Off-balance sheet exposures refer to activities that are effectively assets or liabilities of a company but do not appear on the company’s balance sheet. The off-balance sheet exposures in banking activities refers to activities that do not involve loans and deposits but generate fee income to the banks. The non-fund based facilities like Issuance of…
Subordinated debt refers to the debt owed to an unsecured creditor. In the event of the bankruptcy or liquidation of the debtor, the court will prioritize the outstanding loans which the liquidated assets shall repay. Therefore, subordinated debt can only be paid if any assets left after the claims of secured creditors have been met.…
A business usually owns capital assets like Plant and machinery, land and building, equipment etc. The values of these assets are periodically depreciated over their useful life span both for accounting and tax purposes. The revaluation of assets is stark opposite to planned depreciation where the recorded decline in value of these assets tied down…
The debt service coverage ratio (DSCR) is a method to compares a business’s level of cash flow to its multiple debt obligations including proposed term loan installments. Lenders typically calculate DSCR by dividing the business’s annual net operating income by the business’s annual debt payments. DSCR less than 1 suggests a negative cash flow, and…
The Cash flow statement represents the increased or decreased position of cash and cash equivalents in a business. In a way, it is useful in assessing the company’s ability to meet its short-term obligations. Cash equivalent means highly liquid current assets which can be readily converted into cash without any loss in value or time.…
The credit officer of a bank would consider all the information provided by you in the project report while appraising your credit proposal. The office note/recommendation is prepared on the basis of key information available in the report, as well as information collected by the bank from their internal and external investigation sources to support…
A company determines the selling price of its products after calculating of the fixed cost, variable cost involved in productions and sales of the items produced by it. There are three other important workings in the process viz. profit volume ratio, breakeven point and margin of safety. Let us study how the companies examine all…
The operating cycle of a manufacturing unit means the length of time required to convert ‘Non-Cash current assets’, (like raw material (RM), work in process (WIP), finished goods (FG), and receivables) into cash. The appraisal of working capital finance means the assessment of gross working capital, net- working capital and working capital gap for assessment of…
The break- even point is a point of sales of a company wherein total sales covers exactly its total costs. In the other words break even point is the point of zero loss or profit.It means profit is zero at the break- even point of sales. The company earns the profit if the sales grow…
The working capital gap in simple words is the difference between total current assets and total current liabilities other than bank. It can also be defined as Long term sources less long term uses. Working capital gap= Current assets – current liabilities (other than bank borrowings) For example,Currrent if current asset is 100 and current…