CMA

(CREDIT MONITORING ASSESSMENT)

PREPARATION AND ANALYSIS

Presented By: Pranav Gunjan

Divisional Manager & Faculty,
CIBM-Manipal
Learning & Development Vertical
 Learning Outcomes
By the end of the Session, You would be able to
understand:

• What is CMA?
• Why CMA Data is required/Purpose?
• Format & Contents of CMA?
• Documents/Information Required to Prepare a CMA??
• Key aspects for Drafting CMA Data!!
What is CMA?

Past

Present Performance in Financial Terms

Future
 Brief History and Background
A Journey From CAS (Credit Authorisation Scheme) to CMA
(Credit Monitoring Arrangement):

 (CAS) was the key instrument for credit control in India

 Used by RBI

 Concept of CMA Came in 1975 on the basis of recommendation by

the Chore committee and Tandon group in 1974.

 CMA introduced in 1988

 1997- Concept Withdrawn

 Why CMA Data is Required/Purpose?

• A financial blueprint of a company

performance year-on-year
• Financial health
• Procurement and Use of funds &
Planning for the Future
• Eligibility for loan
• Repayment capacity
Format & Contents of CMA

CMA FORMAT
Documents/Information Required to Prepare a CMA
The audited financials of the previous two years.

The provisional financials for the current year.

The latest sanction letter in case of renewal.

The term loan repayment schedule in case there is

any.

The details of proposed enhancements along with the

terms and conditions in case there is any.
 Key aspects for Drafting CMA Data!!!
All assumptions and estimates used in preparation
of CMA should be mentioned separately
Future projections should be realistic and not
merely arithmetic multiples of current performance
Fluctuations in performance should be strongly
justifiable
All fixed assets, depreciation and loan repayment
schedules should be annexed and linked to CMA
Data
 Key aspects for Drafting CMA Data!!!
Past performance and actual numbers should be
exactly as per Audited Financials
The company should be able to justify the
performance and numbers projected
In case of multiple businesses activity or locations,
detailed annexure should be attached showing
breakup of how the projected numbers are arrived at
CMA Data should represent a viable business
performance - over borrowing is unfavourable and
cannot be justified through financial ratios
 3 Questions

A lender need to find answers to 3 questions.

 Whether to lend?
 How much to lend?
 What form to lend?
 The 3 Answers

.Whether to lend
Customer Due Diligence and Project viability.

How much to lend

Assessments

What form to lend

Products / Schemes
 Whether To Sanction or Not?
Parameters:
1. Business Model and Industry
2. Promoter Experience, Knowledge, Net Worth and
Factory set up
3. Good Cash Flows Generations, Positive Turnover Trends
and Good Customer and Suppliers
4. Banking and CIBIL
5. Overall Family Debt
6. Quality Collateral
7. Financial Analysis
8. Policy Compliance
 Answer:
Financial Statements

Principal Ancillary

Balance Sheet Profit & Loss Cash Flow

What is Financial Statement?

Why the Analysis?

 E
n
Dt
ui
at Basic Concepts
ly
• Distinction between owner and owned for accounting purpose
aC
so
pn
ec • Equivalence of assets and liabilities
ce
tp
t • The treatment of assets and liabilities are based on assumption that
Going
c the firm will continue to operate in foreseeable future.
concern
o
concept
n
c
e
p
t

C I B M, Manipal Page 15
 A
Cc
oc
so Basic Concepts
tu
Cn • The assets are recorded at acquired cost
ot
ni
cn • Recognition of revenue or expenditure when the rights or
eg responsibilities associated with the related asset/liability
Accrual become due
p
Concept
tp
e • The fixed period for which accounting transactions are recorded
r
i
o
d

c
o
n
C I B M, Manipal c Page 16
 Answer of The Three Question:
 What is the financial position of the firm at a
given point of time?
 How has the firm performed financially over a
given period of time?
 What have been the sources and uses of cash over
a given period of time?
 Components of Financial Statment
Balance Sheet at the end of the Financial Year

Profit and Loss Account for the Financial Year

Cash Flow Statements for the Financial year

 Balance Sheet
Equity & Liabilities Assets

Shareholders Fund Current Liabilities

Non Current Liabilities Non Current Current
 Balance Sheet
It is the only financial statement that relates to specific
point of time and not a period of time

Shows how the funds are deployed in various assets

owned by the entity and how are they financed.

