Page 230 - DMGT405_FINANCIAL%20MANAGEMENT

Financial Management

Notes (d) Since projected funds flow statements would form the basis for determining the line
of credit, the banker would be justified in laying down a condition that any material
change, say beyond 10% of the figure projected earlier, would require his prior
approval.
(e) From the quarterly forms the bankers will verify whether the operational results
conform to earlier expectations and whether there is any divergence showing red
signals.
(f) In addition to quarterly data, the large borrower should submit a half yearly pro
forma balance sheet and profit and loss account within two months from the end of
the half-year.
(g) Stock statements will be continued to be submitted but they will be improved. The
basis of valuation in the stock statements and the balance sheet should be uniform.
The stock should be reconciled in the stock statements, showing the opening and
closing stock, quantitywise and valuewise.
(h) Stock inspection poses problems especially in large industries. In such cases, there is
no alternative to depending on financial follow up. Where a banker feels that detailed
stock verification is called for a regular stock audit may have to be arranged with
the assistance of outside consultants.

Table 10.3: Worked out Solution of Different Methods

Current Liabilities Current Assets
Creditors for purchases 100 Raw materials 200
Other current liabilities 50 Stock-in-process 20
150
Bank borrowings, including bills 200 Finished goods 90
discounted with bankers
Receivables, including bills 50
discounted with bankers
Other current assets 10
350 370

Table 10.4: Table Showing Maximum Borrowings Permissible under Different
Methods of Tandon Committee Norms

1st method 2nd Method 3rd Method
Total current assets 370 Total current assets 370 Total current assets 370
Less: current 150 25% of above from 92 Less: Core current 95
liabilities other than long-term sources assets (illustrative
bank borrowings figure) from long
term sources
Working capital 220 278 275
Less: Current 150 Real current assets 69
liabilities other 25% of above from
than bank long term sources
borrowings
Maximum bank 128 206
borrowings
permissible
25% of above from 55 Less: Current 150 Contd...
long term sources liabilities other than
bank borrowings
Maximum bank 165 Maximum bank 56
LOVELY PROFESSIONAL UNIVERSITY
224 borrowings borrowings
permissible permissible
Excess borrowings 35 Excess borrowings 72 Excess borrowings 144
(200 – 165) (200 – 128) (200 – 56)
Current ratio 1.17:1 Current ratio 1.33:1 Current ratio 1.79:1
_370_ _370_ _370_
315 278 206