Credit syndication also known as credit procurement and project finance services. The main task involved in credit syndication is to raise to rupee and foreign currency loans with the banks and financial institutions both in India and abroad. It also arranges the bridge finance and the resources for cost escalations or cost Overruns. Broadly, the credit syndications include the following acts; Estimating the total costs. Drawing a financing plan for the total project cost-conforming to the requirements of the promoters and their collaborators. Financial institutions and banks, government agencies and underwriters. Preparing loan application for financial assistance from term lenders/financial institutions/banks and monitoring their progress including the pre-sanction negotiations. Selecting the institutions and banks for participation in financing. Follow-up of the term loan application with the financial institutions and banks and obtaining the satisfaction for their respective share of participation. Arranging bridge finance. Assisting in completion of formalities for drawl Continue reading
Financial Concepts
Incremental Cash Flow Analysis
The most important and also the most difficult part of an investment analysis is to calculate the cash flow associated with the project; the cost of funding the project; the cash inflow during the life of the project; and the terminal, or ending value of the project. Shareholders are interested in how many additional rupees they will receive in future for the rupees they lay out today. Hence, what matters is not the project’s total cash flow per period, but the incremental cash flow for a variety of reasons. They include; Cannibalization: When a new product is introduced it may take away the sales of existing products. Cannibalization also occurs when a firm builds a plant overseas and winds up substituting foreign production for parent company exports. In this case company may lose exports because it is supplying from its overseas production center. To the extent that sales of a Continue reading
Cash Conversion Cycle (CCC)
Cash Conversion Cycle (CCC) measures ongoing liquidity from the firm’s operation is defined as a more comprehensive measure of working capital and as a supplement to current ratio and quick ratio. CCC shows the time lag between expenditure for the purchases of raw materials and the collection of sales of finished goods. CCC is a measure of the efficiency of Working Capital Management as it indicates how quickly the current assets are converting into cash. CCC comprises three components of days inventory outstanding (DIO), days sales outstanding (DSO), and days payables outstanding (DPO); Cash Conversion Cycle (CCC) = Days Inventory Outstanding (DIO) + [Days Sales Outstanding (DSO) -Days Payables Outstanding (DPO)] Days Inventory Outstanding (DIO) is a key figure that measures the average amount of time that a firm holds its inventory. It is calculated by inventory/cost of sales x 365 days. A decrease in the DIO represents an improvement, Continue reading
Key Indicators in Cash Management
Cash management is the process of forecasting, collecting, disbursing, investing, and planning for cash a company needs to operate smoothly. Cash management is a vital task because it is the most important yet least productive asset that a small business owns. A business must have enough cash to meet its obligations or it will be declared bankrupt. Creditors, employees and lenders expect to be paid on time and cash is the required medium of exchange. However, some firm retain an excessive amount of cash to meet any unexpected circumstances that might arise. These dormant cash have an income-earning potential that owners are ignoring and this restricts a firm’s growth and lowers its profitability. Investing cash, even for a short time, can add to company’s earning. Proper cash management permits the owner to adequately meet cash demands of the business, avoid retaining unnecessarily large cash balances and stretch the profit generating Continue reading
What is Seed Capital?
Seed capital means the initial capital used to start a business. Seed capital often comes from the company founders’ personal assets or from friends and family. The amount of money is usually relatively small because the business is still in the idea or conceptual stage. Such a venture is generally at a pre-revenue stage and seed capital is needed for research & development, to cover initial operating expenses until a product or service can start generating revenue, and to attract the attention of venture capitalists. Seed capital is needed to get most businesses off the ground. It is considered a high-risk investment, but one that can reap major rewards if the company becomes a growth enterprise. This type of funding is often obtained in exchange for an equity stake in the enterprise, although with less formal contractual overhead than standard equity financing. Banks and venture capital investors view seed capital Continue reading
Important Considerations in Determining Capital Structure of a Company
The determination of capital structure involves additional considerations in addition to the concerns about EPS, value and cash flow. A firm may have enough debt servicing ability but it may not have assets to offer as collateral. Some of the most important considerations are discussed below: 1. Assets – The form of assets held by a company are important determinants of its capital structure. Tangible fixed assets serve as collateral to debt. In the event of financial distress, the lenders can access these assets and liquidate them to realize funds lent by them. Companies with higher tangible fixed assets will have less expected costs of financial distress and hence, higher debt ratios. Companies have intangible assets in the form of human capital, relations with stakeholders, brands, reputation etc., and their values start eroding as the firm faces financial difficulties and its financial risk increases. 2. Growth Opportunities – The nature Continue reading