Shows the tools available in the organisation to remain

profitable in the long run

Can be presented either in Report Format OR Account

Format
 Assets on the Items are Equity =
Facts about
right and Listed in Assets
Balance Liabilities on order of minus
Sheet the left liquidity Liabilities

ASSETS: Outstanding value of Stock/inventory, equipments,

building and money owed to the organization.

LIABILITIES : Balances of Accounts for money owed by the

organization to suppliers, lenders, own employees and service
providers (Unpaid Expenditure).

EQUITY : Net Assets (combination of Shareholders’ fund i.e.

Paid up Capital and undistributed Profit i.e. Reserves).
 ASSETS

INTANGIBLE/
CURRENT FIXED Non-CURRENT
FICTITIOUS
a. Cash & Cash a. Machinery a. Neither Current Non-physical e.g.
Equivqalents nor Fixed
b. Office a. Goodwill
b. Short Term Equip- b. Security Deposit b. Brand Value
Investments ments
c. Investment in c. Patents/Copyrights
c. Accounts c. Vehicles other/ subsidiary
Receivables d. Debit balance of
d. Plant P&L A/c or
& Prepaid Exp. units
e. Land & Accumuated Losses
d. Provision for
Building e. Preliminary Exps
Bad Debts
e. Inventory/Stock
 LIABILITIES

CURRENT LONG TERM EQUITY

a. Creditors or
a. Debts due after 12 a. Capital investment
Accounts Payable
months from B/S date by the promotor/
b. Accrued but unpaid
shareholders
expenses b. Bonds & Debenture
c. Loans tenable for 12 b. Retained Profits
c. Long Term Lease
months
c. Subordinated long
d. Portion of Long d. Pension Obligations
term U\S loans
Term Debt Payable
from promoters/
within 12 months
friends\relatives.
e. Any other dues
including statutory
payable within 12 m
Sources of Funds: Liabilities
Uses of Funds : Assets
Short Term Sources : Current Liabilities, dues that
are payable within 1 year (next Balance Sheet date).
Long Term Sources : Long Term Debt or Liabilities
that are repayable beyond 12 months period.
Equity : Promoters’ OR Shareholders’ Funds.
Short Term Uses : Investment in Current Assets that
can be converted to cash or used to pay Current
Liabilities within 12 months.
Long term Uses : Investment in assets other than
current Assets ..
Fixed Assets/Block: The real physical assets deployed

in business to conduct or facilitate operation that will

exist for longer number of years.
Sundry Creditors/Trade Creditors/Receivables : Short
Term obligations owed to the firm by its clients/buyers
for goods or services arising out of credit sales.
 Inventory/Stock : Materials purchased for selling; may
consist of Raw Material, Work-in-Process and Finished
Goods.
Depreciation : Value of Fixed Assets usually decline
over time. Hence to present realistic value of assets,
proportionate value, depending upon estimated life of
 CONTINGENT LIABILITIES

1. Pending law suit.

2. Claims against organisation not acknowledged as debt.

3. Guarantee given by the organisation on behalf of oth-

ers.
4. Taxes and Duties under dispute with the Government.
1. How much it owns? : The ASSETS
2. How much it owes? : The LIABILITIES
3. What is owners’ stake? : The EQUITY
Objectives of Balance Sheet study :
Creditors & Short Term Lenders : Liquidity i.e. Firm’s
ability to meet its short term obligations.
Term Lenders/Investors : Solvency i.e. Ability of an
organization to sustain its activity in the long run.
To derive an answer to the above, we need to compare:
a. various numbers on the BS in a rational manner
(Ratios);

b. performance of an unit with the previous years under

different parameters to see its growth; and

c. performance of the unit with similar other units to

reveal how efficiently the organization is being
managed.
LIABILITIES BALANCE SHEET ASSETS

FIXED ASSETS

NET WORTH INVESTMENTS &

NON CURRENT ASSETS

LONG TERM DEBT INTANGIBLE ASSETS

CURRENT LIABILITIES CURRENT ASSETS

 LIABILITIES BALANCE SHEET ASSETS
CAPITAL – AUTHORISED FIXED ASSETS – GROSS BLOCK
- ISSUED LESS : DEPRECIATION
- SUBSCRIBED NET BLOCK
- PAID UP CAPITAL WORK IN PROGRESS
SHARE PREMIUM ADVANCES TO SUPPLIERS FOR CAPITAL GOODS
RESERVES - GENERAL RESERVES
- CAPITAL RESERVES INVESTMENT – IN SUBSIDIARY Cos
- REVALUATION RESERVE - OTHERS
NON CONSUMABLE INVENTORIES
PROFIT AND LOSS ACCOUNT OTHER NON CURRENT ASSETS
GOVT. SUBSIDY / SEED CAPITAL DEFERRED RECEIVABLES – MATURITY MORE THAN 1 YR

