Case -financial Projections Eashwer Engg.

CASE STUDY ON FINANCIAL FORECASTING THE EASWAR ENGG. PRODUCTS TESTING EQUIPMENTS PVT. LTD X, Y & Z all the three qualified and experienced engineers have decided to form a Private limited company to manufacture special testing equipments for testing engineering goods. The operational reliability of engineering products could be evaluated only when tested under simulated conditions of temperature, humidity and vibrations as experienced under actual working conditions.

MARKET According to statistical data, imports of such testing equipments have been to the order of roughly Rs. 50 crores per year. In the next five years, the market demand for the product is expected to grow at the rate of 10% per annum. The product is stated to be presently manufactured by 2 units in the country. It will, therefore, have good scope for the product in local market. due course. Taking into account the market demand the selling price per unit is estimated by the promoters at Rs. 5 lacs.

2. COST OF PROJECT AND MEANS OF FINANCE Cost of Project 1. Land 2. Building 3. Machinery including installation & electrification 4.Other machinery 5. Preliminary expenses 6. Provision for contingencies 7. Margin for working capital

(Rs. in lacs) 0.50 2.50 25.00 2.50 0.25 2.00 6.00

Total 38.75

Means of

finance

1. Share Capital 2. Deposits for 5 years @ 15% interest 3. Term Loan from Bank/SFC Total

14.75 4.00 20.00 38.75

ii) Staff and labour A) Factory Labour Year No. of workers per day

Average rate of wages per worker (Rs)

Total wages (Rs. lacs)

I

14

60.00

2.52

II

16

60.00

2.82

III

20

60.00

3.60

B) Administrative Staff: Estimated Rs. 3 lacs per annum iii) Other Expenses

(Rs.i n lacs) I II III a) Stores 0.75 0.95 b) Consumable spares 0.50 0.50 c) Power & fuel 1.50 1.50 d) Repairs & maintenance 0.25 0.25 e) Rent, taxes etc. 0.50 0.50 f) Postage & stationary 0.50 0.55 g) Advertisement 0.75 0.75 h) Travelling expenses 0 .60 0.60 I) Other expenses 0.40 0.40 Total

5.75

6.00

1.15 0.50 1.80 0.30 0.50 0.60 0.75 0.60 0.40 6.60

4. TECHNICAL ASPECTS I) Raw Materials The raw materials required for the manufacture of the product consist of compressor, indicator bridge, condenser, steel sheets, vacuum pump, thermostatic valve etc. The cost of all such materials work out to Rs. 3 lacs per unit of finished product. The installed capacity of the plant is 30 units per annum. The operating capacity of the plant has been estimated to be 12, 15 and 20 units for the first, second, and third years respectively. From the fourth year onwards, the capacity has been assumed to be 20 units

per annum. The factory will work for 8 hours per day on average and the total number of working days for the year will be 300. Depreciation On building @ 5% per annum On machinery @ 10% per annum To be provided on straight line basis iv) Interest on borrowings: On term loan @ 15% per annum On working capital @ 16% per annum v) Income tax liability has been estimated at 30% of net profit ( after depreciation) vi) Estimation of working capital requirements a) b) c) d)

Raw material and stores Stock-in-process Finished goods Receivables

3/4 months 1 month 1 month 1..5 month

Bank finance will be available up to (a) 75% on raw materials and stores (b) 75% on Stock-in-process (c) 75% on finished goods and (d) 90 % on receivables. The unit has approached the SFC/ Bank for the term and working capital requirements. It is proposed to repay the term loan in 10 half yearly instalments of Rs. 2 lacs each with a moratorium of 6 months Work out for 3 years 1) Working capital requirement limit 2) Profit and loss account statements 3) D. S. C. R.