwarded to the particular branch from where

the application has been received. Before it also lending committee decide

whether to give loan or not.

Example

Loan for more than 10 lack Rs all BOD need to agree for that particular

Loan.

Also some of the lending committee is formed by bank in which Directors

are included and they decide whether to give Loan or not.

The branches have the power to take the major decision on the sanctioning of the

loan if it is less than Rs 1 lack.



(6) Documentation of loan application

Once the Loan is Sanction Banks need to check all the document of borrower

as well as guarantor once again and only than and than they can proceed ahead.

(7) Disbursement of loan

If loan is sanction than Bank open the account of borrower in their bank and

issue the check. Before the entire term loan is disbursed the borrowers must fully comply

with all terms and condition of the loan agreement.

(8) Creation of security

The term loans (both rupee and foreign currency) and the differed guarantee

assistance provided by the All-India financial institutions are secured through the first

mortgage, by way of deposit of title deeds of immovable properties and hypothecation of

movable properties. As the creation of mortgage, particularly in the case of land, tends to

be a time consuming process, the institutions permit interim disbursement against

alternate security (institution the form of guarantees provided by the promoters). The

mortgage, however, has to be created within a year from the date of the first

disbursement. Otherwise the borrower has to pay an additional charge of 1 percent

interest



CHAPTER 3 THEORITICAL FRAMEWORK

3.1 Introduction of Project Appraisal

Project appraisal is the assessment of the viability of proposed long-term

investments in terms of shareholder wealth and the formal analysis of all project costs

and benefits which is used to justify the project proposal. Effective project appraisal

offers significant benefits to a firm.

A good appraisal justifies spending money on a project. Project appraisal or

project planning must be viewed as a process of decision-making over time, starting with

project identification, and proceeding through various stages of various feasibility studies

(for example, engineering, financial etc), then the investment phase, and finally project

evaluation. This is the so-called concept of the project cycle.

Getting the design and operation of appraisal systems right is important. The

proper consideration of each of the key components of project appraisal is essential.

These are,

1) Need, targeting and objectives

2) Options

3) Inputs

4) Outputs and outcomes

Key issues in appraising projects include the following.

1) Need, targeting and objectives

The starting point for appraisal: applicants should provide a detailed description

of the project, identifying the local need it aims to meet. Appraisal helps show if the

project is the right response, and highlight what the project is supposed to do and for

whom.



2) Options

Options analysis is concerned with establishing whether there are different ways

of achieving objectives. This is a particularly complex part of project appraisal, and one

where guidance varies. It is vital though to review different ways of meeting local need

and key objectives.

3) Inputs

It’s important to ensure that all the necessary people and resources are in place to

deliver the project. This may mean thinking about funding from various sources and

other inputs, such as volunteer help or premises. Appraisal should include the

examination of appropriately detailed budgets.

4) Outputs and outcomes

Detailed consideration must be given in appraisal to what a project does and

achieves: its outputs and more importantly its longer-term outcomes. Benefits to

neighbourhoods and their residents are reflected in the improved quality of life outcomes

(jobs, better housing, safety, health and so on), and appraisals consider if these are

realistic.

3.2 The Purpose of Appraisal

The immediate need is to ensure that:

A) Only those projects which satisfy the objectives of the Single Programmed are

offered assistance;

B) The project offers value for money and, especially where funds are limited, those

projects offering the best value are chosen and;

C) There is a transparent selection process.



An important aspect of appraisal is obtaining an understanding of the anticipated

expenditure and benefits of a project, usually expressed in terms of its inputs (costs)

and outputs (results). The expected timing of this must also be made clear.

Whilst detailed appraisal is generally necessary before decisions can be taken and

offers made. This will enable any obviously poor or ineligible ones to be eliminated,

avoid duplication and give an early overall view of the success of the measure.

3.3 Benefits to prepare a Project Appraisal

Project appraisal helps a firm to,

Be consistent and objective in choosing projects

Make sure its programme benefits all sections of the community, including those

from ethnic groups who have been left out in the past

Provide documentation to meet financial and audit requirements and to explain

decisions to local people.

Appraisal justifies spending money on a project

Appraisal asks fundamental questions about whether funding is required and

whether a project offers good value for money. It can give confidence that public money

is being put to good use, and help identify other funding to support a project. Getting it

right may help a firm make its resources go further in meeting local need.

Appraisal is an important decision making tool

Appraisal involves the comprehensive analysis of a wide range of data,

judgements and assumptions, all of which need adequate evidence. This helps ensure that

projects selected for funding:

Will help a partnership achieve its objectives for its area



Are deliverable

Involve local people and take proper account of the needs of people from ethnic

minorities and other minority groups.

Are sustainable

Have sensible ways of managing risk.

Appraisal lays the foundations for delivery

Appraisal helps ensure that projects will be properly managed, by ensuring

appropriate financial and monitoring systems are in place, that there are contingency

plans to deal with risks and setting milestones against which progress can be judged.

3.4 Feasibility of The Project

Project Should Be Feasible And This Is Done By Detail Appraisal Of The Project

Into The Following Different Environment.

3.4.1 Market and Demand appraisal

The first step in project analysis is to estimate the potential size of the market for

the product proposal and gets an idea about the market share that is likely to be capture.

Market and demand analysis is concerned with two broad issues:

1) What is the likely aggregate demand for the product/service?

2) What share of the market will the proposed project achieve?