DEFERRED TAX LIABILITY INTANGIBLE ASSETS - GOODWILL

PREFERENCE SHARES (RED. AFTER 1 YEAR) - PATENTS
DEBENTURES - COPY RIGHTS
TERM LOAN FROM BANKS / FIs - TRADE MARKS
LONG TERM FIXED DEPOSITS (PAYABLE AFTER 1 YR) - PRELIMINARY EXPENSES
UNSECURED LOANS P & L ACCOUNT DEBIT BALANCE
DEFERRED TAX ASETS

SHORT TERM BORROWINGS INVENTORY - RAW MATERIALS

From Banks – OCC / ODBD / BILLS / OTHERS - WORK IN PROGRESS
From Others - FINISHED GOODS
BILLS PAYABLE - STORES & SPARES
SUNDRY CREDITORS SUNDRY DEBTORS
ADVANCES RECEIVED FROM CUSTOMERS DEFERRED RECEIVABLES
EXPENSES PAYABLE LOANS AND ADVANCES
STATUTORY LIABILITIES PAYABLE CASH AND BANK BALANCE
INSTALMENT ON TERM LOAN PREPAID EXPENSES
OTHER CURRENT LIABILITIES
 Constituents of Current Assets

 Inventories
 Trade Debtors
 Loans and Advances
 Cash & Bank Balances
Two Important Characteristics of
Current Assets???
Constituents of Current Liabilities

 Sundry Creditors
 Trade Advance
 Borrowings (Short Term)
 Provisions
Difference Between Operating Cycle &
Cash Cycle??
Gross Working Capital Vs Net Working
Capital
 Illustration on Balance Sheet
Particulars Amount (In'000)

Cash and Cash equvalents 60

Long Term Loans & Advances 50 From the Financial

Fixed Assets 500 information of Horizon Ltd as
Non Current Investment 50 at March31,2024 Find the
10,000 Shares Per Value Rs.10. following details:
Trade Receivables 140 1.Shareholders Fund
Long Term Borrowing 200
2.Non Current Liability
Deferred tax Liabilities (Net)
Reserve and Surplus
50
400 3.Current Liability
Short Term Borrowing 40 4.Non Current Assets
Trade Payable 120
5. Current Assets
Long Term Provisions 50
Short Term Provisions 10
Short Term Loans and advances 20
And Finally draw a balance
Current Investments
Inventories
20
160 sheet.
Other Current Liabilities 30
 Solution: (Amount in’000)
Equity & Laibilities Assets
Shareholders Fund: 500 Non Current Assets 600
Share Cpital(10000*10) 100
Fixed Assets 500
Reserve & Surplus 400
Non Current Liabilities: 300 Non Current Investment 50
Long Term Borrowing 200 Long Term Loans & Advances 50
Deferred tax Liabilities (Net) 50 Current Assets 400
Long Term Provisions 50 Current Investments 20
Current Liabilities 200 Inventories 160
Short Term Borrowing 40
Trade Receivables 140
Trade Payable 120
Other Current Liabilities 30 Cash and Cash equvalents 60
Short Term Provisions 10 Short Term Loans and advances 20
Total: 1000 Total 1000
 Profit and Loss Statement
Summary of the Operating and Financial Transactions

Contribution towards the change in the owner’s equity

during the accounting period.

