Page 63 - DMGT302_FUNDAMENTALS_OF_PROJECT_MANAGEMENT

Fundamentals of Project Management

Notes 5. The margin requirement varies with the type of current asset. While there is no fixed
formula for determining the margin amount, the ranges within which margin requirements
for various current assets lie are as follows:
Current Assets Margin
Raw materials 10-25 per cent
Work-in-process 20-40 per cent
Finished goods 30-50 per cent
Debtors 30-50 per cent

Profitability Projections (or Estimates of Working Results)

Given the estimates of sales revenues and cost of production, the next step is to prepare the
profitability projections or estimates of working results (as they are referred to by term lending
financial institutions in India). The estimates of working results may be prepared along the
following lines:

1. Cost of production
2. Total administrative expenses
3. Total sales expenses
4. Royalty and know-how payable

5. Total cost of production (1 + 2 + 3 + 4)
6. Expected sales
7. Gross profit before interest
8. Total financial expenses

9. Depreciation
10. Operating Profit (7 – 8 – 9)
11. Other income
12. Preliminary expenses written off

13. Profit/loss before taxation (10 + 11 – 12)
14. Provision for taxation
15. Profit after tax (13 – 14)
Less Dividend on

Preference capital
Equity capital
16. Retained profit
17. Net cash accrual (16 + 9 + 12)

1. Cost of Production: This represents the cost of materials, labour, utilities, and factory
overheads as calculated earlier.
2. Total Administrative Expenses: This consists of (i) administrative salaries,
(ii) remuneration to directors, (iii) professional fees, (iv) light, postage, telegrams, and

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