The importance of market and demand analysis, it should be carried out in orderly

and systematic manners. The key steps in such analysis are,

1) Situation analysis and specification of objectives

2) Collection of secondary information



3) Conduct of market survey

4) Characterization of the market

5) Demand forecasting

6) Market planning

3.4.2 Technical Analysis

Technical analysis of a project idea includes designing the various processes,

installing equipment, specifying material and prototype testing. The project manager has

to be careful in finalizing the technical aspects of the project as the decision is

irreversible and the investments involved may be high. The project manager has to select

the technology required in consultation with technical experts and consultants.

Technical analysis is concerned primarily with:

Material inputs and utilities

Manufacturing process/technology

Product mix

Plant capacity

Location and site

Machineries and equipments

Structures and civil works

Project charts and layouts

Work schedule

3.4.3 Financial Analysis

To judge a project from the financial angle, we need information about the

following:

Cost of project

Means of financing



Estimates of sales and production

Cost of production

Working capital requirement and its financing

Estimates of working results

Break-even point

Projected cash flow statements

Projected balance sheets



CHAPTER 4 RESEARCH METHODOLOGY

4.1 Problem statement

This project desires to understand the “PROJECT APPRAISAL SYSTEM” at The Surat

District Co- Operative Bank Ltd.

4.2 Objectives

The main objective of the project training is to study the PROJECT

APPRAISAL SYSTEM IN SUART DISTRICT CO-OPERATIVE BANK

LTD.

To study entire loan system if Surat District Co-operative Bank Ltd.

To study what is the procedure of obtaining loan from the Surat District

Co-operative Bank Ltd.

To know on which basis the Surat District Co-operative Bank Ltd.

Appraised the loan to the business.

4.3 Research design

4.3.1 Collecting Secondary Data:-

Annual report of the Surat District Co-operative Bank ltd.

Case Study

Other necessary theoretical requirement

The information has been collected from the other sources to make a project

report effective and informative. That data are collected from various website and

financial management for making concept very clear.



4.3.2 Studying Secondary Data:-

After collecting secondary data from various sources, the next steps is to study various

data and finding out relevant information and filtering it to further process.

4.3.3 Analysis of Case Studying Computing Following:

Pay back period method

Internal rate of return

Net present value

Profitability index

Debt service coverage ratio

Debt equity ratio

Break even point analysis

Current ratio

Quick ratio

Proprietary ratio

Gross profit ratio

Net profit ratio

Sensitivity Analysis



CHAPTER 5 CASE STUDY

Purpose of loan:

A firm requires loan to purchase the STROKE brand Digital Printing Machine, Model

RUBY and for other expenses i.e. transportation, duty, custom clearance, supporting UPS

(15 kv) and A.C.

5.1 Project profile:

Name of the unit M/S Peacock Digital Prints

Address 3rd floor, Plot no. 714, Road no. 7, G.I.D.C. , Sachin, Surat

Constitution PARTNERSHIP FIRM

Registration Date 27 Sep 2008

Registration no. GUJ/SRT/ (17) 27588

Name and address of the partners

(1) Mayur Vasantbhai Patel (HUF)

Age : 41 years

Address : 47, Alaknanda Soc., Bhd Jogani Nagar, Rander

Road, Surat

(2) Jugalkishor Ramratan Bhutra

Age : 30 years

Address : 702, G.I.D.C., Sachin , Surat

(3) Jimmy D. Singaporia

Age : 33 years



Address : 202 Akash Ganga Co. Op. Soc., Vanki Bordi,

Saiyadpura, Surat

Partners’ share in profit and loss: Equally distribution i.e. 33.33%

Qualification and experience of the partners:

(1) Mayur Vasantbhai Patel : He is Textile Engineer and working as Dyeing and

Printing master with Aastha Dyeing since last 12 years.

(2) Jugalkishor Ramratan Bhutra : He is graduate and presently running many process

houses under the brand name of Aastha at and around Sachin, Surat.

(3) Jimmy D. Singaporia : He is graduate and presently working as Dyeing

Master with Aastha Dyeing and is having experience for 10 years in the same

firm.

Nature of project

M/s. Shreenathji fashion will do job work of sarees through printing machine. The

firm wants to install 1 printing machines worth Rs. 80.50 lacs.

Manpower

The unit will employ with 10 to 12 persons includes skilled and unskilled labour

and it is available easily.

Cost of project and means of finance

The cost of project will be around Rs. 90.60 lacs which include cost of

PRINTING machine and other expenses i.e. transportation, duty, custom clearance,

supporting UPS (15 kv) and A.C. thereof out of which firm wants to take a bank finance

of Rs. 60.38 lacs.

Cost of Machinery

I. Price of the machine 1,11,000 EURO INR 71,00,000



II. Transportation INR 2,00,000

III. Duty under EPCG (3.25%) INR 2,45,000

IV. Custom clearance charges INR 1,50,000

V. A.C. INR 55,000

VI. UPS (15 KV) INR 3,00,000

TOTAL (approx) INR 80,50,000

Means of Finance

Partners’ Capital(25% margin) INR 20,50,000

Bank Term Loan INR 60,00,000

Infrastructural requirements

The unit will have all basic infrastructural facilities in the form of required

electricity power, water, supply and availability of manpower.

Affluent

The unit will not generate any polluting whether air or water.

Name and address of the dealer of the machine

Tex India Enterprise(P) Ltd.

Plot No. 23, Sector-27A, Faridabad, Hariyana.

Any other firm or branch which is presently being run bye the partners:

Neelkanth Chemical, a partnership firm, is a sister concern of Peacock Digital Prints.

Security Offered against the loan:

Primary Hypothecation of machineries imported

Collateral Agricultural Plot of Land at survey No. 96/2114 and 136/2 at

village Segwa Shyedla Moje Olpad admeasuring 10.00 Vingha

having value of about Rs. 100.00 lacs.