Realisation Principal (Related with Revenue)

Matching Principal (Related with Expenses)

 Format as per Companies Act’2013
Revenue From Operation A
Other Income B Revenue from Operation=Sales of Product & Service-
Total Revenue (A+B) C Excise Duty + Other Operating Income
Expenses
Material Expenses D Other Income: Interest Income, Dividend Income, Other
Employee Benefit Expenses E Non Operating Income
Finance Cost F
depreciation and Amortisation Expenses G Material Expns: Cost of Materials Consumed +Purchase of
Other Expenses H Stock In Trade – (+) Increase (decrease) in Inventories of
Total Expenses (D+E+F+G+H) I FG, WIP, Stock in trade
Profit before Exceptional and
Extraordinary items and Taxes (C-I) J Employee Benefit Expenses: Salaries & Wages, PF
Exceptional Items K Contribution, ESOP Expns, Staff Welfare Expenses
Profit before Extraordinary items and
Taxes (J-K) L Finance Cost: Interest Expenses, Other Borrowing Cost,
Applicable Net Gain/Loss on Foreign Currency
Extraordinary Items M
Transactions
Profit Before Tax (L-M) N
Tax Expenses O
Depreciation & Amortisation Expenses???
Profit (Loss) for the period (N-O) P
Dividend Q
Earning Per Equity Share
 Format as per Companies Act’2013
Revenue From Operation A
Other Income B Exceptional Items: Infrequent but not Unusual, Separate
Total Revenue (A+B) C Disclosure is Required. Examples??
Expenses
Material Expenses D Extraordinary items: Infrequent and Unusual
Employee Benefit Expenses E Examples??
Finance Cost F
depreciation and Amortisation Expenses G Tax Expenses: Current & Deferred??
Other Expenses H
Total Expenses (D+E+F+G+H) I
Profit before Exceptional and
Extraordinary items and Taxes (C-I) J EPS??
Exceptional Items K
Profit before Extraordinary items and
Taxes (J-K) L
Extraordinary Items M
Profit Before Tax (L-M) N
Tax Expenses O
Profit (Loss) for the period (N-O) P
Dividend Q
Earning Per Equity Share
OPERATING STATEMENT (PROFIT AND LOSS ACCOUNT FOR THE YEAR )
GROSS SALES - DOMESTIC SALES ……… GROSS PROFIT (A) – (B)
- EXPORT SALES …… (NET SALES – COST OF SALES)
TOTAL GROSS SALES …………
……
LESS EXCISE DUTY LESS: S G & A EXPENSES
NET SALES (A)
OPERATING PROFIT BEFORE INTEREST
% AGE RISE OR FALL IN NET SALES AS COM- LESS: INTEREST
PARED TO PREVIOUS YEAR OPERATING PROFIT AFTER INTEREST

ADD: OTHER NON OPERATING INCOME

COST OF SALES LESS: OTHER NON OPERATING EXPENSES

RM CONSUMES - IMPORTED PROFIT BEFORE TAXES / LOSS

- DOMESTIC
STORES AND SPARES - IMPORTED PROVISIONS FOR TAXES
- DOMESTIC
POWER AND FUEL NET PROFIT / LOSS
DIRECT LABOUR
OTHER MFG. EXPENSES LESS: DIVIDEND
DEPRECIATION
SUB-TOTAL RETAINED PROFITS
ADD : OPENING STOCK IN PROCESS
LESS: CLOSING STOCK IN PROCESS LESS: TRD. TO RESERVES
COST OF PRODUCTION
ADD: OPENING STOCK OF FINISHED GOODS PROFIT TRD TO P & L ACCOUNT
LESS: CLOSING STOCK OF FINISHED GOODS
COST OF SALES (B)
 Illustration on P&L Statement
Particulars 2023 (Rs'000)
From the Financial information of
Horizon Ltd as at March31,2023 Find the
Employee Benefit Expenses 200 following details:
Depreciation and Amortisation Expenses 50 1.Total Revenue
2. Total Expenses
Finance Cost 30 3. Profit After Tax
Other Expenses 240 4. EPS

Material Expenses 600 And Finally draw a Profit & Loss

Tax Expenses 50 Account.

Revenue From Operation 1290

Other Income 10
Dividend 80
 RATIO ANALYSIS:
Purpose and use:
Ratios present a profile of firm, its economic characteristics,
competitive approach, and its unique operative, financial, and
investment characteristics.
It is an expression of linear direct relationship between two
indicators.
Expressed as an integer or as percentage.
For arriving at a meaningful conclusion, compare the figures of a
firm (or of different firms) over a period of time and enable to take
proper decision.
 BROAD CLASSIFICATION OF RATIOS

