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Module-3 Financial Analysis

This document provides information on various aspects of financial analysis for a project. It discusses the cost of the project including items like land, buildings, machinery, fees, and pre-operative expenses. It also describes the various means of financing a project through share capital, loans, debentures, and other sources. The document outlines the costs of production including materials, utilities, labor, overheads, and taxes. It provides the format for a cash flow statement and projected balance sheet. It discusses elements of the cash flow stream, principles for estimating cash flows, and perspectives to view a project from such as equity, long term funds, and total resources.

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Arun Kumar
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33 views

Module-3 Financial Analysis

This document provides information on various aspects of financial analysis for a project. It discusses the cost of the project including items like land, buildings, machinery, fees, and pre-operative expenses. It also describes the various means of financing a project through share capital, loans, debentures, and other sources. The document outlines the costs of production including materials, utilities, labor, overheads, and taxes. It provides the format for a cash flow statement and projected balance sheet. It discusses elements of the cash flow stream, principles for estimating cash flows, and perspectives to view a project from such as equity, long term funds, and total resources.

Uploaded by

Arun Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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MODULE-3

FINANCIAL ANALYSIS

COST OF PROJECT:

Cost of project represents the total of all items of outlay associated with a
project which are supported by long-term funds. It is the sum of the
outlays on the following:
*Land and site development
*Building and civil work
*Plant and machinery
*Technical know how and engineering fees
*Expenses on foreign technicians and training of Indian
technicians abroad
*Miscellaneous fixed assets
*preliminary and capital issue expenses
*pre-operative expenses
*margin money for working capital
*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
*Differed credit
*Incentive sources
*Miscellaneous sources.

COST OF PRODUCTION:

*Material cost
* Utilities
*Labour
* Factory overheads
* Maintainance
*Tax

Cash flow statement:


sources of funds
1 share issue
2 profit before taxation with interest added back
3depreciation provision for the year
4 Development rebate reserve
5 Increase in secured medium and long-term borrowings for the
project
6other medium/long term loans
7Increase in unsecured loans and deposits
8 increase in bank borrowings for working capital
9 increase in liabilities for deferred payment
10 sale of fixed assets
11sale of investments
12 other income
Total (A)

Disposition of funds/ Application


1 capital expenditure for the project
2 other normal capital expenditure
3increase in working capital
4 Decrease in secured medium and long term borrowings
5 Decrease in unsecured loans and deposits
6 Decrease in bank borrowings for working capital
7 Decrease in liabilities for deferred payments
8 Increase in investments in other companies
9 interest on term loans
10 interest on bank borrowings for working capital
11 taxation
12 Dividends
13 other expenditure
Total (B)
-operating balance of cash in hand and at bank
-net surplus/deficit (A-B)
-closing balance of cash in hand and at bank.

PROJECTED BALANCE SHEET:


The balance sheet format:
Liabilities
Share capital
Reserves and surplus
Secured loans
unsecured loans

Assets
Fixed assets
Investment
Current assets, loans & adv
Miscellaneous expenditures
& losses.

To prepare the projected balance sheet at the end of year n+1, need
information about the following:
*The balance sheet at the end of year n
*The projected income statement and the distribution of earnings for the
year n+1
*The proposed repayment of debt capital during the year n+1
*The outlays and the disposal of fixed assets during the year n+1
*The changes in the level of current assets during the year n+1
*The changes in other assets and certain outlays like preoperative and
preliminary exp.n+1
*The cash balance at the end of the year n+1

PROJECT CASH FLOW:


*Element of the cash flow stream
*Basic principles of cash flow estimation
*Viewing a project from other perspectives
*How financial Institution and the planning commission
define cash flow.
Element of the cash flow stream:
A project which involves cash outflows followed by cash
inflows- comprises three basic components
i)Initial investment
ii) Operating cash inflows
iii)Terminal cash inflows

Basic principles of cash flow estimation:


The following principle should be followed while
estimating the cash flows of a project:
*Separation principle
*Incremental principle
*post-tax principle
*consistency principle

Viewing a project form other perspectives:


* Equity point of view
* Long term funds point of view
*Explicit cost funds (investor claims) point of view
*Total resources point of view.

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