Guarantors: (1) Kalpeshbhai B. Patel

Age:33 years

Cast: Hindu

Addres(R ): 59, Jogani Nagar-2, New Rander Road, Adajan, Surat.

Business: Trading of chemicals

Annual Income: 13,65,383 Rs.

(2) Mayurbhai V. Patel

Age:41 years

Cast:Hindu

Address(R): 47, Alaknanda Soc., Bhd Jogani Nagar, Rander Road,

Surat.

Business: Consultant

Address(O): 47, Alaknanda Soc., Bhd Jogani Nagar, Rander Road,

Surat.

Annual Income: 17,88,552



5.2 Cost fr project and means of finance

COST OF PROJECT AND MEANS OF FINANCE

A.COST OF PROJECT Amt Rs. In ‘000

1)Plant and machinery.

- Imported 7695

- Indigenous (as per separate list ) ------

2) Air conditioner & UPS 355

3) Misc. fixed assets ------

4) Preliminary & pre-operative expenses ------

5) Other ------

6) Other contingency ------

7) Margin for working capital. 1010

TOTAL Rs 9060

B. MEANS OF FINANCE.

9) Promoter’s contribution (25% margin) 3022

10) Unsecured loans ------

11) Financial assistance from financial institution

( Medium term loan ) 6038

TOTAL Rs. 9060



5.3 Balance sheet statements:-

5.3.1 Projected Profitability Working For 5 Years

Particular Year (Amount Rs. IN 000)

2008-09 2009-10 2010-11 2011-12 2012-13

1) Efficiency percentages (%) 75 75 80 80 85

2) Net sales 8190 9009 9435 9522 10210

3) Cost of production

I) Cons. Of raw materials 2457 2703 2830 2857 3063

II) Power & fuel 458 479 516 513 545

III) Direct labor & wages 566 622 685 753 828

IV) Consumable stores 322 354 386 403 419

V) Repairs & maintenance 448 460 495 509 547

VI )Other Manufacturing Expenses 655 655 699 699 743

VII) Depreciation 870 870 870 870 870

VIII) Rent Expenses. 36 36 36 36 36

ADD: Opening stock of

Work in process 0 110 121 127 128

LESS: Closing stock of

Work in process 110 121 127 128 137

4) TOTAL COST OF

PRODUCTION

5702 6168 6511 6639 7042


Finished goods 0 0 0 0 0



5) Cost of sales 5702 6168 6511 6639 7042

GROSS PROFIT 2488 2841 2924 2884 3168



6) FINANCIAL CHARGES

I ) on term loans 686 540 388 235 83

II) on working capital & others 0 0 0 0 0

7) ADMINISTRION EXPENSES 321 353 372 379 408

8) SELLING EXPENSES 0 0 0 0 0

9) PRELIMINARY EXPENSES 0 0 0 0 0

10) PROFIT BEFORE

TAXATION

1481 1947 2164 2269 2678

11) PROVISION FOR TAXTS 343 537 649 719 875

12) NET PROFIT 1138 1410 1515 1550 1802

13) LESS: DRAWINGS 240 240 240 240 240

14) RETAINED PROFIT 898 1170 1275 1310 1562

15) ADD DEPRECIATION 870 870 870 870 870

P & P EXPS. 0 0 0 0 0

16) NET YEARLY CASH

GENERATION (CFAT)

1768 2040 2146 2180 2433



5.3.2 Projected Balance Sheets Working For 5 Years

(Rs. In ‘000)

LIABILITIES 2008 2008-09 2009-10 2010-11 2011-12 2012-13

Promoters’ Contribution 3022 3022 3022 3022 3022 3022

Reserves & Surplus

(1)Central Subsidy

(2)Profit &Loss A/C

0

0

0

898

0

2067

0

3343

0

4653

0

6215

NET WORTH 3022 3920 5090 6365 7675 9237

Secured Loans

Term Loan from Bank

(Excluding T/L inst. Due

in 1 year)

6038 3813 2542 1271 0 0

Unsecured Loans 0 0 0 0 0 0

Total 6038 3813 2542 1271 0 0

CURRENT

LIABILITIES

T/L inst. Due in 1 year 0 1271 1271 1271 1271 0

Creditors 0 0 0 0 0 0

Unpaid Expenses 0 124 131 141 146 157

Cash Credit 0 0 0 0 0 0

Total 0 1395 1402 1413 1417 157



TOTAL LIABILITIES 9060 9128 9034 9049 9092 9394

ASSETS

Fixed Assets 8050 7180 6310 5439 4569 3699

New Investments 0 0 500 1500 2500 3500

Total 8050 7180 6810 6939 7069 7199

CURRENT ASSETS

Raw Material- Indigenous 0 236 260 272 275 295

Work in Progress 0 110 121 127 128 137

Finished goods 0 0 0 0 0 0

Debtors 0 788 866 907 916 982

Prepaid Expenses 0 0 0 0 0 0

Cash& Bank Balances 1010 814 977 803 704 781

Total 1010 1948 2224 2109 2023 2195

TOTAL ASSETS 9060 9128 9034 9049 9092 9394

5.3.3 Working Capital Assessment



Year (Amount Rs. In ‘ 000)

Particular 2008-09 2009-10 2010-11 2011-12 2012-13

1. raw material-indigenous 236 260 272 275 295

2. work in progress 110 121 127 128 137

3. finished goods 0 0 0 0 0

4. debtors 788 866 907 916 982

5. expenses 0 0 0 0 0

6. cash & bank balances 814 977 803 704 781

TOTAL 1948 2224 2109 2023 2195

Less:

6. T/L inst. In 1 yr. 1271 1271 1271 1271 0

7. creditors 0 0 0 0 0

8. Unpaid exps. 124 131 141 146 157

9. cash credit 0 0 0 0 0

TOTAL 1395 1402 1413 1417 157

Net working capital 553 822 697 606 2038

5.3.4 Cash flow statement



Particular Year (Amount Rs. In ‘000)

2008 2008-09 2009-10 2010-11 2011-12 2012-13

Sources of Funds

Net Profit before Tax 0 2167 2487 2552 2504 2760

Promoters’ Capital 3022 0 0 0 0 0

Depreciation 0 870 870 870 870 870

Preliminary Expenses

w/off

0 0 0 0 0 0

Term Loan from bank 6038 0 0 0 0 0

Bank Borrowings 0 0 0 0 0 0

Government Cash

Subsidy

0 0 0 0 0 0

Total 9060 3037 3358 3422 3375 3631

Disposition of Funds

Preliminary & Pre-

operate expenses

0 0 0 0 0 0

Fixed assets 8050 0 0 0 0 0

Increase in Current

Assets

0 1010 107 49 7 85

M.T.L. repayments 0 953 1271 1271 1271 1271



Funds for

Investments

0 0 500 1000 1000 1000

Interest on term loan 0 686 540 388 235 83

Taxation 0 343 537 649 719 875

Drawings 0 240 240 240 240 240

Total 8050 3232 3195 3596 3473 3554

Opening Balance 0 1010 814 977 803 704

Surplus/ (Deficit) 1010 -195 163 -174 -98 77

Closing Balance 1010 814 977 803 704 781

5.3.5 Break Even Analysis



Particular Year (Amount Rs. In’ 000)

2008-09 2009-10 2010-11 2011-12 2012-13

SALES REVENUE 8190 9009 9435 9522 10210

VARIABLE COST

Cost of sales 5702 6168 6511 6639 7042

Less : considered fixed

Power & fuel (20%) 92 96 103 103 109

Direct labour & wages 141 156 171 188 207

(25% fixed )

Depreciation 870 870 870 870 870

4599 5047 5367 5478 5856

Contribution 3591 3962 4068 4045 4355

P/V Ratio 1 1 1 1 1

P/V as % of installed

capacity

84 86 78 76 73

FIXED COST



Depreciation 870 870 870 870 870

Power & fuel (20%) 92 96 10 103 109

Direct labour & wages 141 156 171 188 207

(25% fixed)

FINANCIAL CHARGES

On term loans 686 540 388 235 83

On working capital &

others

0 0 0 0 0

Administration expenses 321 353 372 379 408

Selling expenses 0 0 0 0 0

Preliminary expenses 0 0 0 0 0

2111 2015 1904 1775 1677

Break even point 3351 3137 3048 2914 2712

BEP AS % OF SALES 41 35 32 31 27

BEP AS % OF

INSTALLED

CAPACITY

31 26 26 24 23



CHAPTER 6 FINDINGS & ANALYSIS



6.1 CAPITAL BUDGETING

Capital budgeting (or investment appraisal) is the planning process used to

determine a firm's long term investments such as new machinery, replacement

machinery, new plants, new products, and research and development projects.

Capital Budgeting is a project selection exercise performed by the business enterprise.

Capital budgeting uses the concept of present value to select the projects.

Capital Budgeting Tools

Net Present Value

Profitability Index

Payback Period

Internal Rate of Return

Accounting Rate of Return

6.1.1 Net present value (NPV):

NPV is an indicator of how much value an investment or project adds to the value

of the firm.

If It means Then...

NPV > 0 the investment would add the project should be


http://en.wikipedia.org/wiki/Investment


value to the firm accepted

NPV < 0the investment would subtract

value from the firm

the project should be

rejected

NPV = 0the investment would neither

gain nor lose value for the firm

We should be indifferent

in the decision whether

to accept or reject the

project. This project adds

no monetary value.

Decision should be based

on other criteria, e.g.

strategic positioning or

other factors not

explicitly included in the

calculation.

NPV = 90.88 – 90.60

= 0.28 (in, 000)


YEAR CFAT(IN ‘000) PVF@5% CFAT( PVF)

2008-09 17.68 0.952 16.83

2009-10 20.40 0.907 18.50

2010-11 21.46 0.864 18.54

2011-12 21.80 0.823 17.94

2012-13 24.33 0.784 19.07

∑CFAT(PVF) = 90.88 (in,000)


Calculation of PV factor:

Sources Amount

( in ,000)

Cost Of

Capital

Total Cost (Rs. In,000)

Total debt 6038 0.0084 50.72

Equity

capital

3022 0.12 362.64

Total 9060 413.36

Cost of capital = 413.36

9060

= 0.04562

= 5%

Solution:

Cost of debt. (Kd) = It (1-t)

= 12 (1-0.30)

= 8.40

= 8%

It = amt. of interest in period t

t = income tax



Cost of debt (Kd) = 8%

Cost of equity = 12 %

Analysis:

Here NPV is greater than 0 i.e. 0.28 (in, 000), it means investments would add the

value to the firm and project is feasible so it should be accepted.

6.1.2 Profitability index:

Profitability index identifies the relationship of investment to payoff of a

proposed project.

Profitability index is a good tool for ranking projects because it allows you to

clearly identify the amount of value created per unit of investment, thus if you are capital

constrained, you wish to invest in those projects which create value most efficiently first.

The project will qualify for acceptance if the PI exceeds one.