PROFITABLITY
RATIOS

BS
 BROAD CLASSIFICATION OF RATIOS

PROFITABLITY
RATIOS

CURRENT DEBT EQUITY GROSS RETURN

RATIO RATIO PROFIT ON EQ-
OPERATING UITY
GEARING RATIO PROFIT
QUICK RATIO TOTAL
NET DEBT/
DSCR
PROFIT PBDIT
NET WORKING FIXED ASSETS MARGIN
CAPITAL RETURN ON OTHERS
COVERAGE RA-
TIO CAPITAL
BS
EMPLOYED
 LIQUIDITY RATIOS
Current Ratio: (1.33:1)
The current ratio offers an approximate measure of a
company's ability to pay its current maturing obligations
on time. Generally, the higher the current ratio, the
greater the cushion a company has to work within meeting
its current obligations.
Measures only total rupee’s worth of CA and CL and not quality.
Assets are subject decline in value whereas Liabilities are NOT. Due
to this anomaly, we need to monitor quality of assets on a constant
basis.
• CR = Current Assets/Current Liabilities = Positive
 RATIO ANALYSIS Contd. …
 Quick Ratio:
 It measures capacity of the firm to pay off current liabilities of
urgent nature from its quickly realizable current assets.
 Quick Ratio=Quick Assets/CL
(Quick Assets include Cash/Bank, Receivables upto 6 months, Quickly
realizable Securities and Bank FDs)
 Net Working Capital: (Positive)
 It discloses contribution of the promoter in current assets of the
firm. Should never be less than the margin stipulated in the
sanction. It is also worked as surplus of long term sources over
long term uses.
• NWC = Current Assets – Current Liabilities
 LEVERAGE RATIOS
Leverage or Solvency Ratio:
• Leverage is a measure of degree of risk shouldered by the firm
versus its financers. Used to adjudge long term solvency.
• The assets are financed by TNW of the firm and financers.
Higher the proportion of borrowed funds greater is the degree of
risk to the financers.
• It measures the balance between its total debt (borrowed fund)
and the equity (owned fund) used to capitalize the business.
• Highly leveraged business is less equipped to deal with the
business cycle fluctuations and are, therefore, more prone to
failure.
 LEVERAGE RATIOS Contd. …
 DER (Long Term Debt/TNW) (2:1)
• Measures long term solvency position
• Represents stake of promoters vis-à-vis lenders
• Lenders to take into account the risk perception while financing.
• Lower the ratio, higher the degree of protection enjoyed by the lenders.
 Gearing Ratio (TOL:TNW) (3:1)
 Measures long term solvency position.
 Measures stake of financiers in the business vis-à-vis of the owners. As
the liabilities grow in comparison to equity, so does the risk to financers
 To be studied for a period of 3 - 5 years
 Declining ratio indicates reduction of the concern’s dependence on
outside borrowings, a positive sign.
 LEVERAGE RATIOS Contd. …
 Debt Service Coverage Ratio [1.5/1)
 Used for judging the repayment capacity and fixing repayment
schedule for the term loans sanctioned by banks and Fis.
 Generally a higher ratio of 2 and above indicates adequacy of cash ac-
cruals of the entity in meeting repayment of long-term debt of the
firm, provided profitability and non-cash expenses remain the same or
increase.
 DSCR= (PAT+Depreciation+Int on TL)/(Int on TL+ Installment of TL)
 FIXED ASSETS COVERAGE RATIO (Positive with required margin)
 Denotes to what extent do fixed assets provide protection for long
term creditors.
Net Fixed Assets (After providing Depreciation)
 FACR = --------------------------------------------------------------------

LONG TERM DEBT SECURED BY FIXED ASSETS

 EFFICIENCY OR ACTIVITY RATIO
Efficiency Ratio:
(Turnover Ratio / Asset Management Ratio):
This measures how efficiently the assets are employed
by a firm. These ratios are based on the relationship
between the level of activity represented by sales, etc.
and the levels of various assets.
However it can be more realistically adjudged when
these factors are compared with those of other units of
similar sizes and similar nature i.e. competitors.
 INVENTORY TURNOVER RATIO
COST OF GOODS SOLD
INVENTORY TURNOVER RATIO = ------------------------------
AVERAGE INVENTORY
- Holding Levels :
- Total Inventory = (Inventory / COGS) * 12 or 365
- RM Holding level = (RM / RM Consumed) * 12 or 365
- WIP Holding level = (WIP / COP) * 12 or 365
- FG Holding level = (FG / COS) * 12 or 365
- Shows how rapidly the inventory is turning into receivables
through sales.
- High inventory turnover indicates good inventory management.
- Low inventory turnover indicates excess holding of inventory,
slow and non moving of inventory.
BACK
 DEBTORS TURNOVER RATIO

NET SALES
Debtors Turnover Ratio = ----------------
DEBTORS

 Higher the value of debtor turnover, the more efficient

is the management of sales on credit basis.

