(This post explains important ratios are to be examined while appraising a term loan project. The articlealso deals with how to compute break even point, how to calculate DSCR (Debt service Coverage ratio) for the period of repayment of the loan, how to arrive fixed asset coverage ratio and important financial indicators. The assessment of…
The assessment Letter of Credit, Bank Guarantee (BG), or Letter of Guarantee (LG) limits are fixed by banks based on the annual consumption of raw materials to be purchased against the Letter of Credit or Letter of Guarantee (Bank Guarantee). Ascertain from the customer the requirement of Consumption of Material (CM) per annum, which is to be…
[This article elucidates methods and techniques used in the analysis of profit and loss statements, the Format of the operative statement, the meaning of gross profit, operating profit and net profit, depreciation, amortization, etc.] The profit and loss (P&L) statements are one of three financial statements that every public company issues quarterly and annually, along…
The interest coverage ratio is a debt and profitability ratio used to determine how easily an entity can pay interest on its outstanding debt. EBIT is used in calculating the interest coverage ratio. Interest coverage ratio= Earnings before Interest and taxes (EBIT) ÷Total interest expenses Whereas EBIT is the operating profit of a company and…
Solvency is defined as the ability of an individual or entity to meet long-term financial commitments. A solvency certificate is a most important document that provides information about the financial stability of an individual or partnership firm or company. A solvency certificate is required for applying for tenders, obtaining contracts, Visa interviews, Legal/court matters like…
Both reserves and provisions refer to the amount retained by an organization to deal with all possible contingencies in the future. In accounting parlance, reserves are appropriations out of profits and provisions are charges against profits. Although the IFRS Standards sometimes call provisions a ‘reserve’, they are not the same thing – a provision is…
[The revised income tax return stipulates taxpayers to furnish details of time limit extended for tax saving investments/ donations made up to June 2020 separately.] The Central Board of Direct Taxes (CBDT) on May 30 notified revised Sahaj (ITR-1), Form ITR-2, Form ITR-3, Form Sugam (ITR-4), Form ITR-5, Form ITR-6, Form ITR-7 and Form ITR-V…
‘Capital Instruments’ means monetary instruments in capital markets such as equity shares, debentures, preference shares and share warrants issued by a company. Indian companies are permitted to raise money by way of capital instruments for their operational purposes. The instruments issued in capital markets are listed below: Equity shares: Equity shares are the shares joint-stock…
The assessment of fund based working capital limit for MSME units requiring fund based working capital limits upto Rs.5.00 crore and for others up to Rs.2.00 crore from the banking system may be on the basis of the Turnover method (Nayak Committee norms). As the earlier instruction regarding Maximum Permissible Bank Finance (MPBF), based on…
Fresh accretion of NPAs during the year or a falling below the current position of standard assets of the bank is a slippage. Let us take an example that the gross NPA of a bank’s last financial year is 12% and in the current financial year it is 15% due to fresh accumulation of bad…