The ratio is calculated as follows:

Profitability Index = Present value of cash in flow

Present value of cash out flow

= 90.88

90.60

= 1.00%

Analysis:

The PI of this project is 1.00 % which is equal to 1. Therefore this project is

feasible and it will create value for the firm so it should be qualify for acceptance.



6.1.3 Pay Back Period:

Payback period in business and economics refers to the period of time required

for the return on an investment to "repay" the sum of the original investment. It measure

that how long something takes to "pay for itself".

YEAR Net cash accruals

(Rs. In ‘000)

Cumulative

( Rs. In ‘000)

2008-09 17.68 17.68

2009-10 20.40 38.08

2010-11 21.46 59.54

2011-12 21.80 81.34

2012-13 24.33 105.67

Net cash accruals 3rd year = 105.67 - 81.34

= 24.33 (in, 000)

Required amt. at the end of the 2012-13 = 90.60 (in, 000)

=90.60 – 81.34

=9.26 (in, 000)

24.33 net cash accruals in 12 months

9.26 net cash accruals in (?)



= 4.56

Pay back period is 4 years and 5 month

Analysis:

PB period of this project is 4 years and 5 month and it consider to be a short

period and short periods are more preferable to long period. Therefore this project is

feasible and should be accepted for appraising loan because the initial cost of the project

is recovered within 3 years and 1 month.

6.1.4 Internal rate of return (IRR)

The internal rate of return is a capital budgeting matrix used by the firm to decide

whether they should make investment or not. A project is good investment proposition if

IRR is greater than the rate of return. In general if IRR is greater than the cost of capital,

the project will add value for the money.

YEAR CFAT

( Rs. In ‘000)

PVF@5% CFAT(PVF)

(Rs In ‘000)



2008-09 17.68 0.952 16.83

2009-10 20.40 0.907 18.50

2010-11 21.46 0.864 18.54

2011-12 21.80 0.823 17.94

2012-13 24.33 0.784 19.07

∑CFAT(PVF) 90.88 ( in ‘000)

IRR = PL + [PVL –PVD] ΔPL

Δ PL

= 5+ [90.88-90.60] * 1

2.57


YEAR CFAT

(Rs. In ‘000)

PVF@6% CFAT(PVF)

(Rs. In ‘000)

2008-09 17.68 0.943 16.67

2009-10 20.40 0.890 18.16

2010-11 21.46 0.840 18.03

2011-12 21.80 0.792 17.27

2012-13 24.33 0.747 18.18

∑CFAT(PVF) 88.31 (in ‘000)


= 5+0.109

= 5.11%

Analysis:

The IRR is usually the rate of return that a project earns. Here IRR i.e. 5.11% is

greater so the project will add good value for the money therefore this project should be

accepted.

6.1.5 Average rate of return (ARR)

Average Rate of return (ARR) or return on investment (ROI), or sometimes just

return, is the ratio of money gained or lost on an investment relative to the amount of

money invested. The amount of money gained or lost may be referred to as interest,

profit/loss, gain/loss, or net income/loss.

ROI does not indicate how long an investment is held. With the help of the ARR,

the financial decision maker can decide whether to accept or reject the investment

proposal. The actual ARR would be compared with a predermined or minimum required

rate of return or cut-off rate.

ARR = Avg. annual profit after tax x 100

Avg. investment over the life of project

= 1483

9060/2


http://en.wikipedia.org/wiki/Profit

http://en.wikipedia.org/wiki/Interest


http://en.wikipedia.org/wiki/Money


= 1483

4530

= 32.74%

Analysis:

A project would qualify to be accepted if the actual ARR is higher than the

minimum desired ARR. Here the actual ARR is higher than the cut off rate that is 8.00%.

So the project should be accepted.

6.2 RATIO ANALYSIS



Ratio analysis is a widely used tool of financial analysis. It can be used to

compare the risk and return relationships of different sizes. It is defined as the systematic

use of ratio to interpret the financial statements so that the strengths and weaknesses of a

firm as well as its historiacal performance and current financial cindition can be

determined.

A ratio is a quantity that denotes the proportional amount or magnitude of one

quantity relative to another. The ratios show the relationship in the more meaningful way

so as to enable us to draw conclusion from than a single figure.

Different types of ratios are,

6.2.1 SOLVENCY RATIO:

6.2.1.1 Current Ratio:

The current ratio is the ratio of the total current liabilities to

total current liabilities. The ideal C.R. is 2:1.It means that C.A is twice than its C.L and

this is generally considered to have good short-term financial strength means the

company may not have problems meeting its short-term obligations.

CR= Current Assets

Current liabilities

Particulars Year (Rs. In ,000)

2008-09 2009-10 2010-11 2011-12 2012-13


http://en.wikipedia.org/wiki/Proportional_(mathematics)

http://en.wikipedia.org/wiki/Quantity


Current Assets 1948 2224 2109 2023 2195

Current liabilities 1395 1402 1413 1417 157

Current ratio 1.40 1.59 1.49 1.43 14.02

2008-09 2009-10 2010-11 2011-12 2012-13

0

2

4

6

8

10

12

14

16

CURRENT RATIO

CURRENT RATIO

Analysis:

Here in all years the CR is decreasing but in 2011-12 it is very high so it shows

good capabilities of a firm in meeting the current obligation. So it suggests that project

should be accepted.

6.2.1.2 Quick Ratio:

Quick Ratio measures the ability of a company to use its quick assets to

immediately extinguish its current liabilities. Quick Ratio of 1:1 is considered

satisfactory. It refers that liquid Assets are equal to C.L. The Ratio less than 1:1 shows

the companies condition to be unsound & the higher ratio shows good financial position.