 DEBTORS HOLDING LEVEL = (Average Debtors / Net

Sales) x 12 or 365

BACK
 CREDITORS TURNOVER

TOTAL PURCHASES
CREDITORS TURNOVER RATIO = -----------------------
CREDITORS

CREDITORS HOLDING LEVEL = (Average Creditors / Purchases) x 12

or 365

BACK
 PROFITABILITY RATIO
 PROFITABILITY RATIOS indicates profit earning ability
of the unit out of main business compared to various
activities and similar units in the industry.

GROSS PROFIT
GROSS PROFIT RATIO = -------------------
NET SALES

- Indicating efficiency and competence of the

manufacturing unit.

BACK
 OPERATING PROFIT RATIO
 Indicates profit earning capacity of the firm out of its
main activity.
OPERATING PROFIT
O P Ratio = --------------------------
NET SALES

- Indicates efficiency of the main activity of the

concern.

BACK
 NET PROFIT RATIO

NET PROFIT AFTER TAX

= -------------------------------
NET SALES

NPBT & NPAT

- Determining the efficiency of the concern as a

whole.

BACK
 PBDITA

This ratio indicates how much income is

generated by the firm on per unit of sales
without incidence of Depreciation, Interest
and Tax burden, so as to take appropriate
decision.
Net Profit + Depreciation+ Interest+ Tax
PBDITA = -------------------------------------------------------------------------
NET SALES
 RETURN ON EQUITY
This ratio is generally used by investors in
the equity as well as lenders to know how
profitable is the venture in terms of funds
deployed by the promoters/ shareholders and
retained in the business.
PROFIT AFTER TAX
ROE = ----------------------- X 100
TNW

BACK
 RETRUN ON INVESTMENT (ROCE)
This is the basic profitability ratio that suggests as to
how much the unit is earning on its capital employed.

OPERATING PROFIT (BEFORE INTEREST)

ROCE = -------------------------------------------------
CAPITAL EMPLOYED

CAPITAL EMPLOYED = SHARE CAPITAL + RESERVES AND

SURPLUS + LONG TERM BORROWINGS

- NON BUSINESS ASSETS

BACK
– FICTITIOUS ASSETS
 RATIO ANALYSIS:
OTHER IMPORTANT RATIOS:
1)Bank Borrowing to Net Sales = BB/Net Sales*100
2)Return on Equity = Profit after Tax/Equity (TNW)*100
3)PBDIT/Net Sales
4)PBDIT/Interest Expenses
5)FACR = Fixed Assets/Total Debts (Term Liability)
6)Inventory Turnover Ratio= Cost of goods Sold
Average Inventory
7) Receivable T/0 Ratio = Sales/Ave. a/cs. Receivables
8) Total Assets T/O Ratio = Sales/Average Total assets

*********
 Case Study - Balance sheet
Current Assets = 180

CR = 1.25

Calculate NWC
CA / CL = 1.25
A – 30 180 / CL = 1.25
B – 42 CL = 180 / 1.25 =
144
C – 36
NWC = CA - CL
D- 25 = 180 - 144
= 36
E – 50
 Case Study - Balance sheet
Current Assets = 180

NWC = 45

Calculate CR
CA – CL = 45
Options 180 – CL = 45
CL = 180-45 = 135
A – 1.25
CR = CA/CL
B – 1.33 = 180/135
= 1.33
C – 1.20

D- 1.50

E – 1.24
 Case Study - Balance sheet
Net Block = 130

Non Current Asset = 20

Total Assets = FA+NCA+CA =
Current Asset = 150 130+20+150 = 300
Hence, Total Liabilities should
Equity = 100 be 300
Equity+R&S +TL+CL = 300
100+20+60+CL = 300
Reserves & Surplus = 20 CL = 300 – 180 = 120
NWC = CA-CL = 150-120 = 30
Term Liabilities = 60 CR = 150/120 = 1.25