QR = Current Assets – (stock + prepaid expenses)

Current liabilities – BOD


http://en.wikipedia.org/wiki/Current_liability

http://en.wikipedia.org/w/index.php?title=Quick_asset&action=edit


PARTICULARS Year (Rs. In ,000)

2008-09 2009-10 2010-11 2011-12 2012-13

CA- (stock prepaid +

exp.)

1712 1964 1837 1748 1900

CL - BOD 1395 1402 1413 1417 157

Quick ratio 1.24 1.40 1.30 1.23 12.10

2008-09 2009-10 2010-11 2011-12 2012-130

2

4

6

8

10

12

14

Quick Ratio

Quick Ratio

Analysis:

Here, in all five years, the ratio is higher or nearer to the original standard that is

1:1. So it is found to be satisfactory and it suggests that project should be accepted.

6.2.1.3 Proprietary Ratio:



Proprietary ratio shows the relationship between shareholder’s funds and total

assets. The ideal propritory ratio is 1:3. It means company’s Total Assets should be 3

times more than its Owners Fund.

PROPRITARY RATIO = Shareholders fund

Total Assets


2008-09 2009-10 2010-11 2011-12 2012-13

Shareholders Fund 3920 5090 6365 7675 9237

Total Assets 9128 9034 9049 9092 9394

Proprietary Ratio 0.43 0.56 0.70 0.84 0.98

2008-09 2009-10 2010-11 2011-12 2012-130

0.10.20.30.40.50.60.70.80.9

1

Proprietary Ratio

Propritory Ratio

Analysis:



Here in all three years company's Shareholder Fund is less compare to its total assets. So

it is good for the firm and project should be accepted.

6.2.2 FINANCIAL LEVERAGE RATIO:

6.2.2.1 Debt Equity Ratio

The relationship between borrowed fund and owner’s capital is a popular

measure of the long term financial solvency of a firm. This relationship is shown by the

debt equity ratios. This ratio reflects claims of creditors and shareholders against the

assets of the firms. Alternatively this ratio indicates the relative proportion of debt and

equity in financing the assets of a firm.

Debt Equity Ratio = long term Debt

Share Holders Equity

Particulars Year (Rs. In ‘000)

2008-09 2009-10 2010-11 2011-12 2012-13

DEBT:

Long term debt 3813 2542 1271 0 0

Shareholder’s fund 3920 5090 6365 7675 9237

Debt equity ratio 0.97 0.50 0.20 0 0



2008-09 2009-10 2010-11 2011-12 2012-130

0.10.20.30.40.50.60.70.80.9

1

Debt Equity Ratio

Debt Equity Ratio

Analysis:

Here in all years the ratios are less than 2:1 so this implies high safety margin for

the creditors and the firm would be able to meet the creditors claims. So the project

should be accepted.

6.2.2.2 Debt Services Coverage Ratio:

It is the ratio of debt service profit to debt payments on a piece of

investment real estate. It is a popular benchmark used in the measurement of an income-

producing property’s ability to produce enough revenue to cover its monthly mortgage

payments. The higher the ratio, the better it is. That would mean the property is

generating enough income to pay its debt obligations.

DSCR = Net profit after tax + interest on loan + depreciation

Interest on loan + loan installment



http://en.wikipedia.org/wiki/Mortgage

http://en.wikipedia.org/wiki/Revenue

http://en.wikipedia.org/wiki/Property

http://en.wikipedia.org/wiki/Benchmark

http://en.wikipedia.org/wiki/Real_estate


http://en.wikipedia.org/wiki/Net_operating_income


2008-09 2009-10 2010-11 2011-12 2012-13

DIVISION A

Net Profit after Tax 1138 1410 1515 1550 1802

Depreciation 870 870 870 870 870

Interest on term

loans

686 540 388 235 83

Total(A) 2694 2820 2773 2655 2755

DIVISION B

Interest on term

loans

686 540 388 235 83

Term loan

installments

954 1271 1271 1271 1271

Total(B) 1640 1811 1659 1506 1354

Yearly D.S.C.R.

(Total-A/Total-B)

1.64 1.56 1.67 1.76 2.04



2008-09 2009-10 2010-11 2011-12 2012-130

0.5

1

1.5

2

2.5

Debt Service Covarage Ratio

Debt Service Covarage Ra-tio

Analysis:-

Here in all 5 years the ratios are above the 1 means property will generation

enough income to pay obligations so according to this engal project should be accepted.

6.2.3 PROFITABILITY RATIO

6.2.3.1 Gross Profit Ratio

It is also known as gross margin. It is calculated by dividing gross profit by

sales. Gross profit is the result of the relationship between price, sales volume and costs.

A change in gross margin can be bought about by change in any of these factors. A

higher ratio of gross profit to sales is a sign of good management as it implies that the

cost if production of the firm is relatively low. A relatively low gross profit is definitely a

danger signal.

GROSS PROFIT RATIO = Gross profit * 100

Sales




2008-09 2009-10 2010-11 2011-12 2012-13

Gross Profit 2488 2841 2924 2884 3168

Sales 8190 9009 9435 9522 10210

Gross Profit ratio 30.38% 31.54% 30.99% 30.29% 31.03%

2008-09 2009-10 2010-11 2011-12 2012-1329.60%29.80%30.00%30.20%30.40%30.60%30.80%31.00%31.20%31.40%31.60%

Gross Profit Ratio

Gross Profit Ratio

Analysis:-

Higher gross margins for a manufacturer reflect greater efficiency in turning raw

materials into income. A ratios of 25% to 30% may be consider good. And here in all 5

years the ratios are above than 30% so it reflect greater efficiency of the firm to turn raw

material into income. So at this engal the project should be accepted.

6.2.3.2 Net Profit Ratio

Profit margin is an indicator of a company's pricing policies and its ability to control

costs. Higher the ratio, better is the operational efficiency of the firm.. it gives to measure

overall profitability of the firm.



Net Profit Ratio = Net profit after tax * 100

Net sales

Particulars Year (Rs. In ,000)

2008-09 2009-10 2010-11 2011-12 2012-13

Profit after tax 1138 1410 1515 1550 1802

Net sales 8190 9009 9435 9522 10210

Net profit ratio 13.89% 15.65% 16.06% 16.28% 17.65%

2008-09 2009-10 2010-11 2011-12 2012-130.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

Net Profit Ratio

Net Profit Ratio

Analysis :

Here in all 5 years, ratios are increasing. So this shows the good ability of firm over

control it costs and its profitability so the project should be accepted.



6.2.3.3 Return On Capital Employed Ratio :

This Ratio is used in finance as a measure of the returns that a company is

realising from its capital employed. The ratio can also be seen as representing the

efficiency with which capital is being utilised to generate revenue. The higher the ratio,

more efficient use of the capital employee.

Return on capital employed = Net Profit Before Interest & Tax X 100

Total Capital Employed

Particular Year(Rs. In ‘000)

2008-09 2009-10 2010-11 2011-12 2012-13

N.P.B.I.T 2167x 100 2487x 100 2552 x100 2504 x100 2760 x 100

Total capital

employed

9004 8903 8907 8946 9237

Return on capital

employed ratio

24% 28% 29% 28% 30%


http://en.wikipedia.org/wiki/Revenue

http://en.wikipedia.org/wiki/Capital_(economics)

http://en.wikipedia.org/wiki/Ratio

http://en.wikipedia.org/wiki/Returns_(economics)

http://en.wikipedia.org/wiki/Finance


2008-09 2009-10 2010-11 2011-12 2012-130%

5%

10%

15%

20%

25%

30%

Return on Capital Employed Ratio

Return on Capital Employed Ratio

Analysis:

Here the ratios are increasing in each year so it shows the good efficiency of

capital employee to be used which will generate good revenue. It means projected loan

will generate good revenue for the firm.

6.3 SENSITIVITY ANALYSIS

Sensitive analysis is the popular method for assessing risk. It is done to set up the

relationship between the basic underlying factors (like the quantity sold, unit selling

price, life of the project, etc.) and net present value. It estimates the range of variation &

the most likely value of each of the basic underlying factors.

Sensitive analysis method forces the management to identify the underlying

variables and their interrelationship. It indicates the need for further work. If the net

present value or internal rate of return is highly sensitive to change in some variables, it is

desirable to gather further information about that variable.

We will see sensitivity analysis in five different cases In Projected Profitability

Working Statement.



6.3.1 Selling Price decrease by 10%

Particulars Year (Amount Rs. In ‘000)

2008-9 2009-10 2010-11 2011-12 2012-13

1) Efficiency percentages (%) 75% 75% 80% 80% 85%

2) Net sales 7371 8108 8492 8570 9189



II) Power & fuel 458 479 516 513 545




VI )Other Manufacturing

Expenses

655 655 699 699 743




Work in process 0 110 121 127 128


Work in process 110 121 127 128 137

4) TOTAL COST OF

PRODUCTION

5702 6168 6511 6639 7042





5) Cost of sales 5702 6168 6511 6639 7042

GROSS PROFIT 1669 1940 1981 1931 2147




I ) on term loans 686 540 388 235 83





10) PROFIT BEFORE

TAXATION

662 1047 1221 1317 1656


12) NET PROFIT 463 733 855 922 1159

13) LESS: DRAWINGS 240 240 240 240 240

14) REPAINED PROFIT 223 493 615 682 919


16) NET YEARLY CASH

GENERATION (CFAT)

1093 1363 1485 1552 1789

%Change in CFAT after selling

price decrease by 10%

(38) (33) (31) (29) (26)

Analysis:

Here by decreasing 10% in job work charges, actual CFAT will also decrease by

31% (average of 5 years).

6.3.2 Raw material consumed increase by 10%




2008-9 2009-10 2010-11 2011-12 2012-13


2) Net sales 8190 9009 9435 9522 10210



II) Power & fuel 458 479 516 513 545





Expenses

655 655 699 699 743




Work in process 0 110 121 127 128


Work in process 110 121 127 128 137

4) TOTAL COST OF

PRODUCTION

5948 6438 6794 6925 7348





5) Cost of sales 5948 6438 6794 6925 7348

GROSS PROFIT 2242 2571 2641 2597 2862


I ) on term loans 686 540 388 235 83







10) PROFIT BEFORE

TAXATION

1235 1678 1881 1983 2371


12) NET PROFIT 864 1175 1317 1388 1660

13) LESS: DRAWINGS 240 240 240 240 240

14) REPAINED PROFIT 624 935 1077 1148 1420


16) NET YEARLY CASH

GENERATION (CFAT)

1494 1805 1947 2018 2290



(15.50) (11.52) (9.27) (7.43)

(5.88)

Analysis:

Here by increasing 10% in raw material consumed, actual CFAT will decrease by

9.92% (average).