Calculate NWC and CR

 Case Study Balance sheet
Net Block = 120 Calculate DER, DER = LT DEBT /
Non Current Asset = 30 TOL:TNW, FACR TNW
60/120 = 1:2
Raw Material = 40 Liabilities Assets FACR = FA / LT
Work In Process = 20 Equity 100 FA 120 = 120/60 = 2
TOL = 180
R&S 20 NCA 30
Finished Goods = 50 TOL/TNW = 180/120 =
TNW 120 RM 40 1.5
Debtors = 30 TL 60 WIP 20
Cash & Bank = 10 NCL 10 FG 50

Equity = 100
CL 110 DEBTORS 30 CR =
CASH & BANK 10 1.36
Reserves & Surplus = 20 NWC =
CURRENT 150
Current Liabilities = 110 ASSETS 40
TOTAL 300 TOTAL 300
NCL = 10 LIABILITIES ASSETS
 Case Study Balance sheet Inventory holding
level = Inventory/
Net Block = 120 Calculate holding Sales *12 =
levels if Sales is 300 (110/300)*12 = 4.4
Non Current Asset = 30 Purchase 120 m
Debtors levels =
Raw Material = 40 S/C = 40, OCL 10
Debtor / Sales *
Liabilities Assets 12
Work In Process = 20Equity 100 FA 120 = (30/300)*12 = 1.2
R&S 20 NCA 30 m
Finished Goods = 50 Creditors level =
TNW 120 RM 40
TL 60 WIP 20 SC/Purchase *12
Debtors = 30
NCL 10 FG 50 = (40/120 )*12 = 4
Cash & Bank = 10 Creditors 40 DEBTORS 30 m
CR =
Other CL 10 CASH & BANK 10 (for holding levels
1.36
Equity = 100 BB 60 CURRENT 150 in days, 365 to be
NWC =
ASSETS factored in place of
40
Reserves & Surplus =TOTAL
20 300 TOTAL 300 12)
LIABILITIES ASSETS
Current Liabilities = 110
 RATIO ANALYSIS: DSCR
Calculation
You have purchased a Machinery worth 1Cr with
the help of Bank Finance on 25% Margin for a
tenure of five years. ROI is 10%.Net profit earned
during the Year is 25 Lakhs. Depreciation
charged is at 10% PA .
You Need to Calculate the DSCR???
 PROFIT VS CASH FLOW
Current Expenditure Vs Capital Expenditure

Accrual Principal & Matching Principal

Example:
In year 1, firm A produces goods that cost Rs.1,50,000, In period 2 it
sells the goods for Rs.2,00,000 on Credit, in Period 3 it collects
receivavle

Net Cash Flow: PAT- Non Cash Revenues + Non Cash Expenses
 CASH FLOW
Sources Of Cash Uses of Cash

Increase in Liabilities and Decrease in Liabilities and

Owners’ equity Owners’ equity

Decrease in Assets (Other Increase in Assets (Other

than Cash) than Cash)
 2023 2022
Equity & Laibilitie s (Amt in Rs.000)
Shareholders Fund: 500 450
Share Cpi tal (10000*10) 100 100
Re se rve & Surplus 400 350
Non Curre nt Liabilities: 300 270
Long Te rm Borrowing 200 180
De fe rre d tax Li abiliti e s (Ne t) 50 45
Long Te rm Provisions 50 45
Current Liabilitie s 200 180
Short Te rm Borrowi ng 40 30
Trade Payable 120 110
Othe r Curre nt Liabil iti e s 30 30
Short Te rm Provisions 10 10
Total: 1000 900
Asse ts (Amt in Rs.000)
Non Curre nt Asse ts 600 550
Fi x e d Asse ts 500 450
Non Curre nt Inve stme nt 50 40
Long Te rm Loans & Advance s 50 60
Current Asse ts 400 350
Curre nt Inve stme nts 20 20
Inve ntori e s 160 140
Trade Re ce i vable s 140 120
Cash and Cash e quvale nts 60 50
Short Te rm Loans and advance s 20 20
Total 1000 900
 Cash Flow:
Amount Rs Amount Rs
Sources ('000) Uses ('000)
Increase in Fixed
Increase in Reserve & Surplus 50 Assets 50
Increase in Non
Increse in Long Term Borrowing 20 Current Investment 10

Increase in Deferred Tax Liability 5 Increase in Inventories 20

Increase in Trade
Increase in Long Term Provision 5 Receivables 20

Increase in Short Term Borrowing 10

Increase in Trade Payable 10
Decrease in Long Term Loans&
Advances 10
Total Soures 110 Total Uses 100