6.3.3 Power & fuel expenses increase by 10%




2008-9 2009-10 2010-11 2011-12 2012-13


2) Net sales 8190 9009 9435 9522 10210



II) Power & fuel 504 527 568 564 600





Expenses

655 655 699 699 743




Work in process 0 110 121 127 128


Work in process 110 121 127 128 137

4) TOTAL COST OF

PRODUCTION

5748 6216 6563 6690 7097





5) Cost of sales 5748 6216 6563 6690 7097

GROSS PROFIT 2442 2793 2872 2832 3113


I ) on term loans 686 540 388 235 83







10) PROFIT BEFORE

TAXATION

1435 1900 2112 2218 2622

11) PROVISION FOR TAXES 431 570 634 665 789

12) NET PROFIT 1004 1330 1478 1553 1833

13) LESS: DRAWINGS 240 240 240 240 240

14) REPAINED PROFIT 764 1090 1238 1313 1593


16) NET YEARLY CASH

GENERATION (CFAT)

1634 1960 2108 2183 2463



(7.71%) (3.92%) (1.77%) 00%

1.23%

Analysis:

Here by increasing 10% in power & fuel exp., actual CFAT will decrease by

2.43%.

6.3.4 Direct labour & wages increase by 10%


2008-9 2009-10 2010-11 2011-12 2012-13




2) Net sales 8190 9009 9435 9522 10210



II) Power & fuel 458 479 516 513 545





Expenses

655 655 699 699 743




Work in process 0 110 121 127 128


Work in process 110 121 127 128 137

4) TOTAL COST OF

PRODUCTION

5759 6230 6580 6714 7125





5) Cost of sales 5759 6230 6580 6714 7125

GROSS PROFIT 2431 2779 2855 2808 3085


I ) on term loans 686 540 388 235 83







10) PROFIT BEFORE

TAXATION

1424 1886 2095 2194 2594


12) NET PROFIT 997 1320 1466 1536 1816

13) LESS: DRAWINGS 240 240 240 240 240

14) REPAINED PROFIT 757 1080 1226 1296 1576


16) NET YEARLY CASH

GENERATION (CFAT)

1627 1950 2096 2166 2446



(9.98%) (4.41%) (2.33%) (0.64%)

0.53%

Analysis:

Here by increase in labour & wages, actual CFAT will decrease by 3.37%

6.3.5 Combine effect of above all four conditions that are,

Decrease in selling price by 10%

Increase in R.M by 10%

Increase in power & fuel exp. by 10%

Increase in direct labour & wages by 10%




2008-9 2009-10 2010-11 2011-12 2012-13


2) Net sales 7371 8108 8492 8570 9189



II) Power & fuel 504 527 568 564 600





Expenses

655 655 699 699 743




Work in process 0 110 121 127 128


Work in process 110 121 127 128 137

4) TOTAL COST OF

PRODUCTION

6051 6548 6915 7051 7486





5) Cost of sales 6051 6548 6915 7051 7486

GROSS PROFIT 1320 1560 1577 1519 1703




I ) on term loans 686 540 388 235 83





10) PROFIT BEFORE

TAXATION

313 667 817 905 1212


12) NET PROFIT 219 467 572 633 848

13) LESS: DRAWINGS 240 240 240 240 240

14) RETAINED PROFIT (21) 227 332 393 608


16) NET YEARLY CASH

GENERATION (CFAT)

849 1097 1202 1263 1478



(51.98%) (46.23%) (43.99%) (42.06%) (39.25%)

Analysis:

Here by applying all conditions, actual CFAT will decrease by 44.70% (average).

This shows how one variable affect the overall CFAT. If minor changes are done

in the variable, there will be a major effect on the CFAT.

Chapter 7 LIMITATIONS



Data which are shown in project report for five years are just expected figures. So the

result of project appraisal can not consider the 100% correct result then also I have

tried my best to find out complete result.

All financial tools which are applied in this appraisal has their own limitations. So the

result can not consider the final result.

Because of time limitation, I have taken only one case study. I know that this is not

enough to give entire idea about the project appraisal process but I put my enough

efforts to analysis this case study.

Chapter 8 CONCLUSION & SUGGESTIONS

As I studied this case, I came to know how various financial tools practically

apply in real appraisal of the project, and how the final decision is made that is whether

project should be selected or not.

All budgeting tools, ratios and sensitive analysis are been used by me in

appraising the project which give proper idea about whether the loan taken by firm will

use in right way, whether it will increase the profit, whether it will expand the firm’s

capacity.

And by doing the practical study, I will conclude that this project looks feasible, it

will create a good result and fulfill the requirement of the firm so this project should be

selected.

SUGGESTIONS



Bank provide loan on the basis of only re-payment capacity of the borrower and it

considers only DSCR to appraise the loan to the business which is not enough to

check the feasibility of the project and appraising such high amount of loan.

Therefore the bank should also consider various capital techniques like pay back

period, NPV, IRR, PI etc. along with DSCR and debt equity ratio.

As I done in financial analysis, different budgeting tools are also need to be

analysis instead of only some ratios, BEP analysis, because they are also

improtant criterias which may be give good result from the different point of

view.

Chapter 9 BIBLIOGRAPHIES

Name of book

Financial management, text, problem and case, by M Y Khan & P K Jain.

Project planning, analysis, selection, implementation & review by Prasanna Chandra,

addition 4th.

Bank’s other reports

Annual report of the bank

Name of site

www.bankneindia.com

www.sudi cobank .com/aboutus.htm

http://www.sudicobank.com/services.htm

en.wikipedia.org/wiki/ Project appraisal tech

Http://en.wikipedia.org/wiki/NPV/IRR/ARR/PI/PB


http://en.wikipedia.org/wiki/NPV/IRR/ARR/PI/PB

http://www.sudicobank.com/services.htm

http://www.sudicobank.com/aboutus.htm

http://www.bankneindia.com/

Documents

Project Appraisal System