Net Addition to Cash 10

 Cash Flow:
2023 2022 Amount Rs Amount Rs
Particulars (Rs'000) (Rs.000 Sources ('000) Uses ('000)
Net Profit 130 Divident Payment 80
Employee Benefit Expenses 200 180 Purchase of Fixed
Depreciation and Amortisation Depreciation and Amortisation 50 Assets 100
Expenses 50 45 Increse in Long Term Borrowing 20
Finance Cost 30 25 Increase in Non
Increase in Deferred Tax Liability 5 Current Investment 10
Other Expenses 240 210
Material Expenses 600 560
Increase in Long Term Provision 5 Increase in Inventories 20
Tax Expenses 50 40
Increase in Trade
Revenue From Operation 1290 1172
Increase in Short Term Borrowing 10 Receivables 20
Other Income 10 8 Increase in Trade Payable 10
Dividend 80 Decrease in Long Term Loans&
P&L Cash Flow Advances 10
Sttmnt Total Soures 240 Total Uses 230
Net Addition to Cash 10
 CASH FLOW STATEMENT
 Profit and Loss Account of a firm may show robust
topline and bottom line, it is the Cash Flow
Statement that reveals liquidity so necessary for
survival and growth of an organization.

 A statement of changes in the financial position on

Cash Basis
 COMPONENTS OF CASH FLOW
Cash Inflows Cash Outflows Cash flows
Operating From From From
Operation Operation Operation

Cash Inflows Cash Outflows Cash flows

From Investing From Investing From Investing
Investing Activities Activities Activities

Cash flows
Cash Inflows Cash Outflows
From Financing
Financing From Financing From Financing
Activities
Activities Activities

Net Cash Flow

For the Period
 CASH FLOW STATEMENT
A. Cash Flow From Operating Activities Rs('000)
Profi t Before Tax 180
Adjustment for:
Depreciati on & Amorti sati on 50
Finance Cost 30
Interest income* -10
Operati ng Profi t Before Working Capital
Charges 250
Adjustments for Changes in Working
Capital
Trade Receivables & Short Term Loans &
Advances -20
Inventories -20
Trade Payable, Short term, Provisions &
Other Current Liabiliti es 10
Cash Generated From Operati on 220
Direct Taxes Paid -50
Net Cash From Operating Activities 170
 CASH FLOW STATEMENT
B.Cash Flow From Investing Activities
Purchase of Fixed Asse ts -100
Incre ase of Non Current Investments -10

Reducti on In long-Term, loans & Advance s 10

Inte rest income 10
Net Cash From Investing Activities -90
C. Cash Flow from Financing Activities
Incre ase in Long term Borrowings 20
Incre ase in Short Te rm Borrowings 10
Incre ase in Deferred Tax Liabiliti e s 5
Incre ase in long Term Provisions 5
Divide nd Paid -80
Finance Cost -30
Net Cash From Financing Activities -70
Net Cash Generated (A+B+C) 10
Cash & Cash Eqivalent at the beginning of
Period 50

Cash & Cash Eqivalent at the end of Period 60

 FUND FLOW STATEMENT

MEANING OF FUND The term “Fund” is

commonly used with cash. Fund refers to the
economic values expressed in terms of money
listed in the balance sheet. It is also called net
working capital.
 Concept of Flow of Funds
The concept of flow of funds is also called as
“fund flow”. The term flow means change and
therefore the term ‘flow of fund’ means change in
funds or change in working capital. simply, flow of
funds means any increase or decrease in working
capital. If the transaction results in the increase of
funds it is called as a ‘source of funds’. If the
results in the decrease of funds it is known as an
‘application of funds’.
 Concept of Flow of Funds
Combination of One Current Account and One
Non Current Account transactions

Example: Cash payment for purchase of building.

:Issue of shares for machinery.
:collection of cash from debtors or
payment of cash to creditors.
Difference between Cash Flow & Fund Flow
Difference between Cash Flow & Fund Flow
 Steps Involved in preparation of Fund
Flow Statement
 Preparation of Schedule of changes in working
capital.
 Preparation of non – current account ( Ledger
Accounts)
 Preparation of Funds From Operation (or)
Adjusted Profit and Loss Account.
 Preparation of Funds Flow Statement.
Sum3:
Thank you